<PAGE> 1
As filed with the Securities and Exchange Commission on October 29, 1998
Registration No. 333-_________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
Under the Securities Act of 1933
------------
REYNARD MOTORSPORT, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
Delaware 3711 52-2121044
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
8431 Georgetown Road, Suite 700
Indianapolis, Indiana 46268
(317) 824-5600
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Alex Hawkridge
Chief Executive Officer
8431 Georgetown Road, Suite 700
Indianapolis, Indiana 46268
(317) 824-5600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------
Copies to:
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<S> <C>
Jack A. Bjerke Bruce S. Mendelsohn
Amy M. Shepherd Paul A. Belvin
Kegler, Brown, Hill & Ritter Co., L.P.A. Akin, Gump, Strauss, Hauer & Feld, L.L.P.
65 East State Street 1333 New Hampshire Avenue, N.W.
18th Floor Washington, D.C. 20036
Columbus, OH 43215 (202) 887-4000
(614) 462-5400 Facsimile (202) 887-4288
Facsimile (614) 462-5419
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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 delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------
Title of each class of securities Proposed maximum aggregate Amount of registration fee
to be registered offering price (1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per share:
Shares issued in public
Offering.......................... $57,500,000 $15,985
==============================================================================================================
</TABLE>
(1) Estimated, pursuant to Rule 457(a) and (f), solely for the purpose of
calculating the registration fee.
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED WITHOUT
NOTICE. REYNARD MOTORSPORT, INC. MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND REYNARD
MOTORSPORT, INC. IS NOT SOLICITING OFFERS TO BUY THESE SECURITIES TO ANYONE
WHERE THE OFFER OR SALE OF THESE SECURITIES IS NOT PERMITTED.
PROSPECTUS (Not Complete)
Issued October 29, 1998
___________ Shares
[Logo]
REYNARD MOTORSPORT, INC.
COMMON STOCK
_________
Reynard Motorsport, Inc. ("Reynard") is offering shares of common
stock. This is Reynard's initial public offering, and no public market currently
exists for Reynard's shares. Reynard anticipates that the initial public
offering price for its shares will be between $____ and $____ per share. After
the offering, the market price for Reynard's shares may be outside of this
range.
_________
Reynard will apply to list the common stock on the New York Stock
Exchange under the symbol "___."
_________
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE ____.
_________
PRICE $____ PER SHARE
_________
DISCOUNTS AND OFFERING
PUBLIC COMMISSIONS TO PROCEEDS TO
OFFERING PRICE UNDERWRITERS COMPANY
-------------- ------------ -------
PER SHARE $ $ $
TOTAL $ $ $
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The Selling Stockholders have granted the underwriters the right to
purchase up to an additional ___ shares of common stock to cover any
over-allotments. The underwriters can exercise this right at any time within
thirty days after the offering. NationsBanc Montgomery Securities LLC expects to
deliver the shares of common stock to investors on _________, 1999.
_________
NationsBanc Montgomery Securities LLC
Wheat First Union
_____________, 1998 Josephthal & Co. Inc.
<PAGE> 3
[PHOTOS]
References in this prospectus to racing cars that are designed,
engineered and manufactured by Reynard are to complete racing cars, excluding
tires, engines, transmissions and shock absorbers. Fiscal year references are to
the fiscal year ended September 30. Certain information in this prospectus has
been translated into U.S. dollar amounts from pound sterling amounts. Unless
otherwise indicated, the translations of pound sterling amounts into U.S. dollar
amounts have been made at (pound)_____ = $_____, which is the noon buying rate
in the City of New York for cable transfers in pounds sterling for customs
purposes by the Federal Reserve Bank of New York on _____________, 1998.
References in this prospectus to the "Company" or to "Reynard" mean
Reynard Motorsport, Inc. and its subsidiaries and affiliates and their
predecessors.
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. This summary is not complete. It may not contain all of the
information that you should consider before investing in the common stock. You
should read the entire prospectus carefully.
Unless otherwise stated, all of the information contained in this
prospectus assumes that the underwriters have not exercised their over-allotment
option to purchase up to _____ shares of common stock. The information in this
prospectus has been adjusted to reflect a ____-for-____ stock split of the
common stock effected on ____________, 1999.
REYNARD MOTORSPORT
Reynard is one of the world's leading designers and manufacturers of
production racing cars and other high performance specialty vehicles. Since the
Company's inception 25 years ago, our goal has been to dominate every race and
win each championship in every series we enter. Cars that we have designed and
produced have a long history of winning races and setting records in many of the
world's most competitive racing series. Our history of winning is reflected by
our operating performance, with sales growing at a compound annual growth rate
of 51.9% from 1994 to 1997. During 1998, our racing cars were used by some of
the world's best drivers, including Alex Zanardi, Jimmy Vasser, Greg Moore, Gil
DeFerran, Dario Franchitti, Mark Blundell, Adrian Fernandez and Bobby Rahal. A
majority of the current drivers in the Formula One World Championship ("Formula
One"), the most prestigious international racing series, have competed in one of
our racing cars during their career, including World Champions Jacques
Villeneuve, Michael Schumacher and Damon Hill.
We design, manufacture and sell racing cars for competition in (1) the
CART Series, the premier open-wheel motorsports series in North America, (2)
Formula Nippon, the Formula 3000 open-wheel racing series in Japan (the "Formula
Nippon Series"), and (3) the Barber Dodge Pro Series, an open-wheel one make
development series in the United States (the "Barber Dodge Series"). We also
design and engineer touring and sports racing cars in conjunction with
automobile manufacturers, such as Ford, Chrysler, Panoz Automotive Development
Company ("Panoz") and Dodge, for competition in international championships.
British American Racing ("BAR") will make its debut in Formula One in 1999. BAR
is a joint venture in which we are partners with British American Tobacco and
Mount Eagle, Inc.
We operate integrated design, production and testing facilities in
Oxfordshire, England, often referred to as the Motorsport Valley. We also
operate a North American headquarters and testing facility in Indianapolis,
Indiana. We employ over 230 people, of which over 85% are highly skilled and
well educated designers, engineers and other specialized technicians. Our
employees utilize the most advanced technology in the design and engineering of
racing cars, with a focus on maximizing aerodynamic efficiency, while continuing
to develop improved safety features.
OUR KEY COMPETITIVE STRENGTHS
HISTORY OF WINNING. Since the beginning of fiscal 1994, our racing cars
have won a total of 81 races, including six championships in the CART Series,
Formula 3000 competition and the Formula Nippon Series. Since winning our first
race in the CART Series with driver Michael Andretti in 1994, our racing cars
have achieved a total of 54 pole positions (fastest qualifying times) and 49
wins. We also have won the Constructor's Award for the CART Series each year
from 1995 through 1998. As a result of our winning track record, we supplied 22
of the 28 full-season entries in the 1998 CART Series. We have received orders
through October 20, 1998 to supply 37 racing cars for the 1999 CART Series and
orders for 13 racing cars for the 1999 Formula Nippon Series.
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LEADER IN THE DEVELOPMENT AND APPLICATION OF MOTORSPORTS TECHNOLOGY. We
employ a scientific, rather than the traditional trial and error approach, in
the design, engineering and manufacture of racing cars. We use simultaneous
engineering, which includes computer-aided engineering, design and manufacturing
systems. With these systems, we can develop and manufacture a racing car, from
initial design to final assembly, in a period of a few months. We analyze the
aerodynamic effects on a racing car in simulated race settings by (1) developing
and applying computational fluid dynamics ("CFD"), (2) applying finite element
analysis, and (3) testing at our wind tunnel facilities. We use the results of
these tests to engineer our racing cars. We believe that our participation at
the highest level of motorsports, such as the CART Series and Formula One,
enhances our ability to effectively develop and apply highly advanced technology
to the design, development and production of racing cars for junior formulae.
STRATEGIC RELATIONSHIP WITH BRITISH AMERICAN RACING IN FORMULA ONE. BAR
will field a two-car team in the 1999 Formula One World Championship. The 1997
Formula One World Champion driver, Jacques Villeneuve, will drive one of the
racing cars that will be designed and engineered by BAR. Dr. Reynard is the
Technical Director of BAR. Malcolm Oastler, who serves as our Technical
Director, is the Chief Designer of BAR. We believe that British American Tobacco
selected Reynard to be one of their joint venture partners in BAR as a result of
our reputation and expertise. British American Tobacco has entered into a
long-term sponsorship agreement to fund what we believe to be one of the most
significant sponsorship budgets in Formula One. As a result of the joint
venture, we have access to certain of BAR's technological know how (not in
written or machine readable form). We believe that this access to research and
development ideas will enhance our other motorsports projects by improving our
knowledge database and methodology.
HIGHLY EXPERIENCED MANAGEMENT AND OPERATING TEAM. We attribute much of
our success to our management team. Our senior management team is composed of
former racing car drivers, managers, race team members and motorsports
enthusiasts who are highly experienced and well known within the motorsports
sector. The members of our senior management team have an aggregate of over 75
years of service with the Company.
We also have developed a corporate culture that provides exceptional
training to young designers and engineers. By personally interviewing and
recruiting each applicant, Dr. Reynard and the other members of the senior
management team attempt to identify those skilled engineering students who they
believe will excel in our unique culture and environment. We believe that this
recruiting process and corporate culture has enabled us to attract, retain and
develop a team of highly skilled designers, engineers and technical staff. Upon
completion of the offering, officers and employees of the Company will
beneficially own approximately ___% of the outstanding common stock.
COMMITMENT TO CUSTOMER SERVICE. We believe that service is an integral
component of sales. We demonstrate our commitment to service by assigning a
liaison engineer to each Reynard racing car in the CART Series. We also have a
Reynard engineer present at each CART event to monitor the Reynard racing cars.
This allows us to respond quickly to customer questions and concerns and to
receive valuable information for the continued development of our racing cars
and equipment.
VERTICALLY INTEGRATED OPERATIONS. We have the ability to design,
engineer and manufacture the majority of the components of a racing car. Through
our vertically integrated operations, we are able to:
o maintain higher quality control standards in the production of all
components of the racing car;
o improve operating margins by lowering costs; and
o control the timing of production and delivery of our products.
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With the pending acquisition of Gemini Transmissions Limited
("Gemini"), which manufactures gearbox and transmission systems, we will be able
to manufacture substantially all of the parts necessary to deliver a rolling
chassis to the customer.
OUR GROWTH STRATEGY
CAPITALIZE ON GROWTH OPPORTUNITIES WITHIN EXISTING RACE SERIES. We
intend to increase our presence in the race series in which we are currently
involved. We believe we will grow our business in existing series through:
o Capitalizing on the continued expansion of the CART Series and
other existing series. We believe we will continue to grow as
these series grow through (1) increases in popularity, (2)
expansion of the number of races and competitors, (3) increases in
development budgets, and (4) expansion internationally. With such
expansion, we can increase sales to existing customers who will
require additional high margin equipment, spare parts and
services. In addition, we intend to construct a composite
manufacturing and repair facility in Indianapolis, Indiana. This
facility will support parts sales and repair work that currently
is performed in-house by individual CART teams.
o Introduction of a newly designed racing car for the 1999 Formula
Nippon Series. We believe the new design will result in increased
sales of racing cars and spare parts in this series.
o Expansion of our presence in the touring and sports car racing
programs. Major automobile manufacturers increasingly view success
in these programs as an effective way to market their products and
increase their prestige. We are planning the production of a world
sports car to be designed and manufactured in conjunction with a
major automobile manufacturer. We are currently engaged in
discussions with two major international automobile manufacturers
regarding this project.
ENTER NEW RACE SERIES AND CONTRACTS WITH NEW CUSTOMERS. We intend to
selectively enter additional motorsports markets through the sale of racing cars
and equipment and through the sale of technological support. We continuously
evaluate existing opportunities to design and produce racing cars or provide
other support services for a number of race series including: (1) the Indy
Racing League ("IRL"), (2) Formula 3000, (3) Indy Lights, and (4) Toyota
Atlantic. In addition, we will provide certain contract manufacturing services
and show cars to BAR in its early stages, on a commercial basis, for the
upcoming Formula One racing season. Show cars are replicas of actual racing cars
that are used by sponsors to promote their association with motorsports.
INTRODUCE NEW HIGHER MARGIN SERVICES. We believe that a significant
portion of our future growth will be in the form of expanded sales of higher
margin services to our motorsports customers. These services include
computational fluid dynamics analysis, wind tunnel testing and seven post
suspension rig testing. Through the application of these services, our customers
are able to simulate and evaluate the effects of subtle changes in the
engineering and set up of individual cars moving at high speeds and can apply
the results of such tests to maximize their performance.
We have designed and built a state-of-the-art 50% scale model, moving
ground open jet wind tunnel in Indianapolis, Indiana. We sell time in the wind
tunnel to CART racing teams and others on a fee-per-usage basis. In 1999, we
will construct a seven post suspension rig testing facility in Indianapolis. We
will sell time on the suspension rig to CART racing teams and others on a
fee-per-usage basis.
LEVERAGE MOTORSPORTS TECHNOLOGY. We intend to selectively expand our
high margin non-motorsports operations by applying the technological and
engineering resources we have developed in the motorsports sector to
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other industries. We believe that our highly skilled designers and engineers can
apply our advanced technology in all areas where wind resistance, weight, fuel
conservation and/or safety concerns are factors. For example, based on our
design and engineering capabilities, Virgin Airlines selected Reynard to design
and develop a light-weight, strong, fully-reclining business class aircraft
seat. The aircraft seat is currently in the production phase.
To further support efforts outside of motorsports, we plan to open a
computer-aided design office in Detroit, Michigan. This office will target
design and engineering projects within the automotive industry, and leverage the
relationships we have developed through motorsports with the major automobile
manufacturers such as Ford and Chrysler. Although our primary focus will remain
in the motorsports industry, we intend to capitalize on opportunities outside
the motorsports sector when they arise.
SELECTIVE ACQUISITIONS. We believe a number of opportunities exist to
make selective strategic acquisitions within the motorsports industry. We will
generally seek to acquire companies that:
o complement and expand our current operations
o have an experienced management team
o have an industry leading reputation
o have strong customer and supplier relationships
Our acquisition of Gemini meets these objectives by further integrating
our current operations and providing state-of-the-art equipment in a highly
specialized business. We believe that the relationships Gemini has developed
with Audi, BMW, Mercedes and Volkswagen, as well as many other industry
customers, will add strategic value to our future growth. We will continue to
evaluate methods to further enhance our vertical integration.
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THE OFFERING
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COMMON STOCK OFFERED (a).................................. _______ shares
SHARES TO BE OUTSTANDING AFTER THE OFFERING (B)........... _______ shares
VOTING RIGHTS............................................. Holders of common stock will have one vote per
share.
DIVIDEND POLICY........................................... We do not plan to pay cash dividends in the near
term.
USE OF PROCEEDS........................................... We estimate that we will receive net proceeds from
the offering of approximately $_____ million.
From the proceeds, we expect to:
o Use approximately $12.4 million to
acquire Gemini;
o Use approximately $10.4 million to repay
a loan to Reynard from Dr. Reynard;
o Use $____ million to fund future growth and
for working capital purposes. These purposes
include purchasing additional computer equipment
and constructing new facilities.
RISK FACTORS.............................................. For a discussion of certain risks you should
consider before investing in the common stock, see
"Risk Factors."
PROPOSED NEW YORK STOCK EXCHANGE SYMBOL................... ________
</TABLE>
(a) Excludes ____ shares issuable upon exercise of the over-allotment option
granted to the underwriters by the Selling Stockholders. The over-allotment
option is described in "Underwriting."
(b) Excludes ____ shares reserved for issuance under our stock option plans. See
"Management - Stock Option Plans."
REORGANIZATION
Reynard Motorsport, Inc., a Delaware company, was formed in September
1998 to become the parent company of Reynard Motorsport Limited, a U.K. company.
We expect that in early November 1998, all of the current shareholders of
Reynard Motorsport Limited and its U.K. operating subsidiaries will exchange
their current equity interests for shares of common stock of Reynard Motorsport,
Inc. (the "Reorganization"). Our primary operating subsidiaries were Reynard
Composites, Reynard Special Vehicle Projects, Reynard Racing Cars, Reynard
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Racing Designs and Reynard North America, Inc. For purposes of this
prospectus, we have assumed that the Reorganization has occurred.
RECENT DEVELOPMENTS
On October 26, 1998, we entered into an agreement to acquire Princetown
Holdings Limited, the sole owner of Gemini, for an aggregate of $14.64 million,
including $12.4 million payable in cash and the assumption of certain finance
lease obligations (the "Gemini Acquisition"). Gemini manufactures and assembles
gearboxes, gearbox components, suspension components and machined items for
various automobile companies and motorsports teams. Gemini utilizes
state-of-the-art equipment with advanced precision capabilities that are not
generally available to its competitors in the U.K. This acquisition will further
integrate our current operations in the production of racing cars. We expect the
Gemini Acquisition will close concurrently with the completion of our initial
public offering. A portion of the proceeds from the offering will be used to pay
the purchase price for Gemini. See "Use of Proceeds" and "Business - Production"
for a discussion of the terms of the Gemini Acquisition and for a discussion of
Gemini's business.
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SUMMARY COMBINED FINANCIAL DATA
The following summary combined financial data as of and for the years
ended September 30, 1993, 1994, 1995, 1996 and 1997 and the nine months ended
June 30, 1997 and 1998 are derived from the Company's Combined Financial
Statements. The unaudited pro forma financial information gives effect to (1)
the Gemini Acquisition, (2) the Reorganization, and (3) the offering, as if each
of these events had occurred on October 1, 1996 and 1997. The summary combined
financial data below should be read in conjunction with "Selected Combined
Financial Data," the Company's Combined Financial Statements and related notes
thereto, the Unaudited Pro Forma Condensed Consolidated Financial Information
and related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL PRO
FORMA
1993 1994 1995 1996 1997 1997
(in thousands, except per share amounts)
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REVENUES:
Products......................... $ 8,371 $ 12,079 $ 18,952 $ 22,406 $ 39,039 $ 42,196
Services......................... 1,254 2,147 2,701 6,493 10,803 10,803
Other revenue.................... -- -- -- -- -- 19
------- -------- -------- -------- -------- --------
Total Revenues.............. 9,625 14,226 21,653 28,899 49,842 53,018
------- -------- -------- -------- -------- --------
COST OF GOODS SOLD:
Products......................... 5,661 10,375 8,814 9,928 19,502 20,928
Services......................... 446 817 1,232 3,750 5,951 5,951
------- -------- -------- -------- -------- --------
Total cost of goods sold.... 6,107 11,192 10,046 13,678 25,453 26,879
------- -------- -------- -------- -------- --------
GROSS PROFIT 3,518 3,034 11,607 15,221 24,389 26,139
GENERAL AND ADMINISTRATIVE EXPENSES... 3,421 2,276 11,285 13,766 21,462 17,205
------- -------- -------- -------- -------- --------
INCOME FROM OPERATIONS 97 758 322 1,455 2,927 8,934
Share of loss in equity
investment...................... -- -- -- -- -- --
Minority interest in loss of
Subsidiary...................... -- -- -- -- -- --
Interest income.................. 31 10 165 166 171 171
Interest expense................. (64) (41) (20) -- -- (144)
------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 64 727 467 1,621 3,098 8,961
INCOME TAX EXPENSE 18 175 114 563 1,105 3,053
------- -------- -------- -------- -------- --------
NET INCOME (LOSS) $ 46 $ 552 $ 353 $ 1,058 $ 1,993 $ 5,908
======= ======== ======== ======== ======== ========
EARNINGS (LOSS) PER SHARE --
Basic and diluted $ .02 $ .19 $ .12 $ .36 $ .68 [ ]
======= ======== ======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING -
BASIC AND DILUTED 2,944 2,944 2,944 2,944 2,944
======= ======== ======== ======== ======== ========
OTHER DATA:
Gross margin...................... 36.6% 21.3% 53.6% 52.7% 48.9% 49.3%
Operating margin.................. 1.0% 5.3% 1.5% 5.0% 5.9% 16.9%
Depreciation and amortization..... $ 206 $ 251 $ 408 $ 535 $ 898 $ 2,394
Capital and tooling expenditures.. $ 473 $ 874 $ 650 $ 1,963 $ 3,494 $ 4,004
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL PRO
FORMA
1997 1998 1998
<S> <C> <C> <C>
REVENUES:
Products.......................... $ 34,098 $ 40,881 $ 43,075
Services.......................... 8,349 9,882 9,882
Other revenue..................... -- -- 47
-------- -------- --------
Total Revenues............... 42,447 50,763 53,004
-------- -------- --------
COST OF GOODS SOLD:
Products.......................... 16,878 21,713 22,603
Services.......................... 3,344 3,944 3,944
-------- -------- --------
Total cost of goods sold..... 20,222 25,657 26,547
-------- -------- --------
GROSS PROFIT 22,225 25,106 26,457
GENERAL AND ADMINISTRATIVE EXPENSES.... 15,821 20,122 15,336
-------- -------- --------
INCOME FROM OPERATIONS 6,404 4,984 11,121
Share of loss in equity
investment....................... -- (5,310) (5,310)
Minority interest in loss of
Subsidiary....................... -- 106 106
Interest income................... 144 21 21
Interest expense.................. -- (670) (240)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 6,548 (869) 5,698
INCOME TAX EXPENSE 2,066 1,634 3,517
-------- -------- --------
NET INCOME (LOSS) $ 4,482 $ (2,503) $ 2,181
======== ======== ========
EARNINGS (LOSS) PER SHARE --
Basic and diluted $ 1.52 $ (.85)
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING -
BASIC AND DILUTED 2.944 2.944
======== ======== ========
OTHER DATA:
Gross margin...................... 52.4% 49.5% 49.9%
Operating margin.................. 15.1% 9.8% 21.0%
Depreciation and amortization..... $ 687 $ 1,003 $ 2,130
Capital and tooling expenditures.. $ 1,067 $ 4,313 $ 4,453
</TABLE>
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<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL PRO
FORMA
1993 1994 1995 1996 1997 1997
(in thousands, except per share amounts)
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Number of cars produced............. 53 38 36 38 67 67
Number of racing wins............... 19 11 15 16 16 16
BALANCE SHEET DATA:
Working capital (deficit)........... $ (347) $ (416) $ (625) $ (595) $ (4,793) $[ ]
Total assets 3,695 5,433 13,149 11,891 18,409 [ ]
Long-term debt (less current
portion).......................... -- -- -- -- -- [ ]
Total stockholders' equity
(deficit)......................... 521 930 1,285 2,296 741 [ ]
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL PRO
FORMA
1997 1998 1998
<S> <C> <C> <C>
Number of cars produced............. 59 76 76
Number of racing wins............... 8 5 5
BALANCE SHEET DATA:
Working capital (deficit)........... $ (396) $ (7,955) $[ ]
Total assets........................ 13,653 26,972 [ ]
Long-term debt (less current
portion).......................... -- -- [ ]
Total stockholders' equity
(deficit)......................... 3,207 (1,151) [ ]
</TABLE>
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RISK FACTORS
You should carefully consider the following factors and other
information in this prospectus before deciding to invest in shares of common
stock.
CONTRACTION OF MOTORSPORTS INDUSTRY APPEAL
Substantially all of our current business relates to the auto racing
industry. Auto racing events compete for television viewership, attendance and
sponsorship funding with other racing events sanctioned by various racing bodies
and with other sports, entertainment and recreational events, such as soccer,
football, basketball and baseball. The competition in the sports and
entertainment industry in the United States and throughout the world is intense.
The motorsports industry generates significant recurring revenue from the
promotion, sponsorship and advertising of various companies and their products.
If racing teams in the series in which we compete are not able to secure
sponsorship, promotion and advertising revenues, then it could adversely affect
our financial and business results.
The revenue generated from such sponsorship, promotion and advertising
substantially depends upon the level of advertising expenditures by sponsors or
prospective sponsors. The level of advertising expenditures by sponsors depends
in part on (1) the financial condition of such companies, (2) the availability
and cost of alternative promotional outlets and (3) the sponsors' perception of
the benefits of using motorsports and the specific series, events or race teams
as an advertising medium. The advertising and promotional value to sponsors is
significantly impacted by television viewership of, and spectator attendance at,
motorsports events. If there is a contraction in the appeal of motorsports, in
terms of television viewership, attendance and overall popularity, then the
various race series would be adversely affected. If the various race series are
adversely affected, then our financial and business results could be adversely
affected.
The motorsports industry is affected by economic cycles and
entertainment industry conditions. Declines in general economic conditions or
uncertainties regarding future economic prospects have generally affected
consumer spending habits. A decline in consumer spending could have a material
adverse effect on the auto racing industry in general. This could lead to
decreased sales for us, which would adversely affect our financial and business
results.
SUBSTANTIAL COMPETITION
We design, develop and manufacture racing cars and technologically
advanced equipment. This industry is highly competitive, and requires continuous
attention to aerodynamic, technological and safety advances to remain
competitive. We compete primarily with other manufacturers of racing cars. A
purchaser of our racing cars is primarily concerned with performance results and
price. If we fail to continue development of our equipment, then our racing cars
may have less satisfactory performance results. This would directly impact
interest by and sales to particular race teams and series. In addition, if we
increase costs of equipment and spare parts, then we may lose purchasers of our
equipment. Such price increases may also make our products uncompetitive when
attempting to sell to competitors in the CART Series or to negotiate contracts
for a one make series such as the Barber Dodge Series.
MOTORSPORTS INDUSTRY SPONSORSHIPS - TOBACCO AND ALCOHOL
United States. A number of the significant sponsors of race teams in
the various motorsports events in which our racing cars compete are in the
tobacco and alcohol beverages industries. Advertising by the tobacco and
alcoholic beverage industries has been under greater threat of federal
governmental regulation than advertising by other sponsors of motorsports
events, series and teams.
11
<PAGE> 13
In August 1996, the U.S. Food and Drug Administration (the "FDA")
issued regulations concerning advertising and sale of cigarettes and smokeless
tobacco to minors. These regulations, if adopted, would restrict tobacco
industry sponsorship of all sporting events, including motorsports. The FDA
regulations would prohibit the present practice of tobacco product brand name
sponsorship of, or identification with, motorsports events, entries and teams.
These regulations, however, have not become effective. In August 1998, the U.S.
Court of Appeals for the Fourth Circuit ruled that the FDA did not have the
jurisdiction to regulate tobacco products. Therefore, the FDA could not enforce
its regulations restricting tobacco advertising. At the present time, the FDA
has not appealed the Court of Appeals decision.
In addition, there was a recent federal legislative initiative to
restrict advertising by the tobacco industry. In June 1997, the major United
States companies engaged in the manufacture of cigarettes and smokeless tobacco
(collectively, the "tobacco industry") entered into a memorandum of
understanding with the attorneys general of six states. The memorandum provided
support for the adoption of federal legislation to settle the various regulatory
and litigation issues facing the tobacco industry. Such federal legislation
would have had an effect similar to the FDA regulations discussed above. The
proposed federal legislation, however, was not satisfactory to the tobacco
industry. The tobacco industry withdrew from the proposed settlement. At the
present time, there has been no new effort to enact federal legislation to
settle the litigation facing the tobacco industry or to restrict tobacco
advertising.
Europe. In December 1997, eleven of fifteen member states approved the
European Union Tobacco Advertising Directive (the "Directive"). The Directive
must be enacted by all member states by July 2001 (the "Execution Date"). The
Directive provides that, within three years from the date the Directive was
approved, all tobacco advertising and promotion will be prohibited, other than
in print media. Within four years of the Execution Date, tobacco advertising
will be prohibited in print media. Within five years of the Execution Date,
tobacco sponsorship will be prohibited at all events, unless such event is
"organized at world level" and nominated by member states. If such event has
been nominated, then it will be granted a three year extension. Formula One has
been granted such an extension. Within eight years of the date of the Directive,
but no later than October 1, 2006, tobacco sponsorship will be prohibited at all
events arranged at world level. During the interim period, tobacco sponsorship
can only continue in exceptional circumstances and for justified reasons if
there are reductions in levels of advertising expenditures and voluntary
restraints on visibility of advertising. The Tobacco Manufacturers' Association,
comprised of Gallaher, Imperial Tobacco, Rothmans, British American Tobacco
Company, Phillip Morris, R.J. Reynolds and Japan Tobacco, has applied to the
U.K. courts for leave to appeal the Directive to the European Court.
United Kingdom. Tobacco promotion (whether by advertising, sponsorship
or otherwise) is restricted in the U.K. through voluntary agreement. The tobacco
industry voluntarily agreed with the U.K. government to limit annual
expenditures on poster advertising and promotional activities. In addition,
health warnings must appear on all press and poster advertisements, and the
placement of those advertisements is restricted. Expenditures on sports
sponsorships is limited and events targeted at persons under the age of 18 may
not be sponsored by tobacco companies.
British American Tobacco ("BAT"), a sponsor for BAR, is involved in the
tobacco industry. BAT has entered into a long-term sponsorship agreement to fund
what the Company believes to be one of the most significant sponsorship budgets
in Formula One. Restriction on sponsorship by tobacco companies may lead to
cancellation of BAT's sponsorship of BAR. If BAT cancels its sponsorship
pursuant to the provisions of its agreement with BAR, then it could adversely
affect our financial and business results unless BAR can locate another sponsor.
Similarly, if the race teams in the various motorsports events in which we
compete lose sponsorship fees from tobacco sponsors without locating another
sponsor, then we could lose that team as a customer and our financial and
business results could be adversely affected.
12
<PAGE> 14
DEPENDENCE ON KEY PERSONNEL
Our continued success will depend upon the availability and performance
of Dr. Adrian Reynard and the other members of our senior management team. In
our agreement with BAR, Dr. Reynard, Mr. Gorne, Vice President-Sales of the
Company and Mr. Oastler have committed a significant amount of their time to the
BAR Formula One racing effort. Mr. Oastler must devote substantially all of his
time over the next three years. Dr. Reynard and Mr. Gorne must each devote
approximately one half of their time for the next year and approximately one
quarter of their time for the subsequent two years. As a result, our future
results and the successful implementation of our growth strategy will
substantially depend upon the remaining members of our senior management team.
While we believe that our senior management team has significant depth, if we
lose key personnel or if we are unable to attract and retain key employees in
the future, then it could adversely affect our operations and business plans.
Although we have entered into employment agreements with key executive officers,
we cannot assure you that any of these individuals will continue in his present
capacity for a particular period of time. See "Management - Employment
Agreements."
ABILITY TO ATTRACT AND RETAIN PERSONNEL
Our future success depends upon maintaining our advanced technological
position in design, engineering and production of our racing cars. Therefore, we
are particularly dependent upon our ability to identify, attract, motivate and
retain qualified engineers and other professionals with the requisite
educational background and industry experience. We believe we have been
successful in our recruiting and retention efforts in the past. However, we may
not be able to attract and retain qualified engineers and other professionals in
the future. If we lose the services of a significant number of our engineers,
designers and specialized technicians, then our development efforts or business
relationships could be disrupted. Such a disruption could adversely affect our
financial and business results.
MANAGEMENT OF OUR GROWTH
During recent years, we have had substantial growth in revenues and
expansion of product lines and related businesses. However, our business is
subject to a number of risks, any one of which could have a material adverse
effect on our business, financial condition and results of operations. Our
future operating results will depend on a number of factors, including (1) the
continued level of performance of our equipment in the various race series, (2)
competitive price structure, (3) ability to attract and retain qualified
engineers, and (4) other factors beyond our control. A key element of our
business strategy is to continue the expansion of our product lines. We cannot
assure you that the expansion of our product lines and business ventures will be
successful or profitable.
We have and will continue to pursue selective acquisition opportunities
that complement our current operations. Acquisitions involve a number of risks
that could adversely affect our operating results. These risks include:
o the diversion of management's attention
o the assimilation of operations and personnel of the acquired
companies
o the amortization of acquired intangible assets
o the potential loss of key employees of the acquired companies
We may not be able to identify and consummate additional acquisitions on
satisfactory terms. In addition, we may not be able to obtain adequate financing
on acceptable terms to complete future acquisitions. Finally, if an acquisition
is completed, such business may not have a positive impact on our financial and
business results.
13
<PAGE> 15
LIABILITY
Racing events can be dangerous to participants and spectators. During a
race at the Michigan Speedway in July 1998, a driver using a Reynard chassis was
involved in a racing incident that propelled a tire and suspension parts into
the grandstands. Three spectators were killed and six other persons reported
minor injuries. No claims have been made against the Company, and we do not
believe that we would be liable for this incident. We cannot assure you however,
that no claims will be made against us or, if claims are made, what the outcome
of any such claims will be.
We have not previously maintained any liability insurance. Any claims
and associated expenses related to prior racing incidents, including the
incident at Michigan Speedway, could adversely affect our financial and business
results.
Like other manufacturers of products, we face an inherent risk of
exposure to product liability claims in the event that the use of our equipment
results in injury. We may be subjected to various product liability claims. Such
claims may include allegations that (1) our equipment is inherently unsafe, (2)
we were negligent in the manufacture and/or design of a racing car, or (3)
similar claims. To date, we have not been sued or settled any threatened
litigation relating to injuries resulting from the use of our racing cars.
CHANGES IN RACING CAR SPECIFICATIONS BY RACE SERIES' SANCTIONING BODIES
Rule changes, including racing car specification modifications, are
commonplace in the motorsports industry. However, certain changes could
adversely affect our financial condition and results of operations. Such changes
would include (1) changes that significantly increase our cost for research and
development in design and engineering a new racing car, or (2) changes that
prohibit certain features of the current racing car we have developed.
We build our racing cars to comply with specifications set by each race
series' sanctioning body. Changes to racing cars and equipment specifications
could have a material adverse effect on our financial condition and results of
operations. For example, implementation of stability rules by the CART Series
that would prohibit changes to a racing car for a specified number of years
would result in a decrease in revenues to the Company. Similarly, cost
containment rule changes that are designed and implemented to reduce the costs
to race teams may impact our ability to pass cost increases on to our customers
and may limit our ability to sell additional products or services to the
customer.
INTERNATIONAL OPERATIONS
We currently have operations in various jurisdictions around the world.
In the future, we may expand our operations either within these jurisdictions or
into new jurisdictions. Accordingly, our business is subject to certain risks
inherent in international operations. These risks include:
o exposure to exchange rate fluctuations
o political and economic conditions
o unexpected changes in regulatory environments
o exposure to different legal standards
o difficulties in staffing and managing operations
o potentially adverse tax consequences
14
<PAGE> 16
We have not experienced any material adverse effects with respect to our foreign
operations arising from such factors. However, problems associated with such
risks could arise in the future. Finally, managing operations in multiple
jurisdictions will place further strain on our ability to manage our overall
growth.
Our operating results also are subject to fluctuations in foreign
currency exchange rates. For example, costs for producing products sold to
customers participating in the CART Series are denominated in pounds sterling
and the products are sold in U.S. dollars. This mismatch will result in gains or
losses with respect to movements in foreign exchange rates and may be material.
To mitigate this effect, we engage in hedging transactions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations Foreign
Currency Fluctuations" for a description of these hedging activities and a
discussion of foreign exchange rates.
AVAILABILITY OF RAW MATERIALS
The principal raw materials that we use in the manufacturing process
for our racing cars are carbon fiber and Kevlar. An unexpected interruption of
supply could cause our results of operations to be adversely affected. We have
generally been able to raise our prices in response to significant increases in
the cost of raw materials. However, we may not be able to raise prices quickly
enough to offset the effects of such increased raw material costs completely.
BROAD DISCRETION REGARDING PROCEEDS OF THE OFFERING
We have allocated a substantial portion of the net proceeds of this
offering to fund future growth and for working capital and general corporate
purposes. Accordingly, management will have broad discretion in applying the
offering proceeds. Pending our use of such proceeds, the funds will be placed in
short-term, interest-bearing, investment grade investments. It is possible that
the return on such investments could be less than the return that would be
realized if we immediately used such funds in our business.
CONTROL OF THE COMPANY
Upon completion of the offering, Dr. Adrian Reynard will beneficially
own an aggregate of _____% of the outstanding shares of common stock. He will
continue to control the outcome of substantially all issues submitted to our
stockholders, including the election of directors. He also will be able to
effect a change of control, merger or combination without the approval of
minority stockholders. Such influence could adversely affect the market price of
the common stock or delay or prevent a change in control of the Company.
SEASONALITY AND FLUCTUATION OF QUARTERLY RESULTS
We derive a substantial portion of our total revenues from product
sales that are made primarily during the second and third quarters of our fiscal
year. We expense all research and development costs as they are incurred.
Similarly, a substantial amount of project costs are incurred during the first
and fourth quarters of our fiscal year. Historically, our revenues are higher in
the second and third quarters of the year due to the number of racing cars and
equipment delivered during such periods. We account for revenues at the time of
delivery of a racing car. Since we usually deliver racing cars on a Friday, the
timing of the delivery of racing cars, particularly for the CART Series, can
significantly affect our quarterly results of operations when compared to a
previous quarter due to the number of Fridays (and therefore the number of
racing cars delivered) in the particular quarter.
The timing of the initiation and conclusion of design and engineering
contracts with our customers also can significantly affect our quarterly results
of operations when compared to a previous quarter. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Seasonality and
Quarterly Results" for a discussion of our quarterly results.
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<PAGE> 17
ENVIRONMENTAL MATTERS
We believe that our operations are in substantial compliance with all
applicable environmental laws and regulations. Nonetheless, if damage to persons
or property or contamination of the environment is determined (1) to have been
caused or exacerbated by our conduct, or (2) to have been caused or exacerbated
by pollutants, substances, contaminants or wastes used, generated or disposed of
by us, or (3) which may be found on our property, then we may be held liable for
such damage and may be required to pay the cost of investigation and/or
remediation of such contamination or any related damage. The amount of such
liability could be material and may not be covered by insurance. Changes in the
provisions or application of environmental laws, regulations or requirements or
the discovery of unknown conditions, could also require us to make additional
material expenditures.
TAXATION ISSUES
In connection with the Reorganization, the Company was formed as a
Delaware corporation. We own shares of stock in foreign subsidiaries that are
organized under the laws of the U.K. To obtain approval for the Reorganization
from U.K. tax authorities, we have agreed to be treated as a dual resident and
will be taxed in the U.K. We believe that tax treaties between the U.S. and the
U.K. will allow our income to be taxed in the U.K., without also being taxed in
the U.S. However, the U.S. Internal Revenue Service could attempt to impose
taxes on us.
POTENTIAL DIFFICULTIES IN ENFORCEMENT OF CIVIL LIABILITIES
Most of our directors and executive officers and the experts named in
this prospectus are not residents of the United States. Substantially all of our
assets and the assets of our directors and executive officers are located
outside the United States. As a result, you may not be able to (1) effect
service of process within the United States upon such persons or (2) enforce
judgments of the U.S. courts predicated upon civil liability provisions of the
U.S. federal or state securities laws if you are attempting to enforce those
judgments in U.S. courts. In addition, it may be difficult for you to enforce
certain civil liabilities predicated upon U.S. federal or state securities laws
in England against the Company or our directors or executive officers.
DILUTION
You will experience immediate and substantial dilution of $_______ per
share in net tangible book value of the common stock from the initial public
offering price. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of significant amounts of the common stock in the public market
after this offering, or the perception that such sales may occur, could cause
the market price of the common stock to drop. After the offering, _______ shares
of common stock (______ shares if the Underwriters' over-allotment option is
exercised in full) will be outstanding. The _____ shares offered hereby will be
freely transferable after the offering (______ shares if the Underwriters'
over-allotment option is exercised in full) unless purchased by affiliates of
Reynard, as defined in Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"). In addition, a total of _____ shares will be eligible
for sale, beginning 90 days after the date of this prospectus, subject to the
volume limitations of Rule 144 and the Underwriters' lock-up.
Our officers, directors and current stockholders have agreed not to
offer, sell, contract to sell or otherwise dispose of their shares
(approximately ____ shares) for a period of 180 days from the date of this
prospectus without the prior written consent of NationsBanc Montgomery
Securities LLC on behalf of the Underwriters. See "Shares Eligible for Future
Sale" and "Underwriting."
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<PAGE> 18
ABSENCE OF PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE
Prior to the offering, there has been no public market for the common
stock. We cannot assure you that an active trading market will develop and
continue after the offering. The initial offering price for the shares will be
determined by negotiations between us and representatives of the Underwriters.
The initial offering price may not be indicative of the market price of the
common stock after the offering. See "Underwriting" for the factors to be
considered in determining the initial public offering price.
The market price of the common stock after the offering could be less
than the initial public offering price. In addition, the stock market has, from
time to time, experienced extreme price and volume fluctuations. Such
fluctuations could adversely affect the market price of the common stock without
regard to our financial performance or prospects. The market price of the common
stock may fluctuate substantially in response to:
o variations in our results of operations
o our announcements or other developments that affect us
o changes by financial research analysts in their estimates of our
earnings
o our failure to achieve such estimates
o unfavorable publicity about the motorsports industry
o general economic trends and other external factors
See "Description of Capital Stock" and "Underwriting."
DIVIDEND POLICY
We anticipate that all of our earnings in the near term will be used
for the development and expansion of our business. Therefore, we do not plan to
pay cash dividends. Our future dividend policy will depend on our:
o earnings
o capital requirements
o financial condition
o bank facilities
o other factors considered relevant by the Board of Directors
We are a holding company and will not have our own operations. Therefore, we
will rely on dividends or other advances from our subsidiaries to fund any cash
dividends to holders of common stock.
ANTI-TAKEOVER PROVISIONS
The General Corporation Law of the State of Delaware contains certain
provisions which may delay or prevent an attempt by a third party to acquire
control of the Company. Our Certificate of Incorporation and By-laws contain
provisions that authorize the issuance of preferred stock, and establish advance
notice requirements for director nominations and actions to be taken at
stockholder meetings. These provisions could discourage or impede a tender
offer, proxy contest or other similar transaction involving control of the
Company, even if viewed favorably by stockholders.
In addition, the severance provisions included in employment agreements
with certain members of management could impede an attempted change of control
of the Company. We also have adopted a Stockholder Rights Plan which may have
the effect of impeding a hostile attempt to acquire control of the Company. See
17
<PAGE> 19
"Description of Capital Stock - Delaware Law" and -- "Delaware Law and Certain
Charter and By-Law Provisions."
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information contained in this prospectus are not
historical facts, but are forward-looking statements. Many of these
forward-looking statements are contained under the headings "Business," "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." These forward-looking statements concern:
o our future, proposed and anticipated activities
o certain trends with respect to our revenues
o operating results on a proforma basis
o capital resources and liquidity
o our competitive position
o the motorsports industry in general
o similar statements
These statements include some risks and uncertainties that are beyond our
control. Accordingly, actual results may differ, sometimes materially, from
those expressed in or implied by such forward-looking statements. Factors that
could cause actual results to differ materially include those discussed under
"Risk Factors." The safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 do not apply to this offering or other initial public
offerings.
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<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the ____ shares of
common stock offered hereby (after deducting underwriting discounts and
commissions and estimated offering expenses) are expected to be approximately
$____ million. This assumes an initial public offering price of $____ per share,
the mid-point of the price range on the cover page of this prospectus. The
Company intends to use:
o approximately $12.4 million to fund the Gemini Acquisition
o approximately $10.4 million to repay a loan to the Company from
Dr. Reynard (the "Loan")
o approximately $____ million of remaining net proceeds to fund
future growth and for working capital and general corporate
purposes
Anticipated expenditures for working capital purposes include an estimated $4.3
million to purchase additional computer equipment and approximately $15.9
million to construct new facilities.
The loan from Dr. Reynard is in the form of a facility letter, due and
payable on demand, with interest accruing at the National Westminster Bank's
base rate plus 2-1/2%. The Company received a letter from Dr. Reynard in which
he states that he does not expect to be paid or credited with interest on the
money lent to date. The Company currently has no agreements with respect to any
acquisitions other than the Gemini Acquisition, but it regularly engages in
discussions relating to potential acquisitions.
Pending application of the net proceeds of this offering, the Company
will invest the proceeds in short-term, interest-bearing, investment grade
securities. The Company will not receive any proceeds from the sale of shares of
common stock to be sold by the Selling Stockholders.
DIVIDEND POLICY
The Company intends to retain future earnings for the operation and
expansion of its business. The Company does not anticipate paying any cash
dividends in the near term. Any decision by the Board of Directors concerning
the payment of dividends on the common stock in the future will be dependent
upon the Company's (1) results of operations, (2) financial condition, (3) cash
requirements, (4) capital expenditure requirements and (5) other factors deemed
relevant by the Board of Directors.
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<PAGE> 21
DILUTION
The Company's net tangible book value at __________, 1998 was
$___________ or $___________ per share. Net tangible book value per share
represents the Company's total tangible assets less its total liabilities,
divided by the number of shares of common stock outstanding. After giving effect
to the sale of the shares of common stock offered hereby (assuming an initial
price of $___________ per share, the midpoint of the price range on the cover
page of this prospectus, and after deducting underwriting discounts and
commissions and estimated offering expenses), the Company's pro forma net
tangible book value at ___________, 1998 would have been approximately
$_________ or $___________ per share. This represents an immediate increase in
net tangible book value per share of $_________ to existing stockholders and an
immediate dilution of $_________ per share to the investors purchasing shares of
common stock at the initial public offering price. Amounts have been transferred
into U.S. dollars, solely for your convenience, at a rate of (pound)___ =
$_________, the Noon Buying Rate on __________, 1998. The following table
illustrates the dilution and net tangible book value to new investors:
<TABLE>
<S> <C> <C>
Assumed price to public................................... $______________
Net tangible book value before offering.......... $____________
Increase attributable to new investors........... ____________
Pro forma net tangible book value after offering.......... ______________
Dilution to new investors................................. $______________
</TABLE>
The following table provides the number of shares purchased from the
Company, the effective cash contributions made and the average price per share
paid by existing stockholders and by purchasers of the common stock in this
offering (assuming an initial offering price of $_____________ per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION PAID
---------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.......... % $ % $
New Investors.................. _____ _____ _____ _____
Total................... % $ %
===== ===== ===== =====
</TABLE>
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<PAGE> 22
CAPITALIZATION
The following table provides the total capitalization of the Company as
of June 30, 1998, and pro forma capitalization to reflect (1) the receipt and
application by the Company of the estimated net proceeds (based on an assumed
initial public offering price of $__________ per share) from the issuance by the
Company of the shares of common stock in the offering, after deducting
underwriting discounts and commissions and estimated expenses of the offering
payable by the Company and (2) the Gemini Acquisition. You should read this
table in conjunction with the unaudited pro forma consolidated financial
statements of the Company and the related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-------------------
ACTUAL PRO FORMA (1)
------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt................................... $ $
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized; none issued and
outstanding
Common Stock, $___ par value:
____ authorized; ____ issued................
Additional paid in capital..................
Retained earnings...........................
Total stockholders' equity (2)
Total capitalization............................. $ $
====== ======
</TABLE>
- ----------
(1) Does not include _____ shares reserved for issuance under the Company's
stock option plans. As of ____________, 1998, options for ____ shares have been
granted under these stock option plans with a weighted average exercise price
per share of $_________. See "Management - Stock Option Plans."
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<PAGE> 23
SELECTED COMBINED FINANCIAL AND OPERATING DATA
The selected combined financial data in the table for the three years
in the period ended September 30, 1997 and the nine months ended June 30, 1998
are derived from the Company's Combined Financial Statements which have been
audited by Deloitte & Touche, independent auditors, and are included elsewhere
in this prospectus. The selected combined financial data in the table for the
two years in the period ended September 30, 1994 are derived from the Company's
audited financial statements. The selected combined financial data for the nine
months ended June 30, 1997 are derived from the Company's interim unaudited
combined financial statements included elsewhere in this prospectus and, in
management's opinion, contains all adjustments consisting of normal recurring
accruals, necessary to fairly present the results of its operations for the nine
month period ended June 30, 1997. The results of these interim periods are not
necessarily indicative of the results to be expected for the full year. The pro
forma financial information gives effect to (1) the Gemini Acquisition, (2) the
Reorganization, and (3) the offering and the application of the net proceeds
therefrom, as if each of the events had occurred on October 1, 1996. You should
read the following information in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Unaudited Pro
Forma Financial Information and related notes, and the Company's Combined
Financial Statements and notes contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
------------------------------------------------- ------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL HISTORICAL
------------------------------------------------- -------------------
PRO PRO
FORMA FORMA
1993 1994 1995 1996 1997 1997 1997 1998 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Products.......................... $8,371 $12,079 $18,952 $22,406 $39,039 $42,196 $34,098 $40,881 $43,075
Services.......................... 1,254 2,147 2,701 6,493 10,803 10,803 8,349 9,882 9,882
Other revenue..................... -- -- -- -- -- 19 -- -- 47
------ ------- ------- ------- ------- ------- ------- ------- -------
Total Revenues............... 9,625 14,226 21,653 28,899 49,842 53,018 42,447 50,763 53,004
------ ------- ------- ------- ------- ------- ------- ------- -------
COST OF GOODS SOLD:
Products.......................... 5,661 10,375 8,814 9,928 19,502 20,928 16,878 21,713 22,603
Services.......................... 446 817 1,232 3,750 5,951 5,951 3,344 3,944 3,944
------ ------- ------- ------- ------- ------- ------- ------- -------
Total cost of goods sold..... 6,107 11,192 10,046 13,678 25,453 26,879 20,222 25,657 26,547
------ ------- ------- ------- ------- ------- ------- ------- -------
GROSS PROFIT 3,518 3,034 11,607 15,221 24,389 26,139 22,225 25,106 26,457
GENERAL AND ADMINISTRATIVE EXPENSES.... 3,421 2,276 11,285 13,766 21,462 17,205 15,821 20,122 15,336
------ ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM OPERATIONS 97 758 322 1,455 2,927 8,934 6,404 4,984 11,121
Share of loss in equity investment -- -- -- -- -- -- -- (5,310) (5,310)
Minority interest in loss of
subsidiary........................ -- -- -- -- -- -- -- 106 106
Interest income................... 31 10 165 166 171 171 144 21 21
Interest expense.................. (64) (41) (20) -- -- (144) -- (670) (240)
------ ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES 64 727 467 1,621 3,098 8,961 6,548 (869) 5,698
INCOME TAX EXPENSE 18 175 114 563 1,105 3,053 2,066 1,634 3,517
------ ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
------------------------------------------------- ----------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL HISTORICAL
-------------------------------------------------- -------------------
PRO PRO
FORMA FORMA
1993 1994 1995 1996 1997 1997 1997 1998 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET INCOME (LOSS) $ 46 $ 552 $ 353 $ 1,058 $ 1,993 $5,908 $ 4,482 $(2,503) $2,181
====== ====== ======= ======= ======= ====== ======= ======= ======
EARNINGS (LOSS) PER SHARE - BASIC AND
DILUTED $ .02 $ .19 $ .12 $ .36 $ $.68 [ ] $ 1.52 $ (.85) [ ]
====== ====== ======= ======= ======= ====== ======= ======= ======
WEIGHTED AVERAGE SHARES OUTSTANDING -
BASIC AND DILUTED 2,944 2,944 2,944 2,944 2,944 2,944 2,944
====== ====== ======= ======= ======= ====== ====== ======= ======
OTHER DATA:
Gross margin...................... 36.6% 21.3% 53.6% 52.7% 48.9% 49.3% 52.4% 49.5% 49.9%
Operating margin.................. 1.0% 5.3% 1.5% 5.0% 5.9% 16.9% 15.1% 9.8% 21.0%
Depreciation and amortization..... $ 206 $ 251 $ 408 $ 535 $ 898 $2,394 $ 687 $ 1,003 $2,130
Capital and tooling expenditures.. $ 473 $ 874 $ 650 $ 1,963 $ 3,494 $4,004 $ 1,067 $ 4,313 $4,453
Number of cars produced........... 53 38 36 38 67 67 59 76 76
Number of racing wins............. 19 11 15 16 16 16 8 5 5
BALANCE SHEET DATA:
Working capital (deficit)......... $ (347) $ (416) $ (625) $ $(595) $(4,793) $[ ] $ (396) $(7,955) $[ ]
Total assets...................... 3,695 5,433 13,149 11,891 18,409 [ ] 13,653 26,972 [ ]
Long-term debt (less current
portion)........................ -- -- -- -- -- [ ] -- -- [ ]
Total stockholders' equity
(deficit)....................... 521 930 1,285 2,296 741 [ ] 3,207 (1,151) [ ]
</TABLE>
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Combined Financial Statements and related notes thereto and "Selected Combined
Financial Data" included elsewhere in this Prospectus.
GENERAL
Reynard's sales have grown at a compounded annual growth rate of 51.9%
from 1994 to 1997. The Company typically enters into purchase agreements for the
sale of racing cars and design and engineering services as much as six months in
advance of delivery. As of October 20, 1998, the Company had entered into
purchase agreements for racing cars and services representing orders valued at
$44.80 million in 1999. The Company derives a substantial portion of its total
revenues in advance of and during the first half of the worldwide racing season
during the months of January through July. A racing season will typically run
from March through October, with a majority of the Company's racing car sales
occurring before the season starts (Reynard's second quarter) and parts and
service sales primarily occurring in Reynard's third quarter. New cars are
designed and developed at the conclusion of the racing season, which corresponds
with Reynard's fourth and first quarters, and the associated research and
development costs are expensed as they occur. Reynard generally only
manufactures racing cars once purchase orders have been received, which
primarily occurs in Reynard's first quarter. Service revenue, which is primarily
derived from design and engineering programs on touring and sports racing cars,
is generated on a contract by contract basis. The timing of the initiation and
closure of these contracts can lead to significant variances in quarterly
service revenue and the Company's operating results.
Since its inception, Reynard has progressed from manufacturing racing
cars for Formula Ford in the 1970's, Formula Three in the 1980's, and Formula
3000 in the early 1990's to CART in 1994, and it will enter Formula One in 1999.
The Company has continued to leverage its success and technical expertise gained
in each of these series and graduated into more advanced series in which revenue
and profit per car are greater. The more advanced race series require superior
research and development using state of the art technology and engineering
expertise with the most advanced work done within Formula One. Historically,
Reynard has exited some of the less advanced race series upon entering a more
advanced series. This decision has been driven by capacity constraints and the
higher cost structure needed to support production of cars for the more advanced
series. These higher costs are attributable primarily to research and
development and are technology related. As a result of the BAR joint venture,
Reynard will have access to certain of BAR's technological know how (not in
written or machine readable form). Reynard believes that this access to
research and development ideas will enhance its other motorsports projects by
improving its knowledge database and methodology.
Reynard's long running success in building racing cars, and its ability
to rapidly design and engineer new racing cars using advanced techniques in
aerodynamics and composite design, has made it a leader in providing racing car
engineering and design services to automobile manufacturers. Over the past two
years Chrysler, Ford and Panoz, amongst others, have selected Reynard to support
their motorsports efforts in selective projects. For example Reynard was awarded
the aerodynamic design work and production of composites for the Dodge Viper GT
racing cars. The engineering and design services provided for these projects
comprise a significant and increasing portion of the Company's revenue.
In conjunction with Reynard's entry into Formula One, the Company has
expanded its service technology to include CFD. The Company currently generates
service revenue by providing engineering staff and software analysis needed for
CFD design applications on a fee-per-usage basis. The Company believes that a
significant portion of its future growth will be in the form of expanded sales
of higher margin services to its motorsports customers, such as CFD software
analysis, wind tunnel testing and seven post suspension rig testing. Through the
application of these services, the Company's customers are able to simulate and
evaluate the effects of subtle
24
<PAGE> 26
changes in the engineering and set up of individual cars moving at high speeds
and apply the results of such tests to maximize the performance of the racing
car. The Company has designed and built a state-of-the-art 50% scale model,
moving ground open jet wind tunnel in Indianapolis, Indiana, which is provided
on a fee-per-usage basis to CART racing teams and others. In 1999, the Company
will construct a seven post suspension rig testing facility in Indianapolis,
which will also be provided on a fee-per-usage basis to CART racing teams and
other potential customers.
BAR. In October 1997, Reynard entered into a joint venture agreement
with BAT and Mount Eagle, Inc. to form BAR. Reynard has agreed to commit its
management expertise and technology to BAR, and has invested $5.25 million, in
exchange for a 15% equity interest in BAR and an ongoing management fee for
directors' services. It is anticipated that Reynard will provide certain
contract manufacturing services to BAR in its early stages on a fee-for-service
basis. BAR will build and maintain its own independent design, engineering,
research and development and manufacturing staff and facilities adjacent to
Reynard's facilities in the Motorsport Valley of the UK. Reynard will account
for its ownership stake under the equity method of accounting due to the
Company's ability to exercise significant influence over the operating and
financial policies of BAR. A loss of $5.31 million was incurred during the
period ended June 30, 1998 as a result of losses incurred during the start up
phase of BAR. These losses were in line with the Company's expectations. The
Company expects to incur additional losses in the future relating to their
investment. Management currently has no plans to make additional equity
investments in BAR.
Reynard Aviation. In January 1998, Reynard entered into an arrangement
with Virgin Airlines whereby Reynard Aviation was created. Through this
arrangement, Reynard has capitalized on its expertise in composite material
usage, combined with its technical knowledge, to design and develop a
light-weight, strong and functional fully-reclining business class aircraft
seat. The project was primarily funded by Virgin Airlines, with Reynard
receiving a 20% equity interest in Reynard Aviation. Reynard will account for
its ownership interest in Reynard Aviation under the cost method of accounting
because Reynard does not have the ability to influence the operating or
financial decisions of Reynard Aviation.
Wind Tunnel Facility. Reynard North America, Inc. is the manager and
49% owner of the membership interests in a limited liability company known as
Auto Research Center, LLC ("ARC"). ARC owns and operates the wind tunnel
facility in Indianapolis, Indiana. Unaffiliated entities currently own 50% of
the membership interest and Bruce Ashmore, Vice President/Technical Director of
Reynard North America, Inc., owns 1% of the membership interest. ARC sells time
in the wind tunnel on a fee-per-usage basis. The operations of ARC are
consolidated in the Company's financial statements, with a minority interest
recorded with respect to the membership interests owned by unaffiliated
entities.
Set forth below are selected income and expense items and the
relationship of such income and expense items to total revenues for the years
ended September 30, 1995, 1996, and 1997 and the nine month periods ended June
30, 1997 and 1998.
25
<PAGE> 27
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-----------------------
1995 1996 1997
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Products $ 18,952 87.5% $22,406 77.5% $ 39,039 78.3%
Services 2,701 12.5% 6,493 22.5% 10,803 21.7%
-------- ----- ------- ----- -------- -----
Total revenues 21,653 100.0% 28,899 100.0% 49,842 100.0%
-------- ----- ------- ----- -------- -----
COST OF GOODS SOLD:
Products 8,814 40.7% 9,928 34.4% 19,502 39.2%
Services 1,232 5.7% 3,750 12.9% 5,951 11.9%
-------- ----- ------- ----- -------- -----
Total cost of goods sold 10,046 46.4% 13,678 47.3% 25,453 51.1%
-------- ----- ------- ----- -------- -----
GROSS PROFIT 11,607 53.6% 15,221 52.7% 24,389 48.9%
-------- ----- ------- ----- -------- -----
GENERAL AND ADMINISTRATIVE
EXPENSES (1) 11,285 52.1% 13,766 47.7% 21,462 43.0%
-------- ----- ------- ----- -------- -----
INCOME FROM OPERATIONS 322 1.5% 1,455 5.0% 2,927 5.9%
Share of loss in equity investment -- -- --
Minority interest in loss of
subsidiaries -- -- --
Interest income 165 166 171
Interest expense (20) -- --
-------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES 467 -- 1,621 -- 3,098 --
Income tax expense 114 563 1,105
-------- ------- --------
NET INCOME (LOSS) $ 353 1.6% $ 1,058 3.7% $ 1,993 4.0%
======== ===== ======= ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30
-------------------------
1997 1998
---- ----
<S> <C> <C> <C> <C>
REVENUES:
Products $34,098 80.3% $ 40,881 80.5%
Services 8,349 19.7% 9,882 19.5%
------- ----- -------- -----
Total revenues 42,447 100.0% 50,763 100.0%
------- ----- -------- -----
COST OF GOODS SOLD:
Products 16,878 39.7% 21,713 42.8%
Services 3,344 7.9% 3,944 7.7%
------- ----- -------- -----
Total cost of goods sold 20,222 47.6% 25,657 50.5%
------- ----- -------- -----
GROSS PROFIT 22,225 52.4% 25,106 49.5%
------- ----- -------- -----
General and administrative
expenses (1) 15,821 37.3% 20,122 39.7%
------- ----- -------- -----
INCOME FROM OPERATIONS 6,404 15.1% 4,984 9.8%
Share of loss in equity investment -- (5,310)
Minority interest in loss of
subsidiaries -- 106
Interest income 144 21
Interest expense -- (670)
------- --------
INCOME (LOSS) BEFORE INCOME TAXES 6,548 -- (869) --
Income tax expense 2,066 1,634
------- --------
NET INCOME (LOSS) $ 4,482 10.6% $ (2,503) (4.9)%
======= ===== ======== =====
</TABLE>
(1) The results for years ended September 30, 1995, 1996 and 1997 and the nine
month periods ended June 30, 1997 and 1998 include remuneration of the Chairman
of the Company, who is the principal shareholder. This remuneration has a
significant effect on general and administration expenses and income before
taxes of the Company. Pursuant to a Services Agreement with Dr. Reynard,
compensation payable to Dr. Reynard for services he will provide to the Company
will total $1.5 million per year plus pension contributions.
REVENUES
The Company derives its revenues primarily from the sale of products
and provision of services.
Product Sales. Product sales consist of sales of (1) racing cars and
associated spare parts to CART, Formula Nippon and Barber Dodge racing teams;
and (2) racing cars produced in conjunction with projects for automobile
manufacturer's entries into touring, sports car and GT1 racing series. The sale
of new racing cars is in accordance with negotiated contractual commitments with
race teams, which are entered into on an average of six months ahead of supply
of the racing car. Advanced deposits are collected at the time of receiving the
order for racing cars, with the balance payable upon delivery of the racing car.
The sale of a new racing car will automatically generate an initial sale of
spare parts for basic vehicle servicing and maintenance, with an ongoing parts
revenue stream over the life of the racing car. The sale of update kits will be
dependent upon the longevity of the racing car, which vary from race series to
race series, combined with the investment of race teams to maintain a
competitive edge.
26
<PAGE> 28
Service Sales. Revenues derived from services include: (1) engineering
and design work for touring car and sports car racing series; (2) specific
engineering and design projects for the CART Series; (3) fees for CFD analysis;
and (4) fees for use of Reynard's proprietary wind tunnels together with the
production of wind tunnel models.
COST OF GOODS SOLD
The Company classifies its cost of goods sold into cost of sales and
direct project expenses that are attributable to product and service revenues,
together with operating and non-operating overheads, as discussed below.
Cost of Sales (Product). The Company purchases raw materials to
fabricate components for racing cars and spare parts. Externally manufactured
parts may also be purchased where appropriate. This category also includes
personnel costs.
Cost of Sales (Services). This category includes costs, such as
personnel, wind tunnel, jigs, molds and tooling costs, specifically linked to
service projects.
General and Administrative Expenses. This category includes sales and
marketing, warranty, freight and property costs. It also includes purchases of
consumables, personnel costs, directors' remuneration, administrative expenses,
depreciation, foreign exchange gains/losses and other miscellaneous items.
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO NINE MONTHS ENDED JUNE 30, 1997
Total revenues for the nine months to June 30, 1998 were $50.76
million, an increase of $8.32 million, or 19.6%, as compared to the nine months
ended June 30, 1997.
Product sales for the nine months ended June 30, 1998 were $40.88
million, an increase of $6.78 million, or 19.9%, as compared to the nine months
ended June 30, 1997. This increase was attributable to the higher volume of
racing cars and spare parts sold to CART teams and the supply of racing cars to
the 1998 Barber Dodge series, which commenced in the final quarter of 1997. This
was partially offset by the discontinuation of the Ford Mondeo Touring Car
program and various Chrysler programs, including the Stratus Touring Car.
Service sales for the nine months ended June 30, 1998 were $9.88
million, an increase of $1.53 million, or 18.4%, as compared to the nine months
ended June 30, 1997. This increase was primarily attributable to commencement of
the CFD program, development of the Strathcarron car and sales of wind tunnel
time and models. This was partially offset by reduced revenue from the Virgin
airline seat project and various Chrysler programs, including the Stratus
Touring Car.
Cost of sales (product) for the period ended June 30, 1998 were $21.71
million, an increase of $4.84 million, or 28.6%, as compared to the nine months
ended June 30, 1997. This increase was attributable to the development of the
Barber Dodge cars and the ongoing CART program. This was partially offset by
reductions in costs of the various Chrysler programs, including the Stratus
Touring Car.
Cost of sales (services) for the period ended June 30, 1998 were $3.94
million, an increase of $0.60 million, or 17.9%, as compared to the nine months
ended June 30, 1997. This increase was primarily attributable to increased costs
of the Panoz GT1 support program. This was partially offset by reduced costs for
the Ford Mondeo Touring Car development program and the cost of manufacturing
and testing of Virgin airline seats.
Gross profit was 49.5%, compared to 52.4% for the same period in the
prior year. This reduction was due to the wind down of various programs,
including the Ford Mondeo and Chrysler Stratus Touring Car programs discussed
above. This was partially offset by the increase in higher margin service
revenue.
General and administrative expenses, excluding payments to the
principal shareholder ($7.65 million), for the period ended June 30, 1998 were
$12.47 million, an increase of $3.97 million, or 46.7% as compared to nine
months ended June 30, 1997 (excluding payments to the principal shareholder of
$7.32 million). This increase was attributable to the expansion of the
administrative and information technology function to support the
27
<PAGE> 29
Company's growth and increased depreciation following investment in plant and
equipment for the CFD program. General and administrative costs, excluding
payments to principal shareholders, for the nine months ended June 30, 1998
represent 24.6% of total sales, compared to 20.0% for the nine months ended June
30, 1997. This increase is the result of investment in the Company
infrastructure to support future growth. During the nine months ended June 30,
1998, the Company incurred expenses of $1.0 million for doubtful accounts. This
primarily related to closure expenses for the Ford Mondeo Touring Car and Panoz
GT1 programs.
The share of loss in equity investments for the nine months ended June
30, 1998 was $5.31 million. This represents the Company's 15% investment in BAR
which has been fully written off. This write off is a result of losses arising
during the start up phase of BAR. These losses are in line with the Company's
expectations.
The minority interest in losses of subsidiaries for the period ended
June 30, 1998 was $0.11 million. This represents the share of the loss incurred
by ARC which is attributable to unaffiliated members.
Interest income for the nine months ended June 30, 1998 was comparable
to the nine months ended June 30, 1997.
Interest expense for the nine months ended June 30, 1998 was $0.67
million, an increase of $0.67 million, or 100%, as compared to nine months ended
June 30, 1997. This charge represents the interest due on the loan from Dr.
Reynard. The Company has received a letter from Dr. Reynard in which he states
that he does not expect to be paid or credited with interest on money lent to
date.
Loss before income taxes for the nine months ended June 30, 1998 was
$0.87 million, a decrease of $7.42 million, as compared to the income achieved
during the nine months ended June 30, and 1997, as a result of the factors
described above, in particular the BAR investment.
Income tax expense for the period ended June 30, 1998 was $1.63
million, a decrease of $0.43 million as compared to the nine months ended June
30, 1997.
Net loss for the nine months ended June 30, 1998 was $2.50 million, a
decrease in net income of $6.99 million as compared to the nine months ended
June 30, 1997 as a result of factors described above.
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996
Total revenues for 1997 were $49.84 million, an increase of $20.94
million, or 72.5 %, from 1996.
Product sales for 1997 were $39.04 million, an increase of $16.63
million, or 74.2%, from 1996. This increase was attributable to the higher
volume of racing cars and spare parts sold to CART teams and the commencement of
supply of Panoz GT1 cars and Ford Mondeo Touring Cars. In addition, product
sales included the initial supply of race cars to the Barber Dodge Series, which
commenced during the final quarter of 1997.
Service sales for 1997 were $10.80 million, an increase of $4.31
million, or 66.4%, from 1996. This increase was attributable to various Chrysler
projects, including the Stratus Touring Car, the Ford Mondeo Touring Car
program, for which preliminary work commenced during the third quarter of 1996,
and the development of the Virgin airline seat, which commenced in the second
quarter of 1997 and continued until the second quarter of 1998.
Cost of sales (product) for 1997 were $19.50 million, an increase of
$9.57 million, or 96.4%, from 1996. This aggregate increase was attributable to
the commencement of the Panoz GT1 project and the Ford Mondeo Touring Car
program and the increased aggregate cost of the CART program.
Cost of sales (service) for 1997 were $5.95 million, an increase of
$2.20 million, or 58.7%, from 1996. This increase was due to costs associated
with the Ford Mondeo Touring Car program and the Virgin airline seat
development, which commenced in the second quarter of 1997 and continued until
the second quarter of 1998.
Gross profit was 48.9%, compared to 52.7% for the prior year. This
reduction was due to the commencement of the new programs, including the
development of the Virgin airline seat and the Ford Mondeo Touring Car discussed
above.
28
<PAGE> 30
General and administrative expenses, excluding payments to the
principal shareholder ($10.0 million), for 1997 were $11.47 million, an increase
of $2.41 million, or 26.6%, from 1996 (excluding payments to the principal
shareholder of $4.70 million). This increase was due to higher depreciation
charges following investment in plant and equipment to increase the Company's
engineering capability. This was partially offset by the reduction in
non-specific research and development expenditure. General and administrative
costs, excluding payments to principal shareholders, for 1997 represent 23.0% of
total sales, compared to 31.4% for 1996. This decrease is due to the Company
leveraging its personnel overhead during a period of significant sales growth.
Interest income and expense for 1997 were comparable to prior years.
Income before income taxes for 1997 was $3.10 million, an increase of
$1.48 million, or 91.1% from 1996, as a result of factors described above.
Income tax expense for 1997 was $1.11 million, an increase of $0.54
million from 1996.
Net income for 1997 was $1.99 million, an increase of $0.94 million
from 1996, as a result of the factors described above.
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
Total revenues for 1996 were $28.90 million, an increase of $7.24
million, or 33.5%, from 1995. This increase was due to higher product and
service sales described below.
Product sales for 1996 were $22.41 million, an increase of $3.45
million, or 18.2%, from 1995. This increase was attributable to the higher
volume of racing cars and spare parts sold to CART teams and the commencement of
the Chrysler Stratus Touring Car project. This was partially offset by the
completion of the Chrysler Patriot sports car during the final quarter of 1995.
Service sales for 1996 were $6.49 million, an increase of $3.79
million, or 140.4%, from 1995. This increase was primarily due to the provision
of development services to the Panoz GT1 project. In addition, the Company was
involved in a number of programs with major auto manufacturers, including the
Ford Indigo Concept Car and Chrysler Stratus Touring Car.
Cost of sales (product) for 1996 were $9.93 million, an increase of
$1.11 million, or 12.6%, from 1995. This increase reflects the increased sales
of racing cars to the CART series noted above, partially offset by cost
reductions in the Formula Nippon program.
Cost of sales (service) for 1996 were $3.75 million, an increase of
$2.52 million, or 204.4%, from 1995. This increase was attributable to costs
associated with the Ford Indigo concept car, the Panoz GT1 project and the
Chrysler Stratus development.
Gross profit was 52.7%, compared to 53.6% in the prior year. This
reduction was due to the start up of the various service projects, including the
Panoz GT1 project and the Ford Mondeo Touring Car program discussed above.
General and administrative expenses, excluding payments to the
principal shareholder ($4.70 million), for 1996 were $9.07 million, an increase
of $2.77 million or 44.0%, from 1995 (excluding payments to the principal
shareholder of $5.0 million). This increase was due to investment in further
development of engineering expertise, through recruitment and investment in
plant and equipment and the ongoing expansion of the Company's infrastructure.
General and administrative costs, excluding payments to principal shareholders,
for 1996 represent 31.4% of total sales, compared to 29.1% for 1995.
Interest income and expense for 1996 were comparable to prior years.
Income before income taxes for 1996 was $1.62 million, an increase of
$1.16 million, or 247.1%, from 1996, as a result of factors described above.
29
<PAGE> 31
Income taxes for 1996 were $0.56 million, an increase of $0.45 million
from 1995.
Net Income for 1996 was $1.06 million, an increase of $0.71 million
from 1995, as a result of the factors described above.
SEASONALITY AND QUARTERLY RESULTS
The Company derives a substantial portion of its total revenues from
product sales that are made during the second and third quarters of the fiscal
year. Reynard expenses all research and development costs as they are incurred.
Similarly, a substantial amount of project costs are incurred during the first
and fourth quarters of the fiscal year. Historically, the Company's revenues are
higher in the second and third quarters of the year due to the number of racing
cars and equipment delivered during such period. Reynard accounts for revenues
at the time of delivery of a racing car, which usually occurs on a Friday. The
timing of the delivery of racing cars, particularly for the CART Series, can
significantly alter the Company's quarterly results of operations when compared
to a previous quarter due to the number of Fridays, and therefore the number of
racing cars delivered, in the particular quarter.
As a result, the Company's business has been, and is expected to
remain, seasonal based upon these external factors. The Company's quarterly
results are dependent on the timing of the following activities:
Period Activity
------ --------
Quarter ended December 31 Building chassis for sale
Quarter ended March 31 Selling chassis
Quarter ended June 30 Selling parts
Quarter ended September 30 Designing chassis for the following season
Service income is generated by individual contracts. The timing of the
initiation and closure of these contracts can lead to significant variances in
quarterly service revenue and the Company's operating results.
30
<PAGE> 32
The following table presents selected quarterly financial information
of the Company for each of the four quarters of 1995, 1996 and 1997 and for the
first three quarters of 1998. This information has been prepared by the Company
on a basis consistent with the financial statements and related notes included
elsewhere in this Prospectus and include, in the opinion of management, all
adjustments necessary for a fair presentation of the results of such quarters.
The tables should be read in conjunction with "Selected Combined Financial
Data," the financial statements of the Company and the related notes thereto and
the other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------
December 31 March 31 June 30 September 30 TOTAL
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Revenues
1995 $ 6,053 $ 7,353 $ 5,693 $ 2,554 $21,653
1996 5,885 11,332 8,147 3,535 28,899
1997 8,239 20,615 13,593 7,395 49,842
1998 YTD(1) 11,119 20,957 18,687 TBA 50,763
Gross Profit
1995 $ 3,153 $ 3,935 $ 3,076 $ 1,443 $11,607
1996 3,539 5,106 4,677 1,899 15,221
1997 5,097 10,528 6,600 2,164 24,389
1998 YTD(1) 4,631 8,943 11,532 TBA 25,106
Operating Income (Loss)
1995 $ 412 $ 1,106 $ 473 $(1,669) $ 322
1996 277 1,694 1,559 (2,075) 1,455
1997 (78) 5,407 1,075 (3,477) 2,927
1998 YTD(1) (1,571)(3) 1,994 4,561 TBA 4,984
Income Before
Income Taxes
1995 $ 416 $ 1,111 $ 473 $(1,533) $ 467
1996 338 1,735 1,592 (2,044) 1,621
1997 (57) 5,462 1,143 (3,450) 3,098
1998 YTD(1) (6,070)(2) 1,484 3,717 TBA (869)
Net Income (Loss)
1995 $421 $ 1,027 $ 451 $(1,546) $ 353
1996 282 1,580 1,453 (2,257) 1,058
1997 139 3,622 721 (2,489) 1,993
1998 YTD(1) (5,549)(2) 817 2,229 TBA (2,503)
</TABLE>
(1) Figures for 1998 are year to date as of June 30, 1998.
(2) Attributable to write down of BAR investment.
(3) Attributable to the discontinuation of the Ford Mondeo Touring Car Program.
31
<PAGE> 33
Because of the Company's fluctuations in sales, 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 motorsports industry, the timing of orders for racing
cars and spare parts, the timing of service projects undertaken for third
parties and changes in the mix of products and services ordered by customers.
Management anticipates that the Company's sales will normally be lowest in its
first and fourth fiscal quarters, which end December 31 and September 30,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied on cash flow from operations,
supplemented by loans from the principal shareholder, to finance working
capital, investments and capital expenditures.
For the nine months ended June 30, 1998 net cash provided by operating
activities was $5.01 million, as compared to $0.39 million for the nine months
ended June 30, 1997. This was largely comprised a net loss of $2.50 million
offset by non-cash charges for depreciation and amortization of $1.00 million
and the Company's share in losses incurred by related investments of $5.20
million, together with a net decrease in working capital of $1.68 million.
Accounts receivable at June 30, 1998 were $10.96 million net of allowance for
doubtful debts compared to $7.40 million at September 30, 1997. This increase
reflects the new business ventures undertaken by the Company during fiscal 1998.
These include the distribution of CART race cars and spare parts (previously
distributed by a third party) and the CFD program.
Net cash used in investing activities was $3.55 million for the nine
months ended June 30, 1998 as compared to $2.77 million provided for the nine
months ended June 30, 1997. This principally consisted of $4.27 million for the
investment in the equity of BAR and $4.31 million for the acquisition of
property and equipment. This was partially offset by an increase in the amount
owed to the principal shareholder of $5.03 million. Net cash provided by
financing activities during the period ended June 30, 1998 amounted to $0.97
million, largely due to the utilization of the bank line of credit.
Capital expenditures on property and equipment was $4.31 million for
the nine months ended June 30, 1998 as compared to $1.07 million for the nine
months ended June 30, 1997. The increase in capital expenditures relate to the
investment in computer hardware and software for the CFD program and investment
in the windtunnel facility in Indianapolis, operated through ARC.
At June 30, 1998, the Company had cash of $3.15 million offset by short
term debt of $10.48 million owed to the principal shareholder and $1.07 million
owed to National Westminster Bank. The Company believes that the existing cash,
the proceeds of the offering and cash flow from future operations will be
sufficient to fund its capital expenditures and other cash needs during fiscal
1999. In addition to the continuing operations, the Company plans to investigate
the potential acquisition opportunities in activities relating to its core
business. The Company has budgeted approximately $26.59 million of capital
expenditures for property and equipment during fiscal 1999.
The seasonality of revenue noted above causes working capital
requirements to fluctuate during the year. The nature of the supply of racing
cars is such that significant advance deposits are received at the time of
order. This can be up to six months prior to delivery of the car, and hence
reduces the need for short term borrowing. In addition, the Company has a loan
facility provided by Dr. Adrian Reynard. This facility is repayable on demand,
and is secured by way of fixed and floating charges over the Company's assets.
It bears interest at National Westminster Bank's base rate plus 2 1/2%. The
Company has received a letter from Dr. Reynard stating that he does not expect
to be paid or credited with interest on the money lent to date. A portion of the
proceeds from this offering will be used to repay the loan in its entirety. This
facility will not be available to the Company following the offering.
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<PAGE> 34
FOREIGN CURRENCY FLUCTUATIONS
The Company's earnings and liquidity are affected by fluctuations in
foreign currency exchange rates, principally the U.S. dollar rate, reflecting
the fact that most of the Company's revenues and cash receipts are denominated
in U.S. dollars while the large majority of its costs are in pounds sterling.
The Company reduces this dollar/sterling exchange risk where possible by
currency hedging. The Company monitors the dollar/sterling exchange rate on a
daily basis and maintains an ongoing currency hedging facility of approximately
$8.25 million with National Westminster Bank. It is the policy of the Company
not to enter into derivative financial instruments for speculative purposes. The
Company does enter into foreign currency forward exchange contracts to minimize
risk of loss from currency rate fluctuations on foreign currency commitments
entered into in the ordinary course of business. These commitments are generally
for terms of less than one year. The foreign currency forward exchange contracts
are executed with creditworthy banks and are denominated in currencies of major
industrial countries. The notional amount of outstanding foreign currency
forward exchange contracts aggregated $5.0 million at September 30, 1997. There
were no outstanding foreign currency forward exchange contracts at September 30,
1996 and June 30, 1998. The Company does not anticipate any material adverse
effect on its results of operations or financial position relating to these
foreign currency forward exchange contracts. The Company engages in currency
hedging activity whenever management believes that it is advantageous to do so.
The following table sets forth, for the periods indicated, certain
information concerning the exchange rate between pounds sterling and U.S.
dollars based on the Noon Buying Rate (expressed as U.S. dollars per pound
sterling). Such rates are provided solely for the convenience of the reader and
are not necessarily the exchange rates (if any) used by the Company in the
preparation of its consolidated financial statements included elsewhere in this
Prospectus. No representation is made that the pound sterling could have been,
or could be, converted into U.S. dollars at these rates or at any other rates.
<TABLE>
<CAPTION>
SPOT RATE - U.S. DOLLARS PER POUND STERLING
--------------------------------------------------------------------
CALENDAR YEAR PERIOD-END RATE AVERAGE RATE (1) HIGH LOW
- --------------------------------------------- --------------- ---------------- ------------ ------
<S> <C> <C> <C> <C>
1993...................................... 1.4775 1.5030 1.5875 1.4180
1994...................................... 1.5647 1.5326 1.6382 1.4620
1995...................................... 1.5496 1.5789 1.6400 1.5310
1996...................................... 1.7140 1.5624 1.7140 1.4929
1997...................................... 1.6451 1.6395 1.7115 1.5797
1998 (through June)....................... 1.6679 1.6500 1.6914 1.6128
</TABLE>
(1) The average of the Noon Buying Rates on the last business day of each full
month during the relevant period.
On ____________, 1998, the Noon Buying Rate was (pound)___ =
$_________.
YEAR 2000 COMPLIANCE
GENERAL
The Company has been aware of potentially serious issues arising from
computer programs failing to recognize correctly, dates beyond 1999 for a number
of years. Since 1996, computer system upgrades have been implemented with
supplier compliance assurances. A 'Year 2000' compliance project is ongoing to
either ensure compliance, both internally and with regard to suppliers and
customers, or implement a contingency plan to avoid losses where guaranteed
compliance cannot be achieved.
In 1996 the Company commenced an organization wide implementation of an
integrated manufacturing and financial management computer system to improve
business information reporting. The new systems, which are expected to make the
Company's business systems substantially year 2000 compliant, are scheduled for
completion during 1999. The chosen manufacturing package 'Fourman' is Unix
based, with the Coda financial package and other administrative software, being
entirety Windows NT based by the end of the second quarter of 1999.
The computer aided design (CAD) applications used by the Company are
Unix based and the ongoing program of upgrading to achieve year 2000 compliance
will be completed by the end of 1998.
Information Technology (IT) development is viewed as critical to the
betterment of the organization and year 2000 has been viewed as one facet of
this development rather than an interruption to the overall IT development
program.
YEAR 2000 PROJECT
The Company engaged Ashton Court, a U.K. Department of Trade and
Industry approved external consultant, to assist in the management on all
aspects of a year 2000 compliance review project. The project can be divided
into three stages:
1. IT Systems - Infrastructure and applications software
2. External Agents - Third party suppliers and customers
3. Manufacturing - Process control and implementation
The phases common to all three stages are:
1. Preparing an inventory of year 2000 items
2. Assigning priorities to identified items
3. Identifying non-compliance items considered to be material
4. Repairing or replacing material items
5. Testing material items
6. Designing and implementing contingency and business continuation plans
With regard to IT systems, the Company has substantially completed the
replacement of material items and is on target to finalize this exercise by the
end of the second quarter of 1999. The IT replacement cost to date is
approximately $1.8 million. Management believes that the key business driver
with regard to IT is the CAD facility and that this area of the business is year
2000 compliant.
The External Agents stage includes the process of identifying the
prioritizing critical suppliers and customers, and communicating with them about
their plans and progress in addressing the Year 2000 problem. Evaluations of the
most critical third parties have been initiated. These evaluations will be
followed by the development of contingency plans, which are scheduled for
completion in the first quarter of 1999. The process of evaluating is scheduled
for completion by mid-1999, with follow-up reviews scheduled through the
remainder of 1999.
Plans detailing the tasks and resources for the manufacturing review
are currently being prepared, with the completion of the review and testing
scheduled for the end of the first quarter of 1999. Any necessary replacement of
material items will be carried out during the second quarter of 1999. This stage
includes all hardware and software embodied in the manufacturing plant utilized
by the Company. The key equipment is programmed by the CAD stations and is
numerically controlled, rather than date controlled. The Company currently is
engaged in an evaluation and prioritization program to assess whether there will
be a material impact on its manufacturing ability or a requirement to develop a
contingency plan.
COSTS
Costs to date incurred purely for year 2000 compliance are
approximately $50,000, with compliance issues being taken into account and
resolved within the normal capital expenditure budget of the Company. However
personnel time has been diverted to project activities carried out to date. It
is not anticipated that there will be material costs in the replacement of
material items, or in the implementation of contingency plans. The cost of the
external consultants and internal personnel time to complete the review will be
approximately $150,000.
RISKS
Until the compliance review is substantially in process, the Company
cannot fully estimate the risks of its year 2000 issue. To date, the Company has
not identified any assets that present a material risk of not being year 2000
compliant or for which a suitable alternative cannot be implemented. However,
as the initiative proceeds into subsequent phases, it is possible that the
Company may identify assets that do present a risk of a year 2000-related
disruption. It is also possible that such a disruption could have a material
adverse effect on financial condition and results of operations. In addition, if
any third parties who provide goods or services that are critical to business
activities fail to appropriately address their year 2000 issues, there could be
a material adverse effect on the financial condition and results of operations
of the Company.
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<PAGE> 35
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income" was issued by the Financial Accounting
Standards Board ("FASB"). SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components. This statement requires that
all items that are required as components of comprehensive income be displayed
in a financial statement. The Company has not determined the impact on the
Company's combined financial statement disclosure. SFAS No. 130 is effective for
the Company's combined financial statements for the year ended September 30,
1999.
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information" was issued by the FASB. SFAS No. 131 establishes
standards for the way that public business enterprises report financial and
descriptive information about its reporting operating segments. The Company has
not determined the impact on the Company's combined financial statement
disclosure. SFAS No. 131 is effective for the Company's combined financial
statements for the year ending September 30, 1999.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued by the FASB. SFAS No. 133 establishes standards
for accounting for derivative instruments, including certain derivative
instruments embedded in other contracts by requiring that an entity recognize
those items as assets or liabilities in the balance sheet and measure them at
fair value. The Company has not determined the impact on the Company's combined
financial statements. SFAS No. 133 is effective for the Company's combined
financial statements for the year ending September 30, 2000.
FORWARD LOOKING STATEMENTS
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. In addition
to the factors discussed above, other factors that could cause actual results to
differ materially include the following:
o product offerings and pricing strategies by competitors;
o warranty expenses;
o foreign currency exchange rate fluctuations;
o environmental and product safety regulatory activity;
o effects of weather;
o uninsured product liability claims; and
o overall economic conditions, including inflation and consumer
confidence and spending.
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<PAGE> 36
MOTORSPORT INDUSTRY OVERVIEW
INDUSTRY OVERVIEW
Auto racing is the second most watched professional sport in the world
after soccer. In 1997, auto racing had an estimated aggregate television
audience of over 6 billion people. In addition, professional auto racing has
been the fastest growing professional sport in North America over the past five
years based on spectator attendance and television viewership.
Motorsport fans tend to be loyal to their favorite driver or teams.
These fans offer demographic profiles which attract significant corporate
sponsorship. Corporate sponsorships, which are estimated at over $1 billion in
North America alone include (1) event sponsorship, (2) racing team sponsorship
and (3) broadcast television sponsorship. British American Tobacco, Budweiser,
DuPont, Federal Express, Kellogg's, Marlboro, McDonald's, Miller Brewing,
Motorola, PPG Industries, Target Stores, Texaco/Havoline, Valvoline and Winston
each sponsor racing teams, series or events.
Auto racing consists of several distinct categories, each with its own
organizing body and racing events. Internationally, open-wheel racing is the
most recognized form of auto racing. Open-wheel racing utilizes an
aerodynamically designed chassis and technologically advanced equipment. The
most established international open-wheel racing series are Formula One and the
CART Series. The development series for Formula One include Formula Ford 1600,
Formula Ford 2000, various national Formula Three series, progressing to Formula
3000 and Formula Nippon. The development series for the CART Series include the
Barber Dodge Series, Toyota Atlantic and the Indy Lights Series. The IRL was
formed in 1995 as a rival U.S. open-wheel racing series. The IRL competes
directly with the CART Series, with an all oval race schedule including the
Indianapolis 500.
The largest auto racing category in the United States, in terms of
attendance and media exposure, is stock car racing. Stock car racing utilizes
equipment similar in appearance to standard passenger automobiles and races are
typically staged on oval courses. The most prominent organizing body in stock
car racing is NASCAR.
Drag racing typically involves short sprint races on a straight-line
drag strip. The National Hot Rod Association ("NHRA") is the most prominent
organizing body in drag racing.
Sports car racing, with various series throughout the world, includes
several different classifications. World sports cars are open-roof, specially
designed race cars. The cars eligible for racing in a GT Series are high
performance racing cars that must be based on limited production street cars.
ECONOMICS OF MOTORSPORTS
The primary participants in motorsports are spectators, corporate
sponsors, drivers and team members, team owners, suppliers, track owners and
sanctioning bodies. Track owners and sanctioning bodies derive their revenue
through spectator admissions, television broadcast rights fees and corporate
event sponsorship.
Team owners derive their revenue primarily through corporate
sponsorship, which varies with the team's appeal and racing success. Team owners
expenditures include (1) driver's salary, (2) engine, (3) racing car and spare
parts, and (4) team costs consisting of engineers, crew, office and travel
expenses. In a series such as CART, team budgets for a full racing season can
range from as low as $5 million to as high as $15 million per car. A typical
two-driver CART team purchases five cars, spare parts and services each year.
Formula One team budgets, which include the costs of individually produced
racing cars by each team, are significantly higher, in the range of five times
the budget of a CART team.
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<PAGE> 37
PARTICIPANTS
Motorsports events are generally heavily promoted, with a number of
supporting events surrounding the main race event. Examples of supporting events
include (1) qualifying trials, (2) secondary racing events, (3) driver autograph
sessions, (4) automobile and product expositions, (5) catered parties and (6)
other related events. The supporting events are designed to maximize the
spectator's entertainment experience.
Spectators. Motorsports is among the fastest growing spectator sports
in the United States. After soccer, it is the most watched sport world-wide.
Spectators either attend the motorsport event or view the event on television.
In 1997, auto racing had an estimated world-wide aggregate television audience
of over 6 billion people.
Corporate Sponsors. Drawn to motorsports by the large number of
spectators and television audiences and their attractive demographics, corporate
sponsors are active in all phases of the industry. Spectators are believed to be
loyal to motorsports and to its corporate sponsors. Estimated at over $1 billion
in North America alone, corporate sponsorships include (1) event sponsorship,
(2) racing team sponsorship, and (3) broadcast television sponsorship. In
addition to sponsoring the various race series, corporate sponsors support
drivers and teams by funding certain costs of their operations. They support
race promoters and track owners by sponsoring and promoting specific events. In
return, corporate sponsors receive advertising exposure on television and radio,
through newspapers, printed materials and advertising, promotional and
hospitality benefits at the track over the race weekend. Companies negotiate
sponsorship arrangements based on various factors, including a series' or
event's audience size or spectator demographics and the team's racing success.
Drivers and Team Members. The majority of drivers contract
independently with team owners, while select drivers own their own teams.
Principally, drivers receive income from contracts with team owners, sponsorship
fees and prize money. Successful drivers may also receive income from personal
endorsement fees and souvenir sales. The personality and success of the driver
can be an important marketing advantage for team owners because it can help
attract corporate sponsorships and generate sales for licensed merchandise. The
efforts of each driver are supported by a number of other team members, all of
whom are supervised by a crew chief.
Team Owners. In most instances, team owners underwrite the financial
risk of placing their teams in competition. They contract with drivers, acquire
racing cars and support equipment, employ pit crews and mechanics and syndicate
sponsorship of their teams. Team owners generally receive income primarily from
sponsorships and a percentage of the prize money.
Suppliers. In most race series, third-party companies supply racing
cars and equipment, engines and tires to the race teams. The equipment complies
with rules and specifications developed by that race series' sanctioning body.
Many suppliers are involved in the motorsports industry in order to enhance
brand recognition through advertising, as well as for research and development
for use in production road cars, tires and equipment.
Race Promoters. Race promoters include track owners, government
organizations and other groups and individuals. Race promoters pay a fee to have
an event sanctioned at their race venue and are responsible for the local
marketing and promotion of the event. Their revenue sources generally include
admissions, sponsorships, corporate hospitality (suites, chalets and tents for
race viewing and other amenities), advertising and concessions and souvenir
sales.
Sanctioning Bodies. Sanctioning bodies sanction events at various race
venues in exchange for fees from race promoters and track owners. Sanctioning
bodies are responsible for all aspects of race management necessary to "produce"
the race event. Sanctioning bodies are responsible for presenting racing cars,
drivers and teams and providing race officials to ensure fair competition, as
well as providing the race and series' purses and other prize payments.
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<PAGE> 38
RACING SERIES AND CLASSIFICATIONS
Motorsports is a highly segmented industry. Each classification of
racing constitutes a distinct product, with different rules and equipment
specifications. Racing series and classifications change regularly, but the
premier racing series currently can be denominated as follows:
o Formula One. The Federation Internationale de l'Automobile (the
"FIA") sanctions the Formula One World Championship. Formula One
events consist of open-wheel races on road courses in Europe,
South America, Canada, Australia and Japan. The Formula One World
Championship was founded in 1950. The 1998 Formula One calendar
includes 15 events in 13 different countries. The cars are
single-seater, open-wheel racing cars powered with a
non-turbocharged 3000 cubic centimeter capacity engine, capable of
speeds of around 200 miles per hour. The FIA rules require that
each team manufacture its own race car chassis. Formula One events
attract large, world-wide audiences. According to the FIA, the
1997 Formula One World Championship season attracted a total
spectator audience of over three million people and over 5.4
billion viewers in 202 countries.
o CART. The CART Series is the premier open-wheel motorsports series
in North America. CART racing cars ("Champ Cars") are
single-seater, open-wheel racing cars with a turbocharged
four-cycle overhead cam shaft eight-cylinder engine with allowed
maximum cubic inch displacement of 2,650 cubic centimeters. Champ
Cars are capable of speeds of up to 240 miles per hour. CART
events are staged on four different types of tracks -
superspeedways, ovals, temporary street courses and permanent road
courses. The 1998 CART Series calendar includes 19 events in five
different countries, with plans to stage 20 events in 1999. In
1997, CART races were televised in more than 185 countries with
aggregate television audiences in excess of one billion viewers.
Total attendance at CART races increased significantly from 1.8
million people in 1991 to 2.5 million people in 1997.
o NASCAR. Professional stock car racing developed in the
Southeastern United States in the 1930s, and the National
Association of Stock Car Auto Racing, Inc. ("NASCAR") has been
influential in the growth and development of the sport. NASCAR is
the most recognized sanctioning body of professional stock car
racing in North America, staging the Winston Cup and Busch Grand
National stock car race events. Stock cars are production-based
sedans that are closely regulated from an engine and chassis
specification standpoint. The 1998 Winston Cup and Busch Grand
National race series include 33 and 31 races, respectively, all of
which will be held in the United States, with two exhibition
events in Japan. NASCAR-sanctioned events, particularly Winston
Cup races, enjoy a large and growing base of spectator support.
Based on statistics developed by Goodyear Tire & Rubber Co.,
attendance at NASCAR's Winston Cup Series, Busch Grand National
Series and Craftsmen Truck Series grew 9.0%, 16.6% and 13.5%,
respectively, from 1996 to 1997. Moreover, according to Nielsen,
more than 175 million people watched NASCAR's televised events in
1997. Winston Cup, Busch Grand National and other major
NASCAR-sanctioned races also receive extensive national radio
coverage.
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<PAGE> 39
For each of the above racing series, there are established junior
formulae which develop drivers, engineers, suppliers, mechanics and other
personnel for the next level of competition. Although not a strict ladder
system, the conventional tiers are as follows:
Formula One
o Formula 3000. This formula was introduced in 1985 as a replacement
for Formula Two. It remains the secondary European racing formula,
acting as a final training ground and feeder series, in terms of
drivers, teams and engineers, for the Formula One World
Championship. The series is for single-seater open-wheel racing
cars with 3000 cubic centimeter engines generating horsepower of
approximately 450-500 bhp with top speeds of approximately 180
miles per hour. The Formula 3000 Championship has approximately
ten rounds, all in western Europe, of which four typically act as
support races to Formula One World Championship events. Television
coverage is limited to the Eurosport Satellite Channel. Since
1996, the Formula 3000 Championship has been conducted as a
one-make formula, with identically prepared chassis supplied by
one specified manufacturer.
o Formula Nippon. In Japan, the Formula Nippon Series has emerged,
taking the place of the previous Formula 3000 Series in Japan. The
series is for single-seater open-wheel racing cars with 3000 cubic
centimeter engines generating horsepower of approximately 550 bhp,
with top speeds of approximately 200 miles per hour. The 1998
Formula Nippon Series included 10 races throughout Japan, on
permanent road courses and temporary street circuits.
o Formula Three. The national Formula Three Series acts as a feeder
series to Formula 3000. Formula Three cars are smaller versions of
Formula 3000 cars, but with 2,000 cubic centimeter engines based
on standard production engines yielding around 200 horsepower and
a top speed of approximately 150 miles per hour. Formula Three
racing is organized largely on a national basis, with major series
in Britain, Germany and Italy, and other series in France, Japan,
South America, Mexico, Greece and India. There are also major
international Formula Three Series at Monaco, which support the
Formula One World Championship Monaco Grand Prix and the Macau
Grand Prix in the Far East. There are additional
sub-classifications that serve as feeder series to Formula Three,
including the Formula Ford 1600 Series and Formula Ford 2000
Series.
CART
o Indy Lights Championship. The Indy Lights Championship was formed
in 1986 as a one-make series with identical, sealed engines and a
single tire manufacturer. The series utilizes single-seat
open-wheel racing cars with engines generating horsepower of
approximately 450 bhp with top speeds of approximately 195 miles
per hour. The Indy Lights Championship is designated as the
"Official Development Series of the CART Series" and is sanctioned
by CART. In 1998, the Indy Lights Championship includes 14 races,
one of the which was run as a stand alone event.
o Toyota Atlantic Series. The Toyota Atlantic Series is a one-make
series with identical Toyota engines and a single tire
manufacturer. The series utilizes single-seater open-wheel racing
cars with 1600 cubic centimeter engines generating horsepower of
approximately 250 bhp with top speeds of approximately 165 miles
per hour. The races are staged on ovals, temporary street courses
and permanent road courses. In 1998, the Series will compete at 13
venues, 11 of which will be as support races for the CART Series.
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<PAGE> 40
o Barber Dodge Series. The Barber Dodge Series is a highly
competitive North American race series which utilizes 30
identically prepared single-seater racing cars, called Reynard
Dodges. Serving as a development series to the CART Series, the
Barber Dodge Series races on temporary street circuits and
permanent road courses, with many races run as a support race to a
CART event. Drivers and/or their sponsors lease a Reynard Dodge
for $10,000 per race, with a chance of earning $12,000 for a win.
Unlike other motorsports series, the Barber Dodge Series is
completely self-contained and owned and operated by Skip Barber
Racing.
In addition to the various racing series discussed above, the following
series and classifications have attracted a strong fan base and have established
an international following.
o Indy Racing League. In 1995, the IRL was formed as a rival United
States open-wheel racing series, competing directly with the CART
Series. The IRL's events are staged solely on oval courses. IRL
cars are single-seater open-wheel racing cars with 4000 cubic
centimeter normally aspirated engines generating horsepower of
approximately 700 bhp with top speeds of approximately 230 miles
per hour. The IRL's first season of racing commenced in 1996 and
consisted of five races, including the Indianapolis 500. The 1998
season consists of 11 races, including the Indianapolis 500.
o Super Touring. Super touring is a significant growth area in
international motor racing. The series is developed for touring
cars with a shell outwardly similar to a production model with a
rev-limited two liter engine from the same manufacturer. In many
instances, specialist racing firms produce the cars for major
motor manufacturers. The major series are in Britain, Germany,
Italy, France and Japan. Other series are run in Australia, South
Africa, Belgium and Spain. Manufacturers racing in this series
include Alfa Romeo, Audi, BMW, Ford, Honda, Mazda, Nissan,
Peugeot, Renault, Toyota, Vauxhall/Opel and Volvo.
Sub-classifications include oval touring, one-make touring, sports
prototype series and similar touring car race series.
o Sports Car Racing. Sports car racing is sanctioned in the United
States by the Sports Car Club of America, the United States Road
Racing Championship and Professional Sports Car Racing, which
sanction races held on road courses throughout the country,
including the Rolex 24 at Daytona, the premier sports car
endurance event held in the United States. Internationally, the
race at LeMans, France is the premier sports car endurance race.
Sports car racing includes several different classifications.
World sports cars are open-roof, specially designed racing cars.
Also included in sports car racing are GT cars. The cars eligible
for racing in a GT Series are high performance racing cars that
must be based on limited production street cars.
o Drag Racing. Drag racing typically involves short sprint races on
a quarter mile straight-line drag strip. The NHRA is the most
prominent organizing body in drag racing. The NHRA sanctions
numerous classifications of cars, the most prominent of which are
"top fuel dragsters" and "funny cars." Top fuel dragsters
frequently exceed 300 miles per hour. Horsepower is the most
important aspect of this form of racing. However, aerodynamics
have become increasingly important both from the standpoint of
eliminating aerodynamic drag and providing downforce to keep the
cars on the track with the maximum amount of traction.
o Truck Racing. NASCAR sanctions a series that races trucks based on
U.S. production mid-sized pick-up trucks. The Series events are
staged primarily on oval tracks throughout the United States. The
trucks' engines generate approximately 550 horsepower with top
speeds of approximately 190 miles per hour. The 1998 race season
includes 27 races.
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<PAGE> 41
THE MOTORSPORT VALLEY
British designed and assembled racing cars dominate motorsports
throughout the world. It has been estimated that over 75% of single-seater
racing cars used in 80 countries throughout the world were engineered, designed
and assembled in the U.K. Approximately 600 U.K. companies are currently
involved in the motorsports industry. This concentration of motorsports firms is
centered around the Thames Valley in Oxfordshire and has become known as the
"Motorsport Valley." The reasons for this concentration are numerous, but center
mainly upon the concentration of knowledge and expertise that has been developed
over the past 30 years and the ongoing British interest in the motorsports
industry. For Reynard, being a part of the Motorsport Valley provides it with
access to knowledge, expertise and a workforce that has been a significant
benefit to its expanding business.
THE RACING CAR
Following is a diagram of the 1998 Reynard Champ Car, with certain of
the components identified:
[DIAGRAM OF REYNARD RACE CAR WITH CERTAIN COMPONENTS OF THE CAR IDENTIFIED]
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Reynard builds the CART Champ Car to comply with specifications set by
the sanctioning body. The 1998 Champ Car has a maximum allowable length of 196
inches (190 minimum), a maximum width of 78.5 inches (77-3/4 inch minimum) and a
maximum height of 32 inches, excluding the rollover hoop and rear wings. The
race cars must weigh a minimum of 1,550 pounds including coolant and lubricant.
The rear wing on the short oval and road course race car has a maximum allowable
height of 36 inches, but is limited to 32 inches on super speedways. The minimum
wheel base (distance between the front and back wheel center line) is 96 inches.
Ground effects are the result of designs which channel air under the
car to create a low-pressure area or partial vacuum between the racing car and
the race track. Under-car tunnels, combined with wings on the front and rear of
the racing car, create downforce, similar to lift on airplanes, only in reverse.
It is measured in pounds and can be used to balance the handling of the racing
car by adjusting the front and rear wings. Downforce may create loads up to
three times the weight of the racing car permitting the vehicle to corner at
greater speeds while drivers experience loads of over five Gs (a lateral load
equivalent to more than five times the pull of the earth's gravity) as a result
of the efficiency of ground and other aerodynamic effects.
Wings are critically important to the basic concepts and performance of
current Champ Cars. The wings and racing car underbody have a significant impact
on the handling and stability of the car. The wings work to improve cornering
capabilities, enhance traction and maintain a balanced vehicle. Wings used on
road courses or short ovals differ from those used on superspeedways.
Through tiny testing probes, teams can compare different shapes and
sizes in wind tunnel experiments to enhance the aerodynamic performance of the
car. Front and rear wings are frequently adjusted to achieve maximum performance
and handling of the racing car. Though the aerodynamics are fixed when the car
is on the track, packages are often adjusted by the crew based on the track
configuration, racing car speeds and wind speed measurements. On short ovals and
road courses, teams must work to obtain maximum downforce. At super speedways
and other especially fast circuits, downforce becomes less important, and drag
must be reduced to obtain maximum speed. In order to achieve the maximum
performance and handling of a racing car, many teams include a substantial
budget for research and development costs, including wind tunnel experiments, to
enhance the aerodynamic performance of the car.
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BUSINESS
GENERAL
Reynard Motorsport, Inc. is one of the world's leading designers and
manufacturers of production racing cars and other high performance specialty
vehicles. Cars designed and produced by Reynard have a long history of winning
races and setting records in many of the world's most competitive racing series.
During 1998, Reynard racing cars were used by some of the world's best drivers,
including Alex Zanardi, Jimmy Vasser, Greg Moore, Gil DeFerran, Dario
Franchitti, Mark Blundell, Adrian Fernandez and Bobby Rahal. A majority of the
current drivers in Formula One, the most prestigious international racing
series, have competed in a Reynard racing car during their career, including
World Champions Jacques Villeneuve, Michael Schumacher and Damon Hill.
The Company was founded 25 years ago by Dr. Adrian Reynard, a former
champion racing car driver who competed in vehicles of his own design. Since its
inception, the Company's goal has been to dominate every race and win each
championship in every series it enters. Reynard has graduated from Formula Ford
Championships in the mid-1980s to the CART Series, to become the reigning CART
Series champion, by applying the latest technology in the design and development
of safe and competitive products. Reynard's history of winning is reflected by
its operating performance, with sales growing at a compound annual growth rate
of 51.9% from 1994 to 1997. As of October 20, 1998, the Company had entered into
purchase agreements for racing cars and services representing orders valued at
$44.80 million in 1999.
Reynard Racing Cars. Reynard designs, manufactures and sells racing
cars for competition in (1) the CART Series, the premier open-wheel motorsports
series in North America; (2) the Formula Nippon Series, the Formula 3000
open-wheel racing series in Japan; and (3) the Barber Dodge Series, an
open-wheel one make development series in the United States. The Company also
designs and engineers touring and sports racing cars in conjunction with
automobile manufacturers, such as Ford, Chrysler, Panoz and Dodge, for
competition in international championships.
BAR will make its debut in Formula One in 1999. BAR is a joint venture
in which Reynard is a partner with British American Tobacco and Mount Eagle,
Inc. The 1997 Formula One World Champion driver, Jacques Villeneuve, will drive
one of the racing cars designed and engineered by BAR.
Reynard operates integrated design, production and testing facilities
in Oxfordshire, England, often referred to as the Motorsport Valley. The Company
also operates a North American headquarters and testing facility in
Indianapolis, Indiana. Reynard employs over 230 people, of which over 85% are
highly skilled and well educated designers, engineers and other specialized
technicians. The Company's employees utilize the most advanced technology in the
design and engineering of racing cars, with a focus on maximizing aerodynamic
efficiency, while continuing to develop improved safety features. Through the
use of computer-aided engineering, design and manufacturing technology, Reynard
meets stringent design criteria, streamlines production and reacts faster to
changing demands. The Company pioneered the use of carbon composites in the
manufacture of lighter, stronger and safer production racing cars. Reynard
emphasizes after-sales support, including on-site race day customer service, and
focuses on the needs of each individual customer. Such attention to customer
service and satisfaction, coupled with management's expertise and investment in
technology and equipment, has enabled Reynard to develop a track record of
winning within the competitive global motorsports market.
KEY COMPETITIVE STRENGTHS
History of Winning. Since the beginning of fiscal 1994, Reynard racing
cars have won a total of 81 races, including seven championships in the CART
Series, Formula 3000 competition and the Formula Nippon Series. Since winning
its first race in the CART Series with driver Michael Andretti in 1994, Reynard
racing cars have won
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a total of 54 pole positions (fastest qualifying times) and 49 wins. Reynard
also has won the Constructor's Award for the CART Series each year from 1995
through 1998. As a result of its winning track record, Reynard supplied 22 of
the 28 full-season entries in the 1998 CART Series. Reynard has received orders
through October 20, 1998 to supply 37 racing cars for the 1999 CART Series and
orders for 13 racing cars for the 1999 Formula Nippon Series.
Reynard's reputation for winning has allowed it to establish alliances
with major companies in the motorsports and automotive industries, including
Chrysler, Firestone, Ford, Goodyear, Honda, Mercedes and Toyota. Increasingly, a
number of international companies have sought the technological and engineering
resources of Reynard to provide more diverse commercial solutions.
Leader in the Development and Application of Motorsports Technology.
The Company employs a scientific, rather than the traditional trial and error
approach, in the design, engineering and manufacture of racing cars. The Company
uses simultaneous engineering, which includes computer-aided engineering, design
and manufacturing systems. With these systems, the Company can develop and
manufacture a racing car, from initial design to final assembly, in a period of
a few months. The Company analyzes the aerodynamic effects on a racing car in
simulated race settings by (1) development and application of computational
fluid dynamics, (2) application of finite element analysis and (3) testing at
its wind tunnel facilities. The Company uses the results of these tests to
engineer its racing cars. Management believes that its participation at the
highest level of motorsports, such as the CART Series and Formula One, enhance
the Company's ability to effectively develop and apply highly advanced
technology to the design, development and production of racing cars for junior
formulae.
Strategic Relationship with British American Racing in Formula One. BAR
will field a two-car team in the 1999 Formula One World Championship. The 1997
Formula One World Champion driver, Jacques Villeneuve, will drive one of the
racing cars that will be designed and engineered by BAR. Management believes
that British American Tobacco selected Reynard to be one of its joint venture
partners in BAR as a result of the Company's reputation and expertise. British
American Tobacco has entered into a long-term sponsorship agreement to fund what
management believes to be one of the most significant sponsorship budgets in
Formula One.
Reynard has agreed to commit its management expertise to BAR. Reynard
has invested $5.25 million, in exchange for a 15% equity interest in BAR and an
ongoing management fee. Reynard expects to provide certain contract
manufacturing services to BAR in its early stages on a fee-for-service basis.
BAR will build and maintain a separate staff and facilities adjacent to
Reynard's facilities in the Motorsport Valley. Although BAR operates
independently, BAR and the Reynard technical staff regularly hold joint meetings
to discuss and analyze research and development results of mutual interest.
As a result of the joint venture, Reynard has access to certain of
BAR's technological know how (not in written or machine readable form). The
Company believes that this access to research and development ideas will enhance
Reynard's other motorsports projects by improving our knowledge database and
methodology.
Highly Experienced Management and Operating Team. The Company
attributes much of its success to its management team. It is composed of former
racing car drivers, managers, race team members and motorsports enthusiasts who
are highly experienced and well known within the motorsports sector. The
Company's senior management team has an aggregate of over 75 years of service
with the Company. Reynard has successfully manufactured racing cars for 25 years
by leveraging the expertise of its management team in design and engineering,
composites and production.
The Company also has developed a corporate culture that provides
exceptional training to young designers and engineers. By personally
interviewing and recruiting each applicant, Dr. Reynard and the other members of
the senior management team attempt to identify those skilled engineering
students who they believe will excel in the unique Reynard culture and
environment. Management believes that this recruiting process and corporate
culture
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has enabled the Company to attract, retain and develop a team of highly skilled
designers, engineers and technical staff. Upon completion of the offering,
officers and employees of the Company will beneficially own approximately ___%
of the outstanding common stock.
Commitment to Customer Service. Reynard believes that service is an
integral component of sales. Reynard demonstrates its commitment to service by
assigning a liaison engineer to each Reynard racing car in the CART Series. By
dedicating an engineer to each team, the Company can respond quickly to customer
questions and concerns. Reynard also receives valuable information from these
engineers for the continued development of the racing cars and equipment.
Reynard engineers are present at each CART event to monitor the Reynard racing
cars. In addition to this individualized customer service provided by Reynard
engineers, its customers have access to Reynard's design systems and wind tunnel
results. The customers also have direct access to Reynard's design team through
the Company's computer-aided design system. Reynard uses the data obtained by
the engineers at each track and the results of wind tunnel testing and
engineering analysis to further refine the racing car design in response to
competition on the track and customer recommendations. Reynard sells update
packages, which may include newly designed wings or other components, to
customers periodically during the season to incorporate these refinements.
Vertically Integrated Operations. Reynard has the ability to design,
engineer and manufacture the majority of the components of a racing car. Through
its vertically integrated operations, the Company is able to (1) maintain higher
quality control standards in the production of all components of the racing car,
(2) improve operating margins by lowering costs, and (3) control the timing of
production and delivery of its products.
The Company (1) designs and engineers racing cars and component
equipment, (2) makes the patterns to be used in the production process, (3)
manufactures the individual components to specification and (4) assembles the
racing car. With the pending acquisition of Gemini, which manufactures gearbox
and transmission systems, the Company will be able to manufacture substantially
all of the parts necessary to deliver a rolling chassis to the customer.
GROWTH STRATEGY
Capitalize on Growth Opportunities within Existing Race Series. The
Company intends to increase its presence in the race series in which it is
currently involved. The Company believes it will grow its business in existing
series through:
o Capitalizing on the continued expansion of the CART Series and
other existing series. The Company believes it will continue to
grow as these series grow through (1) increases in popularity, (2)
expansion of the number of races and competitors, (3) increases in
development budgets, and (4) expansion internationally. With such
expansion, the Company can increase sales to existing customers
who will require additional high margin equipment, spare parts and
services. In addition, the Company intends to construct a
composite manufacturing and repair facility in Indianapolis,
Indiana. This facility will support parts sales and repair work
that currently is performed in-house by individual CART teams.
o Introduction of a newly designed racing car for the 1999 Formula
Nippon Series. The Company believes the new design will result in
increased sales of racing cars and spare parts in this series.
o Expansion of the Company's presence in the touring and sports car
racing programs. Major automobile manufacturers increasingly view
success in these programs as an effective way to market their
products and increase their prestige. The Company is planning the
production of a world sports
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car to be designed and manufactured in conjunction with a major
automobile manufacturers. The Company is currently engaged in
discussions with two major international automobile manufacturers
regarding this project.
Enter New Race Series and Contracts with New Customers. Reynard intends
to selectively enter additional motorsports markets through the sale of racing
cars and equipment and through the sale of technological support. Reynard
continuously evaluates existing opportunities to design and produce racing cars
or provide support services for a number of race series including: (1) the IRL,
(2) Formula 3000, (3) Indy Lights, and (4) Toyota Atlantic. In addition, Reynard
will provide certain contract manufacturing services and show cars to BAR in
its early stages, on a commercial basis, for the upcoming Formula One racing
season.
Introduce New Higher Margin Services. Reynard believes that a
significant portion of its future growth will be in the form of expanded sales
of higher margin services to its motorsports customers. The services include CFD
analysis, wind tunnel testing and seven post suspension rig testing. Through the
application of these services, the Company's customers are able to simulate and
evaluate the effects of subtle changes in the engineering and set up of
individual cars moving at high speeds and can apply the results of such tests to
maximize their performance. Reynard has designed and built a state-of-the-art
50% scale model, moving ground open jet wind tunnel in Indianapolis, Indiana.
Reynard sells time in the wind tunnel to CART racing teams and others on a
fee-per-usage basis. In 1999, the Company will construct a seven post suspension
rig testing facility in Indianapolis. Reynard will sell time on the suspension
rig to CART racing teams and others on a fee-per-usage basis.
Leverage Motorsports Technology. Reynard intends to selectively expand
its non-motorsports operations by applying the technological and engineering
resources it has developed in the motorsports sector to other industries.
Reynard believes that its highly skilled designers and engineers can apply its
advanced technology in all areas where wind resistance, weight, fuel
conservation and/or safety concerns are factors. For example, based on Reynard's
design and engineering capabilities, Virgin Airlines selected Reynard to design
and develop a light-weight, strong, fully-reclining business class aircraft
seat. The aircraft seat is currently in the production phase. To further support
efforts outside of motorsports, Reynard plans to open a computer-aided design
office in Detroit, Michigan. This office will target design and engineering
projects within the automotive industry, and leverage the strong relationships
Reynard has developed over the years with the major automobile manufacturers.
Although Reynard's primary focus will remain in the motorsports industry,
management believes that a number of opportunities outside the motorsports
sector are available.
Selective Acquisitions. Management believes a number of opportunities
exist to make selective strategic acquisitions within the motorsports industry.
Reynard will generally seek to acquire companies that (1) complement and expand
the Company's current operations, (2) have an experienced management team, (3)
have an industry leading reputation and (4) have strong customer and supplier
relationships. Reynard's acquisition of Gemini meets these objectives by further
integrating the Company's current operations and providing state-of-the-art
equipment in a highly specialized business. Reynard believes that the
relationships Gemini has developed with Audi, BMW, Mercedes and Volkswagen, as
well as many other industry customers, will add strategic value to Reynard's
future growth. Management will continue to evaluate methods to further enhance
the Company's vertical integration.
COMPANY HISTORY
Reynard Motorsport was formed in 1973 when Adrian Reynard designed and
built his first Formula Ford car for competition. Since that time, Reynard has
progressed from manufacturing racing cars for Formula Ford in the 1970's,
Formula Three in the 1980's, Formula 3000 in the late 1980's and early 1990's,
CART in the mid-1990's and will enter Formula One in 1999. Reynard's cars have
dominated each of these series. Reynard has been able to continually leverage
its success and technical expertise as it graduated into more advanced series in
which
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revenue and profit per car could be increased. Management believes Reynard has
grown to become a leading manufacturer of racing cars as a result of attracting
skilled and committed individuals, coupled with state of the art equipment and
technology.
As a result of its competitive designs and engineering, Reynard racing
cars have consistently won races and championships in every Formula in which
they have competed:
o Formula Ford Champions 1986, 1987, 1988, 1989
o Formula Three Champions 1986, 1987, 1988, 1989, 1990, 1991, 1992,
1993
o Formula 3000 Champions 1988, 1989, 1991, 1992, 1993, 1994, 1995
o US 500 winners 1996, 1997, 1998
o Indianapolis 500 winners 1995, 1996
o CART Series Champions 1995, 1996, 1997, 1998
o CART Series Constructor's Award 1995, 1996, 1997, 1998
Reynard is one of only a few racing car manufacturers which have
leveraged their knowledge and expertise to graduate from lower technology junior
formulae such as Formula Ford and Formula Three, to the more advanced higher
margin series, such as Formula 3000 and CART. Reynard has often exited the
junior series when graduating to higher series. In addition, , the Company has
expanded into international markets such as the United States, Europe, Canada,
South America and Asia by applying its technological expertise to specialized
projects within motorsports and select other industries. As a result, Reynard
won the Queen's Award for Export Achievement for the first time in 1990 and, in
1996, became the only company in the U.K. to win the award for a second time.
Reynard is well positioned to continue expanding in the series in which it
currently competes. The timeline below shows the Company's progression from its
inception in 1973:
<TABLE>
<CAPTION>
Entrance into international
Markets USA, Canada,
Germany, South Africa
First Formula Ford | Production for Formula
produced | Vauxhall/Opel Lotus single Chrysler
| | make series with GM Toyota Atlantic Patriot
| | | | | | | | | |
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1973 1975 1982 1984 1985 1987 1988 1989 1993 1994
| | | | |
| Development Entrance into Entrance into Entrance into the
First Formula Ford of carbon Formula Three Formula 3000 CART Series
2000 produced fiber technology
</TABLE>
<TABLE>
<CAPTION>
Ford Indigo Joint Venture with BAR
| to enter Formula One
Venture with Production of
Chrysler to produce Barber Dodge
Stratus Touring Cars single make cars
| | |
- ---------------------------------------------------
<S> <C> <C> <C>
1995 1996 1997 1998
| |
Venture with Ford to Venture with
produce Mondeo Virgin Airlines to form
Touring Cars Reynard Aviation
Panoz GT cars Venture with
Strathcarron
</TABLE>
PRODUCT DEVELOPMENT
Formula Ford. In 1973, Dr. Reynard designed and built his first Formula
Ford car. Formula Ford 1600s are simple, lightweight aerodynamic cars. They are
based on a stiff chassis with a 2-liter Ford engine which yields approximately
110 horsepower and a top speed of approximately 120 miles per hour. They are
built in accordance with a stringent set of regulations. Efficient use of
materials and components enhance performance and cost effectiveness. Dr. Reynard
designed the car for his own use in competition. In the process, Dr. Reynard
introduced
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a number of new ideas to the otherwise conventional design, many of which later
became standard in Formula Ford 1600. The first time Dr. Reynard raced in the
new vehicle, it won.
Following its success in Formula Ford 1600, Reynard began developing a
Formula Ford 2000 car. By 1975, the Company had produced its first Formula Ford
2000 car. Formula Ford 2000 cars have a 2-liter engine yielding 130 horsepower
and a top speed of approximately 130 miles per hour. They use larger slick tires
and wings than Formula Ford 1600 cars. In 1983, Reynard's first Formula Ford
2000 car incorporated much of the design and engineering technology that Dr.
Reynard had learned while designing the Formula Ford 1600. The first time
Reynard's Formula Ford 2000 car raced, it won. Over the next ten years, Reynard
continued to achieve success in both the Formula Ford 1600 and Formula Ford 2000
series. From 1973 to 1988, the Company manufactured 277 Formula Ford 1600 cars
and 384 Formula Ford 2000 cars. At this time, the Company began to experiment
with carbon fiber in the production of its cars, a technology which, up until
that time, had only been used in Formula One.
Formula Three. By 1985, the Company began to develop a racing car for
competition in Formula Three. As in Formula Ford, the first time a Reynard car
competed in Formula Three, it won. Formula Three cars are smaller versions of
Formula 3000 cars, with 2,000 cubic centimeter engines based on standard
production engines yielding around 160 horsepower and a top speed of
approximately 150 miles per hour. The Company's success in Formula Three set
Reynard apart from many of its competitors in Formula Ford who had
unsuccessfully attempted to enter the higher formulae. Formula Three teams were
more demanding and had higher expectations than Formula Ford. Over the next ten
years, the Company produced approximately 360 Formula Three cars.
Formula Vauxhall Lotus. In 1987, General Motors decided to launch a
racing series known as Formula Vauxhall Lotus in Britain and Formula Opel-Lotus
in Europe. General Motors selected Reynard to manufacture the car. The Formula
Vauxhall-Lotus series was a one-make series using a 16-valve engine designed by
Cosworth Engineering, which was close in performance to the Formula Three engine
but at a much lower cost. Reynard was the exclusive chassis supplier to this
series between 1987 and 1992, producing a total of 204 cars for this series.
Formula 3000. The Company's entrance into Formula 3000 in 1988
represented a turning point for Reynard. The Formula 3000 design was
substantially different from the lower formulae in which Reynard had previously
competed. Formula 3000 is the secondary European racing formula, acting as a
final training ground and feeder series for Formula One. Formula 3000 is for
single-seater open-wheel race cars with 3000 cubic centimeter engines generating
horse power of approximately 450bhp with top speeds of approximately 180 miles
per hour. Reynard's Formula 3000 car won the first race in which it competed and
went on to win the Championship during its first year. For the next eight years,
Reynard continued to apply its technology to expand its presence in Formula
3000, manufacturing 220 cars during this time, while discontinuing its
production of Formula Ford 1600 and Formula Ford 2000 cars. Reynard stopped
producing Formula 3000 chassis in 1995, but continued operating successfully in
Japan, selling 10 cars and winning the Championship in 1997. Since 1996, Formula
3000 has been conducted as a one-make series.
Toyota Atlantic. In 1989, Reynard manufactured the first carbon
composite Toyota Atlantic car. The car debuted in New Zealand and won its first
race. The Toyota Atlantic series was a multiple chassis series with identical
Toyota engines and a single tire manufacturer. The Toyota Atlantic car was
closely related to the Formula Three car with slightly different aerodynamic
characteristics. Reynard continued to manufacture racing cars for this series
for two years, manufacturing 15 cars during this time.
Chrysler/Dodge. In 1993, Reynard entered into its initial design and
engineering consulting projects for large international automobile
manufacturers. For example, Chrysler selected Reynard to assist it in the design
and development of the Chrysler Patriot, an endurance racing sports car. The
Company designed and built the new car, from initial design to assembly, within
six months. Management believes no other motorsports manufacturer could have
achieved such results in that time frame. Although the Patriot never actually
raced, the alliance Reynard
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developed with this major automobile manufacturer was a significant step in
Reynard's development. As a direct result of the Chrysler Patriot project,
Reynard was selected by Chrysler for two projects (1) making carbon fiber
composite bodies, consulting on chassis development and designing an
aerodynamics package to be used in the racing car version of the Dodge Viper and
(2) developing the Chrysler Stratus car for the American Touring Championship.
The Company provided technical support and supplied kits of parts for both cars.
Champ Car. After having successfully entered the U.S. market with a
Toyota Atlantic car, and following its success in Formula 3000, the Company
decided to participate in the CART Series. CART Champ Cars are single-seater,
open-wheel racing cars with a turbocharged four-cycle overhead cam shaft
eight-cylinder engine with allowed maximum displacement of 2,650 cubic
centimeters, capable of speeds of up to 240 miles per hour. Compared with
Formula 3000, the investment in Champ Cars was much greater, the technology was
higher and the customer base was more remote to the Company. Therefore, the
introduction of a Champ Car involved a higher degree of risk to the Company. In
addition, compared to many Formula series, a Champ Car is viewed as a design
compromise because it has to be raced on slower street circuits and road
circuits, as well as high-speed short and long oval tracks.
During 1993, Reynard began the design and marketing efforts for its
Champ Car. By the end of April 1994, Reynard had delivered 13 racing cars to its
CART customers, including Chip Ganassi Racing. Since the inception of the CART
program, Reynard has become very successful in this formula, with driver Michael
Andretti winning the first race in the series in Surfers Paradise, Australia in
the 1994 season. Reynard's successful debut in the CART Series led to a dominant
position during the 1995, 1996, 1997 and 1998 seasons. In each year, Reynard won
the Constructor's and Driver's Championships. In 1997, Reynard racing cars had a
total of 13 wins and 15 pole positions in the 17 race season. Mauricio Gugelmin
with PacWest Racing, driving a Reynard racing car, set the fastest lap ever run
on a closed circuit at the California Speedway in Fontana in 1996, lapping the
oval at 240.942 miles per hour. During 1998, the Reynard cars have won 17 races
and 17 pole positions in the 18 races and have clinched the 1998 Constructor's
Championship and Driver's Championships.
Since the Company introduced its first Champ Car in 1994, Reynard has
manufactured 148 cars, including 38 cars in fiscal 1997 and 42 cars in fiscal
1998. As of October 20, 1998, the Company has received orders for 37 racing cars
for the 1999 CART Series.
Panoz GT Cars. In January 1996, the Panoz Automotive Development
Company selected Reynard to design, develop and build six LeMans GT cars over
the course of two years. The resulting race car, known as the Panoz GTR 1,
shares the same front/mid-engine power train layout as the street-legal Panoz
AIV Roadster. It is powered by a Ford V-8 engine and is unique in every respect,
from initial concept to finished product. It is the only GT car with an external
design determined exclusively by aerodynamic considerations. The combined
expertise of Panoz and Reynard has resulted in one of the most advanced racing
cars on the international sports car racing circuit. Within 12 months of the
commencement of the project, the Panoz GTR 1 completed its proving tests and
competed for the first time at Sebring in the United States. The Panoz GTR 1 won
second place overall in the manufacturer's point standings in the 1997
Professional Sports Car Racing Series, as well as a second place in the 1997
driver's standing. During 1998, the Panoz GTR 1 won the manufacturer's and
driver's championships.
Barber Dodge. The Barber Dodge Pro Series is a highly competitive North
American racing series which utilizes 30 identically prepared single-seater
racing cars, called Reynard Dodges. Serving as a development series to the CART
Series, the Barber Dodge Series races on temporary street circuits and permanent
road courses. Many of the Barber Dodge races are run as a support race to a CART
event. Unlike other motorsports series, the Barber Dodge Series is completely
self-contained. The Series is owned and operated by Skip Barber Racing, which
has four transporters that haul everything, including the cars, parts and
equipment, to each race venue. Skip Barber Racing selected Reynard in 1997 to
design and build their cars as a result of the Company's reputation and service.
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Formula Nippon. In Japan, the Formula Nippon Series has emerged, taking
the place of the previous Japan Formula 3000 Series. The series is for
single-seater open-wheel racing cars with 3000 cubic centimeter engines
generating horsepower of approximately 450 bhp, with top speeds of approximately
180 miles per hour. In 1998, Reynard racing cars captured first and second place
in the Championship. The 1998 Formula Nippon Series included 10 races, on
permanent road courses and temporary street circuits throughout Japan. A total
of 13 Formula Nippon cars have been ordered for the 1999 series.
Reynard Aviation. As a result of the Company's expertise in racing car
design and engineering and composite development, Virgin Airlines selected
Reynard to design and develop an aircraft seat. Through Reynard Aviation, a
venture between the Company and Virgin Airlines, Reynard has capitalized on its
technical knowledge to design and develop a light-weight, strong and functional
fully-reclining business class aircraft seat. The project was primarily funded
by Virgin Airlines, with Reynard receiving a 20% equity interest in Reynard
Aviation in exchange for its technical expertise. The seats are currently in
production. Reynard expects that Virgin Airlines will install the seats in its
aircraft during 1999.
Strathcarron. The Honorable Ian Macpherson (son of Lord Strathcarron, a
former racing car driver who is now the President of the Guild of Motoring
Writers) selected Reynard to design a basic, affordable sports car for street
use that would be the equivalent of a modern day Lotus Seven or a motorcycle on
four wheels. Reynard has designed an open, side by side, two seater without
doors which uses (1) aluminum and composite materials for safety while
maintaining lightweight performance, (2) a mid-engine layout including a compact
4-cylinder, 16 valve, 1200 cubic centimeter modern engine, and (3) a unique
Reynard-designed final drive unit. In 1998, Strathcarron Sports Cars plc
commissioned Reynard to engineer and manufacture three "proof of concept"
prototype chassis.
British American Racing. The British American Racing Team will field a
two-car team in the 1999 Formula One World Championship. The 1997 Formula One
World Champion driver, Jacques Villeneuve will drive one of the racing cars
designed and engineered by BAR. Management believes that BAT selected Reynard to
be one of its joint venture partners in BAR as a result of the Company's
reputation and expertise. BAT has entered into a long-term sponsorship agreement
to fund what management believes to be one of the most significant sponsorship
budgets in Formula One. Reynard has invested $5.25 million and agreed to commit
its management expertise and technology to BAR in exchange for a 15% equity
interest in BAR and an ongoing management fee for directors' services. Reynard
expects to provide certain contract manufacturing services to BAR in its early
stages on a fee-for-service basis. BAR will build and maintain its own
independent design, engineering, research and development and manufacturing
staff and facilities adjacent to Reynard's facilities in the Motorsport Valley.
From time to time, BAR and the Reynard technical staff hold joint meetings to
discuss and analyze research and development results of mutual interest. Reynard
may access the technological know-how (not in written or machine-readable form)
accumulated by personnel employed by Reynard. The Company believes that this
access to research and development ideas will enhance Reynard's other
motorsports projects by improving our knowledge database and methodology.
DESIGN AND DEVELOPMENT
Reynard designers use a vast vehicle dynamics database compiled from
actual results on the track and updated on an ongoing basis to translate past
performance into new racing car designs. Reynard's design engineers use a
variety of computer-aided design ("CAD") systems to design a competitive racing
car. A project's design team will utilize the CAD system to begin "drawing" the
various components of a racing car, with analysis of the vehicle dynamics
database and input from engineers and aerodynamicists. Each member of the design
team is responsible for specific components of the racing car. The CAD systems
available to the design team allow each designer to view the component design
from various angles. The system also allows the components to be assembled on
the computer screen. After each component has been drawn, the entire racing car
is assembled on the computer screen.
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During the design phase, a wind tunnel model and/or prototype car is
built based on such design. Extensive engineering and testing is performed on
the racing car to refine the design prior to final production. Wind tunnel
models are built 40% or 50% to scale, depending upon the wind tunnel size, in
the same manner that actual race cars are manufactured and assembled.
Reynard has extensive experience in utilizing wind tunnel testing in
the development of its racing cars and equipment. Through the use of 50% scale
model, moving ground open jet wind tunnel testing at Reynard-operated facilities
in England and in Indianapolis, Indiana, Reynard designers, engineers and
aerodynamicists can test the car's design and set up under varying conditions.
These tests are used to improve the car's racing efficiency. In wind tunnel
testing, the aerodynamicist analyzes the impact of varying component designs,
such as different wings or nose cones, on the performance of racing cars. The
aerodynamicists may test wind tunnel sample component designs for each part
prior to finalizing the design. The designers then incorporate these findings
into the design of the racing car prior to manufacture and assembly.
Reynard is pioneering the use of computational fluid dynamics in the
design and development of racing cars. The development and application of CFD
technology and finite element analysis, in conjunction with testing performed at
proprietary-designed wind tunnel facilities, enables Reynard to analyze the
aerodynamic effects on a racing car in simulated race settings and provides the
Company with a competitive advantage in engineering its racing cars.
CFD is a computer-aided engineering system for mathematical modeling of
air flows. It allows the engineer to simulate wind tunnel tests on the computer
in advance of testing, thereby removing some of the guess work and expense from
the development process. Through its use of CFD, Reynard is able to analyze the
impact of changing component designs on the computer. This eliminates certain
possible component designs and brings fewer component designs into the wind
tunnel for testing. Through CFD, Reynard is also able to "optimize" component
design according to necessary parameters prior to building and testing parts.
Reynard currently utilizes the CFD data in conjunction with wind tunnel testing
as it further refines its CFD system and analysis processes.
In addition to the use of CFD, Reynard engineers perform extensive
finite element analysis in engineering its racing cars. Through finite element
analysis, engineers are able to mathematically calculate stress in structures,
such as the components of the racing cars, under simulated racing conditions.
Reynard continuously seeks ways in which to improve driver safety in
the design of its racing cars, as well as in the manufacturing techniques
developed to produce the racing cars. The design, engineering and development of
a Reynard racing car continues after cars have been manufactured and delivered
to customers. For example, aerodynamic refinements in the form of update kits
are developed and sold to customers to reflect the updates in car design made
during the year. The nature and frequency of update kits depend upon customer
demand and on-track competition throughout the race season.
PRODUCTION
Design and Engineering. Simultaneous engineering, which is the
concurrent participation of design, manufacturing, sales and purchasing, allows
the Company to develop and manufacture each racing car on an individual basis
from initial design to final assembly. This process is completed in a period of
two months. Through Reynard's vertically integrated operations, it is able to
(1) maintain higher quality control standards in the production of all
components of the racing car, (2) improve operating margins by lowering costs
and (3) control the timing of production and delivery of its products.
Reynard designs and engineers racing cars and component equipment,
makes the patterns to be used in the production process, manufactures the
individual components to specification and assembles the chassis. Quality and
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safety are of paramount importance in every aspect of production of the
composites and Reynard prides itself on the use of pioneering techniques in the
production of its racing cars.
Patterns. Once the design and engineering of the racing car has been
completed, patterns are made to design specification for production of the
racing car components. In May 1997, Reynard acquired the assets of a U.K.-based
partnership with extensive experience in the production of patterns. Patterns
are machined by computerized numerical control using CAD data direct from the
design office. For customers without CAD facilities, Reynard offers skilled
staff to complete the manufacturing process, from drawings to extremely high
precision finished patterns.
Manufacturing. Reynard has developed manufacturing techniques that it
believes enables it to produce one of the strongest and safest racing cars in
motor racing. The racing car components, which include the cockpit, sidepods,
wings and the underbody, are manufactured by hand using carbon composites.
Patterns are used to make molds for each chassis component. Precision computer
equipment is used to cut carbon fiber for each component. After Reynard
personnel conform the pieces of carbon fiber to the mold, each component is
placed into an autoclave at a specified pressure and temperature.
Reynard currently manufactures the majority of the suspension
components and other machined or fabricated parts necessary to deliver a rolling
chassis to the customer. With the acquisition of Gemini, Reynard will also
manufacture substantially all of the transmissions and gearbox components. The
technologically advanced equipment owned by Gemini will allow precision
production of components and parts to design specifications. The computer-aided
design and manufacturing features of the equipment allow for fast and efficient
prototyping. This, in turn, allows for small output manufacturing.
Assembly. Once all components have been produced, Reynard assembles a
rolling chassis for delivery to its customers. The cars are built by a team
split into three groups: (1) assembly, (2) sub-assembly and (3) gearbox
assembly. The sub-assembly and gearbox group has a separate kit of parts, which
are assembled into sections. These sub-assembled suspension components and
gearboxes are brought together into the main assembly area where the cars are
finished. This process ensures that the cars are assembled quickly and
accurately.
CUSTOMER SERVICES
Reynard assigns a liaison engineer to each Reynard-entry in the CART
Series in order to maintain its competitive advantage and demonstrate its
commitment to service. These engineers attend each CART event to monitor the
Reynard entries. The dedication of an engineer to each team allows Reynard to
respond quickly to customer questions and concerns. It also provides valuable
information to Reynard for further development of the chassis and equipment.
In addition to the hands-on assistance provided by Reynard engineers,
the customers from the CART Series have access to Reynard's design systems and
wind tunnel results, as well as direct access to Reynard's design team and
computer-aided design system. The continual communication between Reynard's
engineers and the race teams provide additional data for refinement of the
racing car design.
Reynard continues to enhance the performance and safety features of its
racing cars throughout the race season. Data obtained from the engineers at each
track, in conjunction with continued wind tunnel testing and engineering
analysis, allows Reynard to further refine the racing car design in response to
competition on the track. Update packages which may include newly designed wings
or other chassis components, are made available to Reynard's customers to
enhance performance of the racing car. Reynard believes that its commitment to
the continued development of its racing cars provides a significant competitive
advantage in the industry. In addition,
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Reynard continues to analyze data and evaluate designs to improve efficiency in
anticipation of the design and production of the next year's racing car.
Throughout the season, Reynard manufactures and sells spare parts to
customers on an as-needed basis. In order to avoid the cost of carrying obsolete
inventory, Reynard continuously monitors the spare parts needs of its customers
and manufactures chassis components in response to inventory needs throughout
the race season. Spare parts are sold to customers at the race track, as well as
through delivery from Reynard's distribution subsidiaries.
Reynard intends to expand sales of higher margin services, such as CFD
analysis, wind tunnel testing and seven post suspension rig testing. Through the
application of these services, Reynard's motorsports customers are able to
simulate and evaluate the effects of subtle changes in the engineering and set
up of individual cars moving at high speeds and apply the results of such tests
to maximize their performance.
Reynard, through Auto Research Center, LLC, has designed and built a
state-of-the-art 50% scale model, moving ground open jet wind tunnel in
Indianapolis, Indiana. Reynard sells time in the wind tunnel to racing teams
from the CART Series and others on a fee-per-usage basis. In 1999, Reynard will
construct a seven post suspension rig testing facility in Indianapolis. This
facility will be used to simulate the pitch and roll experienced by racing cars
under simulated racing conditions in order to refine suspension, springs and
shock absorbers on the racing car. Reynard intends to sell time on the seven
post suspension rig on a fee-per-usage basis to racing teams from the CART
Series and others.
RECRUITING AND TRAINING
During Reynard's 25-year history, Dr. Reynard and the other members of
the senior management team have developed a culture that provides exceptional
training to young designers and engineers. This culture encourages them to
assume responsibility for projects at a young age.
In 1988, Reynard developed a formal graduate recruitment program.
Pursuant to this program, skilled engineering students are given an opportunity
to intern with Reynard with the expectation of employment following graduation.
Each year, by personally interviewing and recruiting each of the over 300
applicants, Dr. Reynard and other members of the senior management team attempt
to identify skilled engineering students who they believe will flourish in the
culture and environment that is Reynard.
Reynard is committed to creating an environment that provides its
highly-skilled personnel with stimulating challenges which demand the very best
from each individual. Through the training process, the staff is exposed to the
latest engineering hardware and software, and each young designer and engineer
is encouraged to assume responsibility for projects. Management believes that
this recruiting process, coupled with the pervasiveness of the corporate
culture, has enabled Reynard to attract, retain and develop a team of
highly-skilled designers, engineers and technical staff.
COMPETITION
The industry for designing, developing and manufacturing racing cars
and technologically advanced equipment is highly competitive. Reynard competes
primarily with other manufacturers of racing cars, such as Swift and Lola, for
auto racing competitors. Continuous attention to aerodynamic, technological and
safety advances is required in order to remain competitive. Reynard believes
that on-track performance of the racing cars, industry reputation, service after
the sale, pricing and equipment availability are the principal factors that
distinguish competing motorsport manufacturers. It is its attention to those
factors listed above that has allowed Reynard to be the primary racing car
provider to competitors in the CART Series. In that series, Reynard provided
racing cars to
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22 of the 28 1998 full-season entrants. Reynard has received orders through
October 20, 1998 to supply 37 racing cars for the 1999 CART Series.
EMPLOYEES
As of August 31, 1998, Reynard employed approximately 230 full-time
employees. None of Reynard's employees are represented by a labor union.
Management believes that Reynard enjoys a good relationship with its employees.
LEGAL PROCEEDINGS
Reynard is a party to routine litigation incidental to its business.
Management does not believe that the resolution of any or all of such litigation
is likely to have a material adverse effect on Reynard's financial condition.
ENVIRONMENTAL MATTERS
Reynard believes that the facilities it operates are in material
compliance with applicable environmental statutes and regulations. Nevertheless,
if damage to persons or property or contamination of the environment is
determined to have been caused or exacerbated by the conduct of Reynard's
business or by pollutants, substances, contaminants or wastes used, generated or
disposed of by Reynard, or which may be found on Reynard's property, Reynard may
be held liable for such damage and may be required to pay the cost of
investigation and/or remediation of such contamination or any related damage.
The amount of such liability could be material and Reynard is self-insured.
Changes in regulations or requirements could also require material expenditures
by Reynard in order to become compliant.
TRADEMARKS AND PROPRIETARY INFORMATION
Dr. Adrian Reynard has filed a trademark application in the U.K. for
the Reynard brand name and logo. Dr. Reynard will grant a license to Reynard to
use the name and logo until the Company no longer conducts business operations,
at no cost to the Company except registration and related costs. Dr. Reynard
intends to file a trademark application with the U.S. Patent and Trademark
Office with respect to the Reynard brand name. U.S. registered trademarks have a
perpetual life, as long as they are renewed on a timely basis and used properly
as trademarks, subject to the rights of third parties to seek cancellation of
the marks.
Reynard does not seek patent protection on its products or processes
due to the continual development and refinement necessary to remain competitive.
Reynard does regard the products, technologies and databases that it has
developed as proprietary. The Company attempts to protect its trade secrets and
proprietary information through agreements and policies with employees and
consultants. Despite these efforts, there is no assurance that others will not
gain access to Reynard's trade secrets, or that Reynard can meaningfully protect
its technology and intellectual property. Although Reynard intends to protect
its rights vigorously, there is no assurance that such measures will be
successful.
PROPERTIES
Reynard's operations occupy leased property located in Bicester,
Oxfordshire, and Brackley, Northamptonshire, in the Motorsport Valley. The two
facilities in Bicester comprise over 3,000 square meters and those located in
Brackley occupy an area over 5,000 square meters. The lease for the Bicester
sites expire May 11, 2010. The leases for the Brackley sites expire on March 25,
1999, May 31, 2003 and May 11, 2010. Dr. Reynard is the lessor for one of the
Bicester sites, while the Reynard Racing Cars Directors Pension Fund is the
lessor for the remaining Bicester site and two of the Brackley sites. The total
rent per annum for all the sites is $897,482.
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ADDITIONAL INFORMATION
Reynard's principal executive offices are located at 8431 Georgetown
Road, Suite 700, Indianapolis, Indiana 46268. The telephone number is (317)
824-5600. Reynard was incorporated in Delaware on September 2, 1998.
Reynard has filed a Registration Statement on Form S-1 with the
Commission. This prospectus, which forms a part of the Registration Statement,
does not contain all of the information included in the Registration Statement.
Certain information is omitted and you should refer to the Registration
Statement and its exhibits. With respect to references made in this prospectus
to any contract or other document of Reynard, such references are not
necessarily complete and you should refer to the exhibits attached to the
Registration Statement for copies of the actual contract or document. You may
review a copy of the Registration Statement at the Commission's public reference
room in Washington, D.C., and at the Commission's regional offices in Chicago,
Illinois and New York, New York. Please call the Commission at 1-800-SEC-0330
for further information on the operation of the public reference rooms.
Reynard's Commission filings and the Registration Statement can also be reviewed
by accessing the Commission's Internet site at http://www.sec.gov.
Reynard files annual, quarterly and current reports, proxy statements
and other information with the Commission. You may read and copy any reports,
statements or other information on file at the Commission's public reference
room in Washington, D.C. You can request copies of those documents, upon payment
of a duplicating fee, by writing to the Commission.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is certain information concerning the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Adrian J. Reynard 47 Chairman of the Board and director of the Company
Alex S. Hawkridge 53 Chief Executive Officer and director of the Company
Richard J. Gorne 44 Vice President - Sales and director of the Company
Malcolm B. Oastler 39 Technical Director of Reynard Motorsport Limited
Paul R. Owens 57 Composites Director of Reynard Motorsport Limited
John C. Gower 42 Chief Financial Officer, Secretary, Treasurer and
director of the Company
Peter D. Morgan 44 Production Director of Reynard Motorsport Limited
Bruce G. Ashmore 39 Vice President/Technical Director - Reynard North America, Inc
Jeff S. Swartwout 45 Vice President/Operations Director - Reynard North America, Inc.
</TABLE>
The Board of Directors are elected annually by the stockholders. The officers of
the Company serve at the pleasure of the Board of Directors.
DR. ADRIAN J. REYNARD was elected Chairman of the Board and a director in
September, 1998. He has served as president and chief executive officer of
Reynard Motorsport Limited and its predecessors since 1973. Dr. Reynard's career
in the motorsports industry began in 1973 as a driver who designed and built his
own racing cars. By concentrating on design, engineering and manufacturing,
instead of driving, Dr. Reynard has made the Company a successful manufacturer
of racing cars over the past 25 years.
ALEX S. HAWKRIDGE was elected Chief Executive Officer and a director of the
Company in September, 1998. From 1992 to 1998, Mr. Hawkridge provided
specialized advice to many major companies in British motorsports through his
company, Garland Management Ltd. From 1968 to 1992, Mr. Hawkridge served as
managing director of Toleman Group, a diversified manufacturing company with
over 1,200 employees and operations in the U.K., U.S., and Philippines. During
Mr. Hawkridge's tenure, Toleman Group owned and operated Toleman Motorsport,
which won the Formula Two European Championship in 1980 and the British Rally
Championship in the same year. Toleman Motorsport entered Formula One in 1981,
and sold the team to Benetton in 1985. Toleman Group also operated Cougar
Marine, the winner of 13 consecutive World Powerboat Championships.
RICHARD J. GORNE was elected Vice President - Sales and a director of the
Company in September, 1998. Mr. Gorne has served as a director of Reynard
Motorsport Limited and its predecessors for seventeen years. Mr. Gorne was a
successful racing car driver who competed against Dr. Reynard in the 1970's and
became both a friend and subsequently a partner in the Company. Mr. Gorne
focuses primarily on sales and customer service within the Company.
MALCOLM B. OASTLER has served as Technical Director of Reynard Motorsport
Limited since March 1994. He joined the Company in 1985 to design the Formula
Ford 1600 and 2000 chassis. In 1987, he built the Formula Ford car that won on
its debut. Prior to joining the Company, Mr. Oastler gained valuable experience
working in junior motor racing categories and competing as a driver in the
Formula Ford 2000 series.
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PAUL R. OWENS has served as managing director of Reynard Composites for 14
years. He joined Reynard in 1984 in order to develop the construction techniques
for the first ever carbon composite chassis for use in production based racing
cars. He helped start the Chevron Cars business in 1956 at age fifteen. He
remained with Chevron Cars until 1980 when he joined Maurer Racing Cars to
design and build Formula Two cars.
JOHN C. GOWER was elected Chief Financial Officer, Secretary, Treasurer and a
director of the Company in September, 1998. Mr. Gower has served as financial
controller for the Reynard companies since 1991. During this period of rapid
growth he was responsible for setting up new finance and accounting systems.
From 1985 to 1991, he served as financial controller for the Benetton Formula
One team. Mr. Gower is qualified as a Chartered Accountant.
PETER D. MORGAN was elected Production Director of Reynard Motorsport Limited in
September 1998. Mr. Morgan served as vice president of production for Reynard
Motorsport Limited since April 1994. Prior to that, he held the positions of
team manager and race engineer with Madgwick Motorsport in Formula 3000 for ten
years. Mr. Morgan began his racing career as a driver in the Formula Ford series
and was Esso National Champion in 1978.
BRUCE G. ASHMORE was elected Vice President/Technical Director of Reynard North
America, Inc. in December, 1997. Mr. Ashmore joined Reynard North America in
1994 as the technical director of the Company's North American operations. From
1988 to 1993, he worked as chief designer for Lola Cars Ltd., a chassis
manufacturer.
JEFF S. SWARTWOUT was elected Vice President/Operations Director of Reynard
North America, Inc. in March, 1998. Mr. Swartwout joined Reynard North America
in 1993. He began his career as a mechanic in the Formula Atlantic, Sports
Prototypes and Indy Car series. Mr. Swartwout's accomplishments on the racing
circuits as the lead mechanic include a victory at the 1986 Indianapolis 500 and
three National Championships.
Pursuant to the Company's agreement with BAR, Dr. Reynard and Messrs.
Gorne and Oastler have committed a significant amount of their time to the BAR
Formula One racing effort. Mr. Oastler must devote substantially all of his time
over the next three years. Dr. Reynard and Mr. Gorne must devote approximately
one half of their time for the next year and approximately one quarter of their
time for the subsequent two years.
COMMITTEES
Reynard's Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee recommends the appointment of the
Company's independent auditors to the Board of Directors, reviews the
compensation of such auditors and reviews with such accountants the plans for
the result and scope of their auditing engagement. The Compensation Committee
reviews the performance and compensation of directors, executive officers and
key employees and makes recommendations to the Board of Directors with respect
thereto. It also administers the Company's Stock Option Plan. See "--Stock
Option Plans."
LIMITED LIABILITY AND INDEMNIFICATION OF DIRECTORS
Reynard's Certificate of Incorporation provides that the liability of
the directors for monetary damages shall be limited to the fullest extent
permissible under Delaware law. This limitation of liability does not apply in
the case of: (1) a breach of the director's duty of loyalty to Reynard or its
stockholders, (2) an act or omission not in good faith or which involves
intentional misconduct or a knowing violation of law, (3) the unlawful payment
of dividends or unlawful stock purchases or redemptions, or (4) a transaction
from which a director derived an improper personal benefit.
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Reynard's By-laws indemnify its directors and officers to the fullest
extent possible under Delaware law, except as otherwise provided in the
Certificate of Incorporation. These indemnification provisions require Reynard
to indemnify directors and officers against certain liabilities and expenses to
which they may become subject by reason of their service to Reynard. The
provisions also set forth certain procedures, including the advancement of
expenses, that apply in the event of a claim for indemnification. Reynard
intends to obtain insurance to protect its officers and directors from
liability.
DIRECTOR COMPENSATION
Members of the Board of Directors who are not Reynard employees will
receive options to purchase ______ shares of common stock when first elected and
options to purchase _____ shares of common stock upon each re-election. See
"--Stock Option Plans -- Director Option Plan." In addition, these independent
directors will be paid a per meeting fee of $_____ and $_____ for each
telephonic meeting. Reynard will reimburse all directors for their expenses
incurred in connection with their activities as directors. Directors who are
also Reynard employees receive no compensation for serving on the Board of
Directors.
EXECUTIVE COMPENSATION
Information regarding all forms of compensation paid or payable by
Reynard to the Chief Executive Officer and the four most highly compensated
executive officers whose annual salary and bonus exceeded $100,000 in fiscal
1997 is set forth below. The principal positions of the named executive officers
refer to titles held by such individual in the operating subsidiaries prior to
the Reorganization.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME AND FISCAL OTHER ANNUAL ALL OTHER
PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION COMPENSATION
------------------- ------ ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Adrian J. Reynard (1) 1997 $7,446,109 -- $87,573(2) $1,797,169(3)
Chief Executive Officer of the
Company, Chairman of Reynard
Motorsport Limited
Richard J. Gorne 1997 330,862 153,122 --(4) 3,758(3)
Managing Director, Reynard
Motorsport Limited
Malcolm B. Oastler 1997 245,069 153,122 --(4) --
Technical Director, Reynard
Motorsport Limited
Paul R. Owens 1997 82,753 153,122 --(4) 49,831(3)
Director, Reynard Composites
John W. Piper (5) 1997 139,730 -- --(4) 2,614(3)
Director, Reynard Special Vehicle
Projects
</TABLE>
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- --------------------
(1) Alex Hawkridge was elected Chief Executive Officer of Reynard in
October 1998. The Company anticipates entering into an employment agreement with
Mr. Hawkridge. In addition, Dr. Reynard has entered into an employment agreement
that provides for annual compensation of $1.5 million plus pension
contributions.
(2) Includes $76,216 and $4,174 for the use of a company-owned aircraft and
motorcycle, respectively; $1,961 for personal use of Reynard staff persons; and
$5,222 for automobile insurance paid by Reynard.
(3) Represents amounts paid by Reynard on behalf of the named parties into
a defined contribution pension fund.
(4) The aggregate amount of perquisite compensation to be reported herein
is less than the lesser of $50,000 or 10% of the total of annual salary and
bonus reported for the named executive officer. No other annual compensation was
paid or payable to the named executive officers in the years indicated.
(5) Effective June 1, 1998, John W. Piper resigned from his position as
Director of Reynard Special Vehicle Projects Limited, a subsidiary of Reynard.
STOCK OPTION PLANS
In September 1998, Reynard's Board of Directors authorized, and
Reynard's stockholders approved, a stock incentive plan for executive and key
management employees of Reynard and its subsidiaries, including a limited number
of outside consultants and advisors, effective as of the completion of the
Offering (the "Stock Option Plans").
Under the Stock Option Plan, key employees, outside consultants and
advisors (the "Participants") of Reynard and its Subsidiaries (as defined in the
Stock Option Plan) may receive awards of stock options (both Nonqualified
Options and Incentive Options, as defined in the Stock Option Plan). Up to _____
shares of common stock (17% of the outstanding shares of common stock
immediately prior to the initial public offering) will be subject to the Stock
Option Plan. The purpose of the Stock Option Plan is to provide key employees
(including officers and directors who are also key employees) and key
non-employee consultants and advisors of the Company and its Subsidiaries
("employees") with an increased incentive to make significant and extraordinary
contributions to the long-term performance and growth of the Company and its
Subsidiaries. The Stock Option Plan will also join the interests of key
employees with the interests of the stockholders of the Company and facilitate
the attraction and retention of key employees of exceptional ability.
In connection with the Offering, Reynard intends to grant options to
purchase an aggregate of _______ shares of common stock to employees, of which
an aggregate of _____________________ will be granted to
______________________________, respectively, at the initial public offering
price.
Administration. The Compensation Committee of Reynard's Board of
Directors administers the Stock Option Plan. The Stock Option Plan may also be
administered by such other committee as may be specified by the Board of
Directors to perform the functions and duties of the Compensation Committee
under the Stock Option Plan. Subject to the provisions of the Stock Option Plan,
the Compensation Committee shall determine, from those eligible to be
Participants: (1) the persons to be granted stock options, (2) the amount of
stock options granted to each such person and (3) the terms and conditions of
any stock options. Subject to the provisions of the Stock Option Plan, the
Compensation Committee is authorized to: (1) interpret the Stock Option Plan,
(2) make, amend and rescind rules and regulations relating to the Stock Option
Plan and (3) make all other determinations necessary or advisable for the Stock
Options Plan's administration.
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Participants. The Participants in the Stock Option Plan are those key
employees, consultants and advisors of Reynard or any Subsidiary who in the
judgment of the Compensation Committee are or will become responsible for the
direction and financial success of Reynard or any Subsidiary. Key employees
include officers and directors who are also key employees of Reynard or any
Subsidiary.
Shares Subject to Plan. The maximum number of shares with respect to
which stock options may be granted under the Stock Option Plan is 150,000 shares
of common stock. Shares available for future grant under the Stock Option Plan
will be increased as of the first day of each new fiscal year during the term of
the Plan by the number of shares issuable upon exercise of options granted
thereunder in the previous fiscal year, net of returns. This increase may not
exceed 1,000,000 shares in any fiscal year. Shares covered by expired or
terminated stock options will again become available for grant under the Stock
Option Plan.
The number of shares subject to each outstanding stock option, the
option price with respect to outstanding stock options and the aggregate number
of shares remaining available under the Stock Option Plan will be subject to
such adjustment as the Compensation Committee, in its discretion, deems
appropriate to reflect such events as stock dividends, stock splits,
recapitalizations, mergers, consolidations or reorganizations of or by Reynard.
Stock Options. Subject to the terms of the Stock Option Plan, the
Committee may grant to Participants either Incentive Options or Nonqualified
Options, or any combination thereof. Incentive Options meet the definition of an
incentive stock option under Section 422 of the Code and Nonqualified Options do
not meet such definition.
The exercise price for an Incentive Option may not be less than 100% of
the fair market value of the stock on the date of grant. But, the exercise price
for an Incentive Option granted to an employee who owns more than 10% of the
voting stock of Reynard or any Subsidiary may not be less than 110% of the fair
market value of the stock on the date of grant. The exercise price for a
Nonqualified Option may not be less than 100% of the fair market value of the
stock on the date of grant.
The exercise period for stock options will be determined by the
Compensation Committee, but no stock option may be exercisable after ten years
from the date of grant, subject to certain conditions and limitations.
Stock option are not transferable by a Participant other than by will
or by the laws of descent and distribution, and stock options are exercisable,
during the lifetime of the Participant, only by the Participant.
If the employment or consultancy of a Participant by Reynard or a
Subsidiary terminates, the committee may, in its discretion, permit the exercise
of stock options granted to such Participant (1) for a period not to exceed
three months following termination of employment with respect to Incentive
Options if termination is not due to death or permanent disability of the
Participant, (2) for a period not to exceed one year following termination of
employment with respect to Incentive Options if termination is due to the death
or permanent disability of the Participant, and (3) for a period not to extend
beyond the expiration date with respect to Nonqualified Options.
Termination, Duration And Amendments Of Plan. The Stock Option Plan may
be abandoned or terminated at any time by the Board of Directors. Unless sooner
terminated, the Stock Option Plan will terminate on the date ten years after its
adoption by the Board of Directors. The termination of the Stock Option Plan
will not affect the validity of any stock option outstanding on the date of
termination.
For the purpose of conforming to any changes in applicable law or
governmental regulation, or for any other lawful purpose, the Board of Directors
will have the right, with or without approval of the stockholders of the
Company, to amend or revise the terms of the Stock Option Plan at any time. No
such amendment or revision will increase the maximum number of shares in the
aggregate which are subject to the Stock Option Plan (other than anti-dilution
adjustments and annual automatic increases) without the approval or ratification
of the stockholders.
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<PAGE> 61
No such amendment or revision will increase the maximum number of shares for
which any Participant may be granted stock options under the Stock Option Plan
(other than anti-dilution adjustments and annual automatic increases) without
the approval or ratification of the stockholders. No such amendment or revision
will change the class of persons eligible to be Participants under the Stock
Option Plan without the approval or ratification of the stockholders. Finally,
without the consent of the holder thereof, no such amendment or revision will
change the stock option price (other than anti-dilution adjustments) or alter or
impair any stock option which has been previously granted or awarded under the
Stock Option Plan.
Federal Income Tax Consequences. The rules governing the tax treatment
of stock options, stock appreciation rights, and shares acquired upon the
exercise of stock options are technical. Therefore, the description of federal
income tax consequences below is general in nature and is complete. Also,
statutory provisions and their interpretations change and their application may
vary in individual circumstances. Finally, the applicable state and local income
tax laws may not be the same as under the federal income tax laws and will
produce different consequences.
Incentive Options. Incentive Options granted pursuant to the Plan are
intended to qualify as "Incentive Options" within the meaning of Section 422 of
the Code. If the Participant does not dispose of the shares acquired pursuant to
exercise of an Incentive Option within one year after the transfer of shares to
such Participant and within two years from grant of the option, such Participant
will realize no taxable income as a result of the grant or exercise of such
option. In addition, any gain or loss that is subsequently realized may be
treated as long-term capital gain or loss, as the case may be. Under these
circumstances, the Company will not be entitled to a deduction for federal
income tax purposes with respect to either the issuance of the Incentive Options
or the transfer of shares upon their exercise. However, the exercise of an
Incentive Option is an item of tax preference and a Participant may have
alternative minimum tax liability.
If shares acquired upon exercise of Incentive Options are disposed of
prior to the expiration of the above time periods, the Participant will
recognize ordinary income in the year in which the disqualifying disposition
occurs. The amount of ordinary income will generally be the lesser of (1) the
excess of the market value of the shares on the date of exercise over the option
price, or (2) the gain recognized on such disposition. This amount will
ordinarily be deductible by the Company for federal income tax purposes in the
same year, as long as the amount constitutes reasonable compensation. The
excess, if any, of the amount realized on a disqualifying disposition over the
market value of the shares on the date of exercise will be treated as capital
gain.
Nonqualified Options. A Participant who acquires shares by exercise of
a Nonqualified Option generally realizes taxable ordinary income at the time of
exercise. The taxable ordinary income equals the difference between the exercise
price and the fair market value of the shares on the date of exercise. This
amount will usually be deductible by Reynard in the same year, as long as the
amount constitutes reasonable compensation. Subsequent appreciation or decline
in the value of the shares on the sale or other disposition of the shares will
generally be treated as capital gain or loss.
Withholding Payments. If, upon exercise of a Nonqualified Option or
upon a disqualifying disposition of shares acquired upon exercise of an
Incentive Option, Reynard or any Subsidiary must pay amounts for income tax
withholding, then in the Compensation Committee's sole discretion, either
Reynard will appropriately reduce the amount of stock or cash to be delivered or
paid to the Participant or the Participant must pay such amount to Reynard to
reimburse Reynard for such payment. The Compensation Committee may permit a
Participant to satisfy such withholding obligations by electing to reduce the
number of shares of common stock delivered or deliverable to the Participant
upon exercise of a stock option or by electing to tender an appropriate number
of shares of common stock back to Reynard after the exercise of a stock option
(with such restrictions as the Compensation Committee may adopt).
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<PAGE> 62
Limitation on Compensation Deduction. Publicly-held corporations are
precluded from deducting compensation paid to certain of its executive officers
in excess of $1.0 million. The employees covered by the $1.0 million limitation
include the chief executive officer and those employees whose annual
compensation is required to be reported to the Securities and Exchange
Commission because the employee is one of the company's four highest compensated
employees for the taxable year (other than the chief executive officer). The
grant of stock options generally are included in an employee's compensation for
purposes of the $1.0 million limitation.
There is an exception to the $1.0 million deduction limitation for
compensation (including the grant of stock options paid pursuant to a qualified
performance-based compensation plan). Compensation attributable to stock options
is deemed to satisfy the qualified performance-based compensation exception if
(1) the grant is made by a compensation committee comprised of outside
directors; (2) the plan under which the option is granted states the maximum
number of shares with respect to which options may be granted during a specified
period to any employee and (3) under the terms of the option, the amount of
compensation the employee could receive is based solely on an increase in the
value of the stock after the date of the grant.
If the amount of compensation a covered employee will receive under the
grant is not based solely on an increase of the value of the stock after the
date of the grant (e.g., an option that is granted with an exercise price that
is less than the fair market value as of the date of the grant), none of the
compensation attributable to the grant is qualified performance-based
compensation unless the grant is made on account of the attainment of a
performance goal that has been previously established and approved by the
stockholders of Reynard.
The grant of stock options to a Participant under the Stock Option Plan
to purchase Reynard's stock at fair market value determined on the date of the
grant will, if granted at fair market value, be deemed to satisfy the
requirements of the performance-based compensation exception. Therefore, the
$1.0 million deduction limitation will not otherwise limit the deductibility of
the compensation paid to covered employees by the Company. But, the grant of a
stock option with an exercise price less than the fair market value of the stock
on the date of grant will be included in a covered employee's compensation in
determining the $1.0 million deductibility limit.
U.K. Tax Consequences. It is intended that stock options will be
granted to executives and key management employees of the Company who are
residents in the U.K. Options granted to U.K. residents under the Stock Option
Plan will be treated as unapproved for U.K. tax purposes. On the exercise of
such options, a U.K. Participant will be subject to U.K. income tax on the
difference between the exercise price and the fair market value of the shares on
the date of exercise. This amount will be subject to U.K. withholding tax. The
Committee is authorized to sell sufficient of the Participant's shares on the
exercise of a stock option to satisfy such withholding liabilities, if
necessary.
For options granted to U.K. residents after April 5, 1999 under the
Stock Option Plan, there is a liability to pay U.K. social security
contributions upon the exercise of such options based on the difference between
the exercise price and the fair market value of the shares on the date of
exercise.
U.K. Approved Stock Options. It is intended that a sub-plan of the
Stock Option Plan will be established which will be approved by the U.K. Inland
Revenue under the U.K. Taxes Act 1988. Approved stock options may be granted to
selected U.K. employees and full-time directors. The provisions of the sub-plan
will be similar to those of the Stock Option Plan except to the extent required
to obtain and maintain U.K. Inland Revenue approval.
In particular, approved options may only be granted to a U.K.
individual over shares worth up to (pound)30,000 at the date of grant. Provided
the approved options are exercised between the third and tenth anniversaries of
the date of grant and not within three years of a previous tax-free exercise of
an approved option by the same individual, no income tax will be payable upon
exercise. Furthermore, there will be no liability for social security
contributions on the exercise of an approved option.
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Accounting Treatment. Under current accounting rules, neither the grant
nor the exercise of an Incentive Option or a Nonqualified Option granted to
employees at an exercise price equal to the fair market value of the shares on
the date of grant requires any charge against earnings. The Company will follow
the provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation. This publication provides for the
disclosure of the pro forma impact of the issuance of options to employees on
net income and earnings per share in the footnotes to the Company's financial
statements. Management currently believes that there will be no material impact
on earnings of the Company as a result of the adoption of SFAS 123.
Director Option Plan. The Director Option Plan permits the granting of
non-qualified stock options ("Director NQSOs") for up to 200,000 shares of
Common stock to Reynard's directors who are not employees of Reynard (an
"Independent Director"). Each person who is first elected or appointed to serve
as an Independent Director of Reynard is automatically granted an option to
purchase 15,000 shares of common stock. In addition, each individual who is
re-elected as an Independent Director is automatically granted an option to
purchase 5,000 shares of common stock each year on the date of the annual
meeting of stockholders. Each of the options automatically granted upon
election, appointment or re-election as an Independent Director (the "Fixed
Options") are exercisable at a price at least equal to the fair market value of
the common stock on the date of grant. In addition to the Fixed Options, each
Independent Director may elect to receive stock options in lieu of any
director's fees payable to such individuals.
All Directors NQSOs are immediately exercisable upon grant. The
exercise price for all such options may be paid in cash, shares of common stock
or other property. If an Independent Director dies or becomes ineligible to
participate in the Director Option Plan due to disability, his Director NQSOs
expire on the first anniversary of such event. If an Independent Director
retires with the consent of the Company, his Director NQSOs expire 90 days after
his retirement. In no event may a Director NQSO be exercised more than 10 years
from the date of grant.
EMPLOYMENT AGREEMENTS
Reynard has entered into employment agreements with certain of its key
officers and employees. Pursuant to the terms of the agreements, each employee,
other than Dr. Reynard, has agreed to be a full-time employee for a period of
four years. Dr. Reynard has agreed to be a full-time employee for a period of
three years. Each employee has also agreed not to compete with Reynard during
the term of the agreement and for a period of one year after termination. The
Company anticipates entering into an employment agreement with Mr. Hawkridge for
a period of three years with an agreement not to compete with Reynard during the
term of the agreement and for a period of one year after termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has established a Compensation Committee to
deliberate upon matters concerning executive compensation, the issuance of
options under the Stock Option Plan and other benefits payable to Reynard's
executive officers. The members of the Compensation Committee are Adrian J.
Reynard and Alex S. Hawkridge.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table contains information, as of September 30, 1998,
concerning the beneficial ownership of the common stock by (1) each director,
(2) each of the named officers, (3) all directors and executive officers as a
group and (4) each person or entity known by the Company to be the beneficial
owner of more than five percent of the outstanding shares of common stock. the
percentage of shares owned prior to the offering is calculated based upon
2,944,011.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY
OWNED SHARES BEING OWNED
PRIOR TO OFFERING OFFERED AFTER OFFERING
--------------------- ------------ -------------------
NAME OF BENEFICIAL OWNER (1) NUMBER PERCENT NUMBER PERCENT
- ------------------------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Adrian J. Reynard (2)(3) 2,291,819 77.8%
Richard J. Gorne (4) 13,990 0.5%
Paul R. Owens (5) -- --
Malcolm B. Oastler (6) -- --
Peter D. Morgan (7) -- --
Alex S. Hawkridge (8) 117,760 3.8%
Reynard Racing Cars Trustee
Limited (9)(10) 480,564 16.3%
John W. Piper (11) -- --
All directors and officers, as a group
(7 persons) 2,423,569 82.3%
</TABLE>
(1) Unless otherwise noted, each beneficial owner has sole voting and
dispositive power with respect to the shares.
(2) Includes 10 shares held in the name of Gillian Reynard. Includes 192,227
shares held in the name of Spread Trustee Company Ltd. in which Dr. Reynard is
the sole beneficiary and 402,163 shares held in the name of Reynard Racing Cars
Directors Pension Fund in which Dr. Reynard is the sole beneficiary.
(3) The address for Dr. Reynard is 191 Godstow Road, Lower Wolvercote Village,
Oxfordshire, OX2 8PG.
(4) The address for Mr. Gorne is Willow Barn, Cuckoo Lane, Barnard Gate,
Oxfordshire, OX8 6XD.
(5) The address for Mr. Owens is Orchard Lea, Turweston, Brackley,
Northamptonshire, NN13 5JX.
(6) The address for Mr. Oastler is Westbrook, B. Hardwick, Bicester,
Oxfordshire, OX6 9SS.
(7) The address for Mr. Morgan is 4 The College Marsh Gibbon, Bicester,
Oxfordshire, OX6 0HW.
(8) Includes 117,760 shares issuable upon exercise of outstanding stock options,
exercisable within 90 days of September 30, 1998. The address for Mr. Hawkridge
is 25 Sandyfoot, Barkisland, Halifax, West Yorkshire, HX4 0JA.
(9) Includes 106,792 shares held in the name of Richard J. Gorne, 133,490 shares
held in the name of Malcolm B. Oastler, 106,792 shares held in the name of Paul
R. Owens, 53,396 shares held in the name of Peter D. Morgan and 53,396 shares
held in the name of John C. Gower. Reynard Racing Cars Trustee Limited, a
wholly-owned subsidiary of Reynard, owns 480,564 shares in trust for the
above-named directors. The shares vest five years from the date of issue to the
employee. At this time, no shares are vested. The first shares vest in 1999.
(10) The address for Reynard Racing Cars Trustee Limited is Reynard Centre,
Telford Road, Bicester, Oxfordshire, OX6 0UY.
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(11) The address for Mr. Piper is 3 Swinford Cottages, Eynsham,
Oxford, Oxfordshire OX8 1BY.
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CERTAIN TRANSACTIONS
As of September 30, 1998, the Company had borrowed an aggregate of
$9,802,987 from Dr. Adrian Reynard in the form of a facility letter, due and
payable on demand. The loan is secured by a pledge of all of the Company's
assets, and bears interest at the National Westminster Bank's base rate plus
2-1/2%. The Company has received a letter from Dr. Reynard in which he states
that he does not expect to be paid or credited with interest on the money lent
to date. The highest balance due to Dr. Reynard during the fiscal year was
$10,619,959, $5,519,961 and $(287,616) during 1998, 1997 and 1996. A portion of
the proceeds from this offering will be used to repay the loan in its entirety.
The real property from which the Company operates in the U.K. is owned
by Dr. Reynard and a pension fund of which he is the beneficiary. The Company
pays annual rent for the property in the aggregate amount of $897,482 per year.
In August , 1997, the Company loaned an aggregate of $899,000 to the
pension fund, of which Dr. Reynard is a beneficiary. The loan was partially
repaid in August, 1997, with the balance being repaid in October, 1997. The loan
was in the form of a facility letter, was due and payable on demand and bore
interest at the National Westminster Bank's base rate plus 2% per annum. The
loans were made for the purpose of purchasing property.
On September 25, 1998, the Company granted options to purchase 117,760
shares to Alex Hawkridge, the Company's chief executive officer, at an exercise
price of (pound)36.50 per share. The options are fully vested and may be
exercised by Mr. Hawkridge at any time after the date of the agreement.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Reynard consists of 50,000,000 shares
of common stock, par value $.01 per share, and 5,000,000 shares of preferred
stock, par value $.01 per share. On _____________, a total of ______ shares of
common stock were issued and outstanding and such shares were held by ____
stockholders. No shares of preferred stock were outstanding. Upon completion of
the Offering, there will be ____ shares of common stock (_____ shares if the
Underwriters' over-allotment option is exercised in full) and no shares of
preferred stock issued and outstanding.
The following summary description of Reynard's capital stock is not
complete. You should read Reynard's Certificate of Incorporation and By-laws.
Copies of the Company's Certification of Incorporation and By-laws have been
filed as exhibits to the Registration Statement of which this prospectus is a
part.
COMMON STOCK
All outstanding shares of common stock are, and the shares offered
hereby will be, duly authorized, validly issued, fully paid and nonassessable.
Subject to the prior rights of holders of any preferred stock then outstanding,
holders of common stock are entitled to receive dividends, when and if declared
by the Board of Directors, out of funds legally available therefore. Holders of
common stock will share ratably in the net assets of Reynard upon liquidation.
Reynard's payment of dividends, if any, rests with the Board of Directors and
will depend upon Reynard's results of operation, financial condition and capital
expenditure plans, as well as other factors considered relevant by the Board of
Directors. Holders of common stock do not have preemptive or other rights to
subscribe for additional shares. There are no redemption or sinking fund
provisions associated with the common stock.
Holders of common stock are entitled to one vote per share on all
matters requiring a vote of stockholders. Since the common stock does not have
cumulative voting rights in electing directors, the holders of more than a
majority of the outstanding shares of common stock voting for the election of
directors can elect all of the directors whose terms expire that year.
PREFERRED STOCK
Reynard's Certificate of Incorporation gives the Board of Directors the
power to designate the relative rights and preferences of the preferred stock,
when and if issued, without further action by the holders of the common stock.
The Board of Directors is authorized to issue up to 5,000,000 shares of
preferred stock in one or more series. The rights and preferences could include
preferences as to liquidation, redemption and conversion rights, voting rights,
dividends or other preferences. Any of these may be dilutive to the interests of
the holders of common stock. The issuance of preferred stock may have the effect
of delaying or preventing a change in control of Reynard and may have an adverse
effect on the rights of the holders of common stock.
The issuance of any series of preferred stock, and the relative powers,
preferences, rights, qualifications, limitations and restrictions of such
series, if and when established, will depend upon, among other things, the
future capital needs of Reynard, the then-existing market conditions and other
factors that, in the judgment of the Board of Directors, might warrant the
issuance of preferred stock. At the date of this prospectus, there are no plans,
agreements or understandings relative to the issuance of any shares of preferred
stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Certain provisions of the General Corporation Law of the State of
Delaware and of the Company's Certificate of Incorporation and By-laws are
summarized in the following paragraphs. These provisions may be considered to
have an anti-takeover effect and may delay, deter or prevent a tender offer,
proxy contest or other
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takeover attempt that a stockholder might consider to be in such stockholder's
best interest, including such an attempt as might result in payment of a premium
over the market price for shares held by stockholders.
Other Voting Requirements. The Certificate of Incorporation requires
the approval of 67% of Reynard's voting securities for an amendment of certain
provisions of the Certificate of Incorporation, unless 2/3 of the Board of
Directors first approve the matter. The Certificate of Incorporation also
requires either the approval of 67% of the Company's voting securities or a vote
of not less than a majority of the Board of Directors to amend the By-Laws.
Delaware Anti-Takeover Law. Since Reynard is a Delaware corporation, it
is subject to the provisions of the General Corporation Law of the State of
Delaware, including Section 203 thereof. Section 203 prohibits a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which such person became an interested stockholder unless: (1) prior to such
date, the Board of Directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; or (2) upon becoming an interested stockholder, the stockholder
then owned at least 85% of the voting stock, as defined in Section 203, or (3)
subsequent to such date, the business combination is approved by both the Board
of Directors and by holders of at least 66-2/3% of the corporation's outstanding
voting stock, excluding shares owned by the interested stockholder. For these
purposes, the term "business combination" includes mergers, asset sales and
other similar transactions with an "interested stockholder." An "interested
stockholder" is a person who, together with affiliates and associates, owns (or,
within the prior three years, did own) 15% or more of the corporation's voting
stock. Although Section 203 permits a corporation to elect not to be governed by
its provisions, Reynard has not made this election.
Special Meetings of Stockholders; No Action Without Meeting. Reynard's
By-laws provide that special meetings of stockholders may be called only by the
Chairman, the President or the Board of Directors. Reynard's Certificate of
Incorporation and By-laws also provide that no action required to be taken or
that may be taken at any annual or special meeting of stockholders may be taken
without a meeting. Additionally, the power of stockholders to consent in
writing, without a meeting, to the taking of any action is specifically denied.
These provisions may make it more difficult for stockholders to take action
opposed by the Board of Directors.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Reynard's By-laws provide that stockholders seeking to bring
business before an annual or special meeting of stockholders, or to nominate
candidates for election as directors at an annual or a special meeting of
stockholders, must provide timely, written notice thereof. To be timely, a
stockholder's notice must be delivered to, or mailed and received at, Reynard's
principal executive office (1) with respect to business to be considered at the
annual meeting of the stockholders of Reynard, not less than 90 days prior to
the anniversary date of the immediately preceding annual meeting of Reynard's
stockholders, and (2) with respect to business to be considered at a special
meeting of Reynard's stockholders, not later than the close of business on the
10th day following the day on which notice of the date of the special meeting
was mailed to stockholders, or public disclosure of the date of the special
meeting was made, whichever occurs first. These provisions may preclude some
stockholders from making nominations for directors at an annual or special
meeting or from bringing other matters before the stockholders at a meeting.
RIGHTS AGREEMENT
Reynard and a rights agent have entered into a Rights Agreement. The
Rights Agreement provides for the distribution of a right to purchase one share
of common stock to the holder of each share of common stock. The holders of
rights do not have any voting rights and are not entitled to dividends. Prior to
the distribution date (the "Distribution Date"), the rights will be evidenced by
certificates representing the shares of common stock. The rights may be
transferred with, and only with, shares of common stock. The Distribution Date
will occur, if at all, upon the earlier of (a) the tenth business day following
a public announcement that a person (other than Reynard, Adrian J. Reynard or
certain related entities) has acquired or obtained the right to acquire,
beneficial ownership of
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15% or more of the outstanding shares of common stock, or (b) the tenth business
day (or such later date as determined by the Board of Directors) following the
commencement of or the first public announcement of intent of a tender offer or
exchange for 15% or more of the outstanding shares of common stock (other than
by Reynard or certain related entities). The rights are not exercisable until
the Distribution Date. The rights will expire at the close of business on
_____________, 2008, unless earlier redeemed by the Company.
After the Distribution Date, the rights may either "flip-in" or
"flip-over," allowing a stockholder to acquire the common stock or the voting
equity securities of the acquiring person, respectively, at a 50% discount. Once
any person (other than Reynard, Adrian J. Reynard or certain related entities)
becomes a 15% beneficial owner of the outstanding shares of common stock, the
rights (other than rights beneficially owned by the acquiring person which would
become null and void) automatically flip-in, unless the Board of Directors has
decided to exchange the rights for shares of common stock. If, after the
Distribution Date, the Company consolidates or merges with, or transfers a
majority of its assets to, any person, the rights will flip-over.
The rights may have certain anti-takeover effects. The rights are
designed to cause substantial dilution to a person or group that attempts to
acquire the Company on terms not approved by the Board of Directors. The rights
will not interfere with any merger or other business combination approved by the
Board because the rights may be redeemed by the Company at $.01 per right at any
time prior to 10 business days following a 15% acquisition. The Rights Agreement
may be amended, without limitation, prior to the distribution of the rights, by
the Board of Directors without the approval of the holders of the rights.
TRANSFER AGENT
The transfer agent and registrar of the common stock is ______________
____________________.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Reynard will have ______ shares of
common stock (___ shares if the Underwriters' over-allotment option is exercised
in full) outstanding. Of such outstanding shares, the ____ shares (___ shares if
the over-allotment option is exercised in full) sold in the offering will be
freely transferable after the offering and may be resold without further
registration under the Securities Act, unless purchased by affiliates of
Reynard, as defined in Rule 144 under the Securities Act. The remaining ___
shares outstanding are restricted shares and the holders will be entitled to
resell them only pursuant to a registration statement under the Securities Act
or an applicable exemption from registration thereunder, such as an exemption
provided by Rule 144. None of the current stockholders have any registration
rights with respect to the outstanding shares of common stock.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted securities"
for at least one year may, under certain circumstances, resell within any
three-month period such number of shares as does not exceed the greater of one
percent of the then-outstanding shares or the average weekly trading volume
during the four calendar weeks prior to such resale. Rule 144 also permits,
under certain circumstances, the resale of shares without any quantity
limitation by a person who has satisfied a two-year holding period and who is
not, and has not been for the preceding three months, an affiliate of Reynard.
In addition, holding periods of successive non-affiliate owners are aggregated
for purposes of determining compliance with these one- and two-year holding
period requirements. The availability of shares for sale or actual sales under
Rule 144 may have an adverse effect on the market price of the common stock.
Sales under Rule 144 also could impair the Company's ability to market
additional equity securities.
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Upon completion of the offering, _________ shares of the restricted
shares will have been held for at least one year and may be resold pursuant to
Rule 144 three months after the date of this prospectus.
Reynard and all of its stockholders, executive officers and directors
have each agreed not to offer for sale, sell or otherwise dispose of any shares
of common stock or other securities convertible into or exchangeable for common
stock for a period of 180 days after the date of this prospectus without the
prior written consent of NationsBanc Montgomery Securities LLC on behalf of the
Underwriters.
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement (the "Underwriting Agreement") by and between Reynard and the
Underwriters (collectively, the "Underwriters"), dated the date hereof, each
underwriter named below has severally agreed to purchase the number of shares of
common stock set forth below opposite the name of such Underwriter at the public
offering price less the underwriting discount set forth on the cover page of
this prospectus.
<TABLE>
<CAPTION>
NAME OF UNDERWRITER NUMBER OF SHARES
------------------- ----------------
<S> <C>
NationsBanc Montgomery Securities LLC..........................................
Wheat First Securities, Inc....................................................
Josephthal & Co. Inc...........................................................
--------
Total.................................................................
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of common stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.
The Underwriters, for whom NationsBanc Montgomery Securities LLC, Wheat
First Union, a division of Wheat First Securities, Inc., and Josephthal & Co.
Inc. are acting as representatives (the "Representatives"), propose to offer the
shares of common stock directly to the public at the public offering price set
forth on the cover page of this prospectus. The Underwriters may allow selected
dealers a concession not in excess of $_________ per share under the public
offering price and the Underwriters may allow, and such dealers may reallow, a
concession not in excess of $_________ per share to certain other dealers. After
the initial offering of the shares to the public, the public offering price and
other selling terms may be changed by the Representatives. The Representatives
have advised Reynard that the Underwriters do not intend to confirm sales of any
shares to any accounts over which they exercise discretionary authority.
The Selling Stockholder has granted an option to the Underwriters to
purchase up to ______ additional shares of common stock at the public offering
price set forth on the cover page of this prospectus, minus the underwriting
discounts and commissions. This option is exerciseable for 30 days from the date
of this prospectus. The Underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, in connection with the offering of
the shares of common stock. To the extent such option is exercised, each
Underwriter will be
69
<PAGE> 71
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table.
Reynard, its executive officers and directors and each of its existing
stockholders, who will hold an aggregate of ____ shares of common stock after
this offering, have agreed that until 180 days following the date of this
prospectus, they will not, without the prior written consent of NationsBanc
Montgomery Securities LLC, on behalf of the Underwriters, sell, offer to sell,
solicit any offer to buy, contract to sell, grant any option to purchase, or
otherwise transfer or dispose of any shares, or any securities convertible into,
or exercisable or exchangeable for, shares of common stock, except that Reynard
may grant options under the Stock Option Plan and may issue shares of common
stock pursuant to the exercise of options granted under the Stock Option Plan.
In evaluating any request for a waiver of the 180-day lock-up period,
NationsBanc Montgomery Securities LLC will consider, in accordance with its
customary practice, all relevant facts and circumstances at the time of the
request, including, without limitation, the recent trading market for the common
stock, the size of the request and, with respect to a request by the Company to
issue additional equity securities, the purpose of such an issuance.
Prior to this offering, there has not been any public market for the
shares of common stock of the Company. Consequently, the initial public offering
price for the shares of common stock included in the offering will be determined
by negotiations between Reynard and the Representatives. Among the factors to be
considered in determining such price are the history of and prospects for
Reynard's business and the industry in which it competes, an assessment of
Reynard's management and the present state of Reynard's development, the past
and present revenues and earnings of Reynard, the prospects for growth of
Reynard's revenues and earnings, the current state of the economy in the U.S.
and the U.K. and the current level of economic activity in the industry in which
Reynard competes and in related or comparable industries, and currently
prevailing conditions in the securities markets, including current market
valuations of publicly traded companies that are comparable to Reynard.
The Representatives have advised Reynard that, pursuant to Regulation M
under the Exchange Act, certain persons participating in the offering may engage
in transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, which may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the Underwriters for the purpose
of fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is the bid for or the purchase of the common stock on behalf of the
Underwriters to reduce a short position incurred by the Underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
Representatives to reclaim the selling concession otherwise accruing to an
Underwriter or syndicate member in connection with the offering if the shares of
common stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Underwriters are not required to engage in any of these activities and any
such activities, if commenced, may be discontinued at any time. The
Representatives have advised Reynard that such transactions may be effected on
the NYSE or otherwise and, if commenced, may be discontinued at any time.
The Underwriting Agreement provides that Reynard will indemnify the
Underwriters against certain liabilities, including liabilities arising under
the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed
upon for Reynard by Kegler, Brown, Hill & Ritter Co., L.P.A., Columbus, Ohio.
Certain other legal matters governed by English law will be passed upon
70
<PAGE> 72
for the Company by Davies Arnold Cooper. Legal matters in connection with this
offering will be passed upon for the Underwriters by Akin, Gump, Strauss, Hauer
& Feld, L.L.P., Washington, D.C.
EXPERTS
The combined financial statements of the Company as of September 30,
1996 and 1997 and June 30, 1998 and for each of the three years in the period
ended September 30, 1997 and the nine month period ended June 30, 1998, included
in this prospectus and the related financial statement schedule included
elsewhere in the registration statement, have been audited by Deloitte & Touche,
independent auditors, as stated in their reports appearing herein and elsewhere
in the registration statement, and have been included herein in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of Princetown Holdings Limited as
of August 31, 1997 and May 31, 1998 and for the year ended August 31, 1997 and
the nine month period ended May 31, 1998, included in this prospectus, have been
audited by Deloitte & Touche, independent auditors, as stated in their report
appearing herein and have been included herein in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
Reynard will furnish annual reports containing annual audited
consolidated financial statements audited by an independent accounting firm and
quarterly reports for the first three quarters of each fiscal year containing
interim unaudited financial information to you. The financial information will
be prepared in accordance with U.S. GAAP.
71
<PAGE> 73
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION,
COMBINED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REYNARD MOTORSPORT, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Consolidated Financial Information..........................................................F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1998..............................................F-3
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended June 30, 1998................F-4
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended September 30, 1997..................F-5
Notes to Unaudited Pro Forma Consolidated Financial Information...........................................................F-6
REYNARD MOTORSPORT, INC.
Independent Auditors' Report..............................................................................................F-8
Combined Balance Sheets as of September 30, 1996 and 1997 and June 30, 1998...............................................F-9
Combined Statements of Operations for the Years Ended September 30,1995, 1996 and 1997 and for Nine Months
Ended June 30, 1997 (Unaudited) and June 30, 1998........................................................................F-10
Combined Statements of Stockholders' Equity (Deficit) for the Years Ended September 30, 1995, 1996 and
1997 and for the Nine Months Ended June 30, 1998.........................................................................F-11
Combined Statements of Cash Flows for the Years Ended September 30, 1995, 1996 and 1997 and for the Nine
Months Ended June 30, 1997 (Unaudited) and June 30, 1998 ................................................................F-12
Notes to the Combined Financial Statements...............................................................................F-13
PRINCETOWN HOLDINGS LIMITED
Independent Auditors' Report.............................................................................................F-21
Consolidated Balance Sheets as of August 31, 1997 and May 31, 1998.......................................................F-22
Consolidated Statements of Operations for the Year Ended August 31, 1997 and for the Nine Months Ended May
31, 1997 (Unaudited) and May 31, 1998....................................................................................F-23
Consolidated Statements of Stockholder's Equity for the Year Ended August 31, 1997 and for the Nine Months
Ended May 31, 1998 ......................................................................................................F-24
Consolidated Statements of Cash Flows for the Year Ended August 31, 1997 and for the Nine Months Ended May
31, 1997 (Unaudited) and May 31, 1998 ...................................................................................F-25
Notes to Consolidated Financial Statements...............................................................................F-26
</TABLE>
F-1
<PAGE> 74
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated balance sheet as of June 30, 1998
gives effect to (i) the Gemini Acquisition (See "Business - Growth Strategy")
and (ii) the Offering and application of the net proceeds from the Offering
(after deducting underwriting discounts and commissions and estimated expenses
of the Offering, but excluding the underwriters' over-allotment option), as if
each had occurred as of June 30, 1998. The following unaudited pro forma
condensed consolidated statements of operations for the nine months ended June
30, 1998 and for the year ended September 30, 1997 give effect to each of the
above transactions as if each had occurred as of October 1, 1996. The
information used in respect of Gemini represents the nine months ended May 31,
1998 and the year ended August 31, 1997. Pro forma adjustments are described in
the accompanying notes. The unaudited pro forma condensed consolidated financial
information should be read in conjunction with "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Combined and Consolidated Financial Statements and the
Notes thereto included elsewhere in this Prospectus. The unaudited pro forma
condensed consolidated statements of operations are not necessarily indicative
of the actual results of operations that would have been reported if the events
described above had occurred as of October 1, 1996, nor do such statements
propose to indicate the results of future operations of the Company.
Furthermore, the pro forma results do not give effect to cost savings or
incremental costs, if any, which may occur as a result of the integration and
consolidation of the Gemini Acquisition or the investment of cash balances
available from the Offering. In the opinion of management, all adjustments
necessary to present fairly such unaudited pro forma condensed consolidated
financial statements have been made.
F-2
<PAGE> 75
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA FOR ACQUISITION OF GEMINI
-----------------------------------
REYNARD GEMINI PRO FORMA PRO FORMA ADJUSTMENTS FOR
HISTORICAL HISTORICAL ADJUSTMENTS FOR GEMINI THE OFFERING PRO FORMA
---------- ---------- ----------- ---------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,152 $ -- $(11,779)(A) $(8,627) $(10,418)(B) $[ ]
Accounts receivable 10,960 555 -- 11,515 [ ] [ ]
Inventory 2,329 1,504 971(A) 4,804 [ ] [ ]
Prepaid expenses 615 23 -- 638 [ ] [ ]
Deferred income taxes 460 351 (291)(A) 520
------- ------ -------- ------- -------- ----
Total current assets 17,516 2,433 (11,099) 8,850 $(10,418) [ ]
PROPERTY AND EQUIPMENT - Net 9,001 3,554 7,171(A) 19,726 [ ] [ ]
INTANGIBLES -- -- 3,363(A) 3,363 [ ] [ ]
OTHER ASSETS 455 -- -- 455 [ ] [ ]
------- ------ -------- ------- -------- ----
TOTAL ASSETS $26,972 $5,987 $ (565) $32,394 $(10,418) $[ ]
======= ====== ======== ======= ======== ====
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES
Bank lines of credit $ 1,072 $ 205 $ -- $ 1,277 $ [ ] $[ ]
Accounts payable 5,877 271 -- 6,148 [ ] $[ ]
Accrued liabilities 8,043 495 (460)(A) 8,078 [ ] [ ]
Notes payable to related party 10,479 3,611 (3,611)(A) 10,479 (10,418)(B) [ ]
Current portion of capital lease
obligations -- 614 -- 614 [ ] [ ]
Current portion of long-term debt -- 273 -- 273 [ ] [ ]
------- ------ -------- ------- -------- ----
Total current liabilities 25,471 5,469 (4,071) 26,869 (10,418) [ ]
CAPITAL LEASE OBLIGATIONS -- 670 670 [ ] [ ]
LONG TERM DEBT -- 281 660(A) 941 [ ] [ ]
DEFERRED INCOME TAXES 133 262 2,151(A) 2,546 [ ] [ ]
MINORITY INTEREST IN SUBSIDIARY 2,519 -- -- 2,519 [ ] [ ]
COMMITMENTS AND CONTINGENCIES
-- -- -- -- -- --
STOCKHOLDERS' EQUITY (DEFICIT) (1,151) (695) 695(A) (1,151) [ ] [ ]
------- ------ -------- ------- -------- ----
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $26,972 $5,987 $ (565) $32,394 $(10,418) $[ ]
======= ====== ======== ======= ======== ====
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
F-3
<PAGE> 76
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA FOR ACQUISITION OF GEMINI
-----------------------------------
REYNARD GEMINI PRO FORMA PRO FORMA ADJUSTMENTS FOR
HISTORICAL HISTORICAL ADJUSTMENTS FOR GEMINI THE OFFERING PRO FORMA
---------- ---------- ----------- ---------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Products $40,881 $2,194 $ -- $43,075 $ -- $43,075
Services 9,882 -- -- 9,882 -- 9,882
Other -- 47 -- 47 -- 47
------- ------ ----- ------- ------- -------
Total revenues 50,763 2,241 -- 53,004 -- 53,004
COST OF GOODS SOLD:
Products 21,713 890 -- 22,603 -- 22,603
Services 3,944 -- -- 3,944 -- 3,944
------- ------ ----- ------- ------- -------
Total cost of goods sold 25,657 890 -- 26,547 -- 26,547
------- ------ ----- ------- ------- -------
GROSS PROFIT 25,106 1,351 -- 26,457 -- 26,457
GENERAL AND ADMINISTRATIVE
EXPENSES 20,122 965 126(C) 21,751 (6,415)(D) 15,336
538(C)
------- ------ ----- ------- ------- -------
INCOME FROM OPERATIONS 4,984 386 (664) 4,706 6,415 11,121
OTHER INCOME (EXPENSE)
Share of loss of equity
investment (5,310) -- -- (5,310) -- (5,310)
Minority interest in loss of -- -- --
subsidiary 106 106 106
Interest income 21 -- -- 21 -- 21
Interest expense (670) (240) -- (910) 670(E) (240)
------- ------ ----- ------- ------- -------
INCOME (LOSS) BEFORE TAXES ON
INCOME (869) 146 (664) (1,387) 7,085 5,698
INCOME TAX EXPENSE 1,634 55 (161)(F) 1,528 1,989(F) 3,517
------- ------ ----- ------- ------- -------
NET INCOME (LOSS) $(2,503) $ 91 $(503) $(2,915) $ 5,096 $ 2,181
======= ====== ===== ======= ======= =======
EARNINGS (LOSS) PER SHARE -
BASIC AND DILUTED (G) $ (.85) $ [ ]
=======
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - BASIC AND
DILUTED 2,944
=======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
F-4
<PAGE> 77
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA FOR ACQUISITION OF GEMINI
-----------------------------------
REYNARD GEMINI PRO FORMA PRO FORMA ADJUSTMENTS FOR
HISTORICAL HISTORICAL ADJUSTMENTS FOR GEMINI THE OFFERING PRO FORMA
---------- ---------- ----------- ---------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Products $39,039 $3,157 $ -- $42,196 $ -- $42,196
Services 10,803 -- -- 10,803 -- 10,803
Other -- 19 -- 19 -- 19
------- ------ ----- ------- ------- -------
Total revenues 49,842 3,176 -- 53,018 -- 53,018
COST OF GOODS SOLD:
Products 19,502 1,426 -- 20,928 -- 20,928
Services 5,951 -- -- 5,951 -- 5,951
------- ------ ----- ------- ------- -------
Total cost of goods sold 25,453 1,426 -- 26,879 -- 26,879
------- ------ ----- ------- ------- -------
GROSS PROFIT 24,389 1,750 -- 26,139 -- 26,139
GENERAL AND ADMINISTRATIVE
EXPENSES 21,462 1,399 717(C) 23,746 (6,541)(D) 17,205
------- ------ ----- ------- ------- -------
INCOME FROM OPERATIONS 2,927 351 (885) 2,393 6,541 8,934
OTHER INCOME (EXPENSE)
Interest income 171 -- -- 171 -- 171
Interest expense -- (144) -- (144) -- (144)
------- ------ ----- ------- ------- -------
INCOME BEFORE TAXES ON INCOME 3,098 207 (885) 2,420 6,541 8,961
INCOME TAX EXPENSE 1,105 70 (215)(F) 960 2,093(F) 3,053
------- ------ ----- ------- ------- -------
NET INCOME $ 1,993 $ 137 $(670) $ 1,460 $ 4,448 $ 5,908
======= ====== ===== ======= ======= =======
EARNINGS PER SHARE - Basic and
diluted (g) $ .68 $ [ ]
======= =======
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - BASIC AND
DILUTED 2,944
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
F-5
<PAGE> 78
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
BALANCE SHEET - In October 1998, the Company entered into an agreement to
acquire all of the outstanding shares of stock of Princetown Holdings Limited,
the sole owner of Gemini Transmissions Limited (together, "Gemini") for
approximately $12.4 million. Gemini manufactures and assembles gearboxes,
gearbox components, suspension components and other fabricated items for various
automobile companies and motorsport teams, and is an industry leader in the
design, manufacture and assembly of fuel-efficient gearboxes. The excess of the
purchases price over the net book value of the net assets acquired of Gemini has
been allocated to the tangible and intangible assets based on the Company's
estimate of the fair market value of the net assets acquired. The allocation of
the purchase price paid for Gemini is as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Fair market value of net assets acquired $ 9,076
Allocation of purchase price in excess of acquired assets - Goodwill 3,363
-------
Total Purchase Price $12,439
=======
</TABLE>
The accompanying unaudited pro forma condensed consolidated balance sheet as of
June 30, 1998 has been prepared as if the Offering, the Gemini Acquisition and
the Reorganization had been consummated as of June 30, 1998 and includes:
(A) a pro forma adjustment to:
o record the write-up to fair market value of assets acquired
of $8,142,000 ($7,171,000 in relation to plant and
machinery; $971,000 in respect of inventory) and goodwill
($3,363,000) related to the Gemini acquisition;
o present the Gemini acquisition for $11,779,000 in cash and
$660,000 in deferred consideration payable on December 31,
2000;
o reflect the deferred tax liability arising in respect of the
fair value adjustments in respect of plant and machinery and
inventory referred to above;
o reflect the repayment of notes and rent due from Gemini to
certain related parties totalling $3,611,000 and $460,000,
respectively.
(B) a pro forma adjustment to present the application of the net
proceeds ($[ ]) of the Offering, assuming Offering expenses of $[ ]
together with repayment of certain related party amounts totalling
$10,418,000.
STATEMENT OF OPERATIONS - The accompanying unaudited pro forma condensed
consolidated statement of operations for the nine months ended June 30, 1998 and
for the year ended September 30, 1997 presents the results as though the
Offering, the Gemini Acquisition and the Reorganization had been consummated on
October 1, 1996. The accompanying unaudited pro forma condensed consolidated
statement of operations for the nine months ended June 30, 1998 has been
prepared by combining the historical results for the Company for the nine months
ended June 30, 1998 and for Gemini for the nine months ended May 31, 1998. The
accompanying unaudited pro forma condensed consolidated statement of operations
for the year ended September 30, 1997 has been prepared by combining the
historical results for the Company for the year ended September 30, 1997 and for
Gemini for the year ended August 31, 1997. The accompanying unaudited pro forma
condensed consolidated statements of operations include the following
adjustments:
(C) pro forma adjustments for the nine months ended June 30, 1998 and
the year ended September 30, 1997 have been made to increase
depreciation and amortization for goodwill by $126,000 and
$168,000, respectively, related to the Gemini Acquisition as if the
Gemini Acquisition had occurred as of October 1, 1996. Goodwill is
amortized over 20 years. The Company intends to evaluate
periodically the recoverability of goodwill based upon future
profitability and undiscounted operating cash flows of the Gemini
Acquisition. Pro forma adjustments have also been made for the nine
months ended June 30, 1998 and the year ended September 30, 1997 to
increase depreciation and amortization by $538,000 and $717,000,
respectively, for the fair value adjustment to plant and machinery
described in (A) above.
(D) pro forma adjustments for the periods presented have been made to
reduce compensation made to Dr. Adrian Reynard. Effective October
1, 1998, the Company entered into an agreement with Dr. Reynard
whereby his total compensation is fixed at $1.5 million per annum.
Total compensation will comprise of a basic salary ($1,000,000),
and bonus ($500,000). Accordingly the amount paid to Dr.
F-6
<PAGE> 79
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Reynard for the nine months ended June, 30 1998 and the year ended
September, 30 1997 has been reduced to $1,125,000 and $1,500,000
respectively (together with related employment taxes) to reflect
compensation based on the agreed $1.5 million per annum. Such
Agreement expires on September 30, 2001.
(E) pro forma adjustment for the nine months ended June 30, 1998 has
been made to eliminate interest expense incurred on the related
party note payable referred to in (B) above which is to be repaid
as part of the proceeds of the Offering.
(F) pro forma adjustments for the periods presented have been tax
effected based upon the statutory rate then expected to be in
effect.
(G) pro forma earnings per share is computed by dividing pro forma net
income by the weighted average common shares outstanding and the
shares offered hereby. Pro forma common shares outstanding for the
nine months ended June 30, 1998 were [ ] ([ ] for the year ended
September, 30 1997).
F-7
<PAGE> 80
THE ACCOMPANYING COMBINED FINANCIAL STATEMENTS REFLECT CHANGES FOR THE
REORGANIZATION (EXCLUDING THE EFFECTS OF THE PROPOSED STOCK SPLIT) WHICH IS TO
BE EFFECTED PRIOR TO THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT. THE
FOLLOWING OPINION IS IN THE FORM WHICH WILL BE SIGNED BY DELOITTE & TOUCHE UPON
CONSUMMATION OF THE ABOVE EVENT, WHICH IS DESCRIBED IN NOTE 11 OF NOTES TO
COMBINED FINANCIAL STATEMENTS AND ASSUMING THAT FROM SEPTEMBER 14, 1998 TO THE
DATE OF SUCH EVENT, NO OTHER EVENTS HAVE OCCURRED WHICH WOULD AFFECT THE
ACCOMPANYING COMBINED FINANCIAL STATEMENTS AND NOTES THERETO.
DELOITTE & TOUCHE
LONDON, ENGLAND
OCTOBER 27, 1998
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Reynard Motorsport, Inc. and Related Companies
We have audited the combined balance sheets of Reynard Motorsport, Inc. and
related companies (the "Companies") as of September 30, 1996 and 1997 and June
30, 1998, and the related combined statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
September 30, 1997 and the nine month period ended June 30, 1998. These combined
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the combined
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the combined financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall combined financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
materials respects, the financial position of the Companies at September 30,
1996 and 1997 and June 30, 1998, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 1997
and the nine month period ended June 30, 1998, in conformity with accounting
principles generally accepted in the United States of America.
London, England
September 14, 1998
(_______, 1998 as to Note 11)
F-8
<PAGE> 81
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,597 $ 727 $ 3,152
Accounts receivables (net of allowance for doubtful accounts of
$174,000, $110,000 and $1,002,000 in 1996, 1997 and 1998
respectively) 2,482 7,397 10,960
Inventory (net of allowance for obsolescence of $1,078,000,
$2,012,000 and $2,502,000 in 1996, 1997 and 1998,
respectively) 2,397 4,316 2,329
Prepaid expenses 174 179 615
Deferred income taxes 216 96 460
------- ------- -------
Total current assets 8,866 12,715 17,516
PROPERTY AND EQUIPMENT - Net 3,025 5,694 9,001
OTHER ASSETS -- -- 455
------- ------- -------
TOTAL ASSETS $11,891 $18,409 $26,972
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Bank line of credit $ -- $ 35 $ 1,072
Notes payable to related party 250 5,246 10,479
Accounts payable 2,663 5,225 5,877
Accrued liabilities:
Deposits on cars 3,732 3,012 731
Taxes 687 528 2,421
Other 2,129 3,462 4,891
------- ------- -------
Total current liabilities 9,461 17,508 25,471
DEFERRED INCOME TAXES 134 160 133
MINORITY INTEREST IN SUBSIDIARY -- -- 2,519
COMMITMENTS AND CONTINGENCIES (Note 7) -- -- --
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: $0.1 par value; 10,000,000 shares authorized;
2,944,009 issued and outstanding. $1 par value; 2,100
shares authorized; 502 $1 shares issued and outstanding at
September 30, 1996 and 1997 and June 30, 1998, respectively 422 422 422
Additional paid-in capital 6 6 676
Foreign currency translation adjustment 3 97 104
Retained earnings (accumulated deficit) 1,865 216 (2,353)
------- ------- -------
Total stockholders' equity (deficit) 2,296 741 (1,151)
------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $11,891 $18,409 $26,972
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the combined statements.
F-9
<PAGE> 82
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED JUNE NINE MONTHS
SEPTEMBER SEPTEMBER SEPTEMBER 30, 1997 ENDED JUNE
30, 1995 30, 1996 30, 1997 (UNAUDITED) 30, 1998
-------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Products $18,952 $22,406 $39,039 $34,098 $40,881
Services 2,701 6,493 10,803 8,349 9,882
------- ------- ------- ------- -------
Total revenues 21,653 28,899 49,842 42,447 50,763
------- ------- ------- ------- -------
COST OF GOODS SOLD:
Products 8,814 9,928 19,502 16,878 21,713
Services 1,232 3,750 5,951 3,344 3,944
------- ------- ------- ------- -------
Total cost of goods sold 10,046 13,678 25,453 20,222 25,657
------- ------- ------- ------- -------
GROSS PROFIT 11,607 15,221 24,389 22,225 25,106
GENERAL AND ADMINISTRATIVE
EXPENSES 11,285 13,766 21,462 15,821 20,122
------- ------- ------- ------- -------
INCOME FROM OPERATIONS 322 1,455 2,927 6,404 4,984
Share of loss in equity investment -- -- -- -- (5,310)
Minority interest in loss of -- -- -- -- 106
subsidiary
Interest income 165 166 171 144 21
Interest expense (20) -- -- -- (670)
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES 467 1,621 3,098 6,548 (869)
INCOME TAX EXPENSE 114 563 1,105 2,066 1,634
------- ------- ------- ------- -------
NET INCOME (LOSS) $ 353 $ 1,058 $ 1,993 $ 4,482 $(2,503)
======= ======= ======= ======= =======
EARNINGS (LOSS) PER SHARE - Basic and
Diluted $ .12 $ .36 $ .68 $ 1.52 $ (.85)
======= ======= ======= ======= =======
WEIGHTED SHARES OUTSTANDING - BASIC AND
DILUTED 2,944 2,944 2,944 2,944 2,944
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-10
<PAGE> 83
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN RETAINED
COMMON STOCK ADDITIONAL CURRENCY EARNINGS STOCKHOLDERS'
----------------- PAID-IN TRANSLATION (ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT) (DEFICIT)
------ ------ ------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, OCTOBER 1, 1994 2,944 $422 $ 6 $ -- $ 502 $ 930
Net income -- -- -- -- 353 353
Foreign currency translation
adjustment -- -- -- 2 -- 2
----- ---- ---- ---- ------- -------
BALANCES, SEPTEMBER 30, 1995 2,944 422 6 2 855 1,285
Net income -- -- -- -- 1,058 1,058
Foreign currency translation
adjustment -- -- -- 1 -- 1
Common stock dividend -- -- -- -- (48) (48)
----- ---- ---- ---- ------- -------
BALANCES, SEPTEMBER 30, 1996 2,944 422 6 3 1,865 2,296
Net income -- -- -- - 1,993 1,993
Foreign currency translation
adjustment -- -- -- 94 -- 94
Common stock dividend -- -- -- -- (3,642) (3,642)
----- ---- ---- ---- ------- -------
BALANCES, SEPTEMBER 30, 1997 2,944 422 6 97 216 741
Net loss -- -- -- -- (2,503) (2,503)
Foreign currency translation
adjustment -- -- -- 7 -- 7
Common stock dividend -- -- -- -- (66) (66)
Capital contribution (waiver of
interest expense by stockholder) -- -- 670 -- -- 670
----- ---- ---- ---- ------- -------
BALANCES, JUNE 30, 1998 2,944 $422 $676 $104 $(2,353) $(1,151)
===== ==== ==== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-11
<PAGE> 84
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED JUNE NINE MONTHS
SEPTEMBER SEPTEMBER SEPTEMBER 30, 1997 ENDED JUNE
30, 1995 30, 1996 30, 1997 (UNAUDITED) 30, 1998
-------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 353 $ 1,058 $ 1,993 $ 4,482 $(2,503)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 408 535 898 687 1,003
Capital contribution - waiver of
interest expense -- -- -- -- 670
Foreign currency translation adjustment (4) (54) 152 217 1
Deferred income taxes (52) 19 146 86 (391)
Loss from sale of property and equipment 2 260 -- -- 202
Minority interest in loss of subsidiary -- -- -- -- (106)
Share of loss in equity investment -- -- -- -- 5,310
Changes in assets and liabilities that
(used) provided cash:
Accounts receivables (1,336) 337 (4,965) (5,978) (3,939)
Prepaid expenses (93) 62 1 (867) (427)
Inventory 228 (360) (1,854) 1,208 2,099
Accounts payable 300 504 2,493 (35) 596
Accrued liabilities 5,468 (1,238) 327 589 2,492
------- ------- ------- ------- -------
Net cash provided by
(used in) operating
activities 5,274 1,123 (809) 389 5,007
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (650) (1,963) (3,494) (1,067) (4,313)
Proceeds from sale of property and
equipment 2 -- 6 1 --
Equity investments -- -- -- -- (4,273)
Notes payable to related party (506) 247 5,034 3,836 5,033
------- ------- ------- ------- -------
Net cash (used in) provided by
investing activities (1,154) (1,716) 1,546 2,770 (3,553)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends -- (48) (3,642) (3,647) (66)
Net proceeds from bank line of credit -- -- 35 151 1,037
------- ------- ------- ------- -------
Net cash (used in) provided by
financing activities -- (48) (3,607) (3,496) 971
------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 4,120 (641) (2,870) (337) 2,425
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 118 4,238 3,597 3,597 727
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,238 $ 3,597 $ 727 $ 3,260 $ 3,152
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 45 $ 304 $ 1,439 $ 1,439 $ 252
======= ======= ======= ======= =======
Interest $ 145 $ 166 $ 171 $ 144 $ 21
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-12
<PAGE> 85
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Reynard Engineering Group Limited (a United Kingdom ("UK") Corporation) was
formed in 1994 to act as a holding company for its wholly-owned subsidiaries
(the "Company"). At June 30, 1998 the Company had wholly-owned subsidiaries as
follows: Reynard Racing Cars Limited, Reynard Manufacturing Limited, Rumfleet
Limited and subsidiaries, Reynard Formula One Limited and Advantage CFD Limited
and Reynard Composites Limited. The Company designs, manufactures and sells
production racing cars, as well as providing various engineering and management
services.
Reynard Racing Designs Limited (a UK Corporation) was formed in 1994 to hold the
property rights and certain plant, property and equipment of Reynard Engineering
Group Limited and its subsidiaries.
Reynard Special Vehicle Projects Limited (a UK Corporation) was formed in 1996
to design and manufacture vehicle components which do not bear the Reynard name.
Each of these companies is majority owned by Dr Adrian Reynard, his family and
trusts beneficially owned by Dr Reynard. Other shareholders include an employee
share ownership trust ("ESOT"), which holds shares for the benefit of employees
including the other directors of Reynard Engineering Group Limited.
Since all entities described above have been, and are, related through common
control, the preceding balance sheets as of September 30, 1996 and 1997 and June
30, 1998 and the related statements of operations, stockholders' equity
(deficit) and cash flows for the years ended September 30, 1995, 1996 and 1997
and the nine month periods ended June 30, 1997 (unaudited) and 1998 have been
presented on a combined basis. All significant inter-company balances and
transactions have been eliminated in combination.
In addition, the combined financial statements include the financial statements
of Auto Research Center LLC, ("ARC") a 50% owned subsidiary.
NATURE OF OPERATIONS
The Company designs and manufactures production racing cars and other high
performance speciality vehicles. Cars are sold for competition in the CART Fed
Ex Championship Series, the Barber Dodge Pro Series and Formula Nippon Series.
Substantially all of the Company's revenues are derived from the sale of racing
car chassis and related spare parts ("products") and the provision of services
such as wind-tunnel testing and computer-aided design ("services") in the UK and
United States.
INVENTORY. Inventory consists of finished goods, spare parts, work-in-process
and raw materials which are stated at the lower of cost or market on a first-in,
first-out (FIFO) basis.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost and are
depreciated using the straight-line method over their estimated useful lives
which range from 4 to 25 years. Leasehold improvements are amortized over the
life of the related leases.
F-13
<PAGE> 86
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
REVENUE RECOGNITION. Revenue derived from the sale of products are recognized at
the time of shipment. Revenue derived from the providing of services are
recognized as earned. Deposits received in advance are deferred until the
shipment of products occur.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include investments with
original maturities of three months or less at the date of original acquisition.
INVESTMENTS. The Company has a 20% ownership in Reynard Aviation, a joint
venture with Virgin Airlines which was formed in January 1998. This investment
is accounted for under the cost method by the Company as they do not have the
ability to exercise significant influence over the operating and financial
policies of Reynard Aviation.
The Company has a 15% ownership in British America Racing ("BAR"), a joint
venture with British American Tobacco, through its subsidiary BAT (Westminster
House) Ltd. and Mount Eagle, Inc. which was formed in November 1997. This
investment is accounted for under the equity method by the Company as they have
the ability to exercise significant influence over the operating and financial
policies of BAR. The Company has guaranteed (on a joint and several basis) debt
obligations available to BAR of approximately $13,342,000 at June 30, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS. Statement of Financial Accounting Standards
("SFAS") No. 107, "Disclosures About Fair Value of Financial Instruments",
requires disclosures about the fair value of financial instruments whether or
not such instruments are recognized on the balance sheet. Due to the short-term
nature of the Company's financial instruments, other than debt, fair values are
not materially different from their carrying values. Based on the borrowing
rates available to the Company, the carrying value of debt approximated fair
value prevailing market prices and rates as of September 30, 1996 and 1997 and
June 30, 1998.
It is the policy of the Company not to enter into derivative financial
instruments for speculative purposes. The Company does enter into foreign
currency forward exchange contracts to minimize risk of loss from currency rate
fluctuations on foreign currency commitments entered into in the ordinary course
of business. These commitments are generally for terms of less than one year.
The foreign currency forward exchange contracts are executed with creditworthy
banks and are denominated in currencies of major industrial countries. The
notional amount of outstanding foreign currency forward exchange contracts
aggregated $5 million at September 30, 1997. There were no outstanding foreign
currency forward exchange contracts at September 30, 1996 and June 30, 1998. The
Company does not anticipate any material adverse effect on its results of
operations or financial position relating to these foreign currency forward
exchange contracts.
FOREIGN CURRENCY TRANSLATION. Gains and losses arising from the settlement of
foreign currency transactions are charged to the related period's combined
statement of operations. The Company's functional currency is UK pounds
sterling. The combined financial statements of the Company are translated into
United States dollars as of the balance sheet date. All revenue and expense
accounts are translated at a weighted - average of exchange rates in effect
during the period. Translation adjustments are recorded as a separate component
of stockholders' equity (deficit).
RESEARCH AND DEVELOPMENT. Research and development costs relating to present and
future products are expensed as incurred. During the years ended September 30,
1995, 1996 and 1997, and the nine month period ended June 30, 1998 the Company
incurred research and development costs of approximately $584,000, $1,793,000,
$595,000 and $1,519,000 respectively.
EARNINGS (LOSS) PER SHARE. Earnings (loss) per share - basic and diluted are
based on the weighted average number of common shares outstanding during the
periods presented.
MANAGEMENT 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
F-14
<PAGE> 87
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
liabilities and disclosure of contingent assets and liabilities at September 30,
1996 and 1997 and June 30, 1998 and the reported amounts of revenues and
expenses during the periods presented. The actual outcome of the estimates could
differ from the estimates made in the preparation of the financial statements.
INTERIM INFORMATION (UNAUDITED). The accompanying unaudited interim combined
financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
RECENT ACCOUNTING PRONOUNCEMENTS. In June 1997, Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" was
issued by the Financial Accounting Standards Board ("FASB"). SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components. This Statement requires that all items that are required as
components of comprehensive income be displayed in a financial statement. The
Company has not determined the impact on the Company's combined financial
statement disclosure. SFAS No. 130 is effective for the Company's combined
financial statements for the year ending September 30, 1999.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" was issued by the FASB. SFAS No. 131 establishes standards
for the way that public business enterprises report financial and descriptive
information about its reporting operating segments. The Company has not
determined the impact on the Company's combined financial statement disclosure.
SFAS No. 131 is effective for the Company's combined financial statements for
the year ending September 30, 1999.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued by the FASB. SFAS No. 133 establishes standards for
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts by requiring that an entity recognize those items as
assets or liabilities in the balance sheet and measure them at fair value. The
Company has not determined the impact on the Company's combined financial
statements. SFAS No. 133 is effective for the Company's combined financial
statements for the year ending September 30, 2000.
2. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Trade receivables - gross $2,215 $6,415 $11,261
Allowance for trade receivables (174) (110) (1,002)
------ ------ -------
Trade receivables - net 2,041 6,305 10,259
Value Added Taxes 437 729 --
Income taxes -- 333 343
Other 4 30 358
------ ------ -------
$2,482 $7,397 $10,960
====== ====== =======
</TABLE>
F-15
<PAGE> 88
]
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
3. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Raw material and supplies $ 593 $ 742 $ 1,283
Work-in-process 1,166 957 554
Finished products and service parts 1,716 4,629 2,994
------- ------- -------
Total $ 3,475 $ 6,328 $ 4,831
Less allowance for obsolete inventory (1,078) (2,012) (2,502)
------- ------- -------
$ 2,397 $ 4,316 $ 2,329
======= ======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Equipment $ 3,158 $ 4,270 $ 6,932
Vehicles 488 594 732
Furniture and fixtures 1,222 1,513 3,940
Leasehold improvements 166 222 268
Land 304 2,348 1,451
------- ------- -------
Total 5,338 8,947 13,323
Less accumulated depreciation (2,313) (3,253) (4,322)
------- ------- -------
$ 3,025 $ 5,694 $ 9,001
======= ======= =======
</TABLE>
5. BANK LINE OF CREDIT
The Company has an unsecured bank line of credit with National Westminster Bank
PLC. Interest is charged at the bank's base rate plus 2% on the first $1,650,000
and the bank's base rate plus 6% thereafter (effective rate of 9.0% and 9.5% at
September 30, 1997 and June 30, 1998, respectively) and is due on demand. At
September 30, 1996, there were no amounts outstanding on the line of credit.
6. OTHER ACCRUED LIABILITIES
Other accrued liabilities consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Wages and salaries $ 862 $1,292 $2,258
Payroll taxes 820 828 493
Project costs -- 566 --
Value Added Taxes -- 212
Accrual for final payment of investment in BAR -- -- 1,502
Other 447 776 426
------ ------ ------
$2,129 $3,462 $4,891
====== ====== ======
</TABLE>
F-16
<PAGE> 89
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES
The Company has entered into various non-cancellable operating leases with the
Company's majority stockholder for office space and equipment which expire
through 2003. Total rent expense for the years ended September 30, 1995, 1996
and 1997 was approximately $269,000, $229,000 and $229,000, respectively, and
approximately $366,000 for the nine months ended June 30, 1998.
Approximate future minimum lease payments under non-cancellable operating leases
are as follows:
(IN THOUSANDS)
Year ending September 30:
1999 $ 897
2000 897
2001 897
2002 897
2003 897
------
Total $4,485
======
At June 30, 1998, the Company has committed to capital expenditures of
approximately $1,800,000 for the construction of facilities and purchase of
certain equipment.
The Company is a party to routine litigation incidental to its business.
Management does not believe that the resolution of any or all of such litigation
is likely to have a material adverse effect on the Company's combined financial
condition.
8. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
During the year ended September 30, 1996, the Company had three customers which
accounted for approximately 78% of the Company's revenues. The aggregate trade
receivable balances at September 30, 1996 in respect of these customers was
approximately $937,000. During the year ended September 30, 1997, the Company
had three customers which accounted for approximately 80% of the Company's
revenues. The aggregate trade receivable balances at September 30, 1997 in
respect of these customers was approximately $3,931,000. During the period ended
June 30, 1998, the Company had one customer which accounted for approximately
16% of the Company's revenues. The aggregate trade receivables balance at June
30, 1998 in respect of this customer was approximately $4,523,000.
Revenues by geographic area are as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended September 30,
--------------------------------------------------- Nine Months Ended
1995 1996 1997 June 30, 1998
---- ---- ---- -----------------
<S> <C> <C> <C> <C>
UK $ 1,258 $ 1,408 $14,497 $14,453
United States 17,315 24,724 32,517 35,889
Other 3,080 2,767 2,828 421
------- ------- ------- -------
$21,653 $28,899 $49,842 $50,763
======= ======= ======= =======
</TABLE>
9. INCOME TAXES
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation
F-17
<PAGE> 90
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.
Realization of the Company's deferred tax assets is dependent on generating
sufficient taxable income. Although realization is not assured, management
believes it is more likely than not that all of the deferred tax assets will be
realized. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income are
reduced.
The tax effects of temporary differences giving rise to deferred tax assets
(liabilities) are as follows (thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Depreciation $(134) $(160) $(133)
Development costs 210 91 98
Inventory 6 5 264
Other -- -- 98
----- ----- -----
Total 82 (64) 327
Current portion 216 96 460
----- ----- -----
Non current portion $(134) $(160) $(133)
===== ===== =====
</TABLE>
The provision for income taxes consists of the following (thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Current $544 $ 959 $2,025
Deferred (benefit) 19 146 (391)
---- ------ ------
Total $563 $1,105 $1,634
==== ====== ======
</TABLE>
The reconciliation of income tax expense computed at the UK statutory tax rate
to the Companies' effective income tax rate is as follows (thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED NINE MONTHS
SEPTEMBER SEPTEMBER ENDED JUNE
30, 1996 30, 1997 30, 1998
-------- -------- --------
<S> <C> <C> <C>
Tax at UK statutory rate $530 $1,044 $ (94)
Meals and entertainment 13 16 15
Professional fees 12 19 18
Depreciation 8 26 49
Non deductible losses in equity investment -- -- 1,646
---- ------ ------
Total $563 $1,105 $1,634
==== ====== ======
</TABLE>
F-18
<PAGE> 91
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
10. RELATED PARTY TRANSACTIONS
As of June 30, 1998 the Company has approximately $1,045,000 due from BAR and
had sales of approximately $978,000 to BAR during the nine months ended June 30,
1998.
During the nine months ended June 30, 1998 the Company sold products and spares
to affiliated entities of ARC amounting to approximately $3,006,000 and
$4,323,000 respectively. At June 30, 1998, the Company had approximately
$319,000 due from these entities.
As of September 30, 1996 and 1997 and as of June 30, 1998, the Company owed Dr.
Reynard $250,000, $5,246,000 and $10,418,000 respectively. These notes are
secured by way of fixed and floating charges over the assets of the Company,
bear interest at National Westminster Bank PLC's base rate plus 2-1/2% and are
repayable on demand. For all periods presented, the Company has received a
letter from Dr. Reynard in which he states that he does not expect to be paid
or credited with interest on the money lent to date. For the nine months ended
September 30, 1998, interest expense of approximately $670,000 has been recorded
and treated as a contribution to additional paid-in capital.
As of September 30, 1997 the pension fund, of which Dr. Adrian Reynard is a
beneficiary, owed the Company $165,000, which is included in accounts
receivable.
11. SUBSEQUENT EVENTS (UNAUDITED)
On September 2, 1998, Reynard Motorsport, Inc., ("RMI") a Delaware Corporation
was formed to serve as a holding company for the Company ("the Reorganization").
The outstanding common stock of the Company is anticipated to be acquired in
exchange for common stock in RMI.
In October 1998, RMI filed a registration statement with the Securities and
Exchange Commission to register shares of common stock for sale in an initial
public offering (the "Offering").
In October 1998, the Company entered into an agreement to acquire all of the
outstanding shares of stock of Princetown Holdings Limited, the sole owner of
Gemini Transmissions Limited ("Gemini") for approximately $12,439,000 (including
$660,000 deferred consideration payable at December 31, 2000). The Gemini
acquisition is anticipated to close concurrently with the Offering and a portion
of the proceeds from the Offering will be used to fund the Gemini acquisition.
Gemini manufactures and assembles gearboxes, gearbox components, suspension
components and other fabricated items for various automobile companies and
motorsport teams, and is an industry leader in the design, manufacture and
assembly of fuel efficient gearboxes.
F-19
<PAGE> 92
REYNARD MOTORSPORT, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
In September 1998, the Board of Directors of the Company (the "Board")
authorized, and the stockholders of the Company approved, a stock incentive plan
for executive and key management employees of the Company, including a limited
number of outside consultants and advisors, effective as of the completion of
the Offering (the "Stock Option Plan"). Under the Stock Option Plan, key
employees, outside consultants and advisors (the "Participants") of the Company
(as defined in the Stock Option Plan) may receive awards of stock options (both
Nonqualified Options and Incentive Options, as defined in the Stock Option
Plan). A maximum of shares of common stock will be subject to the Stock Option
Plan. The purpose of the Stock Option Plan is to provide key employees
(including officers and directors who are also key employees) and key
non-employee consultants and advisors of the Company ("employees") with an
increased incentive to make significant contribution to the long-term
performance and growth of the Company.
On September 30, 1998 a stock option agreement was entered into with an officer
of the Company granting such officer options to acquire 117,760 shares of the
Company's Common Stock. The options were immediately vested and exerciseable at
a weighted average exercise price of (pound)36.50. Compensation expense relating
to such granting of options (representing the difference between the exercise
price and the fair value of the Company's stock) is anticipated to be
approximately $1.0 million which will be recorded on September 30, 1998.
F-20
<PAGE> 93
INDEPENDENT AUDITOR'S REPORT
To the Director and Stockholder
Of Princetown Holdings Limited
We have audited the consolidated balance sheets of Princetown Holdings Limited
and subsidiary (the "Group") as of August 31, 1997 and May 31, 1998, and the
related consolidated statements of income, stockholder's deficit and cash flows
for the year ended August 31, 1997 and the nine months ended May 31, 1998. These
consolidated financial statements are the responsibility of the Group's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
materials respects, the financial position of the Group at August 31, 1997 and
May 31, 1998 and the results of their operations and their cash flows for the
year ended August 31, 1997 and the nine months ended May 31, 1998 in conformity
with accounting principles generally accepted in the United States of America.
Deloitte & Touche
London, England
September 14, 1998
F-21
<PAGE> 94
PRINCETOWN HOLDINGS LIMITED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31, MAY, 31,
1997 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ -- $ --
Accounts receivable (net of allowance for doubtful accounts of
$170,000 and $29,000 as of August 31, 1997 and May 31, 1998,
respectively) 498 555
Deferred income taxes 268 351
Inventory 1,254 1,504
Other current assets 40 23
------ ------
Total current assets 2,060 2,433
PROPERTY AND EQUIPMENT - Net 2,993 3,554
------ ------
TOTAL ASSETS $5,053 $5,987
====== ======
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Accounts payable $ 292 $ 271
Accrued liabilities 413 495
Current portion of capital lease obligations 510 614
Current portion of long-term debt 172 273
Bank line of credit 221 205
Loans payable - related parties -- 3,611
------ ------
Total current liabilities 1,608 5,469
CAPITAL LEASE OBLIGATIONS (exclusive of current portion) 448 670
DEFERRED INCOME TAXES 126 262
LOANS PAYABLE - RELATED PARTIES 3,317 --
LONG-TERM DEBT (exclusive of current portion) 325 281
COMMITMENTS AND CONTINGENCIES (Note 7) -- --
STOCKHOLDER'S DEFICIT
Common stock $1 par value; 40,000 shares authorized; no shares
issued and outstanding at August 31, 1997 and May 31, 1998;
Bearer stock $1 par value; 10,000 shares authorized; 1 share
issued and outstanding at August 31, 1997 and May 31, 1998 -- --
Accumulated deficit (737) (646)
Foreign currency translation adjustments (34) (49)
------ ------
Total stockholder's deficit (771) (695)
------ ------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $5,053 $5,987
====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-22
<PAGE> 95
PRINCETOWN HOLDINGS LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED MAY NINE MONTHS
AUGUST 31, 31, 1997 ENDED MAY
1997 (UNAUDITED) 31, 1998
---- ----------- --------
<S> <C> <C> <C>
REVENUES
Products $3,157 $2,681 $2,194
Other 19 19 47
------ ------ ------
Total 3,176 2,700 2,241
COST OF GOODS SOLD 1,426 1,136 890
------ ------ ------
GROSS PROFIT 1,750 1,564 1,351
GENERAL AND ADMINISTRATIVE EXPENSES 1,399 805 965
------ ------ ------
INCOME FROM OPERATIONS 351 759 386
INTEREST EXPENSE 144 89 240
------ ------ ------
INCOME BEFORE TAXES ON INCOME 207 670 146
INCOME TAX EXPENSE 70 168 55
------ ------ ------
NET INCOME $ 137 $ 502 $ 91
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-23
<PAGE> 96
PRINCETOWN HOLDINGS LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
-------------------- CURRENCY
ACCUMULATED TRANSLATION STOCKHOLDER'S
SHARES AMOUNT DEFICIT ADJUSTMENTS DEFICIT
------ ------ ------- ----------- -------
<S> <C> <C> <C> <C> <C>
BALANCES, SEPTEMBER 1, 1996 1 $ -- $(874) $ -- $(874)
Net income -- -- 137 -- 137
Foreign currency translation adjustment -- -- -- (34) (34)
------ ------ ----- ---- -----
BALANCES, SEPTEMBER 1, 1997 1 -- (737) (34) (771)
Net income -- -- 91 -- 91
Foreign currency translation adjustment -- -- -- (15) (15)
------ ------ ----- ---- -----
BALANCES, MAY 31, 1998 1 $ -- $(646) $(49) $(695)
====== ====== ===== ==== =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-24
<PAGE> 97
PRINCETOWN HOLDINGS LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED MAY NINE MONTHS
AUGUST 31, 31, 1997 ENDED MAY
1997 (UNAUDITED) 31, 1998
---- ----------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 137 $ 502 $ 91
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 611 343 463
Deferred income taxes 70 168 55
Loss (gain) from disposal of property and equipment 3 (1) (29)
Change in assets and liabilities that provided (used) cash
Accounts receivable (75) (539) (48)
Inventory (137) (87) (227)
Other current assets (18) 14 18
Accounts payable 105 106 (27)
Accrued liabilities 54 50 75
----- ----- -----
Net cash provided by operating activities 750 556 371
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (510) (440) (140)
Proceeds from disposal of property and equipment 84 1 46
----- ----- -----
Net cash used in investing activities (426) (439) (94)
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) from (on) notes payable to related 117 (21) 232
parties
Proceeds (payments) from (on) other notes payable 435 (41) 50
Payments on capital lease obligations (968) (116) (539)
Proceeds (payments) from bank line of credit 97 68 (16)
----- ----- -----
Net cash used in financing activities (319) (110) (273)
----- ----- -----
NET INCREASE IN CASH AND CASH EQUIVALENTS 5 7 4
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -- -- --
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (5) (7) (4)
===== ===== =====
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ -- $ --
===== ===== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for: Interest $ 144 $ 89 $ 123
===== ===== =====
Income taxes None None None
===== ===== =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-25
<PAGE> 98
PRINCETOWN HOLDINGS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Princetown Holdings Limited ("Princetown") and its
wholly-owned subsidiary, Gemini Transmissions Limited ("Gemini") were
incorporated in 1991. Princetown was incorporated in the British Virgin Islands
and is a holding company for Gemini . Gemini was incorporated in the United
Kingdom ("UK") and manufactures and assembles gearboxes and related components.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
financial statements of the Princetown and its wholly owned subsidiary, Gemini
(collectively referred to as the "Company"). All significant inter-company
balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS include investments with original maturities of three
months or less at the date of original acquisition.
INVENTORY consists of gearboxes and parts and are stated at the lower of cost or
market on a first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT are stated at cost and are depreciated using accelerated
methods over their estimated useful lives which range from five to seven years.
REVENUE RECOGNITION - Revenue is recognized at the time the products are
shipped.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosures about the fair value of financial instruments
whether or not such instruments are recognized on the balance sheet. Due to the
short-term nature of the Company's financial instruments, other than debt, fair
values are not materially different from their carrying values. Based on the
borrowings rates available to the Company, the carrying value of debt
approximated their fair value as of August 31, 1997 and May 31, 1998.
MANAGEMENT ESTIMATES - The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of August 31,
1997 and May 31, 1998 and the reported amounts of revenues and expenses during
the periods presented. The actual outcome of the estimates could differ from the
estimates made in the preparation of the consolidated financial statements.
FOREIGN CURRENCY TRANSLATION. Gains and losses arising from the settlement of
foreign currency transactions are charged to the related period's consolidated
statement of income. The Company's functional currency is the UK pounds
sterling. The consolidated financial statements of the Company are translated
into United States dollars as of the balance sheet date. All revenue and expense
accounts are translated at a weighted - average of exchange rates in effect
during the period. Translation adjustments are recorded as a separate component
of stockholder's equity.
INTERIM INFORMATION (UNAUDITED). The accompanying unaudited interim consolidated
financial statements reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
MAJOR CUSTOMERS AND GEOGRAPHICAL INFORMATION. For the year ended August 31, 1997
and the nine months ended May 31, 1998, one customer accounted for 57.7% and
37.1%, respectively, of the Company's revenues. As of August 31, 1997 and May
31, 1998, $175,000 and $31,000, respectively, was receivable from such customer.
Revenues by geographic area are as follows (in thousands):
Year Ended Nine Months Ended
August 31, 1997 May 31, 1998
--------------- ------------
UK $ 931 $ 651
Europe 2,062 1,218
Other 183 372
------ ------
$3,176 $2,241
====== ======
F-26
<PAGE> 99
PRINCETOWN HOLDINGS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1997 1998
---- ----
<S> <C> <C>
Plant and machinery $ 5,240 $ 6,255
Fixtures and fittings 24 24
Motor vehicles 31 32
Office equipment 125 162
------- -------
Total cost 5,420 6,473
Less accumulated depreciation (2,427) (2,919)
------- -------
$ 2,993 $ 3,554
======= =======
</TABLE>
3. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1997 1998
---- ----
<S> <C> <C>
Trade receivables - gross $ 592 $584
Allowance for trade receivables (170) (29)
----- ----
Trade receivables - net 422 555
Value Added Taxes 75 --
Other 1 --
----- ----
$ 498 $555
===== ====
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities consists of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1997 1998
---- ----
<S> <C> <C>
Payroll taxes $ 26 $ 35
Accrued rent 379 460
Other 8 --
---- ----
$413 $495
==== ====
</TABLE>
5. DEBT
BANK LINE OF CREDIT. As of May 31, 1998 and August 31, 1997, the Company had and
secured via a fixed and floating charge over the assets of Gemini a bank line of
credit with National Westminster Bank PLC. Advances against this line of credit
are due on demand. Interest is charged at 3% above the bank's base rate (10.25%
at May 31, 1998 and 10% at August 31, 1997) on amounts up to $165,000 and 6%
above base rate on borrowings above this level.
F-27
<PAGE> 100
PRINCETOWN HOLDINGS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LONG-TERM DEBT. The Company has equipment notes payable to a bank bearing
interest at rates ranging from 5.5% to 9.0%. Future maturities are as follows
(in thousands):
Year Ended Nine Months Ended
August 31, 1997 May 31, 1998
--------------- ------------
1998 $ 199 $ 73
1999 190 381
2000 192 202
----- -----
Total minimum obligations 581 656
Interest (84) (102)
----- -----
Total 497 554
Current Portion (172) (273)
----- -----
Non current portion $ 325 $ 281
----- -----
6. RELATED PARTY TRANSACTIONS
Gemini rents factory premises on a month-by-month basis from an entity related
to one of the Company's directors. Rental expense for the nine months ended May
31, 1998 was $74,000 ($98,000 for the year ended August 31, 1997).
Gemini receives loans from an entity related through certain common ownership
and from one of the directors of Gemini. Loans payable to related parties as of
May 31, 1998 were $3,611,000 ($3,317,000 at August 31, 1997). These loans are
non-interest bearing and are due for repayment in 1999.
7. COMMITMENT AND CONTINGENCIES
The primary property and equipment leased by the Company is plant & machinery.
Property acquired under capital leases consists of the following (in thousands):
AUGUST 31, MAY 31,
1997 1998
---- ----
Plant and machinery $2,360 $2,190
Motor vehicles 31 32
------ ------
Total cost 2,391 2,222
Less accumulated depreciation (739) (555)
------ ------
$1,652 $1,667
====== ======
F-28
<PAGE> 101
PRINCETOWN HOLDINGS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum lease payments for the above assets under capital leases are as
follows (in thousands):
NINE MONTHS
YEAR ENDED ENDED
AUGUST 31, MAY 31,
1997 1998
---- ----
1998 $ 598 $ --
1999 335 700
2000 159 461
2001 11 311
------ ------
Total minimum obligations 1,103 1,472
Interest (145) (188)
------ ------
Present value of net minimum obligations 958 1,284
Current portion (510) (614)
------ ------
Non current portion $ 448 $ 670
====== ======
The Company is a party to routine litigation incidental to its business.
Management does not believe that the resolution of any or all of such litigation
is likely to have a material adverse affect on the Company's consolidated
financial condition.
8. INCOME TAXES
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
Realization of the Company's deferred tax assets is dependent on generating
sufficient taxable income. Although realization is not assured, management
believes it is more likely than not that all of the deferred tax assets will be
realized. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income are
reduced.
Income tax expense is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and liabilities. In the nine
months ended May 31, 1998 and the year ended August 31,1997 the income tax
expense relates exclusively to the change in the deferred tax asset. There is no
current income tax expense for the period due to the availability of tax loss
carryforwards. At May 31, 1998 tax loss carryforwards were $1,671,000
($1,274,000 at August 31, 1997).
F-29
<PAGE> 102
PRINCETOWN HOLDINGS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences giving rise to deferred tax assets
(liabilities) are as follows (in thousands):
NINE MONTHS
YEAR ENDED ENDED
AUGUST 31, MAY 31,
1997 1998
---- ----
Deferred tax assets (liabilities):
Depreciation $(126) $(262)
Tax loss carry forwards 268 351
----- -----
Total 142 89
Current portion 268 351
----- -----
Non current portion $(126) $(262)
===== =====
The provision for income taxes consists of the following (in thousands):
NINE MONTHS
YEAR ENDED ENDED
AUGUST 31, MAY 31,
1997 1998
---- ----
Current $-- $--
Deferred 70 55
--- ---
Total $70 $55
=== ===
9. SUBSEQUENT EVENT (UNAUDITED)
In October 1998, the Company entered into an agreement to sell to Reynard
Motorsport Ltd. (a wholly-owned subsidiary of Reynard Motorsport, Inc.) all of
the outstanding shares of stock of Princetown Holdings Limited for approximately
$12,439,000 cash, (including $660,000 in deferred consideration which is payable
on December 31, 2000). The acquisition is anticipated to close concurrently with
the initial public offering (the "Offering") of Reynard Motorsport, Inc. and a
portion of the proceeds from the Offering will be used to fund the acquisition.
F-30
<PAGE> 103
================================================================================
Reynard has not authorized any person to give you information that
differs from the information in this prospectus. You should rely solely on the
information contained in this prospectus. This prospectus is not an offer to
sell these securities, and we are not soliciting offers to buy these securities
in any state where the offer or sale of these securities is not permitted. The
information in this prospectus is accurate only as of the date of this
prospectus, even if the prospectus is delivered to you after the prospectus
date, or you buy the common stock after the prospectus date.
-----------------
TABLE OF CONTENTS
-----------------
PAGE
Prospectus Summary.............................
Risk Factors...................................
The Company....................................
Exchange Rate Information......................
Use of Proceeds................................
Dividend Policy................................
Dilution.......................................
Capitalization.................................
Selected Consolidated Financial and Operating
Data........................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................
Auto Racing Industry Overview..................
Business.......................................
Management.....................................
Principal and Selling Stockholders.............
Certain Transactions...........................
Description of Capital Stock...................
Shares Eligible for Future Sale................
Taxation.......................................
Underwriting...................................
Legal Matters..................................
Experts........................................
Additional Information.........................
Index to Financial Statements.................. F-1
-----------------
Until _________________, 1999 dealers that buy, sell or trade the
common stock may be required to deliver a prospectus, regardless of whether they
are participating in the offering. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
================================================================================
================================================================================
______________ Shares
[Logo]
REYNARD MOTORSPORT, INC.
Common Stock
----------
PROSPECTUS
----------
NationsBanc Montgomery
Securities LLC
Wheat First Union
Josephthal & Co. Inc.
__________, 1999
<PAGE> 104
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an estimated statement of expenses payable in
connection with the issuance and sale of the securities being registered, other
than underwriting discounts and commissions:
Securities and Exchange Commission Registration Fee $15,985
NASD Registration Fee $6,250
New York Stock Exchange Listing Fee $175,000
Accounting Fees and Expenses $800,000
Engraving Expenses $27,000
Printing Expenses $200,000
Blue Sky Filing Fees $5,000
Legal Fees and Expenses $350,000
Transfer Agent and Registrar Fees and Expenses $25,000
Miscellaneous $45,765
TOTAL $1,650,000
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under provisions of Reynard's Certificate of Incorporation and By-laws,
each person who is or was a director or officer of Reynard shall be indemnified
by Reynard as a matter of right to the full extent permitted by law. The effects
of the Certificate of Incorporation, By-laws and General Corporation Law of
Delaware are summarized as follows:
(a) Under Delaware law, to the extent that such a person is successful
on the merits in defense of a suit or proceeding brought against him by
reason of the fact that he is a director or officer of the Company, he
shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred in connection with such action.
(b) If unsuccessful in defense of a third-party civil suit or a
criminal suit, or if such suit is settled, such person shall be
indemnified under such law against both (1) expenses (including
attorneys' fees) and (2) judgments, fines and amounts paid in
settlement if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of Reynard,
and with respect to any criminal action, had no reason to believe his
conduct was unlawful.
II-1
<PAGE> 105
(c) If unsuccessful in a defense of a suit brought by or in the right
of Reynard, or if such suit is settled, such a person shall be
indemnified under such law only against expenses (including attorneys'
fees) incurred in the defense or settlement of such 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 Reynard except that if such a person
is adjudged to be liable in a suit in the performance of his duty to
Reynard, he cannot be made whole even for expenses unless the court
determines that he is fairly and reasonably entitled to indemnify for
such expenses.
(d) Reynard may not indemnify a person in respect of a proceeding
described in (b) or (c) above unless it is determined that
indemnification is permissible because the person has met the
prescribed standard of conduct by any one of the following: (i) the
Board of Directors, by a majority vote of a quorum consisting of
directors not at the time parties to the proceeding, (ii) if a quorum
of directors not parties to the proceeding cannot be obtained, or, if
obtainable but the quorum so directs, by independent legal counsel
selected by the Board of Directors or the committee thereof, or (iii)
by the stockholders.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, Reynard has sold shares of its common
stock. The following table sets forth the dates of sales, title and amounts of
securities sold during the past three years by the Registrant:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF SALE AMOUNT OF PRINCIPAL EXEMPTION
---------------- ------------ CONSIDERATION UNDERWRITER ---------
------------- -----------
<S> <C> <C> <C> <C>
________________ _________, 1998 N/A None 4(2)--Share exchange in
connection with corporate
reorganization
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
1.1 Form of Underwriting Agreement
2.1 Agreement for Sale of Princetown Holdings Limited dated October 26, 1998
3.1 Certificate of Incorporation of the Company filed September 2, 1998
3.2 Bylaws of the Company
4.1 Form of Common Stock Certificate (to be filed by amendment)
5.1 Form of Legal Opinion of Kegler, Brown, Hill & Ritter Co., L.P.A.
10.1 1998 Stock-Based Incentive Plan
10.2 Director's Stock Option Plan
10.3 Form of Employment Agreement to be entered into with executive officers
10.4 Stock Option Agreement with Alex Hawkridge dated September 30, 1998.
10.5 Paul Owens Agreement for Service as Composites Director
10.6 Adrian John Reynard Agreement for service as Chairman (overseas)
10.7 Adrian John Reynard Agreement for service as Managing Director
(United Kingdom)
23.1 Consent of Deloitte & Touche
23.2 Consent of Kegler, Brown, Hill & Ritter Co., L.P.A.
II-2
<PAGE> 106
24.1 Power of Attorney of the Company
27.1 Financial Data Schedule
(b) Financial Statement Schedules
None
ITEM 17. UNDERTAKINGS.
Reynard hereby undertakes to provide to the underwriter at the closing
specified in the underwriting agreements certificates in such denomination and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Reynard 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 a 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 the registration statement as of the time it is
declared effective.
(2) For the purposes 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of Reynard pursuant to the foregoing provisions, or otherwise, Reynard
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 Reynard of expenses incurred or paid
by a director, officer or controlling person of Reynard in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
Reynard 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.
II-3
<PAGE> 107
SCHEDULE II
REYNARD MOTORSPORT, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
AND THE NINE MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BEGINNING CHARGED TO COSTS DEDUCTIONS BALANCE AT
DESCRIPTION OF PERIOD AND EXPENSES (1) END OF PERIOD
- -------------------------------------- -------------------- ---------------- --------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
(deducted from accounts receivable)
Nine Months Ended June 30, 1998 $110 $982 $ 90 $1,002
Year Ended September 30, 1997 174 (32) 32 110
Year Ended September 30, 1996 328 42 196 174
Year Ended September 30, 1995 240 91 3 328
</TABLE>
(1) Accounts deemed to be uncollectible.
<TABLE>
<CAPTION>
BALANCE AT BEGINNING CHARGED TO COSTS BALANCE AT
DESCRIPTION OF PERIOD AND EXPENSES DEDUCTIONS END OF PERIOD
- -------------------------------------- -------------------- ---------------- ---------- -------------
<S> <C> <C> <C> <C>
Allowance for obsolete inventory
Nine Months Ended June 30, 1998 $2,012 $521 $31 $2,502
Year Ended September 30, 1997 1,078 934 -- 2,012
Year Ended September 30, 1996 1,164 (86) -- 1,078
Year Ended September 30, 1995 333 831 -- 1,164
</TABLE>
II-4
<PAGE> 108
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 27th day of
October, 1998.
REYNARD MOTORSPORT, INC.
By:/s/ Alex S. Hawkridge
------------------------------------------
Alex S. Hawkridge, Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS: That the undersigned hereby appoints
Alex S. Hawkridge, Adrian J. Reynard, Jack A. Bjerke and Amy M. Shepherd, and
any of them, any of whom may act without the joinder of the others, as his true
and lawful attorney-in-fact, with full power of substitution and resubstitution,
for him, and in his stead, in his capacity as an officer or director, or both,
of Reynard Motorsport, Inc., a Delaware corporation, to sign a Registration
Statement on Form S-1 or other form registering under the Securities Act of
1933, as amended, its shares of common stock and any and all amendments thereto,
including post-effective amendments to the Registration Statement, and to file
the same, with all exhibits thereto and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on October 27, 1998 by the following
persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ Alex S. Hawkridge Chief Executive Officer, Director
- ---------------------
Alex S. Hawkridge
/s/ John C. Gower Chief Financial and Accounting Officer, Director
- ---------------------
John C. Gower
/s/ Adrian J. Reynard Chairman of the Board, Director
- ---------------------
Adrian J. Reynard
/s/ Richard J. Gorne Vice President - Sales, Director
- ---------------------
Richard J. Gorne
</TABLE>
II-5
<PAGE> 1
Exhibit 1.1
_______________ SHARES
REYNARD MOTORSPORT, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED [___]
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................3
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............................................3
COMPLIANCE WITH REGISTRATION REQUIREMENTS..............................................3
OFFERING MATERIALS FURNISHED TO UNDERWRITERS...........................................3
DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY.......................................3
THE UNDERWRITING AGREEMENT.............................................................4
AUTHORIZATION OF THE COMMON SHARES.....................................................4
NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS.....................................4
NO MATERIAL ADVERSE CHANGE.............................................................4
INDEPENDENT ACCOUNTANTS................................................................4
PREPARATION OF THE FINANCIAL STATEMENTS................................................4
INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS SUBSIDIARIES....................5
CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS.........................................5
STOCK EXCHANGE LISTING;................................................................6
NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER AUTHORIZATIONS OR
APPROVALS REQUIRED ....................................................................6
NO MATERIAL ACTIONS OR PROCEEDINGS.....................................................6
INTELLECTUAL PROPERTY RIGHTS...........................................................7
ALL NECESSARY PERMITS, ETC.............................................................7
TITLE TO PROPERTIES....................................................................7
TAX LAW COMPLIANCE.....................................................................7
COMPANY NOT AN INVESTMENT COMPANY......................................................7
INSURANCE..............................................................................7
NO PRICE STABILIZATION OR MANIPULATION.................................................8
RELATED PARTY TRANSACTIONS.............................................................8
NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS............................................8
COMPANY'S ACCOUNTING SYSTEM............................................................8
COMPLIANCE WITH ENVIRONMENTAL LAWS.....................................................8
ERISA COMPLIANCE.......................................................................9
YEAR 2000..............................................................................9
(B) REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS................................10
THE UNDERWRITING AGREEMENT............................................................10
THE CUSTODY AGREEMENT AND POWER OF ATTORNEY...........................................10
TITLE TO COMMON SHARES TO BE SOLD; ALL AUTHORIZATIONS OBTAINED........................10
DELIVERY OF THE COMMON SHARES TO BE SOLD..............................................10
NON-CONTRAVENTION; NO FURTHER AUTHORIZATIONS OR APPROVALS REQUIRED....................10
NO REGISTRATION OR OTHER SIMILAR RIGHTS...............................................11
NO FURTHER CONSENTS, ETC..............................................................11
DISCLOSURE MADE BY SUCH SELLING STOCKHOLDER IN THE PROSPECTUS.........................11
NO PRICE STABILIZATION OR MANIPULATION................................................11
CONFIRMATION OF COMPANY REPRESENTATIONS AND WARRANTIES................................11
SECTION 2. PURCHASE, SALE AND DELIVERY OF COMMON SHARES................................................11
THE FIRM COMMON SHARES................................................................12
THE FIRST CLOSING DATE................................................................12
THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE...................................12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
PUBLIC OFFERING OF THE COMMON SHARES..................................................13
PAYMENT FOR THE COMMON SHARES.........................................................13
DELIVERY OF THE COMMON SHARES.........................................................13
DELIVERY OF PROSPECTUS TO THE UNDERWRITERS............................................13
SECTION 3. ADDITIONAL COVENANTS........................................................................14
(A) COVENANTS OF THE COMPANY...................................................................14
REPRESENTATIVE'S REVIEW OF PROPOSED AMENDMENTS AND SUPPLEMENTS........................14
SECURITIES ACT COMPLIANCE.............................................................14
AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER SECURITIES ACT MATTERS.........14
COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS............................14
BLUE SKY COMPLIANCE...................................................................15
USE OF PROCEEDS.......................................................................15
TRANSFER AGENT........................................................................15
EARNINGS STATEMENT....................................................................15
PERIODIC REPORTING OBLIGATIONS........................................................15
AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES..................................15
FUTURE REPORTS TO THE REPRESENTATIVE..................................................16
(B) COVENANTS OF THE SELLING STOCKHOLDERS.....................................................16
AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES..................................16
DELIVERY OF FORMS W-8 AND W-9.........................................................16
SECTION 4. PAYMENT OF EXPENSES.........................................................................16
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS...........................................17
ACCOUNTANTS' COMFORT LETTER...........................................................17
COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER, NO OBJECTION FROM NASD......17
NO MATERIAL ADVERSE CHANGE OR RATINGS AGENCY CHANGE...................................18
OPINION OF COUNSEL FOR THE COMPANY....................................................18
OPINION OF COUNSEL FOR THE UNDERWRITERS...............................................18
OFFICERS' CERTIFICATE.................................................................18
BRING-DOWN COMFORT LETTER.............................................................19
OPINION OF COUNSEL FOR THE SELLING STOCKHOLDERS.......................................19
SELLING STOCKHOLDERS' CERTIFICATE.....................................................19
SELLING STOCKHOLDERS' DOCUMENTS.......................................................19
LOCK-UP AGREEMENT FROM CERTAIN STOCKHOLDERS OF THE COMPANY OTHER THAN
SELLING STOCKHOLDERS .................................................................19
ADDITIONAL DOCUMENTS..................................................................19
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES.....................................................20
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.............................................................20
SECTION 8. INDEMNIFICATION.............................................................................20
INDEMNIFICATION OF THE UNDERWRITERS...................................................20
INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS............................21
NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES....................................22
SETTLEMENTS...........................................................................23
SECTION 9. CONTRIBUTION................................................................................23
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS.........................................24
SECTION 11. TERMINATION OF THIS AGREEMENT..............................................................25
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY........................................26
SECTION 13. NOTICES....................................................................................26
SECTION 14. SUCCESSORS.................................................................................26
SECTION 15. PARTIAL UNENFORCEABILITY...................................................................27
SECTION 16. GOVERNING LAW PROVISIONS...................................................................27
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL AND DELIVER COMMON SHARES.......28
SECTION 18. GENERAL PROVISIONS.........................................................................28
</TABLE>
<PAGE> 5
UNDERWRITING AGREEMENT
[Date]
NATIONSBANC MONTGOMERY SECURITIES LLC
Josephthal & Co. Inc.
Wheat First Union
As Representatives of the several Underwriters
c/o NATIONSBANC MONTGOMERY SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Reynard Motorsport, Inc., a Delaware corporation (the
"Company), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of [___] shares of its Common
Stock, par value $[___] per share (the "Common Stock"); and the stockholders of
the Company named in Schedule B (collectively, the "Selling Stockholders")
severally propose to sell to the Underwriters an aggregate of [___] shares of
Common Stock. The [___] shares of Common Stock to be sold by the Company and the
[___] shares of Common Stock to be sold by the Selling Stockholders are
collectively called the "Firm Common Shares". In addition, the Company has
granted to the Underwriters an option to purchase up to an additional [___]
shares (the "Optional Common Shares") of Common Stock, as provided in Section 2.
The Firm Common Shares and, if and to the extent such option is exercised, the
Optional Common Shares are collectively called the "Common Shares". NationsBanc
Montgomery Securities LLC ("NMA"), Josephthal & Co. Inc. and Wheat First Union
have agreed to act as representatives of the several Underwriters (in such
capacity, the "Representatives") in connection with the offering and sale of the
Common Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-[___]), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement", and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Common Shares, is called the "Prospectus"; provided,
however, if the Company has, with the consent of NMS, elected to rely upon Rule
434 under the Securities Act, the term "Prospectus" shall mean the Company's
prospectus subject to completion (each, a "preliminary prospectus") dated [___]
(such preliminary prospectus is called the "Rule 434 preliminary prospectus"),
together with the
1
<PAGE> 6
applicable term sheet (the "Term Sheet") prepared and filed by the Company with
the Commission under Rules 434 and 424(b) under the Securities Act and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. All references in this Agreement to the Registration
Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the
Prospectus or the Term Sheet, or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR").
The Company [and each of the Selling Stockholders] hereby confirm[s]
its [their respective] agreements with the Underwriters as follows:
2
<PAGE> 7
SECTION 1. REPRESENTATIONS AND WARRANTIES.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS. Each of the Company and each of the Selling Stockholders
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus, when filed, complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Common Shares.
Each of the Registration Statement, any Rule 462(b) Registration Statement and
any post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will 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. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representative expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representative three complete manually signed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representative has
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with the
offering and sale of the Common Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
3
<PAGE> 8
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement.
(g) No Material Adverse Change. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information is given
in the Prospectus: (i) there has been no material adverse change, or any
development that could reasonably be expected to result in a material adverse
change, in the condition, financial or otherwise, or in the earnings, business,
operations or prospects, whether or not arising from transactions in the
ordinary course of business, of the Company and its subsidiaries, considered as
one entity (any such change is called a "Material Adverse Change"); (ii) the
Company and its subsidiaries, considered as one entity, have not incurred any
material liability or obligation, indirect, direct or contingent, not in the
ordinary course of business nor entered into any material transaction or
agreement not in the ordinary course of business; and (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Company or,
except for dividends paid to the Company or other subsidiaries, any of its
subsidiaries on any class of capital stock or repurchase or redemption by the
Company or any of its subsidiaries of any class of capital stock.
(h) Independent Accountants. Deloitte & Touche, who have expressed
their opinion with respect to the financial statements (which term as used in
this Agreement includes the related notes thereto) and supporting schedules
filed with the Commission as a part of the Registration Statement and included
in the Prospectus, are independent public or certified public accountants as
required by the Securities Act.
(i) Preparation of the Financial Statements of The Company. The
financial statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus present fairly the consolidated
financial position of the Company and its subsidiaries as of and at the dates
indicated and the results of their operations and cash flows for the periods
specified. The supporting schedules included in the Registration Statement
present fairly the information required to be stated therein. Such financial
statements and supporting schedules have been prepared in conformity with
generally accepted accounting principles as applied in the United States applied
on a consistent basis throughout the periods involved, except as may be
expressly stated in the related notes thereto. No other financial statements or
supporting schedules are required to be included in the Registration Statement.
The financial data set forth in the Prospectus under the captions "Prospectus
Summary--Summary Selected Financial Data", "Selected Financial Data" and
"Capitalization" fairly present the information set forth therein on a basis
consistent with that of the audited financial statements contained in the
Registration Statement. The pro forma consolidated condensed
4
<PAGE> 9
financial statements of the Company and its subsidiaries and the related notes
thereto included under the caption "Prospectus Summary--Summary Combined
Financial Data," "Selected Combined Financial and Operating Data" and elsewhere
in the Prospectus and in the Registration Statement present fairly the
information contained therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial statements
and have been properly presented on the bases described therein, and 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.
(j) Preparation of Financial Statements of Gemini Transmissions
Limited. The financial statements of Gemini Transmissions Limited ("Gemini")
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the consolidated financial position of Gemini
as of and at the dates indicated and the results of their operations and cash
flows for the periods specified. The supporting schedules included in the
Registration Statement present fairly the information required to be stated
therein. Such financial statements and supporting schedules of Gemini have been
prepared in conformity with generally accepted accounting principles as applied
in the United States applied on a consistent basis throughout the periods
involved, except as may be expressly stated in the related notes thereto. No
other financial statements or supporting schedules are required to be included
in the Registration Statement. The financial data set forth in the Prospectus
under the captions "Prospectus Summary--Summary Selected Financial Data",
"Selected Financial Data" and "Capitalization" fairly present the information
set forth therein on a basis consistent with that of the audited financial
statements contained in the Registration Statement. Each representation of the
Company contained in this subparagraph (j) shall be deemed to be made to the
best of the Company's knowledge.
(k) Incorporation and Good Standing of the Company and its
Subsidiaries. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation and has corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus and, in the case of the Company, to enter into
and perform its obligations under this Agreement. Each of the Company and each
subsidiary 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 for such jurisdictions where the failure to so
qualify or to be in good standing would not, individually or in the aggregate,
result in a Material Adverse Change. All of the issued and outstanding capital
stock of each subsidiary has been duly authorized and validly issued, is fully
paid and nonassessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance or claim. The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 22i to the Registration Statement.
(l)Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options [or warrants] described in
the Prospectus). The Common Stock (including the Common Shares) conforms in all
material respects to the description thereof contained in the Prospectus. All of
the issued and outstanding shares of Common Stock (including the shares of
Common Stock owned by Selling Stockholders) have been duly authorized and
validly issued, are fully paid
5
<PAGE> 10
and nonassessable and have been issued in compliance with federal and state
securities laws. None of the outstanding shares of Common Stock were issued in
violation of any preemptive rights, rights of first refusal or other similar
rights to subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants, preemptive rights, rights of first
refusal or other rights to purchase, or equity or debt securities convertible
into or exchangeable or exercisable for, any capital stock of the Company or any
of its subsidiaries other than those accurately described in the Prospectus. The
description of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted thereunder, set forth in
the Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights.
(m) Stock Exchange Listing. The Common Shares have been approved for
listing on the New York Stock Exchange, subject only to official notice of
issuance.
(n) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or is in default (or,
with the giving of notice or lapse of time, would be in default) ("Default")
under any indenture, mortgage, loan or credit agreement, note, contract,
franchise, lease or other 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 of its subsidiaries is
subject (each, an "Existing Instrument"), except for such Defaults as would not,
individually or in the aggregate, result in a Material Adverse Change. The
Company's execution, delivery and performance of this Agreement and consummation
of the transactions contemplated hereby and by the Prospectus (i) have been duly
authorized by all necessary corporate action and will not result in any
violation of the provisions of the charter or by-laws of the Company or any
subsidiary, (ii) will not conflict with or constitute a breach of, or Default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, or require the consent of any other party to, any
Existing Instrument, except for such conflicts, breaches, Defaults, liens,
charges or encumbrances as would not, individually or in the aggregate, result
in a Material Adverse Change and (iii) will not result in any violation of any
law, administrative regulation or administrative or court decree applicable to
the Company or any subsidiary. No consent, approval, authorization or other
order of, or registration or filing with, any court or other governmental or
regulatory authority or agency, is required for the Company's execution,
delivery and performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been obtained or
made by the Company and are in full force and effect under the Securities Act,
applicable state securities or blue sky laws and from the National Association
of Securities Dealers, Inc. (the "NASD").
(o) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened (i) against or affecting the Company or any of
its subsidiaries, (ii) which has as the subject thereof any officer or director
of, or property owned or leased by, the Company or any of its subsidiaries or
(iii) relating to environmental or discrimination matters, where in any such
case (A) there is a reasonable possibility that such action, suit or proceeding
might be determined adversely to the Company or such subsidiary and (B) any such
action, suit or proceeding, if so determined adversely, would reasonably be
expected to result in a Material Adverse Change or adversely affect the
consummation of the transactions contemplated by
6
<PAGE> 11
this Agreement. No material labor dispute with the employees of the Company or
any of its subsidiaries exists or, to the best of the Company's knowledge, is
threatened or imminent.
(p) Intellectual Property Rights. The Company and its subsidiaries own
or possess sufficient trademarks, trade names, patent rights, copyrights,
licenses, approvals, trade secrets and other similar rights (collectively,
"Intellectual Property Rights") reasonably necessary to conduct their businesses
as now conducted; and the expected expiration of any of such Intellectual
Property Rights would not result in a Material Adverse Change. Neither the
Company nor any of its subsidiaries has received any notice of infringement or
conflict with asserted Intellectual Property Rights of others, which
infringement or conflict, if the subject of an unfavorable decision, would
result in a Material Adverse Change.
(q) All Necessary Permits, etc. The Company and each subsidiary possess
such valid and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary to
conduct their respective businesses, and neither the Company nor any subsidiary
has received any notice of proceedings relating to the revocation or
modification of, or non-compliance with, any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.
(r) Title to Properties. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as owned in
the financial statements referred to in Section 1(A) (i) above (or elsewhere in
the Prospectus), in each case free and clear of any security interests,
mortgages, liens, encumbrances, equities, claims and other defects, except such
as do not materially and adversely affect the value of such property and do not
materially interfere with the use made or proposed to be made of such property
by the Company or such subsidiary. The real property, improvements, equipment
and personal property held under lease by the Company or any subsidiary are held
under valid and enforceable leases, with such exceptions as are not material and
do not materially interfere with the use made or proposed to be made of such
real property, improvements, equipment or personal property by the Company or
such subsidiary.
(s) Tax Law Compliance. The Company and its subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes required to be paid by any of them and, if due and payable, any
related or similar assessment, fine or penalty levied against any of them except
as may be being contested in good faith and by appropriate proceedings. The
Company has made adequate charges, accruals and reserves in the applicable
financial statements referred to in Section 1 (A) (i) above in respect of all
federal, state and foreign income and franchise taxes for all periods as to
which the tax liability of the Company or any of its subsidiaries has not been
finally determined.
(t) Company Not an "Investment Company". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after receipt of
payment for the Common Shares will not be, an "investment company" within the
meaning of Investment Company Act and will conduct its business in a manner so
that it will not become subject to the Investment Company Act.
(u) Insurance. Each of the Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their
7
<PAGE> 12
businesses including, but not limited to, policies covering real and
personal property owned or leased by the Company and its subsidiaries
against theft, damage, destruction, acts of vandalism and earthquakes. The
Company has no reason to believe that it or any subsidiary will not be able
(i) to renew its existing insurance coverage as and when such policies
expire or (ii) to obtain comparable coverage from similar institutions as
may be necessary or appropriate to conduct its business as now conducted
and at a cost that would not result in a Material Adverse Change. Neither
of the Company nor any subsidiary has been denied any insurance coverage
which it has sought or for which it has applied.
(v) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that
might be reasonably expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Common Shares.
(w) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any
other person required to be described in the Prospectus which have not been
described as required.
Any certificate signed by an officer of the Company and delivered
to the Representative or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
(x) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge,
any employee or agent of the Company or any subsidiary, has made any
contribution or other payment to any official of, or candidate for, any
federal, state or foreign office in violation of any law or of the
character required to be disclosed in the Prospectus.
(y) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles [as applied in the United States] and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with respect
to any differences.
(z) Compliance with Environmental Laws. Except as would not,
individually or in the aggregate, result in a Material Adverse Change (i)
neither the Company nor any of its subsidiaries is in violation of any
federal, state, local or foreign law or regulation relating to pollution or
protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including without limitation, laws and
regulations relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum and petroleum products (collectively,
"Materials of Environmental Concern"), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environment Concern (collectively,
"Environmental Laws"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations
required for the operation of the business of the Company or its
subsidiaries under applicable Environmental
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<PAGE> 13
Laws, or noncompliance with the terms and conditions thereof, nor has
the Company or any of its subsidiaries received any written
communication, whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the Company or any of its
subsidiaries is in violation of any Environmental Law; (ii) there is no
claim, action or cause of action filed with a court or governmental
authority, no investigation with respect to which the Company has received
written notice, and no written notice by any person or entity alleging
potential liability for investigatory costs, cleanup costs, governmental
responses costs, natural resources damages, property damages, personal
injuries, attorneys' fees or penalties arising out of, based on or
resulting from the presence, or release into the environment, of any
Material of Environmental Concern at any location owned, leased or operated
by the Company or any of its subsidiaries, now or in the past
(collectively, "Environmental Claims"), pending or, to the best of the
Company's knowledge, threatened against the Company or any of its
subsidiaries or any person or entity whose liability for any Environmental
Claim the Company or any of its subsidiaries has retained or assumed either
contractually or by operation of law; and (iii) to the best of the
Company's knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that reasonably could result in a
violation of any Environmental Law or form the basis of a potential
Environmental Claim against the Company or any of its subsidiaries or
against any person or entity whose liability for any Environmental Claim
the Company or any of its subsidiaries has retained or assumed either
contractually or by operation of law.
(z) ERISA Compliance. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained by
the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are
in compliance in all material respects with ERISA. "ERISA Affiliate" means, with
respect to the Company or a subsidiary, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of
1986, as amended, and the regulations and published interpretations thereunder
(the "Code") of which the Company or such subsidiary is a member. No "reportable
event" (as defined under ERISA) has occurred or is reasonably expected to occur
with respect to any "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company, its subsidiaries or any of their
ERISA Affiliates, if such "employee benefit plan" were terminated, would have
any "amount of unfunded benefit liabilities" (as defined under ERISA). Neither
the Company, its subsidiaries nor any of their ERISA Affiliates has incurred or
reasonably expects to incur any liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates that is intended to be qualified under Section 401(a) of the Code is
so qualified and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification.
(bb) Year 2000. All disclosure regarding year 2000 compliance that is
required to be described under the 1933 Act and 1933 Regulations (including
disclosures required by Staff Legal Bulletin No. 5) has been included in the
Prospectus. The Company will not incur significant operating expenses or costs
to ensure that its information systems will be year 2000 complaint, other than
as disclosed in the Prospectus.
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B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. In
addition to the representations, warranties and covenants set forth in Section
1(A), each Selling Stockholder represents, warrants and covenants to each
Underwriter as follows:
(a) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling
Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the (i)
Custody Agreement signed by such Selling Stockholder and [___], as
custodian (the "Custodian"), relating to the deposit of the Common Shares
to be sold by such Selling Stockholder (the "Custody Agreement") and (ii)
Power of Attorney appointing certain individuals named therein as such
Selling Stockholder's attorneys-in-fact (each, an "Attorney-in-Fact") to
the extent set forth therein relating to the transactions contemplated
hereby and by the Prospectus (the "Power of Attorney"), of such Selling
Stockholder has been duly authorized, executed and delivered by such
Selling Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(c) Title to Common Shares to be Sold; All Authorizations
Obtained. Such Selling Stockholder has, and on the First Closing Date and
the Second Closing Date (as defined below) will have, good and valid title
to all of the Common Shares which may be sold by such Selling Stockholder
pursuant to this Agreement on such date and the legal right and power, and
all authorizations and approvals required by law to enter into this
Agreement and its Custody Agreement and Power of Attorney, to sell,
transfer and deliver all of the Common Shares which may be sold by such
Selling Stockholder pursuant to this Agreement and to comply with its other
obligations hereunder and thereunder.
(d) Delivery of the Common Shares to be Sold. Delivery of the
Common Shares which are sold by such Selling Stockholder pursuant to this
Agreement will pass good and valid title to such Common Shares, free and
clear of any security interest, mortgage, pledge, lien, encumbrance or
other claim.
(e) Non-Contravention; No Further Authorizations or Approvals
Required. The execution and delivery by such Selling Stockholder of, and
the performance by such Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement and the Power of Attorney will not
contravene or conflict with, result in a breach of, or constitute a Default
under, or require the consent of any other party to, the charter or
by-laws, partnership agreement, trust agreement or other organizational
documents of such Selling Stockholder or any other agreement or instrument
to which such Selling Stockholder is a party or by which it is bound or
under which it is entitled to any right or benefit, any provision of
applicable law or any judgment, order, decree or regulation applicable to
such Selling Stockholder of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over such
Selling Stockholder. No consent, approval, authorization or other order
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<PAGE> 15
of, or registration or filing with, any court or other governmental
authority or agency, is required for the consummation by such Selling
Stockholder of the transactions contemplated in this Agreement, except such
as have been obtained or made and are in full force and effect under the
Securities Act, applicable state securities or blue sky laws and from the
NASD.
(f) No Registration or Other Similar Rights. Such Selling
Stockholder does not have any registration or other similar rights to have
any equity or debt securities registered for sale by the Company under the
Registration Statement or included in the offering contemplated by this
Agreement, except for such rights as are described in the Prospectus under
"Shares Eligible for Future Sale".
(g) No Further Consents, etc. No consent, approval or waiver is
required under any instrument or agreement to which such Selling
Stockholder is a party or by which it is bound or under which it is
entitled to any right or benefit, in connection with the offering, sale or
purchase by the Underwriters of any of the Common Shares which may be sold
by such Selling Stockholder under this Agreement or the consummation by
such Selling Stockholder of any of the other transactions contemplated
hereby.
(h) Disclosure Made by Such Selling Stockholder in the
Prospectus. All information furnished by or on behalf of such Selling
Stockholder in writing expressly for use in the Registration Statement and
Prospectus is, and on the First Closing Date and the Second Closing Date
will be, true, correct, and complete in all material respects, and does
not, and on the First Closing Date and the Second Closing Date will not,
contain any untrue statement of a material fact or omit to state any
material fact necessary to make such information not misleading. Such
Selling Stockholder confirms as accurate the number of shares of Common
Stock set forth opposite such Selling Stockholder's name in the Prospectus
under the caption "Principal and Selling Stockholders" (both prior to and
after giving effect to the sale of the Common Shares).
(i) No Price Stabilization or Manipulation. Such Selling
Stockholder has not taken and will not take, directly or indirectly, any
action designed to or that might be reasonably expected to cause or result
in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Common Shares.
(j) Confirmation of Company Representations and Warranties. Such
Selling Stockholder has no reason to believe that the representations and
warranties of the Company contained in Section 1(A) hereof are not true and
correct, is familiar with the Registration Statement and the Prospectus and
has no knowledge of any material fact, condition or information not
disclosed in the Registration Statement or the Prospectus which has had or
may have a Material Adverse Change and is not prompted to sell shares of
Common Stock by any information concerning the Company which is not set
forth in the Registration Statement and the Prospectus.
Any certificate signed by or on behalf of any Selling Stockholder and
delivered to the Representative or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to each
Underwriter as to the matters covered thereby.
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<PAGE> 16
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
The Firm Common Shares. Upon the terms herein set forth, (i) the
Company agrees to issue and sell to the several Underwriters an aggregate of
[___] Firm Common Shares and (ii) the Selling Stockholders agree to sell to the
several Underwriters an aggregate of [___] Firm Common Shares, each Selling
Stockholder selling the number of Firm Common Shares set forth opposite such
Selling Stockholder's name on Schedule B. On the basis of the representations,
warranties and agreements herein contained, and upon the terms but subject to
the conditions herein set forth, the Underwriters agree, severally and not
jointly, to purchase from the Company and the Selling Stockholders the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
Underwriters to the Company and the Selling Stockholders shall be $[___] per
share.
The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of NMS, 600 Montgomery Street, San Francisco, California (or such
other place as may be agreed to by the Company and the Representative) at 6:00
a.m. San Francisco time, on [___], or such other time and date not later than
10:30 a.m. San Francisco time , on [___] as the Representative shall designate
by notice to the Company (the time and date of such closing are called the
"First Closing Date"). The Company and the Selling Stockholders hereby
acknowledge that circumstances under which the Representative may provide notice
to postpone the First Closing Date as originally scheduled include, but are in
no way limited to, any determination by the Company, the Selling Stockholders or
the Representative to recirculate to the public copies of an amended or
supplemented Prospectus or a delay as contemplated by the provisions of Section
10.
The Optional Common Shares; the Second Closing Date. In addition, on
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of [___] Optional Common Shares from the Company
at the purchase price per share to be paid by the Underwriters for the Firm
Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the Representative
to the Company, which notice may be given at any time within 30 days from the
date of this Agreement. Such notice shall set forth (i) the aggregate number of
Optional Common Shares as to which the Underwriters are exercising the option,
(ii) the names and denominations in which the certificates for the Optional
Common Shares are to be registered and (iii) the time, date and place at which
such certificates will be delivered (which time and date may be simultaneous
with, but not earlier than, the First Closing Date; and in such case the term
"First Closing Date" shall refer to the time and date of delivery of
certificates for the Firm Common Shares and the Optional Common Shares). Such
time and date of delivery, if subsequent to the First Closing Date, is called
the "Second Closing Date" and shall be determined by the Representative and
shall not be earlier than three nor later than five full business days after
delivery of such notice of exercise. If any Optional Common Shares are to be
purchased, each Underwriter agrees, severally and not jointly, to purchase the
number of Optional Common Shares (subject to such adjustments to eliminate
fractional shares as the Representative may determine) that bears the same
proportion to the total number of Optional Common Shares to be purchased as the
number of Firm Common Shares set forth on Schedule A opposite the name of such
Underwriter bears to the total number of Firm Common Shares. The Representative
may cancel the option at any time prior to its expiration by giving written
notice of such cancellation to the Company.
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<PAGE> 17
Public Offering of the Common Shares. The Representative hereby advises
the Company and the Selling Stockholders that the Underwriters intend to offer
for sale to the public, as described in the Prospectus, their respective
portions of the Common Shares as soon after this Agreement has been executed and
the Registration Statement has been declared effective as the Representative, in
its sole judgment, has determined is advisable and practicable.
Payment for the Common Shares. Payment for the Common Shares to be sold
by the Company shall be made at the First Closing Date (and, if applicable, at
the Second Closing Date) by wire transfer of immediately available funds to the
order of the Company. Payment for the Common Shares to be sold by the Selling
Stockholders shall be made at the First Closing Date by wire transfer of
immediately available funds to the order of the Custodian.
It is understood that the Representative has been authorized, for its
own account and the accounts of the several Underwriters, to accept delivery of
and receipt for, and make payment of the purchase price for, the Firm Common
Shares and any Optional Common Shares the Underwriters have agreed to purchase.
NMS, individually and not as the Representative of the Underwriters, may (but
shall not be obligated to) make payment for any Common Shares to be purchased by
any Underwriter whose funds shall not have been received by the Representative
by the First Closing Date or the Second Closing Date, as the case may be, for
the account of such Underwriter, but any such payment shall not relieve such
Underwriter from any of its obligations under this Agreement.
Each Selling Stockholder hereby agrees that (i) it will pay all stock
transfer taxes, stamp duties and other similar taxes, if any, payable upon the
sale or delivery of the Common Shares to be sold by such Selling Stockholder to
the several Underwriters, or otherwise in connection with the performance of
such Selling Stockholder's obligations hereunder and (ii) the Custodian is
authorized to deduct for such payment any such amounts from the proceeds to such
Selling Stockholder hereunder and to hold such amounts for the account of such
Selling Stockholder with the Custodian under the Custody Agreement.
Delivery of the Common Shares. The Company and the Selling Stockholders
shall deliver, or cause to be delivered, to the Representative for the accounts
of the several Underwriters certificates for the Firm Common Shares to be sold
by them at the First Closing Date, against the irrevocable release of a wire
transfer of immediately available funds for the amount of the purchase price
therefor. The Company and the Selling Stockholders shall also deliver, or cause
to be delivered, to the Representative for the accounts of the several
Underwriters, certificates for the Optional Common Shares the Underwriters have
agreed to purchase at the First Closing Date or the Second Closing Date, as the
case may be, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The certificates
for the Common Shares shall be in definitive form and registered in such names
and denominations as the Representative shall have requested at least two full
business days prior to the First Closing Date (or the Second Closing Date, as
the case may be) and shall be made available for inspection on the business day
preceding the First Closing Date (or the Second Closing Date, as the case may
be) at a location in New York City as the Representative may designate. Time
shall be of the essence, and delivery at the time and place specified in this
Agreement is a further condition to the obligations of the Underwriters.
Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m.
on the second business day following the date the Common Shares are first
released by the Underwriters for sale to the public, the Company shall deliver
or cause to be delivered, copies of the Prospectus in such quantities and at
such places as the Representative shall request.
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SECTION 3. ADDITIONAL COVENANTS.
A. COVENANTS OF THE COMPANY. The Company further covenants and agrees
with each Underwriter as follows:
(a) Representative's Review of Proposed Amendments and Supplements.
During such period beginning on the date hereof and ending on the later of the
First Closing Date or such date, as in the opinion of counsel for the
Underwriters, the Prospectus is no longer required by law to be delivered in
connection with sales by an Underwriter or dealer (the "Prospectus Delivery
Period"), prior to amending or supplementing the Registration Statement
(including any registration statement filed under Rule 462(b) under the
Securities Act) or the Prospectus, the Company shall furnish to the
Representative for review a copy of each such proposed amendment or supplement,
and the Company shall not file any such proposed amendment or supplement to
which the Representative reasonably objects.
(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Representative in writing (i) of the receipt
of any comments of, or requests for additional or supplemental information from,
the Commission, (ii) of the time and date of any filing of any post-effective
amendment to the Registration Statement or any amendment or supplement to any
preliminary prospectus or the Prospectus, (iii) of the time and date that any
post-effective amendment to the Registration Statement becomes effective and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereto or of any order preventing or suspending the use of any preliminary
prospectus or the Prospectus, or of any proceedings to remove, suspend or
terminate from listing or quotation the Common Stock from any securities
exchange upon which it is listed for trading or included or designated for
quotation, or of the threatening or initiation of any proceedings for any of
such purposes. If the Commission shall enter any such stop order at any time,
the Company will use its best efforts to obtain the lifting of such order at the
earliest possible moment. Additionally, the Company agrees that it shall comply
with the provisions of Rules 424(b), 430A and 434, as applicable, under the
Securities Act and will use its reasonable efforts to confirm that any filings
made by the Company under such Rule 424(b) were received in a timely manner by
the Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. If, during the Prospectus Delivery Period, any event shall occur or
condition shall exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the light
of the circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if in the opinion of the Representative or counsel for the
Underwriters it is otherwise necessary to amend or supplement the Prospectus to
comply with law, the Company agrees to promptly prepare (subject to Section
3(A)(a) hereof), file with the Commission and furnish at its own expense to the
Underwriters and to dealers, amendments or supplements to the Prospectus so that
the statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will comply
with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representative, without charge, during the
Prospectus Delivery Period,
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<PAGE> 19
as many copies of the Prospectus and any amendments and supplements thereto as
the Representative may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representative and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of) the
state securities or blue sky laws or Canadian provincial Securities laws of
those jurisdictions designated by the Representative, shall comply with such
laws and shall continue such qualifications, registrations and exemptions in
effect so long as required for the distribution of the Common Shares. The
Company shall not be required to qualify as a foreign corporation or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise the Representative
promptly of the suspension of the qualification or registration of (or any such
exemption relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such purpose,
and in the event of the issuance of any order suspending such qualification,
registration or exemption, the Company shall use its best efforts to obtain the
withdrawal thereof at the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Common Shares sold by it in the manner described under the caption
"Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representative an
earnings statement (which need not be audited) covering the twelve-month period
ending [___] that satisfies the provisions of Section 11(a) of the Securities
Act.
(i) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
New York Stock Exchange all reports and documents required to be filed under the
Exchange Act. [Additionally, the Company shall report the use of proceeds from
the issuance of the Common Shares as may be required under Rule 463 under the
Securities Act.]
(j) Agreement Not To Offer or Sell Additional Securities During the
period of 180 days following the date of the Prospectus, the Company will not,
without the prior written consent of NMS (which consent may be withheld at the
sole discretion of NMS), directly or indirectly, sell, offer, contract or grant
any option to sell, pledge, transfer or establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Exchange Act, or
otherwise dispose of or transfer, or announce the offering of, or file any
registration statement under the Securities Act in respect of, any shares of
Common Stock, options or warrants to acquire shares of the Common Stock or
securities exchangeable or exercisable for or convertible into shares of Common
Stock (other than as contemplated by this Agreement with respect to the Common
Shares); provided, however, that the Company may issue shares of its Common
Stock or options to purchase its Common Stock, or Common Stock upon exercise of
options, pursuant to any stock option, stock bonus or other stock plan or
arrangement described in the Prospectus, but only if the holders of such shares,
options, or shares issued upon exercise of such options, agree in writing not to
sell, offer, dispose of or
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<PAGE> 20
otherwise transfer any such shares or options during such 180 day period
without the prior written consent of NMS (which consent may be withheld at
the sole discretion of the NMS).
(k) Future Reports to the Representative. During the period of five
years hereafter the Company will furnish to the Representative at 600
Montgomery Street, San Francisco, CA 94111 Attention: Sean Schickedanz: (i)
as soon as practicable after the end of each fiscal year, copies of the
Annual Report of the Company containing the balance sheet of the Company as
of the close of such fiscal year and statements of income, stockholders'
equity and cash flows for the year then ended and the opinion thereon of
the Company's independent public or certified public accountants; (ii) as
soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Current Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its capital stock.
B. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder
further covenants and agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such Selling
Stockholder will not, without the prior written consent of NMS (which consent
may be withheld in its sole discretion), directly or indirectly, sell, offer,
contract or grant any option to sell (including without limitation any short
sale), pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of any
shares of Common Stock, options or warrants to acquire shares of Common Stock,
or securities exchangeable or exercisable for or convertible into shares of
Common Stock currently or hereafter owned either of record or beneficially (as
defined in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing through the
close of trading on the date 180 days after the date of the Prospectus.
(b) Delivery of Forms W-8 and W-9. To deliver to the Representative
prior to the First Closing Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Stockholder is a non-United States
person) or Form W-9 (if the Selling Stockholder is a United States Person).
NMS, on behalf of the several Underwriters, may, in its sole
discretion, waive in writing the performance by the Company or any Selling
Stockholder of any one or more of the foregoing covenants or extend the time for
their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel, independent public or certified public accountants and
other advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
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<PAGE> 21
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the state securities or blue sky laws or the provincial
securities laws of Canada, and, if requested by the Representative, preparing
and printing a "Blue Sky Survey" or memorandum, and any supplements thereto,
advising the Underwriters of such qualifications, registrations and exemptions,
(vii) the filing fees incident to, and the reasonable fees and expenses of
counsel for the Underwriters in connection with, the NASD's review and approval
of the Underwriters' participation in the offering and distribution of the
Common Shares, (viii) the fees and expenses associated with listing the Common
Shares on the New York Stock Exchange, and (ix) all other fees, costs and
expenses referred to in Item 13 of Part II of the Registration Statement. Except
as provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the
Underwriters shall pay their own expenses, including the fees and disbursements
of their counsel.
The Selling Stockholders further agree with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to (i) fees and expenses of
counsel and other advisors for such Selling Stockholders, (ii) fees and expenses
of the Custodian and (iii) expenses and taxes incident to the sale and delivery
of the Common Shares to be sold by such Selling Stockholders to the Underwriters
hereunder (which taxes, if any, may be deducted by the Custodian under the
provisions of Section 2 of this Agreement).
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Stockholders set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second Closing Date as though
then made, to the timely performance by the Company and the Selling Stockholders
of their respective covenants and other obligations hereunder, and to each of
the following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the Representative
shall have received from Deloitte & Touche, independent public or certified
public accountants for the Company, a letter dated the date hereof addressed to
the Underwriters, in form and substance satisfactory to the Representative,
containing statements and information of the type ordinarily included in
accountant's "comfort letters" to underwriters, delivered according to Statement
of Auditing Standards No. 72 (or any successor bulletin), with respect to the
audited and unaudited financial statements and certain financial information
contained in the Registration Statement and the Prospectus (and the
Representative shall have received an additional [___] conformed copies of such
accountants' letter for each of the several Underwriters).
(b) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the Optional
Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the
Securities Act)
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in the manner and within the time period required by Rule 424(b) under
the Securities Act; or the Company shall have filed a post-effective
amendment to the Registration Statement containing the information
required by such Rule 430A, and such post-effective amendment shall
have become effective; or, if the Company elected to rely upon Rule 434
under the Securities Act and obtained the Representative's consent
thereto, the Company shall have filed a Term Sheet with the Commission
in the manner and within the time period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in
effect and no proceedings for such purpose shall have been instituted
or threatened by the Commission; and
(iii) the NASD shall have raised no objection to the fairness
and reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change. For the period from and after the date
of this Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, in the judgment of the
Representative there shall not have occurred any Material Adverse Change.
(d) Opinion of Counsel for the Company. On each of the First Closing
Date and the Second Closing Date the Representative shall have received the
favorable opinion of Kegler, Brown, Hill, Ritter Co., L.P.A., counsel for the
Company, dated as of such Closing Date, the form of which is attached as Exhibit
A (and the Representative shall have received an additional [___] conformed
copies of such counsel's legal opinion for each of the several Underwriters).
(e) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date the Representative shall have received
the favorable opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for
the Underwriters, dated as of such Closing Date, with respect to the matters set
forth in paragraphs[(i), (vii) (with respect to subparagraph (i) only, (viii),
(ix), (x) (xi) and (xiii) (with respect to the captions "Description of Capital
Stock" and "Underwriting" under subparagraph (i) only), (xii),] and the
next-to-last paragraph of Exhibit A (and the Representative shall have received
an additional [___] conformed copies of such counsel's legal opinion for each of
the several Underwriters).
(f) Officers' Certificate. On each of the First Closing Date and the
Second Closing Date the Representative shall have received a written certificate
executed by the Chairman of the Board, Chief Executive Officer or President of
the Company and the Chief Financial Officer or Chief Accounting Officer of the
Company, dated as of such Closing Date, to the effect set forth in subsection
(b)(ii) of this Section 5, and further to the effect that:
(i) for the period from and after the date of this Agreement
and prior to such Closing Date, there has not occurred any Material
Adverse Change;
(ii) the representations, warranties and covenants of the
Company set forth in Section 1(A) of this Agreement are true and
correct with the same force and effect as though expressly made on and
as of such Closing Date; and
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(iii) the Company has complied with all the agreements
hereunder and satisfied all the conditions on its part to be performed
or satisfied hereunder at or prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing Date and
the Second Closing Date the Representative shall have received from Deloitte &
Touche, independent public or certified public accountants for the Company, a
letter dated such date, in form and substance satisfactory to the
Representative, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5, except
that the specified date referred to therein for the carrying out of procedures
shall be no more than three business days prior to the First Closing Date or
Second Closing Date, as the case may be (and the Representative shall have
received an additional [___] conformed copies of such accountants' letter for
each of the several Underwriters).
(h) Opinion of Counsel for the Selling Stockholders. On the First
Closing Date the Representative shall have received the favorable opinion of
[___], counsel for the Selling Stockholders, dated as of the First Closing Date,
the form of which is attached as Exhibit B (and the Representative shall have
received an additional [___] conformed copies of such counsel's legal opinion
for each of the several Underwriters).
(i) Selling Stockholders' Certificate. On the First Closing the
Representative shall receive a written certificate executed by each Selling
Stockholder, dated as of the First Closing Date, to the effect that:
(i) the representations, warranties and covenants of such
Selling Stockholder set forth in Section 1(B) of this Agreement are
true and correct with the same force and effect as though expressly
made by such Selling Stockholder on and as of the First Closing Date;
and
(ii) such Selling Stockholder has complied with all the
agreements and satisfied all the conditions on its part to be performed
or satisfied at or prior to the First Closing Date.
(j) Selling Stockholders' Documents. On the date hereof, the Company
and the Selling Stockholders shall have furnished for review by the
Representative copies of the Powers of Attorney and Custody Agreements executed
by each of the Selling Stockholders and such further information, certificates
and documents as the Representative may reasonably request.
(k) Lock-Up Agreement from Certain Securityholders of the Company Other
Than Selling Stockholders. On the date hereof, the Company shall have furnished
to the Representative an agreement in the form of Exhibit C hereto from each
director, officer and each beneficial owner of Common Stock (as defined and
determined according to Rule 13d-3 under the Exchange Act, except that a one
hundred eighty day period shall be used rather than the sixty day period set
forth therein, and such agreement shall be in full force and effect on each of
the First Closing Date and the Second Closing Date.
(l) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, the Representative and counsel for the Underwriters
shall have received such information, documents and opinions as they may
reasonably require for the purposes of enabling them to pass upon the issuance
and sale of the Common Shares as
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<PAGE> 24
contemplated herein, or in order to evidence the accuracy of any of the
representations and warranties, or the satisfaction of any of the
conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representative by notice to the Company [and the Selling Stockholders] at any
time on or prior to the First Closing Date and, with respect to the Optional
Common Shares, at any time prior to the Second Closing Date, which termination
shall be without liability on the part of any party to any other party, except
that Section 4, Section 6, Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement
is terminated by the Representative pursuant to Section 5, Section 7, Section 10
or Section 11, or if the sale to the Underwriters of the Common Shares on the
First Closing Date is not consummated because of any refusal, inability or
failure on the part of the Company to perform any agreement herein or to comply
with any provision hereof, the Company agrees to reimburse the Representative
and the other Underwriters (or such Underwriters as have terminated this
Agreement with respect to themselves), severally, upon demand for all
out-of-pocket expenses that shall have been reasonably incurred by the
Representative and the Underwriters in connection with the proposed purchase and
the offering and sale of the Common Shares, including but not limited to fees
and disbursements of counsel, printing expenses, travel expenses, postage,
facsimile and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and the Representative of the effectiveness of the
Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company or the Selling
Stockholders to any Underwriter, except that the Company and the Selling
Stockholders shall be obligated to reimburse the expenses of the Representative
and the Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter
to the Company or the Selling Stockholders, or (c) of any party hereto to any
other party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. Each of the Company and each
of the Selling Stockholders, jointly and severally, agrees to indemnify and
hold harmless each Underwriter, its officers and employees, and each
person, if any, who controls any Underwriter within the meaning of the
Securities Act and the Exchange Act against any loss, claim, damage,
liability or expense, as incurred, to which such Underwriter or such
controlling person may become subject, under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as
such loss, claim, damage, liability or expense (or actions in respect
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<PAGE> 25
thereof as contemplated below) arises out of or is based (i) upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the
Securities Act, 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 (ii) upon 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; or (iii)
in whole or in part upon any inaccuracy in the representations and warranties of
the Company or the Selling Stockholders contained herein; or (iv) in whole or in
part upon any failure of the Company or the Selling Stockholders to perform
their respective obligations hereunder or under law; or (v) any act or failure
to act or any alleged act or failure to act by any Underwriter in connection
with, or relating in any manner to, the Common Stock or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon any matter
covered by clause (i) or (ii) above, provided that the Company shall not be
liable under this clause (v) to the extent that a court of competent
jurisdiction shall have determined by a final judgment that such loss, claim,
damage, liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its bad faith
or willful misconduct; and to reimburse each Underwriter and each such
controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by NMS) as such expenses are reasonably incurred
by such Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the foregoing indemnity
agreement shall not apply to any loss, claim, damage, liability or expense to
the extent, but only to the extent, arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company and the Selling Stockholders by the Representative expressly for use in
the Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto); and provided, further, that with respect to
any preliminary prospectus, the foregoing indemnity agreement shall not inure to
the benefit of any Underwriter from whom the person asserting any loss, claim,
damage, liability or expense purchased Common Shares, or any person controlling
such Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and 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 such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Common Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 8(a) shall be in addition to any liabilities that the
Company and the Selling Stockholders may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement, the Selling Stockholders and each person, if any, who
controls the Company or any Selling Stockholder within the meaning of the
Securities Act or the Exchange Act, against any loss, claim, damage, liability
or expense, as incurred, to which the Company, or any such director, officer,
Selling Stockholder or controlling person may become subject, under the
Securities Act, the
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<PAGE> 26
Exchange Act, or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company and the
Selling Stockholders by the Representative expressly for use therein; and to
reimburse the Company, or any such director, officer, Selling Stockholder or
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer, Selling Stockholder or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. Each of th
Company and each of the Selling Stockholders, hereby acknowledges that the only
information that the Underwriters have furnished to the Company and the Selling
Stockholders expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first paragraph and as the second and
seventh paragraphs under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct. The indemnity agreement
set forth in this Section 8(b) shall be in addition to any liabilities that each
Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with
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<PAGE> 27
the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with local
counsel), approved by the indemnifying party (NMS in the case of Section 8(b)
and Section 9), representing the indemnified parties who are parties to such
action) or (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, in each of which
cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(d) Settlements. The indemnifying party under this Section 8 shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by Section
8(c) hereof, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or consent
to the entry of judgment in any pending or threatened action, suit or proceeding
in respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any reason held
to be unavailable to or otherwise insufficient to hold harmless an indemnified
party in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount paid or payable by such indemnified party, as incurred, as a
result of any losses, claims, damages, liabilities or expenses referred to
therein (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 Common Shares
pursuant to this Agreement or (ii) if the allocation provided by clause (i)
above 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 the Underwriters, on the other hand, in connection with the statements
or omissions or inaccuracies in the representations and warranties herein which
resulted in such losses, claims, damages, liabilities 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 Common Shares pursuant
to this Agreement shall be deemed to be in the same respective proportions as
the total net proceeds from the offering of the Common Shares 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
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set forth on the front cover page of the Prospectus (or, if Rule 434 under the
Securities Act is used, the corresponding location on the Term Sheet) bear to
the aggregate initial public offering price of the Common Shares 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 or any such inaccurate or alleged inaccurate representation or warranty
relates to information supplied by the Company or the Selling Stockholders, on
the one hand, or the Underwriters, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 9
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 in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. 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. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange 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 with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS.
If, on the First Closing Date or the Second Closing Date, as the case
may be, any one or more of the several Underwriters shall fail or refuse to
purchase Common Shares that it or they have agreed to purchase hereunder on such
date, and the aggregate number of Common Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase does not
exceed 10% of the aggregate number of the Common Shares to be purchased on such
date, the other Underwriters shall be obligated, severally, in the proportions
that the number of Firm Common Shares set forth opposite their respective names
on Schedule A bears to
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<PAGE> 29
the aggregate number of Firm Common Shares set forth opposite the names of all
such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representative with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representative and the Company for
the purchase of such Common Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 4, Section 6, Section 8 and
Section 9 shall at all times be effective and shall survive such termination. In
any such case either the Representative or the Company shall have the right to
postpone the First Closing Date or the Second Closing Date, as the case may be,
but in no event for longer than seven days in order that the required changes,
if any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date this Agreement may be terminated by the Representative by notice given to
the Company and the Selling Stockholders if at any time (i) trading or quotation
in any of the Company's securities shall have been suspended or limited by the
Commission or by the New York Stock Exchange, or trading in securities generally
on either the Nasdaq Stock Market or the New York Stock Exchange shall have been
suspended or limited, or minimum or maximum prices shall have been generally
established on any of such stock exchanges by the Commission or the NASD; (ii)
a general banking moratorium shall have been declared by any of federal, New
York, Delaware or California authorities; (iii) there shall have occurred any
outbreak or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in United States' or international political, financial or economic
conditions, as in the judgment of the Representative is material and adverse and
makes it impracticable to market the Common Shares in the manner and on the
terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representative there shall have occurred
any Material Adverse Change; or (v) the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character as
in the judgment of the Representative may interfere materially with the conduct
of the business and operations of the Company regardless of whether or not such
loss shall have been insured. Any termination pursuant to this Section 11 shall
be without liability on the part of (a) the Company or the Selling Stockholders
to any Underwriter, except that the Company and the Selling Stockholders shall
be obligated to reimburse the expenses of the Representative and the
Underwriters pursuant to Sections 4 and 6 hereof, (b) any Underwriter to the
Company or the Selling Stockholders, or (c) of any party hereto to any other
party except that the provisions of Section 8 and Section 9 shall at all times
be effective and shall survive such termination.
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SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 13 NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representative:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company [or the Principal Subsidiary]:
Reynard Motorsport, Inc.
8431 Georgetown Road, Suite 700
Indianapolis, Indiana 46268
Attention: Alex Hawkridge
If to the Selling Stockholders:
[Custodian]
[address]
Facsimile: [___]
Attention: [___]
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors and personal
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representatives, and no other person will have any right or obligation
hereunder. The term "successors" shall not include any purchaser of the Common
Shares as such from any of the Underwriters merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. (a) GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or the
courts of the State of California in each case located in the City and County of
San Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum. Each party not located in the
United States irrevocably appoints CT Corporation System, which currently
maintains a San Francisco office at 49 Stevenson Street, San Francisco,
California 94105, United States of America, as its agent to receive service of
process or other legal summons for purposes of any such suit, action or
proceeding that may be instituted in any state or federal court in the City and
County of San Francisco.
(c) Waiver of Immunity. With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as
amended.
27
<PAGE> 32
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL
AND DELIVER COMMON Shares. If one or more of the Selling Stockholders shall fail
to sell and deliver to the Underwriters the Common Shares to be sold and
delivered by such Selling Stockholders at the First Closing Date pursuant to
this Agreement, then the Underwriters may at their option, by written notice
from the Representative to the Company and the Selling Stockholders, either (i)
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company or the
Selling Stockholders, or (ii) purchase the shares which the Company and other
Selling Stockholders have agreed to sell and deliver in accordance with the
terms hereof. If one or more of the Selling Stockholders shall fail to sell and
deliver to the Underwriters the Common Shares to be sold and delivered by such
Selling Stockholders pursuant to this Agreement at the First Closing Date or the
Second Closing Date, then the Underwriters shall have the right, by written
notice from the Representative to the Company and the Selling Stockholders, to
postpone the First Closing Date or the Second Closing Date, as the case may be,
but in no event for longer than seven days in order that the required changes,
if any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
28
<PAGE> 33
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company and the Custodian the enclosed
copies hereof, whereupon this instrument, along with all counterparts hereof,
shall become a binding agreement in accordance with its terms.
Very truly yours,
REYNARD MOTORSPORT, INC.
By:__________________________
[Title]
[SELLING STOCKHOLDERS]
By:__________________________
(Attorney-in-fact)
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives in San Francisco, California as of the date first above
written.
NATIONSBANC MONTGOMERY SECURITIES LLC
JOSEPHTHAL & CO. INC.
WHEAT FIRST UNION
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By NATIONSBANC MONTGOMERY SECURITIES LLC
By:____________________________________________
Name:__________________________________________
Its:___________________________________________
29
<PAGE> 34
SCHEDULE A
UNDERWRITERS NUMBER OF
FIRM COMMON SHARES
TO BE PURCHASED
NationsBanc Montgomery Securities LLC .................... [___]
Josephthal & Co. Inc...................................... [___]
Wheat First Union......................................... [___]
[___] .................................................... [___]
[___] .................................................... [___]
Total............................................ [___]
<PAGE> 35
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF MAXIMUM NUMBER OF
SELLING STOCKHOLDER FIRM COMMON SHARES OPTIONAL COMMON SHARES
TO BE SOLD TO BE SOLD
<S> <C> <C>
Selling Stockholder #1
[address]
Attention: [___] ......................................... [___] [___]
Selling Stockholder #2
[address]
Attention: [___] ......................................... [___] [___]
Total:........................................... [___] [___]
=================== ====================
</TABLE>
<PAGE> 36
EXHIBIT A
The final opinion in draft form should be attached as Exhibit A at the time this
Agreement is executed.
Opinion of counsel for the Company to be delivered pursuant to Section
5(d) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
thereto at the Closing Date.
(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 Underwriting Agreement.
(iii) The Company 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 for
such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a
Material Adverse Change.
(iv) Each significant subsidiary of the Company (as defined in
Rule 405 under the Securities Act) has been duly incorporated 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, to the best knowledge of
such counsel, 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 for such
jurisdictions where the failure to so qualify or to be in good standing
would not, individually or in the aggregate, result in a Material
Adverse Change.
(v) All of the issued and outstanding capital stock of each
such significant subsidiary of the Company 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 or, to the best
knowledge of such counsel, any pending or threatened claim.
(vi) The authorized, issued and outstanding capital stock of
the Company (including the Common Stock) conform to the descriptions
thereof set forth in the Prospectus. All of the outstanding shares of
Common Stock (including the shares of Common Stock owned by Selling
Stockholders) have been duly authorized and validly issued, are fully
paid and nonassessable and, to the best of such counsel's knowledge,
have been issued in compliance with the registration and qualification
requirements of federal and state securities laws. The form of
certificate used to evidence the Common Stock is in due and proper form
and complies with all applicable requirements of the charter and
by-laws of the Company and the
A-1
<PAGE> 37
General Corporation Law of the State of Delaware. The description of
the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus accurately and fairly presents
the information required to be shown with respect to such plans,
arrangements, options and rights.
(vii) No stockholder of the Company or any other person has
any preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (i) by
operation of the charter or by-laws of the Company or the General
Corporation Law of the State of Delaware or (ii) to the best knowledge
of such counsel, otherwise.
(viii) The Underwriting Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles.
(ix) The Common Shares to be purchased by the Underwriters
from the Company have been duly authorized for issuance and sale
pursuant to the Underwriting Agreement and, when issued and delivered
by the Company pursuant to the Underwriting Agreement against payment
of the consideration set forth therein, will be validly issued, fully
paid and nonassessable.
(x) The Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the
Commission under the Securities Act. To the best knowledge of such
counsel, no stop order suspending the effectiveness of either of the
Registration Statement or the Rule 462(b) Registration Statement, if
any, has been issued under the Securities Act and no proceedings for
such purpose have been instituted or are pending or are contemplated or
threatened by the Commission. Any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) under the Securities Act
has been made in the manner and within the time period required by such
Rule 424(b).
(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, 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 supporting schedules included therein or in exhibits to
or excluded from the Registration Statement, as to which no opinion
need be rendered) comply as to form in all material respects with the
applicable requirements of the Securities Act.
(xii) The Common Shares have been approved for listing on the
New York Stock Exchange.
(xiii) The statements (i) in the Prospectus under the captions
"Risk Factors--[___]", "Description of Capital Stock", "Management's
Discussion and Analysis and Results of Operations--Liquidity",
"Business--Litigation", "Business--Trademarks and Proprietary
Information", "Certain Transactions", "Shares Eligible for Future Sale"
and "Underwriting"
A-2
<PAGE> 38
and (ii) in Item 14 and Item 15 of the Registration Statement, insofar
as such statements constitute matters of law, summaries of legal
matters, the Company's charter or by-law provisions, documents or legal
proceedings, or legal conclusions, has been reviewed by such counsel
and fairly present and summarize, in all material respects, the matters
referred to therein.
(xiv) To the best knowledge of such counsel, there are no
legal or governmental actions, suits or proceedings pending or
threatened which are required to be disclosed in the Registration
Statement, other than those disclosed therein.
(xv) To the best knowledge of such counsel, there are no
Existing 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 and
references thereto are correct in all material respects.
(xvi) No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental
authority or agency, is required for the Company's execution, delivery
and performance of the Underwriting Agreement and consummation of the
transactions contemplated thereby and by the Prospectus, except as
required under the Securities Act, applicable state securities or blue
sky laws and from the NASD.
(xvii) The execution and delivery of the Underwriting
Agreement by the Company and the performance by the Company of its
obligations thereunder (other than performance by the Company of its
obligations under the indemnification section of the Underwriting
Agreement, as to which no opinion need be rendered) (i) have been duly
authorized by all necessary corporate action on the part of the
Company; (ii) will not result in any violation of the provisions of the
charter or by-laws of the Company or any subsidiary; (iii) will not
constitute a breach of, or Default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of its subsidiaries pursuant to, to the
best knowledge of such counsel, any material Existing Instrument; or
(iv) to the best knowledge of such counsel, will not result in any
violation of any law, administrative regulation or administrative or
court decree applicable to the Company or any subsidiary.
(xviii) The Company is not, and after receipt of payment for
the Common Shares will not be, an "investment company" within the
meaning of Investment Company Act.
(xix) Except as disclosed in the Prospectus, to the best
knowledge of such counsel, there are no persons with registration or
other similar rights to have any equity or debt securities registered
for sale under the Registration Statement or included in the offering
contemplated by the Underwriting Agreement, other than the Selling
Stockholders, except for such rights as have been duly waived.
(xx) To the best knowledge of such counsel, neither the
Company nor any subsidiary is in violation of its charter or by-laws or
any law, administrative regulation or administrative or court decree
applicable to the Company or any subsidiary or is in Default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any material
A-3
<PAGE> 39
Existing Instrument, except in each such case for such violations or
Defaults as would not, individually or in the aggregate, result in a
Material Adverse Change.
In addition, such counsel shall state that they have
participated in conferences with officers and other representatives of
the Company, representatives of the independent public or certified
public accountants for the Company and with representatives of the
Underwriters at which the contents of the Registration Statement and
the Prospectus, and any supplements or amendments thereto, and related
matters were discussed and, although such counsel is not passing upon
and does not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration Statement
or the Prospectus (other than as specified above), and any supplements
or amendments thereto, on the basis of the foregoing, nothing has come
to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the
Registration Statement or such amendments 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, as of its date or at the
First Closing Date or the Second Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted 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
(it being understood that such counsel need express no belief as to the
financial statements or schedules or other financial or statistical
data derived therefrom, included in the Registration Statement or the
Prospectus or any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the General Corporation Law of the
State of California or the federal law of the United States, to the extent they
deem proper and specified in such opinion, upon the opinion (which shall be
dated the First Closing Date or the Second Closing Date, as the case may be,
shall be satisfactory in form and substance to the Underwriters, shall expressly
state that the Underwriters may rely on such opinion as if it were addressed to
them and shall be furnished to the Representative) of other counsel of good
standing whom they believe to be reliable and who are satisfactory to counsel
for the Underwriters; provided, however, that such counsel shall further state
that they believe that they and the Underwriters are justified in relying upon
such opinion of other counsel, and (B) as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the Company and public
officials.
A-4
<PAGE> 40
EXHIBIT B
The final opinion in draft form should be attached as Exhibit B at the time this
Agreement is executed.
The opinion of such counsel pursuant to Section 5(h) shall be rendered
to the Representative at the request of the Company and shall so state therein.
References to the Prospectus in this Exhibit B include any supplements thereto
at the Closing Date.
(i) The Underwriting Agreement has been duly authorized,
executed and delivered by or on behalf of, and is a valid and binding
agreement of, such Selling Stockholder, enforceable in accordance with
its terms, except as rights to indemnification thereunder may be
limited by applicable law and except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
(ii) The execution and delivery by such Selling Stockholder
of, and the performance by such Selling Stockholder of its obligations
under, the Underwriting Agreement and its Custody Agreement and its
Power of Attorney will not contravene or conflict with, result in a
breach of, or constitute a default under, the charter or by-laws,
partnership agreement, trust agreement or other organizational
documents, as the case may be, of such Selling Stockholder, or, to the
best of such counsel's knowledge, violate or contravene any provision
of applicable law or regulation, or violate, result in a breach of or
constitute a default under the terms of any other agreement or
instrument to which such Selling Stockholder is a party or by which it
is bound, or any judgment, order or decree applicable to such Selling
Stockholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Stockholder.
(iii) Such Selling Stockholder has good and valid title to all
of the Common Shares which may be sold by such Selling Stockholder
under the Underwriting Agreement and has the legal right and power, and
all authorizations and approvals required to enter into the
Underwriting Agreement and its Custody Agreement and its Power of
Attorney, to sell, transfer and deliver all of the Common Shares which
may sold by such Selling Stockholder under the Underwriting Agreement
and to comply with its other obligations under the Underwriting
Agreement, its Custody Agreement and its Power of Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of
such Selling Stockholder has been duly authorized, executed and
delivered by such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with
its terms, except as rights to indemnification thereunder may be
limited by applicable law and except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
(v) Assuming that the Underwriters purchase the Common Shares
which are sold by such Selling Stockholder pursuant to the Underwriting
Agreement for value, in good faith and without notice of any adverse
claim, the delivery of such Common Shares pursuant to the
C-1
<PAGE> 41
Underwriting Agreement will pass good and valid title to such Common
Shares, free and clear of any security interest, mortgage, pledge, lieu
encumbrance or other claim.
(vi) To the best of such counsel's knowledge, no consent,
approval, authorization or other order of, or registration or filing
with, any court or governmental authority or agency, is required for
the consummation by such Selling Stockholder of the transactions
contemplated in the Underwriting Agreement, except as required under
the Securities Act, applicable state securities or blue sky laws, and
from the NASD.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the General Corporation Law of the
State of California or the federal law of the United States, to the extent they
deem proper and specified in such opinion, upon the opinion (which shall be
dated the First Closing Date or the Second Closing Date, as the case may be,
shall be satisfactory in form and substance to the Underwriters, shall expressly
state that the Underwriters may rely on such opinion as if it were addressed to
them and shall be furnished to the Representative) of other counsel of good
standing whom they believe to be reliable and who are satisfactory to counsel
for the Underwriters; provided, however, that such counsel shall further state
that they believe that they and the Underwriters are justified in relying upon
such opinion of other counsel, and (B) as to matters of fact, to the extent they
deem proper, on certificates of the Selling Stockholders and public officials
C-2
<PAGE> 42
EXHIBIT C
[Date]
NationsBanc Montgomery Securities LLC
Josephthal & Co. Inc.
Wheat First Union
As Representatives of the Several Underwriters
[c/o NationsBanc Montgomery Securities LLC]
600 Montgomery Street
San Francisco, California 94111
RE: Reynard Motorsport, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
representatives of the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of NMS (which consent
may be withheld in its sole discretion), directly or indirectly, sell, offer,
contract or grant any option to sell (including without limitation any short
sale), pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares of
Common Stock, or securities exchangeable or exercisable for or convertible into
shares of Common Stock currently or hereafter owned either of record or
beneficially (as defined in Rule 13d-3 under the Securities Exchange Act of
1934, as amended) by the undersigned, or publicly announce the undersigned's
intention to do any of the foregoing, for a period commencing on the date hereof
and continuing through the close of trading on the date 180 days after the date
of the Prospectus. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of record or beneficially by the undersigned, including any rights
to receive notice of the Offering.
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
C-1
<PAGE> 43
_______________________________________
Printed Name of Holder
By: ___________________________________
Signature
_______________________________________
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
C-2
<PAGE> 1
Exhibit 2.1
AGREEMENT FOR SALE OF PRINCETOWN HOLDINGS LIMITED
( incorporated under the laws of the British Virgin Islands )
by Bonrad Limited to Reynard Motorsport Limited
Date October 1998
INDEX TO CLAUSES
1 Interpretation
2 Agreement for sale
3 Purchase consideration
4 Conditions and rescission
5 Completion
6 Warranties by the Vendor
7 Deferred consideration
8 General
9 Governing Law
Schedule 1 Financial agreements
Schedule 2 Details of group companies
Schedule 3 Warranties
Schedule 4 Deed of indemnity
Schedule 5 Short particulars of the properties; Lease
Schedule 6 Vendor protection
Schedule 7 Stock take documents as at 31 August 1998
Schedule 8 Service Agreement
1
<PAGE> 2
SHARE SALE AGREEMENT
Date: October 1998
Parties:
1 'The Vendor': BONRAD LIMITED (registered no 280483) whose registered
office is at Akara Building, 24 De Castro Street, Wickhams Cay 1, PO
Box 3136, Road Town, Tortola, British Virgin Islands
2 'The Purchaser': REYNARD MOTORSPORT LIMITED (registered no 2843803)
whose registered office is at Reynard Centre Telford Road Bicester Oxon
OX6 0UY United Kingdom
Operative provisions:
1 INTERPRETATION
1.1 In this agreement the following words and expressions have the
following meanings:
'1998 ACCOUNTS' the audited balance sheet, as at 31 August 1998, and
audited profit and loss account for the year ended on 31 August 1998 of
the Operating Company.
'CA' Companies Act 1985
'COMPANIES ACTS' CA, the former Companies Acts (within the meaning of
CA s 735(1)) and the Companies Act 1989
'COMPANY' Princetown Holdings Limited
'COMPLETION' completion of the purchase of the Share in accordance with
clause 5
'DEED OF INDEMNITY' a deed in the form set out in Schedule 4
'DEFERRED CONSIDERATION' the sum of 400,000 pounds
'DISCLOSURE LETTER' the disclosure letter, of the same date as this
agreement, from the Vendor to the Purchaser
'FA' Finance Act
'GROUP COMPANIES' the Company and its Subsidiaries for the time being
'ICTA' Income and Corporation Taxes Act 1988
'INTELLECTUAL PROPERTY RIGHTS' patents, patent applications, know-how,
trade marks, trade mark applications, trade names, registered designs,
copyright or other similar intellectual or commercial right which are
required for the Company to carry on its business
2
<PAGE> 3
'LAST ACCOUNTS' the audited balance sheet, as at the Last Accounts
Date, and audited profit and loss account for the year ended on the
Last Accounts Date of the Operating Company
'LAST ACCOUNTS DATE' 31 August 1997 (being the date to which the Last
Accounts have been prepared)
'LEASE' the lease substantially in the form set out in Schedule 5 (but
in no event less beneficial to the tenant than that form or more
onerous in any material respect to the landlord than that form)
'OPERATING COMPANY' Gemini Transmissions Limited
'PROPERTIES' the properties of the Group Companies shortly described in
Schedule 5
'RELEVANT COMPUTER HARDWARE' all computers and associated hardware and
peripherals (and software required for them to function) which are
required for the Operating Company's material plants, machinery and
financial systems to operate
'SERVICE AGREEMENT' the service agreement substantially in the form set
out in Schedule 8 and in no event less beneficial to the Executive (as
defined in the Service Agreement) or more onerous in any material
respect to the Executive than that form and subject thereto complying
in all respects with the terms applicable to the majority of the
officers of the employing company during the term of the Service
Agreement
'SHARE' one issued Ordinary Share of US$1 of the Company
'STOCK' the meaning set out in clause 8.1.2 of Schedule 3
'SUBSIDIARY' a subsidiary as defined in CA s 736
'TAXATION' all forms of taxation, duties, imposts and levies
whatsoever, and wherever or whenever imposed, together with interest
thereon and penalties
'VENDORS SOLICITORS' Eversheds of Holland Court, The Close, Norwich NR1
4DX
'WARRANTIES' the warranties and representations by the Vendor in clause
6 and Schedule 3
'UK' the United Kingdom of Great Britain and Northern Ireland
1.2 All references in this agreement to a statutory provision are to a UK
statutory provision unless expressed otherwise and shall be construed
as including references to:
1.2.1 any statutory modification, consolidation or re-enactment
(whether before or after the date of this agreement) for the
time being in force;
1.2.2 all statutory instruments or orders made pursuant to a
statutory provision; and
3
<PAGE> 4
1.2.3 any statutory provisions of which a statutory provision is a
consolidation, re-enactment or modification.
1.3 Any reference in this agreement to the 'Vendor' includes his personal
representatives.
1.4 A reference in this agreement to FRS shall be a reference to a
financial reporting standard issued or adopted by The Accounting
Standards Board Limited of the UK.
1.5 Clause headings in this agreement are for ease of reference only
and do not affect the construction of any provision.
1.6 Except where the context otherwise requires, words denoting the
singular shall include the plural and vice versa.
1.7 Any reference to a document being in the agreed terms shall be to such
document in the form initialled by or on behalf of the parties.
2 AGREEMENT FOR SALE
2.1 Subject to the terms and conditions of this agreement the Vendor shall
sell as with full title guarantee and the Purchaser shall purchase the
Share, with all rights attaching to it and with effect from the date of
this agreement free from all liens charges and encumbrances.
3 PURCHASE CONSIDERATION
3.1 The purchase consideration for the Share shall be calculated as
follows:-
Consideration = (pound) 8,653,000 - A - B
Where:
A is the aggregate net amount due to be paid by the Operating Company to
relevant parties under the agreements identified in Schedule 1 on the date of
completion in accordance with clause 5.
B is the aggregate net amount payable by the Company or the Operating Company
pursuant to clause 5.6.2 (a) (b) and (c).
4 CONDITIONS AND RESCISSION
4.1 The purchase of the Share is conditional upon the Purchaser or its
ultimate holding company or a connected party of either of them
offering some of its shares to the public on the New York Stock
Exchange or other securities exchange. If this condition is not
fulfilled by 28 February 1999, this agreement shall cease to have
effect and each party shall have no claim under it against the other,
save in respect of any prior breach and under the provisions of clause
8.
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<PAGE> 5
4.2 The Purchaser shall use its best endeavours to ensure that this
agreement becomes unconditional by the date specified in clause 4.1.
4.3 The Purchaser shall be entitled to rescind this agreement by notice in
writing to the Vendor or the Vendor's Solicitors if prior to
Completion:-
4.3.1 any of the Warranties is not or was not true and accurate in
all material respects on the date is was given or
4.3.2 any act or event occurs which, ( being within the reasonable
control of the Vendor but not capable of remedy ) had it
occurred on or before the date of this agreement, would have
constituted a material breach of any of the Warranties or
4.3.3 there is any material breach or nonfulfilment of any of the
Warranties which (being capable of remedy) is not remedied
prior to Completion
Provided that for the purpose of this clause 4, a matter shall not be material
unless the Purchaser would be entitled to compensation for breach of contract in
relation to such matter of at least (pound) 70,000.
5 COMPLETION
5.1 Completion of the purchase of the Share shall take place at the
Purchaser's offices on or before 28 February 1999, provided there has
not been a rescission and provided the condition in clause 4 has by
then been satisfied. At Completion, all but not some of the
transactions specified in the following sub-clauses shall take place,
unless the Purchaser in its absolute discretion waives any requirement
contained in sub-clauses 5.2 to 5.5.
5.2 The Vendor shall deliver to the Purchaser:
5.2.1 duly completed and signed transfer in favour of the Purchaser
or as it may direct of the Share constituted in registered
form;
5.2.2 The relevant share certificate;
5.2.3 the Deed of Indemnity duly executed by the Vendor and the
Purchaser;
5.2.4 the resignations of the directors and the secretary from their
respective offices in each Group Company, with a written
acknowledgement from each of them executed as a deed in such
form as the Purchaser reasonably requires that, save as
contemplated by this agreement, he has no claim against any
Group Company on any grounds whatsoever;
5.2.5 the resignation of the existing auditors of each Group Company
confirming that they have no outstanding claims of any kind
and containing a statement under CA s 394(1) that there are no
such circumstances as are mentioned in that section.
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<PAGE> 6
5.3 There shall be delivered to the Purchaser:
5.3.1 the seal (if any) and certificate of incorporation of each
Group Company;
5.3.2 the statutory books of each Group Company, complete and
up-to-date;
5.3.3 the duly executed Leases relating to each of the Properties;
5.3.4 the appropriate forms to amend the mandates given by each
Group Company to its bankers;
5.3.5 bank statements or other information acceptable to the
Purchaser showing the financial situation of the Company and
the Operating Company with their respective bankers at close
of business on the day before Completion or at the latest
possible date before Completion accompanied in such latter
case by reconciliation statements made up to close of business
on the day before Completion;
5.3.6 (or make available to the Purchaser) all other documents,
books, records, securities and memoranda relating to all Group
Companies and their respective businesses.
5.4 The Vendor shall repay any monies then owing by him to any Group
Company, whether due for payment or not and shall procure delivery of
the Service Agreement, duly executed by Mr Andre Verwey.
5.5 Board Meetings of each Group Company shall be held at which:-
5.5.1 such persons as the Purchaser may nominate shall be appointed
additional directors;
5.5.2 the transfers referred to in clause 5.2.1 shall be approved
(subject to stamping); and
5.5.3 the resignations referred to in clauses 5.2.4 and 5.2.5 shall
be submitted and accepted.
5.6 Upon completion of the matters referred to in clauses 5.2 to 5.5 the
Purchaser shall:-
5.6.1 cause the consideration less the Deferred Consideration to be
paid by banker's draft made payable to the Vendor or as the
Vendor directs or, at the Vendor's option, electronic funds
transfer to such account nominated by the Vendor. The Vendor
may elect for the consideration to be paid in United States'
Dollars instead of Sterling. In the event of such election,
the consideration shall be paid
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<PAGE> 7
in US Dollars converted from Sterling at the rate of 1.6924 US
Dollars for each pound sterling.
5.6.2 procure (a) the repayment by the Operating Company of the balances
shown in its books at completion as due to each of the landlord of the
properties, Andre Verwey, Jan Langdon and Complete Projects (b) any
payment specified by the Operating Company to its staff as ex gratia
payments to them for loss of office and (c) the payment by the Company
of all its outstanding debts and other liabilities.
5.6.3 deliver the Service Agreement duly executed by the Purchaser
6 WARRANTIES, UNDERTAKINGS AND INDEMNITIES BY THE VENDOR
6.1 The Vendor warrants to the Purchaser that:
6.1.1 the Vendor has and will have full power and authority to enter
into and perform this agreement and the Deed of Indemnity
which constitute or when executed will constitute binding
obligations on him in accordance with their respective terms;
6.1.2 the Share will at Completion constitute the whole of the
issued and allotted share capital of the Company;
6.1.3 there is and at Completion will be no pledge, lien or other
encumbrance on, over or affecting the Share and there is and
at Completion will be no agreement or arrangement to give or
create any such encumbrance and no claim has been or will be
made by any person to be entitled to any of the foregoing;
6.1.4 the Vendor will be entitled to transfer the full legal and
beneficial ownership of the Share to the Purchaser on the
terms of this agreement without the consent of any third
party;
6.1.5 the Operating Company is the only Subsidiary of the Company;
6.1.6 the information in Schedule 2 relating to the Group Companies
is true and accurate in all respects;
6.1.7 the Company is the sole beneficial owner of the shares in the
Operating Company free from any encumbrance;
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<PAGE> 8
6.1.8 save as fairly set out in the Disclosure Letter, the
Warranties in Schedule 3 are true and accurate in all respects
and will continue to be so up to and including Completion,
provided that the Vendor shall not have any liability in
respect of any matter occurring after signing (1) which is not
within his reasonable ability or that of the directors of any
Group Company to control or (2) in respect of which the
Purchaser has given its written consent (which shall not be
unreasonably withheld or delayed) or (3) which does not
constitute a material breach of warranty;
6.2 The Vendor undertakes that any Warranty which refers to the knowledge,
information or belief of the Vendor, shall be deemed to include an
additional statement that it has been made after due and careful
enquiry by him and deemed also to include the knowledge, information or
belief of each director or former director of the Operating Company.
6.3 Each of the Warranties is without prejudice to any other Warranty and,
except where expressly stated otherwise, no clause of this agreement
shall govern or limit the extent or application of any other clause.
6.4 The Vendor shall promptly disclose in writing to the Purchaser any
event or circumstance which arises or becomes known to him prior to
Completion and is materially inconsistent with any of the Warranties or
the contents of the Disclosure Letter and which the Vendor knew (or
ought reasonably to have known) would have been material to be known by
the Purchaser.
6.5 The rights and remedies of the Purchaser in respect of any breach of
the Warranties shall not be affected by Completion, by any
investigation made by it or on its behalf into the affairs of any Group
Company (save as provided by clause 6 of Schedule 6), by its rescinding
or failing to rescind this agreement, or failing to exercise or
delaying the exercise of any right or remedy, or by any other event or
matter, except a specific and duly authorised written waiver or
release, and no single or partial exercise of any right or remedy shall
preclude any further or other exercise.
6.6 None of the information supplied by any Group Company or its
professional advisers to the Vendor or his agents, representatives or
advisers in connection with the Warranties and the contents of the
Disclosure Letter, or otherwise in relation to the business or affairs
of any Group Company, shall be deemed a representation, warranty or
guarantee of its accuracy by the Group Company to the Vendor, and the
Vendor waives any claims against the Group Company which he might
otherwise have in respect of it.
6.7 The Vendor hereby undertakes with and covenants to the Purchaser and
the Company that save as otherwise expressly provided in this Agreement
(including for the avoidance of doubt any payments pursuant to the
matters set out in clause 5.6.2) or otherwise with the prior written
consent of the Purchaser (which consent shall not be unreasonably
withheld or delayed in relation to Clause 6.7.3) he will procure that
pending Completion:-
6.7.1 the Company and Operating Company will carry on their
respective businesses in the ordinary course so as to maintain
the same as a going concern and will not cause or permit the
Company or the Operating Company to
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<PAGE> 9
cease to trade;
6.7.2 neither the Company nor the Operating Company will dispose of
any assets except in the ordinary course of carrying on its
business;
6.7.3 otherwise than in the ordinary course of carrying on its
business, neither the Company nor the Operating Company will
assume or incur any material liabilities whether actual or
contingent and in particular will not incur any capital
commitment of a value in excess of (pound) 5,000;
6.7.4 neither the Company nor the Operating Company will declare
make or pay any dividend or other distribution to any of its
members;
6.7.5 neither the Company nor the Operating Company will acquire any
asset for a consideration in excess of its market value at the
date of such acquisition or enter into any unusual, long term
or onerous contract of a value in excess of (pound) 5000.
6.7.5 neither the Company nor the Operating Company will make any
increase in remuneration salary or wage levels or grant any
additional benefit of any description to any employee,
director or consultant of the Company, or of the Operating
Company or make or agree to make any compensation payment to
any of them; and
6.7.7 no change shall be made to the Memorandum or Articles of
Association or the share capital or board of directors of the
Company or the Operating Company
6.8 The Vendor shall procure that until Completion the Purchaser, its
agents, representatives and professional advisers are given promptly on
request whatever facilities and information regarding the business,
assets, liabilities, contracts and affairs of each Group Company, and of
the documents of title and other evidence of ownership of its assets,
that the Purchaser may reasonably require.
6.9 Notwithstanding any other provisions of this Agreement the liability of
the Vendor hereunder shall be limited in accordance with the provisions
of Schedule 6 to this Agreement.
6.10 The Vendor undertakes to procure that, prior to Completion:-
6.10.1 The audited balance sheet and audited profit and loss account
of the Operating Company as at 31 August 1998 shall have been
prepared by the Operating Company's auditors so as to comply
with the stipulations set out in paragraph 2.2 of Schedule 3
as if they were the Last Accounts (and as if the reference to
the Last Accounts Date was to 31 August 1998) and
6.10.2 The Company shall have re-organised its share capital, to the
Purchaser's reasonable satisfaction, so that the issued share
capital of the Company shall consist entirely of 1 ordinary
fully paid share of 1 US$.
7 DEFERRED CONSIDERATION
7.1 The Deferred Consideration shall be paid by the Purchaser to the Vendor
or his order on 31st December 2001. Payment of the Deferred
Consideration shall be subject to a right of set-off and deduction
("the Deduction") by the Purchaser in respect of any claim for
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<PAGE> 10
breach of the Warranties, or any other provision of this Agreement or
under the Tax Deed ("the Claim") (but otherwise shall be paid free from
any set off or counterclaim) PROVIDED THAT no Deduction shall be made
if the Vendor has otherwise discharged or satisfied the amount due in
respect of the Claim and FURTHER PROVIDED that no deduction shall be
made unless:-
7.1.1 the Vendor (or the Vendor's Solicitors) shall have agreed to
the Deduction; or
7.1.2 a court of competent jurisdiction shall have finally decided
that the Vendor is liable in respect of the Claim.
8 GENERAL
8.1 No announcement shall be made in respect of the subject matter of this
agreement unless specifically agreed between the parties or it is an
announcement required by law or a stock exchange issued after prior
consultation with the Vendor.
8.2 If this agreement ceases to have effect the Purchaser will release and
return to each Group Company all documents concerning it provided to
the Purchaser or its advisers in connection with this agreement and
will not use or make available to any other person any information
which it or its advisers have been given in respect of any Group
Company and which is not in the public domain.
8.3 If the Share or the shares or the business of the Operating Company
shall at any time be sold or transferred to a company which is a
subsidiary of the Purchaser or of the Purchaser's ultimate holding
company, then and only then, the benefit of each of the Warranties may
be assigned to the purchaser or transferee who shall accordingly (for
so long as the Purchaser or Transferee remains a subsidiary of the
Purchaser or of the Purchaser's ultimate holding company) be entitled
to enforce each of the Warranties against the Vendor as if he were
named in this agreement as the Purchaser.
8.4 This agreement shall be binding upon each party's successors and
assigns and personal representatives (as the case may be) but, except
as expressly provided, none of the rights of the parties under this
agreement or the Warranties may be assigned or transferred.
8.5 Subject to clause 8.6 all expenses incurred by or on behalf of the
parties, including all fees of agents, representatives, solicitors,
accountants and actuaries employed by any of them in connection with
the negotiation, preparation or execution of this agreement, shall be
borne solely by the party who incurred the liability and no Group
Company shall have any liability in respect of them.
8.6 If the condition in Clause 4.1 is not satisfied, then within 30 days,
unless the Vendor and Purchaser shall have concluded another agreement
providing for the purchase of the Share by then, the Purchaser shall
pay on demand in clear funds a sum equal to (pound) 58,750 plus the
cost of the 1998 audit less the cost of the 1997 audit to the Vendor
(care of his solicitors) and undertakes to the Company as trustee for
the Operating Company to indemnify the Operating Company on demand in
clear funds for any additional Taxation of loss of relief in relation
to Taxation assessed on the Operating Company for the UK fiscal year
1998/9 which may be incurred by the Operating
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<PAGE> 11
Company by reason of the valuation of the stock and work in progress in
the accounts of the Operating Company for the year ending 31 August
1998 being based (at the request of the Purchaser) upon accounting
policies different to those followed in previous years.
8.7 Time shall be of the essence of this agreement, both as regards the
dates and periods specifically mentioned and as to any dates and
periods which may be substituted by agreement in writing between or on
behalf of the Vendors and the Purchaser.
8.8 Any notice required to be given by any of the parties under this
agreement may be sent by fax or by post to the address of the addressee
as set out in this agreement or to such other address as the addressee
may have notified for the purpose of this clause Provided that any
notice sent to the Vendor shall at the same time be sent to the
Vendor's Solicitors marked (CHC/AMP/78705-2) unless notified in writing
to the contrary. Communications sent by fax shall be deemed to have
been received at time of transmission and those by post shall be deemed
to have been received forty-eight hours after posting. In proving
service by post it shall be necessary to prove only that the
communication was contained in an envelope which was duly addressed and
posted in accordance with this clause.
8.9 This Agreement sets forth the entire agreement between the parties with
respect to the subject matter covered by it and supersedes and replaces
all prior communications, drafts representations, warranties,
stipulations, undertakings and agreements of whatsoever nature, whether
oral or written, between the parties relating thereto.
8.10 Neither party enters into this Agreement in reliance on any warranty,
undertaking, stipulation or agreement other than those contained in
this Agreement.
8.11 The parties hereto shall and shall use their respective reasonable
endeavours to procure that any necessary third parties shall do execute
and perform all such further deeds documents assurances acts and things
as the other party hereto may reasonably require by notice in writing
to the other (and at the cost of the requesting party) to carry the
provisions of this Agreement into full force and effect.
8.12 Following Completion, the Purchaser undertakes to the Vendor (for
himself and as trustee for the relevant guarantor) to use all
reasonable endeavours to obtain the release of the relevant guarantor
from all liabilities in connection with each guarantee identified in
the Disclosure Letter and, pending such release, to indemnify them
against all liabilities pursuant to such guarantees including after
Completion.
8.13 If either party becomes liable to pay the other any sum pursuant to
this agreement, whether a liquidated sum or by way of damages or
otherwise, the paying party will be liable to pay interest on such sum
from the due date for payment at the annual rate of 2 1/2% above the
base lending rate from time to time of Nat West Bank accruing on a
daily basis until payment is made whether before or after any
judgement.
9 GOVERNING LAW AND JURISDICTION
9.1 The validity construction and performance of this Agreement shall be
governed by
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<PAGE> 12
English law.
9.2 All disputes, claims or proceedings between the parties relating to the
validity construction or performance of this Agreement shall be subject
to the non-exclusive jurisdiction of the High Court of Justice in
England to which the parties hereto irrevocably submit. Each of the
parties irrevocably consents to the award or grant of any relief in any
such proceedings before the High Court of Justice in England. Either
party shall have the right to take proceedings in any other
jurisdiction for the purposes of enforcing a judgement or order
obtained from the High Court of Justice in England.
9.3 The Vendor hereby authorises and appoints Eversheds of Holland Court
The Close Norwich NR1 4DX or such other firm of solicitors in England
and Wales, as he may designate by written notice to the Purchaser to
accept service of all notices and legal process arising out of or
connected with this Agreement and service on such person (or such
substitute) shall be deemed to be service on the Vendor. The Vendor
undertakes not to revoke the appointment without having first appointed
an appropriate alternative agent.
IN WITNESS whereof this agreement has been executed as a deed the day and year
first written.
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SCHEDULE 1
Agreements referred to in Clause 3.1
<TABLE>
<CAPTION>
- ----------------------------------- ------------------------------------- ------------------------------------
Date Party Subject Matter
- ----------------------------------- ------------------------------------- ------------------------------------
<S> <C> <C>
Volkswagen Finance Hire Purchase Agreement for VW 800
van
- ----------------------------------- ------------------------------------- ------------------------------------
25.6.96 Vauxhall Finance No. 7540200 Hire Purchase Agreement for
Astravan
- ----------------------------------- ------------------------------------- ------------------------------------
NWS Bank plc Hire Purchase of a milling machine
- Matsuura MAM700HF
- ----------------------------------- ------------------------------------- ------------------------------------
Lombard North Central plc Lease Purchase Agreement in
respect of Vacu-Blast automatic
gear peening machine
- ----------------------------------- ------------------------------------- ------------------------------------
Bank of Ireland Purchase Plan Agreement in respect
of Robofil wire eroder
- ----------------------------------- ------------------------------------- ------------------------------------
28.11.96 NWS Bank plc Purchase Plan Agreement in respect
of Matsuura 510 VF vertical
machining centre
- ----------------------------------- ------------------------------------- ------------------------------------
28.1.97 NWS Bank plc Purchase Plan Agreement in respect
of Matsuura ME600 VF machining
centre
- ----------------------------------- ------------------------------------- ------------------------------------
9.4.98 Lombard North Central plc Lease Purchase Agreement in respect
of 3 Hitachi Seiki VM 40111 vertical
machining centres
- ----------------------------------- ------------------------------------- ------------------------------------
15.5.98 Lombard North Central plc Purchase Agreement in respect of 2
Studer cylindrical grinding machines
- ----------------------------------- ------------------------------------- ------------------------------------
10.9.97 Bank of Ireland 5 Hitachi Seiki HT R3 CNC turning
lathes
- ----------------------------------- ------------------------------------- ------------------------------------
Close Asset Finance Agreement in respect of Pfauter NC
PSA 150 gear shaping machine
- ----------------------------------- ------------------------------------- ------------------------------------
</TABLE>
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<PAGE> 14
SCHEDULE 2
Details of group companies
PART 1: THE COMPANY PRINCETOWN HOLDINGS LIMITED
Place of incorporation: British Virgin Islands
Registered number: 7034
Date of incorporation: 6th May 1989
Share capital:
Authorised US$50,000 divided into 50,000 shares of US$1 each, 40,000 of
which to be issued as registered shares and 10,000 as bearer shares
Issued One Bearer share
Registered office: P O Box 3186, Road Town, Tortola, British Virgin Islands
Registered Agent: Havelet Trust Company (BVI) Limited
Directors: Christiaan Detlev Knauf
Kay Swart
Shares held by Company: 400, 000 ordinary shares of (pound) 1 each in the
Operating Company
PART 2: THE SUBSIDIARY OF THE COMPANY GEMINI TRANSMISSIONS LIMITED
Place of incorporation: England and Wales
Company number: 02643620
Date of incorporation: 6 September 1991
Share capital:
Authorised (pound) 500,000 divided into Ordinary (pound) 1 shares
Issued 400,000
Sole member: the Company
Registered office: St Paul's House, Warwick Lane, London EC4P 4BN
Directors: Andre Albertus Verwey and Dorothy Colleen Verwey
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<PAGE> 15
Secretary: Cornhill Secretaries Ltd
SCHEDULE 3
Warranties
1 CORPORATE MATTERS
1.1 The information relating to the Group Companies contained in Schedule 2
is true and complete in all respects.
1.2 The Share constitutes the whole of the issued and allotted share
capital of the Company.
1.3 The Company is the sole beneficial owner of all the issued shares of
the Operating Company.
1.4 There are no agreements or arrangements in force, other than this
agreement, which grant to any person the right to call for the issue,
allotment or transfer of any share or loan capital of any Group
Company.
1.5 The register of members and other statutory books of each Group Company
have been properly kept and contain an accurate and complete record of
the matters with which they should deal; and no notice or allegation,
that any of them is incorrect or should be rectified, has been
received.
1.6 All returns, particulars, resolutions and documents required to be
filed with the Registrar of Companies (whether in the British Virgin
Islands or the United Kingdom) in respect of each Group Company have
been duly filed and were correct.
1.7 The copy of the memorandum and articles of association of each Group
Company attached to the Disclosure Letter is accurate and complete in
all respects and has embodied in it or annexed to it a copy of every
such resolution as is referred to in the Section 380, Companies Act
1985/required under the law of the British Virgin Islands to be filed
at the Registry of Companies or so annexed.
1.8 Each Group Company has been duly incorporated and is not and has never
been in receivership administration or liquidation and is not insolvent
within (in the case of the Operating Company) the meaning of Section
123 of the Insolvency Act 1986 and the Vendor, having made all due
enquiry, is not aware of circumstances whereby any Group Company is
likely to be placed in receivership, administration or liquidation.
1.9 Since incorporation the Company has not carried out any trade or
business other than to acquire and hold the Share in the Operating
Company.
2 ACCOUNTING MATTERS RELATING TO THE OPERATING COMPANY
2.1 The Last Accounts have been prepared in accordance with the historical
cost convention; and the bases and policies of accounting, adopted for
the purpose of preparing the Last Accounts, are the same as those
adopted in preparing the audited accounts of the Operating Company in
respect of the three last preceding accounting periods.
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<PAGE> 16
2.2 The Last Accounts:
2.2.1 give a true and fair view of the assets, liabilities
(including, to the extent reasonable, contingent, unquantified
or disputed liabilities) and commitments of the Operating
Company at the Last Accounts Date and its profits for the
financial period ended on that date;
2.2.2 comply with the requirements of the Companies Acts and other
relevant statutes;
2.2.3 comply with all current FRSs applicable to a United Kingdom
company;
2.2.4 are not affected by any extraordinary, exceptional or
non-recurring item;
2.2.5 properly reflect the financial position of the Operating
Company as at their date.
2.3 All the accounts, books, ledgers, financial and other records, of
whatsoever kind, of the Operating Company are in its possession and
have been fully properly and accurately maintained.
2.4 In the Last Accounts the aggregate value attributed to the fixed assets
of the Operating Company (other than computer hardware or other
information technology items) does not exceed the aggregate market
value of such items as at the Last Accounts Date.
2.5 In the Last Accounts the profits shown have not (save as disclosed
therein) been affected by any extraordinary or exceptional event or
circumstance rendering such profits unusually high or low.
2.6 In the Last Account the rate of depreciation applied in respect of each
of the assets of the Operating Company is sufficient to write down the
value of such asset to nil not later than at the end of its useful
working life.
2.7 In the Last Accounts the stock in trade and work in progress has been
valued in accordance with SSAP 9 and on a consistent basis with that
adopted for the accounts in respect of the three financial years prior
to the year to which the Last Accounts relate and the value of
redundant, obsolete, deteriorated, slow moving or unsaleable stock
materials or merchandise has been fully written down or full provision
made therefor.
3 FINANCIAL MATTERS
3.1 No Group Company had any capital commitments outstanding at the Last
Accounts Date and no Group Company has, since then, incurred or agreed
to incur any capital expenditure or commitments or disposed of any
capital assets for an aggregate value greater than (pound) 50,000.
3.2 Since the Last Accounts Date no Group Company has paid or declared any
dividend or
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<PAGE> 17
made any other payment which is, or is treated as, a distribution for
the purposes of ICTA Part VI Chapter II.
3.3 No Group Company has, since the Last Accounts Date, repaid, or become
liable to repay, any indebtedness in advance of its stated maturity.
3.4 There are no liabilities (including contingent liabilities) which are
outstanding on the part of any Group Company other than those
liabilities disclosed in the Last Accounts or incurred, in the normal
course of trading, since the Last Accounts Date.
3.5 Summary details of the existing borrowing facilities are set out in the
Disclosure Letter.
3.6 None of the facilities available to any Group Company is dependent on
the guarantee or indemnity of, or any security provided by, a third
party other than another Group Company.
3.7 The amounts now due from debtors of the Operating Company will be
recoverable in full in the normal course of business, and in any event
not later than six months from the date of this agreement.
3.8 No part of the amounts included in the Last Accounts as owing by any
debtors remains unpaid or has been released on terms that any debtor
pays less than the full book value of his debt.
3.9 Since the Last Accounts Date, there are no amounts owing by any Group
Company which have been due for more than ninety days.
3.10 No guarantee, or agreement for indemnity or for suretyship, given by,
or for the accommodation of, Group Company is outstanding.
4 TAXATION MATTERS
4.1 The Last Accounts make full provision or reserve for all Taxation
(including deferred Taxation) which is liable to be or could be
assessed on each Group Company, or for which it may be accountable, in
respect of the period ended on the Last Accounts Date.
4.2 All returns, computations and payments which should be, or should have
been, made by any Group Company for any Taxation purpose have been made
within the requisite periods and are up-to-date, correct and on a
proper basis and none of them is, or is likely to be, the subject of
any dispute with the Inland Revenue or other Taxation authorities.
4.3 Each Group Company has duly deducted and accounted for all amounts
which it has been obliged to deduct in respect of Taxation and, in
particular, has properly operated the PAYE system, by deducting tax, as
required by law, from all payments made, or treated as made, to its
employees or former employees, and accounting to the Inland Revenue for
all tax so deducted and for all tax chargeable on benefits provided for
its employees or former employees.
4.4 No Group Company is, or will become, liable to pay, or make
reimbursement or
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<PAGE> 18
indemnity in respect of, any Taxation (or amounts corresponding
thereto) in consequence of the failure by any other person (not being a
Group Company) to discharge that Taxation within any specified period
or otherwise, where such Taxation relates to a profit, income or gain,
transaction, event, omission or circumstance arising, occurring or
deemed to arise or occur (whether wholly or partly) on or prior to the
date of this agreement.
4.5 No Group Company has, since the Last Accounts Date, incurred or is, or
has become, liable to incur after that Date expenditure which will not
be wholly deductible in computing its taxable profits except for
expenditure on the acquisition of an asset to be held otherwise than as
stock-in-trade, details of which are set out in the Disclosure Letter.
4.6 No Group Company has, since the Last Accounts Date, made or agreed to
make, otherwise than to or from another Group Company a surrender of,
or claim for, group relief under ICTA Part X Chapter IV (Group relief)
or is liable to make or entitled to receive a payment for group relief
otherwise than to or from another Group Company.
4.7 The execution or completion of this agreement will not result in any
profit or gain deemed to accrue to a Group Company for Taxation
purposes.
4.8 No Group Company has in the past six years carried out, or been engaged
in, any transaction or arrangement in respect of which there may be
substituted for the consideration given or received by such Company a
different consideration for Taxation purposes.
4.9 The Operating Company has duly registered and is a taxable person for
the purposes of value added tax and has not applied for treatment and
is not treated as a member of a group.
5 TRADING MATTERS
5.1 Since the Last Accounts Date the business of each Group Company has
been continued in the ordinary and normal course, and there has been no
deterioration in its turnover, or its financial or trading position.
5.2 No Group Company is, or has agreed to become, a member of any joint
venture, consortium, partnership or other unincorporated association.
5.3 No Group Company is engaged in any litigation or arbitration
proceedings, as plaintiff or defendant; so far as the Vendor is aware
there are no proceedings pending or threatened, either by or against
any Group Company; and so far as the Vendor is aware there are no
circumstances which are likely to give rise to any litigation or
arbitration.
5.4 There is no dispute with any revenue or other official department in
the United Kingdom or elsewhere, in relation to the affairs of any
Group Company, and so far as the vendor is aware there are no facts
which may give rise to any dispute.
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5.5 There are no claims pending or threatened, against any Group Company,
by an employee or workman or third party, in respect of any accident or
injury, which are not fully covered by insurance.
5.6 Each Group Company has conducted and is conducting its business in all
respects in accordance with all applicable laws and regulations,
whether of the United Kingdom or elsewhere.
5.7 No power of attorney given by any Group Company is in force.
5.8 There are no outstanding authorities (express or implied) by which any
person may enter into any contract or commitment to do anything on
behalf of a Group Company.
5.9 The Disclosure Letter contains summary particulars of all subsisting
contracts with a value of more than (pound) 10,000 to which any Group
Company is a party at the date of this agreement.
5.10 No Group Company is or will with the lapse of time become in default in
respect of any obligation or restriction.
5.11 No Group Company has manufactured, sold or supplied products which are,
or were, or will become, in any material respect faulty or defective,
or which do not comply in any material respect with any warranties or
representations, expressly or impliedly made by it, or with all
applicable regulations, standards and requirements in respect thereof.
5.12 No Group Company is subject to any liability or obligation (save as may
be implied by law) to service, repair, maintain, take back or otherwise
do or not do anything in respect of any goods that have been, or are
hereafter delivered by it.
5.13 No Group Company is a party to, and its profits or financial position
during the past three years have not been affected by, any contract or
arrangement which is not of an entirely arm's length nature.
5.14 There is no unfulfilled or unsatisfied judgement or court order,
distress, execution or other process outstanding against any Group
Company.
5.15 All necessary regulatory approvals, certificates, licences, consents,
permits and authorisations have been obtained by and are in the
possession of each Group Company to enable that Company to carry on its
business effectively in the places and manner in which such business is
carried on and all such approvals, certificates, licences, consents,
permits and authorisations are valid and subsisting and there is no
reason so far as the Vendor is aware why any of them should be
restricted, varied, suspended, cancelled or revoked in any way.
5.16 None of the activities or contracts of any Group Company is ultra vires
and no Group Company has entered into any transaction which may be
voidable at the instance of any party.
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5.17 So far as the vendor is aware, the Operating Company has not in the
three years preceding the date hereof lost any major supplier or
customer.
5.18 All returns and all relevant information in connection with each Group
Company and its business which is appropriate or required to be
supplied or which have been requested have been supplied to all
relevant governmental bodies or local or regulatory authorities
(including the Revenue, Customs and Excise, Department of Employment
Department of Health and Social Security and Department of Trade and
Industry) and all such were complete and accurate in all material
respects.
5.19 Since the Last Accounts Date:-
5.19.1 No Group Company has disposed of any asset (including trading
stock) or made any supply of any service or business facility
of any kind (including a loan of money or the letting, hiring
or licensing of any property whether tangible or intangible)
in circumstances where the consideration actually received or
receivable for such disposal or supply is less than the
consideration which could be deemed to have been received for
the purposes of Taxation.
5.19.2 No event has occurred which gives rise to a liability of a
Group Company to Taxation on deemed (as opposed to actual)
income, profits or gains or which results in that Company
becoming liable to pay or bear a liability to Taxation
directly or primarily chargeable against or attributable to
another person.
5.19.3 No Group Company has surrendered or claimed any ACT under
Chapter V Taxes Act or any losses by way of group relief under
the Taxes Act.
5.20 The Operating Company has since the Last Accounts Date:-
5.20.1 not introduced any new system or method of operation financing
or management in respect of its business assets or
undertaking;
5.20.2 not made any changes in accounting principles or rates or
bases of depreciation from those used in the Last Accounts;
5.20.3 not become liable or likely to have to refund in whole or in
part any grant or subsidy of whatever nature, or to repay any
advance ahead of its due date for repayment, or to lose the
benefit of any financial concession or investment or
development or research grant or to repay in whole or in part
any government or local authority loan;
5.20.4 not borrowed or lent any money which has not been repaid nor
increased any secured liability nor (except in the ordinary
course of its trading and for full value) incurred or entered
into any other liability transaction or contract.
6 PROPERTY MATTERS
6.1 The Operating Company will at completion have good and marketable
leasehold interests to all of the Properties, which comprise all the
estate or interest of the Group Companies in any land or premises.
Particulars of the Properties and leasehold interests are set out in
Schedule 5.
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6.2 There is no option, or agreement for sale, mortgage (whether specific
or floating), charge, lien, lease agreement or lease, overriding
interest, condition, restrictive covenant, easement or other
encumbrance in respect of any of the Properties.
6.3 The Properties are not subject to the payment of any outgoings (except
business and water rates).
6.4 The Group Companies have duly and punctually performed and observed all
covenants, conditions, agreements, statutory requirements, planning
consents, bye-laws, orders and regulations affecting any of the
Properties, and no notice of any breach of any such matter has been
received.
6.5 The use of each of the Properties is the permitted use for the purposes
of the Town and Country Planning Act 1990.
6.6 There are no compulsory purchase notices, orders or resolutions
affecting any of the Properties.
6.7 The Operating Company does not occupy any land and does not require any
land for its business outside of the boundaries of the Properties.
6.8 No Group Company has ever held any interest in land other than the
Properties.
7 EMPLOYMENT MATTERS
7.1 Full particulars of the identities, dates of commencement of
employment, or appointment to office, and standard form terms and
conditions of employment of all the employees and officers of each
Group Company, including without limitation profit sharing, commission
or discretionary bonus arrangements, are fully and accurately set out
in the Disclosure Letter.
7.2 Since the Last Accounts Date or (where employment or holding of office
commenced after that date) since the commencing date of the employment
or holding of office, no change has been made in the rate of
remuneration, emoluments or pension benefits, of any officer,
ex-officer or senior executive of any Group Company (a senior executive
being a person in receipt of remuneration in excess of (pound) 25,000
per annum).
7.3 No Group Company is bound or accustomed to pay any moneys other than in
respect of remuneration, or emoluments of employment, or pension
benefits, to, or for the benefit of, any officer or employee of any
Group Company.
7.4 No Group Company is under any legal or moral liability or obligation,
or a party to any ex-gratia arrangement or promise, to pay pensions,
gratuities, superannuation allowances or the like, or otherwise to
provide 'relevant benefits' within the meaning of ICTA s 612, to or for
any of its past or present officers or employees or their dependants;
and there are no retirement benefit, or pension or death benefit, or
similar schemes or arrangements in relation to, or binding on, any
Group Company or to which any Group Company contributes.
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7.5 No Group Company has entered into any recognition agreement with a
trade union nor has it done any act which might be construed as
recognition.
8 ASSET MATTERS
8.1 The Group Companies owned at the Last Accounts Date, and had good and
marketable title to, all the assets included in the Last Accounts, and
(except for current assets subsequently sold or realised in the normal
course of business) still own and have good and marketable title to
them and to all assets acquired since the Last Accounts Date.
8.2 The Operating Company had good and marketable title to the stock of raw
materials, work in progress, finished goods, tooling, plant and
machinery counted in the stock take as at 31 August 1998 and referred
to in Schedule 7 (the "Stock") and (except for current assets
subsequently sold or realised in the normal course of business) still
owns and has good and marketable title to them.
8.3 The Stock is at least adequate in relation to the current trading
requirements of the businesses of the Group Companies; and none of the
Stock is obsolete. or of limited value in relation to current
technology and the current business of any Group Company; and no
contracts are outstanding which are likely to result in the foregoing
not being true.
8.4 The Stock is in good condition and is capable of being sold by it, in
the normal course of its business.
8.5 The plant, machinery, equipment, vehicles and other equipment of a
written down value of (pound) 20,000 or more used in connection with
the business of each Group Company:
8.5.1 are in a good and safe state of repair and condition and
satisfactory working order and have been regularly and
properly maintained;
8.5.2 are its absolute property, save for those items the subject of
the hire purchase, leasing or rental agreements listed in the
Disclosure Letter, or in respect of which the outstanding
payments do not exceed (pound) 1,000;
8.5.3 are not expected to require replacements or additions at a
cost in excess of (pound) 5,000 within the next six months;
8.5.4 are all capable, and (subject to normal wear and tear) will
remain capable, throughout the respective periods of time
during which they are each written down to a nil value in the
accounts of the Group Companies (in accordance with normal
recognised accounting principles), of doing the work for which
they were designed or purchased.
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8.6 All the stock-in-trade of each Group Company, and those of its other
assets and undertakings which are of an insurable nature, are up until
completion insured in amounts representing their full replacement or
reinstatement value against fire and other risks normally insured
against by persons carrying on the same business as that carried on by
it.
8.7 Each Group Company is adequately covered up until Completion against
accident, damage, injury, third party loss (including product
liability), loss of profits and other risks normally insured against by
persons carrying on the same business as that carried on by it.
8.8 All insurances are currently in full force and effect, and nothing has
been done or omitted to be done which could make any policy of
insurance void or voidable, or which is likely to result in an increase
in premium.
8.9 No claim is outstanding, or may be made, under any of the insurance
policies and no circumstances exist which are likely to give rise to a
claim.
9 GENERAL MATTERS
9.1 No investigations or enquiries by or on behalf of any governmental or
other body in respect of the affairs of any Group Company are pending
or taking place.
9.2 Full details of all grants subsidies or financial assistance which the
Operating Company has received from any governmental department or
agency are set out in the Disclosure Letter.
10 INTELLECTUAL PROPERTY RIGHTS AND TRADE SECRETS
10.1 All Intellectual Property Rights required by any Group Company in
connection with its business are in full force and effect and are
vested in and beneficially owned by it and no such right is being used,
claimed, opposed or attached by any other person.
10.2 No express right or licence has been granted to any person by any Group
Company to use in any manner or to do anything which would or might
otherwise infringe any of the Intellectual Property Rights referred to
above; and so far as the vendor is aware, no act has been done or
omission permitted by any Group Company whereby they or any of them
have ceased or might cease to be valid and enforceable.
10.3 The business of the Operating Company as now carried on does not and is
not likely to infringe any Intellectual Property Right of any other
person (or would not do so if the same were valid) or give rise to a
liability to pay compensation pursuant to the Patents Act 1977 Sections
40 and 41 and all licences to any Group Company in respect of any such
right are in full force and effect.
10.4 No Group Company has (otherwise than in the normal course of business)
disclosed or permitted to be disclosed or undertaken or arranged to
disclose to any person other than the Purchaser any of its know-how,
trade secrets, confidential information, price lists or lists of
customers or suppliers.
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10.5 No Group Company is subject to any secrecy agreement or agreement which
may restrict the use of disclosure of information.
10.6 Nothing has been done or omitted by any Group Company which would
enable any licensee under a licence granted by a Group Company to be
terminated or which in any way constitutes a breach of the terms of any
licence.
11 COMPUTERS AND DATA PROTECTION
11.1 All Relevant Computer Hardware
11.1.1 are (save for software licensed to that Company) under the
Operating Company's sole control and are not shared with or
used by or on behalf of or accessible by any other person;
11.1.2 have so far as the Vendor is aware adequate capacity for that
Company's present and reasonably foreseeable future needs;
11.1.3 are in full operating order and are fulfilling the purposes
for which they were acquired;
11.2 With regard to all the software comprising Relevant Computer Hardware:-
11.2.1 in the case of software written or commissioned by a Group
Company, the copyright therein is owned exclusively by that
Company, no other person has rights in such software or rights
to use or copies of the software or source codes and complete
written listings and written copies of the source codes for
the software are held by that Company;
11.2.2 in the case of standard packaged software "purchased
outright", the use thereof is licensed to that Company on an
express or implied licence which does not require that Company
to make any further payments, is not terminable without the
consent of that Company and which imposes no material
restrictions (save as to copying) on the use or transfer of
the software;
11.2.3 in the case of all other software the use thereof is licensed
to that Company on the terms of a written licence or licences.
11.3 All records and data stored by each Group Company by electronic or
magnetic means are capable of ready access through the present computer
systems of that Company.
11.4 The Operating Company is registered under and has complied with the
provisions of the Data Protection Act 1984 and has received no
intimation from the Data Protection Registrar that he requires any
changes in the storage or use of such information by the Operating
Company.
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11.5 So far as the Vendor is aware neither the performance nor the
functionality of Relevant Computer Hardware will be materially adversely
affected by the advent of the year 2000 and subsequent dates and in
particular Relevant Computer Hardware provides for and correctly
recognizes and will function accurately in relation to all past and
future dates for both the 20th and 21st centuries.
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SCHEDULE 4
Deed of indemnity
Date: 19
Parties:
1 'The Covenantor': BONRAD LIMITED (incorporated under the laws of the
British Virgin Islands and registered under number 280483) whose
registered office is at Akara Building, 24 De Castro Street, Wickhams
Cay 1, PO Box 3136,Road Town, Tortola, British Virgin Islands
2 'The Company': Princetown Holdings Limited (incorporated under the
laws of the British Virgin Islands and registered under number 7034
whose registered office is at P O Box 3186, Road Town, Tortola, British
Virgin Islands on behalf of itself and the Operating Company.
3 'The Purchaser': Reynard Motorsport Limited (incorporated under the
laws of England and Wales and registered under number 2843803 ) whose
registered office is at Reynard Centre Telford Road Bicester OX6 0UY
Recital:
This deed is entered into pursuant to an agreement made between the Covenantor
(1) and the Purchaser' (2) relating to the sale of all the share capital of the
Company ('the Agreement').
Operative provisions
1 DEFINITIONS
In this deed the meanings of 'GROUP COMPANIES', 'OPERATING COMPANY' 'THE LAST
ACCOUNTS', 'THE LAST ACCOUNTS DATE' and 'TAXATION' shall be the same as in the
Agreement.
2 INDEMNITY
2.1 Subject as provided below, the Covenantor covenants with the Purchaser
to pay to the Purchaser an amount equal to:-
2.1.1 any liability on the Group Companies or any of them for
Taxation which arises wholly or partly in respect of, or in
consequence of, any acts, omissions or transactions occurring
or entered into on, or before, the date of this deed or which
results from, or is calculated by reference to, any income,
profits or gains earned, received or accrued, or deemed to
have been earned, received or accrued, on or before that date;
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2.1.2 any liability on the Company to the extent that it arises in
consequence of any acts omissions or transactions occurring or
entered into prior to execution of this deed;
2.1.3 Any liability on the Operating Company towards the South
African Exchange Control or other South African governmental
authority to the extent that it arises out of the financing of
and acquisition of assets by the Operating Company prior to
execution of this deed.
2.1.4 any resultant costs and expenses reasonably incurred by the
Purchaser or the Group Companies in connection with any
liability in respect of which the Covenantor is liable under
paragraph 2.1.1, 2.1.2 or 2.1.3.
3 EXCLUSIONS
3.1 The indemnity in clause 2.1 shall not apply to any liability to the
extent that:-
3.1.1 either an appropriate provision or reserve in respect of the
liability was made in the Last Accounts or the liability was
specifically referred to and quantified in the notes to those
Accounts;
3.1.2 the Operating Company is, or may become, liable wholly, or
primarily, as a result of transactions (not including
distributions) in the normal course of its business after the
Last Accounts Date;
3.1.3 the liability arises as a result only of the appropriate
provision or reserve in the Last Accounts being insufficient
by reason of any increase in rates of Taxation made after the
date of the Agreement.
3.1.4 such liability to Taxation arises as a result of an adjustment
to the taxable profits of the Operating Company in respect of
a period ended on or before the Accounts Date which after a
deduction of the liability to Taxation in respect of that
adjustment results in an increase in the net asset value of
that company;
3.1.5 such liability to Taxation arises or results from or as a
consequence of any change after Completion or for the purposes
of preparing the 1998 Accounts in accounting policy or the
basis upon which the Operating Company values its assets;
3.1.6 such liability to Taxation relates to any fine, penalty,
surcharge or interest arising by reason of any failure or
delay on the part of the Operating Company in paying over to
the relevant tax authority any payment made hereunder by the
Covenantor or in keeping, preserving, maintaining or
submitting any account records from return or computation
after Completion;
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3.1.7 such liability to Taxation would not have risen or would have
been reduced but for a failure or omission on the part of the
Purchaser or the Operating Company to make any election or
claim any relief the making or claiming of which was taken
into account in computing the provision or reserve for tax in
the Last Accounts and was disclosed to the Purchaser prior to
Completion;
3.1.8 such liability to Taxation arises by reason of a voluntary
disclaimer by the Operating Company after Completion of the
whole or any part of any allowance to which it is entitled
under Part II of the Capital Allowances Act 1990 or by reason
of the revocation by the Operating Company after Completion of
any claim for relief made (whether provisionally or otherwise)
prior to Completion;
3.1.9 such liability to Taxation would not have arisen but for a
cessation of or any change in the nature or conduct of any
trade carried on by the Operating Company being a cessation or
change occurring on or after Completion;
3.1.10 such liability to Taxation arises or is increased as a
consequence of any failure by the Purchaser or the Operating
Company to comply with any of their respective obligations
under the terms of this Deed;
3.1.11 such liability to Taxation or other liability would not have
arisen but for a voluntary act, transaction or omission of the
Operating Company after Completion:-
3.1.11.1 otherwise than pursuant to a legally binding
obligation entered into by the Operating Company on
or before Completion or imposed on the Operating
Company by any legislation whether coming into force
before, on or after Completion; and
3.1.11.2 which the Purchaser was aware or ought reasonably to
have been aware would give rise to the liability to
Taxation in question; and
3.1.11.3 otherwise than in the ordinary course of business of
the Operating Company.
3.1.12 For the purposes of Clause 3.1.11.3 none of the following will
be regarded as an event occurring in the ordinary course of
business of the Operating Company:-
3.1.12.1 the disposal or acquisition of any asset
(including trading stock) or the supply or
obtaining of any service or business
facility of any kind (including a loan of
money or the letting, hiring or licensing of
any tangible or intangible property) in
circumstances where the consideration (if
any) actually received or given for such
disposal, acquisition, supply or obtaining
is different from the consideration deemed
to have been received or given for any
Taxation purpose;
3.1.12.2 any event which gives rise to a liability to
Taxation in respect of deemed (as opposed to
actual) income, profits or gains;
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3.1.12.3 the Operating Company ceasing, or being
deemed to cease, to be a member of any group
of companies or associated with any other
company for any Taxation purpose;
3.1.12.4 the creation, cancellation or reorganisation
of any share or loan capital of the
Operating Company;
3.1.12.5 the failure by the Operating Company to
deduct or account for any Taxation; or
3.1.12.6 any Event which gives rise to any fine,
penalty, surcharge, interest or other
imposition relating to Taxation.
3.2 Where the Purchaser or the Operating Company is entitled to recover
from some other person any sum in respect of any matter or event which
could give rise to a claim under this Deed, the purchaser will (or will
procure that the Operating Company will), provided that the Covenantor
indemnifies and secures the Operating Company and the Purchaser to the
reasonable satisfaction of the Purchaser against all losses, costs,
damages and expenses which may be incurred thereby, take reasonable
steps to recover that sum provided that the taking of such steps shall
not be a condition precedent to the Covenantor's liability in respect
of such claim, and any sum recovered (less the cost of such recovery)
will reduce the amount of such claim (and, in the event of the recovery
being delayed until after such claim has been satisfied by the
Covenantor, the lesser of the sum recovered and the amount paid by the
Covenantor in satisfaction of such claim, will be paid to the
Covenantor (after deduction of all reasonable costs and expenses of
such recovery);
3.3 Payment of any claim shall to the extent of such payment satisfy and
preclude any other claim which is capable of being made in respect of
the same subject matter.
3.4 The provision of clauses 2.1, 2.2, 2.3, 2.4 and 2.7 of Schedule 6 shall
be deemed to be incorporated in this clause 3 of Schedule 4 but so that
the materiality limits in clauses 2.1 and 2.2 of Schedule 6 shall not
operate twice.
4. RECOVERY FROM OTHER PERSONS
4.1 If the Operating Company recovers from any other person (including any
Taxation authority but excluding the Purchaser), any amount which is
referable to a liability to Taxation or other liability of the
Operating Company in respect of which the Covenantor has made a payment
under Clause 2, the Purchaser will repay to the Covenantor the lesser
of:-
4.1.1 the amount so recovered (less any losses, costs, damages and
expenses incurred by the Operating Company, the Purchaser or
any other member of the same group of companies as the
Purchaser as a result of the recovery of that amount); and
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4.1.2 the amount paid by the Covenantor under Clause 2 in respect of
the liability to Taxation or other liability in question less
any part of such amount previously repaid to the Covenantor
under any provision of this agreement or otherwise. If the
Purchaser becomes aware that the Operating Company is entitled
to recover any amount mentioned in Clause 4.1, the Purchaser
will as soon as reasonably practicable give notice of that
fact to the Covenantor, and provided that the Covenantor
indemnifies and secures the Operating Company, the Purchaser
and all other members of the same group of companies as the
Purchaser to the reasonable satisfaction of the Purchaser
against all losses, costs, damages and expenses which may be
incurred thereby, the Purchaser will procure that the
Operating Company, at the Covenantor's cost and expense, takes
such action as the Covenantor may reasonably and promptly
request to effect such recovery.
5 CONDUCT OF CLAIMS
5.1 The Purchaser or the Operating Company on behalf of the Purchaser shall
notify the Covenantor in writing of any information which comes to its
notice, whereby it appears that the Covenantor is, or may become,
liable under this deed.
5.2 Subject to clause 5.3, the Purchaser shall, at the expense of the
Covenantor, take or procure each other Group Company to take such
action, to contest any claim which could give rise to a liability under
this deed, as the Covenantor may reasonably require.
5.3 The Covenantor shall, at the request of the Purchaser, provide, to the
reasonable satisfaction of the Purchaser, security or indemnities, or
both, in respect of all the costs and expenses of any action taken
pursuant to clause 5.2.
6 GENERAL
6.1 This deed shall be binding on the Covenantor and his personal
representatives.
6.2 The provisions of the Agreement relating to communications shall apply
to any communication to be given under, or in connection with, this
deed.
6.3 The construction, validity and performance of this deed shall be
governed by the laws of England and each party consents to the
non-exclusive jurisdiction of the English courts.
IN WITNESS whereof this deed has been executed by the parties on the day and
year first written
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THE Common Seal of BONRAD
LIMITED was affixed in
the presence of ..............................
Director
..............................
Secretary
THE Common Seal of PRINCETOWN
HOLDINGS LIMITED was affixed in
the presence of ..............................
Director
..............................
Secretary
SIGNED as a deed for and on behalf of
REYNARD MOTORSPORT LIMITED
acting by ..............................
Director
..............................
Secretary
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SCHEDULE 5
Short particulars of the properties
Units B and D, Nigel Court, Buckingham Road Industrial Estate, Brackley, to be
held prior to completion under a good and marketable lease or leases:-
For the term of 12 years from 1 September 1998
At the aggregate annual rent of (pound) 90,000
Subject to upward rent reviews as at 1 September 2003 and 1 September 2008
Full repairing and insuring by tenant
Tenants break at 1 September 2003
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SCHEDULE 6
LIMITATION OF LIABILITY
1. In this schedule "the Vendor" means the Vendor in his capacity as such
and also as Covenantor under the Deed of Indemnity and "claim" means
any claim which would (but for the provisions of this Schedule) be
capable of being made against the Vendor in respect of any liability
for breach of the representations, warranties, undertakings and
covenants given under clause 6 and Schedule 3 of this Agreement and/or
under the Deed of Indemnity.
2. Notwithstanding the provisions of this Agreement and of the Deed of
Indemnity:-
2.1 the aggregate liability of the Vendor in respect of all claims shall be
limited to (pound) 8,653,000.
2.2 the Vendor will be under no liability save by set off at Completion in
respect of any claim where the amount for which the Vendor would be
liable under such claims is less than (pound) 10,000; the Vendor will
nevertheless be liable for the whole of any claim exceeding (pound)
10,000;
2.3 The Vendor will be under no liability in respect of any claim unless
the amount of the liability in respect of such claim is (when
aggregated with the liability in respect of any other such claim made
by the Purchaser) in excess of (pound) 70,000, in which event the
Purchaser shall be entitled to claim the whole amount of such claim and
not merely the excess;
2.4 the Vendor will be under no liability in respect of any claim unless
written particulars of the claim (giving full details of the specific
matter in respect of which such claim is made) shall have been given to
the Vendor by 30 June 2001 and unless legal proceedings in respect of
such claim are commenced and served upon the Vendor within six months
after such written particulars have been given to the Vendor;
2.5 the Vendor will have no liability in respect of any claim:-
2.5.1 to the extent that it arises or is increased as a result of an
increase in rates of Taxation after the Last Accounts Date, or
the passing of any legislation (or making of any subordinate
legislation with retrospective effect, or any provision or
reserve in the Last Accounts being insufficient by reason of
any increase in rates of Taxation after the Last Accounts
Date;
2.5.2 if it would not have arisen but for anything voluntarily done
or omitted to be done after Completion by the Purchaser or the
Company or any Group Company or any of their respective agents
or successors in title outside the ordinary course of
business;
33
<PAGE> 34
2.5.3 to the extent that it relates to any loss for which the
Purchaser or the Company or any Group Company is indemnified
by insurance, or for which it would have been so indemnified
if at the relevant time there had been maintained valid and
adequate insurance cover of a type in force in relation to the
Company or any Group Company at the date of this Agreement;
2.5.4 to the extent that it relates to:-
2.5.4.1 any matter specifically provided for, or included as
a liability or disclosed, in the Last Accounts; or
2.5.4.2 any liability for Taxation arising out of
transactions ( not including distributions ) in the
normal course of business of the Company or any Group
Company after the Last Accounts Date;
2.5.5 to the extent that it arises as a result of any change in the
accounting policy or practice or in the accounting reference
date of the Company and any Group Company after Completion or
of any change in the basis upon which the Operating Company
values its assets for the purposes of the 1998 Accounts;
2.5.6 to the extent that the amount of the claim corresponds to an
increase in the value of the assets of the Purchaser or the
Company or any Group Company resulting from the reduction in
its liability to Taxation;
2.6 in calculating the liability of the Vendor in respect of any claim,
credit will be given to the Vendor to the extent of:-
2.6.1 any understatement of the value of assets in the Last
Accounts;
2.6.2 any overstatement of the value of liabilities in the Last
Accounts;
2.6.3 the amount by which the position of the Company or the Group
Companies (taken as a whole) in respect of any other matter is
established to be better than as warranted or undertaken by
the Vendor;
2.7 Payment of any claim shall to the extent of such payment satisfy and
preclude any other claim which is capable of being made in respect of
the same subject matter;
2.8 In assessing any damages or compensation payable by the Vendor the
value of the Company shall not be taken as exceeding the Consideration
payable in accordance with Clause 3 of this agreement.
34
<PAGE> 35
2.9 Where the Purchaser or the Company or the Operating Company is entitled
to recover from some other person any sum in respect of any matter or
event which could give rise to a claim, the Purchaser will (or will
procure that the Company will) take all reasonable steps to recover
that sum before making such claim, and any sum recovered will reduce
the amount of such claim (and in the event of recovery being delayed
until after such claim has been satisfied by the Vendor, the sum
recovered will be paid to the Vendor, after deduction of all reasonable
costs and expenses of the recovery).
3. Upon the Purchaser becoming aware that matters have arisen which will
or are likely to give rise to a claim, the Purchaser will:-
3.1 as soon as is practicable notify the Vendor in writing of the potential
claim and of the matters which will or are likely to give rise to such
a claim;
3.2 not make any admission of liability, agreement or compromise with any
person, body or authority in relation to the potential claim without
prior consultation with the Vendor;
3.3 at all times disclose in writing to the Vendor all information and
documents relating to the potential claim or the matters which will or
are likely to give rise to such claim and, if requested by the Vendor,
give the Vendor and his professional advisers reasonable access to the
personnel of the Purchaser and/or the Company or the Operating Company
as the case may be and to any relevant premises, chattels, accounts,
documents and records within the power, possession or control of the
Purchaser and/or the Company or the Operating Company to enable the
Vendor and his professional advisers to interview such personnel, and
to examine such claim, premises, chattels, accounts, documents and
records and to take copies or photographs thereof at his own expense;
and
3.4 take such action as the Vendor may reasonably require at the Vendor's
cost (including the appointment of solicitors nominated by the Vendor)
to avoid, resist, contest or compromise the potential claim or the
matters which will or are likely to give rise to such claim.
4. Nothing herein shall in any way diminish the Purchaser's or the
Company's or the Operating Company's common law duty to mitigate its
loss.
5. If any potential claim shall arise by reason of a liability of the
Company or the Operating Company which is contingent only, then the
Vendor shall not be under any obligation to make any payment in respect
of such claim until such time as the contingent liability ceases to be
contingent and becomes actual but this shall not affect the validity of
notice thereof given to the Vendor.
6. The Purchaser confirms to the Vendor that it is not aware at the date
of this Agreement, after discussion with it's accountants and
solicitors, of any matter or thing which in it's reasonable opinion
will of itself or may of itself give rise to any claim provided that
this paragraph will not affect any claims under clause 2.1.2 and or
2.1.3 of the Deed of Indemnity.
35
<PAGE> 36
7 If the Purchaser or the Company or the Operating Company is entitled to
make a claim under Clause 6 of this agreement and under the Deed of
Indemnity in respect of the same subject matter, such claim shall first
be made under the said Clause 6 and any liability of the Vendor under
the Deed of Indemnity shall be reduced to the extent of such claim.
8. The provisions of this Schedule apply notwithstanding any other
provision of this Agreement or its Schedules to the contrary and will
not cease to have effect in consequence of any rescission or
termination by the Purchaser of any other provisions of this Agreement.
36
<PAGE> 37
SCHEDULE 7
Stock take documents as at 31 August 1998
37
<PAGE> 38
SCHEDULE 8
Service Agreement
38
<PAGE> 39
The Common Seal of BONRAD
LIMITED was affixed in the presence of
.............................
Director
.............................
Secretary
SIGNED as a deed for and on behalf of
REYNARD MOTORSPORT LIMITED
acting by .............................
Director
.............................
Secretary
39
<PAGE> 40
EXECUTED AS A DEED by )
REYNARD MOTORSPORT LIMITED )
by )
Director
Secretary/Director
SIGNED and DELIVERED as a Deed )
by the said ANDRE ALBERTUS VERWEY )
in the presence of:- )
Witness
Name
Address
Occupation
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
REYNARD MOTORSPORT, INC.
FIRST.
The name of the corporation is Reynard Motorsport, Inc. (the "Corporation").
SECOND.
The address of the Corporation's registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle,
Delaware 19801. The name of the Corporation's registered agent at such address
is The Corporation Trust Company.
THIRD.
The purpose of the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH.
(a) The total number of shares of stock which the Corporation shall have
authority to issue is Fifty-Five Million (55,000,000) shares of capital
stock.
(b) Of such authorized shares, Fifty Million (50,000,000) shares shall be
designated "Common Stock" and have a par value of $.01 per share.
(c) Of such designated shares, Five Million (5,000,000) shares shall be
designated "Preferred Stock" and have a par value of $.01 per share.
The Board of Directors of the Corporation is hereby expressly authorized, to the
fullest extent now or hereafter permitted by the General Corporation Law of the
State of Delaware, at any time and from time to time, to divide the shares of
Preferred Stock into one or more series, to establish the number of shares to be
included in each such series, to issue in whole or in part the shares of
Preferred Stock or the shares of any series thereof, and to fix by resolution or
resolutions the designation, powers (voting and otherwise), preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions, if any, of the Preferred Stock or
of any series thereof that may be desired.
<PAGE> 2
FIFTH.
The name and mailing address of the incorporator is:
L. J. Vitalo
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
SIXTH.
The Corporation shall have perpetual existence.
SEVENTH.
The business and affairs of the Corporation shall be managed by or under the
direction of the Board of Directors. Elections of directors need not be by
written ballot except and to the extent required by the bylaws of the
Corporation.
EIGHTH.
Subject to the rights, if any, of the holders of Preferred Stock to take action
by written consent, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
NINTH.
The bylaws of the Corporation may be altered, amended, or repealed, or new
bylaws may be adopted, only by (i) the affirmative vote of the holders of at
least sixty-seven percent (67%) of the outstanding voting stock of the
Corporation (in addition to any separate class vote that may be required
pursuant to the terms of any then outstanding Preferred Stock of the
Corporation), or (ii) by resolution of the Board of Directors duly adopted by a
vote of not less than a majority of the directors then constituting the full
Board of Directors.
TENTH.
(a) Directors of the Corporation shall be elected to hold office until the
expiration of the term for which they are elected, and until their
successors have been duly elected and qualified.
<PAGE> 3
(b) The number of directors which constitutes the whole Board of Directors
of the Corporation shall be designated, or determined in the manner
provided in, the Bylaws of the Corporation.
(c) Vacancies occurring on the Board of Directors for any reason may be
filled by vote of a majority of the remaining members of the Board of
Directors, although less than a quorum, at any meeting of the Board of
Directors, or by a sole remaining director.
ELEVENTH.
No director of the Corporation shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except that this Article Eleventh does 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 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which the director derived an improper personal
benefit. If the General Corporation Law of the State of Delaware is amended
after the filing of this Certificate of Incorporation to authorize corporate
action further limiting or eliminating the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of
Delaware. Any amendment or repeal of this Article Eleventh, or any adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article Eleventh, shall be prospective only and shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such amendment or repeal or adoption of an inconsistent provision.
TWELFTH.
Whenever a compromise or arrangement is proposed between this Corporation and
its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
Section 291 of the General Corporation Law of the State of Delaware or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of the General
Corporation Law of the State of Delaware order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be
<PAGE> 4
binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
THIRTEENTH.
Notwithstanding any other provisions of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of the capital stock required by
law or this Certificate of Incorporation, the affirmative vote of the holders of
at least sixty-seven percent (67%) of the combined voting power of all of the
then outstanding shares of the Corporation entitled to vote shall be required to
alter, amend or repeal Articles Eighth, Ninth, Eleventh, or this Article
Thirteenth or any provision thereof or hereof; provided, however, that the
sixty-seven percent (67%) voting requirement shall not be required for such
alteration, amendment or repeal approved by a vote of not less than two-thirds
of the directors then constituting the full Board of Directors.
FOURTEENTH.
The Corporation reserves the right, at any time and from time to time,
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed herein, and all rights
conferred upon the stockholders and directors herein are granted subject to this
reservation.
THE UNDERSIGNED, being the incorporator named above, for the purpose of
forming a corporation pursuant to the General Corporation Law of the State of
Delaware, does hereby make this Certificate of Incorporation and certify that
this is my act and deed and that the facts set forth herein are true and,
accordingly, has signed this Certificate of Incorporation this 2nd day of
September, 1998.
By: /s/ L. J. Vitalo
----------------------------
L. J. Vitalo, Incorporator
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
REYNARD MOTORSPORT, INC.
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
1. OFFICES.....................................................................1
1.1 Registered Office.................................................1
1.2 Other Offices.....................................................1
2. MEETINGS OF STOCKHOLDERS....................................................1
2.1 Place of Meetings.................................................1
2.2 Annual Meetings...................................................1
2.3 Special Meetings..................................................1
2.4 Notice of Meetings................................................2
2.5 Procedures for Proposing Consideration of Business................2
2.6 Quorum............................................................2
2.7 Adjournment.......................................................3
2.8 Vote Required.....................................................3
2.9 Voting Rights.....................................................3
2.10 Proxies..........................................................4
2.11 List of Stockholders.............................................4
2.12 Organization of Meetings.........................................4
2.13 Inspectors.......................................................5
3. DIRECTORS...................................................................5
3.1 Number, Election, Term and Qualifications.........................5
3.2 Power and Authority...............................................7
3.3 Vacancies and Newly Created Directorships.........................7
3.4 Nominations for Election as a Director............................7
3.5 Resignation.......................................................8
3.6 Removal...........................................................8
3.7 Place of Meetings.................................................8
3.8 Regular Meetings..................................................9
3.9 Special Meetings..................................................9
3.10 Quorum; Vote Required............................................9
3.11 Telephonic Meetings..............................................9
3.12 Organization....................................................10
3.13 Action Without Meeting..........................................10
3.14 Committees......................................................10
3.15 Compensation....................................................11
i
<PAGE> 3
4. NOTICES....................................................................11
4.1 Form of Notice...................................................11
4.2 Waiver of Notice.................................................11
4.3 Undeliverable Notices............................................12
5. OFFICERS...................................................................12
5.1 Officers.........................................................12
5.2 Term.............................................................12
5.3 Officers Appointed by the President..............................12
5.4 Compensation.....................................................13
5.5 Removal and Vacancies............................................13
5.6 Resignations.....................................................13
5.7 Chairman of the Board............................................13
5.8 President........................................................13
5.9 Vice President...................................................14
5.10 Secretary.......................................................14
5.11 Assistant Secretary.............................................14
5.12 Treasurer.......................................................14
5.13 Assistant Treasurer.............................................15
5.14 Additional Officers and Agents..................................15
5.15 Delegation of Authority.........................................15
5.16 Voting of Securities Owned by This Corporation..................15
6. STOCK AND STOCKHOLDERS.....................................................16
6.1 Certificates.....................................................16
6.2 Lost, Stolen or Destroyed Certificates...........................17
6.3 Transfers of Shares..............................................17
6.4 Fixing Record Date...............................................17
6.5 Registered Stockholders..........................................18
6.6 Transfer Agent and Registrar.....................................18
7. DIVIDENDS..................................................................18
7.1 Declaration......................................................18
7.2 Reserve..........................................................18
8. INDEMNIFICATION............................................................19
8.1 Right to Indemnification.........................................19
8.2 Right to Advance of Expenses.....................................19
8.3 Right of Indemnitee to Bring Suit................................19
8.4 Non-Exclusivity of Rights........................................20
8.5 Insurance........................................................20
8.6 Indemnification of Employees and Agents of the Corporation.......20
ii
<PAGE> 4
8.7 Survival of Indemnification Rights...............................20
8.8 Certain Definitions..............................................20
8.9 Amendment or Repeal..............................................21
9. MISCELLANEOUS..............................................................21
9.1 Loans to Officers................................................21
9.2 Checks...........................................................21
9.3 Fiscal Year......................................................21
9.4 Seal.............................................................21
9.5 Certificate of Incorporation.....................................21
10. AMENDMENTS................................................................22
iii
<PAGE> 5
BY-LAWS
OF
REYNARD MOTORSPORT, INC.
1. OFFICES
1.1 REGISTERED OFFICE.
The registered office of the Corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware.
1.2 OTHER OFFICES.
The Corporation may also have offices at such other places, both within
and without the State of Delaware and within and without the United States of
America, as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
2. MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS.
Each meeting of the stockholders of the Corporation shall be held at
the principal offices of the Corporation, or at such other place, either within
or without the State of Delaware and within and without the United States of
America, and 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 or in the
waiver of notice thereof.
2.2 ANNUAL MEETINGS.
An annual meeting of the stockholders of the Corporation, for the
purpose of the election of directors and for such other business as shall be
properly brought before the meeting, shall be held each calendar year,
commencing in 1999, 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
or in the waiver of notice thereof.
2.3 SPECIAL MEETINGS.
Except as otherwise provided by the General Corporation Law of the
State of Delaware as it may from time to time be amended ("Delaware Law"), the
Certificate of Incorporation of the Corporation as it may be from time to time
be amended or restated ("Certificate of Incorporation") or these bylaws, special
meetings of the stockholders of the Corporation may be
<PAGE> 6
called, for any purpose or purposes, by (i) the Chairman of the Board (if any),
(ii) the President, or (iii) the Board of Directors. Such special meetings may
not be called by any other person or persons. A special meeting of the
stockholders so called shall be held at such place, on such date, and at such
time as is designated by the Board of Directors and stated in the notice of the
meeting or in the waiver of notice. Business transacted at any special meeting
of the stockholders shall be limited to the purposes stated in the notice.
2.4 NOTICE OF MEETINGS.
Except as otherwise provided by Delaware Law, the Certificate of
Incorporation, or these bylaws, written notice of each meeting of the
stockholders stating the place, date and time of the meeting and, in the case of
a special meeting, the purpose or purposes for which the meeting is called,
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, which
notice may be delivered either personally or by mail. If mailed, notice shall be
deemed to be given when deposited in the United States mail, postage prepaid,
directed to such stockholder at his address as it appears on the records of the
Corporation, unless he shall have filed with the Secretary of the Corporation a
written request that notices to him be mailed to some other address, in which
case it shall be directed to him at such other address. Notice of any meeting of
the stockholders may be waived in a writing signed by the stockholders waiving
notice, either before or after such meeting and, to the extent permitted by
Delaware Law, will be deemed to be waived by any stockholder who is present, in
person or by proxy, at such meeting, except when the stockholder attends such
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting was not lawfully called
or convened.
2.5 PROCEDURES FOR PROPOSING CONSIDERATION OF BUSINESS.
Unless proposed by a majority of the Board of Directors, no business
shall be eligible for consideration at annual or special meetings of
stockholders unless a written statement setting forth the business and the
purpose therefor is delivered to the Board of Directors on a timely basis. To be
timely, a stockholder's written statement shall be delivered to or mailed and
received at the principal executive offices of the Corporation (i) with respect
to business to be considered at the annual meeting of the stockholders of the
Corporation not less than ninety (90) days prior to the anniversary date of the
immediately preceding annual meeting of stockholders of the Corporation, and
(ii) with respect to business to be considered at a special meeting of
stockholders of the Corporation not later than the close of business on the
tenth (10th) day following the day on which notice of the date of the special
meeting was mailed to stockholders of the Corporation as provided in Section 2.4
or public disclosure of the date of the special meeting was made, whichever
first occurs.
2.6 QUORUM.
The presence, in person or by proxy, at any meeting of the stockholders
of the holders of not less than a majority of the outstanding shares entitled to
vote thereat shall constitute a quorum at such meeting for the transaction of
business, except as otherwise provided by
2
<PAGE> 7
Delaware Law, the Certificate of Incorporation or these bylaws. In the absence
of a quorum at any meeting of the stockholders, either the chairman of the
meeting or the holders of a majority of the outstanding shares present, in
person or by proxy, and entitled to vote thereat, may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at which
a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
2.7 ADJOURNMENT.
Any meeting of stockholders, whether or not a quorum is present, may be
adjourned from time to time, either by the chairman of the meeting or by the
vote of holders of sixty-seven percent (67%) of the outstanding shares present,
in person or by proxy, and entitled to vote thereat, to reconvene at the same or
some other place, and notice need not be given of the time and place of any such
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken. At the adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the original meeting. If the adjournment is for more than thirty (30) 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 of record
entitled to vote at the adjourned meeting.
2.8 VOTE REQUIRED.
Except as otherwise required by Delaware Law, the Certificate of
Incorporation or these bylaws, at any meeting for the election of directors at
which a quorum is present, the candidates receiving the greatest number of votes
shall be elected as directors. All other matters submitted to the stockholders
at any meeting at which a quorum is present shall be decided by the vote of the
holders of a majority of the outstanding shares entitled to vote and present, in
person or by proxy, at the meeting unless the matter is one upon which a
different vote is required by express provision of Delaware Law, the Certificate
of Incorporation or these bylaws, in which case such express provision shall
govern and control the vote required on such matter. Where a separate vote by
class or series is required, except as otherwise provided by Delaware Law, the
Certificate of Incorporation or these bylaws, a majority of the outstanding
shares of such class or series, present, in person or by proxy, at the meeting
shall constitute a quorum entitled to take action with respect to that vote on
that matter and, except as otherwise provided by Delaware Law, the Certificate
of Incorporation or these bylaws, the affirmative vote of the majority (or
plurality, in the case of the election of directors) of the votes cast by the
holders of shares of such class or classes or series shall be the act of such
class or series.
2.9 VOTING RIGHTS.
Except as otherwise provided by Delaware Law, the Certificate of
Incorporation or these bylaws, each stockholder in whose name shares stand on
the stock records of the Corporation as
3
<PAGE> 8
of the record date, as provided in Section 6.4 of these bylaws, shall at each
meeting of the stockholders be entitled to one vote for each share held by such
stockholder as of the record date.
2.10 PROXIES.
Each stockholder entitled to vote at a meeting of the stockholders may
authorize another person or persons to act for him by proxy, but no such proxy
shall be voted or acted upon after three (3) years from its date, unless the
proxy provides for a longer period. A proxy may be granted by a writing executed
by the stockholder or its authorized officer, director, employee or agent or by
transmission or authorization of transmission of a telegram, cablegram, or other
means of electronic transmission to the person who will be the holder of the
proxy or to a proxy solicitation firm, proxy support service organization or
like agent duly authorized by the person who will be the holder of the proxy to
receive such transmission, subject to the conditions set forth in Section 212 of
the Delaware Law, as it may be amended from time to time. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
Each proxy shall be filed with the Secretary of the Corporation prior to or at
the time of the meeting.
2.11 LIST OF STOCKHOLDERS.
The Secretary or other officer who has charge of the stock ledger of
the Corporation shall prepare and make, at least ten (10) days before each
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, 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 (10) 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 who is
present.
2.12 ORGANIZATION OF MEETINGS.
(a) At each meeting of stockholders, the Chairman of the Board, or, if a
Chairman of the Board has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting
chosen by the holders of a majority of the outstanding shares present,
in person or by proxy, at the meeting and entitled to vote thereat
shall act as chairman of the meeting. The Secretary, or, in his
absence, an Assistant Secretary or, if an Assistant Secretary has not
been appointed or is absent, a person appointed by the chairman of the
meeting, shall act as secretary of the meeting.
4
<PAGE> 9
(b) The Board of Directors of the Corporation shall be entitled to make
such rules or regulations for the conduct of meetings of the
stockholders as it shall deem necessary, convenient or desirable.
Subject to such rules and regulations of the Board of Directors, if
any, the chairman of the meeting shall have the right and authority to
prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are necessary, convenient or
desirable for the proper conduct of the meeting, including, without
limitation, establishing an agenda or order of business for the
meeting, rules and procedures for maintaining order at the meeting and
the safety of those present, limitations on participation in such
meeting to stockholders of record of the Corporation and their duly
authorized and constituted proxies and such other persons as the
chairman shall permit, restrictions on entry to the meeting after the
time fixed for the commencement thereof, limitations on the time
allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to
be voted on by ballot. Unless and to the extent determined by the Board
of Directors or the chairman of the meeting, meetings of stockholders
shall not be required to be held in accordance with rules of
parliamentary procedure.
2.13 INSPECTORS.
The Board of Directors by resolutions or the President or Chairman of
the Board, in advance of any stockholder meeting, shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives, to act at the meeting of stockholders and
make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act or is able to act at a meeting of
stockholders, the chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspectors shall have the duties prescribed by law.
3. DIRECTORS
3.1 NUMBER, ELECTION, TERM AND QUALIFICATIONS.
Except as otherwise provided in the Certificate of Incorporation, the
authorized number of directors of the Corporation shall be fixed or changed from
time to time and at any time exclusively by resolution adopted by the Board of
Directors. Unless otherwise fixed by the Board of Directors, the authorized
number of directors of the Corporation shall be [5]. No decrease in the
authorized number of directors shall have the effect of shortening the term of
any incumbent director. The directors, other than the initial directors either
named in the Certificate of Incorporation or elected by the incorporators, shall
be elected at the annual meeting of the stockholders, except as provided in
Section 3.3 hereof. If, for any reason, the directors shall not have been
elected at an annual meeting of the stockholders, they may be elected as soon
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thereafter as convenient at a special meeting of the stockholders called for
that purpose. Directors need not be stockholders, residents of the State of
Delaware or residents of the United States.
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3.2 POWER AND AUTHORITY.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, which shall have and may exercise
all the powers of the Corporation and do all such lawful acts and things as are
not by Delaware Law, the Certificate of Incorporation or these bylaws directed
or required to be exercised or done by the stockholders.
3.3 VACANCIES AND NEWLY CREATED DIRECTORSHIPS.
Vacancies on the Board of Directors resulting from death, resignation,
removal, disqualification or otherwise, and newly created directorships
resulting from any increase in the authorized number of directors, may be filled
by a vote of a majority of the directors then in office, even though less than a
quorum, or by a sole remaining director, and any director so chosen shall hold
office for the remainder of the full term of the director replaced and until
such director's successor is duly elected and qualified, or until his earlier
death, resignation or removal, or for directors elected in response to a
increase in the authorized number, until such director's successor is duly
elected and qualified, or until his earlier death, resignation or removal. If at
any time there are no directors in office, then an election of directors may be
held in the manner provided by Delaware Law.
3.4 NOMINATIONS FOR ELECTION AS A DIRECTOR.
Only persons who are nominated in accordance with the procedures set
forth in these bylaws shall be eligible for election by stockholders as, and to
serve as, directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of stockholders (a) by or
at the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 3.4, who shall be entitled to vote for the election
of directors at the meeting and who complies with the notice procedures set
forth in this Section 3.4. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder's
written statement shall be delivered to or mailed and received at the principal
executive offices of the Corporation (i) with respect to an election to be held
at the annual meeting of the stockholders of the Corporation, not less than
ninety (90) days prior to the anniversary date of the immediately preceding
annual meeting of stockholders of the Corporation, and (ii) with respect to an
election to be held at a special meeting of stockholders of the Corporation for
the election of directors, not later than the close of business on the tenth
(10th) day following the day on which notice of the date of the special meeting
was mailed to stockholders of the Corporation as provided in Section 2.4 or
public disclosure of the date of the special meeting was made, whichever first
occurs. Such stockholder's notice to the Secretary shall set forth (x) as to
each person whom the stockholder proposes to nominate for election or
re-election as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including such person's written consent to
being named in the proxy statement as a
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nominee and to serve as a director if elected), and (y) as to the stockholder
giving the notice (i) the name and address, as they appear on the Corporation's
books, of such stockholder and (ii) the class and number of shares of voting
stock of the Corporation which are beneficially owned by such stockholder. At
the request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. In the event that a person is
validly designated as a nominee to the Board of Directors in accordance with the
procedures set forth in this Section 3.4 and shall thereafter become unable or
unwilling to stand for election to the Board of Directors, the Board of
Directors or the stockholder who proposed such nominee, as the case may be, may
designate a substitute nominee. Other than directors chosen pursuant to the
provisions of Sections 3.1 or 3.3, no person shall be eligible to serve as a
director of the Corporation unless nominated in accordance with the procedures
set forth in this Section 3.4. The presiding officer of the meeting of
stockholders shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
these By-laws, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded. Notwithstanding the foregoing
provisions of this Section 3.4, a stockholder shall also comply with all
applicable requirements under the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder with respect to the matters set forth
in this Section 3.4.
3.5 RESIGNATION.
Any director may resign at any time by delivering his written
resignation to the Corporation, such resignation to be effective at the time
specified therein or, if no such specification is made, immediately upon its
receipt by the Corporation. Unless otherwise specified in the notice, acceptance
of a resignation shall not be necessary to make it effective. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each director so chosen shall hold office for the unexpired portion of the term
of the director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
3.6 REMOVAL.
Unless otherwise provided by Delaware Law or the Certificate of
Incorporation, any director or the entire Board of Directors may be removed from
office only for cause and only by the holders of a majority of the outstanding
shares of stock of the Corporation entitled to vote at an election of directors.
3.7 PLACE OF MEETINGS.
The Board of Directors may hold meetings, both regular and special,
either within or without the State of Delaware or within or without the United
States of America.
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3.8 REGULAR MEETINGS.
A regular meeting of the Board of Directors shall be held immediately
following the adjournment of each annual meeting of stockholders at which
directors are elected, and at the same place, unless a majority of the directors
then elected and serving change such time or place, and notice of such meeting
need not be given (unless the time or place is so changed). Additional regular
meetings of the Board of Directors may be held at such other times and places as
may from time to time be determined by resolution by the Board of Directors, and
notice of any such additional regular meetings need not be given.
3.9 SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called by the
Chairman of the Board, if any, the President or any two (2) directors, and shall
be held at such time and place as shall be stated in the notice of the meeting.
Notice of any special meeting shall be given in person or by facsimile,
telephone, electronic mail, hand delivery, telecopy or other similar method
involving immediate receipt, at least twenty-four (24) hours before the meeting
or by mail at least three (3) days prior to the meeting. Such notice shall be
deemed to be delivered when deposited in the United States mail so addressed,
with postage prepaid, when delivered by expedited delivery service or when
transmitted if sent by facsimile, telecopy or similar means. Neither the
business to be transacted at, nor the purpose of, any special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting. Notice of any meeting may be waived in a writing signed by any director
at any time before or after the meeting and will be deemed automatically waived
by any director who attends such meeting, except when the director attends the
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
3.10 QUORUM; VOTE REQUIRED.
Except as otherwise provided in the Certificate of Incorporation, at
all meetings of the Board of Directors, the presence of a majority of the
directors in office shall constitute a quorum for the transaction of business.
The vote of a majority of the directors present at any meeting at which a quorum
is present shall be the act of the Board of Directors, except as may be
otherwise specifically provided by Delaware Law, the Certificate of
Incorporation or these bylaws. 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.
3.11 TELEPHONIC MEETINGS.
Unless otherwise provided in the Certificate of Incorporation, any
member of the Board of Directors, or of any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or of any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting
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can hear each other, and such participation in a meeting shall constitute
presence in person at the meeting.
3.12 ORGANIZATION.
At each meeting of the Board of Directors, the Chairman of the Board,
or, if a Chairman has not been appointed or is absent, the President, or, if the
President is absent, the most senior Vice President, or, in the absence of any
such officer, a chairman of the meeting chosen by a majority of the directors
present, shall preside over the meeting. The Secretary, or in his absence, an
Assistant Secretary or another person appointed by the chairman of the meeting,
shall act as secretary of the meeting. At each meeting of the Board of
Directors, the chairman of the meeting shall establish the order of business of
and the procedures at the meeting, subject to the Board of Directors
determination.
3.13 ACTION WITHOUT MEETING.
Unless otherwise provided in the Certificate of Incorporation, 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
members of the Board of Directors or of the committee, as the case may be,
consent thereto in a writing or writings, and such writing or writings are filed
with the minutes of proceedings of the Board of Directors or of the committee.
3.14 COMMITTEES.
The Board of Directors may, by resolution adopted by a majority of the
whole 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 alternative members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
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 such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors unless otherwise restricted
by Delaware Law, the Certificate of Incorporation or these bylaws, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it. Each
committee shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors. Each committee shall keep
regular minutes of its meetings and proceedings and report the same to the Board
of Directors when required.
Committees of the Board of Directors shall not, in any event, have any
power or authority to amend the Certificate of Incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares adopted by the Board of Directors as
provided in Section 151(a) of the Delaware Law, fix the designations and any of
the
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preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopt an agreement of merger
or consolidation, recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommend to
the stockholders a dissolution of the Corporation or a revocation of a
dissolution or to amend the bylaws of the Corporation. Further, no committee of
the Board of Directors shall have the power or authority to declare a dividend,
to authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to Section 253 of the Delaware Law, unless the resolution or
resolutions designating such committee expressly so provides.
3.15 COMPENSATION.
Unless otherwise provided in the Certificate of Incorporation, the
Board of Directors shall have the authority to fix the compensation of
directors. The directors may be paid their reasonable expenses, if any, of
attendance at each meeting of the Board of Directors and may in addition 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 committees of the Board of Directors may be paid compensation and reasonable
expenses for attending committee meetings.
4. NOTICES
4.1 FORM OF NOTICE.
Whenever, under any provision of Delaware Law, the Certificate of
Incorporation or these bylaws, notice is required to be given to any director or
stockholder and no provision is made as to how such notice shall be given, it
shall not be construed to mean solely personal notice, but such notice may be
given in writing, (i) by mail, postage prepaid, addressed to such director or
stockholder, at his address as it appears on the books or, in the case of a
stockholder, the stock transfer records of the Corporation, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail, (ii) by overnight courier service, and such notice shall be
deemed to be given the day following the day it is delivered to such service
with all charges prepaid, (iii) by facsimile, telecopy, telegram or similar
means, and such notice shall be deemed to be given the day it is transmitted
with all charges prepaid, or (iv) by any other method permitted by law, such
notice to be deemed to be given when received by the director or stockholder.
4.2 WAIVER OF NOTICE.
Whenever any notice is required to be given to any stockholder,
director or committee member under the provisions of Delaware Law, the
Certificate of Incorporation or these bylaws,
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a waiver thereof in writing, signed by the person or persons entitled to receive
such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of notice to such person or persons. Attendance of a
stockholder, director or committee member at a meeting shall constitute a waiver
of notice of such meeting, except when the person attends for the express
purpose of objecting at the beginning of the meeting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
4.3 UNDELIVERABLE NOTICES.
The giving of any notice required under any provision of Delaware Law,
the Certificate of Incorporation or these bylaws shall not be required to be
given to any stockholder to whom (i) notice of two (2) consecutive annual
meetings, and all notices of meetings or of the taking of action by written
consent without a meeting to such stockholder during the period between such two
(2) consecutive annual meetings, or (ii) all, and at least two (2), payments (if
sent by first class mail) of dividends or interest on securities during a twelve
(12) month period, have been mailed addressed to such person at his address as
shown on the records of the Corporation and have been returned undeliverable. If
any such stockholder shall deliver to the Corporation a written notice setting
forth his then current address, the requirement that notice be given to such
stockholder shall be reinstated.
5. OFFICERS
5.1 OFFICERS.
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5, shall be
elected or appointed by the Board of Directors and shall include a President, a
Secretary and a Treasurer. The Board of Directors may also elect or appoint a
Chairman of the Board (who must be a director), a Chief Executive Officer, a
Chief Financial Officer, a Principal Accounting Officer, one or more Vice
Presidents, one or more Assistant Secretaries and Assistant Treasurers, and such
other officers and agents as it shall deem necessary, convenient or desirable.
Any number of offices may be held by the same person, unless prohibited by
Delaware Law, the Certificate of Incorporation or these bylaws. None of the
officers of the Corporation, other than a Chairman of the Board, need be a
director.
5.2 TERM.
Each officer of the Corporation shall hold office at the pleasure of
the Board of Directors, or until his successor is elected or appointed and
qualified, or until his earlier death, resignation or removal.
5.3 OFFICERS APPOINTED BY THE PRESIDENT.
The Board of Directors may empower the President to appoint such
officers as the business of the Corporation may require.
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5.4 COMPENSATION.
The compensation of all officers of the Corporation shall be fixed by
or in the manner designated by the Board of Directors.
5.5 REMOVAL AND VACANCIES.
Any officer elected or appointed by the Board of Directors may be
removed at any time, with or without cause, by the affirmative vote of a
majority of the Board of Directors and any officer appointed by the President
may be removed at any time with or without cause by the President, but any such
removal shall be without prejudice to the contractual rights, if any, of the
person so removed. Any vacancy occurring in any office of the Corporation may be
filled by the Board of Directors, or to the extent allowed by the Board of
Directors pursuant to Section 5.3, by the President.
5.6 RESIGNATIONS.
Any officer may resign at any time by giving written notice to the
Board of Directors or to the President or the Secretary. Any such resignation
shall be effective when received by the person or persons to whom such notice is
given, unless a later time is specified therein, in which event the resignation
shall become effective at such later time. Unless otherwise specified in such
notice, the acceptance of any such resignation shall not be necessary to make it
effective. Any resignation shall be without prejudice to the contractual rights,
if any, of the Corporation with the resigning officer.
5.7 CHAIRMAN OF THE BOARD.
The Chairman of the Board, if any, shall preside at all meetings of the
Board of Directors at which he is present, and shall have and perform such other
duties as may from time to time be assigned by the Board of Directors.
5.8 PRESIDENT/CHIEF EXECUTIVE OFFICER.
The President shall be the chief executive officer of the Corporation
and may be known as the Chief Executive Officer. The Chief Executive Officer
shall have all powers and duties of the President if there is no President. For
the purposes of these bylaws, references to the President shall also refer to
the Chief Executive Officer. The President or Chief Executive Officer shall
preside at all meetings of the stockholders unless a Chairman of the Board has
been appointed and is present, and the President or Chief Executive Officer
shall have general and active management of the business, affairs, officers,
employees and agents of the Corporation, and shall see that all orders and
resolutions of the Board of Directors are carried into effect. The President or
Chief Executive Officer shall have general authority to execute bonds, deeds,
mortgages, contracts and other documents and instruments in the name and on
behalf of the Corporation, except where required or permitted by law to be
otherwise executed and except where the execution thereof shall be expressly
delegated by the Board of Directors to some other
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officer or agent of the Corporation. The President or Chief Executive Officer
shall perform such other duties and have such other powers as are commonly
incident to his office or may from time to time be assigned by the Board of
Directors.
5.9 VICE PRESIDENT.
In the absence of the President or in the event of his inability or
refusal to act, the Vice President, if any, or in the event there is more than
one (1) Vice President, the Vice Presidents in the order designated by the Board
of Directors, or in the absence of any designation, then in the order of their
election or appointment, 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 commonly
incident to his office and shall also perform such other duties and have such
other powers as may from time to time be assigned by the Board of Directors or
the President.
5.10 SECRETARY.
The Secretary shall attend all meetings of the Board of Directors and
all meetings of the stockholders and shall record all the actions and
proceedings of such meetings in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. Except as
otherwise provided in these bylaws, the Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and of all special meetings of
the Board of Directors and of all committees that require notice. The Secretary
shall perform such other duties and have such other powers as are commonly
incident to his office and as may from time to time be assigned by the Board of
Directors or the President, under whose supervision he shall be. The Secretary
shall have custody of the corporate seal of the Corporation, if any, and he, or
an Assistant Secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by his signature or by the
signature of 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 to affixing by his signature.
5.11 ASSISTANT SECRETARY.
The Assistant Secretary, if any, or if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors, or if
there be no such determination, then in the order of their election or
appointment, shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as may
from time to time be assigned by the Board of Directors or the President.
5.12 TREASURER.
The Treasurer shall have the custody of the corporate funds and
securities and shall keep or cause to be kept full and accurate accounts of
receipts and disbursements of the Corporation and shall deposit all moneys and
other valuable effects in the name and to the credit of the
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Corporation in such depositories as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors, at its regular meetings, or
when the Board of Directors otherwise so requires, an account of all his
transactions as Treasurer and of the financial condition and results of
operations of the Corporation. If required by the Board of Directors, the
Treasurer shall give the Corporation a bond in such form, 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. The
Treasurer shall perform other duties and have such other powers as are commonly
incident to his office and as may from time to time be assigned by the Board of
Directors or the President. Any of the powers or duties of the Treasurer may be
assigned to a Chief Financial Officer or Principal Accounting Officer appointed
by the Board of Directors.
5.13 ASSISTANT TREASURER.
The Assistant Treasurer, if any, or if there shall be more than one
(1), the Assistant Treasurers in the order determined by the Board of Directors,
or if there be no such determination, then in the order of their election or
appointment, shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as may
be assigned from time to time by the Board of Directors or the President.
5.14 ADDITIONAL OFFICERS AND AGENTS.
The Board of Directors may appoint such other officers and agents as it
shall deem necessary, convenient or desirable, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
designated from time to time by the Board of Directors.
5.15 DELEGATION OF AUTHORITY.
The Board of Directors may from time to time delegate the powers or
duties of any officer to any other officer or agent, notwithstanding any
provisions hereof.
5.16 VOTING OF SECURITIES OWNED BY THIS CORPORATION.
Subject always to the specific directions of the Board of Directors,
(i) any shares or other securities issued by any other entity and owned or
controlled by this Corporation may be voted in person at any meeting of security
holders of such other entity by the Chairman of the Board or President of this
Corporation if either is present at such meeting, or in their absence by the
Treasurer of this Corporation if he is present at such meeting, and (ii)
whenever, in the judgment of the Chairman of the Board or President, it is
desirable for this Corporation to execute a proxy
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or written consent in respect to any shares or other securities issued by any
other entity and owned by this Corporation, such proxy or consent shall be
executed in the name of this Corporation by the Chairman of the Board or
President, without the necessity of any authorization by the Board of Directors,
affixation of corporate seal or countersignature or attestation by another
officer, provided that if the President and Chairman of the Board are unable to
execute such proxy or consent by reason of sickness, absence from the United
States or other similar cause, the Treasurer may execute such proxy or consent.
Any person or persons designated in the manner above stated as the proxy or
proxies of this Corporation shall have full right, power and authority to vote
the shares or other securities issued by such other entity and owned by this
Corporation the same as such shares or other securities might be voted by this
Corporation.
6. STOCK AND STOCKHOLDERS
6.1 CERTIFICATES.
Every stockholder shall be entitled to receive a certificate signed by,
or in the name of the Corporation by, the Chairman of the Board, the President
or a Vice President, and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, certifying the number of shares of stock of
the Corporation owned by him. Any or all of the signatures on a certificate may
be 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. However, as
provided in Section 158 of the Delaware Law, the Board of Directors of the
corporation may provide by resolution or resolutions that some or all of any or
all classes or series of stock shall be uncertified shares.
If the Corporation shall be authorized to issue more than one (1) class
of stock or more than one (1) series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the Delaware Law, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Within a reasonable time after the issuance or transfer of
uncertificated stock, the Corporation shall send to the registered owner thereof
a written notice containing the information required to be set forth or stated
on certificates pursuant to Sections 151, 156, 202(a) or 218(a) of
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the Delaware Law or a statement that the Corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
6.2 LOST, STOLEN OR DESTROYED CERTIFICATES.
The Corporation may issue a new certificate or certificates or
uncertificated shares of stock of the Corporation in place of any certificate or
certificates theretofore issued by the Corporation alleged by the owner thereof
to have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate to be lost, stolen or destroyed.
When issuing such new certificate or certificates or uncertificated shares, the
Corporation may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such form, and in
such sum as, it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate or certificates alleged
to have been lost, stolen or destroyed.
6.3 TRANSFERS OF SHARES.
Shares of stock of the Corporation shall only be transferable upon the
books of the Corporation by the holder thereof in person or by his duly
authorized attorney or legal representative. Upon surrender to the Corporation
or the transfer agent of the Corporation of a certificate for shares of stock of
the Corporation duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the Corporation or
the transfer agent of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books; provided, however, that if the certificate contains any legend or other
statement restricting or otherwise providing any condition on transfers of the
shares represented thereby, the Corporation or the transfer agent of the
Corporation shall effect such transfer only upon the terms of such legend or
other statement and only if the Corporation or the transfer agent of the
Corporation is satisfied, in its sole discretion, that all conditions to
transfer have been satisfied. Upon receipt of proper transfer instructions from
the registered owner of uncertificated shares such uncertificated shares shall
be canceled and issuance of new equivalent uncertificated shares or certificated
shares shall be made to the person entitled thereto and the transaction shall be
recorded upon the books of the Corporation.
6.4 FIXING RECORD DATE.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of the stockholders or any adjournment
thereof, or entitled to consent to corporate action in writing, without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of 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 by resolution fix, in advance, a record date
that does not precede the date upon which the resolution fixing such record date
was adopted, and with respect to stockholder
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meetings, is not more than sixty (60) nor less than ten (10) days prior to the
date of such meeting, and with respect to other actions is not more than sixty
(60) days prior to any such other action. If no record date is fixed by the
Board of Directors, the record date for all purposes shall be the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto, except as otherwise required by Delaware Law, the Certificate
of Incorporation or these bylaws. 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.
6.5 REGISTERED STOCKHOLDERS.
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 Delaware Law.
6.6 TRANSFER AGENT AND REGISTRAR.
The Board of Directors may appoint one or more transfer agents or
transfer clerks and one or more registrars and may require all certificates of
stock to bear the signature or signatures of any of them.
7. DIVIDENDS
7.1 DECLARATION.
Dividends upon the capital stock of the Corporation, if any, may be
declared by the Board of Directors at any regular or special meeting, subject to
Delaware Law and the Certificate of Incorporation. Dividends may be paid in
cash, in property, or in shares of the capital stock of the Corporation, subject
to the provisions of Delaware Law and the Certificate of Incorporation.
7.2 RESERVE.
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 for working capital, to meet contingencies, for equalizing
dividends, for repairing or maintaining any property of the Corporation, or for
such other purposes as the Board of Directors shall deem in the best interests
of the Corporation, and the Board of Directors may modify or abolish any such
reserve in the manner in which it was created.
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8. INDEMNIFICATION
8.1 RIGHT TO INDEMNIFICATION.
Except as and to the extent otherwise provided in the Certificate of
Incorporation, the Corporation shall indemnify its directors and officers in
accordance with, and to the fullest extent not prohibited by, the Delaware Law,
subject to individual contractual arrangements between the Corporation and any
such persons.
8.2 RIGHT TO ADVANCE OF EXPENSES.
The indemnification rights in Sections 8.1 and 8.6 of these bylaws
shall include the right to be paid by the Corporation the expenses (including
attorneys' fees) incurred by an indemnitee in defending any such proceeding in
advance of its final disposition (hereinafter, an "advancement of expenses");
provided, however, that, if the Delaware Law requires, an advancement of
expenses shall be made only upon receipt by the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is not further right to appeal (hereinafter, a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Section 8.2 or otherwise.
8.3 RIGHT OF INDEMNITEE TO BRING SUIT.
If a claim under Section 8.1, 8.2 or 8.6 of these bylaws is not paid in
full by the Corporation within sixty (60) days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty (20) days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful, in whole or in part, in
any such suit, or in a suit brought by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also for the expense of prosecuting or defending such suit.
In (i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the Corporation shall be entitled to recover such
expenses based upon applicable standard for indemnification set forth in the
Delaware Law. Neither the failure of the Corporation (by its Board of Directors,
a committee of the Board, independent legal counsel or its stockholders with
respect to a person who is an officer at the time of such determination) to have
made a determination prior to the commencement of such suit that indemnification
of the indemnitee is proper in the circumstances because the indemnitee has met
the applicable standard of conduct set forth in the Delaware Law, nor an actual
determination by the Corporation (by its Board of Directors, a committee of the
Board, independent legal counsel or its stockholders with respect to a person
who is an officer at the time of such determination) that the indemnitee has
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not met such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article 8 or otherwise shall be on the
Corporation.
8.4 NON-EXCLUSIVITY OF RIGHTS.
The rights to indemnification and to the advancement of expenses
conferred in this Article 8 shall not be deemed exclusive of any other rights to
which any person may be entitled under Delaware Law, any other law, the
Certificate of Incorporation, these bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
8.5 INSURANCE.
The Corporation may purchase and maintain insurance on behalf of any
person who is or was an indemnitee against any liability asserted against such
person and incurred by such person in any capacity, as an indemnitee, or arising
out of his status as such, whether or not the Corporation would have the power
to indemnify such person against such liability under the Delaware Law.
8.6 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification to any employee or agent
(other than directors and officers) of the Corporation to the fullest extent of
the provisions of this Article 8 with respect to the indemnification of
directors and officers of the Corporation.
8.7 SURVIVAL OF INDEMNIFICATION RIGHTS.
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article 8 shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent of the Corporation and shall inure to the benefit of the
heirs, executors and administrators of such person.
8.8 CERTAIN DEFINITIONS.
For purposes of this Article 8, 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, officers and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or
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agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article 8 with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
8.9 AMENDMENT OR REPEAL.
Any amendment, repeal or other modification of any of the foregoing
provisions of this Article 8 shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification
9. MISCELLANEOUS
9.1 LOANS TO OFFICERS.
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiaries, including any officer or employee who is a director of the
Corporation or its subsidiaries whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the Corporation. The loan, guarantee or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in these bylaws shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the Corporation at law.
9.2 CHECKS.
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.
9.3 FISCAL YEAR.
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
9.4 SEAL.
The corporate seal, if any, 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.
9.5 CERTIFICATE OF INCORPORATION.
To the extent of any inconsistency between these bylaws and the
Certificate of Incorporation, the terms and provisions of the Certificate of
Incorporation shall control for all purposes.
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10. AMENDMENTS
The Board of Directors and the stockholders of the Corporation shall
have the power to make, alter, amend and repeal any or all of the provisions of
these bylaws to the extent and upon the terms set forth in Article Ninth of the
Certificate of Incorporation.
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Exhibit 5.1
FORM OF LEGAL OPINION
KEGLER, BROWN, HILL & RITTER
[LETTER HEAD]
, 1998
Reynard Motorsport, Inc.
8431 Georgetown Road, Suite 700
Indianapolis, Indiana 46268
Gentlemen:
We have acted as counsel for Reynard Motorsport, Inc. (the "Company") in
connection with the registration under the Securities Act of 1933, as amended,
of up to ______ shares of Common Stock, par value $.01 per share (the "Shares")
by the Company and up to ______ Shares by certain selling stockholders. In this
connection, we have examined the Certificate of Incorporation, the Bylaws, the
directors' and stockholders' minutes and the Registration Statement filed with
the Securities and Exchange Commission, exhibits thereto, and such other
documents as we have deemed necessary to the opinion hereinafter expressed.
We are of the opinion that the Shares are duly authorized and, upon their
sale as contemplated by the Registration Statement, will be validly issued,
fully paid, and nonassessable.
We hereby consent to the reference to Kegler, Brown, Hill & Ritter Co.,
L.P.A. appearing under the heading "Legal Matters" in the Registration
Statement and any amendments thereto and the Prospectus of the Company relating
to its public offering of the Shares. In giving such consent, we do not hereby
admit that we are within the category of persons whose consent is required
under Section 7 of the Securities Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
KEGLER, BROWN, HILL & RITTER
By:
--------------------------------------
Jack A. Bjerke
<PAGE> 1
Exhibit 10.1
REYNARD MOTORSPORT, INC.
1998 STOCK-BASED INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Plan is to give the Company a competitive advantage
in attracting, retaining and motivating officers, employees and consultants and
to provide the Company and its Subsidiaries and Associated Companies with a
stock plan providing incentives directly linked to the profitability of the
Company's businesses and increases in shareholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
a. "Associated Company" means any corporation (or partnership, joint
venture, or other enterprise), of which the Company owns or controls, directly
or indirectly, 10% or more, but less than 50% of the outstanding shares of stock
normally entitled to vote for the election of directors (or comparable equity
participation and voting power).
b. "Award" means a Stock Appreciation Right, Stock Option, Restricted
Stock, unrestricted share of Common Stock, dividend equivalent, interest
equivalent or other award granted under this Plan.
c. "Board" means the Board of Directors of the Company.
d. "Change in Control" and "Change in Control Price" have the meanings
set forth in Sections 9(b) and (c), respectively.
e. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
f. "Commission" means the Securities and Exchange Commission or any
successor agency.
g. "Committee" means the Compensation Committee referred to in Section
2.
h. "Common Stock" means common stock, par value $0.01 per share, of the
Company.
i. "Company" means Reynard Motorsport, Inc., a Delaware corporation.
j. "Consultant" means any person, including an advisor, engaged by the
Company, its Subsidiaries or an Associated Company to render consulting services
and who is compensated for such services, provided that the term "Consultant"
shall not include Directors who are paid only a director's fee by the Company or
who are not compensated for their services as Directors.
<PAGE> 2
k. "Covered Employee" means a participant designated prior to the grant
of shares of Restricted Stock by the Committee who is or may be a "covered
employee" within the meaning of Section 162(m)(3) of the Code in the year in
which Restricted Stock is expected to be taxable to such participant.
l. "Disability" means permanent and total disability as determined by
the Committee for purposes of the Plan.
m. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
n. "Fair Market Value" means, as of any given date, the closing sales
price of the Common Stock reported as the New York Stock Exchange-Composite
Transactions for such day, or if the Common Stock was not traded on the New York
Stock Exchange on such day, then on the next preceding day on which the Common
Stock was traded, all as reported by The Wall Street Journal under the heading
New York Stock Exchange-Composite Transactions or by such other source as the
Committee may select.
o. "Limited Right" is the right to receive payment, in cash, following
a Change of Control, of an amount equal to the product computed by multiplying
(i) the excess of (A) the higher of (x) the Minimum Price Per Share, if the
Change of Control occurs as a result of a Transaction, tender offer or exchange
offer, or (y) the highest Fair Market Value per share during the period
commencing thirty days prior to the Change of Control and ending immediately
prior to the date the Limited Right is exercised, over (B) the Option Price per
share under the Stock Option to which such Limited Right relates, by (ii) the
number of shares of Common Stock as to which such Limited Right is being
exercised provided that, in the case of any Incentive Stock Option, the amount
computed under part (A) of the foregoing formula shall be equal to the Fair
Market Value of Common Stock on the date the Limited Right is in fact exercised,
the provided further that, in the case of any other Limited Right that has not
been outstanding at least seven months at the time the Change of Control occurs,
the amount computed under part (A) of the foregoing formula shall be equal to
the highest amount that could be computed under part (y) of such formula using a
Fair Market Value that first became determinable six months or more after the
date of grant of the Limited Right (with such Fair Market Value otherwise
determined in accordance with the foregoing formula).
p. "Incentive Stock Option" means any Stock Option designated as, and
qualified as, an "incentive stock option" within the meaning of Section 422 of
the Code.
q. "Non-Employee Director" means a member of the Board who qualifies as
a Non-Employee Director as defined in Rule 16b-3(b)(3), as promulgated by the
Commission under the Exchange Act, or any successor definition adopted by the
Commission.
r. "NonQualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
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s. "Qualified Performance-Based Award" means an Award of Restricted
Stock designated as such by the Committee at the time of grant, based upon a
determination that (i) the recipient is or may be a "covered employee" within
the meaning of Section 162(m)(3) of the Code in the year in which the Company
would expect to be able to claim a tax deduction with respect to such Restricted
Stock and (ii) the Committee wishes such Award to qualify for the Section 162(m)
Exemption.
t. "Performance Goals" means the performance goals established by the
Committee in connection with the grant of Restricted Stock. In the case of
Qualified Performance-Based Awards, (i) such goals shall be based on the
attainment of specified levels of one or more of the following measures:
earnings per share, sales, net profit after tax, gross profit, operating profit,
cash generation, economic value added, production volume, return on equity,
change in working capital, return on capital, cash flow, reserve value or
shareholder return, and (ii) such Performance Goals shall be set by the
Committee within the time period prescribed by Section 162(m) of the Code and
related regulations.
u. "Plan" means the Reynard Motorsport, Inc. 1998 Stock-Based Incentive
Plan, as set forth herein and as hereinafter amended from time to time.
v. "Restricted Stock" means an Award granted under Section 7.
w. "Retirement" means retirement from employment with the Company, a
Subsidiary or an Associated Company as determined by the Committee for purposes
of an Award under the Plan.
x. "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission
under Section 16(b) of the Exchange Act, as amended from time to time.
y. "Section 162(m) Exemption" means the exemption from the limitation
on deductibility imposed by Section 162(m) of the Code that is set forth in
Section 162(m)(4)(C) of the Code.
z. "Stock Appreciation Right" means an Award granted under Section 6.
aa. "Stock Option" means an Award granted under Section 5.
bb. "Subsidiary" means: (i) for the purpose of an Incentive Stock
Option, any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company if, at the time of the granting of the
Incentive Stock Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain; and (ii) for the purposes of a NonQualified Stock Option, a Stock
Appreciation Right or Restricted Stock Award, any corporation (or partnership,
joint venture, or other enterprise) of which the Company owns or controls,
directly or indirectly, 50% or more of the outstanding shares of stock normally
entitled to vote for the election of directors (or comparable equity
participation and voting power).
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cc. "Termination of Employment" means the termination of the
participant's employment with the Company and any Subsidiary or Associated
Company. A participant employed by a Subsidiary or an Associated Company shall
also be deemed to incur a Termination of Employment if the Subsidiary or
Associated Company ceases to be such a Subsidiary or Associated Company, as the
case may be, and the participant does not immediately thereafter become an
employee of the Company or another Subsidiary or Associated Company. Temporary
absences from employment because of illness, vacation or leave of absence and
transfers among the Company and its Subsidiaries, or, if the Committee so
determines, among the group consisting of the Company, its Subsidiaries and
Associated Companies, shall not be considered Terminations of Employment.
dd. "Transaction" shall mean (A) any consolidation or merger of the
Company in which the Company is not the surviving corporation other than a
merger solely to effect a reincorporation or a merger of the Company as to which
stockholder approval is not required pursuant to Section 251(f) or 253 of the
Delaware General Corporation Law, (B) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of 50% or more
of the assets or earnings power of the Company, or (C) the adoption of any plan
or proposal for the liquidation or dissolution of the Company.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Compensation Committee of the
Board of Directors of the Company, or such other committee of the Board as the
Board may from time to time designate (the "Committee"), which shall be composed
of not less than two Non-Employee Directors, each of whom shall be an "outside
director" for purposes of Section 162(m)(4) of the Code, and shall be appointed
by and serve at the pleasure of the Board. Absent the selection of a
Compensation Committee, the Plan shall be administered by the full Board.
The Committee shall have plenary authority to grant Awards pursuant to
the terms of the Plan or, in the Committee's discretion, in connection with
awards under other bonus plans or programs of the Company, to officers,
employees and consultants of the Company and its Subsidiaries and Associated
Companies.
Among other things, the Committee shall have the authority, subject to
the terms of the Plan:
(a) To select the officers, employees and consultants to whom Awards
may from time to time be granted;
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(b) To determine whether and to what extent Incentive Stock Options,
NonQualified Stock Options, Stock Appreciation Rights and Restricted Stock, or
any combination thereof, are to be granted hereunder;
(c) To determine the number of shares of Common Stock to be covered by
each Award granted hereunder;
(d) To determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the option price (subject to Section
5(a)) or base price, as applicable, any vesting condition, restriction or
limitation (which may be related to the performance of the participant, the
Company or any Subsidiary or Associated Company) and any vesting acceleration or
forfeiture waiver regarding any Award and the shares of Common Stock relating
thereto, based on such factors as the Committee shall determine;
(e) To modify, amend or adjust the terms and conditions of any Award,
at any time or from time to time, including but not limited to Performance
Goals; provided, however, that the Committee may not adjust upwards the amount
payable with respect to a Qualified Performance-Based Award or waive or alter
the Performance Goals associated therewith;
(f) To determine under what circumstances an Award may be settled in
cash or Common Stock under Sections 5(g) and 6(d)(ii);
(g) To determine under what circumstances dividends, dividend
equivalents or interest equivalents with respect to an Award shall be paid; and
(h) To certify, in writing, that any and all performance goals and
other material terms related to Qualified Performance-Based Awards have been
satisfied, as contemplated by Section 1.162-27(e)(5) of the Income Tax
Regulations (the "Regulations").
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any award certificate relating
thereto) and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the members thereof may delegate all or a portion of the
administration of the Plan to senior managers of the Company or its Subsidiaries
(provided that no such delegation may be made that would cause Awards or other
transactions under the Plan to cease to be exempt from Section 16(b) of the
Exchange Act or not to qualify for, or cease to qualify for, the Section 162(m)
Exemption).
Any determination made by the Committee or pursuant to delegated
authority pursuant to the provisions of the Plan with respect to any Award shall
be made in the sole discretion of the Committee or such delegate at the time of
the grant of the Award or, unless in contravention of any express term of the
Plan, at any time thereafter. All decisions made by the Committee or any
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<PAGE> 6
appropriate delegate pursuant to the provisions of the Plan shall be final and
binding on all persons, including the Company and Plan participants.
Any authority granted to the Committee may also be exercised by the
full Board, except to the extent that the grant or exercise of such authority
would cause any Award or transaction to become subject to (or lose an exemption
under) the short-swing profit recovery provisions of Section 16 of the Exchange
Act or cause an award designated as a Qualified Performance-Based Award not to
qualify for, or to cease to qualify for, the Section 162(m) Exemption. To the
extent that any permitted action taken by the Board conflicts with action taken
by the Committee, the Board action shall control.
SECTION 3. COMMON STOCK SUBJECT TO PLAN
The total number of shares of Common Stock reserved and available for
grant under the Plan shall not exceed 17-1/2% of the outstanding shares of
common stock immediately prior to the initial public offering. No participant
may be granted Awards covering in excess of 150,000 shares of Common Stock in
any calendar year. Shares subject to an Award under the Plan may be authorized
and unissued shares or may be treasury shares, or both. Shares available for
future grant under the Plan will be increased as of the first day of each new
fiscal year during the term of the Plan by the number of Shares issuable upon
exercise of options granted thereunder in the previous fiscal year, net of
returns. The increase may not exceed 1,000,000 in any fiscal year.
If any shares of Restricted Stock are forfeited, or if any Stock Option
or Stock Appreciation Right terminates without being exercised, or if any Stock
Appreciation Right (whether granted alone or in conjunction with a Stock Option)
is exercised for cash, shares subject to such Awards shall again be available
for distribution in connection with Awards under the Plan.
In the event of any change in corporate capitalization, such as a stock
split or a corporate transaction, such as any merger, consolidation, separation,
including a spin-off, or other distribution of stock or property (without regard
to the payment of any cash dividends by the Company in the ordinary course) of
the Company, any reorganization (whether or not such reorganization comes within
the definition of such term in Section 368 of the Code) or any partial or
complete liquidation of the Company, the Committee or Board may make such
substitution or adjustments in the aggregate number and kind of shares reserved
for issuance under the Plan, in the maximum number of shares with respect to
which any participant may be granted Awards in any calendar year, in the number,
kind and option price or base price, as applicable, of shares subject to
outstanding Stock Options and Stock Appreciation Rights, in the number and kind
of shares subject to other outstanding Awards granted under the Plan and/or such
other equitable substitution or adjustments as it may determine to be
appropriate in its sole discretion; provided, however, that the number of shares
subject to any Award shall always be a whole number. Such adjusted option price
shall also be used to determine the amount payable by the Company upon the
exercise of any Stock Appreciation Right associated with any Stock Option.
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SECTION 4. ELIGIBILITY
Officers, employees or consultants of the Company, a Subsidiary or an
Associated Company who are responsible for or contribute to the growth and
profitability of the business of the Company, a Subsidiary or an Associated
Company are eligible to be granted Awards under the Plan.
SECTION 5. STOCK OPTIONS
Stock Options may be granted alone or in addition to other Awards
granted under the Plan and may be of two types: Incentive Stock Options and
NonQualified Stock Options. Any Stock Option granted under the Plan shall be in
such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, NonQualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights); provided, however, that
grants hereunder are subject to the aggregate limit on grants to individual
participants set forth in Section 3. Incentive Stock Options may be granted only
to employees of the Company and its subsidiaries (within the meaning of Section
424(f) of the Code). To the extent that any Stock Option is not designated as an
Incentive Stock Option or, even if so designated, does not qualify as an
Incentive Stock Option, it shall constitute a NonQualified Stock Option.
No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of such stock at the date of grant
and the Option is not exercisable after the expiration of five (5) years from
the date of grant, or in the case of a restricted stock purchase award, the
purchase price is at least one hundred percent (100%) of the Fair Market Value
of such stock at the date of grant.
Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its face
whether it is intended to be an agreement for an Incentive Stock Option or a
NonQualified Stock Option. The grant of a Stock Option shall occur on the date
the Committee by resolution selects an individual to be a participant in any
grant of a Stock Option, determines the number of shares of Common Stock to be
subject to such Stock Option to be granted to such individual and specifies the
terms and provisions of the Stock Option, or on such later date as is specified
by the Committee.
Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered nor shall any discretion or authority granted under the Plan be
exercised so as to disqualify the Plan under Section 422 of the
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Code or, without the consent of the optionee affected, to disqualify any
Incentive Stock Option under such Section 422.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
(a) Exercise Price. The exercise price of each Incentive Stock Option
shall be not less than one hundred percent (100%) of the Fair Market Value of
the stock subject to the Option on the date the Option is granted; the exercise
price of a Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option
may be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than 10 years after the
date the Stock Option is granted.
(c) Exercisability. Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides
that any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part, based
on such factors as the Committee may determine. In addition, the Committee may
at any time accelerate the exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this Section 5,
Stock Options may be exercised, in whole or in part, at any time during the
option term by giving written notice of exercise, or notice in accordance with
such other procedures as may be established from time to time, to the Company or
its designated agent specifying the number of shares of Common Stock subject to
the Stock Option to be purchased.
Such notice shall be accompanied by payment in full of the purchase
price in cash or by certified or cashier's check or such other instrument as the
Company may accept. If approved by the Committee, payment, in full or in part,
may also be made in the form of unrestricted Common Stock already owned by the
optionee of the same class as the Common Stock subject to the Stock Option
(based on the Fair Market Value of the Common Stock on the date the Stock Option
is exercised); provided, however, that, in the case of an Incentive Stock
Option, the right to make a payment in the form of already owned shares of
Common Stock of the same class as the Common Stock subject to the Stock Option
may be authorized only at the time the Stock Option is granted and provided,
further, that, in the case of either an Incentive Stock Option or a NonQualified
Stock Option, such already owned shares have been held by the optionee for at
least six months at the time of exercise.
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In the discretion of the Committee, payment for any shares subject to a
Stock Option may also be made by delivering a properly executed exercise notice
to the Company, together with a copy of irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds necessary to
pay the purchase price, and, if requested, by the amount of any federal, state,
local or foreign withholding taxes. To facilitate the foregoing, the Company may
enter into agreements for coordinated procedures with one or more brokerage
firms.
In addition, in the discretion of the Committee, payment for any shares
subject to a Stock Option may also be made by instructing the Company or its
designated agent to withhold a number of such shares having a Fair Market Value
on the date of exercise equal to the aggregate exercise price of such Stock
Option.
No shares of Common Stock shall be issued until full payment therefor
has been made. An optionee shall have all of the rights of a shareholder of the
Company holding the class or series of Common Stock that is subject to such
Stock Option (including, if applicable, the right to vote the shares and the
right to receive dividends), when the optionee has given written notice of
exercise, has paid in full for such shares and, if requested, has given the
representation described in Section 12(a).
(e) Nontransferability of Stock Options. No Stock Option shall be
transferable by the optionee other than by will or by the laws of descent and
distribution, or, in the Committee's discretion, pursuant to a written
beneficiary designation. All Stock Options shall be exercisable, subject to the
terms of this Plan, only by the optionee or guardian or legal representative or
beneficiary of the optionee, it being understood that the terms "holder" and
"optionee" include any such guardian, legal representative or beneficiary.
(f) Termination of Employment. The Stock Option and its related Stock
Appreciation Right, if any, may be exercised in full or in part from time to
time within ten years from the date of the grant, or such shorter period as may
be specified by the Committee in the option agreement, provided that in any
event each shall lapse and cease to be exercisable upon, or within such period
following, Termination of Employment as shall have been determined by the
Committee and as specified in the Stock Option agreement or Stock Appreciation
Right award certificate; provided, however, that such period following
Termination of Employment shall not exceed twelve months unless employment shall
have terminated:
(i) as a result of Retirement or Disability, in which event
such period shall not exceed --
(A) in the case of a Stock Option, the original term
of the Stock Option; and
(B) in the case of a Stock Appreciation Right, one
year after such Retirement or Disability or after resignation
as an officer or employee of the Company, whichever shall last
occur; or
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(ii) as a result of death, or death shall have occurred
following Termination of Employment and while the Stock Option or Stock
Appreciation Right was still exercisable, in which event such period
shall not exceed the original term of the Stock Option; and provided,
further, that such period following Termination of Employment shall in
no event exceed the original exercise period of the Stock Option or
related Stock Appreciation Right, if any.
(g) Re-Load Options. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option which is an Incentive Stock Option and which is
granted to a 10% stockholder (as described in subsection 5), shall have an
exercise price which is equal to one hundred ten percent (110%) of the Fair
Market Value of the stock subject to the Re-Load Option on the date of exercise
of the original Option and shall have a term which is no longer than five (5)
years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
incentive stock options as described in Section 422(d) of the Code. There shall
be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be
subject to the availability of sufficient shares under the Plan and shall be
subject to such other terms and conditions as the Board or Committee may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
SECTION 6. STOCK APPRECIATION RIGHT
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a NonQualified Stock Option, such rights may be granted either at or
after the time of grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of grant of such Stock
Option. In addition, Stock Appreciation Rights may be granted without
relationship to a Stock Option to employees residing in foreign jurisdictions,
where the grant of a Stock Option is impossible or impracticable because of
securities or tax laws or other governmental regulations.
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(b) Freestanding Stock Appreciation Rights. A Stock Appreciation Right
granted without relationship to a Stock Option, pursuant to Section 6(a), shall
be exercisable as determined by the Committee, but in no event after ten years
from the date of grant. The base price of a Stock Appreciation Right granted
without relationship to a Stock Option shall be the Fair Market Value of a share
of Common Stock on the date of grant. A Stock Appreciation Right granted without
relationship to a Stock Option shall entitle the holder, upon receipt of such
right, to a cash payment determined by multiplying (i) the difference between
the base price of the Stock Appreciation Right and the Fair Market Value of a
share of Common Stock on the date of exercise of the Stock Appreciation Right,
by (ii) the number of shares of Common Stock as to which Stock Appreciation
Right shall have been exercised. A freestanding Stock Appreciation Right may be
exercised by giving written notice of exercise to the Company or its designated
agent specifying the number of shares of Common Stock as to which such Stock
Appreciation Right is being exercised.
(c) Tandem Stock Appreciation Rights. A Stock Appreciation Right
granted in conjunction with a Stock Option may be exercised by an optionee in
accordance with Section 6(d) by surrendering the applicable portion of the
related Stock Option in accordance with procedures established by the Committee.
Upon such exercise and surrender, the optionee shall be entitled to receive an
amount determined in the manner prescribed in Section 6(d). Stock Options which
have been so surrendered shall no longer be exercisable to the extent the
related Stock Appreciation Rights have been exercised. A Stock Appreciation
Right shall terminate and no longer be exercisable upon the termination or
exercise of the related Stock Option.
(d) Terms and Conditions. Stock Appreciation Rights granted in
conjunction with a Stock Option shall be subject to such terms and conditions as
shall be determined by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at
such time or times and to the extent that the Stock Options to which
they relate are exercisable in accordance with the provisions of
Section 5 and this Section 6.
(ii) Upon the exercise of a Stock Appreciation Right, an
optionee shall be entitled to receive an amount in cash, equal to the
excess of the Fair Market Value of one share of Common Stock over the
option price per share specified in the related Stock Option multiplied
by the number of shares in respect of which the Stock Appreciation
Right shall have been exercised.
(iii) Stock Appreciation Rights shall be transferable only to
permitted transferees of the underlying Stock Option in accordance with
Section 5(e).
(iv) Upon the exercise of a Stock Appreciation Right, the
Stock Option or part thereof to which such Stock Appreciation Right is
related shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 on the number of shares of Common
Stock to be issued under the Plan, but only to the extent of the number
of
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shares covered by the Stock Appreciation Right at the time of exercise
based on the value of the Stock Appreciation Right at such time.
SECTION 7. BONUS SHARES AND RESTRICTED STOCK
(a) Administration. Awards of shares of Common Stock or Restricted
Stock may be made either alone or in addition to other Awards granted under the
Plan. In addition, a participant may receive unrestricted shares of Common Stock
or Restricted Stock in lieu of certain cash payments awarded under other plans
or programs of the Company. The Committee shall determine the officers and
employees to whom and the time or times at which grants of unrestricted shares
of Common Stock and Restricted Stock will be awarded, the number of shares to be
awarded to any participant (subject to the aggregate limit on grants to
individual participants set forth in Section 3 in the case of Qualified
Performance-Based Awards), the conditions for vesting, the time or times within
which such Awards may be subject to forfeiture and any other terms and
conditions of the Awards, in addition to those contained in Section 7(c).
(b) Awards and Certificates. Awards of unrestricted shares of Common
Stock and Restricted Stock shall be evidenced in such manner as the Committee
may deem appropriate, including, book-entry registration or delivery of one or
more stock certificates to the participant, or, in the case of Restricted Stock,
a custodian or escrow agent. Any stock certificate issued in respect of
unrestricted shares or shares of Restricted Stock shall be registered in the
name of such participant. The Committee may require that the stock certificates
evidencing shares of Restricted Stock be held in custody or escrow by the
Company or its designated agent until the restrictions thereon shall have lapsed
and that, as a condition of any Award of Restricted Stock, the participant shall
have delivered a stock power, endorsed in blank, relating to the Common Stock
covered by such Award.
(c) Terms and Conditions. Shares of Restricted Stock shall be subject
to the following terms and conditions:
(i) The Committee may, prior to or at the time of grant,
designate an Award of Restricted Stock as a Qualified Performance-Based
Award, in which event it shall condition the grant or vesting, as
applicable, of such Restricted Stock upon the attainment of Performance
Goals. If the Committee does not designate an Award of Restricted Stock
as a Qualified Performance-Based Award, it may also condition the grant
or vesting thereof upon the attainment of Performance Goals. Regardless
of whether an Award of Restricted Stock is a Qualified
Performance-Based Award, the Committee may also condition the grant or
vesting thereof upon the continued service of the participant. The
conditions for grant or vesting and the other provisions of Restricted
Stock Awards (including without limitation any applicable Performance
Goals) need not be the same with respect to each recipient. The
Committee may at any time, in its sole discretion, accelerate or waive,
in whole or in part, any of the foregoing restrictions; provided,
however, that in the case of Restricted Stock that is a Qualified
Performance-Based Award, the applicable Performance Goals have been
satisfied.
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(ii) Subject to the provisions of the Plan and the terms of
the Restricted Stock Award, during the period, if any, set by the
Committee, commencing with the date of such Award for which such
participant's continued service is required (the "Restriction Period"),
and until the later of (A) the expiration of the Restriction Period and
(B) the date the applicable Performance Goals (if any) are satisfied,
the participant shall not be permitted to sell, assign, transfer,
pledge or otherwise encumber shares of Restricted Stock.
(iii) Except as provided in this paragraph (iii) and Sections
7(c)(i) and 7(c)(ii) and the terms of the Restricted Stock Award, the
participant shall have, with respect to the shares of Restricted Stock,
all of the rights of a stockholder of the Company holding the class or
series of Common Stock that is the subject of the Restricted Stock,
including, if applicable, the right to vote the shares and the right to
receive any cash dividends. If so determined by the Committee under the
applicable terms of the Restricted Stock Award and subject to Section
12(e) of the Plan, (A) cash dividends on the class or series of Common
Stock that is the subject of the Restricted Stock Award shall be
automatically deferred and reinvested in additional Restricted Stock,
held subject to the vesting of the underlying Restricted Stock, or held
subject to meeting Performance Goals applicable only to dividends, and
(B) dividends payable in Common Stock shall be paid in the form of
Restricted Stock of the same class as the Common Stock with which such
dividend was paid, held subject to the vesting of the underlying
Restricted Stock, or held subject to meeting Performance Goals
applicable only to dividends.
(iv) Except to the extent otherwise provided under the
applicable terms of the Restricted Stock Award and Sections 7(c)(i),
7(c)(ii), 7(c)(v) and 9(a)(ii), upon a participant's Termination of
Employment for any reason during the Restriction Period or before the
applicable Performance Goals are satisfied, all shares still subject to
restriction shall be forfeited by the participant.
(v) Except to the extent otherwise provided in Section
9(a)(ii), in the event of a participant's Termination of Employment by
reason of Retirement, the Committee shall have the discretion to waive,
in whole or in part, any or all remaining restrictions (other than, in
the case of Restricted Stock with respect to which a participant is a
Covered Employee, satisfaction of the applicable Performance Goals
unless the participant's employment is terminated by reason of death or
Disability) with respect to any or all of such participant's shares of
Restricted Stock.
(vi) If and when any applicable Performance Goals are
satisfied and the Restriction Period expires without a prior forfeiture
of the Restricted Stock, unlegended certificates for such shares shall
be delivered to the participant upon surrender of the legended
certificates, or the restrictions on such shares shall be removed from
the book-entry registration.
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SECTION 8. DIVIDEND EQUIVALENTS AND INTEREST EQUIVALENTS
(a) The Committee may provide that a participant to whom a Stock Option
has been awarded, which is exercisable in whole or in part at a future time for
shares of Common Stock (such shares, the "Option Shares") shall be entitled to
receive an amount per Option Share, equal in value to the cash dividends, if
any, paid per share of Common Stock on issued and outstanding shares, as of the
dividend record dates occurring during the period between the date of the Award
and the time each such Option Share is delivered pursuant to the exercise of
such Stock Option. Such amounts (herein called "dividend equivalents") may, in
the discretion of the Committee, be:
(i) paid in cash or shares of Common Stock from time to time
prior to or at the time of the delivery of such shares of Common Stock
or upon expiration of the Stock Option if it shall not have been fully
exercised (except that payment of the dividend equivalents on an
Incentive Stock Option may not be made prior to exercise); or
(ii) converted into contingently credited shares of Common
Stock (with respect to which dividend equivalents shall accrue) in such
manner, at such value, and deliverable at such time or times, as may be
determined by the Committee.
Such shares of Common Stock (whether delivered or contingently credited) shall
be charged against the limitations set forth in Section 3.
(b) The Committee, in its discretion, may authorize payment of interest
equivalents on any portion of any Award payable at a future time in cash, and
interest equivalents on dividend equivalents which are payable in cash at a
future time.
SECTION 9. CHANGE IN CONTROL PROVISIONS
(a) Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change in Control:
(i) Any Stock Options and Stock Appreciation Rights
outstanding as of the date such Change in Control is determined to have
occurred, and which are not then exercisable and vested, shall become
fully exercisable and vested to the full extent of the original grant.
(ii) The restrictions and deferral limitations applicable to
any Restricted Stock shall lapse, and such Restricted Stock shall
become free of all restrictions and become fully vested and
transferable to the full extent of the original grant.
(b) Definition of Change in Control. For purposes of the Plan, a
"Change in Control" shall mean the happening of any of the following events:
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(i) The acquisition by any individual, entity or group (with
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 51% or more of either (A) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that, for purposes of this subsection
(i), the following acquisitions shall not constitute a Change of
Control: (1) any acquisition directly from the Company, (2) any
acquisition by the Company, (3) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (4) any acquisition by any
corporation pursuant to a transaction which complies with clauses (A),
(B) and (C) of subsection (iii) of this Section 9; or
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(iii) Approval by the stockholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of
all or substantially all of the assets of the Company or the
acquisition of assets or stock of another corporation (a "Business
Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or
all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any
corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly
or indirectly, 20% or more of, respectively, the then outstanding
shares of
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common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (C) at least a majority
of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of
the Board, providing for such Business Combination; or
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(c) Change in Control Price. For purposes of the Plan, "Change in
Control Price" means the higher of (i) the highest reported sales price of a
share of Common Stock in any transaction reported on the New York Stock Exchange
Composite Tape or other national exchange on which such shares are listed or on
NASDAQ during the 60-day period prior to and including the date of a Change in
Control or (ii) if the Change in Control is the result of a tender or exchange
offer or a Corporate Transaction, the highest price per share of Common Stock
paid in such tender or exchange offer or Corporate Transaction; provided,
however, that in the case of Incentive Stock Options and Stock Appreciation
Rights relating to Incentive Stock Options, the Change in Control Price shall be
in all cases the Fair Market Value of the Common Stock on the date such
Incentive Stock Option or Stock Appreciation Right is exercised. To the extent
that the consideration paid in any such transaction described above consists all
or in part of securities or other noncash consideration, the value of such
securities or other noncash consideration shall be determined in the sole
discretion of the Board.
SECTION 10. LIMITED RIGHTS
a. Grant of Limited Rights. The Subcommittee may in its discretion
grant Limited Rights to a Participant concurrently with the grant of each
Incentive Stock Option or at any time with respect to any NonQualified Stock
Option. Such Limited Rights shall be exercisable with respect to the number of
shares of Common Stock which are, or may become, purchasable under any such
Stock Option. The Subcommittee may, in its discretion, specify the terms and
conditions of such rights, including without limitation the date or dates upon
which such rights shall expire and become void and unexercisable, except that
Limited Rights granted with respect to an Incentive Stock Option shall only be
exercisable, and shall expire, at the time or times the Incentive Stock Option
is exercisable and expires, respectively. In any event, a Limited Right shall
not be exercisable within six months from the date of grant of the Limited
Right. Each participant to whom Limited Rights are granted shall be given
written notice advising him or the grant of such rights and specifying the terms
and conditions of the rights, which shall be subject to all the provisions of
this Plan.
b. Exercise of Limited Rights. Subject to the limitations set forth in
Section (a), a Limited Right may be exercised only during the period beginning
on the first day following the occurrence of a Change of Control and ending on
the sixtieth day following such date; provided, however,
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that if the Change of Control occurs prior to the expiration of six months after
the date of grant of a Limited Right, then such Limited Right shall be
exercisable for a period of 60 days following expiration of such six-month
period. Upon the occurrence of a tender or exchange offer constituting a Change
of Control, a Limited Right may be exercised in such manner regardless of
whether the Board supports or opposes such tender or exchange offer. A
Participant shall exercise his Limited Rights by delivering a written notice to
the Committee specifying the number of shares with respect to which he exercises
Limited Rights and agreeing to surrender the right to purchase an equivalent
number of shares of Common Stock subject to his Stock Option. If a Participant
exercises Limited Rights, payment of his Limited Rights shall be made in
accordance with Section (c) on or before the thirtieth day after the date of
exercise of the Limited Rights. A Limited Right shall remain exercisable during
the exercise periods specified in accordance with Section (a) and this Section
in the event of a termination of employment of the Participant holding the
Limited Right after a Change of Control. Notwithstanding the above, upon a
termination of the employment of the holder of the Limited Right before the
occurrence of any Change of Control, the Limited Right shall expire immediately.
c. Form of Payment. If a Participant elects to exercise Limited Rights
as provided in Section (b), the Company shall pay to the Participant in cash the
amount set forth in Section 1.o. hereof, calculated with respect to the shares
as to which the Participant has exercised Limited Rights, within thirty days of
the date of exercise of the Limited Rights. If such amount is not paid in full
within the prescribed period, the Company shall be liable to such Participant
for the costs of collection of such amount, including attorney's fees.
d. Termination. When a Limited Right is exercised, the Stock Option to
which it relates, if any, shall cease to be exercisable to the extent of the
number of shares of Common Stock with respect to which such Limited Right was
exercised. Upon the exercise or termination of a Stock Option, any Limited Right
granted with respect thereto shall terminate to the extent of the number of
shares as to which such Stock Option was exercised or terminated.
SECTION 11. AMENDMENT AND TERMINATION
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of an
optionee under any Award theretofore granted without the optionee's or
recipient's consent, except such an amendment made to cause the Plan to qualify
for any exemption provided by Rule 16b-3. In addition, no such amendment shall
be made without the approval of the Company's stockholders to the extent such
approval is required by law or agreement.
The Committee may amend the terms of any Stock Option or other Award
theretofore granted, prospectively or retroactively, but no such amendment shall
cause a Qualified Performance-Based Award to cease to qualify for the Section
162(m) Exemption or impair the rights of any holder without the holder's consent
except such an amendment made to cause the Plan or Award to qualify for any
exemption provided by Rule 16b-3.
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Subject to the above provisions, the Board shall have authority to
amend the Plan to take into account changes in law and tax and accounting rules
as well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval.
SECTION 12. UNFUNDED STATUS OF PLAN
It is presently intended that the Plan constitute an "unfunded" plan
for incentive and deferred compensation. The Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Common Stock or make payments; provided, however, that
unless the Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 13. GENERAL PROVISIONS
(a) The Committee may require each person purchasing or receiving
shares pursuant to an Award to represent to and agree with the Company in
writing that such person is acquiring the shares without a view to the
distribution thereof. The certificates for such shares may include any legend,
or, in the case of book-entry registration any notation, which the Committee
deems appropriate to reflect any restrictions on transfer.
Notwithstanding any other provision of the Plan or certificates made
pursuant thereto, the Company shall not be required to issue or deliver any
stock certificate or certificates for shares of Common Stock, or account for
such shares by book-entry registration, under the Plan prior to fulfillment of
all of the following conditions:
(1) Listing or approval for listing upon notice of issuance,
of such shares on the New York Stock Exchange, Inc., or such other
securities exchange as may at the time be the principal market for the
Common Stock;
(2) Any registration or other qualification of such shares of
the Company under any state, federal or foreign law or regulation, or
the maintaining in effect of any such registration or other
qualification which the Committee shall, in its absolute discretion
upon the advice of counsel, deem necessary or advisable; and
(3) Obtaining any other consent, approval, or permit from any
state or federal governmental agency or foreign governmental body which
the Committee shall, in its absolute discretion after receiving the
advice of counsel, determine to be necessary or advisable.
(b) Nothing contained in the Plan shall prevent the Company or any
Subsidiary or Associated Company from adopting other or additional compensation
arrangements for its employees.
18
<PAGE> 19
(c) Adoption of the Plan shall not confer upon any employee any right
to continued employment, nor shall it interfere in any way with the right of the
Company or a Subsidiary or an Associated Company to terminate the employment of
any employee at any time.
(d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for federal income tax
purposes with respect to any Award under the Plan, the participant shall pay to
the Company, or make arrangements satisfactory to the Company regarding the
payment of, any federal, state, local or foreign taxes of any kind required by
law to be withheld with respect to such amount. Unless otherwise determined by
the Company, withholding obligations may be settled with Common Stock, including
Common Stock that is part of the Award that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be conditional
on such payment or arrangements, and the Company and its Subsidiaries or
Associated Companies shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the participant. The
Committee may establish such procedures as it deems appropriate, including
making irrevocable elections, for the settlement of withholding obligations with
Common Stock.
(e) Reinvestment of dividends in additional Restricted Stock at the
time of any dividend payment shall only be permissible if sufficient shares of
Common Stock are available under Section 3 for such reinvestment (taking into
account then outstanding Stock Options and other Awards).
(f) Upon approval by the Board, in lieu of receiving shares of
restricted stock or upon exercise of stock options, a participant may make an
irrevocable election in the year prior to the performance of services that
related to the expected receipt of restricted stock, and/or make an irrevocable
election to Company shares upon the exercise of stock options, to a deferred
compensation arrangement adopted by the Board.
(g) The Committee, in its sole discretion, may establish such
procedures as it deems appropriate for a participant to designate a beneficiary
to whom any amounts payable in the event of the participant's death are to be
paid or by whom any rights of the participant, after the participant's death,
may be exercised.
(h) In the case of a grant of an Award to any employee of a Subsidiary
or Affiliated Company, the Company may, if the Committee so directs, issue or
transfer the shares of Common Stock, if any, covered by the Award to the
Subsidiary or Affiliated Company, for such lawful consideration as the Committee
may specify, upon the condition or understanding that the Subsidiary or
Affiliated Company will transfer the shares of Common Stock to the employee in
accordance with the terms of the Award specified by the Committee pursuant to
the provisions of the Plan.
(i) The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws.
19
<PAGE> 20
SECTION 14. EFFECTIVE DATE OF PLAN
The Plan shall be effective as of September 30, 1998.
20
<PAGE> 1
Exhibit 10.2
REYNARD MOTORSPORT, INC.
DIRECTORS' STOCK OPTION PLAN
1. PURPOSE
The purpose of this Directors' Stock Option Plan (the "Plan") is to assist
Reynard Motorsport, Inc. in attracting, motivating and retaining qualified
non-employee directors by providing a means whereby such persons will be given
an opportunity to acquire a proprietary interest in the Company's future growth.
2. CERTAIN DEFINITIONS
When used in this Plan, unless the context otherwise requires:
2.1 "Board of Directors" or "Board" shall mean the Board of Directors
of Reynard Motorsport, Inc. as constituted at any time.
2.2 "Change of Control" shall mean any of the following events:
(A) any "Person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than Company, any trustee or other
fiduciary holding securities under an employee benefit plan of Company,
or any company owned, directly or indirectly, by the stockholders of
Company in substantially the same proportions as their ownership of
stock of Company) is or becomes the "Beneficial Owner" as defined in
Rule 13d-3 under the Exchange Act, directly or indirectly, of 25% or
more of the combined voting power of Company's outstanding securities;
(B) individuals who constitute the Board on the effective date
of the Plan (the "Incumbent Board") ceases for any reason to constitute
at least a majority thereof, provided that any person becoming a
director subsequent to such effective date whose election, or
nomination for election by the Company's stockholders, was approved by
a vote of at least a majority of the directors comprising the Incumbent
Board (either by a specific vote or by approval of the proxy statement
of Company in which such person is named as a nominee for director,
without objection to such nomination) shall be, for purposes of this
clause (B), considered as though such person were a member of the
Incumbent Board.
(C) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation
of any such transaction if stockholder approval is not obtained, other
than (1) any such transaction which would result in at least 50% of the
total voting power represented by the voting securities of the
surviving entity outstanding immediately after such transaction being
"Beneficially Owned" (as defined above) by 75% or more of the holders
of outstanding voting securities of the Company immediately
<PAGE> 2
prior to the transaction, with the voting power of each such continuing
holder relative to other such continuing holders not substantially
altered in the transaction, or (2) a merger or consolidation effected
to implement a recapitalization of Company (or similar transaction) in
which no "Person" (as defined above) acquires more than 25% of the
combined voting power of the Company's then outstanding securities; or
(D) the stockholders of Company approve a plan of complete
liquidation of Company or an agreement for the sale or disposition by
Company of all or substantially all of Company's assets.
Notwithstanding anything in the foregoing to the contrary, no Change of Control
shall be deemed to have occurred with respect to any particular Director by
virtue of any transaction which results in such Director, or a group of persons
which includes such Director, acquiring, directly or indirectly, 25% or more of
the combined voting power of the Company's outstanding securities.
2.3 "Committee" shall mean the Committee as described in Section 3
hereof.
2.4 "Common Stock" shall mean a share of Common Stock, par value $0.01
per share, of the Company.
2.5 "Company" shall mean Reynard Motorsport, Inc.
2.6 "Director" shall mean a person who, on any date a Directors'
Option would be granted to a Director hereunder, is a member of the Board of
Directors but who is not then an employee of the Company or any Subsidiary;
provided, however, that no member of the Board serving as a result of a
nomination or appointment pursuant to the terms of any debt instrument,
preferred stock, underwriting agreement, or other contract entered into by the
Company shall be deemed a Director for purposes of the Plan.
2.7 "Directors' Options" shall mean options to purchase shares (subject
to adjustment pursuant to Section 6.2 hereof) of Common Stock which may be
granted by the Company to each Director pursuant to Section 7.
2.8 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
2.9 "Fair Market Value" of a share of Common Stock on any date shall
mean the closing price of Common Stock as reported in the Wall Street Journal
for securities listed on the New York Stock Exchange for the date in question,
or, if no such closing price is available, the closing price on the next
preceding date for which a closing price was so reported.
2.10 "Limited Right" shall mean the right, granted pursuant to Section
8, to receive payment, in cash, following a Change of Control, of an amount
equal to the product computed by multiplying (i) the excess of (a) the higher of
(x) the Minimum Price Per Share, if the Change of Control occurs as a result of
a Transaction, tender offer or exchange offer, or (y) the highest Fair
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<PAGE> 3
Market Value per share during the period commencing thirty days prior to the
Change of Control and ending immediately prior to the date the Limited Right is
exercised, over (b) the exercise price per share under the Directors' Option to
which such Limited Right relates, by (ii) the number of shares of Common Stock
as to which such Limited Right is being exercised provided that, in the case of
a Limited Right that has not been outstanding at least seven months at the time
the Change of Control occurs, the amount computed under part (A) of the
foregoing formula shall be equal to the highest amount that could be computed
under part (y) of such formula using a Fair Market Value that first became
determinable (with such Fair Market Value otherwise determined in accordance
with the foregoing formula).
2.11 "Minimum Price Per Share" shall mean the highest gross price
(before brokerage commissions and soliciting dealer's fees) paid or to be paid
for a share of Common Stock (whether by way of exchange, conversion,
distribution or upon liquidation or otherwise) in any Transaction, tender offer
or exchange offer occurring prior to the date on which such Limited Right is
exercised. If the consideration paid or to be paid in any such Transaction,
tender offer or exchange offer shall consist, in whole or in part, of
consideration other than cash, the Board or Committee shall take such action, as
in its judgment it deems appropriate, to establish the cash value, if any,
attributed to such consideration in writing by any party to such Transaction,
tender offer or exchange offer other than the Company.
2.12 "Plan" shall mean the Directors' Stock Option Plan of the Company
authorized and adopted by the Board of Directors at its meeting held on
September 29, 1998, as amended from time to time.
2.13 "Subsidiary" shall mean any corporation in which the Company owns,
directly or indirectly, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock.
2.14 "Transaction" shall mean (A) any consolidation or merger of the
Company in which the Company is not the surviving corporation other than a
merger solely to effect a reincorporation or a merger of the Company as to which
stockholder approval is not required pursuant to Sections 251(f) or 253 of the
Delaware General Corporation Law, (B) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of 50% or more
of the assets or earnings power of the Company, or (C) the adoption of any plan
or proposal for the liquidation or dissolution of the Company.
3. ADMINISTRATION
The Plan shall be administered by the Board of Directors or by a Committee which
shall consist of such members of the Board as may be appointed by the Board. The
Board and, if any, the Committee, shall have full power and authority to
construe, interpret and administer the Plan and to make determinations which
shall be final, conclusive and binding upon all persons, including but not
limited to the Company, the stockholders and any person having an interest in
any Directors' Options, provided that a Director shall disqualify himself from
deciding any question that is unique to his own Directors' Option. If a member
of the Committee, for any reason, shall cease to serve, the vacancy may be
filled by the Board of Directors. Any member of the Committee may be removed at
any time, with or without cause, by the Board of Directors. No
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<PAGE> 4
member of the Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan.
4. COMPLIANCE WITH RULE 16b-3
It is the intent of the Company that the Plan comply in all material respects
with Rule 16b-3 under the Exchange Act, including the "formula" plan provisions
of Rule 16b-3(c)(2). Accordingly, if any provision of the Plan or any agreement
hereunder does not comply with the applicable requirements of Rule 16b-3, such
provision shall be construed or deemed amended to the extent necessary to
conform to such requirements.
5. ELIGIBILITY
5.1 Eligible Directors. Directors' Options and Limited Rights may be
granted only to Directors. Members of the Board who are not Directors and are
employees of the Company or any of its Subsidiaries are not eligible to receive
Directors' Options or other awards under the Plan.
5.2 Option Agreement. Each Directors' Option shall be evidenced by a
written agreement ("Option Agreement") containing such terms and provisions as
the Board or Committee may determine, subject to the provisions of this Plan.
6. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
6.1 Maximum Number. The maximum aggregate number of shares of Common
Stock that may be issued under the Plan shall be 200,000 shares. Such shares may
be authorized and unissued shares or may be treasury shares. If any shares of
Common Stock subject to a Directors' Option are not purchased before such
Directors' Option expires or otherwise terminates, unless the Directors' Option
is surrendered upon exercise of a Limited Right, such shares may again be made
subject to a Directors' Option.
6.2 Capital Changes. In the event any changes are made to the shares of
Common Stock (whether by reason of merger, consolidation, reorganization,
recapitalization, stock dividend in excess of one percent (1%) at any single
time, stock split, combination of shares, exchange of shares, extraordinary cash
dividend, change in corporate structure or otherwise), the Board or Committee
shall, in order to prevent dilution or enlargement of Directors' rights, make
appropriate adjustments in: (i) the number and kind of shares of Common Stock
theretofore made subject to Directors' Options, and/or in the exercise price of
said shares; and (ii) the aggregate number and kind of shares which may be
issued under the Plan. If any of the foregoing adjustments shall result in a
fractional share, the fraction shall be disregarded, and the Company shall have
no obligation to make any cash or other payment with respect to such a
fractional share.
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<PAGE> 5
7. ANNUAL OPTION GRANTS
7.1 Initial Grants to New Directors. A Directors' Option to purchase
15,000 shares of Common Stock shall be automatically granted to each person who
is first elected or appointed to serve as a member of the Board after the
effective date of the Plan and who, at the time of such election or appointment,
is a Director and was not, during the one-year period prior to the date of such
election or appointment, an employee of the Company or any Subsidiary.
7.2. Annual Grants to Directors. A Directors' Option to purchase 15,000
shares of Common Stock shall be automatically granted to each Director on the
effective date of the Plan, and an additional Director's Option to purchase
5,000 shares of Common Stock shall be granted on each anniversary of the
effective date of the Plan to each Director; provided, however, that a
Directors' Option shall not be granted under this Section 7.2 to a Director in a
given year if, during the six-month period prior to and including the date the
Directors' Option would otherwise be granted pursuant to this Section 7.2, such
Director either was granted a Directors' Option pursuant to Section 7.1 or such
Director was an employee of the Company or any Subsidiary.
7.3 Terms of Directors' Options. Directors' Options shall be
nonstatutory stock options which shall be granted for no consideration other
than services, and shall be subject to the following terms and conditions:
(i) Exercise Price. The exercise price per share of Common
Stock purchasable under a Directors' Option shall be equal to 100% of
the Fair Market Value of a share of Common Stock on the date of grant
of such Directors' Option. A Directors' Option shall be exercised by
giving written notice of exercise to the Company accompanied by payment
in full of the exercise price in cash (including by check) or by
surrender of shares of Common Stock acquired by the Director at least
six months prior to the exercise date (if the repurchase of shares by
the Company is permissible on the date of exercise under applicable
law), or a combination of a cash payment and such a surrender of
shares. Each share surrendered in payment of the exercise price shall
be valued at its Fair Market Value at the exercise date.
(ii) Exercisability. A Directors' Option shall be exercisable
only at the times specified in this Section 7.3 and Section 7.4. Each
Directors' Option granted under the Plan shall become cumulatively
exercisable in annual installments of 3,333 shares, 3,334 shares, and
3,333 shares, with the first such installment vesting on the first
anniversary of the date of grant and subsequent installments vesting on
the immediately subsequent anniversary dates.
(iii) Term and Termination of Services. Each Directors' Option
shall expire ten years after the date of grant, provided, however,
that, if a Director ceases serving as a member of the Board by reason
of being dismissed for cause, such options shall terminate three months
after the date of dismissal.
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<PAGE> 6
7.4 Option Vesting Upon Change of Control of the Company. In the event
of a Change of Control of the Company, the vesting of Directors' Options granted
pursuant to the Plan shall automatically be accelerated, so that all Directors'
Options outstanding at the time of such Change of Control will be exercisable
immediately (except as otherwise provided in Section 2.2).
8. LIMITED RIGHTS
8.1 Grant of Limited Rights. A Limited Right shall be automatically
granted to each Director concurrently with the grant of each Directors' Option
to such Director. Such Limited Right shall be exercisable with respect to the
number of shares of Common Stock which are, or may become, purchasable under any
such Directors' Option, at the times specified in Section 8.2, and shall expire
at the time the Directors' Option to which the Limited Right relates expires.
Other provisions of this Section 8.1 and Section 8.2 notwithstanding, a Limited
Right shall not be exercisable within six months after the date such Limited
Right is deemed to be granted for purposes of Section 16 of the Exchange Act.
Each Director to whom Limited Rights are granted shall be given written notice
advising him of the grant of such rights and specifying the terms and conditions
of the rights, which shall be subject to all the provisions of this Plan.
8.2 Exercise of Limited Rights. Subject to the limitations set forth in
Section 8.1, a Limited Right may be exercised only during the period beginning
on the first day following the occurrence of a Change of Control and ending on
the sixtieth day following such date; provided, however, if the Change of
Control occurs prior to the expiration of six months after the date of grant of
a Limited Right, then, solely for purposes of each Limited Right, the Change of
Control shall be deemed to have occurred at the expiration of such six-month
period, and such Limited Right shall be exercisable for a period of 60 days
following the expiration of such six-month period. Upon the occurrence of a
tender or exchange offer constituting a Change of Control, a Limited Right may
be exercised in such manner regardless of whether the Board supports or opposes
such tender or exchange offer. A Director shall exercise his Limited Right by
delivering a written notice to the Board of Directors specifying the number of
shares with respect to which he exercises a Limited Right and agreeing to
surrender the right to purchase an equivalent number of shares of Common Stock
subject to his Directors' Option. If a Director exercises a Limited Right,
payment of his Limited Right shall be made in accordance with Section 8.3 on or
before the thirtieth day after the date of exercise of the Limited Right. A
Limited Right shall remain exercisable for so long as the Directors' Option to
which it relates is exercisable, as provided in Section 7.3, in the event a
Director ceases being a member of the Board and after a Change of Control.
Notwithstanding the above, if a Director ceases being a member of the Board
before the occurrence of any Change of Control, his Limited Rights shall expire
immediately.
8.3 Form of Payment. If a Director elects to exercise a Limited Right
as provided in Section 8.2, the Company shall pay to the Director in cash the
amount set forth in Section 2.10 hereof, calculated with respect to the shares
as to which the Director has exercised such Limited Right, within thirty days of
the date of exercise of the Limited Right. If such amount is not paid in full
within the prescribed period, the Company shall be liable to such Director for
the costs of collection of such amount, including attorney's fees.
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<PAGE> 7
8.4 Termination. When a Limited Right is exercised, the Directors'
Option to which it relates, if any, shall cease to be exercisable to the extent
of the number of shares of Common Stock with respect to which such Limited Right
was exercised. Upon the exercise or termination of a Directors' Option, any
Limited Right granted with respect thereto shall terminate to the extent of the
number of shares as to which such Directors' Option was exercised or terminated.
9. NON-TRANSFERABILITY
No Directors' Option or Limited Right granted under this Plan, nor any other
rights acquired by a Director under this Plan, shall be assignable or
transferable by a Director, other than by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations order as defined
under the Internal Revenue Code (the "Code") or Title I of the Employee
Retirement Income Security Act of 1974 ("ERISA"). In the event of his death, the
Directors' Option or any Limited Right may be exercised by the Personal
Representative of the Directors' estate or, if no Personal Representative has
been appointed, by the successor or successors in interest determined under the
Directors' will or under the applicable laws of descent and distribution.
10. NO RIGHTS AS A STOCKHOLDER
A Director shall have no rights as a stockholder with respect to any shares of
Common Stock subject to a Directors' Option, until such Directors' Option is
exercised. Except as provided in Section 6.2, no adjustment shall be made in the
number of shares of Common Stock issued to a Director, or in any other rights of
the Director upon exercise of a Directors' Option, by reason of any dividend,
distribution or other right granted to stockholders for which the record date is
prior to the date of exercise of the Directors' Option.
11. AMENDMENT
The Company by action of the Board may amend, modify or terminate this Plan at
any time or amend, modify or terminate any outstanding option agreement, except
that any such amendment, modification or termination shall be subject to the
approval of the Company's stockholders within one year after such Board action
if such stockholder approval is required by any federal or state law or
regulation or the rules of any stock exchange or automated quotation system on
which the Common Stock may be listed or quoted, or if the Board in its
discretion determines that obtaining such stockholder approval is for any reason
advisable, provided that any Plan provision that specifies the Directors who may
receive Directors' Options, the amount and price of securities to be awarded to
such Directors, and the timing of awards to such Directors, or is otherwise a
"plan provision" within the meaning of Rule 16b-3(c)(2)(ii)(B) under the
Exchange Act or any successor provision thereto, shall not be amended more than
once every six months, other than to conform with changes in the Code, ERISA, or
the rules thereunder. Moreover, no action may be taken by the Company without
the consent of the affected Director which will materially impair the rights of
such Director under any award.
12. REGISTRATION OF OPTIONED SHARES
The Directors' Options shall not be exercisable unless the sale of such optioned
shares is pursuant to an applicable effective registration statement under the
Securities Act of 1933, as
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<PAGE> 8
amended, or unless, in the opinion of counsel to the Company, the sale of such
optioned shares would be exempt from the registration requirements of the
Securities Act of 1933, as amended, and unless, in the opinion of such counsel,
the sale would be exempt from the registration or qualification requirements of
applicable state securities law.
13. FINANCING ARRANGEMENTS
The Board of Directors or Committee, in its discretion, may enter into
arrangements with one or more banks, brokers or other financial institutions to
facilitate the exercise, of Directors' Options and disposition of shares
acquired upon such exercise, including, without limitation, arrangements for the
simultaneous exercise of Directors' Options and sale of the shares acquired upon
such exercise, provided that no such arrangements may be made if the making of
such arrangements, or the authorization of such arrangements pursuant to this
Section 13, would cause the Plan to no longer constitute a "formula" plan
meeting the requirements of Rule 16b-3(c)(2) under the Exchange Act, or any
successor thereto.
14. EFFECTIVE DATE
This Plan was authorized and adopted by the Board of Directors and became
effective on September 29, 1998, subject to approval by the Company's
stockholders at a stockholders' meeting in 1998 by the affirmative votes of the
holders of a majority of shares present in person or represented by proxy, and
entitled to vote at such meeting, or any adjournment thereof, or by the written
consent of the holders of a majority of shares entitled to vote, in each case in
accordance with applicable provisions of the Delaware General Corporation Law.
Any Directors' Option and related Limited Right granted under the Plan prior to
such approval of stockholders shall be effective when granted, but no such award
may be exercised prior to such stockholder approval, and if stockholders fail to
approve the Plan as specified hereunder, any such award shall be cancelled.
Unless earlier terminated by the Board, the Plan shall terminate when no shares
of Common Stock remain reserved and available for issuance and the Company has
no further obligation with respect to any award granted under the Plan.
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<PAGE> 1
Exhibit 10.3
DATED 1998
------------------------------------
REYNARD MOTORSPORT LIMITED (1)
- and -
[ ] (2)
------------------------------------
AGREEMENT
for service as
[ ]
------------------------------------
Davies Arnold Cooper
London
Tel: 0171 936 2222
<PAGE> 2
CONTENTS
CLAUSE HEADING PAGE
1. Interpretation...........................................................1
2. Appointment and Term.....................................................2
3. Duties...................................................................2
4. Remuneration.............................................................3
5. Benefits.................................................................3
6. Expenses ................................................................3
7. Other Interests..........................................................3
8. Holiday..................................................................3
9. Sickness/Accident........................................................4
10. Intellectual Property....................................................4
11. Non-Disclosure of Confidential Information...............................5
12. Termination of Appointment...............................................6
13. Duties Upon Termination..................................................7
14. Non-Competition..........................................................7
15. Reconstruction...........................................................8
16. Disciplinary and Grievance Procedures....................................8
17. Prior Arrangements.......................................................9
18. Notices and Proceedings..................................................9
19. Benefit of Agreement.....................................................9
20. Accrued Rights...........................................................9
21. General.................................................................10
22. Governing Law and Jurisdiction..........................................10
<PAGE> 3
AGREEMENT dated 1998
(1) REYNARD MOTORSPORT LIMITED (Company no 2843803) whose registered
office is at Reynard Centre, Telford Road, Bicester, Oxfordshire
OX6 0UY ("the Company");and
(2) [ ] of [ ] ("the Executive").
NOW IT IS HEREBY AGREED as follows:-
1. INTERPRETATION
In this Agreement and in the Schedules hereto unless the context
otherwise requires:-
1.1 The following words and expressions shall bear the following
meanings:-
"THE BOARD" the Board of Directors for the time being of the
Company (including any duly constituted committee thereof);
"THE BUSINESS" the business of the Company being the design and
manufacture of racing cars and racing car components and
consultancy services to the automotive and transportation
industries;
"COMPETING BUSINESS" any business which competes with the Business;
"CONNECTED PERSON" any person with which the Executive is connected
(as determined by section 839 of the Income and Corporation Taxes
Act 1988);
"THE GROUP" the Company and all Group Companies from time to time;
"GROUP COMPANY" the Company and every company which is for the time
being directly or indirectly a subsidiary of the Company or which
is a holding company of the Company or a subsidiary of any such
holding company as such phrases are defined in s736 of the
Companies Act 1985;
1.2 Words denoting the singular number shall include the plural and
vice versa.
1.3 Words denoting any gender shall include all genders.
1.4 References to persons shall include corporations and other
associations or bodies of persons whether or not incorporated and
any government, state or agency of a state whether or not any of
the foregoing has any separate legal personality.
1.5 Any reference to a statute or statutory provision shall be
construed as including a reference to any statutory modification,
consolidation or re-enactment (whether before or after the date
hereof) from time to time and shall include reference to any
provision of which it is a re-enactment (whether with or without
modification).
<PAGE> 4
1.6 Clause headings are for ease of reference only and shall not affect
the construction or interpretation of this Agreement.
2. APPOINTMENT AND TERM
2.1 Subject to earlier termination by the Company at any time pursuant
to the provisions of Clauses 9 or 12 the Executive shall serve the
Company as [ ] subject to the provisions of this Agreement from the
date of this Agreement for a period of four years from the date
hereof and continuing thereafter subject to not less than six
months notice of termination by the Company or the Executive such
notice not to expire prior to the end of such four year period.
2.2 During the continuance of his appointment hereunder the Executive
shall well and faithfully serve the Company and all Group Companies
for which he may be required to perform services and use his best
endeavours to promote the interests of the Company and the Group
and devote his full time and attention to the proper performance of
his duties hereunder.
2.3 The working hours for the Executive shall be the normal working
hours of the Company as notified from time to time and the
Executive may be required to work such additional hours as may be
necessary properly to perform his duties hereunder. The Executive
agrees to waive his right to a maximum 48 hour working week as set
out in the Working Time Regulations 1998 during the term of this
Agreement. The Executive may terminate such agreement to waive at
any time by giving not less than three months written notice to the
Company.
3. DUTIES
3.1 The Executive shall perform such duties and exercise such powers
and discretions consistent with the position to which he is
appointed hereunder or with his status qualifications and
experience as the Board may from time to time reasonably delegate
to him.
3.2 The Executive shall in the performance of his duties hereunder and
without further remuneration (except as otherwise agreed) act as a
director, officer or employee of any other Group Company as the
Board may require and shall carry out the duties attendant on any
such appointment as if they were duties to be performed by him on
behalf of the Company hereunder.
3.3 The Executive shall whenever required to do so fully and promptly
give to the Board such explanations information and assistance as
the Board may require of all transactions and affairs relating to
the Company and every Group Company in or on which he is from time
engaged or for which he is from time to time responsible.
3.4 The Executive's employment shall be based at Bicester or at such
other location as the Board may from time to time deem appropriate
and notify to the Executive. The Executive shall if called upon to
do so and without any further remuneration than is mentioned herein
(but subject to reimbursement of his reasonable travel expenses
incurred in connection therewith) undertake such travel and perform
such duties in any part of the United Kingdom or abroad as the
Board may think fit and as the Company's and/or any Group Company's
business may dictate.
<PAGE> 5
4. REMUNERATION
4.1 The Company shall pay to the Executive by way of remuneration for
the proper performance of his duties hereunder a fixed salary at
the rate of (pound)[ ] per annum such salary to be deemed to accrue
from day-to-day and to be payable by equal monthly instalments
(less tax and other appropriate deductions) in arrears on or about
the last day of the month;
4.2 Such remuneration shall (without obligation) be reviewed annually.
5. BENEFITS
5.1 The Executive is entitled to [an annual] [equal monthly]
contribution[s] by the Company [equating to an aggregate of] [of]
(pound)[ ] [per annum] to an Inland Revenue approved pension
scheme.
5.2 [Car].
5.3 [Insurances].
5.4 The Executive is entitled to the benefit of the Company's private
medical insurance scheme from time to time.
5.5 [Bonus scheme].
5.6 [Other benefits].
6. EXPENSES
In addition to the salary payable hereunder there shall be
reimbursed to the Executive such sums as shall cover all expenses
properly and reasonably incurred by him in the performance of his
duties hereunder on production of the relevant receipts or other
evidence of payment therefor satisfactory to the Company including
expenses of entertainment subsistence and travelling.
7. OTHER INTERESTS
During the continuance of this appointment and for the period of
one year following the termination of this Agreement the Executive
and his Connected Persons shall not directly or indirectly carry on
or be engaged or interested in any Competing Business PROVIDED THAT
nothing in this Clause shall prevent the Executive holding or
owning for bona fide investment purposes not more than three per
cent of any class of stocks shares or debentures quoted or dealt in
on the London Stock Exchange.
8. HOLIDAY
In addition to normal bank and public holidays the Executive shall
be entitled to 30 working days holiday with pay in each year
(running 1 October to 30 September) to be taken at such times and
in such periods as shall be mutually agreed between the Executive
and the Company and which are consistent with the proper
performance of the duties of the Executive hereunder. Where the
Executive is employed for part of a year only, he will be entitled
to paid holiday pro rata to the number of completed weeks worked by
him in the relevant year.
<PAGE> 6
9. SICKNESS/ACCIDENT
9.1 Without prejudice to the following provisions of this Clause 9 or
of Clause 2.1 if the Executive becomes incapable of carrying out
his duties hereunder because of illness or other incapacity he
shall on the production of a medical certificate or other evidence
satisfactory to the Board (the Board reserving the right to require
the Executive to be examined by a doctor nominated by the Board) be
entitled to receive:
9.1.1 the Executive's salary at the rate determined pursuant
to Clause 4 (inclusive of any sickness benefit
statutory sick pay or allowance or other injury or
disablement benefit to which the Executive may be
entitled whether or not claimed) during a continuous
period or an aggregate of three months in any period of
12 months;
9.1.2 one half of the Executive's salary at the rate
determined pursuant to Clause 4 (inclusive of any
sickness benefit, statutory sick pay or allowance or
other injury or disablement benefit to which the
Executive may be entitled whether or not claimed)
during a continuous period or an aggregate of over
three months but less than six months in any period of
12 months;
9.1.3 on the expiry of such period (aggregate or continuous)
of six months referred to in Clause 9.1.2 if the
Executive remains incapable of carrying out his duties
hereunder because of illness or incapacity (while such
illness or incapacity continues) such salary as the
Board may absolutely determine.
9.2 If the Executive shall be incapacitated by illness or accident for
a continuous period or an aggregate period of six months in any
period of 12 months at any time during the subsistence of this
appointment the Company may terminate the appointment of the
Executive hereunder forthwith and thereupon the Executive shall
have no claim against the Company in respect of such termination.
10. INTELLECTUAL PROPERTY
10.1 As part of, and in the normal course of, his duties under the
Agreement, the Executive will be concerned to carry on research
into and development of the processes, products, designs,
equipment, techniques and projects from time to time used, made or
undertaken by the Company or any Group Company or which could be
used, made or undertaken by them, and to invent, discover, design,
develop or improve processes, products, designs, equipment and
techniques for the benefit of and for use by the Company and any
Group Company.
10.2 If the Executive in the course of his normal duties or other duties
specifically assigned to him (whether or not during normal working
hours) either alone or in conjunction with any other person:
10.2.1 originates any design (whether registrable or not) or
other work in which copyright or design right may
subsist; and/or
10.2.2 makes, discovers or produces any invention, process or
development he shall forthwith disclose the same to the
Company and shall (subject to sub-clauses 10.3, 10.4
and 10.5) regard himself in relation thereto as a
trustee for the Company.
<PAGE> 7
10.3 The Executive hereby assigns wholly and absolutely the copyright,
future copyright, design right and future design right and other
proprietary rights if any for the full term thereof throughout the
world in respect of all copyright works written, originated,
conceived or made by the Executive (except only those copyright or
design right works written, originated, conceived or made by it or
him wholly outside the performance of his duties hereunder) during
the period of this Agreement to hold absolutely including the right
to sue for damages for past infringements.
10.4 The Executive acknowledges that, for the purposes of section 2(1)
of the Registered Designs Act 1949 as amended by the Copyright
Designs and Patents Act 1988, the Company shall be treated as the
original proprietor of a design, where such design is created by
him in the course of the performance of his duties hereunder.
10.5 Any such invention, process or development will be the absolute
property of the Company (except to the extent, if any, provided
otherwise by section 39 of the Patents Act 1977) and the Executive
will, if and when required by the Company (whether during the
continuance of this Agreement or afterwards) and at its expense,
apply, or join with the Company in applying, for letters patent or
other protection in any part of the world for any invention process
or development.
10.6 The Executive agrees and undertakes that he will execute such deeds
or documents and do all such acts and things as may be necessary or
desirable or substantiate and maintain the rights of the Company in
respect of the matters referred to in sub-clauses 10.2 to 10.5
inclusive at the Company's request and expense.
10.7 The Executive irrevocably appoints the Company as his attorney in
his name and on his behalf to execute all documents and do all
things required in order to give full effect to the provisions of
this clause.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
11.1 The Executive shall not at any time either during or after the
termination of this Agreement unless otherwise required to do so by
law divulge or communicate to any person or persons except to those
of the officials of the Company whose province it is to know the
same or turn or seek to turn to the personal use or advantage of
the Executive or any third party any of the secrets or any other
information of whatsoever nature which may be in his possession or
which he may receive or obtain in relation to the dealings
transactions or affairs of any company within the Group or the
identity of those with whom any such company conducts business or
their dealings transactions or affairs (including but not limited
to information relating to the Business) or in relation to the
working of any process or invention or method of carrying on
business which is carried on or used or employed by any such
company or which he may make or discover at any time during the
subsistence of his appointment hereunder or use or attempt to use
any such secrets knowledge or other information in any manner which
may injure or cause loss whether directly or indirectly to any such
company as aforesaid or use his personal knowledge of or influence
over any customers clients suppliers or contractors of or to any
such company so as to take advantage of that company's trade or
business
<PAGE> 8
connections and shall at all times use his best endeavours to
prevent disclosure or publication of such secrets and information.
11.2 The provisions of this Clause shall continue to apply after the
termination of this Agreement but shall cease to apply to any
information or knowledge which may at any time come into the public
domain other than through an unauthorised disclosure.
11.3 The Executive shall not during the subsistence of his appointment
hereunder or upon any termination (howsoever arising) make
otherwise than for the benefit of any Group Company any notes or
memoranda relating to any Group Company or its business all of
which shall in any event belong to the Group and/or the particular
company concerned.
12. TERMINATION OF APPOINTMENT
12.1 If the Executive shall:-
12.1.1 be guilty of any serious or wilful or persistent breach
or breaches or non-observance of any of the provisions
of this Agreement which if capable of remedy is not
remedied within 21 days of being required to do so
(including those of Clause 3.3) or refuse or fail to
carry out any of the duties assigned to him hereunder;
or
12.1.2 be guilty of conduct which in the opinion of the Board
is detrimental to the reputation or interests of the
Company or any other Group Company; or
12.1.3 become or be adjudicated bankrupt or have a petition
for bankruptcy presented against him or enter into any
arrangement or composition with his creditors or become
a patient as defined in the Mental Health Act 1983 or
become disqualified by law from being a director of or
taking part in the management of the Company or any
relevant Group Company; or
12.1.4 be found guilty of any criminal offence other than an
offence which in the reasonable opinion of the Board
does not affect his position as a director of the
Company;
12.1.5 absent himself from the performance of his duties
without just cause or permission;
the Company may in any such case (without prejudice to
any claims which the Company may have in respect of the
Executive's employment) by written notice to the
Executive summarily terminate the Executive's
employment hereunder without any payment in lieu of
notice or otherwise and the Executive shall have no
claim against the Company for damages or otherwise by
reason of such termination nor shall any delay by the
Company in exercising such right of termination
constitute any waiver of it.
12.2 The Company reserves the right to make payments in lieu of any
notice required to be given under this Agreement and any payment so
made in lieu of notice will have PAYE income tax and class 1
national insurance contributions deducted at source.
12.3 The Company also reserves the right to require the Executive to
remain away from work during his notice period as the Board may
consider appropriate and if the Company so requires the Executive
to remain away from work during his notice period (whether notice
<PAGE> 9
shall have been given by the Executive or the Company) the
Executive will be required to comply with any and all conditions
laid down by the Company and (without prejudice to the foregoing)
whilst on full pay during such time will not be permitted to work
for any other person or on his own behalf without the prior written
consent of the Board.
12.4 Should the Executive leave without notice or during any notice
period without the prior consent of the Board the Company reserves
the right to deduct from or set off against any monies due to the
Executive from the Company (whether by way of salary, bonus,
accrued holiday pay, expenses or otherwise) a sum or sums equal to
the aggregate of a day's pay for each day not worked during the
notice period and any monies due (howsoever) from the Executive to
the Company.
13. DUTIES UPON TERMINATION
Upon termination of this Agreement for whatever reason and
howsoever arising or effected the Executive shall forthwith (and in
any event not later than seven days after such termination):-
13.1 deliver up to the Board all documents statistics accounts memoranda
papers records and other items of whatsoever nature or description
which may be in his possession or control and relate in any way to
the business or affairs of any Group Company (howsoever the same
may have come into his possession and whether or not they or any of
them may have been prepared by him) and no such documents or other
items as aforesaid nor any part or copy thereof shall be retained
by him; and
13.2 resign (without any right to claim for compensation or damages for
loss of such office or appointment) from the office of director and
from any other office or appointment held by him in the Company and
any Group Company.
14. NON-COMPETITION
14.1 Subject as hereinafter provided after the termination of his
employment hereunder (howsoever arising or effected) the Executive
shall not either on his own behalf or on behalf of any Connected
Person whether directly or indirectly for a period of one year:-
14.1.1 be engaged or interested or concerned directly or
indirectly in the provision of any services of a type
provided by the Company at any time during the period
of 12 months prior to the date of such termination in
a way which competes with the Company;
14.1.2 directly or indirectly solicit canvass or approach on
behalf of a competing business any person who at the
date of such termination or any time during the period
of 12 months prior to the date of such termination
was:-
(a) a customer or client with whom the
Executive had in such period any dealings
or other involvement on behalf of the
Company; or
(b) to the Executive's knowledge negotiating
with the Company for the supply of goods
or services.
14.1.3 in relation to any Competing Business directly or
indirectly accept the custom of any person who at the
date of such cessation or at any time within the
<PAGE> 10
period of 12 months prior to the cessation was a
customer or client of the Company or who was a
prospective customer or client and of whose
prospective associations the Executive was aware.
14.2 The Executive shall not at any time after ceasing to be employed
hereunder:-
14.2.1 interfere or seek to interfere with the continuance of
supplies (or the terms of such supplies) to the
Company from any suppliers who supply or have been
supplying goods materials or services to the Company
at any time during the period of 12 months prior to
such cessation;
14.2.2 procure or assist in the commission of acts which if
done by the Executive would be in breach of the terms
of this Agreement;
14.2.3 make any untrue statement in relation to the Company
and in particular shall not represent himself as being
in any way employed by connected with or interested in
or knowledgeable about the business of the Company.
14.3 The Executive agrees that both during and for a period of three
years following termination or expiry of this Agreement he will not
at any time solicit or entice away or endeavour to solicit or
entice away (either alone or jointly with any other person), any
person employed by the Company in an executive, technical or sales
capacity with a view to inducing that person to leave his
employment or office with the Company or any Group Company and to
act for another employer in the same or a similar capacity.
14.4 The covenants contained in Clauses 14.1.1, 14.1.2, 14.1.3, 14.2.1,
14.2.2, 14.2.3 and 14.3 shall be construed as and are separate
covenants one from another.
14.5 The Executive acknowledges and agrees that the restrictions set out
in this Clause 14 are reasonable in all the circumstances and will
not prevent him from earning his livelihood.
14.6 If any covenant or restriction set out in this Clause 14 or any
part thereof is or would be held to be invalid or unenforceable or
void but would not be so held if modified or varied then such
provision shall apply with such modification or variation as may be
necessary to make it valid and effective.
15. RECONSTRUCTION
If before the expiration of this Agreement or any extension hereof
the appointment of the Executive hereunder shall be determined by
reason of reconstruction or amalgamation whether by winding-up of
the Company or otherwise and the Executive shall be offered
immediate employment with any company resulting from or formed or
acquired in connection with such reconstruction or amalgamation of
a similar nature to that hereby agreed on terms no less favourable
to him than those herein contained then the Executive shall have no
claim against the Company for compensation or damages or otherwise
howsoever arising out of such determination.
16. DISCIPLINARY AND GRIEVANCE PROCEDURES
There are no specific disciplinary rules applicable to the
Executive's employment. If the Executive is dissatisfied with any
disciplinary decision taken in relation to him or has any grievance
relating to his employment he should submit particulars in writing
to the Board
<PAGE> 11
who will endeavour to resolve it to the satisfaction of the
Executive and the Company but in the event of any failure to
achieve such outcome the decision of the Board shall be final.
17. PRIOR ARRANGEMENTS
The Executive hereby covenants with the Company that he is not a
party to any agreement or arrangement (formal or informal legal or
moral) such as will or might preclude him from entering into this
Agreement or performing any of his obligations hereunder.
18. NOTICES AND PROCEEDINGS
18.1 Any notice under this Agreement shall be in writing and be signed
by or on behalf of the party giving it.
18.2 Any such notice may be served by leaving it at or sending it by
facsimile e-mail prepaid recorded delivery or registered post to
the address and for the attention of the relevant party as set out
in this Agreement or as otherwise notified from time to time in
accordance with the provisions of this Clause.
18.3 In the event of any action or proceedings (including arbitration
proceedings) being begun pursuant to or in respect of this
Agreement the parties hereto agree that service of the process by
which the action or proceedings is or are begun and of any and all
other documents relating to such action or proceedings shall
(without however preventing any party from utilising such other
modes of service as may for the time being be permitted by the
Rules of the Supreme Court 1965 or any amendment or reissue
thereof) be full and proper if effected in the manner and at the
address prescribed by the provisions of this Clause relating to
notices.
18.4 Any notice and/or any document relating to any action or
proceedings (including an originating process) so served by
facsimile e-mail or post shall be deemed to have been received:-
18.4.1 in the case of facsimile or e-mail 12 hours after the
time of despatch provided (in the case of facsimile) an
error-free transmission report or (in the case of
e-mail) no error message indicating failure to deliver
has been received by the sender; and
18.4.2 in the case of recorded delivery or registered post 24
hours from the time of posting if from and to an
address in the United Kingdom or Northern Ireland or
five days from the time of posting if from or to an
address elsewhere.
19. BENEFIT OF AGREEMENT
This Agreement shall be binding on and shall enure for the benefit
of the successors and assigns and personal representatives (as the
case may be) of each of the parties hereto.
20. ACCRUED RIGHTS
The termination of this Agreement howsoever caused shall be without
prejudice to any obligations or rights of any of the parties hereto
which shall have accrued prior to such termination and shall not
affect any provision of this Agreement which is expressly or by
implication provided to come into effect on or to continue in
effect after such termination.
<PAGE> 12
21. GENERAL
21.1 This Agreement constitutes the entire agreement between the parties
hereto in respect of the matters dealt with herein and supersedes
any previous agreement or arrangement between the parties in
relation to such matters.
21.2 No variation of this Agreement shall be valid or effective unless
made by one or more instruments in writing signed by both of the
parties.
21.3 No failure to exercise and no delay in exercising on the part of
either of the parties hereto any right power or privilege hereunder
shall operate as a waiver thereof nor shall any single partial
exercise of any right power or privilege preclude any other or
further exercise thereof or the exercise of any other right power
or privilege.
21.4 The rights and remedies provided in this Agreement are cumulative
and are not exclusive of any rights or remedies otherwise provided
by law.
21.5 Notwithstanding that any provision of this Agreement may prove to
be illegal or unenforceable the remaining provisions of this
Agreement shall continue in full force and effect.
21.6 Any date or period mentioned in this Agreement may be extended by
agreement between the parties hereto (or such of the parties as may
be affected thereby) but subject thereto as regards any date or
period (whether or not extended as aforesaid) time shall not be of
the essence of this Agreement.
21.7 This Agreement is in substitution for all previous agreements
whether or not reduced to writing between the parties hereto
governing the terms and conditions of employment of the Executive
which shall be deemed to have been terminated by mutual consent on
the date upon which this Agreement is deemed to have commenced but
without prejudice to the intention of the Company and the Executive
that the employment of the Executive hereunder shall be deemed to
be a continuation of his employment with Reynard [ ] Limited
which began on [ ].
22. GOVERNING LAW AND JURISDICTION
22.1 This Agreement shall be governed by and construed in accordance
with English Law.
22.2 Each of the parties hereto irrevocably agrees that the courts of
England and Wales shall have exclusive jurisdiction to hear and
determine any suit action or proceeding and to settle any disputes
which may arise out of or in connection with this Agreement and for
such purposes irrevocably submit to the jurisdiction of such
courts.
IN WITNESS whereof the parties have executed these presents as their deed the
day and year first above written.
<PAGE> 13
EXECUTED AS A DEED by )
REYNARD MOTORSPORT LIMITED )
by )
Director
Secretary/Director
SIGNED and DELIVERED as a Deed )
by the said [ ] )
in the presence of:- )
<PAGE> 1
Exhibit 10.4
STOCK OPTION AGREEMENT
REYNARD MOTORSPORT LIMITED
September 25, 1998
THIS AGREEMENT is made as of the 25th day of September, 1998, between
Reynard Motorsport Limited, a United Kingdom corporation (the "Company"), and
Alex Hawkridge (the "Optionee").
The Board of Directors voted in favor of granting to the Optionee an
option to purchase ordinary shares of the Company with respect to 117,760 shares
at a purchase price of (pound)36.50 per share and subject to other terms and
conditions.
In consideration of the promises and mutual covenants herein contained,
the Company and the Optionee agree as follows:
1. The Company hereby grants to the Optionee upon the terms and
conditions hereinafter stated the right and option (the "Option") to purchase
all or any part of an aggregate of 117,760 shares of the Company's authorized
but unissued or reacquired ordinary shares at a purchase price of (pound)36.50
per share.
2. The Option is granted upon the following terms:
2.1 Duration of the Options. Subject to reductions in the
Option period as hereinafter provided in the event of death of the Optionee, the
Option shall continue in effect until the earlier of (i) the date the Optionee
purchases shares hereunder, or (ii) ten years from the date hereof.
2.2 Time of Exercise. Except as provided in paragraph 2.1 and
2.5 the Option may be exercised from time to time commencing on the effective
date of this agreement.
2.3 Nonassignability. The Option is nonassignable and
nontransferable by the Optionee except by will or by the laws of descent and
distribution of the state or country of the Optionee's domicile at the time of
death, and is exercisable during the Optionee's lifetime only by the Optionee.
1
<PAGE> 2
2.4 Termination of Engagement.
(a) In the event the Optionee's engagement by the Company
or by any parent or subsidiary of the Company is terminated because of death or
physical disability, the Option shall be fully exercisable and the Option shall
not terminate until the end of the six month period following such cessation of
the relationship, unless by the terms of the Option it sooner terminates or
expires.
(b) In the event the Optionee's engagement by the Company
or by any parent or subsidiary of the Company ceases because of death of the
Optionee, the Option may, to the extent the Optionee would have been able to
exercise the Option, be exercised after his death by the person or persons to
whom the Optionee's rights under the Option shall pass by will or by the laws of
descent and distribution of the state or country of the Optionee's domicile at
the time of death.
(c) In the event of death or termination of engagement of
the Optionee, to the extent the Option shall not have been exercised within the
limited periods provided above, all further rights to purchase shares pursuant
to the Option and all other rights relating to the Option shall cease and
terminate at the expiration of such periods.
2.5 Purchase of Shares. Shares may be purchased or acquired
pursuant to the Option only upon receipt by the Company or notice in writing
from the Optionee of the Optionee's intention to exercise, specifying the number
of shares as to which the Optionee desires to exercise the Option and the date
on which the Optionee desires to exercise the Option, and the date on which the
Optionee desires to complete the transaction, which shall not be more than 30
days after receipt of the notice and, unless in the opinion of counsel for the
Company such representation is not required in order to comply with the United
States Securities Act of 1933, as amended, containing a representation that it
is the Optionee's present intention to acquire the shares for investment and not
with a view to distribution. On or before the date specified for completion of
the purchase of shares pursuant to the Option, the Optionee must have paid the
Company the full price of such shares in cash, or by such other means as is
acceptable to the Company, in its discretion. No shares shall be issued until
full payment therefor has been made, and the Optionee shall have none of the
rights of a shareholder until a certificate for shares is issued to the
Optionee. The Optionee shall, upon notification of the amount due, if any, and
prior to or concurrently with delivery of the certificates representing the
shares with respect to which the Option was exercised pay to the Company amounts
necessary to satisfy any applicable United Kingdom, United States federal,
state, and local withholding tax
2
<PAGE> 3
requirements. If additional withholding becomes required beyond any amount
deposited before delivery of the certificates, the Optionee shall pay such
amount to the Company on demand, including withholding of shares or proceeds
from the sale of shares by Optionee. In the absence of such payment, the Company
may withhold such amount from any funds owed by the Company to the Optionee.
2.6 Changes in Capital Structure. In the event that the
outstanding ordinary shares of the Company are hereafter increased or decreased
or changed into or exchanged for a different number or kind of shares or other
securities of the Company or another corporation, by reason of any
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, combination of shares, or dividend payable in shares, appropriate
adjustment shall be made by the Board of Directors in the number and kind of
shares for purchase pursuant to the Option and the corresponding Option price.
Any such adjustment made by the Board of Directors shall be conclusive.
3. The obligations of the Company under this Agreement are subject to
the approval of such state or federal authorities, if any, as may have
jurisdiction in the matter. The Company will use its best efforts to take such
steps as may be required by state or federal law or applicable regulations,
including rules and regulations of the United States Securities and Exchange
Commission and any stock exchange on which the Company's shares may then be
listed, in connection with the issuance or sale of any shares purchased upon the
exercise of the Option, provided, however that the Company shall not be
obligated hereunder to register the Option or shares covered by the Option.
4. Nothing in this Agreement shall confer upon the Optionee any right
to be engaged by the Company as an employee, director, agent, consultant, or
independent contractor or shall interfere in any way with the right of the
Company or any subsidiary by whom the Optionee is engaged to terminate the
Optionee's engagement at any time, for any reason, with or without cause.
5. This Agreement shall be binding upon and shall inure to the benefit
or any successor or successors of the Company but except as hereinabove provided
the Option herein granted shall not be assigned or otherwise disposed of by the
Optionee.
6. No amendment to this Agreement shall be valid unless such amendment
is in writing and is signed by authorized representatives of both parties to
this Agreement.
7. Any of the terms and conditions of this Agreement may be waived at
any time and from time to time in writing by the party entitled to the benefit
thereof, but a waiver in one instance shall not be deemed to constitute a waiver
in any other instance. A failure to enforce any provision of this Agreement
shall not operate as a waiver of the provision or of any other provision hereof.
8. In the event that any provision of this Agreement shall be held to
be invalid, illegal or unenforceable in any circumstances, the remaining
provisions shall nevertheless remain
3
<PAGE> 4
in full force and effect and shall be construed as if the unenforceable portion
or portions were deleted.
9. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware.
10. All notices, requests, payments, instructions, claims or other
communications hereunder shall be in writing and shall be deemed to be given or
made when delivered by first-class, registered or certified mail to the
following address or addresses or such other address or addresses as the parties
may designate in writing in accordance with this Section:
If to Company: Attn: Adrian Reynard
7 Murdock Road
Bicester, Oxon
OX6 7PL England
If to Optionee: Alex Hawkridge
7 Murdock Road
Bicester, Oxon
OX6 7PL England
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate as of the day and year first hereinabove written.
REYNARD MOTORSPORT LIMITED
By:
------------------------------
Director
---------------------------------
Alex Hawkridge
4
<PAGE> 1
Exhibit 10.5
DATED 1998
--------------------------------------------------------
REYNARD MOTORSPORT LIMITED (1)
- and -
PAUL OWENS (2)
--------------------------------------------------------
AGREEMENT
for service as
COMPOSITES DIRECTOR
--------------------------------------------------------
Davies Arnold Cooper
London
Tel: 0171 936 2222
<PAGE> 2
CONTENTS
CLAUSE HEADING PAGE
1. Interpretation.....................................................1
2. Appointment and Term...............................................2
3. Duties ........................................................2
4. Remuneration.......................................................3
5. Benefits ........................................................3
6. Expenses ........................................................3
7. Other Interests....................................................3
8. Holiday ........................................................3
9. Sickness/Accident..................................................3
10. Intellectual Property..............................................4
11. Non-Disclosure of Confidential Information.........................5
12. Termination of Appointment.........................................6
13. Duties Upon Termination............................................7
14. Non-Competition....................................................7
15. Reconstruction.....................................................8
16. Disciplinary and Grievance Procedures..............................8
17. Prior Arrangements.................................................8
18. Notices and Proceedings............................................8
19. Benefit of Agreement...............................................9
20. Accrued Rights.....................................................9
21. General .........................................................9
22. Governing Law and Jurisdiction....................................10
<PAGE> 3
AGREEMENT dated 1998
(1) REYNARD MOTORSPORT LIMITED (Company no 2843803) whose registered
office is at Reynard Centre, Telford Road, Bicester, Oxfordshire
OX6 0UY ("the Company"); and
(2) PAUL OWENS of Orchard Lea, Turweston, Near Brackley, Northants NN13
5JX ("the Executive").
NOW IT IS HEREBY AGREED as follows:-
1. INTERPRETATION
In this Agreement and in the Schedules hereto unless the context
otherwise requires:-
1.1 The following words and expressions shall bear the following
meanings:-
"THE BOARD" the Board of Directors for the time being of the
Company (including any duly constituted committee thereof);
"THE BUSINESS" the business of the Company being the design and
manufacture of racing cars and racing car components and
consultancy services to the automotive and transportation
industries;
"COMPETING BUSINESS" any business which competes with the Business;
"CONNECTED PERSON" any person with which the Executive is connected
(as determined by section 839 of the Income and Corporation Taxes
Act 1988);
"THE GROUP" the Company and all Group Companies from time to time;
"GROUP COMPANY" the Company and every company which is for the time
being directly or indirectly a subsidiary of the Company or which
is a holding company of the Company or a subsidiary of any such
holding company as such phrases are defined in s736 of the
Companies Act 1985;
1.2 Words denoting the singular number shall include the plural and
vice versa.
1.3 Words denoting any gender shall include all genders.
1.4 References to persons shall include corporations and other
associations or bodies of persons whether or not incorporated and
any government, state or agency of a state whether or not any of
the foregoing has any separate legal personality.
1.5 Any reference to a statute or statutory provision shall be
construed as including a reference to any statutory modification,
consolidation or re-enactment (whether before
<PAGE> 4
or after the date hereof) from time to time and shall include
reference to any provision of which it is a re-enactment (whether
with or without modification).
1.6 Clause headings are for ease of reference only and shall not affect
the construction or interpretation of this Agreement.
2. APPOINTMENT AND TERM
2.1 Subject to earlier termination by the Company at any time pursuant
to the provisions of Clauses 9 or 12 the Executive shall serve the
Company as Composites Director subject to the provisions of this
Agreement from the date of this Agreement for a period of four
years from the date hereof and continuing thereafter subject to not
less than six months notice of termination by the Company or the
Executive such notice not to expire prior to the end of such four
year period.
2.2 During the continuance of his appointment hereunder the Executive
shall well and faithfully serve the Company and all Group Companies
for which he may be required to perform services and use his best
endeavours to promote the interests of the Company and the Group
and devote his full time and attention to the proper performance of
his duties hereunder.
2.3 The working hours for the Executive shall be the normal working
hours of the Company as notified from time to time and the
Executive may be required to work such additional hours as may be
necessary properly to perform his duties hereunder. The Executive
agrees to waive his right to a maximum 48 hour working week as set
out in the Working Time Regulations 1998 during the term of this
Agreement. The Executive may terminate such agreement to waive at
any time by giving not less than three months written notice to the
Company.
3. DUTIES
3.1 The Executive shall perform such duties and exercise such powers
and discretions consistent with the position to which he is
appointed hereunder or with his status qualifications and
experience as the Board may from time to time reasonably delegate
to him.
3.2 The Executive shall in the performance of his duties hereunder and
without further remuneration (except as otherwise agreed) act as a
director, officer or employee of any other Group Company as the
Board may require and shall carry out the duties attendant on any
such appointment as if they were duties to be performed by him on
behalf of the Company hereunder.
3.3 The Executive shall whenever required to do so fully and promptly
give to the Board such explanations information and assistance as
the Board may require of all transactions and affairs relating to
the Company and every Group Company in or on which he is from time
engaged or for which he is from time to time responsible.
3.4 The Executive's employment shall be based at Brackley or at such
other location as the Board may from time to time deem appropriate
and notify to the Executive. The Executive shall if called upon to
do so and without any further remuneration than is mentioned herein
(but subject to reimbursement of his reasonable travel expenses
incurred in connection therewith) undertake such travel and perform
such duties in
<PAGE> 5
any part of the United Kingdom or abroad as the Board may think fit
and as the Company's and/or any Group Company's business may
dictate.
4. REMUNERATION
4.1 The Company shall pay to the Executive by way of remuneration for
the proper performance of his duties hereunder a fixed salary at
the rate of (pound) 54,805 per annum such salary to be deemed to
accrue from day-to-day and to be payable by equal monthly
instalments (less tax and other appropriate deductions) in arrears
on or about the last day of the month;
4.2 Such remuneration shall (without obligation) be reviewed annually.
5. BENEFITS
5.1 The Executive is entitled to an annual contribution by the Company
of (pound) 500 and equal monthly contributions aggregating to
(pound) 20,195 per annum to an Inland Revenue approved pension
scheme.
5.2 The Executive is entitled to the benefit of the Company's private
medical insurance scheme from time to time.
6. EXPENSES
In addition to the salary payable hereunder there shall be
reimbursed to the Executive such sums as shall cover all expenses
properly and reasonably incurred by him in the performance of his
duties hereunder on production of the relevant receipts or other
evidence of payment therefor satisfactory to the Company including
expenses of entertainment subsistence and travelling.
7. OTHER INTERESTS
During the continuance of this appointment and for the period of
one year following the termination of this Agreement the Executive
and his Connected Persons shall not directly or indirectly carry on
or be engaged or interested in any Competing Business PROVIDED THAT
nothing in this Clause shall prevent the Executive holding or
owning for bona fide investment purposes not more than three per
cent of any class of stocks shares or debentures quoted or dealt in
on the London Stock Exchange.
8. HOLIDAY
In addition to normal bank and public holidays the Executive shall
be entitled to 30 working days holiday with pay in each year
(running 1 October to 30 September) to be taken at such times and
in such periods as shall be mutually agreed between the Executive
and the Company and which are consistent with the proper
performance of the duties of the Executive hereunder. Where the
Executive is employed for part of a year only, he will be entitled
to paid holiday pro rata to the number of completed weeks worked by
him in the relevant year.
<PAGE> 6
9. SICKNESS/ACCIDENT
9.1 Without prejudice to the following provisions of this Clause 9 or
of Clause 2.1 if the Executive becomes incapable of carrying out
his duties hereunder because of illness or other incapacity he
shall on the production of a medical certificate or other evidence
satisfactory to the Board (the Board reserving the right to require
the Executive to be examined by a doctor nominated by the Board) be
entitled to receive:
9.1.1 the Executive's salary at the rate determined pursuant
to Clause 4 (inclusive of any sickness benefit
statutory sick pay or allowance or other injury or
disablement benefit to which the Executive may be
entitled whether or not claimed) during a continuous
period or an aggregate of three months in any period of
12 months;
9.1.2 one half of the Executive's salary at the rate
determined pursuant to Clause 4 (inclusive of any
sickness benefit, statutory sick pay or allowance or
other injury or disablement benefit to which the
Executive may be entitled whether or not claimed)
during a continuous period or an aggregate of over
three months but less than six months in any period of
12 months;
9.1.3 on the expiry of such period (aggregate or continuous)
of six months referred to in Clause 9.1.2 if the
Executive remains incapable of carrying out his duties
hereunder because of illness or incapacity (while such
illness or incapacity continues) such salary as the
Board may absolutely determine.
9.2 If the Executive shall be incapacitated by illness or accident for
a continuous period or an aggregate period of six months in any
period of 12 months at any time during the subsistence of this
appointment the Company may terminate the appointment of the
Executive hereunder forthwith and thereupon the Executive shall
have no claim against the Company in respect of such termination.
10. INTELLECTUAL PROPERTY
10.1 As part of, and in the normal course of, his duties under the
Agreement, the Executive will be concerned to carry on research
into and development of the processes, products, designs,
equipment, techniques and projects from time to time used, made or
undertaken by the Company or any Group Company or which could be
used, made or undertaken by them, and to invent, discover, design,
develop or improve processes, products, designs, equipment and
techniques for the benefit of and for use by the Company and any
Group Company.
10.2 If the Executive in the course of his normal duties or other duties
specifically assigned to him (whether or not during normal working
hours) either alone or in conjunction with any other person:
10.2.1 originates any design (whether registrable or not) or
other work in which copyright or design right may
subsist; and/or
10.2.2 makes, discovers or produces any invention, process or
development he shall forthwith disclose the same to the
Company and shall (subject to sub-
<PAGE> 7
clauses 10.3, 10.4 and 10.5) regard himself in relation
thereto as a trustee for the Company.
10.3 The Executive hereby assigns wholly and absolutely the copyright,
future copyright, design right and future design right and other
proprietary rights if any for the full term thereof throughout the
world in respect of all copyright works written, originated,
conceived or made by the Executive (except only those copyright or
design right works written, originated, conceived or made by it or
him wholly outside the performance of his duties hereunder) during
the period of this Agreement to hold absolutely including the right
to sue for damages for past infringements.
10.4 The Executive acknowledges that, for the purposes of section 2(1)
of the Registered Designs Act 1949 as amended by the Copyright
Designs and Patents Act 1988, the Company shall be treated as the
original proprietor of a design, where such design is created by
him in the course of the performance of his duties hereunder.
10.5 Any such invention, process or development will be the absolute
property of the Company (except to the extent, if any, provided
otherwise by section 39 of the Patents Act 1977) and the Executive
will, if and when required by the Company (whether during the
continuance of this Agreement or afterwards) and at its expense,
apply, or join with the Company in applying, for letters patent or
other protection in any part of the world for any invention process
or development.
10.6 The Executive agrees and undertakes that he will execute such deeds
or documents and do all such acts and things as may be necessary or
desirable or substantiate and maintain the rights of the Company in
respect of the matters referred to in sub-clauses 10.2 to 10.5
inclusive at the Company's request and expense.
10.7 The Executive irrevocably appoints the Company as his attorney in
his name and on his behalf to execute all documents and do all
things required in order to give full effect to the provisions of
this clause.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
11.1 The Executive shall not at any time either during or after the
termination of this Agreement unless otherwise required to do so by
law divulge or communicate to any person or persons except to those
of the officials of the Company whose province it is to know the
same or turn or seek to turn to the personal use or advantage of
the Executive or any third party any of the secrets or any other
information of whatsoever nature which may be in his possession or
which he may receive or obtain in relation to the dealings
transactions or affairs of any company within the Group or the
identity of those with whom any such company conducts business or
their dealings transactions or affairs (including but not limited
to information relating to the Business) or in relation to the
working of any process or invention or method of carrying on
business which is carried on or used or employed by any such
company or which he may make or discover at any time during the
subsistence of his appointment hereunder or use or attempt to use
any such secrets knowledge or other information in any manner which
may injure or cause loss whether directly or indirectly to any such
company as aforesaid or use his personal knowledge of or influence
over any customers clients suppliers or contractors of or to any
such company so as to take advantage of that
<PAGE> 8
company's trade or business connections and shall at all times use
his best endeavours to prevent disclosure or publication of such
secrets and information.
11.2 The provisions of this Clause shall continue to apply after the
termination of this Agreement but shall cease to apply to any
information or knowledge which may at any time come into the public
domain other than through an unauthorised disclosure.
11.3 The Executive shall not during the subsistence of his appointment
hereunder or upon any termination (howsoever arising) make
otherwise than for the benefit of any Group Company any notes or
memoranda relating to any Group Company or its business all of
which shall in any event belong to the Group and/or the particular
company concerned.
12. TERMINATION OF APPOINTMENT
12.1 If the Executive shall:-
12.1.1 be guilty of any serious or wilful or persistent breach
or breaches or non-observance of any of the provisions
of this Agreement which if capable of remedy is not
remedied within 21 days of being required to do so
(including those of Clause 3.3) or refuse or fail to
carry out any of the duties assigned to him hereunder;
or
12.1.2 be guilty of conduct which in the opinion of the Board
is detrimental to the reputation or interests of the
Company or any other Group Company; or
12.1.3 become or be adjudicated bankrupt or have a petition
for bankruptcy presented against him or enter into any
arrangement or composition with his creditors or become
a patient as defined in the Mental Health Act 1983 or
become disqualified by law from being a director of or
taking part in the management of the Company or any
relevant Group Company; or
12.1.4 be found guilty of any criminal offence other than an
offence which in the reasonable opinion of the Board
does not affect his position as a director of the
Company;
12.1.5 absent himself from the performance of his duties
without just cause or permission;
the Company may in any such case (without prejudice to
any claims which the Company may have in respect of the
Executive's employment) by written notice to the
Executive summarily terminate the Executive's
employment hereunder without any payment in lieu of
notice or otherwise and the Executive shall have no
claim against the Company for damages or otherwise by
reason of such termination nor shall any delay by the
Company in exercising such right of termination
constitute any waiver of it.
12.2 The Company reserves the right to make payments in lieu of any
notice required to be given under this Agreement and any payment so
made in lieu of notice will have PAYE income tax and class 1
national insurance contributions deducted at source.
<PAGE> 9
12.3 The Company also reserves the right to require the Executive to
remain away from work during his notice period as the Board may
consider appropriate and if the Company so requires the Executive
to remain away from work during his notice period (whether notice
shall have been given by the Executive or the Company) the
Executive will be required to comply with any and all conditions
laid down by the Company and (without prejudice to the foregoing)
whilst on full pay during such time will not be permitted to work
for any other person or on his own behalf without the prior written
consent of the Board.
12.4 Should the Executive leave without notice or during any notice
period without the prior consent of the Board the Company reserves
the right to deduct from or set off against any monies due to the
Executive from the Company (whether by way of salary, bonus,
accrued holiday pay, expenses or otherwise) a sum or sums equal to
the aggregate of a day's pay for each day not worked during the
notice period and any monies due (howsoever) from the Executive to
the Company.
13. DUTIES UPON TERMINATION
Upon termination of this Agreement for whatever reason and
howsoever arising or effected the Executive shall forthwith (and in
any event not later than seven days after such termination):-
13.1 deliver up to the Board all documents statistics accounts memoranda
papers records and other items of whatsoever nature or description
which may be in his possession or control and relate in any way to
the business or affairs of any Group Company (howsoever the same
may have come into his possession and whether or not they or any of
them may have been prepared by him) and no such documents or other
items as aforesaid nor any part or copy thereof shall be retained
by him; and
13.2 resign (without any right to claim for compensation or damages for
loss of such office or appointment) from the office of director and
from any other office or appointment held by him in the Company and
any Group Company.
14. NON-COMPETITION
14.1 Subject as hereinafter provided after the termination of his
employment hereunder (howsoever arising or effected) the Executive
shall not either on his own behalf or on behalf of any Connected
Person whether directly or indirectly for a period of one year:-
14.1.1 be engaged or interested or concerned directly or
indirectly in the provision of any services of a type
provided by the Company at any time during the period
of 12 months prior to the date of such termination in a
way which competes with the Company;
14.1.2 directly or indirectly solicit canvass or approach on
behalf of a competing business any person who at the
date of such termination or any time during the period
of 12 months prior to the date of such termination
was:-
(a) a customer or client with whom the Executive
had in such period any dealings or other
involvement on behalf of the Company; or
<PAGE> 10
(b) to the Executive's knowledge negotiating
with the Company for the supply of goods or
services.
14.1.3 in relation to any Competing Business directly or
indirectly accept the custom of any person who at the
date of such cessation or at any time within the period
of 12 months prior to the cessation was a customer or
client of the Company or who was a prospective customer
or client and of whose prospective associations the
Executive was aware.
14.2 The Executive shall not at any time after ceasing to be employed
hereunder:-
14.2.1 interfere or seek to interfere with the continuance of
supplies (or the terms of such supplies) to the Company
from any suppliers who supply or have been supplying
goods materials or services to the Company at any time
during the period of 12 months prior to such cessation;
14.2.2 procure or assist in the commission of acts which if
done by the Executive would be in breach of the terms
of this Agreement;
14.2.3 make any untrue statement in relation to the Company
and in particular shall not represent himself as being
in any way employed by connected with or interested in
or knowledgeable about the business of the Company.
14.3 The Executive agrees that both during and for a period of three
years following termination or expiry of this Agreement he will not
at any time solicit or entice away or endeavour to solicit or
entice away (either alone or jointly with any other person), any
person employed by the Company in an executive, technical or sales
capacity with a view to inducing that person to leave his
employment or office with the Company or any Group Company and to
act for another employer in the same or a similar capacity.
14.4 The covenants contained in Clauses 14.1.1, 14.1.2, 14.1.3, 14.2.1,
14.2.2, 14.2.3 and 14.3 shall be construed as and are separate
covenants one from another.
14.5 The Executive acknowledges and agrees that the restrictions set out
in this Clause 14 are reasonable in all the circumstances and will
not prevent him from earning his livelihood.
14.6 If any covenant or restriction set out in this Clause 14 or any
part thereof is or would be held to be invalid or unenforceable or
void but would not be so held if modified or varied then such
provision shall apply with such modification or variation as may be
necessary to make it valid and effective.
15. RECONSTRUCTION
If before the expiration of this Agreement or any extension hereof
the appointment of the Executive hereunder shall be determined by
reason of reconstruction or amalgamation whether by winding-up of
the Company or otherwise and the Executive shall be offered
immediate employment with any company resulting from or formed or
acquired in connection with such reconstruction or amalgamation of
a similar nature to that hereby agreed on terms no less favourable
to him than those herein contained then
<PAGE> 11
the Executive shall have no claim against the Company for
compensation or damages or otherwise howsoever arising out of such
determination.
16. DISCIPLINARY AND GRIEVANCE PROCEDURES
There are no specific disciplinary rules applicable to the
Executive's employment. If the Executive is dissatisfied with any
disciplinary decision taken in relation to him or has any grievance
relating to his employment he should submit particulars in writing
to the Board who will endeavour to resolve it to the satisfaction
of the Executive and the Company but in the event of any failure to
achieve such outcome the decision of the Board shall be final.
17. PRIOR ARRANGEMENTS
The Executive hereby covenants with the Company that he is not a
party to any agreement or arrangement (formal or informal legal or
moral) such as will or might preclude him from entering into this
Agreement or performing any of his obligations hereunder.
18. NOTICES AND PROCEEDINGS
18.1 Any notice under this Agreement shall be in writing and be signed
by or on behalf of the party giving it.
18.2 Any such notice may be served by leaving it at or sending it by
facsimile e-mail prepaid recorded delivery or registered post to
the address and for the attention of the relevant party as set out
in this Agreement or as otherwise notified from time to time in
accordance with the provisions of this Clause.
18.3 In the event of any action or proceedings (including arbitration
proceedings) being begun pursuant to or in respect of this
Agreement the parties hereto agree that service of the process by
which the action or proceedings is or are begun and of any and all
other documents relating to such action or proceedings shall
(without however preventing any party from utilising such other
modes of service as may for the time being be permitted by the
Rules of the Supreme Court 1965 or any amendment or reissue
thereof) be full and proper if effected in the manner and at the
address prescribed by the provisions of this Clause relating to
notices.
18.4 Any notice and/or any document relating to any action or
proceedings (including an originating process) so served by
facsimile e-mail or post shall be deemed to have been received:-
18.4.1 in the case of facsimile or e-mail 12 hours after the
time of despatch provided (in the case of facsimile) an
error-free transmission report or (in the case of
e-mail) no error message indicating failure to deliver
has been received by the sender; and
18.4.2 in the case of recorded delivery or registered post 24
hours from the time of posting if from and to an
address in the United Kingdom or Northern Ireland or
five days from the time of posting if from or to an
address elsewhere.
<PAGE> 12
19. BENEFIT OF AGREEMENT
This Agreement shall be binding on and shall enure for the benefit
of the successors and assigns and personal representatives (as the
case may be) of each of the parties hereto.
20. ACCRUED RIGHTS
The termination of this Agreement howsoever caused shall be without
prejudice to any obligations or rights of any of the parties hereto
which shall have accrued prior to such termination and shall not
affect any provision of this Agreement which is expressly or by
implication provided to come into effect on or to continue in
effect after such termination.
21. GENERAL
21.1 This Agreement constitutes the entire agreement between the parties
hereto in respect of the matters dealt with herein and supersedes
any previous agreement or arrangement between the parties in
relation to such matters.
21.2 No variation of this Agreement shall be valid or effective unless
made by one or more instruments in writing signed by both of the
parties.
21.3 No failure to exercise and no delay in exercising on the part of
either of the parties hereto any right power or privilege hereunder
shall operate as a waiver thereof nor shall any single partial
exercise of any right power or privilege preclude any other or
further exercise thereof or the exercise of any other right power
or privilege.
21.4 The rights and remedies provided in this Agreement are cumulative
and are not exclusive of any rights or remedies otherwise provided
by law.
21.5 Notwithstanding that any provision of this Agreement may prove to
be illegal or unenforceable the remaining provisions of this
Agreement shall continue in full force and effect.
21.6 Any date or period mentioned in this Agreement may be extended by
agreement between the parties hereto (or such of the parties as may
be affected thereby) but subject thereto as regards any date or
period (whether or not extended as aforesaid) time shall not be of
the essence of this Agreement.
21.7 This Agreement is in substitution for all previous agreements
whether or not reduced to writing between the parties hereto
governing the terms and conditions of employment of the Executive
which shall be deemed to have been terminated by mutual consent on
the date upon which this Agreement is deemed to have commenced but
without prejudice to the intention of the Company and the Executive
that the employment of the Executive hereunder shall be deemed to
be a continuation of his employment with Reynard Composites Limited
which began on [ ] 1984.
22. GOVERNING LAW AND JURISDICTION
22.1 This Agreement shall be governed by and construed in accordance
with English Law.
<PAGE> 13
22.2 Each of the parties hereto irrevocably agrees that the courts of
England and Wales shall have exclusive jurisdiction to hear and
determine any suit action or proceeding and to settle any disputes
which may arise out of or in connection with this Agreement and for
such purposes irrevocably submit to the jurisdiction of such
courts.
IN WITNESS whereof the parties have executed these presents as their deed the
day and year first above written.
<PAGE> 14
EXECUTED as a DEED by )
REYNARD MOTORSPORT LIMITED )
by )
Director
Secretary/Director
SIGNED and DELIVERED as a Deed )
by the said PAUL OWENS )
in the presence of:- )
<PAGE> 1
Exhibit 10.6
DATED 1998
--------------------------
REYNARD MOTORSPORT LIMITED
- and -
ADRIAN JOHN REYNARD
--------------------------
AGREEMENT
for service as
Chairman
(Overseas)
--------------------------
Davies Arnold Cooper
London
Tel: 0171 936 2222
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
CLAUSE HEADING PAGE
1. Interpretation............................................................................................3
2. Appointment And Term......................................................................................4
3. Duties ...................................................................................................5
4. Remuneration..............................................................................................6
5. Expenses .................................................................................................6
6. Other Interests...........................................................................................7
7. Holiday ...............................................................................................7
8. Sickness/Accident.........................................................................................8
9. Intellectual Property.....................................................................................8
10. Non-Disclosure Of Confidential Information...............................................................10
11. Termination Of Appointment...............................................................................11
12. Duties Upon Termination..................................................................................12
13. Non-Competition..........................................................................................13
14. Reconstruction...........................................................................................14
15. Disciplinary And Grievance Procedures....................................................................15
16. Prior Arrangements.......................................................................................15
17. Pension, Etc Provisions..................................................................................15
18. Notices And Proceedings..................................................................................15
19. Benefit Of Agreement.....................................................................................16
20. Accrued Rights...........................................................................................16
21. General .................................................................................................16
22. Governing Law And Jurisdiction...........................................................................17
</TABLE>
<PAGE> 3
AGREEMENT dated 1998
(1) REYNARD MOTORSPORT LIMITED (Company no 2843803) whose registered office is
at Reynard Centre, Telford Road, Bicester, Oxfordshire OX6 0UY ("the
Company"); and
(2) ADRIAN JOHN REYNARD of c/o Reynard Motorsport Limited aforesaid ("the
Executive").
NOW IT IS HEREBY AGREED as follows:-
1. INTERPRETATION
In this Agreement and in the Schedules hereto unless the context otherwise
requires:-
1.1 The following words and expressions shall bear the following meanings:-
"BAR" British American Racing Limited;
"BAR CONSULTANCY DEED" a Deed dated 27 November 1997 made between BAR (1)
RF1 (2) the Executive (3) in connection with the provision of services by
RF1 to BAR;
"THE BOARD" the Board of Directors for the time being of the Company
(including any duly constituted committee thereof);
"THE BUSINESS"
(1) the business of BAR, being the business of owning and running a
Formula One racing car team which shall compete in the FIA Formula One
Grand Prix Championship and designing, developing, manufacturing and
maintaining Formula One racing cars for such team; and/or
(2) the business of the Company being the design and manufacture of racing
cars and racing car components and consultancy services to the
automotive and transportation industries;
"COMPETING BUSINESS" any business which competes with the Business and
which includes any business supporting the manufacture, promotion or
marketing of tobacco products other than those of British - American
Tobacco Company Limited ("BAT") and Connected Persons of BAT and any
anti-smoking campaign or products of any other activity inconsistent with
the manufacture, promotion or marketing of tobacco products of BAT or
Connected Persons of BAT;
3
<PAGE> 4
"CONNECTED PERSON" any person with which the Executive is connected (as
determined by section 839 of the Income and Corporation Taxes Act 1988);
"THE GROUP" the Company and all Group Companies from time to time;
"GROUP COMPANY" the Company and every company which is for the time being
directly or indirectly a subsidiary of the Company or which is a holding
company of the Company or a subsidiary of any such holding company as such
phrases are defined in s736 of the Companies Act 1985;
"RF1" Reynard Formula 1 Limited, a wholly owned subsidiary of the Company;
"TERRITORY" the world outside the United Kingdom.
1.2 Words denoting the singular number shall include the plural and vice versa.
1.3 Words denoting any gender shall include all genders.
1.4 References to persons shall include corporations and other associations or
bodies of persons whether or not incorporated and any government, state or
agency of a state whether or not any of the foregoing has any separate
legal personality.
1.5 Any reference to a statute or statutory provision shall be construed as
including a reference to any statutory modification, consolidation or
re-enactment (whether before or after the date hereof) from time to time
and shall include reference to any provision of which it is a re-enactment
(whether with or without modification).
1.6 Clause headings are for ease of reference only and shall not affect the
construction or interpretation of this Agreement.
2. APPOINTMENT AND TERM
2.1 Subject to earlier termination by the Company at any time pursuant to the
provisions of Clauses 2.1, 8 or 11 the Executive shall serve the Company as
Chairman in the Territory subject to the provisions of this Agreement from
the date of this Agreement until 31st December 2001 and continuing
thereafter subject to not less than six months notice of termination by the
Company or the Executive such notice not to expire prior to 31st December
2001.
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2.2 Notwithstanding the provisions of clause 2.1, this Agreement may be
terminated by not less than three months' notice from the Company following
termination or notice of termination (for any reason) of the BAR
Consultancy Deed. In the event of termination of the BAR Consultancy Deed
without the Company exercising its right to terminate under this clause,
the Executive's remuneration may be reviewed and revised by the Company to
take account of the revised circumstances (including the cessation of
payments to RF1 under the BAR Consultancy Deed).
2.3 During the continuance of his appointment hereunder the Executive shall
well and faithfully serve the Company and all Group Companies for which he
may be required to perform services and use his best endeavours to promote
the interests of the Company and the Group and devote so much of his time
and attention as may be necessary to the proper performance of his duties
hereunder.
2.4 During the time that the Executive is performing his duties he shall at the
Company's request perform services for RF1 for such number of working days
per annum as are required to enable that Company to discharge its duties
under the BAR Consultancy Deed.
3. DUTIES
3.1 The Executive shall within the Territory perform such duties and exercise
such powers and discretions consistent with the position to which he is
appointed hereunder or with his status qualifications and experience as the
Board may from time to time reasonably delegate to him including but not
limited to:
3.1.1 acting as Chairman of the Company in respect of its business in its
overseas markets; and
3.1.2 the duties and responsibilities within the Territory of "the
Executive" set out in the BAR Consultancy Deed;
in every case on such terms and conditions and subject to such restrictions
as the Board or (pursuant to the BAR Consultancy Deed) the Board of
Directors of BAR as the case may be may from time to time reasonably
impose.
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3.2 The Executive shall in the performance of his duties hereunder and without
further remuneration (except as otherwise agreed) act also as a director,
officer or employee of any other Group Company as the Board may require and
shall carry out the duties attendant on any such appointment as if they
were duties to be performed by him on behalf of the Company hereunder.
3.3 The Executive shall whenever required to do so fully and promptly give to
the Board or the Board of Directors of BAR (in respect of duties pursuant
to the BAR Consultancy Deed) such explanations information and assistance
as the Board or the Board of Directors of BAR may require of all
transactions and affairs relating to the Company and every Group Company in
or on which he is from time engaged or for which he is from time to time
responsible and BAR.
3.4 The Executive's employment shall be based at such location outside the
United Kingdom as the Board may from time to time deem appropriate and
notify to the Executive. The Executive shall if called upon to do so and
without any further remuneration than is mentioned herein (but subject to
reimbursement of his reasonable travel expenses incurred in connection
therewith) undertake such travel and perform such duties in any part of the
Territory as the Board may think fit and as the Company's and/or any Group
Company's business may dictate and, without prejudice to the generality
hereof, as is required properly to fulfil the duties of RF1 within the
Territory under the BAR Consultancy Deed.
4. REMUNERATION
4.1 The Company shall pay to the Executive by way of remuneration for the
proper performance of his duties hereunder a fixed salary at the rate of
One million one hundred and twenty five thousand US dollars ($1,125,000)
per annum such salary to be deemed to accrue from day-to-day and to be
payable by equal monthly instalments (less tax and other appropriate
deductions) in arrears on or about the last day of the month. The Company
shall at the request of the Executive pay all or part of such salary to a
foreign bank account and such payment(s) shall be wholly or partly
denominated in such foreign currency as the Executive shall request.
4.2 Such remuneration shall (without obligation) and subject to clause 2.1 be
reviewed annually.
4.3 If the Executive receives, directly or indirectly, any benefit from BAR
(other than pursuant to this Agreement) whether by way of additional
remuneration or "benefit in kind", he shall notify
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<PAGE> 7
the Company of the same and (save to the extent dealt with under any other
agreement between the Executive and the Company) an amount equal to the
fair value of the same shall be deducted from the Executive's remuneration
hereunder either in the month following his receipt of such benefit (in the
case of a "one off" benefit) or on a monthly basis for the duration of the
benefit (in the case of a continuing benefit). In the event of any
difference between the Company and the Executive as to the value of such a
benefit, the same shall be referred to the Company's auditors whose
decision shall be final and binding on the parties.
5. EXPENSES
In addition to the salary payable hereunder there shall be reimbursed to
the Executive such sums as shall cover all expenses properly and reasonably
incurred by him in the performance of his duties hereunder on production of
the relevant receipts or other evidence of payment therefor satisfactory to
the Company including expenses of entertainment subsistence and travelling.
6. OTHER INTERESTS
During the continuance of this appointment and for the period of one year
following the termination of this Agreement the Executive and his Connected
Persons shall not directly or indirectly carry on or be engaged or
interested in any Competing Business PROVIDED THAT nothing in this Clause
shall prevent the Executive holding or owning for bona fide investment
purposes not more than three per cent of any class of stocks shares or
debentures quoted or dealt in on the London Stock Exchange.
7. HOLIDAY
In addition to normal bank and public holidays the Executive shall be
entitled to 15 working days holiday with pay in each year (running 1
October to 30 September) (in addition to any holiday entitlement pursuant
to any other agreement with the Company) to be taken at such times and in
such periods as shall be mutually agreed between the Executive and the
Company and which are consistent with the proper performance of the duties
of the Executive hereunder. Where the Executive is employed for part of a
year only, he will be entitled to paid holiday pro rata to the number of
completed weeks worked by him in the relevant year.
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<PAGE> 8
8. SICKNESS/ACCIDENT
8.1 Without prejudice to the following provisions of this Clause 8 or of Clause
2.1 if the Executive becomes incapable of carrying out his duties hereunder
because of illness or other incapacity he shall on the production of a
medical certificate or other evidence satisfactory to the Board (the Board
reserving the right to require the Executive to be examined by a doctor
nominated by the Board) be entitled to receive:
8.1.1 the Executive's salary at the rate determined pursuant to Clause 4
(inclusive of any sickness benefit statutory sick pay or allowance or
other injury or disablement benefit to which the Executive may be
entitled whether or not claimed) during a continuous period or an
aggregate of three months in any period of 12 months;
8.1.2 one half of the Executive's salary at the rate determined pursuant to
Clause 4 (inclusive of any sickness benefit, statutory sick pay or
allowance or other injury or disablement benefit to which the
Executive may be entitled whether or not claimed) during a continuous
period or an aggregate of over three months but less than six months
in any period of 12 months;
8.1.3 on the expiry of such period (aggregate or continuous) of six months
referred to in Clause 8.1.2 if the Executive remains incapable of
carrying out his duties hereunder because of illness or incapacity
(while such illness or incapacity continues) such salary as the Board
may absolutely determine.
8.2 If the Executive shall be incapacitated by illness or accident for a
continuous period or an aggregate period of six months in any period of 12
months at any time during the subsistence of this appointment the Company
may terminate the appointment of the Executive hereunder forthwith and
thereupon the Executive shall have no claim against the Company in respect
of such termination.
9. INTELLECTUAL PROPERTY
9.1 As part of, and in the normal course of, his duties under the Agreement,
the Executive will be concerned to carry on research into and development
of the processes, products, designs, equipment, techniques and projects
from time to time used, made or undertaken by the
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<PAGE> 9
Company or any Group Company or which could be used, made or undertaken by
them, and to invent, discover, design, develop or improve processes,
products, designs, equipment and techniques for the benefit of and for use
by the Company and any Group Company.
9.2 If the Executive in the course of his normal duties or other duties
specifically assigned to him (whether or not during normal working hours)
either alone or in conjunction with any other person:
9.2.1 originates any design (whether registrable or not) or other work in
which copyright or design right may subsist; and/or
9.2.2 makes, discovers or produces any invention, process or development
he shall forthwith disclose the same to the Company and shall (subject to
sub-clauses 9.3, 9.4 and 9.5) regard himself in relation thereto as a
trustee for the Company.
9.3 The Executive hereby assigns wholly and absolutely the copyright, future
copyright, design right and future design right and other proprietary
rights if any for the full term thereof throughout the world in respect of
all copyright works written, originated, conceived or made by the Executive
(except only those copyright or design right works written, originated,
conceived or made by it or him wholly outside the performance of his duties
hereunder) during the period of this Agreement to hold absolutely including
the right to sue for damages for past infringements.
9.4 The Executive acknowledges that, for the purposes of section 2(1) of the
Registered Designs Act 1949 as amended by the Copyright Designs and Patents
Act 1988, the Company shall be treated as the original proprietor of a
design, where such design is created by him in the course of the
performance of his duties hereunder.
9.5 Any such invention, process or development will be the absolute property of
the Company (except to the extent, if any, provided otherwise by section 39
of the Patents Act 1977) and the Executive will, if and when required by
the Company (whether during the continuance of this Agreement or
afterwards) and at its expense, apply, or join with the Company in
applying, for letters patent or other protection in any part of the world
for any invention process or development.
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<PAGE> 10
9.6 The Executive agrees and undertakes that he will execute such deeds or
documents and do all such acts and things as may be necessary or desirable
or substantiate and maintain the rights of the Company in respect of the
matters referred to in sub-clauses 9.2. to 9.5 inclusive at the Company's
request and expense.
9.7 The Executive irrevocably appoints the Company as his attorney in his name
and on his behalf to execute all documents and do all things required in
order to give full effect to the provisions of this clause.
10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
10.1 The Executive shall not at any time either during or after the termination
of this Agreement unless otherwise required to do so by law divulge or
communicate to any person or persons except to those of the officials of
the Company whose province it is to know the same or turn or seek to turn
to the personal use or advantage of the Executive or any third party any of
the secrets or any other information of whatsoever nature which may be in
his possession or which he may receive or obtain in relation to the
dealings transactions or affairs of any company within the Group or of BAR
or the identity of those with whom any such company conducts business or
their dealings transactions or affairs (including but not limited to
information relating to the Business or finances, assets, liabilities,
dealings, transactions, know-how, drivers, team sponsors, sub-sponsors,
suppliers, customers, processes or affairs of BAR) or in relation to the
working of any process or invention or method of carrying on business which
is carried on or used or employed by any such company or which he may make
or discover at any time during the subsistence of his appointment hereunder
or use or attempt to use any such secrets knowledge or other information in
any manner which may injure or cause loss whether directly or indirectly to
any such company as aforesaid or use his personal knowledge of or influence
over any customers clients suppliers or contractors of or to any such
company so as to take advantage of that company's trade or business
connections and shall at all times use his best endeavours to prevent
disclosure or publication of such secrets and information.
10.2 The provisions of this Clause shall continue to apply after the termination
of this Agreement but shall cease to apply to any information or knowledge
which may at any time come into the public domain other than through an
unauthorised disclosure.
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10.3 The Executive shall not during the subsistence of his appointment hereunder
or upon any termination (howsoever arising) make otherwise than for the
benefit of any Group Company any notes or memoranda relating to any Group
Company or its business all of which shall in any event belong to the Group
and/or the particular company concerned.
11. TERMINATION OF APPOINTMENT
11.1 If the Executive shall:-
11.1.1 be guilty of any serious or wilful or persistent breach or breaches
or non-observance of any of the provisions of this Agreement which
if capable of remedy is not remedied within 21 days of being
required to do so (including those of Clause 3.3) or refuse or fail
to carry out any of the duties assigned to him hereunder; or
11.1.2 be guilty of conduct which in the opinion of the Board is
detrimental to the reputation or interests of the Company or any
other Group Company; or
11.1.3 become or be adjudicated bankrupt or have a petition for bankruptcy
presented against him or enter into any arrangement or composition
with his creditors or become a patient as defined in the Mental
Health Act 1983 or become disqualified by law from being a director
of or taking part in the management of the Company or any relevant
Group Company; or
11.1.4 be found guilty of any criminal offence other than an offence which
in the reasonable opinion of the Board does not affect his position
as a director of the Company;
11.1.5 absent himself from the performance of his duties without just cause
or permission;
the Company may in any such case (without prejudice to any claims which the
Company may have in respect of the Executive's employment) by written
notice to the Executive summarily terminate the Executive's employment
hereunder without any payment in lieu of notice or otherwise and the
Executive shall have no claim against the Company for damages or otherwise
by reason of such termination nor shall any delay by the Company in
exercising such right of termination constitute any waiver of it.
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<PAGE> 12
11.2 The Company reserves the right to make payments in lieu of any notice
required to be given under this Agreement.
11.3 The Company also reserves the right to require the Executive to remain away
from work during his notice period as the Board may consider appropriate
and if the Company so requires the Executive to remain away from work
during his notice period (whether notice shall have been given by the
Executive or the Company) the Executive will be required to comply with any
and all conditions laid down by the Company and (without prejudice to the
foregoing) whilst on full pay during such time will not be permitted to
work for any other person or on his own behalf without the prior written
consent of the Board.
11.4 Should the Executive leave without notice or during any notice period
without the prior consent of the Board the Company reserves the right to
deduct from or set off against any monies due to the Executive from the
Company (whether by way of salary, bonus, accrued holiday pay, expenses or
otherwise) a sum or sums equal to the aggregate of a day's pay for each day
not worked during the notice period and any monies due (howsoever) from the
Executive to the Company.
12. DUTIES UPON TERMINATION
Upon termination of this Agreement for whatever reason and howsoever
arising or effected the Executive shall forthwith (and in any event not
later than seven days after such termination):-
12.1 deliver up to the Board all documents statistics accounts memoranda papers
records and other items of whatsoever nature or description which may be in
his possession or control and relate in any way to the business or affairs
of any Group Company or BAR (howsoever the same may have come into his
possession and whether or not they or any of them may have been prepared by
him) and no such documents or other items as aforesaid nor any part or copy
thereof shall be retained by him; and
12.2 resign (without any right to claim for compensation or damages for loss of
such office or appointment) from the office of director and from any other
office or appointment held by him in the Company and any Group Company.
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<PAGE> 13
13. NON-COMPETITION
13.1 Subject as hereinafter provided after the termination of his employment
hereunder (howsoever arising or effected) the Executive shall not either on
his own behalf or on behalf of any Connected Person whether directly or
indirectly for a period of one year:-
13.1.1 be engaged or interested or concerned directly or indirectly in the
provision of any services of a type provided by the Company at any
time during the period of 12 months prior to the date of such
termination in a way which competes with the Company;
13.1.2 directly or indirectly solicit canvass or approach on behalf of a
competing business any person who at the date of such termination or
any time during the period of 12 months prior to the date of such
termination was:-
(a) a customer or client with whom the Executive had in such period
any dealings or other involvement on behalf of the Company or
BAR; or
(b) to the Executive's knowledge negotiating with the Company or
BAR for the supply of goods or services.
13.1.3 in relation to any Competing Business directly or indirectly accept
the custom of any person who at the date of such cessation or at any
time within the period of 12 months prior to the cessation was a
customer or client of the Company or BAR or who was a prospective
customer or client and of whose prospective associations the
Executive was aware.
13.2 The Executive shall not at any time after ceasing to be employed
hereunder:-
13.2.1 interfere or seek to interfere with the continuance of supplies (or
the terms of such supplies) to the Company from any suppliers who
supply or have been supplying goods materials or services to the
Company at any time during the period of 12 months prior to such
cessation;
13.2.2 procure or assist in the commission of acts which if done by the
Executive would be in breach of the terms of this Agreement;
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13.2.3 make any untrue statement in relation to the Company and in
particular shall not represent himself as being in any way employed
by connected with or interested in or knowledgeable about the
business of the Company.
13.3 The Executive agrees that both during and for a period of three years
following termination or expiry of this Agreement he will not at any time
solicit or entice away or endeavour to solicit or entice away (either alone
or jointly with any other person), any person employed by the Company in an
executive, technical or sales capacity with a view to inducing that person
to leave his employment or office with the Company or any Group Company and
to act for another employer in the same or a similar capacity.
13.4 Without prejudice to the foregoing provisions of clause 13 the Executive
will comply with the restrictions in clause 7 of the BAR Consultancy Deed
and will enter into such direct agreement with BAR in respect of the same
as it may reasonably require.
13.5 The covenants contained in Clauses 13.1.1, 13.1.2, 13.1.3, 13.2.1, 13.2.2,
13.2.3, 13.3 and 13.4 shall be construed as and are separate covenants one
from another.
13.6 The Executive acknowledges and agrees that the restrictions set out in this
Clause 13 are reasonable in all the circumstances and will not prevent him
from earning his livelihood.
13.7 If any covenant or restriction set out in this Clause 13 or any part
thereof is or would be held to be invalid or unenforceable or void but
would not be so held if modified or varied then such provision shall apply
with such modification or variation as may be necessary to make it valid
and effective.
14. RECONSTRUCTION
If before the expiration of this Agreement or any extension hereof the
appointment of the Executive hereunder shall be determined by reason of
reconstruction or amalgamation whether by winding-up of the Company or
otherwise and the Executive shall be offered immediate employment with any
company resulting from or formed or acquired in connection with such
reconstruction or amalgamation of a similar nature to that hereby agreed on
terms no less favourable to him than those herein contained then the
Executive shall have no claim against
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<PAGE> 15
the Company for compensation or damages or otherwise howsoever arising out
of such determination.
15. DISCIPLINARY AND GRIEVANCE PROCEDURES
There are no specific disciplinary rules applicable to the Executive's
employment. If the Executive is dissatisfied with any disciplinary decision
taken in relation to him or has any grievance relating to his employment he
should submit particulars in writing to the Board who will endeavour to
resolve it to the satisfaction of the Executive and the Company but in the
event of any failure to achieve such outcome the decision of the Board
shall be final.
16. PRIOR ARRANGEMENTS
The Executive hereby covenants with the Company that he is not a party to
any agreement or arrangement (formal or informal legal or moral) such as
will or might preclude him from entering into this Agreement or performing
any of his obligations hereunder.
17. PENSION, ETC PROVISIONS
There is no pension scheme in which the Executive will be entitled to
participate by virtue of his appointment hereunder.
18. NOTICES AND PROCEEDINGS
18.1 Any notice under this Agreement shall be in writing and be signed by or on
behalf of the party giving it.
18.2 Any such notice may be served by leaving it at or sending it by facsimile
e-mail prepaid recorded delivery or registered post to the address and for
the attention of the relevant party as set out in this Agreement or as
otherwise notified from time to time in accordance with the provisions of
this Clause.
18.3 In the event of any action or proceedings (including arbitration
proceedings) being begun pursuant to or in respect of this Agreement the
parties hereto agree that service of the process by which the action or
proceedings is or are begun and of any and all other documents relating to
such action or proceedings shall (without however preventing any party from
utilising such
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other modes of service as may for the time being be permitted by the Rules
of the Supreme Court 1965 or any amendment or reissue thereof) be full and
proper if effected in the manner and at the address prescribed by the
provisions of this Clause relating to notices.
18.4 Any notice and/or any document relating to any action or proceedings
(including an originating process) so served by facsimile e-mail or post
shall be deemed to have been received:-
18.4.1 in the case of facsimile or e-mail 12 hours after the time of
despatch provided (in the case of facsimile) an error-free
transmission report or (in the case of e-mail) no error message
indicating failure to deliver has been received by the sender; and
18.4.2 in the case of recorded delivery or registered post 24 hours from
the time of posting if from and to an address in the United Kingdom
or Northern Ireland or five days from the time of posting if from or
to an address elsewhere.
19. BENEFIT OF AGREEMENT
This Agreement shall be binding on and shall enure for the benefit of the
successors and assigns and personal representatives (as the case may be) of
each of the parties hereto.
20. ACCRUED RIGHTS
The termination of this Agreement howsoever caused shall be without
prejudice to any obligations or rights of any of the parties hereto which
shall have accrued prior to such termination and shall not affect any
provision of this Agreement which is expressly or by implication provided
to come into effect on or to continue in effect after such termination.
21. GENERAL
21.1 This Agreement constitutes the entire agreement between the parties hereto
in respect of the matters dealt with herein and supersedes any previous
agreement or arrangement between the parties in relation to such matters.
21.2 No variation of this Agreement shall be valid or effective unless made by
one or more instruments in writing signed by both of the parties.
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21.3 No failure to exercise and no delay in exercising on the part of either of
the parties hereto any right power or privilege hereunder shall operate as
a waiver thereof nor shall any single partial exercise of any right power
or privilege preclude any other or further exercise thereof or the exercise
of any other right power or privilege.
21.4 The rights and remedies provided in this Agreement are cumulative and are
not exclusive of any rights or remedies otherwise provided by law.
21.5 Notwithstanding that any provision of this Agreement may prove to be
illegal or unenforceable the remaining provisions of this Agreement shall
continue in full force and effect.
21.6 Any date or period mentioned in this Agreement may be extended by agreement
between the parties hereto (or such of the parties as may be affected
thereby) but subject thereto as regards any date or period (whether or not
extended as aforesaid) time shall not be of the essence of this Agreement.
21.7 This Agreement is in substitution for all previous agreements whether or
not reduced to writing between the parties hereto governing the terms and
conditions of employment of the Executive which shall be deemed to have
been terminated by mutual consent on the date upon which this Agreement is
deemed to have commenced but without prejudice to the intention of the
Company and the Executive that the employment of the Executive hereunder
shall be deemed to be a continuation of his previous employment with the
Company in the Territory.
22. GOVERNING LAW AND JURISDICTION
22.1 This Agreement shall be governed by and construed in accordance with
English Law.
22.2 Each of the parties hereto irrevocably agrees that the courts of England
and Wales shall have exclusive jurisdiction to hear and determine any suit
action or proceeding and to settle any disputes which may arise out of or
in connection with this Agreement and for such purposes irrevocably submit
to the jurisdiction of such courts.
IN WITNESS whereof the parties have executed these presents as their deed the
day and year first above written.
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EXECUTED AS A DEED by.... )
REYNARD MOTORSPORT LIMITED )
by )
Director
Secretary/Director
SIGNED and DELIVERED )
by the said ADRIAN JOHN REYNARD )
in the presence of:- )
18
<PAGE> 1
Exhibit 10.7
DATED 1998
----------------------
REYNARD MOTORSPORT LIMITED (1)
- and -
ADRIAN JOHN REYNARD (2)
----------------------
AGREEMENT
for service as
Managing Director
(United Kingdom)
----------------------
Davies Arnold Cooper
London
Tel: 0171 936 2222
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
CLAUSE HEADING PAGE
<S> <C>
1. Interpretation............................................................................................1
2. Appointment And Term......................................................................................2
3. Duties....................................................................................................3
4. Remuneration..............................................................................................4
5. Benefits ...............................................................................................4
6. Expenses ...............................................................................................5
7. Other Interests...........................................................................................5
8. Holiday ...............................................................................................6
9. Sickness/Accident.........................................................................................6
10. Intellectual Property.....................................................................................7
11. Non-Disclosure Of Confidential Information................................................................8
12. Termination Of Appointment................................................................................8
13. Duties Upon Termination..................................................................................10
14. Non-Competition..........................................................................................10
15. Reconstruction...........................................................................................12
16. Disciplinary And Grievance Procedures....................................................................12
17. Prior Arrangements.......................................................................................12
18. Notices And Proceedings..................................................................................12
19. Benefit Of Agreement.....................................................................................13
20. Accrued Rights...........................................................................................13
21. General .................................................................................................13
22. Governing Law And Jurisdiction...........................................................................14
</TABLE>
<PAGE> 3
AGREEMENT dated 1998
(1) REYNARD MOTORSPORT LIMITED (Company no 2843803) whose registered office is
at Reynard Centre, Telford Road, Bicester, Oxfordshire OX6 0UY ("the
Company"); and
(2) ADRIAN JOHN REYNARD of c/o Reynard Motorsport Limited aforesaid ("the
Executive").
NOW IT IS HEREBY AGREED as follows:-
1. INTERPRETATION
In this Agreement and in the Schedules hereto unless the context otherwise
requires:-
1.1 The following words and expressions shall bear the following meanings:-
"BAR" British American Racing Limited;
"BAR CONSULTANCY DEED" a Deed dated 27 November 1997 made between BAR (1)
RF1 (2) the Executive (3) in connection with the provision of services by
RF1 to BAR;
"THE BOARD" the Board of Directors for the time being of the Company
(including any duly constituted committee thereof);
"THE BUSINESS"
(1) the business of BAR, being the business of owning and running a
Formula One racing car team which shall compete in the FIA Formula One
Grand Prix Championship and designing, developing, manufacturing and
maintaining Formula One racing cars for such team; and/or
(2) the business of the Company being the design and manufacture of racing
cars and racing car components and consultancy services to the
automotive and transportation industries;
"COMPETING BUSINESS" any business which competes with the Business and
which includes any business supporting the manufacture, promotion or
marketing of tobacco products other than those of British - American
Tobacco Company Limited ("BAT") and Connected Persons of BAT and any
anti-smoking campaign or products of any other activity inconsistent with
the
<PAGE> 4
manufacture, promotion or marketing of tobacco products of BAT or Connected
Persons of BAT;
"CONNECTED PERSON" any person with which the Executive is connected (as
determined by section 839 of the Income and Corporation Taxes Act 1988);
"THE GROUP" the Company and all Group Companies from time to time;
"GROUP COMPANY" the Company and every company which is for the time being
directly or indirectly a subsidiary of the Company or which is a holding
company of the Company or a subsidiary of any such holding company as such
phrases are defined in s736 of the Companies Act 1985;
"RF1" Reynard Formula 1 Limited, a wholly owned subsidiary of the Company;
"TERRITORY" the United Kingdom.
1.2 Words denoting the singular number shall include the plural and vice versa.
1.3 Words denoting any gender shall include all genders.
1.4 References to persons shall include corporations and other associations or
bodies of persons whether or not incorporated and any government, state or
agency of a state whether or not any of the foregoing has any separate
legal personality.
1.5 Any reference to a statute or statutory provision shall be construed as
including a reference to any statutory modification, consolidation or
re-enactment (whether before or after the date hereof) from time to time
and shall include reference to any provision of which it is a re-enactment
(whether with or without modification).
1.6 Clause headings are for ease of reference only and shall not affect the
construction or interpretation of this Agreement.
2. APPOINTMENT AND TERM
2.1 Subject to earlier termination by the Company at any time pursuant to the
provisions of Clauses 2.2, 9 or 12 the Executive shall serve the Company in
the Territory as Chairman subject to the provisions of this Agreement from
the date hereof until 31st December 2001 and continuing thereafter subject
to not less than six months notice of termination by the Company or the
Executive such notice not to expire prior to 31st December 2001.
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2.2 Notwithstanding the provisions of clause 2.1, this Agreement may be
terminated by not less than three months' notice from the Company following
termination or notice of termination (for any reason) of the BAR
Consultancy Deed. In the event of termination of the BAR Consultancy Deed
without the Company exercising its right to terminate under this clause the
Executive's remuneration may be reviewed and revised by the Company to take
account of the revised circumstances (including the cessation of payments
to RF1 under the BAR Consultancy Deed).
2.3 During the continuance of his appointment hereunder the Executive shall
well and faithfully serve the Company and all Group Companies for which he
may be required to perform services and use his best endeavours to promote
the interests of the Company and the Group and devote so much of his time
and attention as may be necessary to the proper performance of his duties
hereunder.
2.4 During the time that the Executive is performing his duties he shall at the
Company's request perform services for RF1 for such number of working days
per annum as are required to enable that Company to discharge its duties
under the BAR Consultancy Deed.
3. DUTIES
3.1 The Executive shall within the Territory perform such duties and exercise
such powers and discretions consistent with the position to which he is
appointed hereunder or with his status qualifications and experience as the
Board may from time to time reasonably delegate to him including but not
limited to:
3.1.1 being the Managing Director of the Company in respect of its business
in the United Kingdom; and
3.1.2 the duties and responsibilities within the Territory of "the
Executive" set out in the BAR Consultancy Deed;
in every case on such terms and conditions and subject to such restrictions
as the Board or (pursuant to the BAR Consultancy Deed) the Board of
Directors of BAR as the case may be may from time to time reasonably
impose.
3.2 The Executive shall in the performance of his duties hereunder and without
further remuneration (except as otherwise agreed) act also as a director,
officer or employee of any other Group Company as the Board may require and
shall carry out the duties attendant on any such appointment as if they
were duties to be performed by him on behalf of the Company hereunder.
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3.3 The Executive shall whenever required to do so fully and promptly give to
the Board or the Board of Directors of BAR (in respect of duties pursuant
to the BAR Consultancy Deed) such explanations information and assistance
as the Board or the Board of Directors of BAR may require of all
transactions and affairs relating to the Company and every Group Company in
or on which he is from time engaged or for which he is from time to time
responsible and BAR.
3.4 The Executive's employment shall be based at Bicester, Brackley or at such
other location in the Territory as the Board may from time to time deem
appropriate and notify to the Executive. The Executive shall if called upon
to do so and without any further remuneration than is mentioned herein (but
subject to reimbursement of his reasonable travel expenses incurred in
connection therewith) undertake such travel and perform such duties in any
part of the Territory as the Board may think fit and as the Company's
and/or any Group Company's business may dictate and, without prejudice to
the generality hereof, as is required properly to fulfil the duties of RF1
within the Territory under the BAR Consultancy Deed.
4. REMUNERATION
4.1 The Company shall pay to the Executive by way of remuneration for the
proper performance of his duties hereunder a fixed salary at the rate of
Three hundred and seventy five thousand US dollars ($375,000) per annum
such salary to be deemed to accrue from day-to-day and to be payable by
equal monthly instalments (less tax and other appropriate deductions) in
arrears on or about the last day of the month;
4.2 Such remuneration shall (without obligation) and subject to clause 2.2 be
reviewed annually.
4.3 If the Executive receives, directly or indirectly, any benefit from BAR
(other than pursuant to this Agreement) whether by way of additional
remuneration or "benefit in kind", he shall notify the Company of the same
and (save to the extent dealt with under any other agreement between the
Executive and the Company) an amount equal to the fair value of the same
shall be deducted from the Executive's remuneration hereunder either in the
month following his receipt of such benefit (in the case of a "one off"
benefit) or on a monthly basis for the duration of the benefit (in the case
of a continuing benefit). In the event of any difference between the
Company and the Executive as to the value of such a benefit, the same shall
be referred to the Company's auditors whose decision shall be final and
binding on the parties.
5. BENEFITS
5.1 Motor Car
To assist the Executive in the performance of his duties hereunder the
Company shall procure that the Director is provided with a motor car of a
type considered by the Board to be consistent with the status of the
Executive and shall pay all taxation insurance premiums and
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<PAGE> 7
running and other expenses in connection therewith including maintenance
and repairs (but not any taxation imposed upon the Executive personally by
reason of the provision of such car for his use). The Executive shall be
entitled to use such car for his private purposes and the Company shall
meet the running expenses (including petrol and oil costs) in respect of
such private use (save for petrol and oil costs on private or personal
travel outside the United Kingdom which shall be paid for by the
Executive). Such car shall at all times remain the property of the Company
or of a Group Company (as the case may be) and the Executive shall comply
with any regulations issued by the Company from time to time concerning
motor cars provided for the use of employees and as and when reasonably so
required submit the car and his own driving licence for inspection by the
Board or such agent as the Board may specify.
5.2 Pension
There is a pension scheme (including life assurance benefits) operated by
or for the Group known as The Reynard Directors' Pension Scheme of which
the Executive is entitled to be a member. Particulars of the scheme are
contained in the booklet which has already been supplied to the Executive
and of the contents of which he shall accordingly be deemed to have actual
notice.
The Company will make a monthly contribution into such Scheme equivalent to
the amount contributed by the Executive into such Scheme with a limit in
the case of the Company's contribution to ten percent (10%) of the
Executive's aggregate remuneration from the Company under this Agreement
and any other service agreement between the Executive and the Company.
5.3 Private Medical Insurance
The Executive is entitled to the benefit of the Company's private medical
insurance scheme from time to time.
5.4 Permanent Health Insurance
The Company shall reimburse the Executive for premiums paid by him in
respect of a permanent health insurance scheme subject to review from time
to time by the Board.
6. EXPENSES
In addition to the salary payable hereunder there shall be reimbursed to
the Executive such sums as shall cover all expenses properly and reasonably
incurred by him in the performance of his duties hereunder on production of
the relevant receipts or other evidence of payment therefor satisfactory to
the Company including expenses of entertainment subsistence and travelling.
7. OTHER INTERESTS
During the continuance of this appointment and for the period of one year
following the termination of this Agreement the Executive and his Connected
Persons shall not directly or indirectly carry on or be engaged or
interested in any Competing Business PROVIDED THAT nothing in this Clause
shall prevent the Executive holding or owning for bona fide investment
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purposes not more than three per cent of any class of stocks shares or
debentures quoted or dealt in on the London Stock Exchange.
8. HOLIDAY
In addition to normal bank and public holidays the Executive shall be
entitled to 15 working days holiday with pay in each year (running 1
October to 30 September) (in addition to any holiday entitlement pursuant
to any other agreement with the Company) to be taken at such times and in
such periods as shall be mutually agreed between the Executive and the
Company and which are consistent with the proper performance of the duties
of the Executive hereunder. Where the Executive is employed for part of a
year only, he will be entitled to paid holiday pro rata to the number of
completed weeks worked by him in the relevant year.
9. SICKNESS/ACCIDENT
9.1 Without prejudice to the following provisions of this Clause 9 or of Clause
2.1 if the Executive becomes incapable of carrying out his duties hereunder
because of illness or other incapacity he shall on the production of a
medical certificate or other evidence satisfactory to the Board (the Board
reserving the right to require the Executive to be examined by a doctor
nominated by the Board) be entitled to receive:
9.1.1 the Executive's salary at the rate determined pursuant to Clause 4
(inclusive of any sickness benefit statutory sick pay or
allowance or other injury or disablement benefit to which the
Executive may be entitled whether or not claimed) during a
continuous period or an aggregate of three months in any period
of 12 months;
9.1.2 one half of the Executive's salary at the rate determined pursuant
to Clause 4 (inclusive of any sickness benefit, statutory sick
pay or allowance or other injury or disablement benefit to which
the Executive may be entitled whether or not claimed) during a
continuous period or an aggregate of over three months but less
than six months in any period of 12 months;
9.1.3 on the expiry of such period (aggregate or continuous) of six months
referred to in Clause 9.1.2 if the Executive remains incapable of
carrying out his duties hereunder because of illness or incapacity
(while such illness or incapacity continues) such salary as the
Board may absolutely determine.
9.2 If the Executive shall be incapacitated by illness or accident for a
continuous period or an aggregate period of six months in any period of 12
months at any time during the subsistence of this appointment the Company
may terminate the appointment of the Executive hereunder forthwith and
thereupon the Executive shall have no claim against the Company in respect
of such termination.
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10. INTELLECTUAL PROPERTY
10.1 As part of, and in the normal course of, his duties under the Agreement,
the Executive will be concerned to carry on research into and development
of the processes, products, designs, equipment, techniques and projects
from time to time used, made or undertaken by the Company or any Group
Company or which could be used, made or undertaken by them, and to invent,
discover, design, develop or improve processes, products, designs,
equipment and techniques for the benefit of and for use by the Company and
any Group Company.
10.2 If the Executive in the course of his normal duties or other duties
specifically assigned to him (whether or not during normal working hours)
either alone or in conjunction with any other person:
10.2.1 originates any design (whether registrable or not) or other work in
which copyright or design right may subsist; and/or
10.2.2 makes, discovers or produces any invention, process or development
he shall forthwith disclose the same to the Company and shall (subject to
sub-clauses 10.3, 10.4 and 10.5) regard himself in relation thereto as a
trustee for the Company.
10.3 The Executive hereby assigns wholly and absolutely the copyright, future
copyright, design right and future design right and other proprietary
rights if any for the full term thereof throughout the world in respect of
all copyright works written, originated, conceived or made by the Executive
(except only those copyright or design right works written, originated,
conceived or made by it or him wholly outside the performance of his duties
hereunder) during the period of this Agreement to hold absolutely including
the right to sue for damages for past infringements.
10.4 The Executive acknowledges that, for the purposes of section 2(1) of the
Registered Designs Act 1949 as amended by the Copyright Designs and Patents
Act 1988, the Company shall be treated as the original proprietor of a
design, where such design is created by him in the course of the
performance of his duties hereunder.
10.5 Any such invention, process or development will be the absolute property of
the Company (except to the extent, if any, provided otherwise by section 39
of the Patents Act 1977) and the Executive will, if and when required by
the Company (whether during the continuance of this Agreement or
afterwards) and at its expense, apply, or join with the Company in
applying, for letters patent or other protection in any part of the world
for any invention process or development.
10.6 The Executive agrees and undertakes that he will execute such deeds or
documents and do all such acts and things as may be necessary or desirable
or substantiate and maintain the rights of
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the Company in respect of the matters referred to in sub-clauses 10.2 to
10.5 inclusive at the Company's request and expense.
10.7 The Executive irrevocably appoints the Company as his attorney in his name
and on his behalf to execute all documents and do all things required in
order to give full effect to the provisions of this clause.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
11.1 The Executive shall not at any time either during or after the termination
of this Agreement unless otherwise required to do so by law divulge or
communicate to any person or persons except to those of the officials of
the Company whose province it is to know the same or turn or seek to turn
to the personal use or advantage of the Executive or any third party any of
the secrets or any other information of whatsoever nature which may be in
his possession or which he may receive or obtain in relation to the
dealings transactions or affairs of any company within the Group or of BAR
or the identity of those with whom any such company conducts business or
their dealings transactions or affairs (including but not limited to
information relating to the Business or finances, assets, liabilities,
dealings, transactions, know-how, drivers, team sponsors, sub-sponsors,
suppliers, customers, processes or affairs of BAR) or in relation to the
working of any process or invention or method of carrying on business which
is carried on or used or employed by any such company or which he may make
or discover at any time during the subsistence of his appointment hereunder
or use or attempt to use any such secrets knowledge or other information in
any manner which may injure or cause loss whether directly or indirectly to
any such company as aforesaid or use his personal knowledge of or influence
over any customers clients suppliers or contractors of or to any such
company so as to take advantage of that company's trade or business
connections and shall at all times use his best endeavours to prevent
disclosure or publication of such secrets and information.
11.2 The provisions of this Clause shall continue to apply after the termination
of this Agreement but shall cease to apply to any information or knowledge
which may at any time come into the public domain other than through an
unauthorised disclosure.
11.3 The Executive shall not during the subsistence of his appointment hereunder
or upon any termination (howsoever arising) make otherwise than for the
benefit of any Group Company any notes or memoranda relating to any Group
Company or its business all of which shall in any event belong to the Group
and/or the particular company concerned.
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12. TERMINATION OF APPOINTMENT
12.1 If the Executive shall:-
12.1.1 be guilty of any serious or wilful or persistent breach or breaches
or non-observance of any of the provisions of this Agreement
which if capable of remedy is not remedied within 21 days of
being required to do so (including those of Clause 3.3) or refuse
or fail to carry out any of the duties assigned to him hereunder;
or
12.1.2 be guilty of conduct which in the opinion of the Board is
detrimental to the reputation or interests of the Company or any
other Group Company; or
12.1.3 become or be adjudicated bankrupt or have a petition for bankruptcy
presented against him or enter into any arrangement or composition
with his creditors or become a patient as defined in the Mental
Health Act 1983 or become disqualified by law from being a director
of or taking part in the management of the Company or any relevant
Group Company; or
12.1.4 be found guilty of any criminal offence other than an offence which
in the reasonable opinion of the Board does not affect his position
as a director of the Company;
12.1.5 absent himself from the performance of his duties without just cause
or permission;
the Company may in any such case (without prejudice to any claims which the
Company may have in respect of the Executive's employment) by written
notice to the Executive summarily terminate the Executive's employment
hereunder without any payment in lieu of notice or otherwise and the
Executive shall have no claim against the Company for damages or otherwise
by reason of such termination nor shall any delay by the Company in
exercising such right of termination constitute any waiver of it.
12.2 The Company reserves the right to make payments in lieu of any notice
required to be given under this Agreement and any payment so made in lieu
of notice will have PAYE income tax and class 1 national insurance
contributions deducted at source.
12.3 The Company also reserves the right to require the Executive to remain away
from work during his notice period as the Board may consider appropriate
and if the Company so requires the Executive to remain away from work
during his notice period (whether notice shall have been given by the
Executive or the Company) the Executive will be required to comply with any
and all conditions laid down by the Company and (without prejudice to the
foregoing) whilst on full pay during such time will not be permitted to
work for any other person or on his own behalf without the prior written
consent of the Board.
12.4 Should the Executive leave without notice or during any notice period
without the prior consent of the Board the Company reserves the right to
deduct from or set off against any monies due to the Executive from the
Company (whether by way of salary, bonus, accrued holiday pay,
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expenses or otherwise) a sum or sums equal to the aggregate of a day's pay
for each day not worked during the notice period and any monies due
(howsoever) from the Executive to the Company.
13. DUTIES UPON TERMINATION
Upon termination of this Agreement for whatever reason and howsoever
arising or effected the Executive shall forthwith (and in any event not
later than seven days after such termination):-
13.1 deliver up to the Board all documents statistics accounts memoranda papers
records and other items of whatsoever nature or description which may be in
his possession or control and relate in any way to the business or affairs
of any Group Company or BAR (howsoever the same may have come into his
possession and whether or not they or any of them may have been prepared by
him) and no such documents or other items as aforesaid nor any part or copy
thereof shall be retained by him; and
13.2 resign (without any right to claim for compensation or damages for loss of
such office or appointment) from the office of director and from any other
office or appointment held by him in the Company and any Group Company.
14. NON-COMPETITION
14.1 Subject as hereinafter provided after the termination of his employment
hereunder (howsoever arising or effected) the Executive shall not either on
his own behalf or on behalf of any Connected Person whether directly or
indirectly for a period of one year:-
14.1.1 be engaged or interested or concerned directly or indirectly in the
provision of any services of a type provided by the Company at
any time during the period of 12 months prior to the date of such
termination in a way which competes with the Company;
14.1.2 directly or indirectly solicit canvass or approach on behalf of a
competing business any person who at the date of such termination
or any time during the period of 12 months prior to the date of
such termination was:-
(a) a customer or client with whom the Executive had in such
period any dealings or other involvement on behalf of the
Company or BAR; or
(b) to the Executive's knowledge negotiating with the Company or
BAR for the supply of goods or services.
14.1.3 in relation to any Competing Business directly or indirectly accept
the custom of any person who at the date of such cessation or at
any time within the period of 12
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months prior to the cessation was a customer or client of the
Company or BAR or who was a prospective customer or client and of
whose prospective associations the Executive was aware.
14.2 The Executive shall not at any time after ceasing to be employed
hereunder:-
14.2.1 interfere or seek to interfere with the continuance of supplies (or
the terms of such supplies) to the Company from any suppliers who
supply or have been supplying goods materials or services to the
Company at any time during the period of 12 months prior to such
cessation;
14.2.2 procure or assist in the commission of acts which if done by the
Executive would be in breach of the terms of this Agreement;
14.2.3 make any untrue statement in relation to the Company and in
particular shall not represent himself as being in any way
employed by connected with or interested in or knowledgeable
about the business of the Company.
14.3 The Executive agrees that both during and for a period of three years
following termination or expiry of this Agreement he will not at any time
solicit or entice away or endeavour to solicit or entice away (either alone
or jointly with any other person), any person employed by the Company in an
executive, technical or sales capacity with a view to inducing that person
to leave his employment or office with the Company or any Group Company and
to act for another employer in the same or a similar capacity.
14.4 Without prejudice to the foregoing provisions of clause 14 the Executive
will comply with the restrictions in clause 7 of the BAR Consultancy Deed
and will enter into such direct agreement with BAR in respect of the same
as it may reasonably require.
14.5 The covenants contained in Clauses 14.1.1, 14.1.2, 14.1.3, 14.2.1, 14.2.2,
14.2.3, 14.3 and 14.4 shall be construed as and are separate covenants one
from another.
14.6 The Executive acknowledges and agrees that the restrictions set out in this
Clause 14 are reasonable in all the circumstances and will not prevent him
from earning his livelihood.
14.7 If any covenant or restriction set out in this Clause 14 or any part
thereof is or would be held to be invalid or unenforceable or void but
would not be so held if modified or varied then such provision shall apply
with such modification or variation as may be necessary to make it valid
and effective.
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15. RECONSTRUCTION
If before the expiration of this Agreement or any extension hereof the
appointment of the Executive hereunder shall be determined by reason of
reconstruction or amalgamation whether by winding-up of the Company or
otherwise and the Executive shall be offered immediate employment with any
company resulting from or formed or acquired in connection with such
reconstruction or amalgamation of a similar nature to that hereby agreed on
terms no less favourable to him than those herein contained then the
Executive shall have no claim against the Company for compensation or
damages or otherwise howsoever arising out of such determination.
16. DISCIPLINARY AND GRIEVANCE PROCEDURES
There are no specific disciplinary rules applicable to the Executive's
employment. If the Executive is dissatisfied with any disciplinary decision
taken in relation to him or has any grievance relating to his employment he
should submit particulars in writing to the Board who will endeavour to
resolve it to the satisfaction of the Executive and the Company but in the
event of any failure to achieve such outcome the decision of the Board
shall be final.
17. PRIOR ARRANGEMENTS
The Executive hereby covenants with the Company that he is not a party to
any agreement or arrangement (formal or informal legal or moral) such as
will or might preclude him from entering into this Agreement or performing
any of his obligations hereunder.
18. NOTICES AND PROCEEDINGS
18.1 Any notice under this Agreement shall be in writing and be signed by or on
behalf of the party giving it.
18.2 Any such notice may be served by leaving it at or sending it by facsimile
e-mail prepaid recorded delivery or registered post to the address and for
the attention of the relevant party as set out in this Agreement or as
otherwise notified from time to time in accordance with the provisions of
this Clause.
18.3 In the event of any action or proceedings (including arbitration
proceedings) being begun pursuant to or in respect of this Agreement the
parties hereto agree that service of the process by which the action or
proceedings is or are begun and of any and all other documents relating to
such action or proceedings shall (without however preventing any party from
utilising such other modes of service as may for the time being be
permitted by the Rules of the Supreme Court 1965 or any amendment or
reissue thereof) be full and proper if effected in the manner and at the
address prescribed by the provisions of this Clause relating to notices.
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18.4 Any notice and/or any document relating to any action or proceedings
(including an originating process) so served by facsimile e-mail or post
shall be deemed to have been received:-
18.4.1 in the case of facsimile or e-mail 12 hours after the time of
despatch provided (in the case of facsimile) an error-free
transmission report or (in the case of e-mail) no error message
indicating failure to deliver has been received by the sender;
and
18.4.2 in the case of recorded delivery or registered post 24 hours from
the time of posting if from and to an address in the United
Kingdom or Northern Ireland or five days from the time of posting
if from or to an address elsewhere.
19. BENEFIT OF AGREEMENT
This Agreement shall be binding on and shall enure for the benefit of the
successors and assigns and personal representatives (as the case may be) of
each of the parties hereto.
20. ACCRUED RIGHTS
The termination of this Agreement howsoever caused shall be without
prejudice to any obligations or rights of any of the parties hereto which
shall have accrued prior to such termination and shall not affect any
provision of this Agreement which is expressly or by implication provided
to come into effect on or to continue in effect after such termination.
21. GENERAL
21.1 This Agreement constitutes the entire agreement between the parties hereto
in respect of the matters dealt with herein and supersedes any previous
agreement or arrangement between the parties in relation to such matters.
21.2 No variation of this Agreement shall be valid or effective unless made by
one or more instruments in writing signed by both of the parties.
21.3 No failure to exercise and no delay in exercising on the part of either of
the parties hereto any right power or privilege hereunder shall operate as
a waiver thereof nor shall any single partial exercise of any right power
or privilege preclude any other or further exercise thereof or the exercise
of any other right power or privilege.
21.4 The rights and remedies provided in this Agreement are cumulative and are
not exclusive of any rights or remedies otherwise provided by law.
21.5 Notwithstanding that any provision of this Agreement may prove to be
illegal or unenforceable the remaining provisions of this Agreement shall
continue in full force and effect.
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21.6 Any date or period mentioned in this Agreement may be extended by agreement
between the parties hereto (or such of the parties as may be affected
thereby) but subject thereto as regards any date or period (whether or not
extended as aforesaid) time shall not be of the essence of this Agreement.
21.7 This Agreement is in substitution for all previous agreements whether or
not reduced to writing between the parties hereto governing the terms and
conditions of employment of the Executive which shall be deemed to have
been terminated by mutual consent on the date upon which this Agreement is
deemed to have commenced but without prejudice to the intention of the
Company and the Executive that the employment of the Executive hereunder
shall be deemed to be a continuation of his previous employment with the
Company in the Territory.
22. GOVERNING LAW AND JURISDICTION
22.1 This Agreement shall be governed by and construed in accordance with
English Law.
22.2 Each of the parties hereto irrevocably agrees that the courts of England
and Wales shall have exclusive jurisdiction to hear and determine any suit
action or proceeding and to settle any disputes which may arise out of or
in connection with this Agreement and for such purposes irrevocably submit
to the jurisdiction of such courts.
IN WITNESS whereof the parties have executed these presents as their deed the
day and year first above written.
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EXECUTED as a DEED by )
REYNARD MOTORSPORT LIMITED )
by )
Director
Secretary/Director
SIGNED and DELIVERED )
by the said ADRIAN JOHN REYNARD )
in the presence of:- )
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<PAGE> 1
Exhibit 23.1
THE ACCOMPANYING FINANCIAL STATEMENTS REFLECT CHANGES FOR THE REORGANIZATION
(EXCLUDING THE EFFECTS OF THE PROPOSED STOCK SPLIT) WHICH IS TO BE EFFECTED
PRIOR TO THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT. THE FOLLOWING CONSENT
AND REPORT ON SCHEDULES IS IN THE FORM WHICH WILL BE SIGNED BY DELOITTE & TOUCHE
UPON CONSUMMATION OF THE ABOVE EVENT, WHICH IS DESCRIBED IN NOTE 11 OF NOTES TO
THE COMBINED FINANCIAL STATEMENTS OF REYNARD MOTORSPORT, INC. AND RELATED
COMPANIES AND ASSUMING THAT FROM SEPTEMBER 14, 1998 TO THE DATE OF SUCH EVENT,
NO OTHER EVENTS HAVE OCCURRED WHICH WOULD AFFECT THE ACCOMPANYING COMBINED
FINANCIAL STATEMENTS AND NOTES THERETO.
DELOITTE & TOUCHE
London, England
October 27, 1998
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
To the Board of Directors and Stockholders of
Reynard Motorsport, Inc. and Related Companies
We consent to the use in this Registration Statement of Reynard Motorsport, Inc.
and Related Companies (the "Company") on Form S-1 of a) our report of the
combined financial statements of Reynard Motorsport, Inc. and Related Companies
dated September 14, 1998 except for Note 11 as to which date is , 1998
and b) our report of the consolidated financial statements of Princetown
Holdings Limited and Subsidiary dated September 14, 1998, appearing in the
Prospectus, which is a part of this Registration Statement, and to the
references to us under the headings "Selected Financial Data" and "Experts" in
such Prospectus.
Our audits of the combined financial statements of Reynard Motorsport, Inc. and
Related Companies also included the financial statement schedules of Reynard
Motorsport, Inc. and Related Companies, listed in Item 16. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedules, when considered in relation to the basic
combined financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
London, England
, 1998
<PAGE> 1
Exhibit 23.2
KEGLER, BROWN, HILL & RITTER
[LETTER HEAD]
, 1998
Reynard Motorsport, Inc.
8431 Georgetown Road, Suite 700
Indianapolis, Indiana 46268
Gentlemen:
We hereby consent to the reference to Kegler, Brown, Hill & Ritter Co.,
L.P.A. appearing under the heading "Legal Matters" in the Registration Statement
of Reynard Motorsport, Inc. and any amendments thereto and the Prospectus of the
Company relating to its public offering of shares of its Common Stock, par value
$.01 per share. In giving such consent, we do not hereby admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
KEGLER, BROWN, HILL & RITTER
By: /s/ JACK A. BJERKE
--------------------------------------
Jack A. Bjerke
<PAGE> 1
Exhibit 24.1
SECRETARY'S CERTIFICATE
The undersigned hereby certifies that:
He is now and at all times herein mentioned has been the duly elected,
qualified and acting Secretary of Reynard Motorsport, Inc., a duly organized and
existing Delaware corporation, and in charge of the minute books and corporate
records of said corporation. The following is a true copy of resolutions
unanimously adopted by the Board of Directors of said corporation on September
29, 1998; and said resolutions have not been modified or rescinded, and are at
the date of this Certificate, in full force and effect.
RESOLVED FURTHER, that Alex Hawkridge is authorized to sign the
registration statement and execute a power of attorney on behalf of
the Corporation and as the Corporation's President and Chief Executive
Officer (Principal Executive Officer), and that John C. Gower is
authorized to sign the registration statement and execute a power of
attorney as the Corporation's Chief (and Principal) Financial Officer
and Chief Accounting Officer, which powers of attorney appoint Alex
Hawkridge, Adrian Reynard, Jack A. Bjerke, and Amy M. Shepherd and
each of them, as Attorney-in-Fact and agents to execute all necessary
documents required to be filed with the Securities and Exchange
Commission or any state in connection with the registration of the
Stock.
IN WITNESS WHEREOF, the undersigned has executed this certificate and
affixed the corporate seal of said corporation on this 26th day of October, 1998
/s/ JOHN C. GOWER
-------------------------------
John C. Gower, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMBINED
FINANCIAL STATEMENTS FOR REYNARD MOTORSPORT, INC. AND RELATED COMPANIES FOR THE
NINE MONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 727
<SECURITIES> 0
<RECEIVABLES> 7,507
<ALLOWANCES> 110
<INVENTORY> 4,316
<CURRENT-ASSETS> 12,715
<PP&E> 8,947
<DEPRECIATION> 3,253
<TOTAL-ASSETS> 18,409
<CURRENT-LIABILITIES> 17,508
<BONDS> 0
0
0
<COMMON> 422
<OTHER-SE> 319
<TOTAL-LIABILITY-AND-EQUITY> 18,409
<SALES> 49,842
<TOTAL-REVENUES> 49,842
<CGS> 25,453
<TOTAL-COSTS> 25,453
<OTHER-EXPENSES> 21,462
<LOSS-PROVISION> (64)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,098
<INCOME-TAX> 1,105
<INCOME-CONTINUING> 1,993
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,993
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMBINED
FINANCIAL STATEMENTS FOR REYNARD MOTORSPORT, INC. AND RELATED COMPANIES FOR THE
NINE MONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 3,152
<SECURITIES> 0
<RECEIVABLES> 11,962
<ALLOWANCES> 1,002
<INVENTORY> 2,329
<CURRENT-ASSETS> 17,516
<PP&E> 13,323
<DEPRECIATION> 4,322
<TOTAL-ASSETS> 26,972
<CURRENT-LIABILITIES> 25,471
<BONDS> 0
0
0
<COMMON> 422
<OTHER-SE> (1,573)
<TOTAL-LIABILITY-AND-EQUITY> 26,972
<SALES> 50,763
<TOTAL-REVENUES> 50,763
<CGS> 25,657
<TOTAL-COSTS> 25,657
<OTHER-EXPENSES> 25,432
<LOSS-PROVISION> 892
<INTEREST-EXPENSE> 670
<INCOME-PRETAX> (869)
<INCOME-TAX> 1,634
<INCOME-CONTINUING> (2,503)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,503)
<EPS-PRIMARY> (.85)
<EPS-DILUTED> (.85)
</TABLE>
