<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1999
REGISTRATION NO. 333-66317
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
REYNARD MOTORSPORT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3711 52-2121044
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</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 S. 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. [ ]
------------------------
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.
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<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 the 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 April 2, 1999
3,600,000 SHARES
[LOGO]
REYNARD MOTORSPORT, INC.
COMMON STOCK
------------------
Reynard Motorsport, Inc. is offering 3,240,000 shares of common stock and
the selling stockholders are offering 360,000 shares of common stock in a firmly
underwritten offering. This is Reynard's initial public offering, and no public
market currently exists for its shares. Reynard anticipates that the initial
public offering price for its shares will be between $13.00 and $15.00 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 "RND."
------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 9.
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<TABLE>
<CAPTION>
Per Share Total
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Public Offering Price $ $
Discounts and Commissions to Underwriters $ $
Proceeds to Reynard $ $
Proceeds to the Selling Stockholders $ $
</TABLE>
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 a 30-day option to
purchase up to an additional 540,000 shares of common stock to cover any over-
allotments. NationsBanc Montgomery Securities LLC expects to deliver the shares
of common stock to investors on , 1999.
NATIONSBANC MONTGOMERY SECURITIES LLC
FIRST UNION CAPITAL MARKETS CORP.
------------------
, 1999
<PAGE> 3
[PHOTOS]
<PAGE> 4
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.
This prospectus may not be distributed in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of their
business or otherwise in circumstances which will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995. In addition, this prospectus may only be
distributed to a person in the United Kingdom who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom this prospectus may otherwise
lawfully be distributed.
--------------------------------
TABLE OF CONTENTS
--------------------------------
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Page
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Prospectus Summary.......................................... 3
Risk Factors................................................ 9
Use of Proceeds............................................. 18
Dividend Policy............................................. 19
Dilution.................................................... 20
Capitalization.............................................. 21
Selected Consolidated Financial and Operating Data.......... 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Motorsport Industry Overview................................ 40
Business.................................................... 48
Management.................................................. 66
Principal and Selling Stockholders.......................... 76
Certain Transactions........................................ 77
Description of Capital Stock................................ 78
Shares Eligible for Future Sale............................. 81
Underwriting................................................ 83
Legal Matters............................................... 85
Experts..................................................... 85
Index to Financial Statements............................... F-1
</TABLE>
<PAGE> 5
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. All of the share information contained in this prospectus
has been adjusted to reflect the issuance of an aggregate of 601,401 shares for
pending acquisitions. 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 540,000 shares of common stock. Fiscal
year references are to the fiscal year ended September 30.
REYNARD MOTORSPORT
Reynard is one of the world's leading designers and manufacturers of
production racing cars and other high performance specialty vehicles. 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 42.5% from 1994 to 1998. We had net income of
$1.1 million for 1996 and $2.0 million for 1997. We had a net loss of $4.8
million for 1998, as a result of our $7.3 million write-off of our equity
investment in British American Racing. We design, manufacture and sell racing
cars for competition in:
- the CART Series, the premier open-wheel racing series in North
America;
- the Formula Nippon Series, the Formula 3000 open-wheel racing series
in Japan; and
- the Barber Dodge Pro Series, an open-wheel one-make development
racing series in the United States.
We also design and engineer touring and sports racing cars in conjunction
with automobile manufacturers, such as Ford, Chrysler, Dodge and Panoz, for
competition in international championships. British American Racing is a joint
venture in which we are partners with British American Tobacco and Mount Eagle,
Inc. BAR made its debut in Formula One in March 1999.
OUR KEY COMPETITIVE STRENGTHS
HISTORY OF WINNING. Since the beginning of fiscal 1994, our racing cars
have won a total of 85 races and eight championships in the CART Series, Formula
3000 competition and the Formula Nippon Series. As a result of our winning track
record, we supplied 22 of the 28 full-season entries in the 1998 CART Series.
LEADER IN THE DEVELOPMENT AND APPLICATION OF MOTORSPORTS TECHNOLOGY. We
employ a scientific approach in the design, engineering and manufacture of
racing cars. Our participation in 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 more junior racing series.
STRATEGIC RELATIONSHIP WITH BRITISH AMERICAN RACING IN FORMULA ONE. As a
result of our involvement with BAR, we have access to some of BAR's
technological know-how (not in written or machine readable form). We believe
that this access to research and development ideas enhances our other
motorsports projects by improving our knowledge database and methodology.
3
<PAGE> 6
HIGHLY EXPERIENCED MANAGEMENT AND OPERATING TEAM. Our senior management
team is comprised of former racing car drivers, managers, race team members and
motorsports enthusiasts who are highly experienced and well known within the
motorsports sector.
COMMITMENT TO CUSTOMER SERVICE. We demonstrate our commitment to service by
assigning a liaison engineer to each Reynard racing car in the CART Series. 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 design, engineer and manufacture the
majority of the components of our racing cars. With the pending acquisition of
Gemini Transmissions Limited, 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
by:
- capitalizing on the continued expansion of the CART Series and other
existing series;
- introducing a newly designed racing car for the 1999 Formula Nippon
Series; and
- expanding our presence in the touring and sports car racing programs.
You should also consider the information under "Risk Factors -- Contraction
of Motorsports Industry Appeal."
ENTER NEW RACE SERIES AND CONTRACTS WITH NEW CUSTOMERS. We intend to enter
additional motorsports markets through the sale of racing cars and equipment and
through the sale of technological support. The pending acquisition of Riley &
Scott, Inc. will allow us to expand into other racing series, including sports
car and the Indy Racing League.
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 computer-aided
aerodynamic design analysis, wind tunnel testing and other testing and design
services.
LEVERAGE MOTORSPORTS TECHNOLOGY. We intend to expand selectively our high
margin non-motorsports operations by applying the technological and engineering
resources we have developed in the motorsports sector to other industries where
wind resistance, weight, fuel conservation and/or safety concerns are factors.
SELECTIVE ACQUISITIONS. We believe a number of opportunities exist to make
selective and strategic acquisitions within the motorsports industry. We will
generally seek to acquire companies that:
- complement and expand our current operations;
- have an experienced management team;
- have an industry leading reputation; and
- have strong customer and supplier relationships.
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<PAGE> 7
PENDING ACQUISITIONS
On March 26, 1999, we 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 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 purchase price
is $9.8 million. We will pay $5.4 million in cash upon the closing of this
offering and will issue 281,565 shares of our common stock. In addition, we will
pay $0.5 million in December 2001. We expect the Gemini acquisition to close
before the closing of this offering, but the cash portion of the purchase price
will be paid with proceeds from this offering.
On March 31, 1999, we entered into an agreement to acquire Riley & Scott,
Inc. Riley & Scott designs and manufactures racing cars and is an industry
leader in sports car design and production. The purchase price is $10.4 million.
We will pay $4.4 million in cash upon the closing of this offering and will
issue 319,836 shares of our common stock. In addition, if on the date that is
one year from the closing, the market value of a share of our common stock is
less that $18.76 per share, we will pay the Riley & Scott shareholders the
difference between the market value per share and $18.76. We expect the Riley &
Scott acquisition to close before the closing of this offering, but the cash
portion of the purchase price will be paid with proceeds from this offering.
5
<PAGE> 8
THE OFFERING
The share information has been adjusted to reflect the issuance of 281,565
shares in connection with the acquisition of Gemini and 319,836 shares in
connection with the acquisition of Riley & Scott. It excludes:
- 540,000 shares issuable upon exercise of the over-allotment option
granted to the underwriters by the selling stockholders that is described
in "Underwriting;"
- 2,450,000 shares reserved for issuance under our employee and director
stock option plans; and
- 426,449 options to purchase shares that we granted in September 1998 at
an exercise price of $13.49 per share.
Common stock offered by
Reynard....................... 3,240,000 shares
Common stock offered by the
selling stockholders............ 360,000 shares
Total shares offered............ 3,600,000 shares
Shares to be outstanding after
the offering.................... 14,502,615 shares
Selling stockholders............ Dr. Adrian Reynard and Mr. Richard Gorne.
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 $40.4
million. From the proceeds, we expect:
- to use approximately $5.4 million to fund
the cash portion of the purchase price for
Gemini;
- to use approximately $4.4 million to fund
the cash portion of the purchase price for
Riley & Scott;
- to use approximately $3.3 million to
upgrade computational fluid dynamics
computer systems and to purchase additional
computer equipment;
- to use approximately $8.6 million to repay
a loan to Reynard from Dr. Reynard;
- to use approximately $1.5 million to repay
a loan to Reynard from Reynard Racing Cars
Directors Pension Fund;
- to use approximately $3.7 million to repay
outstanding indebtedness under our bank
line of credit; and
- to use approximately $13.5 million to fund
future growth and for working capital and
general corporate purposes.
Reynard will not receive any proceeds from
the sale of stock by the selling
stockholders.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the financial data for our business. The pro
forma statements of income data for the year ended September 30, 1998 and the
three months ended December 31, 1998 give effect to our acquisitions of Gemini
and Riley & Scott and our corporate reorganization in September 1998, as if
these events had each occurred on October 1, 1997. You should refer to
"Business -- Reorganization" for a discussion of our reorganization.
General and administrative expenses include compensation to Dr. Reynard.
Effective December 1, 1998, we entered into an agreement with Dr. Reynard to fix
his total compensation at $1.5 million per year, plus pension contributions. The
1998 pro forma statement of income data for the year ended September 30, 1998
excludes compensation payments of $6,340,000, that will be discontinued as a
result of this agreement. The 1998 pro forma statement of income data for the
three months ended December 31, 1998 includes compensation payments of $265,000
that will be payable as a result of this agreement.
General and administrative expenses for 1998 also include compensation
expense of $239,000 related to our issuance of stock options to Alex S.
Hawkridge on September 30, 1998 below their fair value on the date of the grant.
The interest expense we recorded for the year ended September 30, 1998 and
the three months ended December 31, 1997 and 1998 relates to interest recorded
on notes payable to Dr. Reynard. We have excluded interest expense of $919,000
for the year ended September 30, 1998 and $225,000 for the three months ended
December 31, 1998 on our pro forma statements of income data since the notes
will be repaid with a portion of the proceeds of this offering.
The equity investment written-off for 1998 represents our total write-off
of our investment in BAR, including our proportionate share of bank debt
guarantees. We do not expect to incur additional losses in the future relating
to our investment in BAR. We do not plan to make additional equity investments
in BAR or to extend additional guarantees for BAR indebtedness.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31,
------------------------------------- ---------------------------
HISTORICAL PRO HISTORICAL PRO
--------------------------- FORMA ----------------- FORMA
1996 1997 1998 1998 1997 1998 1998
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES................................ $28,899 $49,842 $58,717 $68,345 $11,119 $12,338 $13,719
------- ------- ------- ------- ------- ------- -------
COST OF GOODS SOLD...................... 13,678 25,453 29,089 34,540 6,488 5,701 6,360
------- ------- ------- ------- ------- ------- -------
GROSS PROFIT............................ 15,221 24,389 29,628 33,805 4,631 6,637 7,359
GENERAL AND ADMINISTRATIVE EXPENSES..... 13,766 21,462 24,367 21,743 6,202 4,981 6,259
------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS........... 1,455 2,927 5,261 12,062 (1,571) 1,656 1,100
Write-off of equity investment........ -- -- (7,349) (7,349) (4,278) --
Minority interest in loss (profit) of
subsidiary.......................... -- -- 105 105 -- (58) (58)
Interest income....................... 166 171 51 51 -- 25 25
Interest expense...................... -- -- (919) (190) (221) (233) (63)
------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES....... 1,621 3,098 (2,851) 4,679 (6,070) 1,390 1,004
INCOME TAX EXPENSE (BENEFIT)............ 563 1,105 1,910 3,995 (521) 536 429
------- ------- ------- ------- ------- ------- -------
NET INCOME (LOSS)....................... $ 1,058 $ 1,993 $(4,761) $ 684 $(5,549) $ 854 $ 575
======= ======= ======= ======= ======= ======= =======
EARNINGS (LOSS) PER SHARE --
BASIC AND DILUTED..................... $ .10 $ .19 $ (.45) $ .05 $ (.52) $ .08 $ .04
======= ======= ======= ======= ======= ======= =======
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31,
------------------------------------- ---------------------------
HISTORICAL PRO HISTORICAL PRO
--------------------------- FORMA ----------------- FORMA
1996 1997 1998 1998 1997 1998 1998
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
WEIGHTED AVERAGE SHARES OUTSTANDING --
BASIC AND DILUTED..................... 10,661 10,661 10,661 13,131 10,661 10,661 13,131
======= ======= ======= ======= ======= ======= =======
OTHER DATA:
Gross margin.......................... 52.7% 48.9% 50.5% 49.5% 41.6% 53.8% 53.6%
Operating margin...................... 5.0% 5.9% 9.0% 17.6% (14.1)% 13.4% 8.0%
Depreciation and amortization......... $ 535 $ 898 $ 1,040 $ 3,060 $ 276 $ 386 $ 925
Capital and tooling expenditures...... $ 1,963 $ 3,494 $ 6,368 $ 6,835 $ 328 $ 4,110 $ 4,147
Number of cars produced............... 38 67 78 N/A 44 26 N/A
Number of racing wins................. 16 16 22 N/A 4 0 N/A
</TABLE>
The following table is a summary of our balance sheet at December 31, 1998.
The pro forma column reflects the issuance of stock for the acquisitions of
Riley & Scott and Gemini and consummation of those acquisitions. Finally, it
reflects our issuance of stock in this offering and our use of the net proceeds
we expect to receive, using an assumed initial offering price of $14.00 per
share. See "Use of Proceeds" and "Capitalization" for a more detailed discussion
of our assumptions.
<TABLE>
<CAPTION>
AT DECEMBER 31,
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PRO
FORMA
1998 1998
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $(12,065) $19,434
Total assets.............................................. 33,093 74,589
Long-term debt and capital lease obligations (less current
portion)................................................ -- 1,115
Total stockholders' equity (deficit)...................... (2,126) 48,200
</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
If there is a contraction in the appeal of motorsports, in terms of
television viewership, attendance and overall popularity, then the various race
series in which we participate would be adversely affected. If the various race
series are adversely affected, then our financial and business results could be
adversely affected.
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:
- the financial condition of such companies;
- the availability and cost of alternative promotional outlets; and
- 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.
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. 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.
SUBSTANTIAL COMPETITION IN OUR INDUSTRY
Our 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
9
<PAGE> 12
in the CART Series or to negotiate contracts for a one make series such as the
Barber Dodge Series.
POTENTIAL LOSS OF MOTORSPORTS INDUSTRY SPONSORSHIPS - TOBACCO AND ALCOHOL
Governmental authorities in many countries regulate advertising by
companies in the alcohol and tobacco industries. Companies involved in these
industries have been significant sponsors of race teams, racing series and
events. Recently, governmental authorities have taken steps to further restrict
advertising by tobacco companies. If the race teams in the various motorsport
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 it
could adversely affect our financial and business results.
British American Tobacco, a sponsor for BAR, is involved in the tobacco
industry. BAT has entered into a long-term sponsorship agreement to fund what
Reynard believes to be one of the most significant sponsorship budgets in
Formula One. BAT has the right to terminate its sponsorship agreement with BAR
effective at or at any time after January 1, 2002, with proper notice. If BAT
cancels its sponsorship pursuant to the provisions of its agreement with BAR, it
could have an adverse effect on BAR's business and financial results. Such an
adverse effect on BAR could adversely affect our financial and business results
because of the loss of our consulting agreements and access to technological
know how.
UNITED STATES. On November 23, 1998, Phillip Morris, Brown & Williamson,
Lorillard, R.J. Reynolds and the Liggett Group entered into a settlement
agreement with the 46 states and the District of Columbia (collectively, the
"States"). The settlement agreement restricts tobacco product advertising and
marketing within the States. Among other restrictions, the settlement agreement:
- prohibits tobacco product brand name sponsorship of concerts, events in
which the intended audience is comprised of a significant percentage of
youth under age 18, events in which any paid participants or contestants
are youths, or any athletic event between opposing teams in any football,
basketball, baseball, soccer or hockey league;
- bans agreement to name any stadium or arena in the name of a tobacco
product brand name;
- prohibits tobacco product brand name sponsorship of any football,
basketball, baseball, soccer or hockey league; and
- limits each participating manufacturer to one tobacco product brand name
sponsorship during any twelve-month period.
We cannot assure you that a tobacco company will choose a motor sports
event as its one annual event to sponsor. If a tobacco company does choose to do
so, the settlement agreement permits the use of a tobacco product brand name for
a race car series and a single race team within that series. If the tobacco
company is not a sponsor of the race series in which the race team is competing,
it can use the tobacco product brand name only for a single race team.
EUROPE. In December 1997, eleven of fifteen member states approved the
European Union Tobacco Advertising Directive. The Directive must be enacted in
domestic legislation by all member states by July 30, 2001. The Directive came
in to force on July 30, 1998. The
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Directive provides that, within three years from the date of the Directive, all
tobacco advertising and promotion will be prohibited, other than in print media
and sponsorship. Within four years from the date of the Directive, all tobacco
advertising will be prohibited in print media. Within five years of the date of
the Directive, tobacco sponsorship will be prohibited at all events or
activities, unless such event or activity is "organized at world level" and
nominated by member states. If such event or activity 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 or
activities 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, Phillip Morris, R.J. Reynolds and Japan Tobacco, applied to the English
High Court and has received leave to appeal the Directive to the European Court
of Justice. Furthermore, in October 1998, the German government filed a
complaint directly with the European Court of Justice challenging the Directive.
UNITED KINGDOM. Tobacco promotion is restricted in the U.K. through
voluntary agreement. The tobacco industry 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.
On December 10, 1998, the UK government published a legislative White Paper
on Tobacco containing its proposals for implementing the Directive. The UK
government has indicated its intention to end tobacco advertising on billboards
and in the print media at the earliest practicable opportunity and well before
the deadline required under the Directive. Regulations may be in place as early
as July 1999. The regulations will allow the extra time provided for under the
Directive to phase out tobacco sponsorship of sports and other events.
DEPENDENCE ON AVAILABILITY AND PERFORMANCE OF 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. 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. You should read "Management - Employment
Agreements."
CONTRACTUAL COMMITMENT OF TIME TO BAR BY KEY PERSONNEL
In our agreement with BAR, Dr. Reynard, Mr. Gorne, our Vice President -
Sales, and Mr. Oastler, our Technical Director, have committed a significant
amount of their time to the BAR Formula One racing effort. Mr. Oastler must
devote substantially all of his time until December 2001. Dr. Reynard and Mr.
Gorne must each devote approximately one half of their time until November 1999
and approximately one quarter of their time for the
11
<PAGE> 14
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.
POTENTIAL INABILITY TO ATTRACT AND RETAIN ENGINEERS AND OTHER PROFESSIONAL
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.
POTENTIAL INABILITY TO MAINTAIN PERFORMANCE LEVELS
We cannot assure you that we will be able to achieve continued growth in
revenues and expansion of product lines and related businesses. 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 several factors, including:
- the continued level of performance of our racing cars in the various race
series;
- competitive price structure; and
- ability to attract and retain qualified engineers.
POTENTIAL RISKS ASSOCIATED WITH THE GEMINI AND RILEY & SCOTT ACQUISITIONS AND
FUTURE ACQUISITIONS
The Gemini and Riley & Scott acquisitions involve a number of risks that
could adversely affect our operating results. These risks include:
- the diversion of management's attention;
- the assimilation of operations and personnel of Gemini and Riley & Scott;
- the amortization of acquired intangible assets; and
- the potential loss of key employees of Gemini or Riley & Scott.
Any future acquisitions will involve similar risks that could affect our
operating results. 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.
POTENTIAL LIABILITY FOR RACING-RELATED INCIDENTS
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
12
<PAGE> 15
subjected to various product liability claims. Such claims may include
allegations that our equipment is inherently unsafe, or that we were negligent
in the manufacture and/or design of a racing car. To date, we have not been sued
or settled any threatened litigation relating to injuries resulting from the use
of our racing cars.
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 Reynard, 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 obtained liability insurance to cover past and any future racing
incidents. To the extent not covered by 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. In
addition, any claims and associated expenses related to future potential racing
incidents, to the extent not covered by insurance, could adversely affect our
financial and business results. You should see "Business -- Legal Proceedings
and Insurance" for a discussion of the liability insurance coverage we currently
maintain.
CHANGES IN RACING CAR SPECIFICATIONS BY RACE SERIES' SANCTIONING BODIES
Rule changes, including racing car specification modifications, could
adversely affect our financial and business results. 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 some of
the features of the current racing car we have developed. Such rule changes are
commonplace in the motorsports industry.
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 and business results. 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 Reynard. 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 our customers.
EXPOSURE TO EXCHANGE RATE FLUCTUATIONS AND OTHER RISKS ASSOCIATED WITH
INTERNATIONAL OPERATIONS
Our operating results are subject to fluctuations in foreign currency
exchange rates. We currently have operations in various jurisdictions around the
world, including the U.S., the U.K. and Japan. 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.
13
<PAGE> 16
Our business is also subject to other risks inherent in international
operations, including:
- political and economic conditions;
- unexpected changes in regulatory environments;
- exposure to different legal standards;
- difficulties in staffing and managing operations; and
- potentially adverse tax consequences.
POTENTIAL SHORTAGE OF RAW MATERIALS
An unexpected interruption in the supply of our principal raw materials
could cause our financial and business results to be adversely affected. The
principal raw materials that we use in the manufacturing process for our racing
cars are carbon fiber and Kevlar. 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
Because we have not yet determined how we will use all of the proceeds of
this offering, you are unable to predict the financial success of our long-term
use of proceeds. We have allocated a significant 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.
CONTROL BY DR. REYNARD
Upon completion of the offering, Dr. Adrian Reynard will beneficially own
an aggregate of 55.1% 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 Reynard.
SEASONALITY AND FLUCTUATION OF QUARTERLY RESULTS
When quarterly financial results fluctuate, you may not be able to predict
what our financial results will be for the full year. In addition, you may be
unable to compare our results of one quarter to our results of the previous
quarter due to timing differences. This may affect your ability to analyze
Reynard's results on a quarterly basis. Such a fluctuation could also affect the
market price of Reynard's stock.
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
14
<PAGE> 17
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.
POTENTIAL LIABILITY FOR ENVIRONMENTAL CONTAMINATION
The by products produced from our manufacturing process must be disposed of
in strict compliance with U.K. governmental requirements or we could be held
liable for resulting environmental damage. With the acquisition of Riley &
Scott, we will also be subject to U.S. governmental requirements with respect to
environmental matters. We may be held liable for damage and may be required to
pay the cost of investigation and/or remediation of contamination or any related
damage if damage to persons or property or contamination of the environment is
determined:
- to have been caused or exacerbated by our conduct; or
- to have been caused or exacerbated by pollutants, substances,
contaminants or wastes used, generated or disposed of by us; or
- which may be found on our property.
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. We believe that our
operations are in substantial compliance with all applicable environmental laws
and regulations.
SALES OF SHARES BY EXISTING STOCKHOLDERS COULD ADVERSELY AFFECT THE MARKET PRICE
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, 14,502,615 shares
of common stock will be outstanding. The 3,600,000 shares offered hereby will be
freely transferable after the offering (4,140,000 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.
Our officers, directors and current stockholders have agreed not to offer,
sell, contract to sell or otherwise dispose of their shares (approximately
10,301,214 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."
15
<PAGE> 18
NO CURRENT INTENTION TO PAY DIVIDENDS
We do not plan to pay cash dividends. We anticipate that all of our
earnings in the near term will be used for the development and expansion of our
business. Our future dividend policy will depend on our:
- earnings;
- capital requirements;
- financial condition;
- bank facilities; and
- 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.
OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DISCOURAGE TAKEOVERS
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 Reynard. 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 Reynard,
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 Reynard. We also have adopted a stockholder rights plan which may have the
effect of impeding a hostile attempt to acquire control of Reynard. See
"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:
- our future, proposed and anticipated activities;
- certain trends with respect to our revenues;
- operating results on a proforma basis;
- capital resources and liquidity;
- our competitive position;
- the motorsports industry in general; and
- similar statements.
16
<PAGE> 19
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.
17
<PAGE> 20
USE OF PROCEEDS
The net proceeds to Reynard from the sale of the 3,240,000 shares of common
stock offered hereby (after deducting underwriting discounts and commissions and
estimated offering expenses) are expected to be approximately $40.4 million.
This assumes an initial public offering price of $14.00 per share, the mid-point
of the price range on the cover page of this prospectus. Reynard intends to use:
- approximately $5.4 million to fund the cash portion of the acquisition of
Gemini;
- approximately $4.4 million to fund the cash portion of the acquisition of
Riley & Scott;
- approximately $3.3 million to upgrade the computational fluid dynamics
("CFD") computer systems and to purchase additional computer equipment;
- approximately $8.6 million to repay a loan to Reynard from Dr. Reynard;
- approximately $1.5 million to repay a loan to Reynard from Reynard Racing
Cars Directors Pension Fund;
- approximately $3.7 million to repay outstanding indebtedness under
Reynard's bank line of credit; and
- approximately $13.5 million to fund future growth and for working capital
and general corporate purposes.
See "Business--Design and Development" for a discussion of CFD technology.
The estimated amounts and uses set forth above indicate Reynard's
intentions for use of the net proceeds from this offering. Reynard may
reallocate proceeds for other working capital or general corporate purposes
Reynard deems to be in its best interest, due to unforeseen change in
circumstances concerning matters such as economic conditions, availability of
alternate financing or the existence of an acquisition or development
opportunity.
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%. Reynard 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 through September 30, 1998.
The loan arrangement with the Reynard Racing Cars Directors Pension Fund is
due and payable on demand and is non-interest bearing.
Reynard's bank line of credit is an unsecured bank line of credit with
National Westminster Bank PLC. Interest is charged at the bank's base rate plus
2.0% on the first $3,321,000 and the bank's base rate plus 6.0% thereafter
(effective rate of 9.0%, 9.5% and 8.25% at September 30, 1997 and 1998 and
December 31, 1998, respectively) and is due on demand.
Reynard currently has no agreements with respect to any acquisitions other
than the Gemini and Riley & Scott acquisitions, but it regularly engages in
discussions relating to potential acquisitions.
Pending application of the net proceeds of this offering, Reynard will
invest the proceeds in short-term, interest-bearing, investment grade
securities. Reynard will not
18
<PAGE> 21
receive any proceeds from the sale of shares of common stock to be sold by the
selling stockholders.
DIVIDEND POLICY
Reynard intends to retain future earnings for the operation and expansion
of its business. Reynard 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 Reynard's:
- results of operations;
- financial condition;
- cash requirements;
- capital expenditure requirements; and
- other factors deemed relevant by the Board of Directors.
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<PAGE> 22
DILUTION
Reynard's net tangible book value at December 31, 1998 was $(3,165,000) or
$(0.30) per share. Net tangible book value per share represents Reynard'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 $14.00 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), Reynard's pro forma net tangible book value at December 31, 1998
would have been approximately $35,591,000 or $2.45 per share. This represents an
immediate increase in net tangible book value per share of $2.75 to existing
stockholders and an immediate dilution of $11.55 per share to the investors
purchasing shares of common stock at the initial public offering price. The
following table illustrates the dilution and net tangible book value to new
investors:
<TABLE>
<S> <C> <C>
Assumed price to public..................................... $14.00
Net tangible book value before offering................... $(0.30)
Increase attributable to new investors.................... 2.75
------
Pro forma net tangible book value after offering............ 2.45
------
Dilution to new investors................................... $11.55
======
</TABLE>
The following table provides the number of shares purchased from Reynard,
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 $14.00 per share) and stockholders
acquiring shares in connection with the pending acquisitions:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION PAID
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
Stockholders....... 10,661,214 74.0% $ 428,000 1.0% $0.04
Acquisition shares... 601,401 4.0 9,942,033 18.0 16.53
New Investors........ 3,240,000 22.0 45,360,000 81.0 14.00
---------- ----- ----------- -----
Total...... 14,502,615 100.0% $55,730,033 100.0%
========== ===== =========== =====
</TABLE>
Certain information in this prospectus has been translated into U.S.
dollars, solely for your convenience, at a rate of L1.00 = $1.6628, 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 December 31, 1998.
20
<PAGE> 23
CAPITALIZATION
The following table provides the total capitalization of Reynard as of
December 31, 1998, and pro forma capitalization to reflect (1) the receipt and
application by Reynard of the estimated net proceeds (based on an assumed
initial public offering price of $14.00 per share) from the issuance by Reynard
of the shares of common stock in the offering, after deducting underwriting
discounts and commissions and estimated expenses of the offering payable by
Reynard and (2) the acquisitions of Gemini and Riley & Scott. You should read
this table in conjunction with the unaudited pro forma consolidated financial
statements of Reynard and the related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED (1)
------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt and capital lease obligations (excluding
current portion).......................................... $ -- $ 1,115
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued and outstanding................... -- --
Common Stock, $.0001 par value:
50,000,000 authorized; 10,661,214 issued and
outstanding as of December 31, 1998; and 14,502,615
issued and outstanding, as adjusted.................... 1 1
Additional paid in capital............................. 1,585 51,911
Foreign Currency Translation Adjustment................ 110 110
Accumulated deficit.................................... (3,822) (3,822)
------- -------
Total stockholders' equity (deficit) (1).................... (2,126) 48,200
------- -------
Total capitalization........................................ $(2,126) $49,315
======= =======
</TABLE>
- ---------------
(1) Does not include 2,450,000 shares reserved for issuance under Reynard's
employee and director stock option plans. Reynard intends to grant options
under its stock option plan to purchase an aggregate of 1,200,000 shares at
the offering to its employees at an exercise price equal to the public
offering price. Also excludes additional options for 426,449 shares which
were granted in September 1998 at an exercise price per share of $13.49. See
"Management - Stock Option Plans."
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<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected consolidated financial data in the table for the four years in
the period ended September 30, 1998 are derived from Reynard's Consolidated
Financial Statements which have been audited by Deloitte & Touche, independent
auditors. The selected consolidated financial data in the table for the year
ended September 30, 1994 are derived from Reynard's audited financial
statements. The selected consolidated financial data for the three months ended
December 31, 1997 and 1998 are derived from Reynard's interim unaudited
consolidated 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
three months ended December 31, 1997 and 1998. 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 the following
events as if each had occurred on October 1, 1997:
- the acquisitions of Gemini and Riley & Scott,
- the offering and the application of the net proceeds therefrom, and
- our corporate reorganization.
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 Reynard's
Consolidated Financial Statements and related notes contained elsewhere in this
prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------------------------- -----------------------------
HISTORICAL PRO HISTORICAL PRO
----------------------------------------------- FORMA ------------------- FORMA
1994 1995 1996 1997 1998 1998 1997 1998 1998
------- ------- ------- ------- ------- ------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Products.................. $12,079 $18,952 $22,406 $39,039 $45,929 $53,809 $ 8,735 $ 9,861 $10,961
Services.................. 2,147 2,701 6,493 10,803 12,788 14,486 2,384 2,477 2,758
Other revenue............. -- -- -- -- -- 50 -- -- --
------- ------- ------- ------- ------- ------- -------- -------- -------
Total Revenues...... 14,226 21,653 28,899 49,842 58,717 68,345 11,119 12,338 13,719
------- ------- ------- ------- ------- ------- -------- -------- -------
COST OF GOODS SOLD:
Products.................. 10,375 8,814 9,928 19,502 24,066 28,721 4,743 4,675 5,210
Services.................. 817 1,232 3,750 5,951 5,023 5,819 1,745 1,026 1,150
------- ------- ------- ------- ------- ------- -------- -------- -------
Total cost of goods
sold.............. 11,192 10,046 13,678 25,453 29,089 34,540 6,488 5,701 6,360
------- ------- ------- ------- ------- ------- -------- -------- -------
GROSS PROFIT................ 3,034 11,607 15,221 24,389 29,628 33,805 4,631 6,637 7,359
GENERAL AND ADMINISTRATIVE
EXPENSES (1)(2)........... 2,276 11,285 13,766 21,462 24,367 21,743 6,202 4,981 6,259
------- ------- ------- ------- ------- ------- -------- -------- -------
INCOME (LOSS) FROM
OPERATIONS................ 758 322 1,455 2,927 5,261 12,062 (1,571) 1,656 1,100
Write-off of equity
investment (4).......... -- -- -- -- (7,349) (7,349) (4,278) -- --
Minority interest in loss
(profit) of
subsidiary.............. -- -- -- -- 105 105 -- (58) (58)
Interest income........... 10 165 166 171 51 51 -- 25 25
Interest expense (3)...... (41) (20) -- -- (919) (190) (221) (233) (63)
------- ------- ------- ------- ------- ------- -------- -------- -------
INCOME (LOSS) BEFORE INCOME
TAXES..................... 727 467 1,621 3,098 (2,851) 4,679 (6,070) 1,390 1,004
INCOME TAX EXPENSE
(BENEFIT)................. 175 114 563 1,105 1,910 3,995 (521) 536 429
------- ------- ------- ------- ------- ------- -------- -------- -------
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------------------------- -----------------------------
HISTORICAL PRO HISTORICAL PRO
----------------------------------------------- FORMA ------------------- FORMA
1994 1995 1996 1997 1998 1998 1997 1998 1998
------- ------- ------- ------- ------- ------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET INCOME (LOSS)........... $ 552 $ 353 $ 1,058 $ 1,993 $(4,761) $ 684 $ (5,549) $ 854 $ 575
------- ------- ------- ------- ------- ------- -------- -------- -------
EARNINGS (LOSS) PER SHARE --
BASIC AND DILUTED......... $ .05 $ .03 $ .10 $ .19 $ (.45) $ .05 $ (.52) $ .08 $ .04
------- ------- ------- ------- ------- ------- -------- -------- -------
WEIGHTED AVERAGE SHARES
OUTSTANDING --
BASIC AND DILUTED......... 10,661 10,661 10,661 10,661 10,661 13,131 10,661 10,661 13,131
------- ------- ------- ------- ------- ------- -------- -------- -------
OTHER DATA:
Gross margin.............. 21.3% 53.6% 52.7% 48.9% 50.5% 49.5% 41.6% 53.8% 53.6%
Operating margin.......... 5.3% 1.5% 5.0% 5.9% 9.0% 17.6% (14.1)% 13.4% 8.0%
Depreciation and
amortization............ $ 281 $ 408 $ 535 $ 898 $ 1,040 $3,060 $ 276 $ 386 $ 925
Capital and tooling
expenditures............ $ 1,206 $ 650 $ 1,963 $ 3,494 $ 6,368 $6,835 $ 328 $ 4,110 $ 4,147
Number of cars produced... 38 36 38 67 78 N/A 44 26 N/A
Number of racing wins..... 12 18 16 16 22 N/A 4 0 N/A
BALANCE SHEET DATA:
Working capital
(deficit)............... $ (416) $ (625) $ (595) $(4,793) $(9,198) N/A $(11,231) $ 12,065 $19,434
Total assets.............. 5,433 13,149 11,891 18,409 29,702 N/A 22,488 33,093 74,589
Long-term debt and capital
lease obligations (less
current portion)........ -- -- -- -- -- N/A -- -- 1,115
Total stockholders' equity
(deficit)............... 930 1,285 2,296 741 (3,016) N/A (4,575) (2,126) 48,200
</TABLE>
- ---------------
(1) General and administrative expenses for the years ended September 30, 1996,
1997 and 1998 and the three months ended December 31, 1997 and 1998 include
remuneration to Dr. Reynard, the Chairman of Reynard and its principal
shareholder. Effective December 1, 1998 Reynard entered into an agreement
with Dr. Reynard whereby his total compensation is fixed at $1.5 million per
annum, plus pension contributions. The agreement expires December 31, 2001.
The pro forma statement of income data for the year ended September 30, 1998
excludes remuneration of $6,340,000, which will be discontinued as a result
of the agreement. Management does not intend to resume making such payments
to Dr. Reynard in the foreseeable future. The pro forma statement of income
data for the three months ended December 31, 1998 includes compensation
payments of $265,000 that will be payable as a result of this agreement.
Because Dr. Reynard is a stockholder of Reynard, the agreement constitutes a
related party transaction.
(2) General and administrative expenses for the historical and pro forma year
ended September 30, 1998 include compensation expense of $239,000 related to
the issuance on September 30, 1998 of stock options to Alex S. Hawkridge,
Reynard's Chief Executive Officer, below their fair value on the date of
such issuance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(3) Interest expense for the year ended September 30, 1998 and the three months
ended December 31, 1997 and 1998 relates to interest recorded on notes
payable to Dr. Reynard. The pro forma statements of income data for the year
ended September 30, 1998 and the three months ended December 31, 1998
excludes interest expense of $919,000 and $225,000, respectively, as a
result of the repayment of the notes payable to Dr. Reynard with a portion
of the proceeds of the offering. See "Use of Proceeds."
(4) The equity investment written-off for the historical and pro forma year
ended September 30, 1998 represents the total write-off of Reynard's
investment in BAR including its proportionate share of bank debt guarantees.
Reynard does not expect to incur additional losses in the future relating to
their investment or to make additional equity investments in BAR or extend
additional guarantees for BAR indebtedness.
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<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto and "Selected
Consolidated Financial Data" included elsewhere in this Prospectus.
GENERAL
Reynard's sales have grown at a compounded annual growth rate of 42.5% from
1994 to 1998 and of 42.5% from 1996 to 1998. Reynard 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 March 29, 1999,
Reynard had entered into purchase agreements for racing cars and services
representing revenue of $45.4 million that Reynard expects to receive after the
first quarter during the remainder of fiscal 1999. Reynard 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. A majority of Reynard's
racing car sales occur before the season starts in Reynard's second quarter.
Parts and service sales primarily occur in Reynard's third quarter.
Reynard designs and develops new cars at the conclusion of the racing
season, which corresponds with Reynard's fourth and first quarters. 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 Reynard'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 late 1980's and early 1990's to CART in 1994, and Formula One in 1999.
Reynard has continued to leverage its success and technical expertise gained in
each of these series and graduate 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. The most advanced work is 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 some 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
and manufacturing processes. In particular, Reynard will have access to
technical know-how and methodology to increase the performance, safety and
durability of its racing cars. Reynard does not intend to exit any race series
as a result of its entry into Formula One. In order to increase capacity,
Reynard intends to expand its existing operations in Oxfordshire, England and
Indianapo-
24
<PAGE> 27
lis, Indiana. Reynard may seek to acquire companies that will complement and
expand existing operations, such as Gemini and Riley & Scott.
Reynard has a reputation for winning and is able to rapidly design and
engineer new racing cars using advanced techniques in aerodynamics and composite
design. These factors have contributed to Reynard's success in attracting
automobile manufacturers as customers for its engineering and design services.
Over the past two years Chrysler, Ford and Panoz, among others, have selected
Reynard to support their motorsports efforts in selective projects. For example,
Reynard was awarded the aerodynamic design work and production of composite
parts for the Dodge Viper GT racing cars. These automobile manufacturers are
representative of Reynard's customer base for service projects. The engineering
and design services provided for projects of this type comprise a significant
portion of Reynard's revenue. In fiscal 1998, service revenues from Chrysler,
Ford and Panoz represented 5.7%, 5.4% and 27.0%, respectively, of Reynard's
total service revenues. In fiscal 1997, service revenue from Chrysler, Ford and
Panoz represented 25.1%, 37.0% and 11.6%, respectively, of Reynard's total
service revenue.
In conjunction with Reynard's entry into Formula One, Reynard has expanded
its service technology to include CFD. Reynard currently generates service
revenue by providing engineering staff and software analysis needed for CFD
design applications on a fee-per-usage basis. 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, such as CFD software
analysis, wind tunnel testing and seven post suspension rig testing. Through the
application of these services, Reynard'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 apply the results of such tests to
maximize the performance of their racing cars. Reynard has designed and built a
state-of-the-art 50% scale model, moving ground open jet wind tunnel in
Indianapolis, which is provided on a fee-per-usage basis to CART racing teams
and others. In 1999, Reynard constructed a seven post suspension rig testing
facility in Indianapolis. Upon completion of testing, Reynard will sell time on
the suspension rig to CART racing teams and others on a fee-per-usage basis.
In October 1997, Reynard entered into a joint venture agreement with BAT
and Mount Eagle, Inc. to form BAR. Reynard believes that Mount Eagle, Inc. was
formed for the purpose of investing in BAR. Mount Eagle, Inc. owns a 35%
interest in BAR and BAT owns a 50% interest in BAR. Reynard has committed its
management expertise and technology to BAR, in exchange for an ongoing
management fee for directors' services and access to certain technology (not in
written or machine readable form). In addition, Reynard has invested $5.3
million for a 15% equity interest in BAR. Under the terms of the directors'
service agreements, Dr. Reynard, Mr. Oastler and Mr. Gorne act as technical
director, chief designer and commercial director, respectively, and devote a
substantial portion of their time to BAR. The payments to Reynard from BAR for
these management services were $2.17 million during the year ended September 30,
1998 and $0.63 million during the three months ended December 31, 1998. Reynard
has built six show cars, has provided composite work, general research and
development, has done gearbox testing and has provided other incidental
manufacturing and services for BAR. BAR has its own independent design,
engineering, research and development and manufacturing staff and facilities
adjacent to Reynard's facilities in the UK.
25
<PAGE> 28
Reynard has accounted for its ownership stake in BAR under the equity
method of accounting due to Reynard's ability to exercise significant influence
over the operating and technical policies of BAR. However, as a result of losses
incurred during the start up phase of BAR, the equity investment of $5.3 million
has been fully written-off and Reynard has recognized its share of a BAR bank
guarantee, resulting in a charge of $7.35 million in the year ended September
30, 1998. Reynard does not expect to incur additional losses in the future
relating to its investment. However, Reynard is jointly and severally liable for
the entire bank guarantee of $13.60 million. Under the joint venture agreement,
each party is responsible for only its proportionate share of the guaranteed
obligation and Reynard believes, based on the credit worthiness of the other
joint venturers, that the extent of its guarantee will not exceed $2.00 million.
In the event that Reynard is required to pay additional amounts on such bank
guarantee, it anticipates funding such amounts from cash flow or additional
borrowings. Management currently has no plans to make additional equity
investments in BAR or extend additional guarantees for BAR indebtedness.
In January 1998, Reynard and Virgin Airlines established Reynard Aviation.
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 accounts 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.
A wholly-owned subsidiary of Reynard is the manager and a 59% owner of Auto
Research Center, LLC ("ARC"). ARC owns and operates the wind tunnel facility in
Indianapolis. Reynard owned a 49% interest at September 30, 1998, which
increased to a 59% interest in December 1998. Unaffiliated entities currently
own 40% of the membership interest and Bruce Ashmore, a member of Reynard's
senior management team, owns 1% of the membership interest. ARC sells time in
the wind tunnel to CART racing teams and others on a fee-per-usage basis. The
operations of ARC are consolidated in Reynard'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, 1996, 1997 and 1998 and the three months ended December 31, 1997 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------------------------------- ---------------------------------
1996 1997 1998 1997 1998
--------------- --------------- --------------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Products................ $22,406 77.5% $39,039 78.3% $45,929 78.2% $ 8,735 78.6% $9,861 79.9%
Services................ 6,493 22.5% 10,803 21.7% 12,788 21.8% 2,384 21.4% 2,477 20.1%
------- ----- ------- ----- ------- ----- ------- ----- ------ -----
Total revenues.... 28,899 100.0% 49,842 100.0% 58,717 100.0% 11,119 100.0% 12,338 100.0%
------- ----- ------- ----- ------- ----- ------- ----- ------ -----
COST OF GOODS SOLD:
Products................ 9,928 34.4% 19,502 39.2% 24,066 41.0% 4,743 42.7% 4,675 37.9%
Services................ 3,750 12.9% 5,951 11.9% 5,023 8.6% 1,745 15.7% 1,026 8.3%
------- ----- ------- ----- ------- ----- ------- ----- ------ -----
Total cost of
goods sold...... 13,678 47.3% 25,453 51.1% 29,089 49.5% 6,488 58.4% 5,701 46.2%
------- ----- ------- ----- ------- ----- ------- ----- ------ -----
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------------------------------- ---------------------------------
1996 1997 1998 1997 1998
--------------- --------------- --------------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROSS PROFIT.............. 15,221 52.7% 24,389 48.9% 29,628 50.5% 4,631 41.6% 6,637 53.8%
------- ----- ------- ----- ------- ----- ------- ----- ------ -----
GENERAL AND ADMINISTRATIVE
EXPENSES (1)............ 13,766 47.7% 21,462 43.0% 24,367 41.5% 6,202 55.8% 4,981 40.4%
------- ----- ------- ----- ------- ----- ------- ----- ------ -----
INCOME (LOSS) FROM
OPERATIONS.............. 1,455 5.0% 2,927 5.9% 5,261 9.0% (1,571) (14.2)% 1,656 13.4%
Share of loss in equity
investment.............. -- -- (7,349) (4,278) --
Minority interest in loss
(profit) of
subsidiaries............ -- -- 105 -- (58)
Interest income........... 166 171 51 -- 25
Interest expense.......... -- -- (919) (221) (233)
------- ----- ------- ----- ------- ----- ------- ----- ------ -----
INCOME (LOSS) BEFORE
INCOME TAXES............ 1,621 5.6% 3,098 6.2% (2,851) (4.9)% (6,070) (54.6)% 1,390 11.3%
Income tax expense
(benefit)............... 563 1,105 1,910 (521) 536
------- ----- ------- ----- ------- ----- ------- ----- ------ -----
NET INCOME (LOSS)......... $ 1,058 3.7% $ 1,993 4.0% $(4,761) (8.1)% $(5,549) (50.0)% $ 854 6.9%
======= ===== ======= ===== ======= ===== ======= ===== ====== =====
</TABLE>
- ---------------
(1) The results for years ended September 30, 1996, 1997 and 1998 and the three
months ended December 31, 1997 and 1998 include remuneration to Dr. Reynard,
the Chairman of Reynard and its principal shareholder. This remuneration has
a significant effect on general and administration expenses and income
before taxes of Reynard. Pursuant to a Services Agreement with Dr. Reynard,
compensation payable to Dr. Reynard for services he will provide to Reynard
will total $1.5 million per year plus pension contributions.
REVENUES
Reynard 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 that are entered into approximately six months in advance of
delivery. Advance deposits are collected at the time of receiving the order,
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 and an ongoing parts revenue stream over the
life of the racing car. The sale of update kits is dependent upon the life of
the racing car, which varies from race series to race series, combined with the
level of investment by race teams to maintain a competitive edge.
SERVICE SALES. Revenues derived from services include fees for:
- engineering and design work for touring car and sports car racing series;
- specific engineering and design projects for the CART Series;
- CFD analysis;
- use of Reynard's proprietary wind tunnels; and
- the production of wind tunnel models.
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<PAGE> 30
COST OF GOODS SOLD
Reynard 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). Reynard 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). Cost of sales (services) includes costs, such as
personnel, wind tunnel, jigs, molds and tooling costs, specifically linked to
service projects.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
include 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.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs related to
present and future products are expensed as incurred. Reynard's research and
development costs historically have fluctuated from year to year. Research and
development costs will be higher during periods when there is significant
vehicle development activity. For example, during 1996, Reynard developed the
Ford Indigo and the Panoz GT1 cars, and commenced work for the Ford Mondeo
Touring Car. In 1998, the Formula Nippon and the hybrid Panoz GT1 cars were
developed.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1997
Total revenues for the three months ended December 31, 1998 were $12.34
million, an increase of $1.22 million, or 11.0%, as compared to the three months
ended December 31, 1997.
Product sales for the three months ended December 31, 1998 were $9.86
million, an increase of $1.13 million, or 12.9%, as compared to the three months
ended December 31, 1997. This increase was attributable to growth of $0.95
million arising from the higher volume of racing cars and spare parts sold to
CART teams, an increase of $2.00 million from the supply of racing cars to the
1999 Formula Nippon series and $0.20 million from the sale of show cars to BAR.
This was partially offset by reductions of $1.76 million following the
non-recurring supply of Barber Dodge race cars for the 1998 season, $0.68
million following the discontinuation of the Panoz GT1 project and $0.30 million
following the closure of the Ford Mondeo Touring Car program.
Service sales for the three months ended December 31, 1998 were $2.48
million, an increase of $0.09 million, or 3.9% as compared to the three months
ended December 31, 1997. Of this increase, $0.49 million arose from sale of time
in the wind tunnel at ARC and $0.42 million was attributable to CFD services.
ARC and CFD services each commenced operations during the second quarter of
fiscal 1998. In addition, service sales to BAR grew by $1.05 million. This was
partially offset by reductions of $0.71 million following the completion of the
Ford Mondeo Touring Car program, $0.93 million from the Virgin Airlines seat
project and $0.35 from the completion of the Panoz GT1 project.
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<PAGE> 31
Cost of sales (product) for the three months ended December 31, 1998 were
$4.68 million, a decrease of $0.07 million, or 1.4%, as compared to the three
months ended December 31, 1997. $1.54 million of this decrease was attributable
to the 1998 Barber Dodge race cars, $0.37 million to the Panoz GT1 project and
$0.21 million to the Ford Mondeo Touring Car Program. This was partially offset
by increases of $1.42 million for the Formula Nippon program and $0.28 million
for the BAR show cars.
Cost of sales (services) for the three months ended December 31, 1998 were
$1.03 million, a decrease of $0.72 million, or 41.2%, as compared to the three
months ended December 31, 1997. This decrease was primarily attributable to cost
reductions of $0.21 million for the Panoz GT1 project, $0.42 million for the
Ford Mondeo Touring Car program and $0.84 million for the Virgin Airlines seat
project. This was partially offset by costs of $0.80 million attributable to
service sales to BAR and $0.12 million attributable to sales of CFD services.
Gross profit was 53.8%, compared to 41.6% for the prior year. This increase
was primarily due to the higher margin services which commenced in the latter
part of 1998, including management fees from BAR and service revenues for CFD
and ARC. This was partially offset by the completion of various programs,
including the Ford Mondeo Touring Car program and the Panoz GT1 program
discussed above.
General and administrative expenses, excluding payments to Dr. Reynard
($0.15 million) were $4.83 million for the three months ended December 31, 1998,
an increase of $1.20 million, or 33.0% as compared to three months ended
December 31, 1997 (excluding payments to the principal shareholder of $2.57
million). This increase was attributable to the expansion of the administrative
and information technology function to support Reynard's growth, increased
depreciation as a result of continuing investment in plant and equipment for the
CFD program and expansion of the manufacturing capability. General and
administrative expenses, excluding payments to the principal shareholder, for
the three months ended December 31, 1998 represent 39.2% of total sales,
compared to 32.7% for the three months ended December 31, 1997. This increase is
the result of investment in infrastructure to support future growth.
The write-off of equity investments during the three months ended December
31, 1998 was $0.00 compared to $4.28 million for the three months ended December
31, 1997. This represents Reynard's 15% investment in BAR which has been fully
written-off and Reynard's proportionate share of BAR's guaranteed debt
obligations.
The minority interest in profits of subsidiaries for the three months ended
December 31, 1998 was $0.06 million. This represents the share of the profit
generated by ARC which is attributable to unaffiliated members.
Interest income for the three months ended December 31, 1998 was comparable
to the three months ended December 31, 1997.
Interest expense for the three months ended December 31, 1998 was $0.23
million, an increase of $0.01 million, or 5.4%, as compared to December 31,
1997. This charge includes the interest due on the loan from Dr. Reynard.
Reynard has received a letter from Dr. Reynard in which he states that he does
not expect to be paid or credited with any accrued interest on money lent
through September 30, 1998.
29
<PAGE> 32
Profit before income taxes for the three months ended December 31, 1998 was
$1.39 million, an increase of $7.46 million, as compared to the loss incurred
during the three months ended December 31, 1997, as a result of the factors
described above.
Income tax expense for the three months ended December 31, 1998 was $0.54
million, an increase of $1.06 million as compared to the three months ended
December 31, 1997.
Net profit for the three months ended December 31, 1998 was $0.85 million,
an increase in net income of $6.40 million from the three months ended December
31, 1997 as a result of the factors described above.
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
Total revenues for 1998 were $58.72 million, an increase of $8.88 million,
or 17.8%, from 1997.
Product sales for 1998 were $45.93 million, an increase of $6.89 million,
or 17.6%, from 1997. This increase was attributable to growth of $5.52 million
arising from higher volume of racing cars and spare parts sold to CART teams and
an increase of $1.78 million from the supply of racing cars to the 1998 Barber
Dodge series, which commenced in the final quarter of 1997. This was partially
offset by reductions of $0.67 million as a result of the discontinuation of the
Ford Mondeo Touring Car program and $1.28 million for the various Chrysler
programs, including the Stratus Touring Car.
Service sales for 1998 were $12.79 million, an increase of $1.99 million,
or 18.4% from 1997. Of this increase $2.20 million arose from the Panoz project,
$3.53 million from the BAR program and $0.84 million which was attributable to
commencement of CFD revenues. This was partially offset by reductions of $3.31
million following the completion of the Ford Mondeo Touring Car program, $0.58
million from the Virgin Airlines seat project and $1.97 million from various
Chrysler programs, including the Stratus Touring Car.
Cost of sales (product) for 1998 was $24.07 million, an increase of $4.56
million, or 23.4%, from 1997, $1.53 million of this increase was attributable to
the Barber Dodge race cars and $3.09 million to the continuing growth of the
CART program. This was partially offset by a reductions in costs of $0.67
million attributable to the various Chrysler programs, including the Stratus
Touring Car.
Cost of sales (services) for 1998 was $5.02 million, a decrease of $0.93
million, or 15.6%, from 1997. This decrease was primarily attributable to cost
reductions of $2.44 million for the Ford Mondeo Touring Car program and $1.03
million for the prototype and testing of Virgin Airlines seats.
Gross profit was 50.5%, compared to 48.9% for the prior year. This increase
was primarily due to the higher margin services which commenced during the year,
including management fees from BAR and consultancy fees for CFD services. This
was partially offset by the wind down of various programs, including the Ford
Mondeo and Chrysler Stratus Touring Car programs discussed above.
General and administrative expenses, excluding payments to the principal
shareholder ($7.99 million), for 1998 were $16.38 million, an increase of $4.91
million, or 42.8% from 1997 (excluding payments to the principal shareholder of
$10.0 million). This increase was attributable to the expansion of the
administrative and information technology function to support Reynard's growth
and increased depreciation following investment in plant and
30
<PAGE> 33
equipment for the CFD program. General and administrative expenses, excluding
payments to the principal shareholder, for 1998 represent 27.9% of total sales,
compared to 23.0% for 1997. This increase is the result of investment in
infrastructure to support future growth. During 1998, Reynard incurred expenses
of $0.74 million for doubtful accounts. This primarily related to closure
expenses of $0.42 million for the Ford Mondeo Touring Car and $0.31 million for
the Panoz GT1 programs. General and administrative expenses for 1998 also
include compensation expense of $0.24 million. This non-cash compensation
expense relates to the issuance on September 30, 1998 of stock options below
their fair value to Alex S. Hawkridge, Reynard's Chief Executive Officer.
The write-off of equity investments for 1998 was $7.35 million. This
represents Reynard's 15% investment in BAR which has been fully written-off and
Reynard's proportionate share of BAR's guaranteed debt obligations.
The minority interest in losses of subsidiaries for 1998 was $0.10 million.
This represents the share of the loss incurred by ARC which is attributable to
unaffiliated members.
Interest income for 1998 was comparable to 1997.
Interest expense for 1998 was $0.92 million, an increase of $0.92 million,
or 100%, from 1997. This charge represents the interest due on the loan from Dr.
Reynard. Reynard 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
September 30, 1998.
Loss before income taxes for 1998 was $2.85 million, a decrease of $5.95
million, as compared to the income achieved during 1997, as a result of the
factors described above.
Income tax expense for 1998 was $1.91 million, an increase of $0.81 million
as compared to 1997.
Net loss for 1998 was $4.76 million, a decrease in net income of $6.75
million from 1997 as a result of the 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 growth of $9.59 million
arising from the higher volume of racing cars and spare parts sold to CART teams
and increases of $5.96 million and $1.91 million relating to the commencement of
supply of Panoz GT1 cars and Ford Mondeo Touring Cars. In addition, product
sales included $0.37 million for the 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 additional revenue was the result of increases of
$0.97 million from various Chrysler projects, including the Stratus Touring Car,
and $3.75 million from the Ford Mondeo Touring Car program, for which
preliminary work commenced during the third quarter of 1996. In addition,
revenue of $1.41 million was derived from the development of the Virgin Airlines
seat, which commenced in the second quarter of 1997 and continued until the
second quarter of 1998.
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<PAGE> 34
Cost of sales (product) for 1997 was $19.50 million, an increase of $9.57
million, or 96.4%, from 1996. This aggregate increase was attributable to costs
of $3.88 million relating to the commencement of the Panoz GT1 project and an
increase of $2.04 million for the Ford Mondeo Touring Car program, together with
an increase of $4.85 million associated with the growth of the CART program.
Cost of sales (service) for 1997 was $5.95 million, an increase of $2.20
million, or 58.7%, from 1996. Of this increase, $2.57 million was attributable
to the Ford Mondeo Touring Car program and $1.03 million to the Virgin Airlines
seat development, which commenced in the second quarter of 1997 and continued
until the second quarter of 1998. These increases were partially offset by a
reduction of $1.87 million following the completion of the Ford Indigo project.
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 Airlines seat and the Ford Mondeo Touring Car
discussed above.
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 Reynard'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 Reynard 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.
SEASONALITY AND QUARTERLY RESULTS
Reynard 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, Reynard'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 Reynard'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.
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As a result, Reynard's business has been, and is expected to remain,
seasonal based upon these external factors. Reynard's quarterly results are
dependent on the timing of the following activities:
<TABLE>
<CAPTION>
PERIOD ACTIVITY
------ --------
<S> <C>
Quarter ended December 31 Building racing cars for sale
Quarter ended March 31 Selling racing cars
Quarter ended June 30 Selling parts
Quarter ended September 30 Designing racing cars for the upcoming
season
</TABLE>
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 Reynard's operating results.
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The following table presents selected quarterly financial information of
Reynard for each of the four quarters of 1996, 1997 and 1998 and for the first
quarter of 1999. This information has been prepared by Reynard on a basis
consistent with Reynard's consolidated 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 Consolidated
Financial Data," Reynard's consolidated financial statements 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
1996 $ 5,885 $11,332 $ 8,147 $ 3,535 $28,899
1997 8,239 20,615 13,593 7,395 49,842
1998 11,119 20,957 18,687 7,954 58,717
1999(1) 12,338 N/A N/A N/A 12,338
Gross Profit
1996 $ 3,539 $ 5,106 $ 4,677 $ 1,899 $15,221
1997 5,097 10,528 6,600 2,164 24,389
1998 4,631 8,943 11,532 4,522 29,628
1999(1) 6,637 N/A N/A N/A 6,637
Operating Income (Loss)
1996 $ 277 $ 1,694 $ 1,559 $(2,075) $ 1,455
1997 (78) 5,407 1,075 (3,477) 2,927
1998 (1,571)(2) 1,994 4,561 277 5,261
1999(1) 1,656 N/A N/A N/A 1,656
Income (Loss) Before
Income Taxes
1996 $ 338 $ 1,735 $ 1,592 $(2,044) $ 1,621
1997 (57) 5,462 1,143 (3,450) 3,098
1998 (6,070)(3) 1,484 3,717 (1,982) (2,851)
1999(1) 1,390 N/A N/A N/A 1,390
Net Income (Loss)
1996 $ 282 $ 1,580 $ 1,453 $(2,257) $ 1,058
1997 139 3,622 721 (2,489) 1,993
1998 (5,549)(3) 817 2,229 (2,258) (4,761)
1999(1) 854 N/A N/A N/A 854
</TABLE>
- ---------------
(1) Figures for 1999 are for the three months ended December 31, 1998.
(2) Attributable to the discontinuation of the Ford Mondeo Touring Car Program.
(3) Attributable to the write off of Reynard's BAR investment.
Because of Reynard'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
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<PAGE> 37
anticipates that Reynard'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
Reynard has historically relied on cash flow from operations, supplemented
by loans from the principal shareholder, to finance working capital, investments
and capital expenditures. The loan from the principal shareholder will not be
available to Reynard following the offering.
For the three months ended December 31, 1998, net cash used in operating
activities was $2.10 million, as compared to $1.87 million provided during the
three months ended December 31, 1997. This was largely comprised of net income
of $0.85 million, charges for depreciation and amortization of $0.39 million,
together with a net increase in working capital of $3.12 million.
Net cash used in investing activities was $4.87 million for the three
months ended December 31, 1998 as compared to $1.97 million used in the three
months ended December 31, 1997. This principally consisted of $1.50 million
representing the final payment of Reynard's investment in BAR, $4.11 million for
the acquisition of property and equipment and $0.86 million to repay part of the
loan from Dr. Reynard. This was partially offset by the receipt of $1.49 million
from the pension fund, of which Dr. Reynard is the beneficiary. Net cash
provided by financing activities during the three months ended December 31, 1998
amounted to $4.32 million, largely due to the receipt of $4.68 million relating
to the utilization of the bank line of credit.
Capital expenditures of property and equipment was $4.11 million for the
three months ended December 31, 1998 as compared to $0.33 million for the three
months ended December 31, 1997. The increase in capital expenditures primarily
relates to the acquisition of a Cessna Citation business jet.
Reynard has an unsecured bank line of credit with National Westminster Bank
PLC. Interest is charged at the bank's base rate plus 2.0% on the first $3.32
million and the bank's base rate plus 6.0% thereafter (effective rates of 9.25%
and 8.25% at December 31, 1997 and 1998, respectively) and is due on demand. At
December 31, 1998, there was $5.16 million outstanding under the line of credit.
The seasonality of revenue noted above causes working capital requirements
to fluctuate during the year. The financial statements indicate a working
capital deficit for each period as a result of the timing of the year end within
the business cycle. The business is expected to remain seasonal, so no action
will be taken to compensate for this working capital deficiency. These deficits
have not affected Reynard's ability to operate its business. 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.
Reynard 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
Reynard's assets. It bears interest at National Westminster Bank's base rate
plus 2 1/2%. Reynard has received a letter from Dr. Reynard stating that he does
not expect to be paid or credited with any accrued interest on the money lent
through September 30, 1998. A portion of the proceeds
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<PAGE> 38
from this offering will be used to repay the loan in its entirety. This facility
will not be available to Reynard following the offering.
The Reynard Racing Cars Directors Pension Fund has loaned $1.5 million to
Reynard for working capital purposes. The loan is due and payable on demand and
is non-interest bearing. A portion of the proceeds from this offering will be
used to repay the loan in its entirety.
At December 31, 1998, Reynard had cash of $0.67 million offset by short
term debt of $10.06 million owed to the principal shareholder and $5.16 million
owed to National Westminster Bank. In addition to the continuing operations,
Reynard plans to investigate the potential acquisition opportunities in
activities relating to its core business. Reynard has budgeted approximately
$23.12 million of capital expenditures for property and equipment during fiscal
1999. Reynard 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 the next 12 to 18 months. Reynard
intends to arrange for a revolving credit facility after this offering.
FOREIGN CURRENCY FLUCTUATIONS
Reynard'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 Reynard's revenues and cash receipts are denominated in U.S.
dollars while the large majority of its costs are in pounds sterling. Reynard
reduces this dollar/sterling exchange risk where possible by currency hedging.
Reynard 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 Reynard not to enter into
derivative financial instruments for speculative purposes. Reynard 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,
September 30, 1998, December 31, 1997 or December 31, 1998. Reynard does not
anticipate any material adverse effect on its results of operations or financial
position relating to these foreign currency forward exchange contracts. Reynard
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 Reynard in the
preparation of its consolidated financial statements included elsewhere in
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<PAGE> 39
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............................... 1.6638 1.6576 1.7185 1.6149
</TABLE>
- ---------------
(1) The average of the Noon Buying Rates on the last business day of each full
month during the relevant period.
YEAR 2000 COMPLIANCE
GENERAL. Reynard 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, Reynard 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
Reynard'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
entirely Windows NT based by the end of the second quarter of 1999.
The computer aided design ("CAD") applications used by Reynard 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 Reynard
for the following reasons:
- to ensure that Reynard remains a leader in motorsport technology;
- to expand the infrastructure to support Reynard's growth; and
- to provide additional service revenue opportunities.
Year 2000 has been viewed as one facet of this development rather than an
interruption of the overall IT development program.
YEAR 2000 PROJECT. Reynard 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
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<PAGE> 40
2. External Agents - Third party suppliers and customers
3. Manufacturing - Process control and implementation
The phases common to all three stages are:
- preparing an inventory of year 2000 items;
- assigning priorities to identified items;
- identifying non-compliance items considered to be material;
- repairing or replacing material items;
- testing material items; and
- designing and implementing contingency and business continuation plans.
With regard to IT systems, Reynard 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 $2.0 million. Management believes that the key business component
is the CAD facility and that this area of the business is Year 2000 compliant.
The External Agents stage includes the process of identifying and
prioritizing critical suppliers and customers, and communicating with them about
their plans and progress in addressing the Year 2000 problem. This process has
been carried out and Reynard is, at present, investigating the replies. All
replies received to date are positive and show all respondents as either having
resolved the Year 2000 problem or in the process of resolving the problem. In
addition, evaluations of the most critical third parties have been carried out
along with the development of contingency plans.
The manufacturing stage includes all hardware and software embodied in the
manufacturing plant utilized by Reynard. A manufacturing review has been carried
out and no replacement of material items has been deemed necessary because the
key equipment is programmed by the CAD stations and is numerically controlled,
rather than date controlled. Reynard is currently 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. Compliance issues are being taken into account and
resolved within Reynard's normal capital expenditure budget. 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 materials
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 $0.15 million. This amount is in addition to the expenditure of
$2.0 million for IT replacement referenced above.
RISKS. Until the compliance review is completed, Reynard cannot fully
estimate the risks of its Year 2000 issue. To date, Reynard 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 Reynard may identify assets
that do present a risk of a Year 2000-related disruption. It is
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<PAGE> 41
also possible that such a disruption could have a material adverse effect on
Reynard's 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, it could have a
material adverse effect on Reynard's financial and business results.
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. SFAS No. 130 is effective for Reynard's combined
financial statements for the year ended September 30, 1999. For the year ended
September 30, 1999, Reynard will provide information relating to comprehensive
income to conform to the requirements. For the year ended September 30, 1998,
comprehensive income would not have been materially different from net income.
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. SFAS No. 131 is effective
for Reynard's combined financial statements for the year ending September 30,
1999. For the year ended September 30, 1999, Reynard will provide information
relating to SFAS No. 131 to conform to the requirements. For the year ended
September 30, 1998, segment information was presented in accordance with
Financial Accounting Standards Board Statement No. 14.
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. Reynard has not determined the impact on Reynard's combined
financial statements. SFAS No. 133 is effective for Reynard's combined financial
statements for the year ending September 30, 2000.
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<PAGE> 42
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:
- event sponsorship;
- racing team sponsorship; and
- 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
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<PAGE> 43
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:
- driver's salary;
- engine;
- racing car and spare parts; and
- 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.
PARTICIPANTS
Motorsports events are generally heavily promoted, with a number of
supporting events surrounding the main race event. Examples of supporting events
include:
- qualifying trials;
- secondary racing events;
- driver autograph sessions;
- automobile and product expositions;
- catered parties; and
- 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 per year
in North America alone, corporate sponsorships include:
- event sponsorship;
- racing team sponsorship; and
- 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
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<PAGE> 44
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.
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:
- 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 Asia. The Formula One World Championship was founded in
1950. The 1999 Formula One calendar includes 16 events in 14 different
countries. The cars are single-seater, open-wheel racing cars powered
with a non-turbocharged 3000 cubic centimeter
42
<PAGE> 45
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.
- 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 1999 CART Series calendar includes 20 events in five
different countries. 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.
- 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 1999 Winston Cup and Busch Grand
National race series includes 34 and 32 races, respectively, all of which
will be held in the United States. 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.
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
- 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 Champion-
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ship has been conducted as a one-make formula, with identically prepared
chassis supplied by one specified manufacturer.
- 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 approximately 550 horsepower, with top speeds of approximately
200 miles per hour. The 1999 Formula Nippon Series will include 10 races
throughout Japan, on permanent road courses and temporary street
circuits.
- 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
- 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 approximately 450 horsepower 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 1999, the Indy Lights Championship includes 12
races.
- 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 approximately 250 horsepower with top speeds of
approximately 165 miles per hour. The races are staged on ovals,
temporary street courses and permanent road courses. The Toyota Atlantic
Series is sanctioned by CART. In 1999, the series will stage races at 12
venues, 10 of which will be support races for the CART Series.
- 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.
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- 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 1999 season consists of 11 races, including the
Indianapolis 500.
- 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.
- 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.
- 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.
- 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 1999 race season includes 25 races.
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
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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 Reynard Champ Car, with some of the
components identified:
[DIAGRAM OF REYNARD RACE CAR
WITH CERTAIN COMPONENTS OF THE CAR IDENTIFIED]
[Diagram]
Reynard builds the CART Champ Car to comply with specifications set by the
sanctioning body. The 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
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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.
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 have competed in a Reynard racing car during
their careers. They include World Champions Mika Hakkinen, Jacques Villeneuve,
Damon Hill and Michael Schumacher.
Reynard 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, Reynard'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 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 42.5% from
1994 to 1998. As of March 29, 1999, Reynard had entered into purchase agreements
for racing cars and services representing revenues of $45.4 million that Reynard
expects to receive after the first quarter, during the remainder of fiscal 1999.
Reynard designs, manufactures and sells racing cars for competition in the
CART Series, the Formula Nippon Series, and the Barber Dodge Series. Reynard
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 made its debut in Formula One in March 1999. BAR is a joint venture in
which Reynard is a partner with British American Tobacco and Mount Eagle, Inc.
The racing cars designed and engineered by BAR are driven by the 1997 Formula
One World Champion driver, Jacques Villeneuve, and the 1998 FIA GT Champion,
Ricardo Zonta.
Reynard operates integrated design, production and testing facilities in
Oxfordshire, England, often referred to as the Motorsport Valley. Reynard also
operates a North American headquarters and testing facility in Indianapolis,
Indiana. Reynard employs over 250 people, of which over 85% are highly skilled
designers, engineers and other specialized technicians. Reynard'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. Reynard 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.
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PENDING ACQUISITIONS
On March 26, 1999, Reynard entered into an agreement to acquire all of the
outstanding shares of stock of Princetown Holdings Limited, the sole owner of
Gemini Transmissions Limited. The purchase price is $9.8 million. Reynard will
pay $5.4 million in cash upon the closing of the offering and will issue 281,565
shares of its common stock. In addition, Reynard will pay $0.5 million in
December 2001. 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 is not generally available to its competitors in the
U.K. This acquisition will further integrate Reynard's current operations in the
production of racing cars. It will enable Reynard to manufacture substantially
all of the parts necessary for production of a racing car. Reynard expects the
Gemini acquisition will close in April 1999, and the cash portion of the
purchase price will be paid from the proceeds of the offering.
On March 31, 1999, Reynard entered into an agreement to acquire Riley &
Scott, Inc. The purchase price is $10.4 million. Reynard will pay $4.4 million
in cash upon the closing of the offering and will issue 319,836 shares of its
common stock. In addition, if on the date that is one year from the closing, the
market value of a share of Reynard common stock is less than $18.76 per share,
Reynard will pay the Riley & Scott shareholders the difference between the
market value per share and $18.76.
Riley & Scott designs and manufactures racing cars. It has developed a
reputation as a world leader in sports car design and production. Riley & Scott
world sports cars have won 28 races, and have won the driver's championship in
four series in three years. Since 1995, a Riley & Scott world sports car has won
at least one race at every sports car venue in the world.
In 1996, Riley & Scott began their IRL program, selling four cars in 1997
and three cars in 1998. Reynard believes that the expertise it has developed in
designing open-wheel cars for the Champ Car Series and its work with BAR in
Formula One will provide valuable assistance to Riley & Scott in the further
development of the IRL car.
Like Reynard, Riley & Scott has developed strong ties to some of the major
automobile manufacturers including providing prototyping services to Chrysler
for the Prowler, Jeepster and Commander. In addition, in March 1999, General
Motors announced Cadillac's return to sports car racing, with the design and
manufacturing assistance of Riley & Scott. It is expected that the new Cadillac
sports car will make its racing debut at Le Mans in 2000.
Reynard believes that the acquisition of Riley & Scott complements its
integrated operations and will allow Reynard to continue its expansion into
additional racing series. Reynard expects this acquisition will be completed in
April 1999, and the cash portion of the purchase price will be paid from the
proceeds of the offering.
KEY COMPETITIVE STRENGTHS
HISTORY OF WINNING. Since the beginning of fiscal 1994, Reynard racing cars
have won a total of 85 races and eight 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 a total of 56 pole
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positions and 51 wins in the CART Series alone. The pole position is the racing
car which will start first in the race and is determined by the car with the
fastest time in the qualifying sessions for the race. 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 March 29,
1999 to supply 38 racing cars for the 1999 CART Series and orders for 15 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.
Reynard employs a scientific approach in the design, engineering and manufacture
of racing cars. Reynard uses simultaneous engineering, which includes
computer-aided engineering, design and manufacturing systems. With these
systems, Reynard can develop and manufacture a racing car, from initial design
to final assembly, in a period of a few months. Reynard analyzes the aerodynamic
effects on a racing car in simulated race settings by:
- development and application of computational fluid dynamics;
- application of finite element analysis; and
- testing at its wind tunnel facilities.
Reynard 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, enhances Reynard'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
fields a two-car team in the 1999 Formula One World Championship. The 1997
Formula One World Champion driver, Jacques Villeneuve, drives one of the racing
cars that was 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 Reynard'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 committed its management expertise to BAR in exchange for an
ongoing management fee and access to some technological know-how. In addition,
Reynard has invested $5.3 million for a 15% equity interest in BAR. Reynard is
providing certain contract manufacturing services to BAR in its early stages on
a fee-for-service basis. BAR has 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 some of BAR's
technological know-how (not in written or machine readable form). Reynard
believes that this access to research and development ideas enhances Reynard's
other motorsports projects by improving our knowledge database and methodology.
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HIGHLY EXPERIENCED MANAGEMENT AND OPERATING TEAM. Reynard 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. Reynard's senior
management team has an aggregate of over 75 years of service with Reynard.
Reynard has successfully manufactured racing cars for 25 years by leveraging the
expertise of its management team in design and engineering, composites and
production.
Reynard 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 has enabled Reynard
to attract, retain and develop a team of highly skilled designers, engineers and
technical staff. Upon completion of the offering, current officers and employees
of Reynard will beneficially own approximately 58.1% 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, Reynard can respond quickly to customer
questions and concerns. Reynard also receives valuable information from these
engineers for the continued development of its 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
Reynard'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 designs, engineers and
manufactures the majority of the components of a racing car. Through its
vertically integrated operations, Reynard is able to:
- maintain higher quality control standards in the production of all
components of the racing car;
- improve operating margins by lowering costs; and
- control the timing of production and delivery of its products.
Reynard designs and engineers racing cars and component equipment. Reynard
then makes the patterns to be used in the production process and manufactures
the individual components to specification. Once the components are
manufactured, Reynard assembles the racing car. With the pending acquisition of
Gemini, Reynard will be able to manufacture substantially all of the parts
necessary to deliver a rolling chassis to the customer.
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GROWTH STRATEGY
CAPITALIZE ON GROWTH OPPORTUNITIES WITHIN EXISTING RACE SERIES. Reynard
intends to increase its presence in the race series in which it is currently
involved. Reynard believes it will grow its business in existing series through:
- Capitalizing on the continued expansion of the CART Series and other
existing series. Reynard 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, Reynard can
increase sales to existing customers who will require additional high
margin equipment, spare parts and services. In addition, Reynard 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.
- Introduction of a newly designed racing car for the 1999 Formula Nippon
Series. Through March 29, 1999, Reynard has received orders for 15 racing
cars for the 1999 Formula Nippon Series.
- Expansion of Reynard'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. Reynard is planning the production of a world sports car
to be designed and manufactured in conjunction with a major automobile
manufacturer. Reynard 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:
- the IRL;
- Formula 3000;
- Indy Lights; and
- Toyota Atlantic.
With the acquisition of Riley & Scott, Reynard will expand its presence in
other racing series, including sports car and the Indy Racing League.
In addition, Reynard will provide some contract manufacturing services and
show cars to BAR in its early stages, on a commercial basis, during the 1999
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. These services include CFD
analysis, wind tunnel testing and seven post suspension rig testing. Through the
application of these services, Reynard'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
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model, moving ground open jet wind tunnel in Indianapolis. Reynard sells time in
the wind tunnel to CART racing teams and others on a fee-per-usage basis. In
1999, Reynard constructed a seven post suspension rig testing facility in
Indianapolis. Upon completion of testing, 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 in 2000. The plans for this
office are in a preliminary concept stage. This office will target design and
engineering projects within the automotive industry, and leverage the strong
relationships Reynard has developed over the years with major automobile
manufacturers. In addition to the projects Reynard has done with Chrysler and
Ford, Reynard has worked closely with Honda, Toyota and Mercedes in the
continued development of its CART Champ Car. 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:
- complement and expand Reynard's current operations;
- have an experienced management team;
- have an industry leading reputation; and
- have strong customer and supplier relationships.
Reynard's acquisition of Gemini meets these objectives by further
integrating Reynard'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, 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
Reynard's vertical integration.
Reynard's acquisition of Riley & Scott also meets these goals and will
allow Reynard to expand its opportunities with Riley & Scott's current
management team and its existing customer relationships.
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,
to CART in 1994. Reynard's cars have
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dominated each of these series. Reynard has been able to continually leverage
its success and technical expertise as it has graduated into more advanced
series in which 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:
- Formula Ford Champions 1986, 1987, 1988, 1989
- Formula Three Champions 1986, 1987, 1988, 1989, 1990, 1991, 1992, 1993
- Formula 3000 Champions 1988, 1989, 1991, 1992, 1993, 1994, 1995
- Formula Nippon Champions 1996, 1998
- US 500 winners 1996, 1997, 1998
- Indianapolis 500 winners 1995, 1996
- CART Series Champions 1995, 1996, 1997, 1998
- 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, Reynard 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 Reynard's progression from its inception in 1973:
[TIME LINE]
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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 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, Reynard 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. 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. In 1983, 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, Reynard manufactured 277 Formula Ford 1600 cars and 384
Formula Ford 2000 cars. At that time, Reynard 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, Reynard 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. Reynard'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, Reynard
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. A one-make series refers to a racing series which, by
rules of the series, require all competitors to use the same racing car. The
series will negotiate with chassis manufacturers in selecting that which will
supply the competitors. Reynard was the exclusive chassis supplier to this
series between 1987 and 1992, producing a total of 204 cars for this series.
FORMULA 3000. Reynard'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 approximately 450 horse power
with top speeds of approximately 180
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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. Reynard
designed and built the new car, from initial design to assembly, within six
months. The Patriot was intended to be powered by a turbine engine rather than a
traditional piston engine. Because a competitive engine was not developed, the
Chrysler Patriot never raced. Although the Patriot never actually raced, the
alliance Reynard 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. Reynard 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, Reynard 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 Reynard. Therefore, the introduction of a Champ Car involved
a higher degree of risk to Reynard. 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. Mauricio Gugelmin with PacWest
Racing, driving a Reynard racing car, set the fastest lap
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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, Reynard cars won 18
races and 18 pole positions in the 19 races, achieving its 50th victory at the
last race of the season.
Since introducing its first Champ Car in 1994, Reynard has manufactured 182
cars, including 38 cars in fiscal 1997 and 43 cars in fiscal 1998 and 38 cars in
fiscal 1999. As of March 29, 1999, Reynard has received orders for 38 racing
cars for the 1999 CART Series.
PANOZ GT CARS. In January 1996, Panoz 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. During 1998,
Reynard derived 14% of its total revenues from Panoz.
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 Reynard's reputation and service.
Reynard has manufactured a total of 37 cars for the series. Six cars were built
in 1997 and 31 cars were built in 1998.
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
approximately 450 horsepower, with top speeds of approximately 180 miles per
hour. In 1998, Reynard racing cars captured first and second place in the
championship. The 1999 Formula Nippon Series will include 10 races, on permanent
road courses and temporary street circuits throughout Japan. A total of 15
Formula Nippon cars have been ordered for the 1999 series.
REYNARD AVIATION. As a result of Reynard'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
Reynard 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 begin installing the seats in its
aircraft during 1999.
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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:
- aluminum and composite materials for safety while maintaining lightweight
performance;
- a mid-engine layout including a compact 4-cylinder, 16 valve, 1200 cubic
centimeter modern engine; and
- 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. The Strathcarron car was
launched at the Geneva Motor Show in March 1999.
BRITISH AMERICAN RACING. The British American Racing Team fields a two-car
team in the 1999 Formula One World Championship. The 1997 Formula One World
Champion driver, Jacques Villeneuve drives 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 Reynard'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 committed its management expertise and technology to
BAR in exchange for an ongoing management fee for directors' services and access
to some technological know-how. In addition, Reynard has invested $5.3 million
for a 15% equity interest in BAR. Reynard is providing certain contract
manufacturing services to BAR in its early stages on a fee-for-service basis.
BAR has 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 some of BAR's technological know-how (not in written or
machine-readable form) accumulated by personnel employed by Reynard. Reynard
believes that this access to research and development ideas enhances Reynard's
other motorsports projects by improving our knowledge database and methodology.
In connection with the services that Reynard and its personnel will provide to
BAR, Reynard will share some of its technology, but will not provide BAR with
propriety databases or products. Since BAR will be involved solely in its
Formula One activities, it will not be in competition with Reynard.
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 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
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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.
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, 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
Reynard 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.
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PRODUCTION
DESIGN AND ENGINEERING. Simultaneous engineering, which is the concurrent
participation of design, manufacturing, sales and purchasing, allows Reynard 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:
- maintain higher quality control standards in the production of all
components of the racing car;
- improve operating margins by lowering costs; and
- 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 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:
- assembly
- sub-assembly; and
- gearbox assembly.
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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, 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 ARC, 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 constructed a seven post suspension rig
testing facility in Indianapolis. This facility is used to simulate the pitch
and roll experienced by racing cars under racing conditions in order to refine
suspension, springs and shock absorbers on the racing car. Upon completion of
testing, 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.
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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. Reynard has developed a total team
environment, with clear objectives, well trained people, a high level of
empowerment, a positive attitude and motivational rewards for success. This
culture encourages designers and engineers 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 culture, coupled with the in-depth recruitment process, 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 22 of the 28 full-season entrants in 1998. Reynard has received
orders through March 29, 1999 to supply 38 racing cars for the 1999 CART Series.
In providing higher margin services, Reynard competes with other providers
of the specialized technological services. In providing CFD analysis services,
Reynard competes with General Motors, Computational Dynamics, Fluent, Inc., and
AEA Technology. Primary competition for its wind tunnel facilities include
Jordan, Imperial College, Royal College of Military Science, British Airways,
Swift and Boeing. Reynard believes that state-of-the-art equipment, highly
trained personnel and pricing are the principal factors that distinguish
competition.
In the design and production of touring cars, Reynard primarily competes
with Prodrive, MotorSports Development, Triple Eight Engineering and Ray
Mallock. In the design and production of sports cars, Reynard primarily competes
with other chassis manufacturers, including Dallara, Williams, Porsche, BRM and
Kudsu. Reynard believes that on-track performance of racing cars, industry
reputation, pricing and equipment availability are the principal factors that
distinguish competition.
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EMPLOYEES
As of March 29, 1999, Reynard employed approximately 250 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 AND INSURANCE
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.
Racing events can be dangerous to participants and spectators. Reynard
maintains a $10.0 million liability insurance policy to insure Reynard against
claims by participants or spectators. The $10.0 million limit on coverage is for
aggregate claims on an annual basis, with no other coverage limitation on a per
claim basis. Reynard believes that such insurance is sufficient and in keeping
with industry standards. Nevertheless, there can be no assurance that such
insurance will be adequate or available at all times at reasonable premiums and
to cover all circumstances.
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 Reynard no longer conducts business operations, at no
cost to Reynard 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. Reynard 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.
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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 approximately $924,000.
WHERE TO FIND 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.
After this offering, Reynard will file 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. Reynard intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants
and to announce publicly its quarterly results for the first three quarters of
each year. The financial information will be prepared in accordance with U.S.
GAAP.
POTENTIAL DIFFICULTIES IN ENFORCEMENT OF CIVIL LIABILITIES
Most of our directors and executive officers and the experts named in this
prospectus are residents of the U.K., not the U.S. Substantially all of our
assets and the assets of our directors and executive officers are located in the
U.K. As a result, you may not be able to (1) effect service of process within
the U.S. 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 Reynard
or our directors or executive officers.
Any judgement obtained in a state or federal court in the U.S. against
Reynard or its directors and executive officers is not automatically enforceable
against assets of those
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entities which are held in the United Kingdom. Enforcement of judgements
obtained in the U.S. courts in the United Kingdom is possible, but only in
limited circumstances prescribed by English common law. In general judgements
can only be enforced where the relevant U.S. court has valid personal and
subject matter jurisdiction and where the judgement debtor is either:
- resident in the jurisdiction of such U.S. court; or
- consents in writing to the dispute being determined by such U.S.
court; or
- participates in the defence of the proceedings before such U.S.
court; or
- counterclaims within the U.S. proceedings.
Even if the case satisfies these requirements there are certain exceptions
to enforceability which can be applied by the English courts, for instance where
a judgement is obtained by fraud or other improper means, or where enforcement
would be contrary to public policy.
REORGANIZATION
Reynard Motorsport, Inc., a Delaware company, was formed in September 1998
and became the parent company of Reynard Motorsport Limited, an English company,
in November 1998. All of the shareholders of Reynard Motorsport Limited
exchanged their equity interests for shares of common stock of Reynard
Motorsport, Inc. In connection with the reorganization, many of the operating
subsidiaries of Reynard Motorsport Limited, including Reynard Composites
Limited, Reynard Special Vehicle Projects Limited, Reynard Racing Cars Limited
and Reynard Racing Designs Limited have transferred their operations into
Reynard Motorsport Limited.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is certain information concerning the executive officers
and directors of Reynard.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Adrian J. Reynard* 48 Chairman of the Board of Reynard
Alex S. Hawkridge* 53 Chief Executive Officer of Reynard
Robert J. Swistock 50 Chief Financial Officer, Secretary and Treasurer of
Reynard
Richard J. Gorne* 44 Vice President -- Sales of Reynard
Malcolm B. Oastler 39 Technical Director of Reynard Motorsport Limited
Paul R. Owens 58 Composites Director of Reynard Motorsport Limited
John C. Gower* 43 Commercial Director of Reynard
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.
Francois J. Castaing* 53 Director
</TABLE>
- ---------------
* Member of Reynard's Board of Directors
The Board of Directors are elected annually by the stockholders. The
officers of Reynard serve at the pleasure of the Board of Directors. Reynard
intends to add two additional independent directors as soon as possible after
the offering.
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 Reynard a successful manufacturer of
racing cars over the past 25 years.
ALEX S. HAWKRIDGE was elected Chief Executive Officer and a director of
Reynard 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 (chief executive officer) 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.
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ROBERT J. SWISTOCK was elected Chief Financial Officer of Reynard in March
1999. From August 1997 through October 1998, Mr. Swistock served as executive
vice president and chief financial officer of CGAS, Inc., a subsidiary of an
affiliate of Enron, Inc., a publicly-held oil and gas company. From October 1998
through March 1999, he served as president and chief operating officer of CGAS,
Inc. From August 1995 through August 1997, he served as president of Corporate
Financial Advisors, a private consulting company. From 1979 through 1984 and
from 1993 through 1995, he served as chief financial officer of Patrick
Petroleum Company, a publicly-held oil and gas company. Mr. Swistock has served
in various capacities with a CART racing team and with companies involved with
the Indy Lights series. Mr. Swistock is a Certified Public Accountant.
RICHARD J. GORNE was elected Vice President - Sales and a director of
Reynard in September, 1998. Mr. Gorne has served as an executive officer of
Reynard Motorsport Limited and its predecessors for seventeen years. Since 1992,
Mr. Gorne has served as Sales Director of Reynard Motorsport Limited and its
predecessors. Mr. Gorne was a successful racing car driver who competed against
Dr. Reynard in the 1970's. Mr. Gorne focuses primarily on sales and customer
service within Reynard.
MALCOLM B. OASTLER has served as Technical Director of Reynard Motorsport
Limited since March 1994. He joined Reynard 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 Reynard, Mr. Oastler gained valuable experience working
in junior motor racing categories and competing as a driver in the Formula Ford
2000 series.
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, a race car manufacturer, in
1956. 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 Commercial Director in March 1999. He served as
Chief Financial Officer, Secretary, Treasurer and a director of Reynard from
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 Reynard'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.
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<PAGE> 70
FRANCOIS J. CASTAING was elected a director of Reynard in January 1999.
Since December 1997 he has served as technical advisor to Daimler Chrysler
Corporation and Robert Eaton. From 1987 to 1997, he served as a vice president
of vehicle engineering and in related positions with Chrysler Corporation,
including executive vice president during 1996 and 1997. From 1983 to 1987, he
served as a vice president with American Motor Corporation. From 1968 to 1983,
he served in various capacities with Renault.
Pursuant to Reynard'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 until
November 2001. Dr. Reynard and Mr. Gorne must devote approximately one half of
their time until November 1999 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
Reynard'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 Reynard'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:
- a breach of the director's duty of loyalty to Reynard or its
stockholders;
- an act or omission not in good faith or which involves intentional
misconduct or a knowing violation of law;
- the unlawful payment of dividends or unlawful stock purchases or
redemptions; or
- a transaction from which a director derived an improper personal benefit.
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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Reynard
pursuant to the foregoing provisions, Reynard has been informed 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.
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<PAGE> 71
DIRECTOR COMPENSATION
Members of the Board of Directors who are not Reynard employees will
receive options to purchase 15,000 shares of common stock when first elected and
options to purchase 5,000 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 $10,000 and $250 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 1998 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.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
NAME AND FISCAL OTHER ANNUAL ALL OTHER
PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION COMPENSATION
------------------- ------ ---------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Adrian J. Reynard (1).......... 1998 $7,263,464 -- $93,534(2) $ --(3)
Chief Executive Officer of the
Company, Chairman of Reynard
Motorsport Limited
Richard J. Gorne............... 1998 476,705 183,815 --(4) 3,823(3)
Sales Director, Reynard
Motorsport Limited
Malcolm B. Oastler............. 1998 759,168 183,815 --(4) --
Technical Director, Reynard
Motorsport Limited
Peter D. Morgan................ 1998 68,074 183,815 --(4) 9,972(3)
Production Director, Reynard
Motorsport Limited
Paul R. Owens.................. 1998 91,085 183,815 --(4) 39,057(3)
Director, Reynard Motorsport
Limited
</TABLE>
- ---------------
(1) Alex Hawkridge was elected Chief Executive Officer of Reynard in September
1998. Reynard entered into an employment agreement with Mr. Hawkridge in
December 1998. Pursuant to the terms of the agreement, Reynard will pay Mr.
Hawkridge an annual base salary of $550,000. In addition, Dr. Reynard has
entered into an employment agreement that provides for annual compensation
of $1.5 million plus pension contributions.
(2) Represents $77,532 and $4,247 for the use of a company-owned aircraft and
motorcycle, respectively; $1,994 for time spent by Reynard staff persons on
Dr. Reynard's personal
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<PAGE> 72
matters; $1,958 for the use of a phone; $2,491 for medical insurance; and
$5,312 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.
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 Plan").
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
2,250,000 shares of common stock (21% 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 Reynard and its Subsidiaries ("employees")
with an increased incentive to make significant and extraordinary contributions
to the long-term performance and growth of Reynard and its Subsidiaries. The
Stock Option Plan will also join the interests of key employees with the
interests of the stockholders of Reynard 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 1,200,000 shares of common stock to employees, 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:
- the persons to be granted stock options;
- the amount of stock options granted to each such person; and
- the terms and conditions of any stock options.
Subject to the provisions of the Stock Option Plan, the Compensation
Committee is authorized to:
- interpret the Stock Option Plan;
- make, amend and rescind rules and regulations relating to the Stock
Option Plan; and
- make all other determinations necessary or advisable for the Stock
Options Plan's administration.
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<PAGE> 73
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 per person each year. 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 options 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:
- 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;
- 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
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<PAGE> 74
- 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 Reynard, 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. 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, Reynard 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 Reynard for federal income tax purposes in the same year,
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<PAGE> 75
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).
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:
- the grant is made by a compensation committee comprised of outside
directors;
- 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
- 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
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<PAGE> 76
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 Reynard. 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 Reynard 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.
No deduction will be available to Reynard for corporation tax purposes with
respect to the issuance of options to purchase shares of common stock or the
transfer of shares upon their 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 L30,000 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. Any gain or loss that is subsequently realized
on sale of the shares will be treated as a capital gain, and will be taxed
accordingly.
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. Reynard 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
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<PAGE> 77
employees on net income and earnings per share in the footnotes to Reynard's
financial statements. Management currently believes that there will be no
material impact on earnings of Reynard 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 Reynard, 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 the persons named below
under which the employee has agreed to be a full time employee of Reynard for
the period shown and has agreed not to compete with Reynard during the term and
for twelve months after termination:
<TABLE>
<CAPTION>
NAME EXPIRATION DATE
- ---- ---------------
<S> <C>
Dr. Reynard...................................... December 2001
Mr. Hawkridge.................................... December 2001
Mr. Swistock..................................... March 2002
Mr. Gorne........................................ November 2002
Mr. Oastler...................................... November 2002
Mr. Morgan....................................... March 2003
</TABLE>
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 currently
Adrian J. Reynard and Francois J. Castaing. It is anticipated that the
Compensation Committee members will be the two independent directors. The second
independent director will be elected as soon as possible after the offering. See
"Certain Transactions."
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table contains information, as of March 29, 1999, concerning
the beneficial ownership of the common stock by:
- each director,
- each of the named officers,
- all directors and executive officers as a group, and
- each person or entity known by Reynard 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 11,262,615 shares. Unless otherwise indicated, the address for each of the
stockholders below is Reynard Motorsport Limited, Reynard Centre, Telford Road,
Bicester, Oxfordshire OX6 0UY.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
------------------- SHARES BEING -------------------
NAME OF BENEFICIAL OWNER (1) NUMBER PERCENT OFFERED NUMBER PERCENT
---------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Adrian J. Reynard (2)............... 8,299,418 73.7% 309,338 7,990,080 55.1%
Richard J. Gorne (3)................ 340,600 3.0% 50,662 289,938 2.0%
Paul R. Owens (4)................... 289,938 2.6% -- 289,938 2.0%
Malcolm B. Oastler (5).............. 290,046 2.6% -- 290,046 2.0%
Peter D. Morgan..................... -- -- -- -- --
Alex S. Hawkridge (6)............... 426,449 4.0% -- 426,449 2.9%
Francois J. Castaing (7)............ 15,000 * -- 15,000 *
Reynard Racing Cars Trustee Limited
(8)............................... 1,740,278 15.5% -- 1,740,278 12.0%
All directors and officers, as a
group (8 persons) (9)............. 9,661,451 82.5% 360,000 9,301,451 62.2%
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise noted, each beneficial owner has sole voting and
dispositive power with respect to the shares.
(2) Includes 37 shares held in the name of Dr. Reynard's spouse, Gillian
Reynard. Includes 696,113 shares held in the name of Spread Trustee Company
Ltd. in which Dr. Reynard is the sole beneficiary and 1,456,362 shares held
in the name of the trustees of the Reynard Racing Cars Directors Pension
Fund in which Dr. Reynard is the sole beneficiary.
(3) Includes 289,938 shares held by Reynard Racing Cars Trustee Limited for the
benefit of Mr. Gorne, that vest within 60 days of March 29, 1999.
(4) Includes 289,938 shares held by Reynard Racing Cars Trustee Limited for the
benefit of Mr. Owens, that vest within 60 days of March 29, 1999.
(5) Includes 290,046 shares held by Reynard Racing Cars Trustee Limited for the
benefit of Mr. Oastler, that vest within 60 days of March 29, 1999.
(6) Includes 426,449 shares issuable upon exercise of outstanding stock options,
exercisable within 60 days of March 29, 1999.
(7) Includes 15,000 shares issuable upon exercise of outstanding stock options,
exercisable within 60 days of March 29, 1999.
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<PAGE> 79
(8) Includes 386,729 shares held for the benefit of Richard J. Gorne, 483,411
shares for the benefit of Malcolm B. Oastler, 386,729 shares held for the
benefit of Paul R. Owens, 193,364 shares held for the benefit of Peter D.
Morgan and 193,364 shares held for the benefit of John C. Gower. Reynard
Racing Cars Trustee Limited, a wholly-owned subsidiary of Reynard, holds
1,643,597 of its 1,740,278 shares in trust for the above-named officers. 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 April 1999 for the benefit of
Messrs. Gorne, Oastler and Owens, as set forth opposite their names in the
above table.
(9) Includes 1,311,371 shares issuable upon exercise of outstanding stock
options and shares held by Reynard Racing Cars Trustee Limited for the
benefit of specified officers, which are exercisable or vest within 60 days
of March 29, 1999.
CERTAIN TRANSACTIONS
As of September 30, 1998, Reynard had borrowed an aggregate of $9,673,000
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 Reynard's assets, until March
25, 1999. On that date the pledge was transferred to National Westminster Bank.
The loan bears interest at the National Westminster Bank's base rate plus
2 1/2%. Reynard 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
September 30, 1998. The highest balance due to Dr. Reynard during the fiscal
year was $11,298,585, $5,519,961 and $(287,616) during 1998, 1997 and 1996,
respectively, and such balances do not include interest on the loan. The highest
balance due to Dr. Reynard during the three months ended December 31, 1998 was
$9,452,000. A portion of the proceeds from this offering will be used to repay
the loan in its entirety.
Reynard leases some of its sites from Dr. Reynard and from the Reynard
Racing Cars Limited. Directors' Pension Scheme, of which Dr. Reynard is a
trustee and sole beneficiary. Dr. Reynard has leased the facility located in
Unit B4, Telford Road, Bicester, to Reynard for a term of 12 years, commencing
on October 1, 1998, for $178,395 per annum. The Directors' Pension has leased
the facility located in Unit B6, Telford Road Bicester, Oxfordshire, to Reynard
for a term of 12 years, commencing on October 1, 1998, for $54,380 per annum,
the facility located in Unit 1A, Reynard Park, Brackley, for a term of 12 years,
commencing on May 11, 1998, for $405,739 per annum, and the facility located in
Unit 4, Reynard Park, Brackley, for a term of 12 years, commencing on May 11,
1998, for $285,797 per annum.
In August 1997, Reynard 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.
In December 1998, Reynard borrowed an aggregate of $1,494,000 from the
pension fund, of which Dr. Reynard is a beneficiary. The loan was made to meet
working capital requirements. The loan is due and payable on demand and is
non-interest bearing. A portion of the proceeds from this offering will be used
to repay the loan in its entirety.
On September 25, 1998, Reynard granted options to purchase 426,449 shares
to Alex Hawkridge, Reynard's Chief Executive Officer, at an exercise price of
$13.49 per share. The
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<PAGE> 80
options are fully vested and may be exercised by Mr. Hawkridge at any time after
the date of the agreement.
During the year ended September 30, 1998 and the three months ended
December 31, 1998, payments of $375,000 and $135,000 respectively were made to a
company owned by Mr. Hawkridge, Reynard's Chief Executive Officer, in respect of
consulting services provided to Reynard. At September 30, 1998, December 31,
1998 Reynard had approximately $165,000 and $135,000 respectively due to this
company.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Reynard consists of 50,000,000 shares of
common stock, par value $.0001 per share, and 5,000,000 shares of preferred
stock, par value $.01 per share. On March 29, 1999, a total of 11,262,615 shares
of common stock (adjusted for the pending acquisitions) were issued and
outstanding and such shares were held by 14 stockholders. No shares of preferred
stock were outstanding. Upon completion of the offering, there will be
14,502,615 shares of common stock 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 Reynard'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
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<PAGE> 81
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 Reynard'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 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 Reynard'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:
- 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
- upon becoming an interested stockholder, the stockholder then owned at
least 85% of the voting stock, as defined in Section 203; or
- 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
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<PAGE> 82
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 holders of each share of common stock. Pursuant to the
Rights Agreement, 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 Reynard on terms that are not approved by the Board of Directors.
Prior to the date the rights are distributed to the rights holders (the
"Distribution Date"), certificates representing the shares of common stock will
evidence the rights. The rights may only be transferred with shares of common
stock. The rights are not exercisable for common stock until the Distribution
Date. The holders of rights do not have any voting rights and are not entitled
to dividends.
The Distribution Date will occur, if at all, on the earlier of: (1) 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 15% or more of the outstanding
shares of common stock, or (2) 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, Adrian J. Reynard
or certain related entities).
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<PAGE> 83
After the Distribution Date, 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 automatically allow a stockholder
to acquire Reynard common stock at a 50% discount, unless the Board of Directors
has decided to exchange the rights for shares of common stock. The rights
beneficially owned by the acquiring person become null and void and do not allow
such person to acquire Reynard common stock.
If, after the Distribution Date, Reynard consolidates or merges with, or
transfers a majority of its assets to, any person, the rights will allow a
stockholder to acquire the voting equity securities of the acquiring person at a
50% discount.
The rights will not interfere with any merger or other business combination
that is approved by the Board of Directors because the rights may be redeemed by
Reynard at $.01 per right at any time prior to 10 business days following a 15%
acquisition.
The rights will expire on December 30, 2008, unless earlier redeemed by
Reynard.
The Board of Directors may amend the Rights Agreement, without limitation,
prior to the distribution of the rights, 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 14,502,615 shares of
common stock outstanding. Of such outstanding shares, the 3,600,000 shares
(4,140,000 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 10,902,615 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 Reynard's ability to market additional
equity securities.
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<PAGE> 84
Upon completion of the offering, 10,301,214 of the restricted shares may
not be resold pursuant to Rule 144 before December 1999 and 601,401 of the
restricted shares may not be resold pursuant to Rule 144 before April 2000 .
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.
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<PAGE> 85
UNDERWRITING
Reynard is offering the shares of common stock described in this prospectus
through a number of underwriters. NationsBanc Montgomery Securities LLC and
First Union Capital Markets Corp. are the representatives of the underwriters.
Reynard and the selling stockholders have entered into an underwriting agreement
with the representatives. Subject to the terms and conditions of the
underwriting agreement, Reynard and the selling stockholders have agreed to sell
to the underwriters, and the underwriters have each agreed to purchase, the
number of shares of common stock listed next to its name in the following table.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
NationsBanc Montgomery Securities LLC.......................
First Union Capital Markets Corp. ..........................
----------
Total.............................................
==========
</TABLE>
The underwriters initially will offer shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow to
some dealers a concession of not more than $ per share. The underwriters also
may allow, and any other dealers may reallow, a concession of not more than $
per share to some other dealers. If all the shares are not sold at the initial
public offering price, the underwriters may change the offering price and the
other selling terms. The common stock is offered subject to a number of
conditions, including:
- receipt and acceptance of our common stock by the underwriters
- the right to reject orders in whole or in part
The selling shareholders have granted an option to the underwriters to buy
up to 540,000 additional shares of common stock. These additional shares would
cover sales of shares by the underwriters which exceed the number of shares
specified in the table above. The underwriters have 30 days to exercise this
option. If the underwriters exercise this option, they will each purchase
additional shares approximately in proportion to the amounts specified in the
table above.
Reynard, its executive officers and all holders of its stock prior to this
offering have entered into lock-up agreements with the underwriters. Under those
agreements, Reynard, its executive officers and those holders of stock may not
dispose of or hedge any Reynard common stock or securities convertible into or
exchangeable for shares of Reynard common stock. These restrictions will be in
effect for a period of 180 days after the date of this prospectus. At any time
and without notice, NationsBanc Montgomery Securities LLC may, in its sole
discretion, release all or some of the securities from these lock-up agreements.
Reynard and the selling stockholders will indemnify the underwriters
against some liabilities, including some liabilities under the Securities Act.
If Reynard is unable to
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<PAGE> 86
provide this indemnification, Reynard and the selling stockholders will
contribute to payments the underwriters may be required to make in respect of
those liabilities.
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include:
- short sales
- stabilizing transactions
- purchases to cover positions created by short sales
Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while this offering
is in progress.
The underwriters also may impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.
The underwriters may engage in activities that stabilize, maintain or
otherwise affect the price of the common stock, including:
- over-allotment
- stabilization
- syndicate covering transactions
- imposition of penalty bids
As a result of these activities, the price of the common stock may be
higher than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the NYSE or otherwise.
The underwriters do not intend to confirm sales of any shares to any
discretionary accounts.
Prior to this offering, there has been no public market for the common
stock of Reynard. The initial public offering price will be negotiated among
Reynard, the selling stockholders and the underwriters. Among the factors to be
considered in such negotiations are:
- the history of, and prospects for, Reynard and the industry in which it
competes
- the past and present financial performance of Reynard
- an assessment of Reynard's management
- the present state of Reynard's development
- the prospects for future earnings of Reynard
- the prevailing market conditions of the applicable U.S. securities market
at the time of this offering
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<PAGE> 87
- market valuations of publicly traded companies that Reynard and the
representatives believe to be comparable to Reynard
- other factors deemed relevant.
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 for Reynard 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 consolidated financial statements of Reynard as of September 30, 1997
and 1998 and for each of the three years in the period ended September 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 1998 and for each of the two years in the period ended
August 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.
The financial statements of Riley & Scott, Inc. as of December 31, 1998 and
for the year then ended, included in this prospectus, have been audited by
Deloitte & Touche LLP, 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.
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<PAGE> 88
REYNARD MOTORSPORT, INC.
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION 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 December 31, 1998................................ F-3
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Three Months Ended December 31,
1998................................................... F-4
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended September 30, 1998....... F-5
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Information.................................. F-6
REYNARD MOTORSPORT, INC.
Independent Auditors' Report.............................. F-9
Consolidated Balance Sheets as of September 30, 1997 and
1998 and December 31, 1998 (Unaudited)................. F-10
Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1997 and 1998 and for the Three
Months Ended December 31, 1997 and 1998 (Unaudited).... F-11
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended September 30, 1996, 1997 and 1998
and for the Three Months Ended December 31, 1998
(Unaudited)............................................ F-12
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1997 and 1998 and for the Three
Months Ended December 31, 1997 and 1998 (Unaudited).... F-13
Notes to Consolidated Financial Statements................ F-14
PRINCETOWN HOLDINGS LIMITED
Independent Auditors' Report.............................. F-24
Consolidated Balance Sheets as of August 31, 1997 and 1998
and November 30, 1998 (Unaudited)...................... F-25
Consolidated Statements of Operations for the Years Ended
August 31, 1997 and 1998 and for the Three Months Ended
November 30, 1997 and 1998 (Unaudited)................. F-26
Consolidated Statements of Stockholder's Deficit for the
Years Ended August 31, 1997 and August 31, 1998 and for
the Three Months Ended November 30, 1998 (Unaudited)... F-27
Consolidated Statements of Cash Flows for the Years Ended
August 31, 1997 and 1998 and for the Three Months Ended
November 30, 1997 and 1998 (Unaudited)................. F-28
Notes to Consolidated Financial Statements................ F-29
RILEY & SCOTT, INC.
Independent Auditors' Report.............................. F-34
Balance Sheet as of December 31, 1998..................... F-35
Statement of Operations and Retained Earnings for the Year
Ended
December 31, 1998...................................... F-36
Statement of Cash Flows for the Year Ended December 31,
1998................................................... F-37
Notes to Financial Statements............................. F-38
</TABLE>
F-1
<PAGE> 89
REYNARD MOTORSPORT, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated balance sheet as of December
31, 1998 gives effect to (i) the Gemini and Riley & Scott acquisitions (See
"Business -- Pending Acquisitions and 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 December 31, 1998. The following unaudited pro forma condensed
consolidated statements of operations for the year ended September 30, 1998 and
for the three months ended December 31, 1998 give effect to each of the above
transactions as if each had occurred as of October 1, 1997. The information used
in respect of Gemini represents the year ended August 31, 1998 and the three
months ended November 30, 1998. The information used in respect of Riley & Scott
represents the year ended December 31, 1998 and the three months ended December
31, 1998. 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 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, 1997, nor do such statements propose to indicate the results of
future operations of Reynard. 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 and Riley & Scott
acquisitions 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> 90
REYNARD MOTORSPORT, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA FOR ACQUISITIONS
-------------------------------------------------------
PRO FORMA ADJUSTMENTS
REYNARD GEMINI RILEY & SCOTT PRO FORMA FOR FOR THE
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS ACQUISITIONS OFFERING PRO FORMA
---------- ---------- ------------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...... $ 670 $ 1 $ -- $(9,835)(A) $(9,164) $ 36,116(B) $16,884
(10,068)(B)
Accounts receivable............ 8,135 802 677 -- 9,614 -- 9,614
Accounts receivable from
related party................ -- -- 132 -- 132 -- 132
Inventory...................... 6,365 1,861 1,217 -- 9,443 -- 9,443
Prepaid expenses............... 2,192 20 -- (68)(A) 2,144 (1,993)(B) 151
Deferred income taxes.......... 1,039 206 -- -- 1,245 -- 1,245
------- ------ ------ ------- ------- -------- -------
Total current assets..... 18,401 2,890 2,026 (9,903) 13,414 24,055 37,469
PROPERTY AND EQUIPMENT -- Net.... 14,241 3,347 271 7,446(A) 25,305 -- 25,305
INTANGIBLES...................... -- -- -- 11,364(A) 11,364 -- 11,364
OTHER ASSETS..................... 451 -- -- -- 451 -- 451
------- ------ ------ ------- ------- -------- -------
TOTAL ASSETS..................... $33,093 $6,237 $2,297 $ 8,907 $50,534 $ 24,055 $74,589
======= ====== ====== ======= ======= ======== =======
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank lines of credit........... $ 5,155 $ 531 $ 75 $ 500(A) $ 6,261 $ (6,261)(B) $ --
Accounts payable............... 4,596 165 332 -- 5,093 -- 5,093
Accrued liabilities............ 10,651 642 1,056 (279)(A) 12,070 -- 12,070
Notes payable to related
party........................ 10,064 2,336 50 (2,336)(A) 10,114 (10,068)(B) 46
Current portion of capital
lease obligations............ -- 537 42 -- 579 -- 579
Current portion of long-term
debt......................... -- 1,302 -- (1,055)(A) 247 -- 247
------- ------ ------ ------- ------- -------- -------
Total current
liabilities............ 30,466 5,513 1,555 (3,170) 34,364 (16,329) 18,035
CAPITAL LEASE OBLIGATIONS........ -- 424 62 -- 486 -- 486
LONG TERM DEBT................... -- 129 -- 500(A) 629 -- 629
DEFERRED INCOME TAXES............ 184 252 -- 2,234(A) 2,670 -- 2,670
GUARANTEED DEBT OBLIGATION....... 1,992 -- -- -- 1,992 -- 1,992
MINORITY INTEREST IN
SUBSIDIARY..................... 2,577 -- -- -- 2,577 -- 2,577
COMMITMENTS AND CONTINGENCIES.... -- -- -- -- -- -- --
STOCKHOLDERS' EQUITY (DEFICIT)... (2,126) (81) 680 (599)(A) 7,816 40,384(B) 48,200
9,942(A)
------- ------ ------ ------- ------- -------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)...................... $33,093 $6,237 $2,297 $ 8,907 $50,534 $ 24,055 $74,589
======= ====== ====== ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
F-3
<PAGE> 91
REYNARD MOTORSPORT, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA FOR ACQUISITIONS
------------------------------------------------------- ADJUSTMENTS
REYNARD GEMINI RILEY & SCOTT PRO FORMA PRO FORMA FOR THE
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS ACQUISITIONS OFFERING PRO FORMA
---------- ---------- ------------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Products....................... $ 9,861 $685 $415 $ -- $10,961 $ -- $10,961
Services....................... 2,477 -- 281 -- 2,758 -- 2,758
Other.......................... -- -- -- -- -- -- --
------- ---- ---- ----- ------- ----- -------
Total revenues........... 12,338 685 696 -- 13,719 -- 13,719
------- ---- ---- ----- ------- ----- -------
COST OF GOODS SOLD:
Products....................... 4,675 244 291 -- 5,210 -- 5,210
Services....................... 1,026 -- 124 -- 1,150 -- 1,150
------- ---- ---- ----- ------- ----- -------
Total cost of goods
sold................... 5,701 244 415 -- 6,360 -- 6,360
------- ---- ---- ----- ------- ----- -------
GROSS PROFIT..................... 6,637 441 281 -- 7,359 -- 7,359
GENERAL AND ADMINISTRATIVE
EXPENSES....................... 4,981 367 276 142(C) 5,994 265(E) 6,259
186(C)
42(D)
------- ---- ---- ----- ------- ----- -------
INCOME FROM OPERATIONS........... 1,656 74 5 (370) 1,365 (265) 1,100
OTHER INCOME (EXPENSE)
Write-off of equity
investment................... -- -- -- -- -- -- --
Minority interest in profit of
subsidiary................... (58) -- -- -- (58) -- (58)
Interest income................ 25 -- -- -- 25 -- 25
Interest expense............... (233) (49) (6) -- (288) 225(F) (63)
------- ---- ---- ----- ------- ----- -------
INCOME (LOSS) BEFORE TAXES ON
INCOME......................... 1,390 25 (1) (370) 1,044 (40) 1,004
INCOME TAX EXPENSE............... 536 5 -- (100)(G) 441 (12)(G) 429
------- ---- ---- ----- ------- ----- -------
NET INCOME (LOSS)................ $ 854 $ 20 $ (1) $(270) $ 603 $ (28) $ 575
======= ==== ==== ===== ======= ===== =======
EARNINGS PER SHARE -- BASIC AND
DILUTED (H).................... $ .08 $ .04
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING -- BASIC AND
DILUTED........................ 10,661 13,131
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
F-4
<PAGE> 92
REYNARD MOTORSPORT, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA FOR ACQUISITIONS
------------------------------------------------------------ ADJUSTMENTS
REYNARD GEMINI RILEY & SCOTT PRO FORMA PRO FORMA FOR THE
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS ACQUISITIONS OFFERING PRO FORMA
---------- ---------- ------------- ----------- ----------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Products.................. $45,929 $3,209 $4,671 $ -- $53,809 $ -- $53,809
Services.................. 12,788 -- 1,698 -- 14,486 -- 14,486
Other..................... -- 50 -- -- 50 -- 50
------- ------ ------ ------- ------- ------- -------
Total revenues...... 58,717 3,259 6,369 -- 68,345 -- 68,345
------- ------ ------ ------- ------- ------- -------
COST OF GOODS SOLD:
Products.................. 24,066 941 3,714 -- 28,721 -- 28,721
Services.................. 5,023 -- 796 -- 5,819 -- 5,819
------- ------ ------ ------- ------- ------- -------
Total cost of goods
sold.............. 29,089 941 4,510 -- 34,540 -- 34,540
------- ------ ------ ------- ------- ------- -------
GROSS PROFIT................ 29,628 2,318 1,859 -- 33,805 -- 33,805
GENERAL AND ADMINISTRATIVE
EXPENSES(I)............... 24,367 1,288 934 568(C) 28,083 (6,340)(E) 21,743
745(C)
181(D)
------- ------ ------ ------- ------- ------- -------
INCOME FROM OPERATIONS...... 5,261 1,030 925 (1,494) 5,722 6,340 12,062
OTHER INCOME (EXPENSE)
Write-off of equity
investment.............. (7,349) -- -- -- (7,349) (7,349)
Minority interest in loss
of subsidiary........... 105 -- -- 105 105
Interest income........... 51 -- -- -- 51 -- 51
Interest expense.......... (919) (161) (29) -- (1,109) 919(F) (190)
------- ------ ------ ------- ------- ------- -------
INCOME (LOSS) BEFORE TAXES
ON INCOME................. (2,851) 869 896 (1,494) (2,580) 7,259 4,679
INCOME TAX EXPENSE.......... 1,910 184 -- (64)(G) 2,030 1,965(G) 3,995
------- ------ ------ ------- ------- ------- -------
NET INCOME (LOSS)........... $(4,761) $ 685 $ 896 $(1,558) $(4,610) $ 5,294 $ 684
======= ====== ====== ======= ======= ======= =======
EARNINGS (LOSS) PER
SHARE -- BASIC AND DILUTED
(H)....................... $ (.45) $ .05
======= =======
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING --BASIC
AND DILUTED............... 10,661 13,131
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
F-5
<PAGE> 93
REYNARD MOTORSPORT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
BALANCE SHEET -- On March 26, 1999, Reynard 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"). 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 purchase price is $9.8 million, exclusive of acquisition costs.
Reynard will pay $5.4 million in cash upon closing of the offering and will
issue 281,565 shares of its common stock (valued at $14 per share). In addition,
Reynard will pay $0.5 million in December 2001.
On March 31, 1999, Reynard entered into an agreement to acquire Riley &
Scott, Inc. ("Riley & Scott"). Riley & Scott designs and manufactures racing
cars and is an industry leader in sports car design and production. The purchase
price is $10.4 million, exclusive of acquisition costs. Reynard will pay $4.4
million in cash upon closing of the offering and will issue 319,836 shares of
its common stock (valued at $18.76 per share). Reynard has provided a guarantee
with respect to the market value of the common stock. If on the date that is one
year from the closing, the market value of a share of Reynard common stock is
less than $18.76 per share, then Reynard will pay the Riley & Scott shareholders
the difference between the market value per share and $18.76.
The excess of the purchase price over the net book values of the net assets
acquired of Gemini and Riley & Scott have been allocated to the tangible and
intangible assets based on Reynard's estimate of the fair market value of the
net assets acquired. The allocation of the purchase price (inclusive of
acquisition costs) paid for Gemini and Riley & Scott are as follows:
<TABLE>
<CAPTION>
GEMINI (DOLLARS IN THOUSANDS)
------ ----------------------
<S> <C>
Fair market value of net assets acquired.................... $ 9,032
Allocation of purchase price in excess of acquired
assets -- Goodwill........................................ 928
-------
Total Purchase Price.............................. $ 9,960
=======
</TABLE>
<TABLE>
<CAPTION>
RILEY & SCOTT (DOLLARS IN THOUSANDS)
------------- ----------------------
<S> <C>
Fair market value of net assets acquired.................... $ 180
Allocation of purchase price in excess of acquired
assets -- Goodwill........................................ 10,436
-------
Total Purchase Price.............................. $10,616
=======
</TABLE>
The accompanying unaudited pro forma condensed consolidated balance sheet
as of December 31, 1998 has been prepared as if the Offering, the Gemini and the
Riley & Scott acquisitions and the Reorganization had been consummated as of
December 31, 1998 and includes:
(A) pro forma adjustments to:
- record the write-up to fair market value of plant and machinery assets
acquired of $7,446,000 relating to the Gemini acquisition and goodwill
($11,364,000) related to the Gemini and Riley & Scott acquisitions;
- present the Gemini acquisition for $5,435,000 in cash, $500,000 in
deferred consideration payable on December 31, 2001 and the issuance of
281,565 shares of Reynard common stock (valued at $14 per share) together
with related acquisition expenses;
F-6
<PAGE> 94
REYNARD MOTORSPORT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION -- (CONTINUED)
- present the Riley & Scott acquisition for $4,400,000 in cash, and the
issuance of 319,836 shares of Reynard common stock (valued at $18.76 per
share) together with related acquisition expenses;
- reflect the $500,000 distribution to current Riley & Scott stockholders
immediately prior to the closing of the transaction.
- reflect the repayment of certain notes and rent due from Gemini to
related and other parties as set out in the purchase agreement.
- reflect the deferred tax liability arising in respect of the fair value
adjustment in respect of Gemini plant and machinery referred to above;
- eliminate Gemini's and Riley & Scott's historical accumulated
deficit/equity.
(B) a pro forma adjustment to present the application of the net proceeds
$40,384,800 of the Offering, assuming Offering expenses of $4,975,200
(of which $1,993,000 was included in prepaid expenses at December 31,
1998), together with repayment of certain related party debt totalling
$10,068,000 and bank lines of credit of $6,261,000.
STATEMENT OF OPERATIONS -- The accompanying unaudited pro forma condensed
consolidated statement of operations for the year ended September 30, 1998 and
for the three months ended December 31, 1998 presents the results as though the
Offering, the Gemini and Riley & Scott acquisitions and the Reorganization had
been consummated on October 1, 1997. The accompanying unaudited pro forma
condensed consolidated statement of operations for the three months ended
December 31, 1998 has been prepared by combining the historical results for
Reynard and Riley & Scott for the three months ended December 31, 1998 and
Gemini for the three months ended November 30, 1998. The accompanying unaudited
pro forma condensed consolidated statement of operations for the year ended
September 30, 1998 has been prepared by combining the historical results for
Reynard for the year ended September 30, 1998, Gemini for the year ended August
31, 1998 and Riley & Scott for the year ended December 31, 1998. The
accompanying unaudited pro forma condensed consolidated statements of operations
include the following adjustments:
(C) pro forma adjustments for the years ended September 30, 1998 and for
the three months ended December 31, 1998 have been made to increase
amortization for goodwill by $568,000 and $142,000, respectively,
related to the Gemini and Riley & Scott acquisitions as if the
acquisitions had occurred as of October 1, 1997. Goodwill is amortized
over 20 years. Reynard intends to evaluate periodically the
recoverability of goodwill based upon future profitability and
undiscounted operating cash flows of the acquisitions. A pro forma
adjustment has also been made for the year ended September 30, 1998 and
for the three months ended December 31, 1998 to increase depreciation
and amortization by $745,000 and $186,000, respectively, for the fair
value adjustment to Gemini plant and machinery assets described in (A)
above.
(D) pro forma adjustments for the periods presented has been made to adjust
compensation for the current managing director of Gemini. Reynard will
enter into an agreement with the current managing director of Gemini
whereby his total annual compensation will be fixed. Accordingly, the
amounts paid for the year ended September 30, 1998 and the three months
ended December 31, 1998 have been adjusted.
F-7
<PAGE> 95
REYNARD MOTORSPORT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION -- (CONTINUED)
(E) pro forma adjustments for the periods presented have been made to
adjust compensation made to Dr. Adrian Reynard. Effective December 1,
1998, Reynard 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 amounts paid to Dr. Reynard for the year
ended September 30, 1998 and the three months ended December 31, 1998
have been adjusted to $1,500,000 to reflect compensation based on the
agreed $1.5 million per annum. Such Agreement expires on December 31,
2001.
(F) pro forma adjustments for the year ended September 30, 1998 and for the
three months ended December 31, 1998 have 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.
(G) pro forma adjustments for the periods presented have been tax effected
based upon the statutory rate then expected to be in effect.
(H) pro forma earnings per share is computed by dividing pro forma net
income by the weighted average common shares outstanding, (including
shares to be issued in connection with the Gemini and Riley & Scott
acquisitions), and the shares offered hereby whose proceeds will be
used to fund the cash portion of the Gemini and Riley & Scott
acquisitions and repay debt. Pro forma common shares outstanding for
the year ended September 30, 1998 and for the three months ended
December 31, 1998 were 13,131,000.
(I) General and Administrative expenses for the historical and pro forma
year ended September 30, 1998 include compensation expense of $239,000
related to the issuance on September 30, 1998 of stock options to an
officer of Reynard below their fair value on the date of such
issuance.
F-8
<PAGE> 96
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Reynard Motorsport, Inc.
We have audited the consolidated balance sheets of Reynard Motorsport, Inc.
("Reynard") as of September 30, 1997 and 1998, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended September 30, 1998. These consolidated
financial statements are the responsibility of Reynard'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 Reynard at September 30, 1997
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 1998, in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche
London, England
December 1, 1998 (March 31, 1999 as to paragraphs 3 and 4 of Note 11)
F-9
<PAGE> 97
REYNARD MOTORSPORT, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1997 1998 1998
------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 727 $ 3,318 $ 670
Accounts receivables (net of allowance for doubtful
accounts of $110,000, $760,000 and $358,000 as of
September 30, 1997 and 1998 and December 31, 1998,
respectively)....................................... 7,397 8,129 8,135
Inventory (net of allowance for obsolescence of
$2,012,000, $3,814,000 and $4,079,000 as of
September 30, 1997 and 1998 and December 31, 1998,
respectively)....................................... 4,316 4,556 6,365
Prepaid expenses....................................... 179 1,489 2,192
Deferred income taxes.................................. 96 870 1,039
------- ------- -------
Total current assets........................... 12,715 18,362 18,401
PROPERTY AND EQUIPMENT -- Net............................ 5,694 10,876 14,241
OTHER ASSETS............................................. -- 464 451
------- ------- -------
TOTAL ASSETS............................................. $18,409 $29,702 $33,093
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Bank line of credit.................................... $ 35 $ 518 $ 5,155
Notes payable to related party......................... 5,246 9,653 10,064
Accounts payable....................................... 5,225 6,592 4,596
Accrued liabilities:
Deposits on cars.................................... 3,012 2,319 3,858
Taxes............................................... 528 2,758 3,352
Other............................................... 3,462 5,720 3,441
------- ------- -------
Total current liabilities.............................. 17,508 27,560 30,466
DEFERRED INCOME TAXES.................................... 160 194 184
GUARANTEED DEBT OBLIGATION (Note 10)..................... -- 2,039 1,992
MINORITY INTEREST IN SUBSIDIARY.......................... -- 2,925 2,577
COMMITMENTS AND CONTINGENCIES (Note 7)................... -- -- --
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: $0.0001 par value; 50,000,000 shares
authorized; 10,661,214 issued and outstanding at
September 30, 1997 and 1998 and December 31, 1998... 1 1 1
Preferred stock: $0.01 par value; 5,000,000 shares
authorized; None issued and outstanding at September
30, 1997 and 1998 and December 31, 1998............. -- -- --
Additional paid-in capital............................. 427 1,585 1,585
Foreign currency translation adjustment................ 95 74 110
Retained earnings (accumulated deficit)................ 218 (4,676) (3,822)
------- ------- -------
Total stockholders' equity (deficit)........... 741 (3,016) (2,126)
------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)..... $18,409 $29,702 $33,093
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated statements.
F-10
<PAGE> 98
REYNARD MOTORSPORT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1998 1997 1998
------------- ------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Products................... $22,406 $39,039 $45,929 $ 8,735 $ 9,861
Services................... 6,493 10,803 12,788 2,384 2,477
------- ------- ------- ------- -------
Total revenues..... 28,899 49,842 58,717 11,119 12,338
------- ------- ------- ------- -------
COST OF GOODS SOLD:
Products................... 9,928 19,502 24,066 4,743 4,675
Services................... 3,750 5,951 5,023 1,745 1,026
------- ------- ------- ------- -------
Total cost of goods
sold............. 13,678 25,453 29,089 6,488 5,701
------- ------- ------- ------- -------
GROSS PROFIT................. 15,221 24,389 29,628 4,631 6,637
GENERAL AND ADMINISTRATIVE
EXPENSES................... 13,766 21,462 24,367 6,202 4,981
------- ------- ------- ------- -------
INCOME (LOSS) FROM
OPERATIONS................. 1,455 2,927 5,261 (1,571) 1,656
Write-off of equity
investment.............. -- -- (7,349) (4,278) --
Minority interest in
(profit) loss of
subsidiary.............. -- -- 105 -- (58)
Interest income............ 166 171 51 -- 25
Interest expense........... -- -- (919) (221) (233)
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME
TAXES...................... 1,621 3,098 (2,851) (6,070) 1,390
INCOME TAX EXPENSE
(BENEFIT).................. 563 1,105 1,910 (521) 536
------- ------- ------- ------- -------
NET INCOME (LOSS)............ $ 1,058 $ 1,993 $(4,761) $(5,549) $ 854
======= ======= ======= ======= =======
EARNINGS (LOSS) PER SHARE --
Basic and Diluted.......... $ .10 $ .19 $ (.45) $ (.52) $ .08
======= ======= ======= ======= =======
WEIGHTED SHARES
OUTSTANDING -- Basic and
Diluted.................... 10,661 10,661 10,661 10,661 10,661
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-11
<PAGE> 99
REYNARD MOTORSPORT, INC.
CONSOLIDATED 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, 1995..... 10,661 $ 1 $ 427 -- $ 857 $ 1,285
Net income.................. -- -- -- -- 1,058 1,058
Foreign currency translation
adjustment................ -- -- -- 1 -- 1
Common stock dividend....... -- -- -- -- (48) (48)
------ ---- ------ ---- ------- -------
BALANCES, SEPTEMBER 30,
1996........................ 10,661 1 427 1 1,867 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........................ 10,661 1 427 95 218 741
Net loss.................... -- -- -- -- (4,761) (4,761)
Foreign currency translation
adjustment................ -- -- -- (21) -- (21)
Common stock dividend....... -- -- -- -- (133) (133)
Compensation expense........ -- -- 239 -- -- 239
Capital contribution (waiver
of interest expense by
stockholder).............. -- -- 919 -- -- 919
------ ---- ------ ---- ------- -------
BALANCES, SEPTEMBER 30,
1998........................ 10,661 1 1,585 74 (4,676) (3,016)
Net income (unaudited)...... -- -- -- -- 854 854
Foreign currency translation
adjustment (unaudited).... -- -- -- 36 -- 36
------ ---- ------ ---- ------- -------
BALANCES,
DECEMBER 31, 1998
(unaudited)................. 10,661 $ 1 $1,585 $110 $(3,822) $(2,126)
====== ==== ====== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-12
<PAGE> 100
REYNARD MOTORSPORT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1998 1997 1998
------------- ------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................... $ 1,058 $ 1,993 $(4,761) $(5,549) $ 854
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization........... 535 898 1,040 276 386
Capital contribution -- waiver of
interest expense..................... -- -- 919 195 --
Compensation expense.................... -- -- 239 -- --
Foreign currency translation
adjustment........................... (54) 152 179 8 (57)
Deferred income taxes................... 19 151 (813) (1) (194)
Loss (gain) from sale of property and
equipment............................ 260 -- (57) -- (19)
Minority interest in loss of
subsidiary........................... -- -- (105) -- 58
Write-off of equity investment.......... -- -- 7,349 4,278 --
Changes in assets and liabilities that
(used) provided cash:
Accounts receivables............... 337 (4,875) (355) 1,245 (192)
Prepaid expenses................... 62 1 (1,264) (543) (751)
Inventory.......................... (360) (1,854) (24) (2,410) (1,927)
Accounts payable................... 504 2,493 1,083 (502) (1,859)
Accrued liabilities................ (1,238) 232 1,873 4,873 1,605
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities........... 1,123 (809) 5,303 1,870 (2,096)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment....... (1,963) (3,494) (6,368) (328) (4,110)
Proceeds from sale of property and.......... -- 6 672 -- 107
equipment
Equity investments.......................... -- -- (4,295) (2,300) (1,500)
Notes payable to related party.............. 247 5,034 4,054 655 636
------- ------- ------- ------- -------
Net cash (used in) provided by investing
activities........................... (1,716) 1,546 (5,937) (1,973) (4,867)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends........................ (48) (3,642) (133) -- --
Net proceeds from bank line of credit....... -- 35 470 1,113 4,681
Proceeds from capital contributions to
subsidiaries by minority
stockholders--net......................... -- -- 2,888 -- (366)
------- ------- ------- ------- -------
Net cash (used in) provided by financing
activities........................... (48) (3,607) 3,225 1,113 4,315
------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (641) (2,870) 2,591 1,010 (2,648)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD........................................ 4,238 3,597 727 727 3,318
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...... $ 3,597 $ 727 $ 3,318 $ 1,737 $ 670
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes................................ $ 304 $ 1,439 $ 710 None $ 470
======= ======= ======= ======= =======
Interest.................................... None None None None $ 10
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-13
<PAGE> 101
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED 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
("Reynard Engineering"). At September 30, 1998, Reynard Engineering 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. Reynard
Engineering 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 was majority owned by Dr. Adrian Reynard, his
family and trusts beneficially owned by him. Other shareholders included an
employee share ownership trust ("ESOT"), which held shares for the benefit of
employees including the other directors of Reynard Engineering Group Limited.
In October 1998, Reynard Motorsport Limited, a UK Corporation formed for
the purpose, became the holding company of Reynard Engineering, Reynard Racing
Designs Limited and Reynard Special Vehicle Projects Limited. All of the
shareholders of these entities exchanged their equity interests for shares in
Reynard Motorsport Limited.
In November 1998, together with the steps taken in October 1998, Reynard
Motorsport, Inc. ("Reynard"), a Delaware company formed in September 1998,
became the holding company for Reynard Motorsport Limited (the
"Reorganization"). All of the shareholders of that Company exchanged their
equity interests for shares of common stock of Reynard.
Since all entities described above have been, and are, related through
common control, and based upon the Reorganization, the preceding balance sheets
as of September 30, 1997 and 1998 and December 31, 1998 and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended September 30, 1996, 1997 and 1998 and the three months ended
December 31, 1997 and 1998 have been presented on a consolidated basis. All
significant inter-company balances and transactions have been eliminated in
consolidation.
In addition, the consolidated financial statements include the financial
statements of Auto Research Center LLC, ("ARC") a 49% owned subsidiary due to
Reynard's ability to exercise control over the operating and financial policies
of ARC. Subsequent to September 30, 1998, Reynard's ownership interest in ARC
increased to 59%.
F-14
<PAGE> 102
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NATURE OF OPERATIONS
Reynard 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 Reynard'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.
The estimated useful lives of property and equipment are as follows:
<TABLE>
<S> <C>
Equipment 4 to 10 years
Transportation
equipment 4 years
Furniture and fixtures 4 to 10 years
Leasehold improvements 5 to 25 years
Buildings 25 years
</TABLE>
Revenue Recognition. Revenue derived from the sale of products is
recognized at the time of shipment. Revenue derived from the providing of
services is 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. Reynard 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 Reynard as they do not have the
ability to exercise significant influence over the operating and financial
policies of Reynard Aviation.
Reynard 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 has been accounted for under the equity method by Reynard as Reynard
has the ability to exercise significant influence over the operating and
technical policies of BAR. The equity investment in BAR has been written off in
fiscal 1998 including the recording of Reynard's proportionate share of bank
debt guarantees. Reynard has guaranteed (on a joint and several basis) debt
obligations available to BAR of approximately $13,600,000 at both September 30,
1998 and December 31, 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
F-15
<PAGE> 103
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are recognized on the balance sheet. Due to the short-term nature of Reynard's
financial instruments, other than debt, fair values are not materially different
from their carrying values. Based on the borrowing rates available to Reynard,
the carrying value of debt approximated fair value prevailing market prices and
rates as of September 30, 1997 and 1998 and December 31, 1998.
It is the policy of Reynard not to enter into derivative financial
instruments for speculative purposes. Reynard 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, 1998 and December 31, 1998.
Reynard 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. Reynard's functional currency is UK pounds sterling.
The combined financial statements of Reynard 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, 1996, 1997, and 1998 and the three months ended December 31, 1998
Reynard incurred research and development costs of approximately $4,680,000,
$5,267,000, $5,678,000 and $522,000 (unaudited), 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. All per share information included in these financial
statements have been restated to reflect the effect of the Reorganization of
Reynard.
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
liabilities and disclosure of contingent assets and liabilities at September 30,
1997 and 1998 and December 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 financial statements.
Interim Information (Unaudited). The accompanying interim consolidated
financial statements reflect all adjustments which are, in the opinion of
management, necessary for a
F-16
<PAGE> 104
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. SFAS
No. 130 is effective for Reynard's consolidated financial statements for the
year ending September 30, 1999. For the year ending September 30, 1999, Reynard
will provide information relating to comprehensive income to conform to the
requirements. For the year ended September 30, 1998, comprehensive income would
not have been materially different from net income.
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. Reynard has not
determined the impact on Reynard's consolidated financial statement disclosure.
SFAS No. 131 is effective for Reynard's consolidated financial statements for
the year ending September 30, 1999. For the year ending September 30, 1999,
Reynard will provide information relating to SFAS No. 131 to conform to the
requirements. For the year ended September 30, 1998, segment information was
presented in accordance with Financial Accounting Standards Board Statement No.
14.
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. Reynard has not determined the impact on Reynard's consolidated
financial statements. SFAS No. 133 is effective for Reynard's consolidated
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, DECEMBER 31,
1997 1998 1998
------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Trade receivables -- gross.............. $6,415 $7,134 $6,843
Allowance for trade receivables......... (110) (760) (358)
------ ------ ------
Trade receivables -- net................ 6,305 6,374 6,485
Value Added Taxes....................... 729 1,186 1,225
Income taxes............................ 333 348 55
Other................................... 30 221 370
------ ------ ------
$7,397 $8,129 $8,135
====== ====== ======
</TABLE>
F-17
<PAGE> 105
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1997 1998 1998
------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw material and supplies.............. $ 742 $ 828 $ 1,112
Work-in-process........................ 957 881 1,855
Finished products and service parts.... 4,629 6,661 7,477
------ ------ -------
Total........................ $6,328 $8,370 $10,444
Less allowance for obsolete
inventory............................ (2,012) (3,814) (4,079)
------ ------ -------
$4,316 $4,556 $ 6,365
====== ====== =======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1997 1998 1998
------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Equipment.............................. $5,176 $ 8,394 $ 8,620
Transportation equipment............... 594 723 3,897
Furniture and fixtures................. 1,513 4,494 4,901
Leasehold improvements................. 222 234 229
Buildings.............................. 1,162 901 721
Land................................... 280 308 316
------ ------- -------
Total........................ 8,947 15,054 18,684
Less accumulated depreciation.......... (3,253) (4,178) (4,443)
------ ------- -------
$5,694 $10,876 $14,241
====== ======= =======
</TABLE>
5. BANK LINE OF CREDIT
Reynard 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 $3,321,000
and the bank's base rate plus 6% thereafter (effective rate of 9.0%, 9.5% and
8.25% at September 30, 1997 and 1998 and December 31, 1998, respectively) and is
due on demand.
F-18
<PAGE> 106
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OTHER ACCRUED LIABILITIES
Other accrued liabilities consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1997 1998 1998
------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Wages and salaries........................... $1,292 $2,812 $1,606
Payroll taxes................................ 828 613 870
Project costs................................ 566 -- --
Accrual for final payment of investment in
BAR........................................ -- 1,529 --
Accrual for IPO expenses..................... -- 408 400
Other........................................ 776 358 565
------ ------ ------
$3,462 $5,720 $3,441
====== ====== ======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Reynard has entered into various non-cancellable operating leases with its
majority stockholder for office space and equipment which expire through 2003.
Total rent expense for the years ended September 30, 1996, 1997 and 1998 and the
three months ended December 31, 1998 was approximately $229,000, $229,000,
$430,000 and $258,000 (unaudited), respectively.
The approximate future minimum lease payments under non-cancellable
operating leases are $832,000 (unaudited) per annum for a period of 80 years.
At December 31, 1998, Reynard has committed to capital expenditures of
approximately $169,000 (unaudited) for the construction of facilities and
purchase of certain equipment.
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 consolidated financial
condition.
Reynard has employment agreements with several of its officers. The
employment agreements expire at various dates through March 2003. The employment
agreements contain covenants not to compete in the event of termination.
On September 25, 1998 a stock option agreement was entered into with an
officer of Reynard granting such officer options to acquire 426,449 shares of
Reynard's Common Stock. The options were immediately vested and exerciseable at
a weighted average exercise price of $13.49. Compensation expense relating to
such granting of options (representing the difference between the exercise price
and the fair value of Reynard's stock) of $239,000 has been recorded for the
year ended September 30, 1998.
F-19
<PAGE> 107
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
During the year ended September 30, 1996, Reynard had three customers which
accounted for approximately $16,419,000 (57%), $2,760,000 (10%), and $2,966,000
(10%), respectively, of Reynard's revenues. During the year ended September 30,
1997, Reynard had three customers which accounted for approximately $26,272,000
(53%), $6,398,000 (13%), and $7,204,000 (14%), respectively, of Reynard's
revenues. The aggregate trade receivable balance at September 30, 1997 in
respect of these customers was approximately $3,931,000. During the year ended
September 30, 1998, Reynard had one customer which accounted for approximately
$8,220,000 (14%) of Reynard's revenues. The aggregate trade receivables balance
at September 30, 1998 in respect of this customer was approximately $4,270,000.
During the three months ended December 31, 1998, Reynard had four customers
which accounted for approximately $2,226,000 (18%), $2,021,000 (16%), $1,534,000
(12%) and $1,527,000 (10%) of Reynard's revenues (unaudited). The aggregate
trade receivables balance at December 31, 1998 in respect of these customers was
approximately $3,917,000 (unaudited).
Revenues by geographic area are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED SEPTEMBER 30, ENDED
----------------------------- DECEMBER 31,
1996 1997 1998 1998
------- ------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
UK..................................... $ 1,408 $14,497 $18,846 $ 2,227
United States.......................... 24,724 32,517 39,281 8,090
Other.................................. 2,767 2,828 590 2,021
------- ------- ------- -------
$28,899 $49,842 $58,717 $12,338
======= ======= ======= =======
</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 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 Reynard'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.
F-20
<PAGE> 108
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences giving rise to deferred tax assets
(liabilities) are as follows (thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1997 1998 1998
------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Depreciation............................ $(160) $(194) $ (184)
Development costs....................... 91 -- --
Inventory............................... 5 895 925
Other................................... -- (25) 114
----- ----- ------
Total........................... (64) 676 855
Current portion......................... 96 870 1,039
----- ----- ------
Non current portion....................... $(160) $(194) $ (184)
===== ===== ======
</TABLE>
The provision for income taxes consists of the following (thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1998 1998
------------- ------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current................... $544 $ 955 $2,723 $ 730
Deferred (benefit)........ 19 150 (813) (194)
---- ------ ------ -----
Total..................... $563 $1,105 $1,910 $ 536
==== ====== ====== =====
</TABLE>
The reconciliation of income tax expense computed at the UK statutory tax
rate to Reynard's effective income tax rate is as follows (thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1998 1998
------------- ------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax at UK statutory rate..... $530 $1,044 $ (884) $431
Meals and entertainment...... 13 16 35 40
Professional fees............ 12 19 45 43
Depreciation................. 8 26 -- --
Non deductible losses in
equity investment.......... -- -- 2,278 --
Non-deductible expenses...... -- -- 468 22
Other........................ (32) --
---- ------ ------ ----
Total........................ $563 $1,105 $1,910 $536
==== ====== ====== ====
</TABLE>
F-21
<PAGE> 109
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTIONS
As of September 30, 1998 and December 31, 1998, Reynard has approximately
$900,000 and $1,768,000 (unaudited), respectively, due from BAR and has
approximately $1,992,000 recorded as a liability relating to its portion of the
guaranteed debt obligation of BAR which totals $13,600,000. Reynard and the
other joint venturers in BAR are jointly and severally liable for the entire
amount of the debt obligation. However, under the joint venture agreement, each
party is responsible for only its share of the guaranteed obligation and Reynard
believes, based on the credit worthiness of the other joint venturers, that the
extent of its guarantee will not exceed $1,992,000. Reynard does not expect to
pay the guaranteed debt obligation during the year ending September 30, 1999.
During the year ended September 30, 1998 and the three months ended December 31,
1998, Reynard had sales of approximately $1,783,000 and $1,594,000 (unaudited),
respectively, to BAR and received management fees of approximately $2,169,000
and $632,600 (unaudited), respectively, from BAR.
Pursuant to Reynard'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 until
December 2001. Dr. Reynard and Mr. Gorne must devote approximately one half of
their time until November 1999 and approximately one quarter of their time for
the subsequent two years.
The management fees received by Reynard during the year ended September 30,
1998, have been drawn from the agreement described in the preceding paragraph.
The terms for such management fees are similar to the terms which have been
agreed for the year ending September 30, 1999.
During the year ended September 30, 1998 and the three months ended
December 31, 1998, payments of $375,000 and $135,000 (unaudited), respectively,
were made to a company owned by an officer of Reynard in respect of consulting
services provided to Reynard. At September 30, 1998 and December 31, 1998,
Reynard had approximately $165,000 and $157,000 (unaudited), respectively, due
to this company.
As of September 30, 1997 and 1998 and December 31, 1998, Reynard owed Dr.
Reynard $5,246,000, $9,673,000 and $8,574,000 (unaudited), respectively. These
notes are secured by way of fixed and floating charges over the assets of
Reynard, bear interest at National Westminster Bank PLC's base rate plus 2 1/2%
and are repayable on demand. For the years ended September 30, 1996, 1997 and
1998, Reynard 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 year ended September 30, 1998, interest expense of approximately
$919,000 has been recorded and treated as a contribution to additional paid-in
capital. For the three months ended December 31, 1998, interest expense of
approximately $225,000 (unaudited) has been recorded and credited to notes in
favor of Dr. Reynard.
As of September 30, 1997, the pension fund, of which Dr. Adrian Reynard is
a beneficiary, owed Reynard $165,000, which is included in accounts receivable.
As of December 31, 1998, Reynard owed the pension fund $1,494,000 (unaudited),
which is included in notes payable to related parties.
F-22
<PAGE> 110
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INITIAL PUBLIC OFFERING
In October 1998, Reynard 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 September 1998, the Board of Directors of Reynard (the "Board")
authorized, and the stockholders of Reynard approved, a stock incentive plan for
executive and key management employees of Reynard, 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 Reynard (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 Reynard ("employees") with an increased incentive to make
significant contribution to the long-term performance and growth of Reynard.
On March 26, 1999, Reynard 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"). 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
purchase price is $9.8 million. Reynard will pay $5.4 million in cash upon
closing of the offering and will issue 281,565 shares of its common stock
(valued at $14 per share). In addition, Reynard will pay $0.5 million in
December 2001.
On March 31, 1999, Reynard entered into an agreement to acquire Riley &
Scott, Inc. ("Riley & Scott"). Riley & Scott designs and manufactures racing
cars and is an industry leader in sports car design and production. The purchase
price is $10.4 million. Reynard will pay $4.4 million in cash upon closing of
the offering and will issue 319,836 shares of its common stock. Reynard has
provided a guarantee with respect to the market value of its common stock. If on
the date that is one year from the closing, the market value of a share of
Reynard common stock is less than $18.76 per share, then Reynard will pay the
Riley & Scott shareholders the difference between the market value per share and
$18.76.
The acquisitions mentioned above are anticipated to close concurrently with
the Offering and a portion of the proceeds from the Offering will be used to
fund the acquisitions.
F-23
<PAGE> 111
INDEPENDENT AUDITORS' REPORT
To the Director and Stockholder
of Princetown Holdings Limited
We have audited the consolidated balance sheets of Princetown Holdings
Limited (the "Group") as of August 31, 1997 and 1998, and the related
consolidated statements of income, stockholder's deficit and cash flows for each
of the two years in the period ended August 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 material respects, the financial position of the Group at August 31, 1997
and August 31, 1998 and the results of their operations and their cash flows for
each of the years in the period ended August 31, 1998 in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche
London, England
December 1, 1998 (March 31, 1999 as to Note 9)
F-24
<PAGE> 112
PRINCETOWN HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, NOVEMBER 30,
1997 1998 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ -- $ 1 $ 1
Accounts receivable (net of allowance for doubtful
accounts of $170,000, $69,000 and $50,000 as of
August 31, 1997 and 1998 and November 30, 1998,
respectively)................................... 498 606 802
Deferred income taxes.............................. 268 217 206
Inventory.......................................... 1,254 1,854 1,861
Other current assets............................... 40 34 20
------ ------ ------
Total current assets....................... 2,060 2,712 2,890
PROPERTY AND EQUIPMENT -- Net........................ 2,993 3,533 3,347
------ ------ ------
TOTAL ASSETS......................................... $5,053 $6,245 $6,237
====== ====== ======
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Accounts payable................................... $ 292 $ 260 $ 165
Accrued liabilities................................ 413 626 642
Current portion of capital lease obligations....... 510 583 537
Current portion of long-term debt.................. 172 1,397 1,302
Bank line of credit................................ 221 82 531
Loans payable -- related parties................... -- 2,394 2,336
------ ------ ------
Total current liabilities.................. 1,608 5,342 5,513
CAPITAL LEASE OBLIGATIONS (exclusive of current
portion)........................................... 448 554 424
DEFERRED INCOME TAXES................................ 126 258 252
LOANS PAYABLE -- RELATED PARTIES..................... 2,441 -- --
LONG-TERM DEBT (exclusive of current portion)........ 1,201 191 129
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 1998 and
November 30, 1998; Bearer stock $1 par
value; 10,000 shares authorized; 1 share
issued and outstanding at August 31, 1997
and 1998 and November 30, 1998............. -- -- --
Accumulated deficit........................... (737) (52) (32)
Foreign currency translation adjustments...... (34) (48) (49)
------ ------ ------
Total stockholder's deficit................ (771) (100) (81)
------ ------ ------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT.......... $5,053 $6,245 $6,237
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-25
<PAGE> 113
PRINCETOWN HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
AUGUST 31, AUGUST 31, NOVEMBER 30, NOVEMBER 30,
1997 1998 1997 1998
--------------- ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Products..................... $3,157 $3,209 $647 $685
Other........................ 19 50 -- --
------ ------ ---- ----
Total................ 3,176 3,259 647 685
COST OF GOODS SOLD............. 1,426 941 268 244
------ ------ ---- ----
GROSS PROFIT................... 1,750 2,318 379 441
GENERAL AND ADMINISTRATIVE
EXPENSES..................... 1,399 1,288 301 367
------ ------ ---- ----
INCOME FROM OPERATIONS......... 351 1,030 78 74
INTEREST EXPENSE............... 144 161 35 49
------ ------ ---- ----
INCOME BEFORE TAXES ON
INCOME....................... 207 869 43 25
INCOME TAX EXPENSE............. 70 184 9 5
------ ------ ---- ----
NET INCOME..................... $ 137 $ 685 $ 34 $ 20
====== ====== ==== ====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-26
<PAGE> 114
PRINCETOWN HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK 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............... -- -- 685 -- 685
Foreign currency
translation
adjustment............ -- -- -- (14) (14)
--- --- ----- ---- -----
BALANCES,
AUGUST 31, 1998.......... 1 -- (52) (48) (100)
Net income (unaudited)... -- -- 20 -- 20
Foreign currency
translations
adjustments
(unaudited)........... -- -- -- (1) (1)
--- --- ----- ---- -----
BALANCES,
NOVEMBER 30, 1998
(Unaudited).............. 1 $-- $ (32) $(49) $ (81)
=== === ===== ==== =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-27
<PAGE> 115
PRINCETOWN HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
AUGUST 31, AUGUST 31, NOVEMBER 30, NOVEMBER 30,
1997 1998 1997 1998
---------- ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 137 $ 685 $ 34 $ 20
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization....... 611 502 154 160
Deferred income taxes............... 70 184 9 5
Loss (gain) from disposal of
property and equipment............ 3 21 (5) --
Change in assets and liabilities
that provided (used) cash
Accounts receivable............. (75) (167) 60 (208)
Inventory....................... (137) (549) (78) (34)
Other current assets............ (18) 84 6 14
Accounts payable................ 105 (41) (72) (93)
Accrued liabilities............. 54 195 45 26
----- ----- ----- -----
Net cash provided by (used in)
operating activities.............. 750 914 153 (110)
----- ----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment... (510) (407) (1) (22)
Proceeds from disposal of property and
equipment............................. 84 139 20 --
----- ----- ----- -----
Net cash provided by (used in)
investing activities.............. (426) (268) 19 (22)
----- ----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to notes payable to related
parties............................... (12) (126) (18) (24)
Proceeds (payments) from other notes
payable............................... 564 168 (37) (138)
Payments on capital lease obligations... (968) (543) (192) (162)
Proceeds (payments) from bank line of
credit................................ 97 (144) 75 456
----- ----- ----- -----
Net cash provided by (used in)
financing activities.............. (319) (645) (172) 132
----- ----- ----- -----
NET INCREASE IN CASH AND CASH
EQUIVALENTS............................. 5 1 -- --
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.................................. -- -- -- 1
FOREIGN CURRENCY TRANSLATION ADJUSTMENT... (5) -- -- --
----- ----- ----- -----
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.................................. $ -- $ 1 $ -- $ 1
===== ===== ===== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest.......................... $ 144 $ 161 $ 35 $ 49
===== ===== ===== =====
Income taxes...................... None None None None
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-28
<PAGE> 116
PRINCETOWN HOLDINGS LIMITED
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 1998 and November 30,
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 1998 and November 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
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.
F-29
<PAGE> 117
PRINCETOWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAJOR CUSTOMERS AND GEOGRAPHICAL INFORMATION. For the years ended August
31, 1997 and 1998 and for the three months ended November 30, 1998, one customer
accounted for 57.7%, 31.8% and 21.0% (unaudited), respectively, of the Company's
revenues. As of August 31, 1997 and 1998 and November 30, 1998, $175,000,
$283,101 and $306,000 (unaudited), respectively, was receivable from such
customer.
Revenues by geographic area are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED YEAR ENDED ENDED
AUGUST 31, 1997 AUGUST 31, 1998 NOVEMBER 30, 1998
--------------- --------------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
UK.............................. $ 931 $ 986 $164
Europe.......................... 2,062 1,870 330
Other........................... 183 403 191
------ ------ ----
$3,176 $3,259 $685
====== ====== ====
</TABLE>
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, NOVEMBER 30,
1997 1998 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Plant and machinery.......................... $ 5,240 $ 5,995 $ 5,926
Fixtures and fittings........................ 24 32 24
Motor vehicles............................... 31 32 32
Office equipment............................. 125 209 219
------- ------- -------
Total cost.............................. 5,420 6,268 6,201
Less accumulated depreciation................ (2,427) (2,735) (2,854)
------- ------- -------
$ 2,993 $ 3,533 $ 3,347
======= ======= =======
</TABLE>
3. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, NOVEMBER 30,
1997 1998 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Trade receivables -- gross................... $ 592 $675 $853
Allowance for trade receivables.............. (170) (69) (50)
----- ---- ----
Trade receivables -- net..................... 422 606 803
Value Added Taxes............................ 75 -- --
Other........................................ 1 -- (1)
----- ---- ----
$ 498 $606 $802
===== ==== ====
</TABLE>
F-30
<PAGE> 118
PRINCETOWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, NOVEMBER 30,
1997 1998 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Payroll taxes................................ $ 26 $ 33 $ 34
Accrued rent................................. 379 492 510
Other........................................ 8 101 98
---- ---- ----
$413 $626 $642
==== ==== ====
</TABLE>
5. DEBT
BANK LINE OF CREDIT. As of August 31, 1997 and 1998 and November 30, 1998
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 (effective rate of 10.0%, 10.5% and 9.75% at August 31,
1997 and 1998 and November 30, 1998, respectively) on amounts up to $165,000 and
6% above base rate on borrowings above this level.
LONG-TERM DEBT. The Company has various equipment notes payable, some of
which are non-interest bearing ($1,055,000 at November 30, 1998 (unaudited))
while the remainder bear interest at rates ranging from 5.5% to 9.0%. Future
maturities are as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, NOVEMBER 30,
1997 1998 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
1998........................................ $ 199 $ -- $ --
1999........................................ 1,066 1,460 1,306
2000........................................ 192 218 199
------ ------- -------
Total minimum obligations................... 1,457 1,678 1,505
Interest.................................... (84) (90) (74)
------ ------- -------
Total....................................... 1,373 1,588 1,431
Current Portion............................. (172) (1,397) (1,302)
------ ------- -------
Non current portion......................... $1,201 $ 191 $ 129
====== ======= =======
</TABLE>
6. RELATED PARTY TRANSACTIONS
Gemini received a loan from one of the directors of Gemini. The amount
payable to related parties as of August 31, 1997 and 1998 and November 30, 1998
was $2,441,000, $2,394,000 and $2,336,000 (unaudited), respectively.
This loan is non-interest bearing and is due for repayment in 1999.
F-31
<PAGE> 119
PRINCETOWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENT AND CONTINGENCIES
The primary property and equipment leased by the Company is plant and
machinery.
Property acquired under capital leases consists of the following (in
thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, NOVEMBER 30,
1997 1998 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Plant and machinery.......................... $2,360 $2,222 $2,190
Motor vehicles............................... 31 32 32
------ ------ ------
Total cost.............................. 2,391 2,254 2,222
Less accumulated depreciation........... (739) (563) (542)
------ ------ ------
$1,652 $1,691 $1,680
====== ====== ======
</TABLE>
Future minimum lease payments for the above assets under capital leases are
as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, NOVEMBER 30,
1997 1998 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
1998........................................ $ 598 $ -- $ --
1999........................................ 335 677 482
2000........................................ 159 406 400
2001........................................ 11 233 230
------ ------ ------
Total minimum obligations................. 1,103 1,316 1,112
Interest.................................. (145) (179) (151)
------ ------ ------
Present value of net minimum
obligations............................ 958 1,137 961
Current portion........................... (510) (583) (537)
------ ------ ------
Non-current portion....................... $ 448 $ 554 $ 424
====== ====== ======
</TABLE>
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
F-32
<PAGE> 120
PRINCETOWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. For
the years ended August 31, 1997 and 1998 and three months ended November 30,
1998 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. The tax loss carryforwards as of August
31, 1997 and 1998 and November 30, 1998 were $1,276,000, $1,035,000 and $981,000
(unaudited) respectively.
The tax effects of temporary differences giving rise to deferred tax assets
(liabilities) are as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, NOVEMBER 30,
1997 1998 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Depreciation.............................. $(126) $(258) $(252)
Tax loss carry forwards................... 268 217 206
----- ----- -----
Total.................................. 142 (41) (46)
Current portion........................... 268 217 206
----- ----- -----
Non current portion......................... $(126) $(258) $(252)
===== ===== =====
</TABLE>
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED YEAR ENDED ENDED
AUGUST 31, AUGUST 31, NOVEMBER 30,
1997 1998 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current..................................... $ -- $ -- $ --
Deferred.................................... 70 184 5
---- ---- ----
Total....................................... $ 70 $184 $ 5
==== ==== ====
</TABLE>
9. SUBSEQUENT EVENT
In March 1999, the Company entered into an agreement to sell to Reynard
Motorsport Ltd. (a wholly-owned subsidiary of Reynard Motorsport, Inc.)
("Reynard") the outstanding shares of stock of Princetown Holdings Limited for
approximately $9.8 million ($5.4 million in cash upon closing of the
acquisition, issuance of 281,565 shares of Reynard common stock valued at $14
per share and $0.5 million in cash due December 2001). 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-33
<PAGE> 121
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Riley & Scott, Inc.
We have audited the accompanying balance sheet of Riley & Scott, Inc.
("Riley & Scott") as of December 31, 1998, and the related statements of
operations and retained earnings and of cash flows for the year then ended.
These financial statements are the responsibility of Riley & Scott's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Riley & Scott at December 31, 1998, and
the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Indianapolis, Indiana
March 31, 1999
F-34
<PAGE> 122
RILEY & SCOTT, INC.
BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
ASSETS
CURRENT ASSETS:
Account receivable (net of allowance for doubtful accounts
of $30,000)............................................ $ 677
Account receivable from related party..................... 132
Inventory................................................. 1,217
------
Total current assets.............................. 2,026
PROPERTY AND EQUIPMENT, NET................................. 271
------
TOTAL ASSETS................................................ $2,297
======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit....................................... $ 75
Current portion of capital lease obligation............... 42
Accounts payable.......................................... 332
Accrued liabilities....................................... 131
Customer deposits......................................... 925
Note payable to related party............................. 50
------
Total current liabilities......................... 1,555
------
CAPITAL LEASE OBLIGATION (exclusive of current portion)..... 62
------
COMMITMENTS (note 5)
STOCKHOLDERS' EQUITY:
Common stock - no par value; 1,000 shares authorized, 100
shares issued and outstanding.......................... 7
Paid-in capital........................................... 177
Retained earnings......................................... 496
------
Total stockholders' equity........................ 680
------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $2,297
======
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE> 123
RILEY & SCOTT, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
REVENUES:
Products.................................................. $4,671
Services.................................................. 1,698
------
Total revenues.................................... 6,369
------
COST OF GOODS SOLD:
Products.................................................. 3,714
Services.................................................. 796
------
Total cost of goods sold.......................... 4,510
------
GROSS PROFIT................................................ 1,859
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 934
------
INCOME FROM OPERATIONS...................................... 925
INTEREST EXPENSE, net....................................... (29)
------
NET INCOME.................................................. 896
RETAINED EARNINGS, BEGINNING OF YEAR........................ 290
DISTRIBUTIONS TO STOCKHOLDERS............................... (690)
------
RETAINED EARNINGS, END OF YEAR.............................. $ 496
======
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE> 124
RILEY & SCOTT, INC.
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 896
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation......................................... 214
Changes in certain assets and liabilities:
Accounts receivable............................... (182)
Accounts receivable, related party................ 109
Inventory......................................... 554
Accounts payable.................................. (320)
Accrued liabilities............................... 88
Customer deposits................................. (982)
-----
Net cash provided by operating activities....... 377
-----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (60)
-----
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under bank line of credit-net.................. 75
Distributions paid to stockholders........................ (690)
Payments on capital lease obligations..................... (41)
-----
Net cash used in financing activities.................. (656)
-----
NET DECREASE IN CASH........................................ (339)
CASH, beginning of year..................................... 339
-----
CASH, end of year........................................... $ --
=====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes.............................................. None
=====
Interest.................................................. $ 4
=====
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE> 125
RILEY & SCOTT, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS OPERATIONS
Riley & Scott, Inc. (the "Company") was incorporated in the state of
Indiana in April, 1990. The Company specializes in the design and manufacture of
production racing cars. In addition, the Company provides consulting design
services to automotive manufacturers which includes prototypes, engineering and
concept car development around the world. Racing cars are sold for competition
throughout the United States and Europe in the World Sports Car Series and the
Indy Racing League.
REVENUE RECOGNITION
Revenue derived from the sale of products is recognized at the time of
shipment. Revenue derived from providing services is recognized as earned.
Payments received from customers prior to shipment are recorded as customer
deposits.
INVENTORY
Inventory consists of finished goods, spare parts, work in process and raw
materials, all stated at the lower of cost (first-in, first-out basis) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using an
accelerated method over estimated useful lives ranging from three to seven
years. The cost of repairs and maintenance is charged against the results of
operations as incurred.
INCOME TAXES
The Company has elected to be taxed as an S Corporation under the Internal
Revenue Code. As an S Corporation, the Company's income is taxed at the
stockholder level. Distributions are paid to stockholders of the Company in
amounts which approximate their related income tax liabilities.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. For
the year ended December 31, 1998, five customers accounted for approximately 70%
of total revenue which includes approximately 15% from a related party. As of
December 31, 1998, one customer accounted for approximately 57% of total
accounts receivable.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-38
<PAGE> 126
RILEY & SCOTT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Finished goods.............................................. $ 905
Work in process............................................. 211
Raw materials............................................... 101
------
$1,217
======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Furniture and fixtures...................................... $189
Equipment................................................... 567
Vehicles.................................................... 43
----
799
Less accumulated depreciation............................... (528)
----
$271
====
</TABLE>
4. BANK LINE OF CREDIT
The Company has a bank line of credit which provides for advances of up to
$400,000. Advances under the agreement bear interest at the bank's prime rate
(7.75% at December 31, 1998) plus 1.25%; require monthly installments of
interest only; and are secured by substantially all assets of the Company and
personal guarantees of the stockholders. In addition, the Company guarantees its
stockholders' obligations under a $400,000 bank line of credit with an
outstanding balance at December 31, 1998 of $265,000. Guaranteed amounts are
secured by substantially all assets of the Company. The Company's credit
agreement contains covenants including restrictions on tangible net worth and
debt leverage ratios.
5. COMMITMENTS
The Company leases real estate from R&S Holdings, Inc. (a related party)
under a noncancellable operating lease. Rental expense for the year ended
December 31, 1998 was approximately $54,000.
The Company leases certain equipment from an unrelated party under a
capital lease. The cost of the equipment and accumulated depreciation as of
December 31, 1998 were $112,535 and $77,550, respectively.
F-39
<PAGE> 127
RILEY & SCOTT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under noncancellable capital and operating
leases are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL LEASE OPERATING LEASE
OBLIGATION OBLIGATION
------------- ---------------
<S> <C> <C>
1999....................................................... $ 50 $ 53
2000....................................................... 50 52
2001....................................................... 16 52
2002....................................................... -- 50
2001....................................................... -- 48
Thereafter................................................. -- 32
---- ----
Total minimum lease payments............................... 116 $287
====
Less amounts representing interest......................... (12)
----
Present value of minimum lease payments.................... 104
Less current portion....................................... (42)
----
Long-term portion.......................................... $ 62
====
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Company engages in certain transactions with stockholders and companies
with common ownership. Transactions and balances with related parties as of and
for the year ended December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
R&S CARS, INC. R&S HOLDINGS, INC. STOCKHOLDER
-------------- ------------------ -----------
<S> <C> <C> <C>
Unsecured note payable, requires monthly
interest payments at 8% with all unpaid
principal and interest due May 1999.... -- -- $50
Interest expense on note payable......... -- -- 4
Accounts receivable...................... $132 -- --
Operating lease expense.................. -- $54 --
Sale of product.......................... 846 -- --
Contracted services...................... 187 -- --
</TABLE>
7. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) profit sharing plan and trust (the "Plan")
for all eligible employees, as defined. Employees participating in the plan can
contribute a portion of their pre-tax compensation and the Company may match a
share of the employee's contribution. The Company also has the option of making
discretionary contributions to the Plan. During 1998, no matching contributions
or discretionary contributions were made to the Plan.
8. SUBSEQUENT EVENTS
On March 31, 1999, the stockholders of the Company signed an agreement to
sell all of the issued and outstanding shares of the Company to Reynard
Motorsport, Ltd. ("Reynard"). The purchase price is $10.4 million. Reynard will
pay $4.4 million in cash upon closing of the Offering and will issue 319,836
shares of its common stock. Reynard
F-40
<PAGE> 128
RILEY & SCOTT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
has provided a guarantee with respect to the market value of its common stock.
If on the date that is one year from the closing, the market value of a share of
Reynard common stock is less than $18.76 per share, then Reynard will pay the
Company stockholders the difference between the market value per share and
$18.76. The acquisition is anticipated to close prior to the initial public
offering (the "Offering") of Reynard, but the cash portion of the purchase price
will be funded from a portion of the proceeds from the Offering.
F-41
<PAGE> 129
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,600,000 Shares
[REYNARD MOTORSPORT, INC. LOGO]
REYNARD MOTORSPORT, INC.
------------------------
PROSPECTUS
, 1999
------------------------
NationsBanc Montgomery Securities LLC
First Union Capital Markets Corp.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 130
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:
<TABLE>
<S> <C>
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................................ $ 900,000
Engraving Expenses.......................................... $ 27,000
Printing Expenses........................................... $ 225,000
Blue Sky Filing Fees........................................ $ 5,000
Legal Fees and Expenses..................................... $ 380,000
Transfer Agent and Registrar Fees and Expenses.............. $ 25,000
Miscellaneous............................................... $ 40,765
----------
TOTAL............................................. $1,800,000
==========
</TABLE>
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.
(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.
II-1
<PAGE> 131
(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 AMOUNT OF PRINCIPAL
OF SHARES DATE OF SALE CONSIDERATION UNDERWRITER EXEMPTION
----------- ----------------- ------------- ----------- ---------------------------
<C> <C> <C> <C> <S>
Section 4(2) -- Share
exchange in connection with
10,661,214 December 17, 1998 N/A None corporate reorganization
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<S> <C>
(a) Exhibits
1.1 Form of Underwriting Agreement*
2.1 Agreement for Sale of Princetown Holdings Limited dated
March 26, 1999
2.2 Stock Purchase Agreement by and among Reynard Motorsports,
Inc. and Bob Riley and Mark Scott dated March 31, 1999
3.1 Certificate of Incorporation of the Company filed September
2, 1998, with amendments*
3.2 Bylaws of the Company*
4.1 Form of Common Stock Certificate
5.1 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)*
10.8 Stock Option Agreement with Alex Hawkridge dated December
18, 1998.*
10.9 Employment Agreement with Alex Hawkridge dated December 14,
1998.*
10.10 Lease re Unit B4, Telford Road, Bicester, Oxfordshire by and
between A. J. Reynard, Esq. and Reynard Motorsport Limited,
dated October 1, 1998.*
10.11 Lease re Unit B6, Telford Road, Bicester, Oxfordshire by and
between A. J. Reynard, Esq., M. J. Daniels, Esq. and R. D.
Bowerman, Esq. (Trustees of the Reynard Racing Cars Ltd.
Directors' Pension Scheme) and Reynard Motorsport Limited,
dated October 1, 1998.*
</TABLE>
II-2
<PAGE> 132
<TABLE>
<S> <C>
10.12 Lease re Unit 4, Reynard Park, Brackley, Northamptonshire by
and between A. J. Reynard, Esq., M. J. Daniels, Esq. and R.
D. Bowerman, Esq. (Trustees of the Reynard Racing Cars Ltd.
Directors' Pension Scheme) and Reynard Motorsport Limited
and R.T.C. Management Company Limited, dated October 1,
1998.*
10.13 Lease re Unit 1A, Reynard Park, Brackley, Northamptonshire
by and between A. J. Reynard, Esq., M. J. Daniels, Esq. and
R. D. Bowerman, Esq. (Trustees of the Reynard Racing Cars
Ltd. Directors' Pension Scheme) and Reynard Motorsport
Limited and R.T.C. Management Company Limited, dated October
1, 1998.*
10.14 Rights Agreement between Reynard Motorsport, Inc. and the
Rights Agent.
10.15 Employment Agreement with Robert J. Swistock dated March 8,
1999
10.16 Advice of Borrowing Terms for Reynard Motorsport Limited
dated January 5, 1999 with National Westminster Bank Pfc.
10.17 Facility letter with Adrian Reynard dated March 31, 1999
21.1 List of Subsidiaries
23.1 Consent of Deloitte & Touche
23.2 Consent of Deloitte & Touche, LLP
23.3 Consent of Kegler, Brown, Hill & Ritter Co., L.P.A.
(included in Exhibit 5.1)
24.1 Power of Attorney of the Company*
27.1 Financial Data Schedule
(b) Financial Statement Schedules
Schedule II
</TABLE>
- ---------------
* Previously filed as an exhibit with this Registration Statement No. 333-66317.
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
II-3
<PAGE> 133
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-4
<PAGE> 134
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
2nd day of April, 1999.
REYNARD MOTORSPORT, INC.
By: /s/ ALEX S. HAWKRIDGE*
-----------------------------------
Alex S. Hawkridge, Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed on April 2,
1999 by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ALEX S. HAWKRIDGE* Chief Executive Officer, Director
- -----------------------------------------------------
Alex S. Hawkridge
/s/ ROBERT J. SWISTOCK Chief Financial and Accounting Officer
- -----------------------------------------------------
Robert J. Swistock
/s/ ADRIAN J. REYNARD* Chairman of the Board, Director
- -----------------------------------------------------
Adrian J. Reynard
/s/ RICHARD J. GORNE* Vice President -- Sales, Director
- -----------------------------------------------------
Richard J. Gorne
/s/ JOHN C. GOWER* Director
- -----------------------------------------------------
John C. Gower
</TABLE>
* Signed Pursuant to a Power of Attorney
By: /s/ JACK A. BJERKE
-----------------------------------------------------
Jack A. Bjerke,
Attorney-in-Fact
II-5
<PAGE> 135
SCHEDULE II
REYNARD MOTORSPORT, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996
AND THE THREE MONTHS ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF CHARGED TO COSTS BALANCE AT
DESCRIPTION PERIOD AND EXPENSES DEDUCTIONS(1) END OF PERIOD
----------- ------------ ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
(deducted from accounts
receivable)
Three Months Ended December
31, 1998 (unaudited)..... $ 760 $ -- $402 $ 358
Year Ended September 30,
1998..................... 110 740 90 760
Year Ended September 30,
1997..................... 174 (32) 32 110
Year Ended September 30,
1996..................... 328 42 196 174
</TABLE>
- ---------------
(1) Accounts deemed to be uncollectible.
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF CHARGED TO COSTS BALANCE AT
DESCRIPTION PERIOD AND EXPENSES DEDUCTIONS END OF PERIOD
----------- ------------ ---------------- ---------- -------------
<S> <C> <C> <C> <C>
Allowance for obsolete inventory
Three Months Ended December 31,
1998 (unaudited).............. $3,814 $ 265 $ -- $4,079
Year Ended September 30, 1998.... 2,012 1,834 32 3,814
Year Ended September 30, 1997.... 1,078 934 -- 2,012
Year Ended September 30, 1996.... 1,164 (86) -- 1,078
</TABLE>
<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, Inc
Date 26 March 1999
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 Reverse transfer provisions
9 General
10 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
<PAGE> 2
SHARE SALE AGREEMENT
Date: 26 March 1999
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, INC a Delaware corporation whose
principal place of business is at 8431 Georgetown Road, Suite 700,
Indianapolis, Indiana 46268, USA
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
'CONSIDERATION SHARES' such number of common stock shares in the
Purchaser as represents 2.5% of the total issued shares immediately
before the Initial Public Offering and after the acquisition of Riley &
Scott, Inc and the Company, credited as fully paid
'DEED OF INDEMNITY' a deed in the form set out in Schedule 4
'DEFERRED CONSIDERATION' the sum of $500,000
'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
'INITIAL PUBLIC OFFERING' the initial public offering of the shares of
common stock of the Purchaser on the New York Stock Exchange
'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
<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
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.
<PAGE> 4
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 comprise the following:-
3.1.1 Cash consideration equal to $2,500,000.
3.1.2 The issue of the Consideration Shares.
4 RESCISSION
4.1 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:-
4.1.1 any of the Warranties is not or was not true and accurate in
all material respects on the date it was given or
4.1.2 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
4.1.3 there is any material breach or nonfulfillment 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 15 April 1999, provided there has not
been a rescission. 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;
<PAGE> 5
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, (and in the case of
Mrs DC Verwey additionally from her employment by the
Operating 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;
5.3 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 deliver the Service Agreement duly executed by Reynard
Motorsport Limited
5.6.2 issue to the Vendor the Consideration Shares ranking pari
passu and as a single class on and from the date of allotment
with the existing common stock shares and common stock shares
of the Purchaser to be issued at the Initial Public
<PAGE> 6
Offering which shall carry the right to receive in full all
dividends and other distributions declared, made or paid after
the date of Completion.
5.6.3 deliver the letter from Kegler, Hill, Brown & Ritter in the
agreed terms
5.7 On or before 31 May 1999 and subject to the matters referred to in
clauses 5.2 to 5.5 the Purchaser shall:-
5.7.1 cause the cash consideration set out in clause 3.1.1. (less
the Deferred Consideration) together with the Vendor's
reasonable legal costs in connection with the entry into and
completion of this agreement (but no previous agreement) to be
paid by banker's drafts 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.
5.7.2 procure (a) the payment by the Operating Company of the
balances (not to exceed (pound)2,000,259 in aggregate ) shown
in its books at completion as due to:-
- the landlord of the properties, converted into dollars at
the rate of $1.6924 to the (pound)
- Andre Verwey (converted as above)
- Complete Projects (converted as above), (payment for all of
which shall be by a bank transfer to the Vendors Solicitors)
- Jan Langdon, and
(b) any payments specified by the Operating Company to its
staff (not to exceed(pound)30,000 )as ex gratia payments to them for loss of
office.
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;
<PAGE> 7
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 has arisen since 26th October 1998 or
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 5.7.2) 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 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;
<PAGE> 8
consideration in excess of its market value at the date of
such acquisition or enter into any unusual, long term or
onerous contact of a value in excess of (pound) 5000.
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 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
6.11 The Vendor undertakes that within twelve months of the initial public
offering of the shares of common stock in the Purchaser on the New York
Stock Exchange or any other stock exchange it will not sell or attempt
to sell any of the shares of common stock which shall have been issued
to it pursuant to clause 5.6.2.
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 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 REVERSE TRANSFER PROVISIONS
8.1 The Purchaser hereby undertakes with and covenants to the Vendor 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 5.7.2) or otherwise with the prior written
consent of the Vendor (which consent shall not be unreasonably withheld
or delayed in relation to Clause 8.1.3) the Purchaser will procure that
pending the Initial Public Offering or if earlier 7 June 1999:-
8.1.1 the Company and Operating Company will carry on their
respective businesses in
<PAGE> 9
the ordinary course and on an arm's length basis so as to
maintain the same as a going concern and will not cause or
permit the Company or the Operating Company to cease to trade;
8.1.2 neither the Company nor the Operating Company will dispose of
any assets except in the ordinary course of carrying on its
business;
8.1.3 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;
8.1.4 neither the Company nor the Operating Company will declare
make or pay any dividend or other distribution to any of its
members;
8.1.5 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.
8.1.6 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
8.1.7 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
8.1.8 the Company and Operating Company shall take all reasonable
steps to preserve and protect its assets
8.1.9 no security interests will be granted over any assets of the
Company or the Operating Company or the Share
8.1.10 the Vendor's representatives will be allowed upon reasonable
notice access to the Company, Operating Company and their
assets and records
8.1.11 no share or loan capital will be issued other than as
contemplated by the Initial Public Offering or loans made to
or by the Company or Operating Company
8.1.12 no action is taken which is inconsistent with the provisions
of clause 8.2
8.2 In the event of the Initial Public Offering not taking place at or
before midnight GMT on 31 May 1999, then the obligations under clauses 5.7 and 7
shall be cancelled and on the 7th June, 1999 the following will take place:-
8.2.1. The Purchaser will transfer back to the Vendor the Share with
full title guarantee and with all rights attaching to it free
from all liens charges and encumbrances
8.2.2. The Vendor will surrender the shares of common stock issued to
it in the Purchaser and or substitute and any additional
shares allotted to the Vendor prior to the Initial Public
Offering and options granted to the Vendor if any for
additional shares.
8.2.3. The Purchaser will procure the resignation of the directors of
each Group Company who shall have been so appointed pursuant
to clause 5.5.1.
8.2.4. The Vendor will procure the immediate resignation without
compensation of the Executive from the Service Agreement
<PAGE> 10
8.2.5. The Purchaser will procure the agreement of the Employer under
the Service Agreement to that resignation
8.2.6 The Purchaser shall procure that best endeavours are taken to
return the Company and Operating Company to the position they
would have been in had Completion not have taken place.
8.2.7 The Purchaser shall indemnify the Vendor, Company and
Operating Company on demand in cash and on an after tax basis
for (1) any loss of value of the Share, Company or Operating
Company or for any net liability on the Company or Operating
Company incurred during the period of ownership of the Share
by the Purchaser, to the extent that the foregoing is
attributable to the act of the Purchaser, its directors,
officers, agents, representatives or advisors and (2) the
Vendor's reasonable legal costs in connection with the entry
and completion of this Agreement (but no earlier agreement).
9 GENERAL
9.1 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.
9.2 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.
9.3 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.
9.4 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.
9.5 Subject to clause 5.7.1, 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.
9.6 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.
9.7 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
<PAGE> 11
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.
9.8 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, save that if the
Initial Public Offering does not take place on or before 31 May 1999,
all rights (if any) of the Vendor and Reynard Motorsport Limited under
the predecessor agreement dated 26 October 1998 shall be preserved.
9.9 Neither party enters into this Agreement in reliance on any warranty,
undertaking, stipulation or agreement other than those contained in
this Agreement (other than as provided for in clause 9.8).
9.10 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.
9.11 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.
9.12 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.
10. GOVERNING LAW AND JURISDICTION
10.1 The validity construction and performance of this Agreement shall be
governed by English law.
10.2 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.
10.3 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.
<PAGE> 1
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
BY AND AMONG
REYNARD MOTORSPORT, INC.
(AS BUYER)
AND
BOB RILEY
AND
MARK SCOTT
(AS SELLERS)
DATED
MARCH 31, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. SALE AND TRANSFER OF SHARES; CLOSING.........................................................................1
1.1. Shares..................................................................................................1
1.2. Purchase Price..........................................................................................1
1.3. Closing.................................................................................................2
1.4. Closing Obligations.....................................................................................2
2. REPRESENTATIONS AND WARRANTIES OF SELLERS....................................................................3
2.1. Organization and Good Standing..........................................................................3
2.2. Authority; No Conflict..................................................................................3
2.3. Capitalization..........................................................................................4
2.4. Financial Statements....................................................................................5
2.5. Books and Records.......................................................................................5
2.6. Title to Properties; Encumbrances.......................................................................5
2.7. Accounts Receivable.....................................................................................6
2.8. Inventory...............................................................................................6
2.9. No Undisclosed Liabilities..............................................................................6
2.10. Taxes................................................................................................7
2.11. No Material Adverse Change...........................................................................7
2.12. Employee Benefits....................................................................................7
2.13. Compliance With Legal Requirements; Governmental Authorizations......................................7
2.14. Legal Proceedings; Orders............................................................................8
2.15. Absence of Certain Changes and Events................................................................9
2.16. Contracts; No Defaults..............................................................................10
2.17. Insurance...........................................................................................12
2.18. Environmental Matters...............................................................................14
2.19. Employees...........................................................................................15
2.20. Labor Relations; Compliance.........................................................................15
2.21. Intellectual Property...............................................................................16
2.22. Certain Payments....................................................................................17
2.23. Disclosure..........................................................................................17
2.24. Relationships With Related Persons..................................................................18
2.25. Brokers or Finders..................................................................................18
3. REPRESENTATIONS AND WARRANTIES OF BUYER.....................................................................18
3.1. Organization and Good Standing.........................................................................18
3.2. Authority; No Conflict.................................................................................18
3.3. Brokers or Finders.....................................................................................19
4. COVENANTS OF SELLERS PRIOR TO CLOSING DATE..................................................................19
4.1. Access and Investigation...............................................................................19
4.2. Operation of the Businesses of the Company.............................................................20
4.3. Negative Covenant......................................................................................20
4.4. Required Approvals.....................................................................................20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.5. Notification...........................................................................................20
4.6. Payment of Indebtedness by Related Persons.............................................................21
4.7. No Negotiation.........................................................................................21
4.8. Section 338(h)(10) Election............................................................................20
5. COVENANTS OF BUYER PRIOR TO CLOSING DATE....................................................................22
5.1. Approvals of Governmental Bodies.......................................................................22
6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.........................................................22
6.1. Accuracy of Representations............................................................................22
6.2. Sellers' Performance...................................................................................22
6.3. Consents...............................................................................................23
6.4. Additional Documents...................................................................................23
6.5. No Proceedings.........................................................................................23
6.6. No Claim Regarding Stock Ownership or Sale Proceeds....................................................23
6.7. No Prohibition.........................................................................................23
7. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE........................................................24
7.1. Accuracy of Representations............................................................................24
7.2. Buyer's Performance....................................................................................24
7.3. Consents...............................................................................................24
7.4. Additional Documents...................................................................................24
7.5. No Injunction..........................................................................................25
8. TERMINATION.................................................................................................25
8.1. Termination Events.....................................................................................25
8.2. Effect of Termination..................................................................................25
9. INDEMNIFICATION; REMEDIES...................................................................................26
9.1. Survival; Right to Indemnification Not Affected by Knowledge...........................................26
9.2. Indemnification and Payment of Damages by Sellers......................................................26
9.3. Indemnification and Payment of Damages by Buyer........................................................27
9.4. Time Limitations.......................................................................................27
9.5. Limitations on Amount--Sellers.........................................................................27
9.6. Limitations on Amount--Buyer...........................................................................27
9.7. Right of Set-Off.......................................................................................28
9.8. Procedure for Indemnification--Third Party Claims......................................................28
9.9. Procedure for Indemnification--Other Claims............................................................29
10. GENERAL PROVISIONS..........................................................................................29
10.1. Expenses............................................................................................29
10.2. Public Announcements................................................................................30
10.3. Confidentiality.....................................................................................30
10.4. Notices.............................................................................................30
10.5. Jurisdiction; Service of Process....................................................................31
10.6. Further Assurances..................................................................................31
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
10.7. Waiver..............................................................................................31
10.8. Entire Agreement and Modification...................................................................32
10.9. Assignments, Successors, and No Third-Party Rights..................................................32
10.10. Severability........................................................................................32
10.11. Section Headings, Construction......................................................................32
10.12. Time of Essence.....................................................................................33
10.13. Governing Law.......................................................................................33
10.14. Counterparts........................................................................................33
</TABLE>
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of March 31,
1999, by REYNARD MOTORSPORT, INC., a Delaware corporation ("Buyer"), BOB RILEY,
an individual resident in Indiana ("Riley"), and MARK SCOTT, an individual
resident in Indiana ("Scott" and, collectively with Riley, "Sellers"). Sellers
own all of the issued and outstanding shares of capital stock of Riley & Scott,
Inc., an Indiana corporation (the "Company"). The Company is a party to, and has
certain obligations under, this Agreement.
RECITALS
Sellers desire to sell, and Buyer desires to purchase, all of the
issued and outstanding shares (the "Shares") of capital stock of the Company,
for the consideration and on the terms set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. SALE AND TRANSFER OF SHARES; CLOSING.
1.1. SHARES.
Subject to the terms and conditions of this Agreement, at the Closing,
Sellers will sell and transfer the Shares to Buyer, and Buyer will purchase the
Shares from Sellers, effective March 1, 1999.
1.2. PURCHASE PRICE.
The aggregate purchase price (the "Purchase Price") for the Shares will
be the issuance of 319,836 shares of common stock of Buyer (the "RMI Common
Stock") and $4,400,000 in cash, payable on or before May 15, 1999. The Purchase
Price shall be allocated equally between the Sellers. As additional purchase
price, Buyer shall reimburse Sellers for the interest expense actually paid by
Sellers on funds borrowed by Sellers to pay the federal taxes on the gain
represented by the issuance of the RMI Common Stock from the date of such
borrowings until twelve (12) months from the Closing. Sellers shall provide
documentation to Buyer on such interest costs and Buyer shall remit to Sellers
the funds necessary to pay such interest on a timely basis.
If Buyer has not completed an IPO within twelve (12) months of the
Closing, Sellers shall have the right to cause Buyer to redeem all, but not part
of of the RMI Common Stock (an aggregate of 319,836 shares) at an aggregate
Redemption purchase price of $6,000,000 ($18.76 per share). This Redemption
option shall be exercised by Sellers, if at all, at any time from and after
twelve (12) months following the Closing for a period of 30 days. Sellers shall
provide written notice to Buyer of their exercise of this Redemption option not
more than 30 days prior to the date on which the Redemption option may first be
exercised and not less than 5 days prior to
<PAGE> 6
the date on which the Redemption option shall lapse. Within thirty (30) days of
receipt by Buyer of notice by the Sellers exercising this Redemption option,
Buyer shall consummate the Redemption and pay to Sellers the Redemption purchase
price in cash or other immediately available funds.
If Buyer consummates an IPO within twelve (12) months of the Closing,
Buyer hereby grants to Sellers a guaranteed value of $6,000,000 with respect to
the RMI Common Stock (an aggregate of 319,836 shares) (the "Guaranteed Value").
At the date which is one (1) year following the effective date of the IPO, Buyer
shall determine the Market Value, as defined below, for the shares of RMI Common
Stock. If the aggregate Market Value for the RMI Common Stock (an aggregate of
319,836 shares) is less than the Guaranteed Value, Buyer shall pay to Sellers
the difference between the aggregate Market Value and the Guaranteed Value. Such
payment, if required, shall be made to Sellers, in cash or other immediately
available funds, within 30 days following the final date used for computing the
Market Value.
For purposes of this Section, "Market Value" shall mean the average of
the closing sales price for shares of RMI Common Stock on the New York Stock
Exchange for the five (5) business days immediately preceding the date on which
such Market Value determination is made. If Buyer's shares of Common Stock are
not traded on the New York Stock Exchange, "Market Value" shall mean the average
of the closing bid and ask prices for Buyer's Common Stock on the NASDAQ Stock
Market or other primary exchange on which Buyer's Common Stock is traded for the
five (5) business days immediately preceding the date on which such Market Value
determination is made. If Buyer's Common Stock is not traded on an exchange, the
"Market Value" shall be determined pursuant to an independent appraisal, as
mutually agreed by the parties.
1.3. CLOSING.
The purchase and sale (the "Closing") provided for in this Agreement
will take place at the offices of Buyer's counsel at 65 East State Street, Suite
1800, Columbus, Ohio 43215, at 10:00 a.m. (local time) on May 15, 1999, or at
such other time and place as the parties may agree (the "Closing Date"). Subject
to the provisions of Section 8, failure to consummate the purchase and sale
provided for in this Agreement on the date and time and at the place determined
pursuant to this Section 1.3 will not result in the termination of this
Agreement and will not relieve any party of any obligation under this Agreement.
1.4. CLOSING OBLIGATIONS.
At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers);
2
<PAGE> 7
(ii) releases in the form of Exhibit 1.4(a)(ii) executed by Sellers
(collectively, "Sellers' Releases");
(iii) employment agreements in the form of Exhibit 1.4(a)(iii),
executed by Sellers (collectively, "Employment Agreements");
(iv) a certificate executed by Sellers representing and warranting
to Buyer that each of Sellers' representations and warranties
in this Agreement was accurate in all respects as of the date
of this Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date (giving full
effect to any supplements to the Disclosure Letter that were
delivered by Sellers to Buyer prior to the Closing Date in
accordance with Section 4.5); and
(b) Buyer will deliver to Sellers:
(i) Certificates representing an aggregate of 319,836 shares of
RMI Common Stock in the names and amounts set forth in
Schedule 1.2;
(ii) a certificate executed by Buyer to the effect that, except as
otherwise stated in such certificate, each of Buyer's
representations and warranties in this Agreement was accurate
in all respects as of the date of this Agreement and is
accurate in all respects as of the Closing Date as if made on
the Closing Date; and
(iii) the Employment Agreements, executed by Buyer on behalf of
Riley & Scott, Inc.
2. REPRESENTATIONS AND WARRANTIES OF SELLERS.
Sellers represent and warrant to Buyer as follows:
2.1. ORGANIZATION AND GOOD STANDING.
The Company is a corporation duly organized, validly existing, and in
good standing under the laws of its jurisdiction of incorporation, with
full corporate power and authority to conduct its business as it is now
being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under
material agreements to which it is a party or by which its assets are
subject. The Company is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification.
2.2. AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding obligation of
each of the Sellers and the Company, enforceable against each Seller
and the Company in accordance with
3
<PAGE> 8
its terms. Each Seller has the absolute and unrestricted right, power,
authority, and capacity to execute and deliver this Agreement and to
perform their obligations under this Agreement.
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of the transactions contemplated hereby
will, directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the organizational documents of the Company, or
(B) any resolution adopted by the board of directors or the
stockholders of the Company;
(ii) contravene, conflict with, or result in a violation of, or
give any governmental body or other person the right to
challenge any of the transactions contemplated hereby or to
exercise any remedy or obtain any relief under, any legal
requirement or any order to which the Company or any of the
assets owned or used by it may be subject;
(iii) cause Buyer or the Company to become subject to, or to become
liable for the payment of, any tax;
(iv) contravene, conflict with, or result in a violation or breach
of any provision of, or give any person the right to declare a
default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or
modify, any contract to which the Company is a party; or
(v) result in the imposition or creation of any encumbrance upon
or with respect to any of the assets owned or used by the
Company.
No Seller or the Company is or will be required to give any
notice to or obtain any consent from any person in connection
with the execution and delivery of this Agreement or the
consummation or performance of any of the transactions
contemplated hereby.
(c) Sellers are acquiring the RMI Common Stock for their own account and
not with a view to their distribution within the meaning of Section
2(11) of the Securities Act of 1933, as amended (the "Securities Act").
Each Seller is an "accredited investor" as such term is defined in Rule
501(a) under the Securities Act.
2.3. CAPITALIZATION.
The authorized equity securities of the Company consist of 100 shares
of common stock, par value $1.00 per share, of which 100 shares are issued and
outstanding and constitute the Shares. Sellers are and will be on the Closing
Date the record and beneficial owners and holders of the Shares, free and clear
of all encumbrances. Riley owns 50 of the Shares and Scott owns 50 of the
Shares. No legend or other reference to any purported encumbrance appears upon
any certificate representing equity securities of the Company. All of the
outstanding equity securities
4
<PAGE> 9
of the Company have been duly authorized and validly issued and are fully paid
and nonassessable. There are no agreements relating to the issuance, sale, or
transfer of any equity securities or other securities of the Company. None of
the outstanding equity securities or other securities of the Company was issued
in violation of the Securities Act or any other legal requirement. The Company
does not own, or have any agreements to acquire, any equity securities or other
securities of any person or any direct or indirect equity or ownership interest
in any other business.
2.4. FINANCIAL STATEMENTS.
Sellers have delivered to Buyer:
(a) unaudited balance sheets of the Company as at December 31 in each of
the years 1994 through 1997, and the related unaudited statements of
income, changes in stockholders' equity, and cash flow for each of the
fiscal years then ended,
(b) a balance sheet of the Company as at December 31, 1998 (including the
notes thereto, the "Balance Sheet"), and the related consolidated
statements of income, changes in stockholders' equity, and cash flow
for the fiscal year then ended.
Such financial statements and notes fairly present the financial
condition and the results of operations, changes in stockholders' equity, and
cash flow of the Company as at the respective dates of and for the periods
referred to in such financial statements, all in accordance with generally
accepted accounting principles ("GAAP"). The financial statements referred to in
this Section 2.4 reflect the consistent application of such accounting
principles throughout the periods involved. No financial statements of any
person other than the Company are required by GAAP to be included in the
consolidated financial statements of the Company.
2.5. BOOKS AND RECORDS.
The books of account, minute books, stock record books, and other
records of the Company, all of which have been made available to Buyer, are
complete and correct and have been maintained in accordance with sound business
practices. The minute books of the Company contain accurate and complete records
of all meetings held of, and corporate action taken by, the stockholders, the
Boards of Directors, and committees of the Board of Directors of the Company,
and no meeting of any such stockholders, Board of Directors, or committee has
been held for which minutes have not been prepared and are not contained in such
minute books. At the Closing, all of those book and records will be in the
possession of the Company.
2.6. TITLE TO PROPERTIES; ENCUMBRANCES.
The Company owns (with good and marketable title in the case of real
property, subject only to the matters permitted by the following sentence) all
the properties and assets (whether real, personal, or mixed and whether tangible
or intangible) that it purports to own, including all of the properties and
assets reflected in the Balance Sheet (except for assets held under capitalized
leases and personal property sold since the date of the Balance Sheet, as the
case may be, in the ordinary course of business), and all of the properties and
assets purchased or otherwise
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acquired by the Company since the date of the Balance Sheet (except for personal
property acquired and sold since the date of the Balance Sheet in the ordinary
course of business and consistent with past practice). All material properties
and assets reflected in the Balance Sheet are free and clear of all encumbrances
except, with respect to all such properties and assets, (a) security interests
shown on the Balance Sheet as securing specified liabilities or obligations,
with respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, and (b) security interests incurred in
connection with the purchase of property or assets after the date of the Balance
Sheet (such security interests being limited to the property or assets so
acquired), with respect to which no default (or event that, with notice or lapse
of time or both, would constitute a default) exists.
2.7. ACCOUNTS RECEIVABLE.
All accounts receivable of the Company that are reflected on the
Balance Sheet or on the accounting records of the Company as of the Closing Date
(collectively, the "Accounts Receivable") represent or will represent valid
obligations arising from sales actually made or services actually performed in
the ordinary course of business. Unless paid prior to the Closing Date, the
Accounts Receivable are or will be as of the Closing Date current and
collectible net of the respective reserves shown on the Balance Sheet or on the
accounting records of the Company as of the Closing Date (which reserves are
adequate and calculated consistent with past practice and, in the case of the
reserve as of the Closing Date, will not represent a greater percentage of the
Accounts Receivable as of the Closing Date than the reserve reflected in the
Balance Sheet represented of the Accounts Receivable reflected therein and will
not represent a material adverse change in the composition of such Accounts
Receivable in terms of aging). Subject to such reserves, each of the Accounts
Receivable either has been or will be collected in full, without any set-off,
within ninety days after the day on which it first becomes due and payable.
There is no contest, claim, or right of set-off, other than returns in the
ordinary course of business, under any agreement with any obligor of an Accounts
Receivable relating to the amount or validity of such Accounts Receivable.
2.8. INVENTORY.
All inventory of the Company, whether or not reflected in the Balance
Sheet, consists of a quality and quantity usable and salable in the ordinary
course of business, except for obsolete items and items of below-standard
quality, all of which have been written off or written down to net realizable
value in the Balance Sheet or on the accounting records of the Company as of the
Closing Date, as the case may be. All inventories not written off have been
priced at the lower of cost or net realizable value on a first in, first out
basis.
2.9. NO UNDISCLOSED LIABILITIES.
The Company has no liabilities or obligations of any nature (whether
known or unknown and whether absolute, accrued, contingent, or otherwise) except
for liabilities or obligations reflected or reserved against in the Balance
Sheet and current liabilities incurred in the ordinary course of business since
the date thereof.
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2.10. TAXES.
(a) The Company has filed or caused to be filed (on a timely basis since
1995) all tax returns that are or were required to be filed by or with
respect to it, either separately or as a member of a group of
corporations, pursuant to applicable legal requirements. The Company
has paid, or made provision for the payment of, all taxes that have or
may have become due pursuant to those tax returns or otherwise, or
pursuant to any assessment received by Sellers or the Company, except
such taxes, if any, that are being contested in good faith and as to
which adequate reserves (determined in accordance with GAAP) have been
provided in the Balance Sheet.
(b) All deficiencies proposed as a result of any tax audit have been paid,
reserved against, settled, or, are being contested in good faith by
appropriate proceedings. No Seller or the Company has given or been
requested to give waivers or extensions (or is or would be subject to a
waiver or extension given by any other person) of any statute of
limitations relating to the payment of taxes of the Company or for
which the Company may be liable.
(c) The charges, accruals, and reserves with respect to taxes on the books
of the Company are adequate (determined in accordance with GAAP) and
are at least equal to that the Company's liability for taxes. There
exists no proposed tax assessment against the Company. No consent to
the application of Section 341(f)(2) of the Internal Revenue Code has
been filed with respect to any property or assets held, acquired, or to
be acquired by the Company. All taxes that the Company is or was
required by legal requirements to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to
the proper governmental body or other person.
(d) All tax returns filed by the Company are true, correct, and complete.
There is no tax sharing agreement that will require any payment by the
Company after the date of this Agreement.
2.11. NO MATERIAL ADVERSE CHANGE.
Since the date of the Balance Sheet, there has not been any material
adverse change in the business, operations, properties, prospects, assets, or
condition of the Company, and no event has occurred or circumstance exists that
may result in such a material adverse change.
2.12. EMPLOYEE BENEFITS.
The Company has no pension or profit sharing plans other than a 401-K
Profit Sharing Plan which does not require any Company contributions.
2.13. COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.
The following representations are qualified to the extent that they are
limited not to have a Material Adverse Effect on the Company. As used herein,
the term "Material Adverse Effect" means an effect which would be materially
adverse to the assets, properties, business, affairs,
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operations, condition (financial or otherwise) or prospects of the Company (or
buyer, as the context may dictate) that results or is reasonably likely to
result in expenses, fees, losses, liabilities, claims, actions, or other damages
in excess of $100,000.
(a) The Company is, and at all times since January 1, 1995 has been, in
full compliance with each federal, state, local, municipal, foreign,
international, multinational or other administrative order,
constitution, law, ordinance, principle of common law, regulation,
statute or treaty ("Legal Requirement") that is or was applicable to it
or to the conduct or operation of its business or the ownership or use
of any of its assets.
(b) No event has occurred or circumstance exists that (with or without
notice or lapse of time) (A) may constitute or result in a violation by
the Company of, or a failure on the part of the Company to comply with,
any Legal Requirement, or (B) may give rise to any obligation on the
part of the Company to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature.
(c) The Company has not received, at any time since January 1, 1995, any
notice or other communication (whether oral or written) from any
governmental body or any other person regarding (A) any actual,
alleged, possible, or potential violation of, or failure to comply
with, any Legal Requirement, or (B) any actual, alleged, possible, or
potential obligation on the part of the Company to undertake, or to
bear all or any portion of the cost of, any remedial action of any
nature.
(d) Schedule 2.13 contains a complete and accurate list of each approval,
consent, license, permit, waiver or other authorization issued,
granted, given or otherwise made available by or under the authority of
any governmental body or pursuant to any Legal Requirement
("Governmental Authorization") that is held by the Company or that
otherwise relates to the business of, or to any of the assets owned or
used by, the Company. Each Governmental Authorization listed or
required to be listed on Schedule 2.13 is valid and in full force and
effect and the Company is in full compliance with all such Governmental
Authorizations.
2.14. LEGAL PROCEEDINGS; ORDERS.
(a) There is no pending legal proceeding:
(i) that has been commenced by or against the Company or that
otherwise relates to or may affect the business of, or any of
the assets owned or used by, the Company; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any
of the transactions contemplated hereby.
To the knowledge of Sellers and the Company, (1) no such legal
proceeding has been threatened, and (2) no event has occurred or
circumstance exists that may give rise to or serve as a basis for the
commencement of any such legal proceeding.
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(b) There is no award, decision, injunction, order, ruling, subpoena or
verdict entered, issued, made or rendered by any court, administrative
agency or other governmental body or by any arbitrator ("Order") to
which the Company, or any of the assets owned or used by the Company,
is subject.
(c) Neither Seller is subject to any Order that relates to the business of,
or any of the assets owned or used by, the Company.
(d) To the knowledge of Sellers and the Company, no officer, director,
agent, or employee of the Company is subject to any Order that
prohibits such officer, director, agent, or employee from engaging in
or continuing any conduct, activity, or practice relating to the
business of the Company.
(e) The Company is, and at all times since January 1, 1995 has been, in
full compliance with all of the terms and requirements of each Order to
which it, or any of the assets owned or used by it, is or has been
subject.
(f) No event has occurred or circumstance exists that may constitute or
result in (with or without notice or lapse of time) a violation of or
failure to comply with any term or requirement of any Order to which
the Company, or any of the assets owned or used by the Company, is
subject.
(g) The Company has not received, at any time since January 1, 1995, any
notice or other communication (whether oral or written) from any
governmental body or any other person regarding any actual, alleged,
possible, or potential violation of, or failure to comply with, any
term or requirement of any Order to which the Company, or any of the
assets owned or used by the Company, is or has been subject.
2.15. ABSENCE OF CERTAIN CHANGES AND EVENTS.
Since the date of the Balance Sheet, the Company has conducted its
business only in the ordinary course of business and there has not been any:
(a) change in the Company's authorized or issued capital stock; grant of
any stock option or right to purchase shares of capital stock of the
Company; issuance of any security convertible into such capital stock;
grant of any registration rights; purchase, redemption, retirement, or
other acquisition by the Company of any shares of any such capital
stock; or declaration or payment of any dividend or other distribution
or payment in respect of shares of capital stock;
(b) amendment to the organizational documents of the Company;
(c) payment or increase by the Company of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the
ordinary course of business) employee or entry into any employment,
severance, or similar agreement with any director, officer, or
employee;
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(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any
employees of the Company;
(e) damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or
prospects of the Company, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of (i)
any license, distributorship, dealer, sales representative, joint
venture, credit, or similar agreement, or (ii) any agreement or
transaction involving a total remaining commitment by or to the Company
of at least $10,000;
(g) sale (other than sales of inventory in the ordinary course of
business), lease, or other disposition of any asset or property of the
Company or mortgage, pledge, or imposition of any lien or other
encumbrance on any material asset or property of the Company, including
the sale, lease, or other disposition of any of the Company's
intellectual property assets;
(h) cancellation or waiver of any claims or rights with a value to the
Company in excess of $10,000;
(i) material change in the accounting methods used by the Company; or
(j) agreement, whether oral or written, by the Company to do any of the
foregoing.
2.16. CONTRACTS; NO DEFAULTS.
(a) Sellers have delivered to Buyer true and complete copies of:
(i) each agreement that involves performance of services or
delivery of goods or materials by the Company of an amount or
value in excess of $10,000;
(ii) each agreement that involves performance of services or
delivery of goods or materials to the Company of an amount or
value in excess of $10,000;
(iii) each agreement that was not entered into in the ordinary
course of business and that involves expenditures or receipts
of the Company in excess of $5,000;
(iv) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other
agreement affecting the ownership of, leasing of, title to,
use of, or any leasehold or other interest in, any real or
personal property (except personal property leases and
installment and conditional sales agreements having a value
per item or aggregate payments of less than $5,000 and with
terms of less than one year);
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(v) each licensing agreement or other agreement with respect to
patents, trademarks, copyrights, or other intellectual
property, including agreements with current or former
employees, consultants, or contractors regarding the
appropriation or the non-disclosure of any of the Company's
intellectual property assets;
(vi) each collective bargaining agreement and other agreements to
or with any labor union or other employee representative of a
group of employees;
(vii) each joint venture, partnership, and other agreements (however
named) involving a sharing of profits, losses, costs, or
liabilities by the Company with any other person;
(viii) each agreement containing covenants that in any way purport to
restrict the business activity of the Company or any affiliate
of the Company or limit the freedom of the Company or any
affiliate of the Company to engage in any line of business or
to compete with any person;
(ix) each agreement providing for payments to or by any person
based on sales, purchases, or profits, other than direct
payments for goods;
(x) each power of attorney that is currently effective and
outstanding;
(xi) each agreement entered into other than in the ordinary course
of business that contains or provides for an express
undertaking by the Company to be responsible for consequential
damages;
(xii) each agreement for capital expenditures in excess of $5,000;
(xiii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended
by the Company other than in the ordinary course of business;
and
(xiv) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
(b) Neither Seller has or may acquire any rights under, and neither Seller
has or may become subject to any obligation or liability under, any
agreement that relates to the business of, or any of the assets owned
or used by the Company, other than the lease of the Company's main
facilities, which is leased from an affiliated entity.
(c) To the knowledge of Sellers and the Company, no officer, director,
agent, employee, consultant, or contractor of the Company is bound by
any agreement that purports to limit the ability of such officer,
director, agent, employee, consultant, or contractor to (A) engage in
or continue any conduct, activity, or practice relating to the business
of the Company, or (B) assign to the Company or to any other person any
rights to any invention, improvement, or discovery.
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<PAGE> 16
(d) Each agreement delivered or required to be delivered to Seller pursuant
to Section 2.16(a) is in full force and effect and is valid and
enforceable in accordance with its terms.
(e) The Company is, and at all times since January 1, 1997 has been, in
full compliance with all applicable terms and requirements of each
agreement under which it has or had any obligation or liability or by
which it or any of the assets owned or used it is or was bound.
(f) Each other person that has or had any obligation or liability under any
agreement under which the Company has or had any rights is, and at all
times since January 1, 1997 has been, in full compliance with all
applicable terms and requirements of such agreement.
(g) No event has occurred or circumstance exists that (with or without
notice or lapse of time) may contravene, conflict with, or result in a
violation or breach of, or give the Company or other person the right
to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any
agreement.
(h) The Company has not given to or received from any other person, at any
time since January 1, 1997, any notice or other communication (whether
oral or written) regarding any actual, alleged, possible, or potential
violation or breach of, or default under, any agreement, other than the
potential claim by KPMG and the dispute with Eliseo Salazar, both of
which have been disclosed to Buyer.
(i) There are no renegotiations of, attempts to renegotiate, or outstanding
rights to renegotiate any material amounts paid or payable to the
Company under current or completed agreements with any person and, to
the knowledge of Sellers and the Company, no such person has made
written demand for such renegotiation.
(j) The agreements relating to the sale, design, manufacture, or provision
of products or services by the Company have been entered into in the
ordinary course of business and have been entered into without the
commission of any act alone or in concert with any other person, or any
consideration having been paid or promised, that is or would be in
violation of any Legal Requirement.
2.17. INSURANCE.
(a) Sellers have delivered to Buyer:
(i) true and complete copies of all policies of insurance to which
the Company is a party or under which the Company, or any
director of the Company, is or has been covered at any time
within the five (5) years preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for
policies of insurance; and
(iii) any statement by the auditor of the Company's financial
statements with regard to the adequacy of its coverage or of
the reserves for claims.
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(b) Sellers have provided to Buyer a summary, by year, for the current
policy year and each of the five (5) preceding policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance policy
for an amount in excess of $50,000, which sets forth:
A. the name of the claimant;
B. a description of the policy by insurer, type of
insurance, and period of coverage; and
C. the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that
were self-insured, including the number and aggregate cost of
such claims.
(c) All policies to which the Company is a party or that provide coverage
to either Seller, the Company, or any director or officer of the
Company:
(i) are valid, outstanding, and enforceable;
(ii) are issued by an insurer that is financially sound and
reputable;
(iii) taken together, provide adequate insurance coverage for the
assets and the operations of the Company for all risks to
which the Company is normally exposed;
(iv) are sufficient for compliance with all Legal Requirements and
agreements to which the Company is a party or by which it is
bound;
(v) will continue in full force and effect following the
consummation of the transactions contemplated hereby; and
(vi) do not provide for any retrospective premium adjustment or
other experienced-based liability on the part of the Company.
(d) No Seller or the Company has received (A) any refusal of coverage or
any notice that a defense will be afforded with reservation of rights,
or (B) any notice of cancellation or any other indication that any
insurance policy is no longer in full force or effect or will not be
renewed or that the issuer of any policy is not willing or able to
perform its obligations thereunder.
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(e) The Company has paid all premiums due, and has otherwise performed all
of its obligations, under each policy to which it is a party or that
provides coverage to it or any director.
(f) The Company has given notice to the insurer of all claims that may be
insured thereby.
2.18. ENVIRONMENTAL MATTERS.
To the best knowledge of the Company, except to the extent that any
inaccuracies in any of the following representations and warranties set forth in
this Section 2.18 would not be reasonably expected to have a Material Adverse
Effect on the Company:
(a) The Company is, and at all times has been, in compliance in all
material respects with all federal, state, local and foreign laws, statutes,
codes, rules, regulations, orders, injunctions, decrees, judgments, common law,
legal doctrine, plans, demand letters, agreements with any Governmental
Authorities and all other requirements relating to the pollution or the
protection of health, safety or the environment, including without limitation
the release, discharge or emission of any pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes into the environment
(including, without limitation ambient air, surface water, ground water, land
surface, or subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals or industrial, toxic or
hazardous materials, substances or wastes ("Environmental Laws") resulting from
the operation of the Company's business or the ownership of the Company's
properties or assets.
(b) The Company has not received any notices, demand letters,
complaints or requests for information from, and no action, suit, hearing,
investigation or other proceeding is pending or, to the best knowledge of the
Company, threatened by or before any governmental or regulatory authority or
third party regarding any violation of or any liability under any Environmental
Law. The Company is not subject to any judicial, executive, legislative,
regulatory or administrative order, ruling or decree arising under or relating
to any Environmental Law.
(c) The Company has timely obtained, currently holds and is in
compliance in all material respects with the provisions of all licenses,
permits, authorizations and approvals required in connection with the operation
of its business and the ownership, leasing or use of its properties under all
Environmental Laws.
(d) The Company is not aware of any event, condition, circumstance,
activity, practice, action or plan which is reasonably likely to prevent
continued compliance with the foregoing for which would give rise to any
liability under any Environmental Law, based or resulting from the Company's
manufacturing, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge or release into the
environment of any Hazardous Substance.
(e) No Hazardous Substance has been used, stored, placed, treated,
transported, manufactured, generated, process, distributed, handled, placed,
deposited, spilled, discharged or disposed of on or under any property of the
Company, and there is no underground or above-
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ground storage tank located on or under, or any asbestos located on, any real
property or structure owned or leased by the Company.
(f) For purposes of this Section 3.13, the term "Hazardous Substance"
means and includes (i) any substance heretofore or hereafter designated as
"hazardous" or "toxic" under the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., the Federal Water Pollution Control Act, 33 U.S.C.
Section 1251, et seq., the Clean Air Act, 42 U.S.C. Section 7401, et seq., or
the Comprehensive Environmental Response Compensation and Liability Act of 1980,
42 U.S.C. Section 9601, et seq., or the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801 et seq., all as amended and in the regulations
promulgated thereunder or pursuant thereto; (ii) any "solid waste," "hazardous
waste," or "infectious waste," as such terms are defined in any other
Environmental Law at such time; (iii) asbestos, urea-formaldehyde,
polychlorinated biphenyls ("PCBs"), methylene chloride, trichloroethylene, 1,2 -
transichloreoethylne, dioxins, dibenzofurans, nuclear fuel or material, chemical
waste, radioactive material, explosives, known carcinogens, petroleum products
and by-products, and other dangerous, toxic or hazardous pollutants,
contaminants, chemicals, materials or substances listed or identified in, or
regulated by, any Environmental Law; (iv) any substances listed in the United
States Department of Transportation Table (49 C.F.R. 172,101 and amendments
thereto) or by the Environmental Protection Agency (or any successor agency) as
hazardous substances (40 C.F.R. 302 and amendments thereto); and (v) any
additional substances or materials which at such time are classified or
considered to be hazardous or toxic under any Environmental Law.
(g) The Company has no knowledge of any facts or circumstances which
could adversely affect or render significantly more costly in the future the
Company's compliance with existing Environmental Laws.
2.19. EMPLOYEES.
No employee or director of the Company is a party to, or is otherwise
bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such employee or
director and any other person ("Proprietary Rights Agreement") that in any way
adversely affects or will affect (i) the performance of his duties as an
employee or director of the Company, or (ii) the ability of the Company to
conduct its business, including any Proprietary Rights Agreement with Sellers or
the Company by any such employee or director. To Sellers' Knowledge, no
director, officer, or other key employee of the Company intends to terminate his
employment with the Company.
2.20. LABOR RELATIONS; COMPLIANCE.
Since January 1, 1997, the Company has not been and is not a party to
any collective bargaining or other labor agreement. Since January 1, 1998, there
has not been, there is not presently pending or existing, and to Sellers'
knowledge there is not threatened, (a) any strike, slowdown, picketing, work
stoppage, or employee grievance process, (b) any legal proceeding against or
affecting the Company relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with the National Labor Relations Board,
the Equal Employment
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<PAGE> 20
Opportunity Commission, or any comparable governmental body, organizational
activity, or other labor or employment dispute against or affecting the Company
or its premises, or (c) any application for certification of a collective
bargaining agent. To Sellers' knowledge, no event has occurred or circumstance
exists that could provide the basis for any work stoppage or other labor
dispute. There is no lockout of any employees by the Company, and no such action
is contemplated by the Company. The Company has complied in all respects with
all Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. The Company is not liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
2.21. INTELLECTUAL PROPERTY.
(a) Intellectual Property Assets--The term "Intellectual Property Assets"
includes:
(i) the Company's name, all fictional business names, trading
names, registered and unregistered trademarks, service marks,
and applications (collectively, "Marks");
(ii) all patents, patent applications, and inventions and
discoveries that may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and unpublished works;
(iv) all rights in mask works; and
(v) all know-how, trade secrets, confidential information,
customer lists, software, technical information, data, process
technology, plans, drawings, and blue prints (collectively,
"Trade Secrets"); owned, used, or licensed by the Company as
licensee or licensor.
(b) Agreements--Schedule 2.21(b) contains a complete and accurate list and
summary description, including any royalties paid or received by the
Company, of all agreements relating to the Intellectual Property Assets
to which the Company is a party or by which it is bound, except for any
license implied by the sale of a product and perpetual, paid-up
licenses for commonly available software programs with a value of less
than $10,000 under which the Company is the licensee. There are no
outstanding and, to Sellers' knowledge, no threatened disputes or
disagreements with respect to any such agreement.
(c) Know-How Necessary for the Business
The Intellectual Property Assets are all those necessary for the
operation of the Company's business as it is currently conducted. The
Company is the owner of all right, title, and interest in and to each
of the Intellectual Property Assets, free and clear of all liens,
security interests, charges, encumbrances, equities, and other adverse
claims, and has the right to use without payment to a third party all
of the Intellectual Property Assets.
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(d) Patents
(i) Schedule 2.21(d) contains a complete and accurate list and
summary description of all Patents. The Company is the owner
of all right, title, and interest in and to each of the
Patents, free and clear of all liens, security interests,
charges, encumbrances, entities, and other adverse claims.
(ii) All of the issued Patents are currently in compliance with
formal legal requirements (including payment of filing,
examination, and maintenance fees and proofs of working or
use), and are valid and enforceable.
(iii) No Patent has been or is now involved in any interference,
reissue, reexamination, or opposition proceeding. To Sellers'
knowledge, there is no potentially interfering patent or
patent application of any third party.
(iv) No Patent is infringed or, to Sellers' knowledge, has been
challenged or threatened in any way. None of the products
manufactured and sold, nor any process or know-how used, by
the Company infringes or is alleged to infringe any patent or
other proprietary right of any other person.
(v) All products made, used, or sold under the Patents have been
marked with the proper patent notice.
2.22. CERTAIN PAYMENTS.
Since January 1, 1997, neither the Company nor any director, officer,
agent, or employee of the Company, or to Sellers' knowledge any other person
associated with or acting for or on behalf of the Company, has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any person, private or public, regardless
of form, whether in money, property, or services (i) to obtain favorable
treatment in securing business, (ii) to pay for favorable treatment for business
secured, (iii) to obtain special concessions or for special concessions already
obtained, for or in respect of the Company or any affiliate of the Company, or
(iv) in violation of any Legal Requirement, or (b) established or maintained any
fund or asset that has not been recorded in the books and records of the
Company.
2.23. DISCLOSURE.
(a) No representation or warranty of Sellers in this Agreement omits to
state a material fact necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not
misleading.
(b) No notice given pursuant to this Agreement will contain any untrue
statement or omit to state a material fact necessary to make the
statements therein or in this Agreement, in light of the circumstances
in which they were made, not misleading.
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(c) There is no fact known to either Seller that has specific application
to either Seller or the Company (other than general economic or
industry conditions) and that materially adversely affects or, as far
as either Seller can reasonably foresee, materially threatens, the
assets, business, prospects, financial condition, or results of
operations of the Company that has not been set forth in this
Agreement.
2.24. RELATIONSHIPS WITH RELATED PERSONS.
Except as set forth in Schedule 2.24, no Seller has, or since January
1, 1998 has had, any interest in any property (whether real, personal, or mixed
and whether tangible or intangible), used in or pertaining to the Company'
business. No Seller is, or since January 1, 1998 has owned (of record or as a
beneficial owner) an equity interest or any other financial or profit interest
in, a person that has (i) had business dealings or a material financial interest
in any transaction with the Company other than business dealings or transactions
conducted in the ordinary course of business with the Company at substantially
prevailing market prices and on substantially prevailing market terms, or (ii)
engaged in competition with the Company with respect to any line of the products
or services of the Company (a "Competing Business") in any market presently
served by the Company except for less than one percent of the outstanding
capital stock of any Competing Business that is publicly traded on any
recognized exchange or in the over-the-counter market. No Seller or any
affiliate of Sellers or of the Company is a party to any agreement with, or has
any claim or right against, the Company.
2.25. BROKERS OR FINDERS.
Sellers and their agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement, except for fees
incurred with KPMG, which shall be the sole responsibility of Sellers. The
parties agree that the Company shall be responsible for the payment of $18,000
to KPMG for KPMG's evaluation of the Company, but shall not be responsible for
any further payments.
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Sellers as follows:
3.1. ORGANIZATION AND GOOD STANDING.
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware.
3.2. AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Upon the
execution and delivery by Buyer of the Employment Agreements, and other
documents and agreements contemplated hereby (collectively, the
"Buyer's Closing Documents"), the Buyer's Closing Documents will
constitute the legal, valid, and binding obligations of Buyer,
enforceable against Buyer in
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accordance with their respective terms. Buyer has the absolute and
unrestricted right, power, and authority to execute and deliver this
Agreement and the Buyer's Closing Documents and to perform its
obligations under this Agreement and the Buyer's Closing Documents.
(b) Except as set forth in Schedule 3.2, neither the execution and delivery
of this Agreement by Buyer nor the consummation or performance of any
of the transactions contemplated hereby by Buyer will give any person
the right to prevent, delay, or otherwise interfere with any of the
transactions contemplated hereby pursuant to:
(i) any provision of Buyer's organizational documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer may be subject;
or
(iv) any agreement to which Buyer is a party or by which Buyer may
be bound.
Buyer is not and will not be required to obtain any consent from any
person in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the transactions contemplated hereby.
3.3. BROKERS OR FINDERS.
Buyer and its officers and agents have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement and will
indemnify and hold Sellers harmless from any such payment alleged to be due by
or through Buyer as a result of the action of Buyer or its officers or agents.
4. COVENANTS OF SELLERS PRIOR TO CLOSING DATE.
4.1. ACCESS AND INVESTIGATION.
Between the date of this Agreement and the Closing Date, Sellers will,
and will cause the Company and its representatives to, (a) afford Buyer and its
representatives (collectively, "Buyer's Advisors") full and free access to the
Company's personnel, properties (including subsurface testing), contracts, books
and records, and other documents and data, (b) furnish Buyer and Buyer's
Advisors with copies of all such contracts, books and records, and other
existing documents and data as Buyer may reasonably request, and (c) furnish
Buyer and Buyer's Advisors with such additional financial, operating, and other
data and information as Buyer may reasonably request.
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4.2. OPERATION OF THE BUSINESSES OF THE COMPANY.
Between the date of this Agreement and the Closing Date, Sellers will,
and will cause the Company to:
(a) conduct its business only in the ordinary course of business;
(b) use their best efforts to preserve intact the current business
organization of the Company, keep available the services of the current
officers, employees, and agents of the Company, and maintain the
relations and good will with suppliers, customers, landlords,
creditors, employees, agents, and others having business relationships
with the Company;
(c) confer with Buyer concerning operational matters of a material nature;
and
(d) otherwise report periodically to Buyer concerning the status of the
business, operations, and finances of the Company.
4.3. NEGATIVE COVENANT.
Except as otherwise expressly permitted by this Agreement, between the
date of this Agreement and the Closing Date, Sellers will not, and will cause
the Company not to, without the prior consent of Buyer, take any affirmative
action, or fail to take any reasonable action within their or its control, as a
result of which any of the changes or events listed in Section 2.11 is likely to
occur. It is specifically agreed that the Company may distribute to the Sellers
an amount of cash not in excess of $500,000 to pay their share of taxes related
to the Company's 1997, 1998 and through March 1, 1999 activities. In addition,
the Company may distribute to Sellers an amount equal to one-half of their
increased tax liability resulting from the effect of the recharacterization of
gain from capital gain to ordinary income as a result of the section 338(h)(10)
Election.
4.4. REQUIRED APPROVALS.
As promptly as practicable after the date of this Agreement, Sellers
will, and will cause the Company to, make all filings required by Legal
Requirements to be made by them in order to consummate the transactions
contemplated hereby. Between the date of this Agreement and the Closing Date,
Sellers will, and will cause the Company to, (a) cooperate with Buyer with
respect to all filings that Buyer elects to make or is required by Legal
Requirements to make in connection with the transactions contemplated hereby,
and (b) cooperate with Buyer in obtaining all consents.
4.5. NOTIFICATION.
Between the date of this Agreement and the Closing Date, each Seller
will promptly notify Buyer in writing if such Seller or the Company becomes
aware of any fact or condition that causes or constitutes a breach of any of
Sellers' representations and warranties as of the date of this Agreement, or if
such Seller or the Company becomes aware of the occurrence after the date of
this Agreement of any fact or condition that would (except as expressly
contemplated by
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this Agreement) cause or constitute a breach of any such representation or
warranty had such representation or warranty been made as of the time of
occurrence or discovery of such fact or condition.
4.6. PAYMENT OF INDEBTEDNESS BY RELATED PERSONS.
Except as expressly provided in this Agreement, Sellers will cause all
indebtedness owed to the Company by either Seller or any affiliate of either
Seller to be paid in full prior to Closing.
4.7. NO NEGOTIATION.
Until such time, if any, as this Agreement is terminated pursuant to
Section 8, Sellers will not, and will cause the Company and each of its
representatives not to, directly or indirectly solicit, initiate, or encourage
any inquiries or proposals from, discuss or negotiate with, provide any
non-public information to, or consider the merits of any unsolicited inquiries
or proposals from, any person (other than Buyer) relating to any transaction
involving the sale of the business or assets (other than in the ordinary course
of business) of the Company, or any of the capital stock of the Company, or any
merger, consolidation, business combination, or similar transaction involving
the Company.
4.8. SECTION 338(h)(10) ELECTION.
The parties agree that in connection with the sale of shares
contemplated hereby, the parties shall cause an express election pursuant to
Section 338(h)(10) of the Internal Revenue Code (a Section 338 "Election") to be
made, and shall comply with the rules and regulations applicable to such Section
338 Election.
For purposes of executing the election, on or prior to the closing
date, Sellers and Buyer (and/or Riley & Scott, Inc. as necessary) shall jointly
execute four (4) copies of Internal Revenue Services Form 8023 (or any successor
form) and all attachments required to be filed therewith pursuant to the
applicable Treasury Regulations. The forms relating to the Section 338 Election
for federal, state, and local tax purposes hereinafter shall be referred to as
the "Forms." Buyer and the Sellers agree that the form shall be filed with the
appropriate tax authorities not earlier than 60 days before the latest date for
filing thereof. At least 120 days prior to the latest date for filing of such
form, the Sellers shall prepare and submit to the Buyer any necessary
corrections, amendments, or supplements to such form and the attachments
thereto, as executed by the Sellers and the Buyers (and/or Riley & Scott, Inc.,
as necessary) on or before the closing date. The Sellers shall not file any form
or the attachments thereto as corrected, amended, or supplemented unless they
shall have obtained the Buyers' consent thereto, which consent shall not be
unreasonably withheld. On or prior to the thirtieth (30th) day after the Buyer's
receipt of such corrections, amendments or supplements from the Sellers, the
Buyer shall deliver to the Sellers either (A) its consent to such filing or (B)
a written notice specifying in reasonable detail all disputed items and the
basis therefor. If, within thirty (30) days after the Sellers' receipt of the
written notice described in clause (B) above, the Sellers and the Purchasers
have been unable to resolve their differences, any remaining disputed issues
shall be submitted to a nationally recognized independent public accounting firm
in the United States (other than a firm which then serves, has been selected to
serve in the future, or has served within the past three (3) years as,
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the independent auditor for the Sellers or any of their affiliates) selected by
the Sellers, and unreasonably acceptable to the Buyer, to resolve the disputed
issues in a final, binding manner after hearing the views of both parties. In
that event, the Sellers and the Buyer shall execute and consent to the filing of
the corrected, amended, or supplemented Form in the manner determined by such
accounting firm. In no event, however, shall the Forms be filed later than
fifteen (15) days before they are due. The fees and expenses of the accounting
firm shall be shared equally.
For purposes of making a Section 338 Election there shall be set forth
an allocation of the Buyer's "adjusted grossed-up basis" in the Shares (within
the meaning of the Treasury Regulations under Section 338 of the Internal
Revenue Code) to the tangible and intangible assets of Riley & Scott, Inc. as of
the Closing Date (the "Allocation"). The Allocation shall be binding upon the
Buyer and the Sellers for the purposes of allocating the "deemed selling price"
(within the meaning of the Treasury Regulations) among the assets of Riley &
Soctt, Inc. Neither party shall file any tax return, or take a position with a
tax authority, that is inconsistent with the Allocation.
5. COVENANTS OF BUYER PRIOR TO CLOSING DATE.
5.1. APPROVALS OF GOVERNMENTAL BODIES.
As promptly as practicable after the date of this Agreement, Buyer will
make all filings required by Legal Requirements to be made by it to consummate
the transactions contemplated hereby. Between the date of this Agreement and the
Closing Date, Buyer will cooperate with Sellers with respect to all filings that
Sellers are required by Legal Requirements to make in connection with the
transactions contemplated hereby, and (ii) cooperate with Sellers in obtaining
all consents; provided that this Agreement will not require Buyer to dispose of
or make any change in any portion of its business or to incur any other burden
to obtain a Governmental Authorization.
6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
6.1. ACCURACY OF REPRESENTATIONS.
All of Sellers' representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement, and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.
6.2. SELLERS' PERFORMANCE.
(a) All of the covenants and obligations that Sellers are required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and
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each of these covenants and obligations (considered individually), must
have been duly performed and complied with in all material respects.
(b) Each document required to be delivered pursuant to Section 1.4 must
have been delivered.
6.3. CONSENTS.
Each consent required for this transaction, must have been obtained and
must be in full force and effect.
6.4. ADDITIONAL DOCUMENTS.
Each of the following documents must have been delivered to Buyer:
(a) an opinion of Bruce Kempton, Esq., dated the Closing Date, in the form
of Exhibit 6.4(a);
(b) such other documents as Buyer may reasonably request for the purpose of
(i) enabling its counsel to provide the opinion referred to in Section
7.4(a), (ii) evidencing the accuracy of any of Sellers' representations
and warranties, (iii) evidencing the performance by either Seller of,
or the compliance by either Seller with, any covenant or obligation
required to be performed or complied with by such Seller, (iv)
evidencing the satisfaction of any condition referred to in this
Section 6, or (v) otherwise facilitating the consummation or
performance of any of the transactions contemplated hereby.
6.5. NO PROCEEDINGS.
Since the date of this Agreement, there must not have been commenced or
threatened against Buyer, or against any person affiliated with Buyer, any legal
proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the transactions contemplated hereby, or (b) that may
have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the transactions contemplated hereby.
6.6. NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS.
There must not have been made or threatened by any person any claim
asserting that such person (a) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, any stock of, or any
other voting, equity, or ownership interest in, the Company, or (b) is entitled
to all or any portion of the Purchase Price payable for the Shares.
6.7. NO PROHIBITION.
Neither the consummation nor the performance of any of the transactions
contemplated hereby will, directly or indirectly (with or without notice or
lapse of time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any person affiliated with Buyer to suffer any
material adverse consequence under, (a) any applicable Legal Requirement
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or Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise formally proposed by or before any governmental body.
7. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE.
Sellers' obligation to sell the Shares and to take the other actions
required to be taken by Sellers at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Sellers, in whole or in part):
7.1. ACCURACY OF REPRESENTATIONS.
All of Buyer's representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.
7.2. BUYER'S PERFORMANCE.
(a) All of the covenants and obligations that Buyer is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and complied with
in all material respects.
(b) Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to Section 1.4 and must have issued the
Common Stock required to be delivered by Buyer pursuant to Section 1.2.
7.3. CONSENTS.
Each of the consents required for this transaction must have been
obtained and must be in full force and effect.
7.4. ADDITIONAL DOCUMENTS.
Buyer must have caused the following documents to be delivered to
Sellers:
(a) an opinion of Kegler, Brown, Hill & Ritter Co., L.P.A., dated the
Closing Date, in the form of Exhibit 7.4(a); and
(b) such other documents as Sellers may reasonably request for the purpose
of (i) enabling their counsel to provide the opinion referred to in
Section 6.4(a), (ii) evidencing the accuracy of any representation or
warranty of Buyer, (iii) evidencing the performance by Buyer of, or the
compliance by Buyer with, any covenant or obligation required to be
performed or complied with by Buyer, (iv) evidencing the satisfaction
of any condition referred to in this Section 7, or (v) otherwise
facilitating the consummation of any of the transactions contemplated
hereby.
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7.5. NO INJUNCTION.
There must not be in effect any Legal Requirement or any injunction or
other Order that (a) prohibits the sale of the Shares by Sellers to Buyer, and
(b) has been adopted or issued, or has otherwise become effective, since the
date of this Agreement.
8. TERMINATION.
8.1. TERMINATION EVENTS.
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) by either Buyer or Sellers if a material breach of any provision of
this Agreement has been committed by the other party and such breach
has not been waived;
(b) (i) by Buyer if any of the conditions in Section 6 has not been
satisfied as of the Closing Date or if satisfaction of such a condition
is or becomes impossible (other than through the failure of Buyer to
comply with its obligations under this Agreement) and Buyer has not
waived such condition on or before the Closing Date; or (ii) by
Sellers, if any of the conditions in Section 7 has not been satisfied
of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Sellers to comply
with their obligations under this Agreement) and Sellers have not
waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Sellers; or
(d) by either Buyer or Sellers if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or before
May 15, 1999 or such later date as the parties may agree upon.
8.2. EFFECT OF TERMINATION.
Each party's right of termination under Section 8.1 is in addition to
any other rights it may have under this Agreement or otherwise, and the exercise
of a right of termination will not be an election of remedies. If this Agreement
is terminated pursuant to Section 8.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections
10.1 and 10.3 will survive; provided, however, that if this Agreement is
terminated by a party because of the breach of the Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
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9. INDEMNIFICATION; REMEDIES.
9.1. SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE.
All representations, warranties, covenants, and obligations in this
Agreement, the certificate delivered pursuant to Section 1.4(a)(iv), and any
other certificate or document delivered pursuant to this Agreement will survive
the Closing. The right to indemnification, payment of damages or other remedy
based on such representations, warranties, covenants, and obligations will not
be affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants, and obligations.
9.2. INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS.
Sellers, jointly and severally, will indemnify and hold harmless Buyer,
the Company, and their respective representatives, stockholders, controlling
persons, and affiliates (collectively, the "Indemnified Persons") for, and will
pay to the Indemnified Persons the amount of, any loss, liability, claim, damage
(including incidental and consequential damages), expense (including costs of
investigation and defense and reasonable attorneys' fees) or diminution of
value, whether or not involving a third- party claim (collectively, "Damages"),
arising, directly or indirectly, from or in connection with:
(a) any breach of any representation or warranty made by Sellers in this
Agreement or any other certificate or document delivered by Sellers
pursuant to this Agreement;
(b) any breach of any representation or warranty made by Sellers in this
Agreement as if such representation or warranty were made on and as of
the Closing Date;
(c) any breach by either Seller of any covenant or obligation of such
Seller in this Agreement;
(d) any claim by any person for brokerage or finder's fees or commissions
or similar payments based upon any agreement or understanding alleged
to have been made by any such person with either Seller or the Company
(or any person acting on their behalf) in connection with any of the
transactions contemplated hereby.
The remedies provided in this Section 9.2 will not be exclusive of or
limit any other remedies that may be available to Buyer or the other Indemnified
Persons.
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9.3. INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER.
Buyer will indemnify and hold harmless Sellers, and will pay to Sellers
the amount of any Damages arising, directly or indirectly, from or in connection
with (a) any breach of any representation or warranty made by Buyer in this
Agreement or in any certificate delivered by Buyer pursuant to this Agreement,
(b) any breach by Buyer of any covenant or obligation of Buyer in this
Agreement, or (c) any claim by any person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such person with Buyer (or any person acting on its
behalf) in connection with any of the transactions contemplated hereby.
9.4. TIME LIMITATIONS.
If the Closing occurs, Sellers will have no liability (for
indemnification or otherwise) with respect to any representation or warranty, or
covenant or obligation to be performed and complied with prior to the Closing
Date, other than those in Sections 2.3, 2.11, 2.13 and 2.19, unless on or before
December 31, 2000 Buyer notifies Sellers of a claim specifying the factual basis
of that claim in reasonable detail to the extent then known by Buyer; a claim
with respect to Section 2.3, 2.11, 2.13 or 2.19, or a claim for indemnification
or reimbursement not based upon any representation or warranty or any covenant
or obligation to be performed and complied with prior to the Closing Date, may
be made at any time. If the Closing occurs, Buyer will have no liability (for
indemnification or otherwise) with respect to any representation or warranty, or
covenant or obligation to be performed and complied with prior to the Closing
Date, unless on or before December 31, 2000 Sellers notify Buyer of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Sellers.
9.5. LIMITATIONS ON AMOUNT--SELLERS.
Sellers will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a), clause (b) or, to the extent
relating to any failure to perform or comply prior to the Closing Date, clause
(c) of Section 9.2 until the total of all damages with respect to such matters
exceeds $100,000, and then only for the amount by which such damages exceed
$100,000. However, this Section 9.5 will not apply to any breach of any of
Sellers' representations and warranties of which either Seller had knowledge at
any time prior to the date on which such representation and warranty is made or
any intentional breach by either Seller of any covenant or obligation, and
Sellers will be jointly and severally liable for all Damages with respect to
such breaches. Sellers agree that there are certain questions related to prior
sales tax payments and that the Company has now accrued for such taxes. To the
extent that the Company does pay such taxes, including interest and penalties,
such amounts paid shall reduce the $100,000 basket set forth above, with such
amount to be finally determined within one year of Closing. Notwithstanding the
foregoing, the maximum amount of liability Sellers shall have pursuant to this
Section 9 shall be equal to the Purchase Price.
9.6. LIMITATIONS ON AMOUNT--BUYER.
Buyer will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a) or (b) of Section 9.3 until the
total of all Damages with respect to such
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matters exceeds $50,000, and then only for the amount by which such Damages
exceed $50,000. However, this Section 9.6 will not apply to any breach of any of
Buyer's representations and warranties of which Buyer had knowledge at any time
prior to the date on which such representation and warranty is made or any
intentional breach by Buyer of any covenant or obligation, and Buyer will be
liable for all damages with respect to such breaches.
9.7. RIGHT OF SET-OFF.
Upon notice to Sellers specifying in reasonable detail the basis for
such set-off, Buyer may set off any amount to which it may be entitled under
this Section 9 against amounts otherwise payable for the Redemption purchase
price contemplated by Section 1.2. The exercise of such right of set-off by
Buyer in good faith, whether or not ultimately determined to be justified, will
not constitute an event of default or Buyer's obligations pursuant to Section
1.2 hereof. Neither the exercise of nor the failure to exercise such right of
set-off will constitute an election of remedies or limit Buyer in any manner in
the enforcement of any other remedies that may be available to it.
9.8. PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party under Section 9 or 9.3
of notice of the commencement of any proceeding against it, such
indemnified party will, if a claim is to be made against an
indemnifying party under such Section, give notice to the indemnifying
party of the commencement of such claim, but the failure to notify the
indemnifying party will not relieve the indemnifying party of any
liability that it may have to any indemnified party, except to the
extent that the indemnifying party demonstrates that the defense of
such action is prejudiced by the indemnifying party's failure to give
such notice.
(b) If any proceeding referred to in Section 9.8(a) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such proceeding, the indemnifying party will, unless
the claim involves taxes, be entitled to participate in such proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is
also a party to such proceeding and the indemnified party determines in
good faith that joint representation would be inappropriate, or (ii)
the indemnifying party fails to provide reasonable assurance to the
indemnified party of its financial capacity to defend such proceeding
and provide indemnification with respect to such proceeding), to assume
the defense of such proceeding with counsel satisfactory to the
indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such
proceeding, the indemnifying party will not, as long as it diligently
conducts such defense, be liable to the indemnified party under this
Section 9 for any fees of other counsel or any other expenses with
respect to the defense of such proceeding, in each case subsequently
incurred by the indemnified party in connection with the defense of
such proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims
made in that proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be
effected by the indemnifying party without the indemnified party's
consent unless (A)
28
<PAGE> 33
there is no finding or admission of any violation of Legal Requirements
or any violation of the rights of any person and no effect on any other
claims that may be made against the indemnified party, and (B) the sole
relief provided is monetary damages that are paid in full by the
indemnifying party; and (iii) the indemnified party will have no
liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an indemnifying
party of the commencement of any proceeding and the indemnifying party
does not, within ten days after the indemnified party's notice is
given, give notice to the indemnified party of its election to assume
the defense of such proceeding, the indemnifying party will be bound by
any determination made in such proceeding or any compromise or
settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a proceeding may
adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification
under this Agreement, the indemnified party may, by notice to the
indemnifying party, assume the exclusive right to defend, compromise,
or settle such proceeding, but the indemnifying party will not be bound
by any determination of a proceeding so defended or any compromise or
settlement effected without its consent (which may not be unreasonably
withheld).
(d) Sellers hereby consent to the non-exclusive jurisdiction of any court
in which a proceeding is brought against any Indemnified Person for
purposes of any claim that an Indemnified Person may have under this
Agreement with respect to such proceeding or the matters alleged
therein, and agree that process may be served on Sellers with respect
to such a claim anywhere in the world.
9.9. PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS.
A claim for indemnification for any matter not involving a third-party
claim may be asserted by notice to the party from whom indemnification is
sought.
10. GENERAL PROVISIONS.
10.1. EXPENSES.
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the transactions
contemplated hereby, including all fees and expenses of agents, representatives,
counsel, and accountants. Sellers will cause the Company not to incur any
out-of-pocket expenses in connection with this Agreement except for professional
fees not in excess of $10,000. In the event of termination of this Agreement,
the obligation of each party to pay its own expenses will be subject to any
rights of such party arising from a breach of this Agreement by another party.
29
<PAGE> 34
10.2. PUBLIC ANNOUNCEMENTS.
Any public announcement or similar publicity with respect to this
Agreement or the transactions contemplated hereby will be issued, if at all, at
such time and in such manner as Buyer determines. Unless consented to by Buyer
in advance or required by Legal Requirements, prior to the Closing Sellers
shall, and shall cause the Company to, keep this Agreement strictly confidential
and may not make any disclosure of this Agreement to any person. Sellers and
Buyer will consult with each other concerning the means by which the Company'
employees, customers, and suppliers and others having dealings with the Company
will be informed of the transactions contemplated hereby, and Buyer will have
the right to be present for any such communication.
10.3. CONFIDENTIALITY.
Between the date of this Agreement and the Closing Date, Buyer and
Sellers will maintain in confidence, and will cause the directors, officers,
employees, agents, and advisors of Buyer and the Company to maintain in
confidence, any written, oral, or other information obtained in confidence from
another party or the Company in connection with this Agreement or the
transactions contemplated hereby, unless (a) such information is already known
to such party or to others not bound by a duty of confidentiality or such
information becomes publicly available through no fault of such party, (b) the
use of such information is necessary or appropriate in making any filing or
obtaining any consent or approval required for the consummation of the
transactions contemplated hereby, or (c) the furnishing or use of such
information is required by or necessary or appropriate in connection with
Buyer's contemplated IPO.
If the transactions contemplated hereby are not consummated, each party
will return or destroy as much of such written information as the other party
may reasonably request. Whether or not the Closing takes place, Sellers waive,
and will upon Buyer's request cause the Company to waive, any cause of action,
right, or claim arising out of the access of Buyer or its representatives to any
trade secrets or other confidential information of the Company except for the
intentional competitive misuse by Buyer of such trade secrets or confidential
information.
10.4. NOTICES.
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Sellers: Riley & Scott, Inc.
310 Gasoline Alley
Indianapolis, IN 46222
(317) 381-0464
(317) 381-0480 (facsimile)
30
<PAGE> 35
with a copy to: Bruce Kempton
400 Water Street, Suite 250
Rochester, MI 48307
(248) 601-1183
(248) 601-2400 (facsimile)
Buyer: Reynard Motorsport, Inc.
Corporate Office
Reynard Park Brackley
Northants NN13 7RP
United Kingdom
011 44 1280 846808
011 44 1280 846813 (facsimile)
Attention: Alex S. Hawkridge
with a copy to: Kegler, Brown, Hill & Ritter Co., L.P.A.
Attention: Jack A. Bjerke, Esq.
65 East State Street, Suite 1800
Columbus, OH 43215
(614) 462-5407
(614) 464-5419
10.5. JURISDICTION; SERVICE OF PROCESS.
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against any of the
parties in the courts of the State of Indiana, County of Marion, or, if it has
or can acquire jurisdiction, in the United States District Court for the Central
District of Indiana, and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
10.6. FURTHER ASSURANCES.
The parties agree (a) to furnish upon request to each other such
further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement.
10.7. WAIVER.
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right,
31
<PAGE> 36
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement or the documents referred to in this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
10.8. ENTIRE AGREEMENT AND MODIFICATION.
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter (including the Letter of Intent between Buyer and
Sellers dated February 11, 1999) and constitutes (along with the documents
referred to in this Agreement) a complete and exclusive statement of the terms
of the agreement between the parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by the party
to be charged with the amendment.
10.9. ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS.
Neither party may assign any of its rights under this Agreement without
the prior consent of the other parties, which will not be unreasonably withheld,
except that Buyer may assign any of its rights under this Agreement to any
subsidiary of Buyer. Subject to the preceding sentence, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the sole and exclusive benefit of
the parties to this Agreement and their successors and assigns.
10.10. SEVERABILITY.
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
10.11. SECTION HEADINGS, CONSTRUCTION.
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
32
<PAGE> 37
10.12. TIME OF ESSENCE.
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
10.13. GOVERNING LAW.
This Agreement will be governed by the laws of the State of Indiana
without regard to conflicts of laws principles.
10.14. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
BUYER: COMPANY:
REYNARD MOTORSPORT, INC. RILEY & SCOTT, INC.
By: _____________________________ By: ____________________________
Alex S. Hawkridge,
Chief Executive Officer Name: __________________________
Title: _________________________
SELLERS:
________________________________
Bob Riley, Individually
________________________________
Mark Scott, Individually
33
<PAGE> 1
TEMPORARY CERTIFICATE - EXCHANGEABLE FOR DEFINITIVE CERTIFICATE WHEN AVAILABLE
NUMBER REYNARD MOTORSPORT, INC. COMMON STOCK
T
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
CUSIP
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFICATE IS
TRANSFERABLE IN NEW YORK, NY
This
Certifies
that
is the
owner of
fully paid and non-assessable shares of Common Stock, $.001 par value per share,
of REYNARD MOTORSPORT, INC. transferable on the books of the
Corporation by the holder in person, or by duly authorized attorney, upon
surrender of this certificate, properly endorsed. This certificate is not valid
until countersigned by the Transfer Agent and registered by the Registrar.
Witness the signatures of the duly authorized officers of said Corporation.
DATED:
COUNTERSIGNED AND REGISTERED CHIEF EXECUTIVE OFFICER
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE SECRETARY
<PAGE> 2
REYNARD MOTORSPORT, INC.
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER ON REQUEST AND WITHOUT
CHARGE A FULL STATEMENT OF THE DESIGNATIONS AND ANY PREFERENCES, CONVERSION AND
OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS,
QUALIFICATIONS, AND TERMS AND CONDITIONS OF REDEMPTION OF THE STOCK OF EACH
CLASS WHICH THE CORPORATION IS AUTHORIZED TO ISSUE, OF THE DIFFERENCES IN THE
RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH CLASS OF EACH SERIES
WHICH THE CORPORATION IS AUTHORIZED TO ISSUE TO THE EXTENT THAT THEY HAVE BEEN
SET, AND OF THE AUTHORITY OF THE BOARD OF DIRECTORS TO SET THE RELATIVE RIGHTS
AND PREFERENCES OF SUBSEQUENT SERIES, SUCH REQUEST MAY BE MADE TO THE SECRETARY
OF THE CORPORATION OR ITS TRANSFER AGENT.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF TRF MIN ACT -- _____________ Custodian (until age ______________)
(Cust)
__________________________ under Uniform Transfers
(Minor)
to Minors Act ____________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________ shares of Common Stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
_______________________________________________________________________ Attorney
to transfer the said shares of Common Stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated _______________________
________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
By _____________________________________________________________________________
THE SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM). PURSUANT TO S.E.C. RULE
17Ad-15.
<PAGE> 1
EXHIBIT 5.1
LEGAL OPINION
KEGLER, BROWN, HILL & RITTER CO. LPA
[letterhead]
March 31, 1999
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 3,240,000 shares of Common Stock, par value $.0001 per share
(the "Shares") by the Company and up to 360,000 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, amended, 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: /s/ JACK A. BJERKE
--------------------
Jack A. Bjerke
<PAGE> 1
Exhibit 10.14
RIGHTS AGREEMENT
BETWEEN
REYNARD MOTORSPORT, INC.
AND
------------------------------
JANUARY ___, 1999
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
1. CERTAIN DEFINITIONS.......................................................................................1
2. APPOINTMENT OF RIGHTS AGENT...............................................................................4
3. ISSUE OF RIGHTS CERTIFICATES..............................................................................5
4. FORM OF RIGHTS CERTIFICATES...............................................................................6
5. COUNTERSIGNATURE AND REGISTRATION.........................................................................7
6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS CERTIFICATES; MUTILATED, DESTROYED,
LOST OR STOLEN RIGHTS CERTIFICATES........................................................................7
7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS AND EXTENSION...............................8
8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES......................................................10
9. AVAILABILITY OF COMMON STOCK.............................................................................10
10. RECORD HOLDERS OF COMMON STOCK ISSUED UPON EXERCISE OF RIGHTS............................................12
11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OF COMMON STOCK OR NUMBER OF RIGHTS..............12
12. CERTIFICATE OF ADJUSTMENT................................................................................18
13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER.....................................19
14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES..................................................................21
15. RIGHTS OF ACTION.........................................................................................22
16. AGREEMENT OF RIGHT HOLDERS...............................................................................22
17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER.......................................................23
18. CONCERNING THE RIGHTS AGENT..............................................................................23
19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT................................................24
20. DUTIES OF RIGHTS AGENT...................................................................................24
21. CHANGE OF RIGHTS AGENT...................................................................................26
22. ISSUANCE OF NEW RIGHTS CERTIFICATES......................................................................27
23. REDEMPTION...............................................................................................28
24. EXCHANGE.................................................................................................29
25. NOTICE OF CERTAIN EVENTS.................................................................................30
26. NOTICES..................................................................................................30
27. SUPPLEMENTS AND AMENDMENTS...............................................................................31
28. SUCCESSORS...............................................................................................32
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
29. DETERMINATIONS BY THE BOARD OF DIRECTORS.................................................................32
30. BENEFITS OF THIS RIGHTS AGREEMENT........................................................................33
31. SEVERABILITY.............................................................................................33
32. GOVERNING LAW............................................................................................33
33. COUNTERPARTS.............................................................................................33
34. DESCRIPTIVE HEADINGS.....................................................................................33
</TABLE>
ii
<PAGE> 4
RIGHTS AGREEMENT
This Rights Agreement (the "Rights Agreement"), is effective as of
January ___, 1999, between Reynard Motorsport, Inc., a Delaware corporation (the
"Company"), and ___________________________ (the "Rights Agent").
WITNESSETH:
WHEREAS, on September 28, 1998, the Board of Directors of the Company
(the "Board") authorized and declared a dividend of one common stock purchase
right ("Right") for each share of the Company's common stock outstanding at the
Close of Business (as hereinafter defined) on December 30, 1998 (the "Record
Date"), each such right representing the right to purchase one share of the
Company's common stock upon the terms and subject to the conditions therein set
forth and the Board further authorized and directed the issuance of one common
stock purchase right with respect to each share of the Company's common stock
that becomes outstanding between the Record Date and the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date (as
hereinafter defined);
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS
For purposes of this Rights Agreement, the following terms have the
meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, becomes, at any time
after the date of this Rights Agreement (whether or not such status
continues for any period, except as provided in subclause (Y) of this
paragraph (a)), the Beneficial Owner of Common Stock representing
fifteen percent (15%) or more of the Common Stock then outstanding.
Notwithstanding the foregoing, (A) the term "Acquiring Person" shall
not include (i) the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or any Subsidiary of the Company,
or any entity holding Common Stock for or pursuant to the terms of any
such plan (e.g. trustee or plan fiduciary), (ii) any Person, who or
which together with all Affiliates and Associates of such Person
becomes the Beneficial Owner of fifteen percent (15%) or more of the
then outstanding Common Stock as a result of the acquisition of Common
Stock directly from the Company (provided, however, that if, after such
acquisition, such Person, or an Affiliate or Associate of such Person,
becomes the Beneficial Owner of any additional Common Stock in an
acquisition not made directly from the Company, then such Person shall
be deemed an Acquiring Person), or (iii) Adrian J. Reynard or any of
his Affiliates or Associates, and (B) no Person shall be an "Acquiring
Person" either (X) as a result of the acquisition of Common Stock by
the Company which, by reducing the number of shares of Common Stock
outstanding, increases the proportional number of shares beneficially
owned by such Person together with all Affiliates and Associates of
such Person;
<PAGE> 5
except that if (i) a Person would become an Acquiring Person (but for
the operation of this subclause (X)) as a result of the acquisition of
Common Stock by the Company, and (ii) after such stock acquisition by
the Company, such Person, or an Affiliate or Associate of such Person,
becomes the Beneficial Owner of any additional Common Stock, then such
Person shall be deemed an Acquiring Person, or (Y) if (i) such Person,
or an Affiliate or Associate of such Person, inadvertently becomes the
Beneficial Owner of fifteen percent (15%) or more of the outstanding
Common Stock, (ii) within eight (8) Business Days thereafter such
Person notifies the Board that such Person did so inadvertently, and
(iii) within two (2) Business Days after such notification, such Person
is the Beneficial Owner of less than fifteen percent (15%) of the
outstanding Common Stock.
(b) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
(c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to have acquired "beneficial ownership" of, or to have acquired
beneficial ownership of, or to "beneficially own", any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, as
determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Exchange Act as of the date hereof;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time or
upon satisfaction of conditions) pursuant to any agreement,
arrangement or understanding (other than customary agreements
with and between underwriters and selling group members with
respect to a bona fide public offering of securities), or upon
the exercise of conversion rights, exchange rights, rights
(other than these Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to have acquired beneficial ownership
of, or to beneficially own, securities tendered pursuant to a
tender or exchange offer made by or on behalf of such Person
or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange; or
(B) the right to vote pursuant to any agreement, arrangement
or understanding; provided, however, that a Person shall not
be deemed the Beneficial Owner of, or to have acquired
beneficial ownership of, or to beneficially own, any security
if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the
Exchange Act and (2) is not also then reportable on Schedule
13D or 13G under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with
which such Person or any Affiliate or Associate of such Person
has any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling
group members with respect to
2
<PAGE> 6
a bona fide public offering of securities) for the acquiring,
holding, voting (except to the extent contemplated by the
proviso to Section 1(c)(ii)(B)) or disposing of any securities
of the Company.
Notwithstanding anything in this definition of "Beneficial Owner" to
the contrary, the phrase "then outstanding", when used with reference
to a Person's beneficial ownership of securities of the Company, shall
mean the number of such securities then issued and outstanding together
with the number of such securities not then actually issued and
outstanding which such Person would be deemed to own beneficially
hereunder.
(d) "Business Day" shall mean any day other than a Saturday, a Sunday, or a
day on which banking institutions in Indiana are authorized or
obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00 P.M.,
Indianapolis, Indiana time, on such date; provided, however, that if
such date is not a Business Day it shall mean 5:00 P.M., Indianapolis,
Indiana time, on the next succeeding Business Day.
(f) "Common Stock" when used with reference to the Company shall mean
shares of the Company's common stock, par value .01 cents per share,
and any other class or classes or series of common stock of the Company
resulting from any subdivision, combination, recapitalization or
reclassification of shares of such Common Stock. "Common Stock" when
used with reference to any Person other than the Company shall mean the
capital stock (or voting equity interest or, in certain circumstances,
cash, property or other interests) with the greatest voting power of
such other Person or, if such other Person is a Subsidiary of another
Person, the Person or Persons which ultimately control such first
mentioned Person.
(g) "Company" shall have the meaning set forth in the recitals to this
Rights Agreement.
(h) "Distribution Date" shall have the meaning set forth in Section 3(a)
hereof.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(j) "Exchange Ratio" shall have the meaning set forth in Section 24 hereof.
(k) "Final Expiration Date" shall have the meaning set forth in Section
7(a) hereof.
(l) "Person" shall mean any individual, firm, partnership, corporation,
limited liability company, trust, association, joint venture or other
entity, and shall include any successor (by merger or otherwise) of
such entity.
(m) "Principal Party" shall have the meaning set forth in Section 13(b)
hereof.
(n) "Purchase Price" shall have the meaning set forth in Section 7(a)
hereof.
(o) "Record Date" shall have the meaning set forth in the recitals to this
Rights Agreement.
3
<PAGE> 7
(p) "Redemption Date" shall have the meaning set forth in Section 7(a)
hereof.
(q) "Redemption Price" shall have the meaning set forth in Section 23
hereof.
(r) "Rights Agent" shall have the meaning set forth in the recitals to this
Rights Agreement.
(s) "Rights Agreement" shall have the meaning set forth in the recitals to
this Rights Agreement.
(t) "Rights Certificates" shall have the meaning set forth in Section 3(a)
hereof.
(u) "Section 11(a)(ii) Event" shall mean any event described in Section
11(a)(ii) hereof.
(v) "Section 13 Event" shall mean any event described in clauses (x), (y)
or (z) of Section 13(a) hereof.
(w) "Securities Act" shall mean the Securities Act of 1933, as amended.
(x) "Stock Acquisition Date" shall mean the first date of a public
announcement (which, for purposes of this definition, shall include,
without limitation, the filing of a report pursuant to Section 13(d) of
the Exchange Act) by the Company or an Acquiring Person that an
Acquiring Person has become such; provided, that, if such Person is
determined not to have become an Acquiring Person pursuant to Section
1(a) hereof, then no Stock Acquisition Date shall be deemed to have
occurred.
(y) "Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities
or equity interest is beneficially owned, directly or indirectly, or
otherwise controlled by such Person.
(z) "Summary of Rights" shall have the meaning set forth in Section 3(b)
hereof.
(aa) "Trading Day" shall have the meaning set forth in Section 11(d) hereof.
(bb) "Triggering Event" shall mean a Section 11(a)(ii) Event or a Section 13
Event.
(cc) "Voting Securities" shall have the meaning set forth in Section 13(a)
hereof.
2. APPOINTMENT OF RIGHTS AGENT
The Company hereby appoints the Rights Agent to act as agent for the
Company and the holders of the Rights (who, in accordance with Section 3 hereof,
shall prior to the Distribution Date, also be the holders of the Common Stock)
in accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such
co-Rights Agents as it may deem necessary or desirable.
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<PAGE> 8
3. ISSUE OF RIGHTS CERTIFICATES
(a) Until the earlier of (i) the Close of Business on the tenth (10th)
Business Day after the Stock Acquisition Date, or (ii) the Close of
Business on the tenth (10th) Business Day (or such later date as may be
determined by action of the Board prior to such time as any Person
becomes an Acquiring Person) after the date that a tender or exchange
offer by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary
of the Company or any entity holding Common Stock for or pursuant to
the terms of any such plan) is first published or sent or given within
the meaning of Rule 14d-2 of the General Rules and Regulations under
the Exchange Act or of the first public announcement of the intention
of any Person (other than the Company, any subsidiary of the Company,
any employee benefit plan of the Company, or any Subsidiary of the
Company or any entity holding Common Stock for or pursuant to the terms
of any such plan) to commence (which intention to continue remains in
effect for five Business Days after such announcement) a tender or
exchange offer, if upon consummation thereof, such Person would become
the Beneficial Owner of fifteen percent (15%) or more of the Common
Stock then outstanding (the earlier of such dates being herein referred
to as the "Distribution Date"), (x) the Rights will be evidenced
(subject to the provisions of Section 3(b) hereof) by the certificates
for the Common Stock registered in the names of the holders thereof
(which certificates shall also be deemed to be certificates for Rights)
and not by separate certificates, and (y) the Rights (and the right to
receive separate certificates evidencing the rights ("Rights
Certificates")) will be transferable only in connection with the
transfer of the underlying Common Stock (including a transfer to the
Company) as more fully set out below. As soon as practicable after the
Distribution Date, the Company will prepare and execute, the Rights
Agent will countersign, and the Company will send or cause to be sent
(and the Rights Agent will, if requested, send) by first-class, postage
prepaid mail, to each record holder of Common Stock as of the Close of
Business on the Distribution Date, at the address of such holder shown
on the records of the Company, a Rights Certificate, which shall be in
substantially the form of Exhibit A hereto, evidencing one Right for
each share of Common Stock so held, subject to amendment as provided
herein. As of and after the Distribution Date, the Rights will be
evidenced solely by such Rights Certificates.
(b) As promptly as practicable following the Record Date, the Company will
send a copy of a Summary of Rights to Purchase Common Stock, in
substantially the form of Exhibit B hereto (the "Summary of Rights"),
by first-class, postage prepaid mail, to each record holder of Common
Stock as of the Close of Business on the Record Date, at the address of
such holder shown on the records of the Company. Until the Distribution
Date (or the earlier of the Redemption Date or the Final Expiration
Date), the surrender for transfer of any certificate for Common Stock
outstanding, with or without a copy of the Summary of Rights attached
thereto, shall also constitute the transfer of the Rights associated
with the Common Stock represented thereby.
(c) Certificates for Common Stock which become outstanding (including,
without limitation, re-acquired Common Stock which is subsequently
disposed of by the Company) after the Record Date but prior to the
earliest of the Distribution Date, the Redemption Date or the Final
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<PAGE> 9
Expiration Date, shall have impressed on, printed on, written on or
otherwise affixed to them the following legend:
"This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement, as it may from
time to time be supplemented or amended, between Reynard
Motorsport, Inc. and _____________________________ (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal
executive offices of Reynard Motorsport, Inc. Under certain
circumstances, as set forth in the Rights Agreement, such rights
may be redeemed or exchanged, may expire, or may be evidenced by
separate certificates and no longer be evidenced by this
certificate. Reynard Motorsport, Inc. will mail to the holder of
this certificate a copy of the Rights Agreement without charge
within five days after receipt of a written request therefor.
Under certain circumstances, rights issued to or held by Acquiring
Persons or any Affiliates or Associates thereof (as such terms are
defined in the Rights Agreement) and any subsequent holder of such
Rights may become null and void."
With respect to such certificates (whether or not the certificates
contained the foregoing legend), until the earlier of the Distribution Date, the
Redemption Date, or the Final Expiration Date, the Rights associated with the
Common Stock represented by such certificates shall be evidenced by such
certificates alone, and the surrender for transfer of any such certificate shall
also constitute the transfer of the Rights associated therewith. In the event
that the Company purchases or acquires any Common Stock after the Record Date,
but prior to the earlier of the Distribution Date, the Redemption Date or the
Final Expiration Date, any Rights associated with such Common Stock shall be
deemed canceled and retired so that the Company shall not be entitled to
exercise any Rights associated with the Common Stock which is no longer
outstanding.
4. FORM OF RIGHTS CERTIFICATES
(a) The Rights Certificates (and the forms of election to purchase and of
assignment to be printed on the reverse thereof) shall be substantially
the same as provided for in Section 3(a) hereof and may have such marks
of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as
are not inconsistent with the provisions of this Rights Agreement, or
as may be required to comply with any applicable law or with any rule
or regulation made pursuant thereto or with any rule or regulation of
any stock exchange on which the Rights may from time to time be listed,
or to conform to usage. Subject to the provisions of Sections 11 and 22
hereof, the Rights Certificates, whenever issued, shall entitle the
holders thereof to purchase such number and kind of shares of Common
Stock as shall be set forth therein at the price per share set forth
therein, but the number and kind of such shares of Common Stock and the
price per share shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Sections 3(a), 11(i), or 22
hereof that represents Rights which are null and void pursuant to
Section 7(f) of this Rights Agreement, and any Rights Certificate
issued pursuant to Sections 6, 11 or 22 hereof upon transfer, exchange,
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<PAGE> 10
replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following
legend:
"The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as
such terms are defined in the Rights Agreement). Accordingly, this
Rights Certificate and the Rights represented hereby are null and
void."
Notwithstanding the above provision, failure to place such legend on
any Rights Certificate representing Rights which are otherwise null and void
pursuant to the terms of this Rights Agreement shall not affect the null and
void status of such Rights.
5. COUNTERSIGNATURE AND REGISTRATION
(a) The Rights Certificates shall be executed on behalf of the Company by
its Chairman of the Board, its Chief Executive Officer, its President,
any of its Vice Presidents, or its Treasurer, either manually or by
facsimile signature, and shall be attested by the Secretary or an
Assistant Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless
countersigned. In case any officer of the Company who shall have signed
any of the Rights Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and
delivery by the Company, such Rights Certificates, may be countersigned
by the Rights Agent and issued and delivered by the Company with the
same force and effect as though the person who signed such Rights
Certificates had not ceased to be such officer of the Company; and any
Rights Certificate may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Rights Certificate,
shall be a proper officer of the Company to sign such Rights
Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office or offices designated as the
appropriate place for surrender of such Rights Certificate or transfer,
books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the
respective holders of the Rights Certificates, the number of Rights
evidenced on its face by each of the Rights Certificates and the date
of each of the Rights Certificates.
6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS CERTIFICATES;
MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES
(a) Subject to the provisions of Sections 4(b), 7(f) and 14 hereof, at any
time after the Close of Business on the Distribution Date, and at or
prior to the Close of Business on the earlier of the Redemption Date or
the Final Expiration Date, any Rights Certificate or Rights
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<PAGE> 11
Certificates (other than Rights Certificates representing Rights that
have been exchanged pursuant to Section 24 hereof) may be transferred,
split up, combined or exchanged for another Rights Certificate or
Rights Certificates, respectively, entitling the registered holder to
purchase a like number and kind of shares of Common Stock as the Rights
Certificate or Rights Certificates surrendered then entitled such
holder to purchase. Any registered holder desiring to transfer, split
up, combine or exchange any Rights Certificate or Rights Certificates
shall make such request in writing delivered to the Rights Agent, and
shall surrender the Rights Certificate or Rights Certificates to be
transferred, split up, combined or exchanged at the principal office or
offices of the Rights Agent designated for such purpose. Neither the
Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have completed and signed
the certificate contained in the form of assignment on the reverse side
of such Rights Certificate and shall have provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial
Owner) or Affiliates or Associates thereof as the Company shall
reasonably request. Thereupon, the Rights Agent shall, subject to
Sections 4(b), 7(f) and 14 hereof, countersign and deliver to the
Person entitled thereto a Rights Certificate or Rights Certificates, as
the case may be, as so requested. The Company may require payment of a
sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a
Rights Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and, at the
Company's request, reimbursement to the Company and the Rights Agent of
all reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Rights Certificate if mutilated,
the Company will make and deliver a new Rights Certificate of like
tenor to the Rights Agent for delivery to the registered holder in lieu
of the Rights Certificate so lost, stolen, destroyed or mutilated.
7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS AND
EXTENSION
(a) Subject to Section 7(f) hereof, the registered holder of any Rights
Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein) in whole or in part at any time after the
Distribution Date upon surrender of the Rights Certificate, with the
form of election to purchase on the reverse side thereof duly executed,
to the Rights Agent at the principal office or offices of the Rights
Agent designated for such purpose, together with payment of the price
per share (rounded to the nearest cent) provided for in paragraph (c)
below (the "Purchase Price") for each Common Share as to which the
Rights are exercised, at or prior to the earliest of (i) the Close of
Business on December 30, 2008 (the "Final Expiration Date"), (ii) the
time at which the Rights are redeemed as provided in Section 23 hereof
(the "Redemption Date"), or (iii) the time at which such Rights are
exchanged as provided in Section 24 hereof.
(b) So long as the Rights have not been redeemed pursuant to Section 23
hereof, the Company may, in its sole discretion, determine to extend
the Rights for successive periods not to exceed ten years in duration,
by giving notice of such extension to the Rights
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<PAGE> 12
Agent, such notice to be given at least 10 and not more than 30 days
before the Final Expiration Date.
(c) The Purchase Price for each share of Common Stock pursuant to the
exercise of a Right shall initially be $60, subject to adjustment from
time to time as provided in Sections 11 and 13(a) hereof, and shall be
payable in lawful money of the United States of America in accordance
with paragraph (d) below.
(d) Upon receipt of a Rights Certificate representing exercisable Rights,
with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the Common Stock (or, following a
Triggering Event, other securities, cash or other assets as the case
may be) to be purchased and an amount equal to any applicable transfer
tax required to be paid by the holder of such Rights Certificate in
accordance with Section 9(e) hereof by certified check, cashier's check
or money order payable to the order of the Company, the Rights Agent
shall, subject to Section 20(k) hereof, thereupon promptly (i)
requisition from any transfer agent of the Common Stock certificates
for the number and kind of shares of Common Stock to be purchased (or
depository receipts when appropriate) and the Company hereby
irrevocably authorizes its transfer agents to comply with all such
requests, (ii) when appropriate, requisition from the Company the
amount of cash to be paid in lieu of issuance of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such
certificates, cause the same to be delivered to or upon the order of
the registered holder of such Rights Certificate, registered in such
name or names as may be designated by such holder and (iv) when
appropriate, after receipt, deliver such cash to or upon the order of
the registered holder of such Rights Certificate. In the event that the
Company is obligated to issue other securities of the Company, pay cash
and/or distribute other property pursuant to Section 11(a)(iii) hereof,
the Company will make all arrangements necessary so that such other
securities, cash and/or other property are available for distribution
by the Rights Agent, if and when appropriate. The Company reserves the
right to require, prior to the occurrence of a Triggering Event, that
upon any exercise of Rights, a number of Rights be exercised so that
only whole shares of Common Stock would be issued.
(e) In case the registered holder of any Rights Certificate shall exercise
less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights remaining unexercised shall be issued by the Rights
Agent to the registered holder of such Rights Certificate or to his
duly authorized assigns, subject to the provisions of Section 14
hereof.
(f) Notwithstanding anything to the contrary in this Rights Agreement, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) any Acquiring Person (or any Associate or
Affiliate of an Acquiring Person), (ii) a transferee of an Acquiring
Person (or any Associate or Affiliate of an Acquiring Person) which
becomes a transferee after the Acquiring Person becomes such, or (iii)
a transferee of an Acquiring Person (or any Associate or Affiliate of
an acquiring Person) who becomes a transferee prior to or concurrently
with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration)
from the Acquiring Person (or any Associate or Affiliate of such
Acquiring Person) to holders of equity interests in such Acquiring
Person (or of any such Associate or Affiliate) or to any Person with
whom the Acquiring
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<PAGE> 13
Person has any agreement, arrangement or understanding regarding the
transferred Rights, or (B) a transfer that the Board has determined is
part of a plan, arrangement or understanding which has as a primary
purpose or effect the avoidance of this Section 7(f), shall be null and
void without any further action, and no holder of such Rights shall
have any rights whatsoever with respect to such Rights, whether under
any provision of this Rights Agreement or otherwise. The Company shall
use all reasonable efforts to ensure that the provisions of this
Section 7(f) and Section 4(b) hereof are complied with, but shall have
no liability to any holder of Rights or any other Person as a result of
its failure to make any determination under this Section 7(f) or under
such Section 4(b) with respect to any Acquiring Person or an Associate
or Affiliate of an Acquiring Person or their transferees.
(g) Notwithstanding anything in this Rights Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the
occurrence of any purported transfer or exercise unless such registered
holder shall have (i) completed and signed the certificate following
the form of assignment or election to purchase set forth on the reverse
side of the Rights Certificate surrendered for such assignment or
exercise, and (ii) provided such additional evidence of the identity of
the Beneficial Owner (or former Beneficial Owner of the Rights
requested by such Rights Certificate) or Affiliates or Associates
thereof as the Company shall reasonably request.
8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES
All Rights Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the Company
or to any of its agents, be delivered to the Rights Agent for cancellation or in
canceled form, or, if surrendered to the Rights Agent, shall be canceled by it,
and no Rights Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Rights Agreement. The Company shall
deliver to the Rights Agent for cancellation and retirement, and the Rights
Agent shall so cancel and retire, any other Rights Certificate purchased or
acquired by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all canceled Rights Certificates to the Company, or shall,
at the written request of the Company, destroy such canceled Rights
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.
9. AVAILABILITY OF COMMON STOCK
(a) Subject to the Company's rights under Section 11(a)(iii) hereof to
otherwise fulfill its obligations hereunder, the Company shall cause to
be reserved and kept available, out of its authorized and unissued
Common Stock or any Common Stock held in its treasury, the number and
kind of shares of Common Stock that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with this
Rights Agreement; provided, however, that such action need not be taken
with respect to Common Stock (or other securities) issuable upon
exercise of Rights until the occurrence of a Triggering Event.
(b) So long as the Common Stock issuable upon the exercise of Rights may be
listed on any national securities exchange or automated quotation
system, the Company shall use its best efforts to cause, from and after
such time as the Rights become exercisable, all shares
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<PAGE> 14
of Common Stock reserved for such issuance to be listed on such
exchange upon official notice of issuance upon such exercise; provided,
however, that the Company shall have no obligation hereunder to list
the Common Stock on any national securities exchange.
(c) The Company shall take all such action as may be necessary to ensure
that all shares of Common Stock delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such shares
(subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares of Common
Stock.
(d) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a
Triggering Event in which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance
with Sections 11(a)(ii) (or Sections 11(a)(iii) or 13 hereof), or as
soon as is required by law following the Distribution Date, as the case
may be, a registration statement under the Securities Act, with respect
to the Common Stock or other securities purchasable upon exercise of
the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing,
and (iii) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act)
until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities , or (B) the Final Expiration Date. The
Company will also take such action as may be appropriate under, or to
ensure compliance with, the securities or "blue sky" laws of the
various states and other appropriate jurisdictions in connection with
the exercisability of the Rights. The Company may temporarily suspend,
for a period of time not to exceed ninety (90) days after the date set
forth in clause (i) of the first sentence of this paragraph, the
exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective and to take
such actions under such other securities or blue sky laws and permit
them to become effective. Upon any such suspension, the Company shall
issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public announcement
at such time as the suspension is no longer in effect. Notwithstanding
any provision of this Agreement to the contrary, the Rights shall not
be exercisable in any jurisdiction if the requisite qualification in
such jurisdiction shall not have been obtained or the exercise thereof
shall not be permitted under applicable law or a registration statement
shall not have been declared effective.
(e) The Company shall pay, when due and payable, any and all federal and
state transfer taxes and charges which may be payable in respect of the
issuance or delivery of the Rights Certificates or of any Common Stock
upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Rights Certificates to a Person other than, or
the issuance or delivery of certificates or depository receipts for the
Common Stock in a name other than that of, the registered holder of the
Rights Certificate evidencing Rights surrendered for exercise or to
issue or to deliver any certificates for Common Stock upon the exercise
of any Rights until any such tax shall have been paid (any such tax
being payable by the holder of such Rights Certificate at the time of
surrender) or until it has been established to the Company's reasonable
satisfaction that no such tax is due.
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<PAGE> 15
10. RECORD HOLDERS OF COMMON STOCK ISSUED UPON EXERCISE OF RIGHTS
Each person in whose name any certificate for Common Stock is issued
upon the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the Common Stock represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and any applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Company's transfer
books for the Common Stock are closed, such Person shall be deemed to have
become the record holder of such securities on, and such certificate shall be
dated, the next succeeding Business Day on which such transfer books are open.
Prior to the exercise of the Rights evidenced thereby, the holder of a Rights
Certificate shall not be entitled to any rights of a holder of securities for
which the Rights evidenced thereby shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.
11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OF COMMON STOCK
OR NUMBER OF RIGHTS
The Purchase Price, the number and kind of shares of Common Stock or
other shares of capital stock covered by each Right, and the number of Rights
outstanding are subject to adjustment from time to time as provided in this
Section 11.
(a) (i) In the event the Company shall at any time after the Record Date
(A) declare a dividend on the Common Stock payable in shares of Common
Stock, (B) subdivide the outstanding Common Stock into a greater number
of such shares, (C) combine the outstanding shares of Common Stock into
a smaller number of such shares, or (D) issue any shares of its capital
stock in a reclassification of Common Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation), except as
otherwise provided in this Section 11(a) or Section 7(f) hereof, the
Purchase Price in effect for Rights at the time of the record date for
such dividend or of the effective date of such subdivision, combination
or reclassification, and the number and kind of shares of capital stock
issuable on such date, upon exercise of the Right shall be
proportionately adjusted so that the holder of any Right exercised
after such time shall, upon payment of the Purchase Price then in
effect, be entitled to receive the aggregate number and kind of shares
of capital stock which, if such Right had been exercised immediately
prior to such date and at a time when the Common Stock transfer books
of the Company were open, such holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; provided, however, that
in no event shall the consideration to be paid upon the exercise of one
(1) such Right be less than the per share par value of the shares of
capital stock issuable upon exercise of such Right. If an event occurs
which would require an adjustment under both Section 11(a)(i) and
Section 11(a)(ii),
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the adjustment provided for in this Section 11(a)(i) shall be in
addition to, and shall be made prior to, any adjustment required
pursuant to Section 11(a)(ii).
(ii) Subject to Section 24 of this Rights Agreement, in the event any Person
becomes an Acquiring Person at any time after the Record Date, then the
Purchase Price for each share of Common Stock issuable upon exercise of
Rights shall be reduced to an amount equal to fifty percent (50%) of
the current market price per share of such Common Stock (determined
pursuant to Section 11(d)) on the Stock Acquisition Date.
Notwithstanding the above, if the transaction that would otherwise give
rise to the foregoing adjustment is also subject to the provisions of
Section 13 hereof, then only the provisions of Section 13 hereof shall
apply and no adjustment shall be made pursuant to this Section
11(a)(ii).
(iii) In the event that the number of shares of Common Stock authorized by
the Company's Certificate of Incorporation but not outstanding or
reserved for issuance shall not be sufficient to permit the exercise in
full of the Rights in accordance with the foregoing subparagraph (ii),
the Company shall, to the extent permitted by applicable law, take all
such action as may be necessary to authorize additional shares of
Common Stock for issuance upon exercise of the Rights, including the
calling of a meeting of stockholders; provided, however, if the Company
is unable to cause the authorization of additional shares of Common
Stock then the Company, to the extent necessary and permitted by
applicable law and any agreements or instruments in effect on the date
hereof to which it is a party, shall, at its option (A) pay cash equal
to twice the applicable Purchase Price (as adjusted pursuant to this
Section 11) in lieu of issuing any such Common Stock and requiring
payment therefor, (B) issue equity securities having a value equal to
the market price of the shares of Common Stock which otherwise would
have been issuable pursuant to the foregoing subparagraph (ii), which
value shall be determined by the Board, whose determination shall be
described in a statement filed with the Rights Agent and shall be
binding upon the Rights Agent and the holders of Rights, or (C)
distribute a combination of Common Stock, cash and/or other equity
securities having a value equal to the market price of the shares of
the Common Stock which are otherwise issuable pursuant to the foregoing
subparagraph (ii), determined in accordance with the preceding clause
(B), upon exercise of the related Rights.
(b) In case the Company shall fix a record date for the issuance of rights
(other than the Rights), options or warrants to all holders of shares
of Common Stock entitling them (for a period expiring within forty-five
(45) calendar days after such record date) to subscribe for or purchase
Common Stock, or securities convertible into Common Stock, at a price
per share (or having a conversion price per share, if a security
convertible into Common Stock) less than the then current per share
market price (as defined in Section 11(d)) of the shares of Common
Stock on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price
in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common
Stock which the aggregate offering price of the total number of shares
so to be offered (and/or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at such current
market price, and the denominator of which shall be the number of
shares of Common Stock outstanding on such record date plus the number
of additional shares of Common Stock to be
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<PAGE> 17
offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided,
however, that in no event shall the consideration to be paid upon the
exercise of one (1) Right be less than the per share par value of the
shares of capital stock of the Company issuable upon exercise of one
(1) Right. In case such subscription price may be paid in consideration
part or all of which shall be in a form other than cash, the value of
such consideration shall be as determined in good faith by the Board,
whose determination shall be described in a statement filed with the
Rights Agent and shall be binding on the Rights Agent and the holders
of the Rights. Common Stock owned by or held for the account of the
Company or any Subsidiary of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed; and in
the event that such rights, options or warrants are not so issued, the
Purchase Price shall be adjusted to be the Purchase Price which would
then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of Common Stock (including any such
distribution made in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend
payable out of net profits or surplus of the Company, a dividend
payable in shares of Common Stock or other distribution referred to in
Section 11(a) hereof) or subscription rights or warrants (excluding
those referred to in Section 11(b) hereof), the Purchase Price to be in
effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the then current per share
market price of the Common Stock on such record date, less the fair
market value (as determined in good faith by the Board, whose
determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent and the holders of
Rights) of the portion of such cash, assets or evidences of
indebtedness so to be distributed or of such subscription rights or
warrants applicable to one (1) share of Common Stock and the
denominator of which shall be such current per share market price of
the Common Stock; provided, however, that in no event shall the
consideration to be paid upon the exercise of one (1) Right be less
than the per share par value of the shares of capital stock of the
Company to be issued upon exercise of one (1) Right. Such adjustments
shall be made successively whenever such a record date is fixed; and in
the event that such distribution is not so made, the Purchase Price
shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(d) For the purpose of any computation hereunder, the "current per share
market price" of a share of Common Stock on any date shall be deemed to
be the average of the daily closing prices per share of Common Stock
for the thirty (30) consecutive Trading Days immediately prior to such
date; provided, however, that in the event that the current per share
market price of a share of Common Stock is determined during a period
following the announcement by the Company of (i) a dividend or
distribution on the Common Stock, payable in shares of Common Stock or
securities convertible into Common Stock, or (ii) any subdivision,
combination or reclassification of the Common Stock, and prior to the
expiration of thirty (30) Trading Days after the ex-dividend date for
such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the
current per share
14
<PAGE> 18
market price shall be appropriately adjusted to reflect the current per
share market price of one (1) share of Common Stock. The closing price
for each day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the
Common Stock is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal
national securities exchange on which the Common Stock is listed or
admitted to trading or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices
in the over-the-counter market, as reported by the Nasdaq Stock Market
or other such system then in use, or, if on any such date the Common
Stock is not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market
maker making a market in the Common Stock, selected by the Board. If on
any such date no market maker is making a market in the Common Stock,
the fair value of the Common Stock on such date as determined in good
faith by the Board shall be used, whose determination shall be
described in a statement filed with the Rights Agent and shall be
binding on the Rights Agent and the holders of Rights. The term
"Trading Day" shall mean a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to
trading is open for the transaction of business or, if the Common Stock
is not listed or admitted to trading on any national securities
exchange, a Business Day. If the Common Stock is not publicly held or
so listed or traded, "current per share market price" shall mean the
fair value per share as determined in good faith by the Board, whose
determination shall be described in a statement filed with the Rights
Agent and shall be binding upon the Rights Agent and the holders of
Rights.
(e) Anything herein to the contrary notwithstanding, no adjustment in the
Purchase Price shall be required unless such adjustment would require
an increase or decrease of at least one percent (1%) in the Purchase
Price; provided, however, that any adjustments which by reason of this
Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this Section 11 shall be made to the nearest cent or to the nearest one
one-thousandth of a share as the case may be. Notwithstanding the first
sentence of this Section 11(e), any adjustment required by this Section
11 shall be made no later than the earlier of (i) three years from the
date of the transaction which requires such adjustment, or (ii) the
Final Expiration Date.
(f) If as a result of an adjustment made pursuant to Sections 11(a) or
13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock of the Company other
than Common Stock, thereafter the number of such other shares so
receivable upon exercise of any Right and the Purchase Price thereof
shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in Section 11(a), (b), (c), (e),
(g), (h), (i), (j), (k) and (m) hereof, inclusive, and the provisions
of Sections 7, 9, 10, 13 and 14 with respect to the Common Stock shall
apply on like terms to any such other shares; provided, however, that
the Company shall not be liable for its inability to reserve and keep
available for issuance upon exercise of the Rights pursuant to Section
11(a)(ii) hereof a number of shares of
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<PAGE> 19
Common Stock greater than the number then authorized by the Certificate
of Incorporation of the Company but not outstanding or reserved for
other purposes.
(g) All Rights originally issued by the Company subsequent to any
adjustment made hereunder to the Purchase Price applicable thereto
shall evidence the right to purchase, at the adjusted Purchase Price,
the number of shares of Common Stock (or other capital stock or cash or
combination thereof) purchasable from time to time hereunder upon
exercise of such Rights, all subject to further adjustment as provided
herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result
of the calculations made in Sections 11(b) and (c), each related Right
outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Purchase
Price, the number of shares of Common Stock (calculated to the nearest
one one-thousandth of a share) obtained by (i) multiplying (x) the
number of shares covered by such Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to
such Purchase Price adjustment and (ii) dividing the product so
obtained by the Purchase Price in effect immediately after such
Purchase Price adjustment.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights in substitution for any
adjustment in the number of shares of Common Stock purchasable upon the
exercise of a Right. Each of such Rights outstanding after such
adjustment of the number of such Rights shall be exercisable for the
number of shares of Common Stock for which such Right was exercisable
immediately prior to such adjustment. Each such Right held of record
prior to such adjustment of the number of Rights shall become that
number of such Rights (calculated to the nearest one ten-thousandth)
obtained by dividing the Purchase Price in effect immediately prior to
adjustment of such Purchase Price by the Purchase Price in effect
immediately after such adjustment. The Company shall make a public
announcement of its election to adjust the number of Rights indicating
the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if
the Rights Certificates have been issued, shall be at least ten (10)
days later than the date of the public announcement. If Rights
Certificates have been issued, upon each adjustment of the number of
such Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record
of such Rights Certificates on such record date additional Rights,
subject to Section 14 hereof, to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for such Rights Certificates held by such holders prior to
the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which
such holders shall be entitled after such adjustment. Rights
Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein and shall be registered
in the names of the holders of record of Rights Certificates on the
record date specified in the public announcement.
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<PAGE> 20
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of shares of Common Stock issuable upon the exercise of the
Rights, the Rights Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number of shares of
Common Stock which were expressed in such Rights Certificates
theretofore issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then par value, if any, of the Common Stock
issuable upon exercise of the Rights, the Company shall take any
corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of
such event the issuing to the holder of any related Right exercised
after such record date the number of shares of Common Stock and other
capital stock or securities of the Company, if any, issuable upon such
exercise over and above the number of shares of Common Stock and other
capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares upon the occurrence of
the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price
in addition to those adjustments expressly required by this Section 11,
as and to the extent that it in its sole discretion shall determine to
be advisable in order that (i) any consolidation or subdivision of the
Common Stock, (ii) issuance wholly for cash of any Common Stock at less
than the current market price, (iii) issuance wholly for cash of Common
Stock or securities which by their terms are convertible into or
exchangeable for Common Stock, (iv) dividends on Common Stock payable
in shares of Common Stock or (v) issuance of rights, options or
warrants referred to hereinabove in Section 11(b), hereafter made by
the Company to holders of Common Stock, shall not be taxable to such
stockholders.
(n) The Company shall not, after the Distribution Date, except as permitted
by Sections 23 or 27 hereof, take (or permit any Subsidiary to take)
any action the purpose of which is to, or if at the time such action is
taken it is reasonably foreseeable that the effect of such action is
to, materially diminish or otherwise eliminate the benefits intended to
be afforded by the Rights.
(o) Anything in this Agreement to the contrary notwithstanding, in the
event that at any time after the date of this Agreement and prior to
the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or (ii)
effect a subdivision, combination or consolidation of the Common Stock
(by reclassification or otherwise than by payment of dividends in
shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in any such case (i) the number of shares of Common
Stock purchasable after such event upon proper exercise of each Right
shall be determined by multiplying the number so purchasable
immediately prior to such event by a fraction, the numerator of which
is the number of shares of Common Stock outstanding immediately prior
to such event and the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such event, and
(ii) each share of Common Stock outstanding immediately after such
event shall have issued with respect to it that number of Rights which
each share of Common Stock outstanding immediately
17
<PAGE> 21
prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(o) shall be made successively whenever
such a dividend is declared or paid or such a subdivision, combination
or consolidation is effected.
(p) The Company shall not, at any time after the Distribution Date, (i)
consolidate with any other Person (other than a consolidation with a
Subsidiary of the Company in a transaction which does not violate the
provisions of Section 11(n) hereof), (ii) merge with or into any other
Person (other than a merger with a Subsidiary of the Company in a
transaction which does not violate the provisions of Section 11(n)
hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction or a series of related transactions,
assets, earning power or cash flow aggregating 50% or more of the
assets, earning power or cash flow of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than a sale or
transfer to the Company and/or any of its Subsidiaries in one or more
transactions each of which does not violate the provisions of Section
11(n) hereof), if (x) at the time of or immediately after such
consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect which
would substantially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights or (y) prior to, simultaneously
with or immediately after such consolidation, merger or sale, the
stockholders of the Person who constitutes, or would constitute, the
"Principal Party" for purposes of Section 13(a) hereof shall have
received a distribution of Rights previously owned by such Person or
any of its Affiliates and Associates; provided, however, this Section
11(p) shall not affect the ability of any Subsidiary of the Company to
consolidate with, merge with or into, or sell or transfer assets or
earning power to, any other Subsidiary of the Company.
12. CERTIFICATE OF ADJUSTMENT
Whenever an adjustment is made as provided in Sections 11 or 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common Stock
a copy of such certificate and, (c) include a brief summary thereof in the next
quarterly or current report filed pursuant to the Exchange Act by the Company,
and, following the Distribution Date, mail such summary to each holder of a
Rights Certificate in accordance with Section 25 hereof. Notwithstanding the
foregoing sentence, the failure by the Company to make such certification or
give such notice shall not affect the validity of or the force or effect of the
requirement for such adjustment. The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment therein contained.
18
<PAGE> 22
13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER
(a) In the event that, on or following the Stock Acquisition Date, directly
or indirectly, (x) the Company shall consolidate with, or merge with
and into any other Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11(n) hereof), and the Company
shall not be the continuing or surviving corporation of such
consolidation or merger, (y) the Company shall consolidate with, or
merge with, any other Person (other than a Subsidiary of the Company in
a transaction that complies with Section 11(n) hereof), and the Company
shall be the continuing or surviving corporation of such consolidation
or merger and in connection with such consolidation or merger all or
part of the outstanding shares of Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or cash or
any other property (other than, in a case of any transaction described
in (x) or (y), a merger or consolidation which would result in all of
the securities generally entitled to vote in the election of directors
("Voting Securities") of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into securities of the surviving entity) all of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation and the holders of such
securities not having changed as a result of such merger or
consolidation), or (z) the Company shall sell or otherwise transfer (or
one or more of its Subsidiaries shall sell or otherwise transfer), in
one or a series of related transactions, assets, earning power or cash
flow aggregating fifty percent (50%) or more of the assets, earning
power or cash flow of the Company and its Subsidiaries (taken as a
whole) to any other Person (other than the Company or any Subsidiary of
the Company in one or more transactions each of which does not violate
Section 11(n) hereof), (any such event described in (x), (y) or (z)
being a "Section 13 Event") then, and in each such case (except as
provided in Section 13(d) hereof), proper provision shall be made so
that (i) each holder of a Right, except as provided in Section 7(f)
hereof, shall thereafter have the right to receive, upon the exercise
thereof at a price equal to the then current Purchase Price (without
giving effect to any adjustment to such Purchase Price pursuant to
Section 11(a)(ii)) multiplied by the number of shares of Common Stock
for which such Right is then exercisable, in accordance with the terms
of this Rights Agreement, such number of freely tradable shares of
Common Stock of the Principal Party, not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as shall
equal the result obtained by (A) multiplying the then current Purchase
Price (without giving effect to any adjustment to such Purchase Price
pursuant to Section 11(a)(ii)) by the number of shares of Common Stock
for which such Right is then exercisable, and (B) dividing that product
by fifty percent (50%) of the then current per share market price of
the shares of Common Stock of such Principal Party (determined pursuant
to Section 11(d) hereof) on the date of consummation of such
consolidation, merger, sale or transfer; (ii) such Principal Party
shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties
of the Company pursuant to this Rights Agreement; (iii) the term
"Company" shall thereafter be deemed to refer to such Principal Party,
it being specifically intended that the provisions of Section 11 hereof
shall apply only to such Principal Party following the first occurrence
of a Section 13 Event; and (iv) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient
number of its shares
19
<PAGE> 23
of Common Stock in accordance with Section 9 hereof) in connection with
the consummation of such transaction as may be necessary to assure that
the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the Common Stock thereafter
deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause (x) or (y)
of the first sentence of Section 13(a), the Person that is the
issuer of any securities into which Common Stock of the
Company is converted in such merger or consolidation, and if
no securities are so issued, the Person that is the other
party to such merger or consolidation; and
(ii) in the case of any transaction described in clause (z) of the
first sentence of Section 13(a), the Person that is the party
receiving the greatest portion of the assets or earnings power
transferred pursuant to such transaction or transactions;
provided, however, that in any of the foregoing cases (a) if the Common
Stock of such Person is not at such time and has not been continuously
over the preceding twelve (12) month period registered under Section 12
of the Exchange Act, and such Person is a direct or indirect Subsidiary
of another Person the Common Stock of which is and has been so
registered, "Principal Party" shall refer to such other Person; (b) if
such Person is a Subsidiary, directly or indirectly, of more than one
(1) Person, the Common Stock of two (2) or more of which are and have
been so registered, "Principal Party" shall refer to whichever of such
Persons is the issuer of the Common Stock having the greatest aggregate
market value; and (c) if such Person is owned, directly or indirectly,
by a joint venture formed by two (2) or more Persons that are not
owned, directly or indirectly, by the same Person, the rules set forth
in paragraphs (a) and (b) above shall apply to each of the chains of
ownership having an interest in such joint ventures as if such party
were a "Subsidiary" of both or all of such joint ventures and the
Principal Parties in each such chain shall bear the obligations set
forth in this Section 13 in the same ratio as their direct or indirect
interests in such Person bear to the total of such interests.
(c) The Company shall not consummate any such consolidation, merger, sale
or transfer unless the Principal Party shall have a sufficient number
of its authorized shares of Common Stock which have not been issued or
reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Company
and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing for the terms set forth
in paragraphs (a) and (b) of this Section 13 and further providing
that, as soon as practicable after the date of any consolidation,
merger, sale or transfer mentioned in paragraph (a) of this Section 13,
the Principal Party at its own expense shall:
(i) prepare and file a registration statement under the Securities
Act with respect to the Rights and the securities purchasable
upon exercise of the Rights on an appropriate form, and use
its best efforts to cause such registration statement to (A)
become effective as soon as practicable after such filing and
(B) remain
20
<PAGE> 24
effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the Final
Expiration Date;
(ii) use its best efforts to qualify or register the Rights and the
securities purchasable upon exercise of the Rights under any
applicable blue sky laws of various states and jurisdictions
as may be necessary or appropriate; and
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all
respects with the requirements for registration on Form 10
under the Exchange Act.
(d) The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers. In the event
that a Section 13 Event shall occur at any time after the occurrence of
a Section 11(a)(ii) Event, the Rights which have not theretofore been
exercised shall thereafter become exercisable in the manner described
in Section 13(a).
14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES
(a) The Company shall not be required to issue fractions of Rights, except
prior to the Distribution Date as provided in Section 11(o) hereof, or
to distribute Rights Certificates which evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered
holders of the Rights Certificates with regard to which such fractional
Rights would otherwise be issuable, an amount in cash equal to the same
fraction of the current market value of a whole Right. For the purposes
of this Section 14(a), the current market value of a whole Right shall
be the closing price of the Rights for the Trading Day immediately
prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price of the Rights for any day shall
be the last sale price regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange,
as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities
exchange on which the Rights are listed or admitted to trading or, if
such Rights are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by Nasdaq Stock Market or such other system then in
use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in such Rights
selected by the Board. If on any such date no such market maker is
making a market in the Rights, the fair value of such Rights on such
date as determined in good faith by the Board, whose determination
shall be described in a statement filed with the Rights Agent, and
shall be binding on the Rights Agent and the holders of Rights.
(b) The Company shall not be required to issue fractions of shares of
Common Stock upon exercise of the Rights or exchange of the Rights for
shares of Common Stock pursuant to Section 24 of this Rights Agreement,
or to distribute certificates which evidence fractional
21
<PAGE> 25
shares of such securities. Fractions of shares of Common Stock may, at
the election of the Company, be evidenced by depository receipts,
pursuant to an appropriate agreement between the Company and a
depository selected by it; provided that such agreement shall provide
that the holders of such depository receipts shall have the rights,
privileges and preferences to which they are entitled as beneficial
owners of the Common Stock represented by such depository receipts. In
lieu of fractional shares of Common Stock or depository receipts, the
Company may pay to the registered holders of Rights Certificates at the
time such Rights are exercised as herein provided an amount in cash
equal to the same fraction of the current market value of one share of
Common Stock. For the purposes of this Section 14(b), the current
market value of a share of Common Stock shall be the closing price of a
share of Common Stock (as determined pursuant to the second sentence of
Section 11(d) hereof) for the Trading Day immediately prior to the date
of such exercise.
(c) The holder of a Right by the acceptance of such Right expressly waives
his right to receive any fractional Rights or any fractional shares
upon exercise of a Right (except as provided above).
15. RIGHTS OF ACTION
All rights of action in respect of this Rights Agreement, excepting the
rights of action given to the Rights Agent under Sections 18 and 20 hereof, are
vested in the respective registered holders of the Rights Certificates (and,
prior to the Distribution Date, the registered holders of the Common Stock); and
any registered holder of any Rights Certificate (or, prior to the Distribution
Date, of the Common Stock), without the consent of the Rights Agent or of the
registered holder of any other Rights Certificate (or, prior to the Distribution
Date, of a Certificate representing the Common Stock), may, on his own behalf
and for his own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in respect
of, his right to exercise the Rights evidenced by such Rights Certificate (or
prior to the Distribution Date certificates for shares of Common Stock) in the
manner provided in such Rights Certificate and in this Rights Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Rights Agreement and will be entitled to
specific performance of the obligations under, and injunctive relief against,
actual or threatened violations of the obligations of any Person subject to,
this Rights Agreement.
16. AGREEMENT OF RIGHT HOLDERS
Every holder of a Right, by accepting the same, consents and agrees
with the Company and the Rights Agent and with every other holder of a Right
that:
(a) prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Common Stock;
(b) after the Distribution Date, the Rights Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the
principal office of the Rights Agent designated for such
22
<PAGE> 26
purpose, duly endorsed or accompanied by a proper instrument of
transfer and with the appropriate forms and certificates fully
executed;
(c) subject to Sections 6(a) and 7(g) hereof, the Company and the Rights
Agent may deem and treat the person in whose name the Rights
Certificate (or, prior to the Distribution Date, the associated
certificates for shares of Common Stock) is registered as the absolute
owner thereof and of the Rights evidenced thereby (notwithstanding any
notations of ownership or writing on the Rights Certificates or the
associated certificates for shares of Common Stock made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence
of Section 7(f), shall be affected by any notice to the contrary; and
(d) notwithstanding anything in this Rights Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or a beneficial interest in a Right or other
Person as a result of its inability to perform any of its obligations
under this Rights Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or
administrative agency or commission, or any statute, rule, regulation
or executive order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining performance of such
obligation; provided, however, the Company must use its best efforts to
have any such order, decree or ruling lifted or otherwise overturned as
soon as possible.
17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER
No holder, as such, of any Rights Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of the shares of
Common Stock or any other securities of the Company, which may at any time be
issuable on the exercise of the Rights represented thereby, nor shall anything
contained herein or in any Rights Certificate be construed to confer upon the
holder of any Rights Certificate, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in Section 25 hereof), or to
receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such certificate for Common Stock or Rights Certificate
shall have been exercised in accordance with the provisions hereof.
18. CONCERNING THE RIGHTS AGENT
(a) The Company shall pay to the Rights Agent reasonable compensation for
all services rendered by it hereunder and, from time to time, on demand
of the Rights Agent, its reasonable expenses and counsel fees and other
disbursements incurred in the administration and execution of this
Rights Agreement and the exercise and performance of its duties
hereunder. The Company also shall indemnify the Rights Agent for, and
hold it harmless against, any loss, liability, or expense, incurred
without negligence, bad faith or willful misconduct on the part of the
Rights Agent, for anything done or omitted by the Rights Agent in
connection with the acceptance and administration of this Rights
Agreement, including the costs and expenses of defending against
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<PAGE> 27
any claim of liability, and the indemnity provided for herein shall
survive the expiration of the Rights and the termination of this Rights
Agreement.
(b) The Rights Agent shall be protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Rights Agreement in
reliance upon any Rights Certificate or certificate for the Common
Stock or for other securities of the Company, instrument of assignment
or transfer, power of attorney, endorsement, affidavit, letter, notice,
direction, consent, certificate, statement, or other paper or document
believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper Person or Persons,
or otherwise upon the advice of counsel as set forth in Section 20
hereof.
19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT
Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or all or substantially all of the corporate trust business of
the Rights Agent or any successor Rights Agent, shall be the successor to the
Rights Agent under this Rights Agreement without the execution or filing of any
paper or any further act on the part of any of the parties hereto, provided that
such corporation would be eligible for appointment as a successor Rights Agent
under the provisions of Section 21 hereof. In case at the time such successor
Rights Agent shall succeed to the agency created by this Rights Agreement any of
the Rights Certificates shall have been countersigned but not delivered, any
such successor Rights Agent may adopt the countersignature of the predecessor
Rights Agent and deliver such Rights Certificates so countersigned; and in case
at that time any of the Rights Certificates shall not have been countersigned,
any successor Rights Agent may countersign such Rights Certificates either in
the name of the predecessor Rights Agent or in the name of the successor Rights
Agent; and in all such cases such Rights Certificates have the full force
provided in the Rights Certificates and in this Rights Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Rights Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Rights Certificates so countersigned; and in case at that time
the Certificates shall not have been countersigned, the Rights Agent may
countersign such Rights Certificates either in its prior name or in its changed
name; and in all such cases such Rights Certificates shall have the full force
provided in the Rights Certificates and in this Rights Agreement.
20. DUTIES OF RIGHTS AGENT
The Rights Agent undertakes the duties and obligations imposed by this
Rights Agreement upon the following terms and conditions, by all of which the
Company and the holders of Rights Certificates, by their acceptance thereof,
shall be bound:
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(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any
action taken or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under this Rights Agreement
the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring
Person or any Affiliate or Associate thereof and the determination of
"current per share market price") be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by
a certificate signed by any one of the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Treasurer or
the Secretary of the Company and delivered to the Rights Agent; and
such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions
of this Rights Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any other
Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Rights Agreement or in
the Rights Certificates (except its countersignature on such Rights
Certificates) or be required to verify the same, but all such
statements and recitals are and shall be deemed to have been made by
the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Rights Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Rights Certificate (except
its countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this
Rights Agreement or in any Rights Certificate; nor shall it be
responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 7(f) hereof) or
any adjustment in the terms of the Rights (including the manner, method
or amount thereof) provided for in Sections 3, 11, 13, 23 or 24, or the
ascertaining of the existence of facts that would require any such
change or adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after actual notice that such change
or adjustment is required); nor shall it by any act hereunder be deemed
to make any representation or warranty as to the authorization or
reservation of any Common Stock to be issued pursuant to this Rights
Agreement or any Rights Certificate or as to whether any Common Stock
will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company shall perform, execute, acknowledge and deliver or cause to
be performed, executed, acknowledged and delivered all such further and
other acts, instruments and assurances as may reasonably be required by
the Rights Agent for the carrying out or performing by the Rights Agent
of the provisions of this Rights Agreement.
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(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder
from any one of the Chairman of the Board, the Chief Executive Officer,
the President, any Vice President, the Secretary or the Treasurer of
the Company, and to apply to such officers for advice or instructions
in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with
instructions of any such officer or for any delay in acting while
waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as
though it were not Rights Agent under this Rights Agreement. Nothing
herein shall preclude the Rights Agent from acting in any other
capacity for the Company or for any other Person.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct
of any such attorneys or agents or for any loss to the Company
resulting from any such act, default, neglect or misconduct, provided
reasonable care was exercised in the selection and continued employment
thereof.
(j) No provision of this Rights Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of
its rights if there shall be reasonable grounds for believing that
repayment of such funds or adequate indemnification against such risk
or liability is not reasonably assured to it.
(k) If, with respect to any Right Certificate surrendered to the Rights
Agent for exercise or transfer, split up, combination or exchange, the
certificate attached to the form of assignment or form of election to
purchase, as the case may be, has either not been completed or
indicates an affirmative response to clause 1 and/or 2 thereof, the
Rights Agent shall not take any further action with respect to such
requested exercise, transfer, split up, combination or exchange without
first consulting with the Company.
21. CHANGE OF RIGHTS AGENT
The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Rights Agreement upon thirty (30) days'
notice in writing mailed to the Company and to each transfer agent of the Common
Stock by registered or certified mail, and to the holders of the Rights
Certificates by first-class mail. The Company may remove the Rights Agent or any
successor Rights Agent upon thirty (30) days' notice in writing, mailed to the
Rights Agent or successor Rights Agent, as the case may be, and to each transfer
agent of the Common Stock by registered or certified mail, and to the holders of
the Rights Certificates by first-class mail. If the Rights Agent shall resign or
be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has
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been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Rights Certificate or prior to
the Distribution Date, the holder of a certificate for Common Stock (who shall,
with such notice submit his Rights Certificate or certificate for Common Stock,
as the case may be, for inspection by the Company), then any registered holder
of any Rights Certificate may apply to any court of competent jurisdiction for
the appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be (a) a corporation
organized and doing business under the laws of the United States or of any state
of the United States, in good standing, which is authorized under such laws to
exercise corporate trust or stock transfer powers and is subject to supervision
or examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
Twenty-Five Million Dollars ($25,000,000), or (b) an Affiliate of a corporation
described in clause (a) of this sentence. After appointment, the successor
Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock and mail a notice thereof in writing
to the registered holders of the Rights Certificates or if prior to the
Distribution Date, the holders of certificates for Common Stock. Failure to give
any notice provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of the successor Rights Agent, as the case may
be.
22. ISSUANCE OF NEW RIGHTS CERTIFICATES
Notwithstanding any of the provisions of this Rights Agreement or of
the Rights to the contrary the Company may, at its option, issue new Rights
Certificates evidencing Rights in such form as may be approved by its Board to
reflect any adjustment or change in the Purchase Price or the number or kind or
class of stock or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Rights Agreement.
In addition, in connection with the issuance or sale of Common Stock
following the Distribution Date and prior to the earlier of the Redemption Date
and the Final Expiration Date, the Company (a) shall, with respect to shares of
Common Stock so issued or sold pursuant to the exercise of stock options or
under any employee plan or arrangement, or upon the exercise, conversion or
exchange of securities, notes or debentures issued by the Company, and (b) may,
in any other case, if deemed necessary or appropriate by the Board, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) the Company shall not be
obligated to issue any such Rights Certificates if, and to the extent that, the
Company shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company or the
Person to whom such Rights Certificate would be issued, and (ii) no Rights
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
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23. REDEMPTION
(a) The Board may, at its option, at any time prior to the earlier of (i)
the Close of Business on the tenth Business Day following the Stock
Acquisition Date, or (ii) the Final Expiration Date, cause the Company
to redeem all but not less than all of the then outstanding Rights at
an initial redemption price of .01 cents per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof ("Redemption Price"). The
redemption of the Rights by the Company may be made effective at such
time, on such basis and with such conditions as the Board in its sole
discretion may establish. Notwithstanding anything contained in this
Rights Agreement to the contrary, the Rights shall not be exercisable
after the first occurrence of a Section 11(a)(ii) Event until such time
as the Company's right of redemption hereunder has expired. The Company
may, at its option, pay the Redemption Price in cash, Common Stock
(based on the "current per share market price," as defined in Section
11(d) hereof, of the Common Stock at the time of redemption) or any
other form of consideration, or any combination of any of the
foregoing, deemed appropriate by the Board.
(b) Immediately upon the action of the Board ordering the redemption of the
Rights and without any further action and without any notice, the right
to exercise the Rights will terminate and the only right thereafter of
the holders of Rights shall be to receive the Redemption Price.
Promptly after the action of the Board ordering the redemption of the
Rights, the Company shall promptly give public notice of such
redemption; provided, however, that the failure to give, or any defect
in, the notice shall not affect the validity of such redemption. The
Company shall promptly mail a notice of such redemption to all the
holders of the then outstanding Rights by mailing such notice to all
such holders at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Stock. Any notice
which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption
Price will be made. Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value any Rights at any
time in any manner other than as specifically set forth in this Section
23 or in Section 24 hereof, and other than in connection with the
purchase of Common Stock prior to the Distribution Date.
(c) Notwithstanding the provisions of Section 23(a) hereof, in the event
that a majority of the members of the Board are elected by stockholder
action by written consent, or are comprised of Persons elected at a
meeting of stockholders who were not nominated by the Board in office
immediately prior to such meeting, then (i) for a period of one hundred
and eighty (180) days following the effectiveness of such election, the
Rights shall not be redeemed if such redemption is reasonably likely to
have the purpose or effect of allowing any Person to become an
Acquiring Person or otherwise facilitating the occurrence of a
Triggering Event or a transaction with an Acquiring Person, and (ii)
the Rights may not be redeemed following such 180 day period if (x)
such redemption is reasonably likely to have the purpose or effect of
facilitating a Triggering Event or transaction with an
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Acquiring Person, and (y) during such 180 day period the Company
entered into any agreement, arrangement or understanding with any
Acquiring Person which is reasonably likely to have the purpose or
effect of facilitating a Triggering Event.
24. EXCHANGE
(a) The Board may, at its option, at any time after any Person becomes an
Acquiring Person, cause the Company to exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 7(f) hereof) for
shares of Common Stock at an exchange ratio of one share of Common
Stock per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof
(such exchange ratio being hereinafter referred to as the "Exchange
Ratio"). Notwithstanding the foregoing, the Company shall not be
empowered to effect such exchange at any time after any Person (other
than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or any such Subsidiary, or any Person holding
Common Stock for or pursuant to the terms of any such plan entered into
by the Company to secure benefits payable under any employee benefit
plan of the Company or any Subsidiary of the Company or Adrian J.
Reynard and his Affiliates or Associates), together with all Affiliates
and Associates of such Person, becomes the Beneficial Owner of Common
Stock representing fifty percent (50%) or more of the Common Stock then
outstanding.
(b) Immediately upon the action of the Board ordering the exchange of any
Rights pursuant to subsection (a) of this Section 24 and without any
further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of
such Rights shall be to receive that number of shares of Common Stock
equal to the number of such Rights held by such holder multiplied by
the Exchange Ratio. The Company shall promptly give public notice of
any such exchange; provided, however, that the failure to give, or any
defect in, such notice shall not affect the validity of such exchange.
The Company shall promptly mail a notice of any such exchange to all of
the holders of such Rights at such last addresses as they appear upon
the registry books of the Rights Agent. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Common Stock for Rights will be
effected and, in the event of any partial exchange, the number and kind
of Rights which will be exchanged. Any partial exchange shall be
effected pro rata based on the number of Rights (other than Rights
which have become void pursuant to the provisions of Section 7(f)
hereof) held by each holder of such Rights.
(c) In the event that there shall not be sufficient shares of Common Stock
issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24,
the Company shall take all such action as may be necessary to authorize
additional shares of Common Stock for issuance upon exchange of the
Rights or shall take such other action specified in Section 11(a)(iii)
hereof.
(d) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of such
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fractional shares of Common Stock, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional shares of Common Stock would otherwise be issuable, an
amount in cash equal to the same fraction of the current per share
market price of a whole share of Common Stock. For the purposes of this
subsection (d), the current per share market price of a whole share of
Common Stock shall be determined as of the Trading Day immediately
prior to the date of exchange pursuant to this Section 24.
25. NOTICE OF CERTAIN EVENTS
(a) In case the Company, following the Distribution Date, shall propose (i)
to pay any dividend payable in stock of any class or series to holders
of Common Stock or to make any other distribution to holders of Common
Stock (other than a regular quarterly cash dividend out of net profits
or surplus of the Company), (ii) to offer to holders of Common Stock
rights or warrants to subscribe for or to purchase any additional
Common Stock or any other securities, rights or options, (iii) to
effect any reclassification of the Common Stock (other than a
reclassification involving only the subdivision of outstanding Common
Stock), (iv) to effect any consolidation or merger into or with, or to
effect any sale or other transfer (or to permit one or more of its
Subsidiaries to effect any sale or other transfer), in one or more
transactions, of fifty percent (50%) or more of the assets or earning
power of the Company and its Subsidiaries (taken as a whole) to, any
other Person (other than the Company and/or any of its Subsidiaries in
one or more transactions each of which does not violate Section 11(n)
hereof), or (v) to effect the liquidation, dissolution or winding up of
the Company, then, in each such case, the Company shall give to each
holder of a Rights Certificate, in accordance with Section 26 hereof, a
notice of such proposed action to the extent feasible, which shall
specify the record date for the purposes of such stock dividend, or
distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of
participation therein by holders of Common Stock if any such date is to
be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least ten (10) days prior to the
record date for determining holders of Common Stock for purposes of
such action, and in the case of any such other action, at least ten
(10) days prior to the date of the taking of such proposed action or
the date of participation therein by holders of Common Stock, whichever
shall be the earlier. The failure to give notice required by this
Section 25 or any defect therein shall not affect the legality or
validity of the action taken by the Company or the vote upon any such
action.
(b) In case a Section 11(a)(ii) Event shall occur, then the Company shall
as soon as practicable thereafter give to each holder of a Rights
Certificate, in accordance with Section 26 hereof, a notice of the
occurrence of such event, which notice shall describe such event and
the consequences of such event to holders of Rights under Section
11(a)(ii) hereof.
26. NOTICES
Notices or demands authorized by this Rights Agreement to be given or
made by the Rights Agent or by the holder of any Rights Certificate to or on the
Company shall be sufficiently given or
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made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Rights Agent) as follows:
Reynard Motorsport, Inc.
8431 Georgetown Road, Suite 700
Indianapolis, Indiana 46268
Attention: Secretary
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Rights Agreement to be given or made by the Company or by the
holder of any Rights Certificate to or on the Rights Agent shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Company) as follows:
[to be completed]
---------------------------
---------------------------
---------------------------
Attention:
----------------
Notices or demands authorized by this Rights Agreement to be given or
made by the Company or the Rights Agent to the holder of any Rights Certificate
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as shown on the
registry books of the Company.
27. SUPPLEMENTS AND AMENDMENTS
Prior to the Distribution Date, the Company and the Rights Agent shall,
if the Board so directs, supplement or amend any provision of this Rights
Agreement without the approval of any holders of certificates representing
shares of Common Stock. From and after the Distribution Date, the Company and
the Rights Agent shall, if the Board so directs, supplement or amend this Rights
Agreement without the approval of any holders of Rights Certificates in order
(a) to cure any ambiguity, (b) to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
(c) to shorten or lengthen any time period hereunder or (d) to change or
supplement the provisions hereunder in any manner which the Company may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of Rights Certificates (other than an Acquiring Person or an Affiliate
or Associate of an Acquiring Person); provided, however, that this Rights
Agreement may not be supplemented or amended to lengthen, pursuant to clause (c)
of this sentence, (i) a time period relating to when the Rights may be redeemed
at such time as the Rights are not then redeemable, or (ii) any other time
period unless such lengthening is for the purpose of protecting, enhancing or
clarifying the rights of, and/or the benefits to, the holders of Rights. Without
limiting the foregoing, the Company may at any time prior to such time as any
Person becomes an Acquiring Person amend this Rights Agreement to lower the
thresholds set forth in Sections 1(a) and 3(a) hereof from fifteen percent (15%)
to not less than the greater of (a) any percentage greater than the largest
percentage of the then outstanding Common Stock then known by the Company to be
beneficially owned by any Person (other than the Company, any Subsidiary of the
Company, any
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employee benefit plan of the Company or any Subsidiary of the Company, any
Person holding Common Stock for or pursuant to the terms of any such plan or
Adrian J. Reynard and his Affiliates and Associates) together with all
Affiliates or Associates of such Person, or (b) ten percent (10%). Upon the
delivery of a certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment is in compliance with the terms
of this Section 27, the Rights Agent shall execute such supplement or amendment,
provided that such supplement or amendment does not adversely affect the rights
or obligations of the Rights Agent under Sections 18 or 20 of this Rights
Agreement. Prior to the Distribution Date, the interests of the holders of
Rights shall be deemed coincident with the interests of the holders of Common
Stock. Notwithstanding anything contained in this Agreement to the contrary, in
the event that a majority of the Board is comprised of (i) persons elected by
stockholder consent or persons elected at a meeting who were not nominated by
the Board in office immediately prior to such meeting, and/or (ii) successors of
such persons elected to the Board for the purpose of either facilitating a
Triggering Event with an Acquiring Person or circumventing directly or
indirectly the provisions of this Section 27, then for a period of 180 days
following the effectiveness of such action, this Agreement shall not be amended
or supplemented in any manner reasonably likely to have the purpose or effect of
facilitating a Triggering Event with an Acquiring Person.
28. SUCCESSORS
All the covenants and provisions of this Rights Agreement by or for the
benefit of the Company or the Rights Agent shall bind and inure to the benefit
of their respective successors and assigns hereunder.
29. DETERMINATIONS BY THE BOARD OF DIRECTORS
For all purposes of this Rights Agreement, any calculation of the
number of shares of Common Stock outstanding at any particular time, including
for purposes of determining the particular percentage of such outstanding shares
of Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act. The Board shall have the exclusive power
and authority to administer this Rights Agreement and to exercise all rights and
powers specifically granted to the Board or to the Company, or as may be
necessary or advisable in the administration of this Rights Agreement,
including, without limitation, the right and power to (a) interpret the
provisions of this Rights Agreement, and (b) make all determinations deemed
necessary or advisable for the administration of this Rights Agreement
(including a determination to redeem or not redeem the Rights or to amend the
Rights Agreement or a determination that an adjustment to the Redemption Price
or Exchange Ratio is or is not appropriate). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
in good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights and all other parties, and (y) not
subject the Board to any liability to the holders of the Rights.
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30. BENEFITS OF THIS RIGHTS AGREEMENT
Nothing in this Rights Agreement shall be construed to give to any
Person other than the Company, the Rights Agent and the registered holders of
the Rights Certificates (and, prior to the Distribution Date, the registered
holders of the Common Stock) any legal or equitable right, remedy or claim under
this Rights Agreement; but this Rights Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Rights Certificates (and, prior to the Distribution Date, the registered
holders of the Common Stock).
31. SEVERABILITY
If any term, provision, covenant or restriction of this Rights
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Rights Agreement shall remain in full force
and effect and shall in no way be affected, impaired or invalidated; provided,
however, that notwithstanding anything in this Agreement to the contrary, if any
such term, provision, covenant or restriction is held by such court or authority
to be invalid, void or unenforceable and the Board determines in its good faith
judgment that severing the invalid, void or unenforceable language from this
Agreement would adversely affect the purpose or effect of this Agreement, the
right of redemption set forth in Section 23 hereof shall be reinstated and shall
not expire until the Close of Business on the tenth day following the date of
such determination by the Board.
32. GOVERNING LAW
This Rights Agreement and each Rights Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of Delaware
and for all purposes shall be governed by and construed in accordance with the
laws of such State applicable to contracts to be made and performed entirely
within such State.
33. COUNTERPARTS
This Rights Agreement may be executed in any number of counterparts,
and each of such counterparts shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute one and the same
instrument.
34. DESCRIPTIVE HEADINGS
Descriptive headings of the several Sections of this Rights Agreement
are inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed and attested, all as of the day and year first
above written.
REYNARD MOTORSPORT, INC.
Attest:
By: By:
---------------------------- --------------------------------
Secretary (title)
[AGENT]
Attest:
By: By:
---------------------------- --------------------------------
Secretary (title)
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EXHIBIT A
FORM OF RIGHTS CERTIFICATE
Certificate No. R-_____ ______Rights
NOT EXERCISABLE AFTER ________________, 2008 OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT .01 cents PER RIGHT AND
TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR
AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN
THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL
AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SUCH AGREEMENT.]*
Rights Certificate
REYNARD MOTORSPORT, INC.
This certifies that _________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of _______________, 1998 (the "Rights Agreement"), between
Reynard Motorsport, Inc., a Delaware corporation (the "Company") and
[___________________________] (the "Rights Agent"), to purchase from the Company
at any time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M., Indianapolis, Indiana time, on
_______________, 2008, at the principal office of the Rights Agent, or at the
office of its successor as Rights Agent, one fully paid non-assessable share of
Reynard Motorsport, Inc. Common Stock, par value .01 cents per share (the
"Stock"), at a purchase price of $______ per share (the "Purchase Price"), upon
presentation and surrender of this Rights Certificate with the Form of Election
to Purchase duly executed. The number of Rights evidenced by this Rights
Certificate (and the number of shares of Stock which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set forth above, are
the number and Purchase Price as of _______________, 1998 based on the shares of
Stock of the Company as constituted at such date. As provided in the Rights
Agreement, the Purchase Price and the number of shares of Stock which may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate
are subject to modification and adjustment upon the happening of certain events.
- --------
* The portion of the legend in brackets shall be inserted only if applicable and
shall replace the preceding sentence.
A-1
<PAGE> 39
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the offices of the Rights Agent.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office of the Rights Agent, may be exchanged for
another Rights Certificate or Certificates of like tenor and date evidencing
Rights entitling the holder to purchase a like aggregate number of shares of
Stock as the Rights evidenced by the Rights Certificate or Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof another Rights Certificate or Certificates for the number
of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Rights Certificate (i) may be redeemed by the Company at its option at a
redemption price of .01 cents per Right or (ii) may be exchanged in whole or in
part for shares of Stock. No fractional shares of Stock will be issued upon the
exercise of any Right or Rights evidenced hereby, but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the shares
of Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
A-2
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Witness the facsimile signature of the proper officers of the Company.
Dated as of _____________, ______.
ATTEST: REYNARD MOTORSPORT, INC.
By:
----------------------------
Countersigned:
-----------------------
[AGENT]
By:
----------------------------------
(Authorized Signature)
A-3
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EXHIBIT A
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Rights Certificate.)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
_______________________________________________________________________________
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ___________________________
, Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _________________, _________ ______________________________
Signature
Signature Medallion Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION, (BANKS, STOCK-BROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT
UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17AD-15.
--------------------------------------------------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
in the Rights Agreement), and
(2) after due inquiry and to the best knowledge of the undersigned, the
undersigned [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is or was an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person.
Dated: _________________, _________
______________________________
Signature
A-4
<PAGE> 42
Form of Election to Purchase
(To be executed if holder desires to exercise Rights
represented by the Rights Certificate.)
To: ___________________:
The undersigned hereby irrevocably elects to exercise ______ Rights
represented by this Rights Certificate to purchase the shares of Common Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of
and deliverable to:
_______________________________________________________________________________
(Please insert social security number or other identifying number)
_______________________________________________________________________________
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
_______________________________________________________________________________
(Please insert social security number or other identifying number)
_______________________________________________________________________________
(Please print name and address)
Dated:__________________, ____ _________________________________
Signature
Signature Medallion Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION, (BANKS, STOCK-BROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT
UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17AD-15.
--------------------------------------------------
The undersigned hereby certifies by checking the appropriate boxes
that:
A-5
<PAGE> 43
(1) this Rights Certificate [ ] is [ ] is not being exercised by or on
behalf of a Person who is or was an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement), and
(2) after due inquiry and to the best knowledge of the undersigned, the
undersigned [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is or was an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person.
Dated: _________________, ________
_________________________________
Signature
A-6
<PAGE> 44
EXHIBIT B
SUMMARY OF RIGHTS TO PURCHASE COMMON STOCK
Effective as of _______________, 1998, the Board of Directors (the
"Board") of Reynard Motorsport, Inc. (the "Company") adopted a Rights Agreement
(the "Rights Agreement") and authorized and declared a dividend of one common
stock purchase right (a "Right") for each outstanding share of common stock, par
value .01 cents per share, of the Company (the "Common Stock"). The dividend is
payable on _____________, 1998, to the stockholders of record on _____________,
1998 (the "Record Date"), and with respect to Common Stock issued thereafter
until the Distribution Date (as hereinafter defined) or the expiration or
earlier redemption or exchange of the Rights. Except as set forth below, each
Right entitles the registered holder to purchase from the Company, at any time
after the Distribution Date one share of Common Stock at a price per share of
$[___], subject to adjustment (the "Purchase Price"). The description and terms
of the Rights are as set forth in the Rights Agreement, dated ____________, 1998
between the Company and ___________________, as Rights Agent.
Initially the Rights will be attached to all certificates representing
shares of Common Stock then outstanding, and no separate Rights Certificates
will be distributed. The Rights will separate from the Common Stock upon the
earlier to occur of (i) ten (10) Business Days after the public announcement of
a person's or group of affiliated or associated persons (other than Adrian J.
Reynard, the Company, its subsidiaries or employee benefit plans and Affiliates
and Associates of such persons) having acquired beneficial ownership of fifteen
percent (15%) or more of the outstanding Common Stock (such person or group
being hereinafter referred to as an "Acquiring Person"); or (ii) ten (10)
Business Days (or such later date as the Board may determine) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in a person or group's
becoming an Acquiring Person (the earlier of such dates being called the
"Distribution Date").
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with, and only with, the Common Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Stock certificates issued after the Record Date, upon transfer or new
issuance of Common Stock, will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
shares of Common Stock outstanding as of the Record Date, even without such
notation or a copy of this Summary of Rights being attached thereto, will also
constitute the transfer of the Rights associated with the shares of Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date (and to each initial record holder of
certain Common Stock issued after the Distribution Date), and such separate
Rights Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on ____________, 2008 (the "Final Expiration Date"), unless the
Final Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case as described below.
B-1
<PAGE> 45
In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, each holder of a Right will thereafter have
the right (the "Flip-In Right") to acquire a share or Common Stock for a
purchase price equal to fifty percent (50%) of the then current market price.
Notwithstanding the foregoing, all Rights that are, or were, beneficially owned
by any Acquiring Person or any affiliate or associate thereof will be null and
void and not exercisable.
In the event that, at any time following the Distribution Date, (i) the
Company is acquired in a merger or other business combination transaction in
which the holders of all of the outstanding shares of Common Stock immediately
prior to the consummation of the transaction are not the holders of all of the
surviving corporation's voting power, or (ii) fifty percent (50%) or more of the
Company's assets or earning power is sold or transferred, then each holder of a
Right (except Rights which have previously been voided as set forth above) shall
thereafter have the right (the "Flip-Over Right") to receive, upon exercise and
payment of the Purchase Price, common stock of the acquiring company for a
Purchase Price equal to fifty percent (50%) of the then current market value. If
a transaction would otherwise result in a holder's having a Flip-In as well as a
Flip-Over Right, then only the Flip-Over Right will be exercisable; if a
transaction results in a holder's having a Flip-Over Right subsequent to a
transaction resulting in a holder's having a Flip-In Right, a holder will have
Flip-Over Rights only to the extent such holder's Flip-In Rights have not been
exercised.
The Purchase Price payable, and the number of shares of Common Stock or
other securities or property issuable, upon exercise of Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Common
Stock, (ii) upon the grant to holders of Common Stock of certain rights or
warrants to subscribe for or purchase Common Stock at a price, or securities
convertible into Common Stock with a conversion price, less than the then
current market price of the Common Stock, or (iii) upon the distribution to
holders of Common Stock of evidences of indebtedness or assets (excluding
regular periodic cash dividends paid out of net profits or surplus or dividends
payable in shares of Common Stock) or of subscription rights or warrants (other
than those referred to above). However, no adjustment in the Purchase Price will
be required until cumulative adjustments require an adjustment of at least one
percent (1%).
No fractional shares of Common Stock will be issued and, in lieu
thereof, an adjustment in cash will be made based on the market price of Common
Stock on the last trading day prior to the date of exercise.
At any time prior to the tenth Business Day following the time a person
or group of affiliated or associated persons becomes an Acquiring Person, the
Board may redeem the Rights in whole, but not in part, at a price of .01 cents
per Right (the "Redemption Price"). The redemption of the Rights may be made
effective at such time on such basis and with such conditions as the Board in
its sole discretion may establish. Immediately upon any redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.
B-2
<PAGE> 46
At any time after any person becomes an Acquiring Person and prior to
the acquisition by such person or group of affiliated or associated persons of
shares of Common Stock representing fifty percent (50%) or more of the then
outstanding Common Stock, the Board may exchange the Rights (other than Rights
which have become null and void), in whole or in part, at an exchange ratio of
one share of Common Stock per Right (subject to adjustment).
All of the provisions of the Rights Agreement and the terms of the
Rights may be amended prior to the Distribution Date by the Board for any reason
it deems appropriate without the consent of the Holders of the Rights. Prior to
the Distribution Date, the Board is also authorized, as it deems appropriate, to
lower the thresholds for Acquiring Person status to not less than the greater of
(i) any percentage greater than the largest percentage then held by any
stockholder other than Adrian J. Reynard, or (ii) ten percent (10%). After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, defect or inconsistency, to make changes
which do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or, subject to certain limitations, to
shorten or lengthen any time period under the Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders of the Company, stockholders may, depending upon the
circumstances, recognize taxable income should the Rights become exercisable or
upon the occurrence of certain events thereafter.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board. The Rights should not interfere with any
merger or other business combination approved by the Board because the rights
may be redeemed by the Company at the Redemption Price prior to the occurrence
of a Distribution Date.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to the Company's Registration Statement on
Form 8-A with respect to the Rights filed with the Securities and Exchange
Commission (Commission File No. ______________). A copy of the Rights Agreement
is available free of charge from the Company. This summary description of the
Rights does not purport to be complete and is qualified in its entirety by
reference to the Rights Agreement, which is hereby incorporated herein by
reference.
B-3
<PAGE> 1
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
This Contract made between ROBERT J. SWISTOCK ("Employee"), whose
address is 5066 Westbury, Chelsea, Michigan 48118, and REYNARD MOTORSPORT, INC.,
a Delaware corporation with its principal place of business at 8431 Georgetown
Road, Suite 700, Indianapolis, Indiana 46268, and its subsidiaries and
affiliates (the "Company").
In consideration of the mutual covenants and promises, hereinafter set
forth, the parties hereto agree as follows:
RECITALS
WHEREAS, Company is currently undergoing an initial public offering of
its common stock, and
WHEREAS, Company is desirous of employing Employee pursuant to the
terms and conditions and for the consideration set forth in this Agreement, and
WHEREAS, Employee desires to be employed by the Company in the
executive capacity described below pursuant to the terms and conditions and for
the consideration set forth in this Agreement:
NOW, THEREFORE, in consideration for the mutual covenants and promises
contained herein, the Company and Employee hereby agree as follows:
SECTION ONE
EMPLOYMENT
The Company hereby employs Employee as its Chief Financial Officer.
Employee shall at all times discharge his duties in consultation with and under
the supervision of the Company's Board of Directors ("Board"). The Company
through its Board may modify or realign Employee's duties and responsibilities
in a manner consistent with the office of Chief Financial Officer as it deems
necessary during the term of this Agreement. Employee's office shall be located
in Southeastern, Michigan, USA, or such other location as is mutually agreed
upon by Employee and the Board.
SECTION TWO
BEST EFFORTS OF EMPLOYEE
Employee agrees that he will diligently and conscientiously devote his
full and exclusive time and attention and best efforts in discharging all of the
duties that may be required of or from
<PAGE> 2
him pursuant to the express and implicit terms hereof. Employee acknowledges
that he is obligated to manage the business of the Company in a sound and
business-like manner and in conformity with all laws and regulations governing
the conduct of the business of the Company. Employee may, with prior approval of
the Company's Board, serve as a director for other corporations so long as doing
so does not interfere with his ability to effectively manage the business of the
Company.
SECTION THREE
TERM
This Agreement shall commence ____________, 1999 and shall continue for
a term of three (3) years from the date hereof, unless otherwise terminated in
accordance with the provisions of SECTION FIVE hereof. This Agreement may be
extended for additional periods upon the mutual written agreement of the
parties.
SECTION FOUR
COMPENSATION
A. Effective __________, 1999, the Company shall pay Employee at an
annual base rate of $225,000, payable monthly on the last day of each month
(reduced by applicable state and federal taxes and other appropriate
deductions). The base salary shall be increased to an annual base salary of
$250,000, effective January 1, 2000, and $275,000 effective January 1, 2001, and
may be changed by mutual agreement of the parties at any time during the term of
this Agreement.
B. In addition to his base salary, Employee shall be eligible to
receive an annual incentive bonus as determined by the Board in an amount of not
less than $50,000 for 1999, payable before December 31, 1999 with respect to
2000 and 2001, the Board and Employee shall agree on a bonus plan based on
established objective goals related to gross revenues, net income and other
measures of Company performance.
C. Employee shall be entitled to annual vacation of 25 days plus United
States holidays and to receive employee and fringe benefits including but not
limited to any employee benefit plan, health and medical insurance, disability,
accident, life insurance, and profit sharing plan (the Company's "Plans") as
Company may allow or provide to other similarly situated employees in accordance
with policies adopted from time to time by the Board of Directors.
Company shall reimburse Employee for expenses necessarily and
reasonably incurred by him in travel at the same level as the President of the
Company, reimburse all office expenses, telephone (including cellular) car
allowance and such other benefits as determined by the Board as applicable to
executive officers. Employee shall submit such proofs of expense for which
reimbursement is claimed in writing as Company may reasonably require.
2
<PAGE> 3
SECTION FIVE
TERMINATION
A. The Company reserves the right to terminate the employment of
Employee at any time without cause. However, except as provided in SECTION FIVE
B. below, if such termination occurs prior to the end of the term, Employee
shall be entitled to his base salary, insurance coverage and any bonus to which
Employee is eligible, as set forth in SECTION FOUR A. until the end of the term,
provided that Employee remains in compliance with the terms and conditions of
this Agreement. For purposes of this Agreement, "termination by the Company"
shall include the Company requiring Employee to relocate outside of southeastern
Michigan or diminishing his title and duties with the Company. During any period
of time in which Employee's base salary is continued pursuant to this SECTION
FIVE, Employee agrees that he shall make himself reasonably available to render
consulting services, as requested by the Company, from time to time until such
time as he may become employed on a full-time basis elsewhere.
B. Notwithstanding the other provisions of this Agreement, the Company
shall be entitled to terminate this Agreement immediately and without notice if,
at any time during this Agreement, Employee refuses, without cause, to perform
his assigned duties, is convicted or pleads guilty or nolo contendere to any
felony or any charge involving a crime involving moral turpitude, is adjudicated
bankrupt or files a petition for bankruptcy, or materially breaches the
provisions of SECTION SIX or SEVEN of this Agreement. In such case, the Company
shall only be obligated to pay Employee any base salary due (prorated on a daily
basis) to the date of the breach or other occurrence.
C. In the event that Employee's employment is terminated for any
reason, Employee shall not be eligible to participate in any severance pay plan
established by the Company for its employees.
SECTION SIX
OWNERSHIP AND PROTECTION OF INFORMATION
A. All information, ideas, concepts, improvements, discoveries, and
inventions, whether patentable or not, which are conceived, made, developed or
acquired by Employee, individually or in conjunction with others, during
Employee's employment by Company (whether during business hours or otherwise and
whether on Company's premises or otherwise) and that relate to Company's
business, products or services (including, without limitation, all such
information relating to corporate opportunities, research, financial and sales
data, pricing and trading terms, evaluations, opinions, interpretations,
acquisition prospects, the identity of customers or their requirements, the
identity of key contacts with customer's organizations or within the
organization of acquisition prospects, or marketing and merchandising
techniques, prospective names, and marks) shall be disclosed to Company and are
and shall be the sole and exclusive property of Company. Moreover, all drawings,
memoranda, notes, records, files,
3
<PAGE> 4
correspondence, manuals, models, specifications, computer programs, maps and all
other writings or materials of any type embodying any of such information,
ideas, concepts, improvements, discoveries, and inventions are and shall be the
sole and exclusive property of Company.
B. Employee acknowledges that the business of Company and its
affiliates is highly competitive and that their strategies, methods, books,
records, and documents, their technical information concerning their products,
equipment, services, and processes, procurement procedures and pricing
techniques, the names of and other information (such as credit and financial
data) concerning their customers and business affiliates, all comprise
confidential business information and trade secrets which are valuable, special,
and unique assets which Company or its affiliates use in their business to
obtain a competitive advantage over their competitors. Employee further
acknowledges that protection of such confidential business information and trade
secrets against unauthorized disclosure and use is of critical importance to
Company or its affiliates in maintaining their competitive position. Employee
hereby agrees that Employee will not, at any time during or after his or her
employment by Company, make any unauthorized disclosure of any confidential
business information or trade secrets of Company or its affiliates, or make any
use thereof, except in the carrying out of his or her employment
responsibilities hereunder. As a result of Employee's employment by Company,
Employee may also from time to time have access to, or knowledge of,
confidential business information or trade secrets of third parties, such as
customers, suppliers, partners, joint venturers, and the like, of Company and
its affiliates. Employee also agrees to preserve and protect the confidentiality
of such third party confidential information and trade secrets to the same
extent, and on the same basis, as Company's confidential business information
and trade secrets. Employee acknowledges that money damages would not be
sufficient remedy for any breach of this SECTION SIX by Employee, and Company
shall be entitled to enforce the provisions of this SECTION SIX by terminating
any payments then owing to Employee under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any threatened
breach. Such remedies shall not be deemed the exclusive remedies for a breach of
this SECTION SIX, but shall be in addition to all remedies available at law or
in equity to Company, including the recovery of damages from Employee and his
agents involved in such breach.
C. All written materials, records and other documents made by, or
coming into the possession of, Employee during the period of Employee's
employment by Company which contain or disclose confidential business
information or trade secrets of Company or its subsidiaries or affiliates, shall
be and remain the property of Company or its subsidiaries or affiliates, as the
case may be. Upon termination of Employee's employment by Company, for any
reason, Employee promptly shall deliver the same, and all copies thereof, to
Company.
D. If, during Employee's employment by Company, Employee creates any
original work of authorship fixed in any tangible medium of expression which is
the subject matter of copyright (such as videotapes, written presentations on
acquisitions, computer programs, drawings, maps, architectural renditions,
models, manuals, brochures, or the like) relating to Company's business,
products, or services, whether such work is created solely by Employee or
jointly with others (whether during business hours or otherwise and whether on
Company's
4
<PAGE> 5
premises or otherwise), Employee shall disclose such work to Company. Company
shall be deemed the author of such work if the work is prepared by Employee in
the scope of his or her employment; or, if the work is not prepared by Employee
within the scope of his or her employment but is specially ordered by Company as
a contribution to a collective work, as a part of an audiovisual work, as a
translation, as a supplementary work, as a compilation, or as an instructional
text, then the work shall be considered to be work made for hire and Company
shall be the author of the work. If such work is neither prepared by the
Employee within the scope of his or her employment nor a work specially ordered
and then not deemed to be a work made for hire, then Employee hereby agrees to
assign, and by these presents does assign, to Company all of Employee's
worldwide right, title, and interest in and to such work and all rights of
copyright therein.
E. Both during the period of Employee's employment by Company and
thereafter, Employee shall assist Company and its nominee, at any time, in the
protection of Company's worldwide right, title, and interest in and to
information, ideas, concepts, improvements, discoveries, and inventions, and its
copyrighted works, including without limitation, the execution of all formal
assignment documents requested by Company or its nominee and the execution of
all lawful oaths and applications for patents and registration of copyright in
the United States and foreign countries.
SECTION SEVEN
CONFIDENTIALITY
Employee agrees that, in addition to any other limitations contained in
this Agreement, regardless of the circumstances of Employee's termination of
employment, he will not communicate to any person, firm, corporation or other
entity, any information relating to the Company's customer lists, prices,
secrets, advertising, nor any other confidential knowledge or secrets that
Employee might from time to time acquire with respect to the business of the
Company or any of its affiliates or subsidiaries.
SECTION EIGHT
NON-COMPETITION
Employee agrees that, during the term of this Agreement and for a
period of one year following the termination of this Agreement, Employee shall
not directly or indirectly carry on or be engaged or interested in any business
competitive with the business conducted by Company.
5
<PAGE> 6
SECTION NINE
ARBITRATION
As additional consideration for this Employment Agreement, Employee
agrees that any differences, claims, or matters in dispute arising between the
Company and Employee out of or in connection with his employment or the
termination of his employment by the Company including, but not limited to the
terms and conditions of this Agreement, allegations of wrongful termination, or
allegations of discriminatory or retaliation discharge under any federal, state
or local discrimination law shall be submitted by them to arbitration by the
American Arbitration Association, or its successor, and the determination of the
American Arbitration Association, or its successor, shall be final and absolute.
The arbitrator shall be governed by the duly promulgated rules and regulations
of the American Arbitration Association, or its successor, and the pertinent
provisions of the laws of the State of Michigan relating to arbitration. The
decision of the arbitrator may be entered as a judgment in any court of
competent jurisdiction in the State of Michigan or elsewhere.
SECTION TEN
MISCELLANEOUS PROVISIONS
A. This Agreement represents the entire agreement between the parties
and any prior understandings or representations of any kind preceding the date
of this Agreement shall not be binding on either party except to the extent
incorporated into this Agreement. This Agreement shall not be altered, amended
or modified except in writing signed by the authorized agent for the Company's
Board of Directors and by Employee.
B. Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by Employee, his beneficiaries, or legal
representatives without the Company's prior written consent; provided however,
that nothing in this Section shall preclude (i) Employee from designating a
beneficiary to receive any benefit payable hereunder upon his death, or (ii) the
executors, administrators, or other legal representatives of his estate from
assigning or transferring any rights hereunder to the person or persons entitled
thereunto.
C. The headings of sections are included solely for convenience of
reference and shall not control the meaning or interpretation of any of the
provisions of this Agreement.
D. This Agreement shall be construed according to the laws of the State
of Michigan.
E. No term or condition of the Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or of any act other than that specifically
waived.
6
<PAGE> 7
F. If, for any reason, any provision of the Agreement is held invalid,
such invalidity shall not affect any other provision of the Agreement not held
so invalid, and each such other provision shall to the full extent consistent
with law continue in full force and effect.
G. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION ELEVEN
NOTICE
Any notice given hereunder shall be in writing and delivered or mailed
by registered or certified mail, return receipt requested:
A. To the Company, addressed to its Corporate Secretary, 8431
Georgetown Road, Suite 700, Indianapolis, Indiana 46268;
B. To Employee, at 5066 Westbury, Chelsea, Michigan 48118, or such
other address as contained in the Company's current payroll records.
The parties have entered into this Employment Agreement based solely
upon the terms and conditions set forth herein. THIS AGREEMENT CONTAINS A
BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
____ day of ________________, 1999.
REYNARD MOTORSPORT, INC.
By: __________________________________
Alex S. Hawkridge, President
_________________________________
Robert J. Swistock
7
<PAGE> 1
Exhibit 10.16
CORPORATE BANKING
SERVICES
ADVICE OF BORROWING TERMS
FOR
REYNARD MOTORSPORT LIMITED
From:
Oxfordshire Corporate Business Centre
5 January 1999
NATWEST
<PAGE> 2
ADVICE OF BORROWING TERMS
RELATIONSHIP OFFICE: Oxfordshire Corporate Business Centre DATE: 5 January 1999
BORROWER(S) REGISTERED NUMBER:
REYNARD MOTORSPORT LIMITED 2843803
We intend that the facilities listed in Part 1 of the attached Facility Schedule
(the "on-demand facilities") should remain available to the borrower(s) until 17
March 1999 and all facilities should be reviewed on or before that date. The
facilities are, however, subject to the following:
o the terms and conditions below,
o the specific conditions applicable to an individual facility as
detailed in the Facility Schedule,
o the Security detailed in the attached Security Schedule, and
o the attached General Terms.
ALL AMOUNTS OUTSTANDING ARE REPAYABLE ON DEMAND WHICH MAY BE MADE BY US AT OUR
DISCRETION AT ANY TIME AND THE FACILITIES MAY BE WITHDRAWN, REDUCED, MADE
SUBJECT TO FURTHER CONDITIONS OR OTHERWISE VARIED BY US GIVING NOTICE IN
WRITING.
Mike Field
Corporate Director
For and on behalf of:
National Westminster Bank Pfc
ACCEPTANCE:
To signify your agreement to the terms and conditions outlined above please sign
and return the enclosed copy of this Advice of Borrowing Terms within 28 days.
FORM OF ACCEPTANCE
I accept the facility/facilities on the above terms and conditions and confirm
that I have been authorized by the Board(s) of Directors of the Borrower(s) to
sign this Form of Acceptance on behalf of the Borrower(s).
By (name and title): ________________________ Date: _____________
________________________
For and on behalf of: Reynard Motorsport Limited
2
<PAGE> 3
FACILITY SCHEDULE
PART 1 - FACILITIES REPAYABLE ON DEMAND:
<TABLE>
<CAPTION>
GROUP FACILITY
- ---------------------------------------- ------------------------------------------ ----------------------------------
ACCOUNTS INCLUDED IN THE NAME: ACCOUNT NUMBER
- ---------------------------------------- ------------------------------------------ ----------------------------------
<S> <C> <C>
GROUP FACILITY ARRANGEMENT Reynard Motorsport Limited 02339080
Reynard Racing Cars Limited 01832468
Reynard Composite Limited 01891529
Reynard Manufacturing Limited 02331756
- ---------------------------------------- ------------------------------------------ ----------------------------------
LIMIT GROSS (pound)2,000,000 A further(pound)500,000 group
overdraft facility to be made
available on execution of the
mortgage debenture
- ----------------------------------------
LIMIT NET (pound)2,000,000
- ---------------------------------------- ------------------------------------------ ----------------------------------
PURPOSE To finance working capital
- ---------------------------------------- ------------------------------------------ ----------------------------------
REPAYMENT: Sale of Indy cars
- ---------------------------------------- ------------------------------------------ ----------------------------------
1ST DEBIT INTEREST RATE 2% above the Bank's Base rate
- ---------------------------------------- ------------------------------------------ ----------------------------------
2ND DEBIT INTEREST RATE 6% above the Bank's Base rate on borrowing over(pound)2,000,000
- ---------------------------------------- -----------------------------------------------------------------------------
INTEREST PAYABLE Quarterly
- ---------------------------------------- -----------------------------------------------------------------------------
ARRANGEMENT FEE (pound)10,000 will be debited to account number 02339080 on 15 January 1999.
Fee to cover the following services:
|X| overdraft facility
|X| recent excess on the account
|X| legal fees re the company reorganization
|X| security fees
- ---------------------------------------- -----------------------------------------------------------------------------
EXCESS FEES We will be entitled to charge an
excess fee at the Bank's published rate
for each day any agreed limit is
exceeded (see our "Services & Charges
for Business Customers" brochure for
details).
- ---------------------------------------- -----------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
FACILITIES NOT SUBJECT TO A GROUP FACILITY
- ----------------------------------------------------------------------------------------------------------------------
CHEQUE NEGOTIATIONS
- ---------------------------------------- ------------------------------------------ ----------------------------------
NAME OF BORROWER Reynard Motorsport Limited
- ---------------------------------------- ------------------------------------------ ----------------------------------
LIMIT (pound)100,000
- ---------------------------------------- -----------------------------------------------------------------------------
PURPOSE Negotiation of Foreign Cheques with Recourse
- ---------------------------------------- -----------------------------------------------------------------------------
FEES Information available upon request or at the time the service is provided
- ----------------------------------------------------------------------------------------------------------------------
------------------------------------------
FORWARD EXCHANGE
- ---------------------------------------- ------------------------------------------ ----------------------------------
NAME OF BORROWER Reynard Motorsport Limited
- ---------------------------------------- ------------------------------------------ ----------------------------------
NATIONAL LIMIT (pound)1,000,000 where utilization is calculated in accordance with the Bank's
Forward Exchange Matrix from time to
time, a copy of which is available from
your Corporate Director.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
PART 2 - FACILITIES SUBJECT TO SEPARATE DOCUMENTATION:
The following facilities are made available on the terms of the separate
documentation between us.
<TABLE>
<CAPTION>
- ---------------------------------------- -------------------------------------- --------------------------------------
NAME OF BORROWER FACILITY AND PURPOSE AMOUNT
(pound)
- ---------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Reynard Motorsport Limited Daytime Exposure re Payments Abroad 115,000
- ---------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
4
<PAGE> 5
PART 2 - FACILITIES SUBJECT TO SEPARATE DOCUMENTATION:
The following facilities are made available on the terms of the separate
documentation between us.
<TABLE>
<CAPTION>
- ---------------------------------------- -------------------------------------- --------------------------------------
NAME OF BORROWER FACILITY AND PURPOSE AMOUNT
(pound)
- ---------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Reynard Motorsport Limited Corporate Cards (pound)100,000
- ---------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
5
<PAGE> 6
SECURITY SCHEDULE
We rely on the security detailed below (and require additional security where
specified) to repay, on demand, all your current and future liabilities (both
actual and contingent) to us. These liabilities include, without limitation,
those incurred by you under the facility(ies) specified in the Facility
Schedule.
<TABLE>
<CAPTION>
- ---------------------------------------- -------------------------------------- --------------------------------------
DATE EXECUTED/NEW SECURITY GIVEN/TO BE GIVEN BY
- ---------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
12 December 1979 Legal Mortgage over National Adrian Reynard
Provident Policy 516254 on the life
of Adrian Reynard
- ---------------------------------------- -------------------------------------- --------------------------------------
25 November 1993 Composite Cross Guarantee - Unlimited By Reynard Racing Cars Limited,
Reynard Composite Limited, Reynard
Manufacturing Limited, and Reynard
Motorsport Limited
- ---------------------------------------- -------------------------------------- --------------------------------------
9 May 1979 Equitable charge over Commercial By Reynard Racing Cars Limited
Union Policy A11292697K on life of
Adrian Reynard
- ---------------------------------------- -------------------------------------- --------------------------------------
New Mortgage Debenture - Priority to the By Reynard Motorsport Limited
Bank(pound)5,000,000
- ---------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
CONDITIONS:
The following conditions must be satisfied at all times while the facilities are
outstanding, but this will not affect our right to demand repayment at any time:
|X| Monthly management accounts to be provided to us within 21 days of the
end of the month to which they relate.
|X| Audited accounts to be provided to us within 9 months of the financial
year end to which they relate.
|X| Forward Foreign Exchange Contracts are to be entered into against known
income streams only.
|X| Additional (pound)500,000 overdraft facility to be made available on
Execution of Mortgage Debenture documentation.
6
<PAGE> 7
GENERAL TERMS
This section sets out in more detail the basis on which we make facilities
available to you. It covers issues such as how limits and Interest are
calculated, how we can vary agreed terms and what we mean by "on demand".
These General Terms apply to all on demand facilities listed in the Advice of
Borrowing Terms (the "AOBT"), but do not apply to those facilities which are
subject to separate documentation, unless such documentation expressly
incorporates these General Terms. In cases where the expression "you" includes
more than one person (for example joint account holders) it shall be taken to
refer to all or any one or more of you, and your obligations shall be joint and
several.
o INDEPENDENT ADVICE. Unless we expressly agree in writing to do so we do not
hold ourselves out as providing advice on or considering the general
suitability of facilities of your particular circumstances (including tax)
and neither we nor our employees shall be liable for any indications given
as to such suitability. We make no warranties or representations about the
advisability of any underlying transaction entered into by you. You should
obtain independent professional advice on such matters, and upon any
security or guarantee required by us.
o ACCEPTANCE. Any offer of a facility must be accepted within the time period
specified in the AOBT. We may, at our option, treat any usage of any of
these facilities as acceptance (without amendment) of the terms and
conditions of the AOBT.
o AVAILABILITY. Our normal practice is to review all credit facilities
periodically. Any references in the AOBT to a review of, or availability
until, a future date are merely indicative of our current intention, and we
may, at our discretion, review on demand facilities at an earlier date.
Facilities which are not loans or overdrafts are offered on the basis that
there is no commitment on our part to enter into any such facility with
you. We may, at our absolute discretion, decide whether a utilization may
be made and any conditions subject to which utilizations may be made.
o REPAYMENT. Notwithstanding any reference to review or availability or
repayment term in the AOBT, all facilities are repayable on demand which we
may make at our sole discretion at any time and may by notice be withdrawn
reduced or made subject to (further) conditions or otherwise varied. You
must ensure that we receive by way of repayment, the full amount of any
indebtedness irrespective of any taxes, duties or charges, in immediately
available funds in the currency in which the facility is outstanding at the
branch or office where the facilities are provided.
o VARIATION AND WAIVER. We may vary these General Terms by giving one month's
written notice to you. If a change in any currency of the United Kingdom
occurs (including introduction of the euro), the AOBT and these General
Terms will be amended to the extent we specify to reflect the change in
currency and put us in the same position, so far as possible, that we would
have been in if no change in currency had occurred. If we refrain from
exercising any of our rights this shall not preclude us from exercising any
rights at a later date.
o LIMITS. The limits specified in the AOBT or the Facility Schedule for each
facility and/or each account (including any Group or Composite Facility
limits) must not at any time be exceeded. In addition, the aggregate
utilization of any Composite and/or Group Limit specified for any group of
accounts and/or facilities must not be exceeded, notwithstanding the total
of any individual or sub limits allocated. If we have agreed that there
will be a gross limit for one or more facilities, this means that the
aggregate utilization of those facilities must not at any time exceed the
gross limit. If we have agreed that there will be a net limit for one or
more facilities, this means that the aggregate utilization of those
facilities, less the aggregate amount of the cleared credit balances on the
accounts specified by us in the AOBT, will not exceed the net limit (if no
accounts are specified we may determine which accounts are utilized for
this purpose). We are not obliged to allow or continue to allow any
borrowing in excess of agreed facilities. Any reference to a particular
account will include any successor account.
o INTEREST. All interest rates are variable. Interest is payable monthly or
quarterly (as detailed
7
<PAGE> 8
in the AOBT) on our usual charging days and on final repayment of the
indebtedness. Interest accrues on the daily cleared debit balance on the
account(s) concerned at the annual rate or rates shown in the AOBT (both
before and after demand and/or judgment). It is calculated on the basis of
a 365 day year for sterling (and either a 365 or 360 day year for
currencies other than sterling or on such other basis as we may from time
to time specify) and the actual number of days elapsed and is compounded
monthly or quarterly. Our variable unarranged borrowing rate for the
relevant currency will apply to any indebtedness form time to time (i) in
excess of agreed facilities or (ii) outstanding after the expiry date of
agreed facilities, or, in respect of (i) only, such other interest rates as
we may specify.
o CHANGES TO INTEREST. We may alter the basis on which interest is calculated
including the size of the interest margin charged over our Base Rate or
other published rate and/or the amount of any regular repayments of
facilities which are repayable on demand by providing you with one month's
written notice. As a change in our Base Rate or other variable rate is not
an alteration of the basis upon which interest is calculated, no written
notice need be given of such a change. Changes in our Base Rate or other
published rates take effect when made. Details of current notes are
available from any branch or office, and are published in selected national
newspapers. Omission to publish details of any change in a newspaper shall
not stop the change from taking effect. for a currency account, written
notice of changes to the relevant Currency Base Rate will normally be
given, although failure to do so will not stop the change taking effect
when made.
o FEES. Fees quoted exclude charges for money transmission or similar
services which are either advised (i) separately, or (ii) at the time a
facility is used. All costs, charges and expenses incurred or suffered by
us, including legal costs and our internal management costs, arising at any
time in connection with any facility or with any related security or
guarantee are payable by you on demand.
o UNCOVERED PAYMENTS. An "uncovered payment" is a payment where the cleared
credit balance or agreed credit facility is insufficient to meet that
payment and all other payments requested, disregarding uncleared credits to
that account. we do not accept any obligation to make uncovered payments to
third parties unless we have agreed to do so in writing. We need not make
any uncovered payment which is in excess of any settlement risk limit.
o SET OFF. We may, without notice, set-off against any credit balances on any
of your account(s) (in any currency), your liability in respect of any
facilities (including any uncovered payment) and may combine accounts. We
are authorized to use all or any such credit balances to buy such other
currencies as may be necessary in order to exercise any rights of set-off
to which we may be entitled.
o APPROPRIATION AND LIEN. Where more than one debt is owing to us we may use
the whole or any part of any repayment to reduce or discharge the principal
amount of your indebtedness as we may select, to meet any accrued interest
or to discharge any other liabilities to us. We shall have a lien over
securities of any kind and other items by or on your behalf with us
(including, without limitation, cheques given to us for collection).
o SECURITY. Unless the AOBT expressly provides otherwise, any mortgage,
charge or debenture must be a first legal mortgage, charge or debenture
over the unencumbered title of the property in question. You may not grant
(or allow to be created) without our prior written consent any other
security interest in the property in question or part with possession of
it. We may, at our sole discretion, require from time to time additional
valuations (at your expense) by such value as we may approve, at any or all
of the assets held by us as security.
o ENVIRONMENT. You represent and warrant (both now and in the future) that
you have and will comply in all material respects with any applicable
environmental law, regulation or code of practice ("environmental law") and
with the terms and conditions of any applicable environmental licenses or
other consents or approvals required by environmental law ("environmental
licenses").
o INFORMATION. You must provide us with any information which we may at any
time reasonably require, an must inform us of any material change of facts
or circumstances. You authorize us to disclose to your auditors any such
information concerning your accounts with us as they may from time to time
require.
8
<PAGE> 9
o CURRENCY ACCOUNTS. If in our opinion deposits in a currency are unavailable
to us at any time to fund a currency drawing then we will not make a
drawing available in that currency. all payments (including interest)
required to be made by your under a facility in a currency other than
sterling must be made in the currency of the drawing (The "Agreed
Currency") and by credit to our account with such banking office as we may
require.
Any amount payable by you which is received by us in a currency other than
the Agreed Currency, will be calculated by converting (at the prevailing
spot rate of exchange on such date and in such market as we shall determine
as being most appropriate) the Currency so received in to the Agreed
Currency. If the amount received is less than the relevant amount of the
Agreed Currency then you will indemnify us for the deficiency and for any
losses we may sustain as a result. You will in addition pay the costs of
such conversion. All payments shall be deemed to have been made on such
date as we shall determine in accordance with our normal practice from time
to time.
o CURRENCY EQUIVALENTS. The Sterling Currency Equivalent of any amount
denominated in another currency shall be calculated by reference to the
Bank's then current spot rate of exchange for the purchase of the relevant
currency with the currency in which the facility is denominated. We may
calculate the aggregate Sterling/Currency Equivalents of all drawings
outstanding/proposed at any time to determine compliance or otherwise with
the relevant facility limit.
o CONTINGENT LIABILITIES. You will, on demand, pay to us an amount equal to
the full face value of any contingent or future liabilities incurred by us
at your request (such as letters of credit, bonds or guarantees). We may
hold any such payment in our own name and may use it to meet such
liabilities. You must in any event indemnify us against such liabilities
and we will require you to execute a formal counter-indemnity in our
standard form.
o NEGOTIATIONS. You agree that all foreign cheques submitted to us for
negotiation and/or collection will be dealt with on the basis that you have
good title to all cheques and that you agree to indemnify us against all
liabilities claims losses costs and expenses including exchange
fluctuations and agents' charges which may be imposed upon, asserted
against or incurred by us in any way relating to or arising out of the
negotiation and/or collection of cheques on your behalf. If the cheque is
subsequently returned unpaid you authorize us to debit your account with
the amount credited to your account plus any losses, costs, expenses or
charges which we may have incurred.
o FORWARD EXCHANGE. Where we make a forward exchange facility available to
you, confirm and understand that no forward purchase or sale of foreign
currency shall be made for investment purposes (see paragraph 8 of Schedule
1 of the Financial Services Act 1986) without our prior written consent.
o GENERAL.
(a) Whenever facilities are subject to Part V of the Consumer Credit Act
1974 additional documents and procedures may be necessary before
facilities can be drawn.
(b) If we consider that any proposed payment or use of a facility might be
made for an unlawful purpose, then we may refuse to make such a
payment or allow such use.
(c) We may give written notice or make demand by post or by hand or by
facsimile machine or by other form of electronic communication. A
notice or demand may be addressed to you at your Registered Office or
address or the place of business last known to us and shall be deemed
to have been received when transmitted or (if posted) on the business
day after posting. We may use the facsimile number or electronic
address last known to us.
(d) The relationship between us, these General Terms and the AOBT are
governed by English law and the English courts shall have jurisdiction
in respect thereof. However when we consider it appropriate we may
take proceedings against you in any other court of competent
jurisdiction (whether concurrently or not with any other proceedings).
These terms are in addition to the usual terms which apply to the
relationship between a bank and its customer and to the operation of
bank accounts (whether in credit or debit)
9
<PAGE> 10
and to the terms of your mandate with us and to all other consistent
terms which may be implied by law.
(e) You must maintain a current account with us throughout the life of any
facilities and we may charge to your current account all amounts,
including interest, due in respect of any facility.
10
<PAGE> 1
Exhibit 10.17
Chalet Chaperon Rouge
Apartment A9
CH-1885 Chesieres
Switzerland
To: Reynard Motorsport Limited
Reynard Centre
Telford Road
Bicester
Oxon OX6 0UY 31 March 1999
Dear Sirs,
This letter sets out the terms and conditions on which I have since 1 October
1998 been prepared to offer to you a cash advance facility (`the Facility') in
pounds sterling only:
1 INTERPRETATION
1.1 In this letter:
`ADVANCE' means each advance made or to be made by me to you under this
Facility Letter
`FACILITY LETTER' means the agreement constituted by this letter and
your acceptance
2 AMOUNT
The maximum amount at any time outstanding under the Facility shall not exceed
(pound)6,000,000.
3 ADVANCES AND REPAYMENT
The terms of this Facility Letter shall govern all and any Advances I may make
to you at my discretion and at your request which Advances shall in any event be
repayable on demand. You may repay such Advances in whole or part at any time or
times before demand but subject to prior payment in full of all accrued
interest, whether due or not, to the date of repayment.
4 INTEREST
Interest shall be charged on each Advance at an annual rate of 2.5% over
National Westminster Bank base rate from time to time. It shall be calculated
and accrue on a daily basis, in arrears, and be payable on 1st October in each
year in the United kingdom to a UK clearing bank account to be nominated by me
from time to time.
5 REPRESENTATIONS AND WARRANTIES
5.1 You represent and warrant to me that:
5.1.1 you have full power to enter into and perform your obligations under
this Facility Letter (which has been duly accepted by you) and to
borrow and repay up to the maximum amount of the Facility and have
obtained and will maintain in effect all necessary corporate
authorisations and all other necessary consents, licences and
authorities;
<PAGE> 2
5.1.2 acceptance of this Facility Letter, the drawing of any part of the
Facility do not and will not constitute an event of default under or
breach of any existing law or regulation or your memorandum and
articles of association or any limitation on the powers of your
directors or of the terms of any charge, contract, undertaking or
restrictions binding on you;
5.1.3 no event has occurred which constitutes (or with the giving of notice
or lapse of time or both would constitute) one of the events of default
specified in clause 6 below;
5.1.4 you are not in default under any agreement to which you are a party
which would have a material adverse effect on your business or
financial condition; and
5.1.5 no litigation, arbitration or proceeding is taking place, pending, or,
to your knowledge, threatened against you or any of your assets which
may have a material adverse effect on your business, assets or
financial condition.
5.2 Each of your representations and warranties shall be continuing and
deemed to be repeated on the making of any request for an Advance.
6 EVENTS OF DEFAULT
6.1 If:
6.1.1 default is made in the payment on the due date of any amount payable
under the Facility;
6.1.2 you are in breach of any other of your obligations under the Facility
for more than 10 days after written notice from me to you requiring
such breach to be remedied;
6.1.3 you admit in writing your inability to pay or shall become unable to
pay your debts generally as they fall due, or become bankrupt or
insolvent, or file any petition or action for relief under any
bankruptcy, reorganisation, insolvency or moratorium law;
6.1.4 an application is made for an administration order to be made in
respect of you;
6.1.5 proceedings are started for your winding-up, dissolution, or
reorganisation (otherwise than while solvent and on terms previously
approved in writing by me) or for the appointment of a receiver,
trustee or similar officer of any or all of your revenues and assets;
6.1.6 a distress or other execution is levied on or against any substantial
part of your property and is not discharged within 10 days;
6.1.7 you suspend or threaten to suspend your operations or, except in the
ordinary course of business, sell, lease, transfer or otherwise dispose
of all or any substantial part of your assets (whether by a single
transaction or by a series) or all or any part of your assets are
seized or appropriated by or on behalf of any governmental or other
authority or are compulsorily acquired;
<PAGE> 3
6.1.8 any of your indebtedness is not paid on its due date or becomes due
prior to its stated maturity or any guarantee given by you is not
honoured when due or called upon;
6.1.9 any governmental or other consent or exemption required to enable you
to perform your obligations under this Facility Letter is withdrawn or
modified or it becomes for any reason unlawful for you to perform any
of those obligations;
6.1.10 any representation or warranty made by you to me in or pursuant to this
Facility Letter shall prove to have been incorrect in any material
respect when made (or deemed made) or, if repeated at any time
hereafter by reference to the facts subsisting at such time, would no
longer be true and correct in all material respects; or
I shall immediately be entitled to declare that the Facility is cancelled,
whereupon no further Advances may be drawn and I shall be deemed to have made
demand for repayment of all Advances together with all interest and other moneys
due under this Facility Letter, whereupon the same shall become immediately due
and payable without presentment, further demand, protest or any other notice
whatever.
6.2 You will notify me forthwith in writing of the occurrence of any of the
events specified in this clause 6.
7 FEES AND EXPENSES
You shall reimburse me on demand for any costs or expenses (including but not
limited to legal fees) incurred by me in the preparation, execution,
administration and enforcement of this Facility Letter.
8 LAW AND JURISDICTION
This Facility Letter shall be governed by and construed in accordance with
English law.
Yours faithfully
/s/ Adrian Reynard
Adrian Reynard
Accepted, for and on behalf of Reynard Motorsport Limited, on 31 March 1999
/s/ Alex Hawkridge Chief Executive Officer
<PAGE> 1
Exhibit 21.1
List of Subsidiaries
--------------------
Jurisdiction of
Name Incorporation
---- -------------
Topbay Ltd. U.K.
Reynard Motorsport Ltd. U.K.
Reynard Race Design Ltd. U.K.
Advantage CFD Ltd. U.K.
British American Reynard Ltd. U.K.
Reynard Composites Ltd. U.K.
Reynard Manufacturing Ltd. U.K.
Reynard Racing Cars Ltd. U.K.
Reynard Special Vehicle Projects Ltd. U.K.
Protoform Patterns Ltd. U.K.
Pearson Associates Ltd. U.K.
Reynard Formula 1 Ltd. U.K.
Reynard Racing Cars Trustee Ltd. U.K.
Reynard Special Vehicle Projects Trustee U.K.
Rumfleet Ltd. U.K.
Reynard North America, Inc. Indiana
Victory LLC Indiana
Auto Research Center LLC Indiana
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders of
Reynard Motorsport, Inc.
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-66317 of Reynard Motorsport, Inc. (the "Company") on Form S-1 of a) our
report on the consolidated financial statements of Reynard Motorsport, Inc.
dated December 1, 1998 (March 31, 1999 as to paragraphs 3 and 4 of Note 11) and
b) our report of the consolidated financial statements of Princetown Holdings
Limited dated December 1, 1998 (March 31, 1999 as to Note 9), appearing in the
Prospectus, which is a part of such Registration Statement, and to the
references to us under the headings "Selected Consolidated Financial Data" and
"Experts" in such Prospectus.
Our audits of the consolidated financial statements of Reynard Motorsport, Inc.
also included the financial statement schedule of Reynard Motorsport, Inc.,
listed in Item 16. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche
London, England
April 2, 1999
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-66317 on Form S-1 of Reynard Motorsport, Inc. of our report dated March 31,
1999, appearing in the Prospectus, which is part of this Registration Statement,
and to the reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
April 2, 1999
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