<PAGE> 1
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
THE COAST DISTRIBUTION SYSTEM
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE> 2
THE COAST DISTRIBUTION SYSTEM
1982 ZANKER ROAD
SAN JOSE, CALIFORNIA 95112
(408) 436-8611
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 7, 1997
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Shareholders of The
Coast Distribution System, a California corporation (the "Company"), will be
held at the Executive Offices of the Company, 1982 Zanker Road, San Jose,
California, on Thursday, August 7, 1997, at 10:00 A.M., Pacific Time, for the
following purposes, as more fully described in the accompanying Proxy Statement:
(1) To elect the following six (6) nominees to serve as directors until the
next annual meeting of shareholders or until their successors are
elected and have qualified:
<TABLE>
<S> <C>
Thomas R. McGuire Brian P. Friedman
Louis B. Sullivan Ben A. Frydman
John E. Turco Robert S. Throop
</TABLE>
(2) To approve a change in the Company's state of incorporation from
California to Delaware by means of a merger of the Corporation with and
into a wholly-owned Delaware subsidiary;
(3) To approve the Company's 1997 Employee Stock Purchase Plan; and
(4) To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Only shareholders of record at the close of business on June 30, 1997 will
be entitled to vote at the meeting or any adjournment or postponement thereof.
By Order of the Board of Directors
Sandra A. Knell
Secretary
July 3, 1997
YOUR VOTE IS IMPORTANT. THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING YOU SHOULD COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY. Any
shareholder present at the meeting may withdraw his or her proxy and vote
personally on each matter brought before the meeting. Shareholders attending the
meeting whose shares are held in the name of a broker or other nominee who
desire to vote their shares at the meeting should bring with them a proxy or
letter from that firm confirming their ownership of shares.
<PAGE> 3
THE COAST DISTRIBUTION SYSTEM
1982 ZANKER ROAD
SAN JOSE, CALIFORNIA, CA 95112
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF SHAREHOLDERS
AUGUST 7, 1997
------------------------
INTRODUCTION
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of The Coast Distribution System, a
California corporation (the "Company"), for use at its 1997 Annual Meeting of
Shareholders to be held on Thursday, August 7, 1997, at 10:00 A.M., at the
Executive Offices of the Company, 1982 Zanker Road, San Jose, California. It is
contemplated that this solicitation of proxies will be made exclusively by mail;
however, if it should appear desirable to do so in order to ensure adequate
representation at the meeting, directors, officers and employees of the Company
may communicate with shareholders, brokerage houses and others by telephone,
telegraph or in person to request that proxies be furnished and may reimburse
banks, brokerage houses, custodians, nominees and fiduciaries for their
reasonable expenses in forwarding proxy materials to the beneficial owners of
the shares held by them. All expenses incurred in connection with this
solicitation shall be borne by the Company.
Holders of shares of common stock of the Company ("shareholders") who
execute proxies retain the right to revoke them at any time before they are
voted. Any proxy given by a shareholder may be revoked or superseded by
executing a later dated proxy, by giving notice of revocation to the Secretary
of the Company, 1982 Zanker Road, San Jose, California 95112, in writing prior
to or at the meeting or by attending the meeting and voting in person. A proxy,
when executed and not so revoked, will be voted in accordance with the
instructions given in the proxy. If a choice is not specified in the proxy, the
proxy will be voted "FOR" the nominees for election of directors named in this
Proxy Statement, "FOR" the change in the Company's state of incorporation and
"FOR" approval of the 1997 Employee Stock Purchase Plan. This Proxy Statement is
first being mailed to shareholders on or about July 7, 1997.
VOTING SECURITIES
The shares of common stock constitute the only outstanding class of voting
securities of the Company. Only the shareholders of the Company of record as of
the close of business on June 30, 1997 (the "Record Date"), will be entitled to
vote at the meeting or any adjournment or postponement thereof. As of the Record
Date, there were 5,246,879 shares of common stock outstanding and entitled to
vote. Each shareholder is entitled to one vote for each share of Common Stock
held as of the Record Date. Abstentions and broker non-votes are each included
in the determination of the number of shares present and voting for the purpose
of determining whether a quorum is present. Under the General Corporation Law of
the State of California, for votes cast on matters other than the election of
directors that require the affirmative vote of a majority of the shares present
and voting at the annual meeting, an abstention will have the same effect as a
vote against a proposal and a broker non-vote will have no effect on the outcome
of a proposal. For votes cast on matters that require the affirmative vote of a
majority of the outstanding shares, abstentions and broker non-votes will have
the same effect as votes against a proposal.
All shareholders entitled to vote at the Annual Meeting of Shareholders may
cumulate the votes in the election of directors. With cumulative voting, each
shareholder is entitled to a number of votes equal to the number of directors to
be elected multiplied by the number of shares of common stock held by such
shareholder, and those votes may be cast for a single candidate for director or
distributed among as many
<PAGE> 4
candidates as such shareholder desires. In accordance with the General
Corporation Law of the State of California, however, no shareholder may cumulate
votes for any candidate for director unless the name of such candidate is placed
in nomination before the voting and any shareholder before the voting gives oral
or written notice to the Secretary of the Company at the Annual Meeting of
Shareholders of such shareholder's intention to cumulate his or her votes. If
such notice is given by any shareholder entitled to vote at the Annual Meeting
of Shareholders, then every shareholder entitled to vote at the Annual Meeting
will be entitled to cumulate his or her votes in the election of directors. The
proxies solicited by the Board of Directors confer discretionary authority in
the proxy holders to cumulate votes and to allocate such votes among the
nominees of the Board of Directors as such proxy holders deem appropriate so
that, if shares are voted cumulatively in the election of directors, the maximum
number of such nominees will be elected. Such proxy holders do not intend to
cumulate votes at the Annual Meeting of Shareholders, but they reserve the right
to do so if cumulative voting is properly elected by a shareholder of the
Company that is not one of such proxy holders.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of June 30, 1997, information regarding
the ownership of the Company's outstanding common stock by each person known to
management to own, beneficially or of record, more than five percent (5%) of the
common stock and by certain executive officers of the Company and all officers
and directors of the Company as a group. Information regarding the beneficial
ownership of the Company's common stock by each of the nominees for election as
directors is set forth below under the caption "Election of Directors."
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
----------------------------------------------- ----------------------- --------
<S> <C> <C>
Thomas R. McGuire.............................. 657,329(2) 12.5%
1982 Zanker Road
San Jose, CA 95112
Wellington Management Company.................. 410,000(3) 7.8%
75 State Street
Springfield, MA 01111
Xerox Corporation.............................. 403,914 7.7%
800 Long Ridge Road
Stamford, CT 06904
Dimensional Fund Advisors Inc.................. 287,800(4) 5.5%
1299 Ocean Avenue
Santa Monica, CA 90401
Sandra A. Knell................................ 57,465(5) *
David A. Berger................................ 37,831(5) *
Jeffrey R. Wannamaker.......................... 36,740(5) *
Dennis A. Castagnola........................... 8,596(5) *
All directors and officers as a group (11
persons)..................................... 1,268,411(6) 23.6%
</TABLE>
- ---------------
* Less than 1%.
(1) Except as otherwise noted below, the persons named in the table have sole
voting and investment power with respect to all shares shown as beneficially
owned by them, subject to community property laws where applicable.
(2) Does not include an aggregate of 50,016 shares held in trust for the benefit
of Mr. McGuire's adult children, as to which Mr. McGuire disclaims
beneficial ownership. Includes 13,250 shares subject to outstanding stock
options exercisable during the 60-day period ending August 29, 1997.
(3) Based on information contained in a report filed with the Securities and
Exchange Commission, Wellington Management Company ("WMC"), a registered
investment advisor, may be deemed to have beneficial ownership of 410,000
shares of common stock that are owned by numerous investment advisory
clients, none of which is known to have such interest with respect to more
than five percent of the class.
2
<PAGE> 5
As of December 31, 1996, WMC had shared voting power as to 347,500 shares
and shared dispositive power as to 410,000 shares.
(4) In a report filed with the Securities and Exchange Commission, Dimensional
Fund Advisors, Inc., a registered investment advisor ("DFA"), has reported
that all 287,800 shares are owned by advisory clients of DFA and that DFA
holds sole dispositive power with respect to all 287,800 of such shares and
sole voting power with respect to 204,600 of such shares. With respect to
the 83,200 shares as to which DFA disclaims voting power, DFA has reported
that 43,600 and 39,600 shares, respectively, are held in the portfolios of
DFA Investment Dimensions Group Inc. and The DFA Investment Trust Company,
each of which is a registered open-end investment company, and the voting
power with respect to such shares is exercised by officers of DFA in their
capacities as officers of those investment companies.
(5) Includes shares subject to outstanding stock options exercisable during the
60-day period ending August 29, 1997, as follows: Ms. Knell -- 19,500
shares; Mr. Berger -- 19,500 shares; Mr. Wannamaker -- 19,500 shares and Mr.
Castagnola -- 4,050 shares.
(6) Includes 136,050 shares subject to outstanding stock options exercisable
during the 60-day period ending August 29, 1997.
3
<PAGE> 6
PROPOSAL ONE
ELECTION OF DIRECTORS
The Board of Directors proposes the election of six (6) directors at the
Annual Meeting. Unless authority to vote for directors has been withheld in the
proxy, the persons named in the enclosed proxy intend to vote at the Annual
Meeting for the election of the nominees presented below. Under California law,
the six nominees receiving the highest number of votes will be elected as
directors at the Annual Meeting. As a result, proxies voted to "Withhold
Authority," which will be counted, and broker non-votes, which will not be
counted, will have no practical effect.
Each of the nominees is an incumbent director elected at the last annual
meeting of shareholders. Each of the nominees has consented to serve as a
director for the ensuing year. If any nominee becomes unavailable for any reason
before the election, then the enclosed proxy will be voted for the election of
such substitute nominees, if any, as shall be designated by the Board of
Directors. The Board of Directors has no reason to believe that any of the
nominees will become unavailable to serve.
All directors elected at the Annual Meeting will hold office until the next
annual meeting of the shareholders of the Company and until their successors are
elected and qualified. However, if the proposal to reincorporate the Company in
the state of Delaware (Proposal Two) is approved by the shareholders, the Board
of Directors will be divided into three (3) classes consisting of two (2)
directors each, with directors of each class serving a term of three (3) years
expiring in successive years. Class I directors will serve for an initial term
expiring at the annual meeting of shareholders to be held in 1998, Class II
directors will serve for an initial term expiring at the annual meeting of
shareholders to be held in 1999, and Class III directors will serve a full term
expiring at the annual meeting of shareholders to be held in 2000. If all of the
nominees named below are elected and if Proposal Two is approved, Messrs. Brian
P.Friedman and Robert S. Throop will serve as Class I directors; Messrs. Louis
B. Sullivan and John E. Turco will serve as Class II directors; and Messrs.
Thomas R. McGuire and Ben A. Frydman will serve as Class III directors. See
"Proposal Two -- Reincorporation in Delaware" below.
The names and certain information concerning the persons to be nominated
for election as directors are set forth below. YOUR BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES NAMED BELOW.
NOMINEES
The following table sets forth the names and certain share ownership
information as of June 30, 1997, regarding the persons to be nominated for
election as directors of the Company:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME, AGE DIRECTOR BENEFICIAL OF BUSINESS EXPERIENCE
AND POSITION SINCE OWNERSHIP(1) CLASS DURING PAST 5 YEARS
- ---------------------------- -------- ------------ ------- --------------------------------------
<S> <C> <C> <C> <C>
Thomas R. McGuire, 53 1977 657,329(2) 12.5% Mr. McGuire is, and for more than the
Chairman of the Board, past five years has been, the Chairman
Chief Executive Officer of the Board and Chief Executive
and Director Officer of the Company.
Louis B. Sullivan, 71 1977 126,470(3) 2.4% Mr. Sullivan has been a rancher and a
Director private investor since March 1984.
John E. Turco, 66 1977 213,692(3) 4.1% Since 1988, Mr. Turco has been a
Director private investor primarily in
agricultural businesses.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME, AGE DIRECTOR BENEFICIAL OF BUSINESS EXPERIENCE
AND POSITION SINCE OWNERSHIP(1) CLASS DURING PAST 5 YEARS
- ---------------------------- -------- ------------ ------- --------------------------------------
<S> <C> <C> <C> <C>
Brian P. Friedman, 41 1985 106,813(4) 2.0% Mr. Friedman is an Executive Vice
Director President of Furman Selz Incorporated
("Furman Selz"), an investment banking
firm at which he has been employed as
an officer since 1984. Mr. Friedman is
also a director of Transico Industries
Inc., which is engaged in
transportation services.
Ben A. Frydman, 50 1988 9,000(3) * Mr. Frydman is and for more than the
Director past five years has been engaged in
the private practice of law, as a
member and shareholder of the law firm
of Stradling, Yocca, Carlson & Rauth,
which provided legal services to the
Company in 1996.
Robert S. Throop, 59 1995 11,000(3) * Until his retirement in late 1996, and
Director for more than five years prior
thereto, Mr. Throop was the Chairman
and Chief Executive Officer of Anthem
Electronics, Inc., which is a national
distributor of semiconductor and
computer products. Mr. Throop also is
a director of Arrow Electronics, Inc.
and the Manitowoc Company, both of
which are public companies.
</TABLE>
- ---------------
* Less than 1%.
(1) Except as otherwise noted below, the persons named in the table have sole
voting and investment power with respect to all shares shown as beneficially
owned by them, subject to community property laws where applicable.
(2) Does not include an aggregate of 50,016 shares held in trust for the benefit
of Mr. McGuire's adult children, as to which he disclaims beneficial
ownership. Includes 13,250 shares subject to outstanding stock options
exercisable during the 60-day period ending August 29, 1997.
(3) Includes shares subject to outstanding stock options, as follows: Mr.
Sullivan -- 8,000 shares; Mr. Turco -- 8,000 shares; Mr. Frydman -- 8,000
shares; and Mr. Throop -- 6,000 shares.
(4) Includes 68,313 shares owned directly by Mr. Friedman, 10,000 shares owned
by a family foundation, 500 shares held by his wife as custodian for a minor
child, and 28,000 shares which may be purchased by exercise of stock options
during the 60-day period ending August 29, 1997.
The Board of Directors of the Company held six meetings during the fiscal
year ended December 31, 1996. The Board of Directors has established a standing
Compensation Committee and a standing Audit Committee, each of which held one
meeting in 1996. Each director attended at least 75% of the aggregate number of
meetings of the Board and of the Committees of which he was a member in 1996.
The Compensation Committee reviews programs in the areas of employee and
incentive compensation plans, administers the Company's Stock Purchase Plans,
and reviews and makes recommendations to the Board of Directors with respect to
base salary adjustments and bonuses for all officers and other key personnel of
the Company. Louis B. Sullivan, John E. Turco and Robert S. Throop are currently
the members of the Compensation Committee.
The Audit Committee was established to meet with the independent public
accountants to review planned audit procedures and to review with the
independent public accountants and management the results of audits, including
any recommendations of the independent public accountants for improvements in
accounting procedures and internal controls. Brian P. Friedman, John E. Turco
and Robert S. Throop are currently the members of the Audit Committee.
5
<PAGE> 8
The Stock Option Committee is responsible for administering the Company's
Stock Option Plans. The Stock Option Committee currently consists of Robert S.
Throop and Louis B. Sullivan.
There are no family relationships among any of the Company's officers or
directors.
DIRECTOR'S COMPENSATION
Directors who also are Company employees receive no compensation for
serving as directors. Non-employee directors are paid a retainer of $6,000 per
year and receive $1,500 for each Board of Directors' meeting attended and are
reimbursed for the out-of-pocket expenses incurred in attending those meetings.
No compensation is paid for attending meetings of Committees of the Board of
Directors on which directors serve. Pursuant to the Company's 1993 Employee
Stock Option Plan, each year each non-employee director is automatically granted
an option to purchase 2,000 shares of Company stock at an exercise price that is
equal to the fair market value of the shares on the date of grant. These options
become fully exercisable six months after the date of grant. Upon joining the
Board, each new non-employee director receives an option to purchase 2,000
shares, which becomes exercisable in full one year after the date of grant.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Based on its review of copies of reporting forms and certifications of the
Company's directors and executive officers, the Company believes that all filing
requirements under Section 16(a) of the Securities Exchange Act of 1934
applicable to its directors and executive officers in the year ended December
31, 1996 were satisfied.
6
<PAGE> 9
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth compensation received for the fiscal year
ended December 31, 1996, by the Company's Chief Executive Officer, and the other
executive officers whose salary and bonus exceeded $100,000 for fiscal year 1996
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
------------------------------- OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS (#)
- ---------------------------- ---- --------- -------- -------------------
<S> <C> <C> <C> <C>
Thomas R. McGuire........... 1996 $ 263,532 $ 59,250 -0-
Chairman of the Board and 1995 257,765 -0- 12,500
Chief Executive Officer 1994 254,175 130,038 50,000
Sandra A. Knell............. 1996 121,192 30,500 -0-
Chief Financial Officer and 1995 101,442 -0- 5,000
Executive Vice President 1994 90,830 62,000 26,000
David A. Berger............. 1996 104,248 30,500 -0-
Executive Vice President 1995 101,442 -0- 5,000
1994 90,830 62,000 26,000
Jeffrey R. Wannamaker....... 1996 121,192 30,500 -0-
Executive Vice President 1995 101,442 -0- 5,000
1994 89,690 62,000 26,000
Dennis A. Castagnola........ 1996 94,313 22,100 -0-
Senior Vice President 1995 76,082 -0- 2,500
1994 71,940 49,000 6,000
</TABLE>
OPTION GRANTS
No stock options were granted to the Named Executive Officers during 1996.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information on option exercises in fiscal year
1996 by the Named Executive Officers and the value of unexercised in-the-money
options held by the Named Executive Officers as of December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1996 AT DECEMBER 31, 1996(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas R. McGuire........ -0- $ -0- 2,500 10,000 $ -0- $ -0-
Sandra A. Knell.......... 6,000 20,250 15,500 11,500 -0- -0-
David A. Berger.......... 6,000 20,250 15,500 11,500 -0- -0-
Jeffrey R. Wannamaker.... 5,800 17,825 15,500 11,500 -0- -0-
Dennis A. Castagnola..... 1,500 5,060 1,550 1,750 -0- -0-
</TABLE>
- ---------------
(1) The closing price of the Company's common stock on December 31, 1996 on the
American Stock Exchange was $3.625.
COMPENSATION COMMITTEE INTERLOCKS
In fiscal year 1996 the members of the Committee were Louis B. Sullivan,
John E. Turco and Robert S. Throop, who are non-employee directors of the
Company.
7
<PAGE> 10
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee is a standing committee of the Board of
Directors of the Company. The Compensation Committee is responsible for adopting
and evaluating the effectiveness of compensation policies and programs for the
Company and for making determinations regarding the compensation of the
Company's executive officers, subject to review by the full Board of Directors.
The following report is submitted by the members of the Compensation
Committee with respect to the executive compensation policies established by the
Compensation Committee and compensation paid or awarded to executive officers
for fiscal year 1996.
Compensation Policies and Objectives
In adopting compensation programs for executive officers, as well as other
employees of the Company, the Compensation Committee is guided by three basic
principles:
- The Company must offer competitive salaries to be able to attract and
retain highly-qualified and experienced executives and other management
personnel.
- Annual executive compensation in excess of base salaries should be tied
primarily to the Company's performance.
- The financial interests of the Company's senior executives should be
aligned with the financial interests of the shareholders, primarily
through stock option grants and other equity-based compensation programs
which reward executives for improvements in the market performance of the
Company's common stock.
Salaries and Employee Benefits Programs. In order to retain executives and
other key employees, and to be able to attract additional well-qualified
executives when the need arises, the Company strives to offer salaries and
health care and other employee benefit programs to its executives and other key
employees which are comparable to those offered by competing businesses.
In establishing salaries for executive officers, the Compensation Committee
reviews (i) the historical performance of the executives; and (ii) available
information regarding prevailing salaries and compensation programs offered by
competing businesses. Another factor which is considered in establishing
salaries of executive officers is the cost of living in Northern California
where the Company is headquartered, as such cost generally is higher than in
other parts of the country.
In 1996 the Named Executive Officers received cost-of-living increases in
their salaries averaging 3% and, in addition, the Compensation Committee
approved increases in the salaries of Ms. Knell and Messrs. Wannamaker and
Castagnola to bring their salaries in line with prevailing executive salaries at
comparable companies. Salary increases in future years are expected to be
limited for the most part to cost-of-living increases.
In order to retain qualified management personnel, the Company has followed
the practice of seeking to promote executives from within the Company whenever
that is practicable. The Board of Directors believes that this policy enhances
employee morale and provides continuity of management. Typically, modest salary
increases are made in conjunction with such promotions.
Performance-Based Compensation. The Compensation Committee believes that,
as a general rule, annual compensation in excess of base salaries should be made
dependent primarily on the Company's performance. Accordingly, at the beginning
of each fiscal year, the Compensation Committee establishes an incentive
compensation program for executive officers and other key management personnel
under which executive officers and other key management personnel may earn
bonuses, in amounts ranging from 5% to 100% of their annual salaries, provided
the Company achieves or exceeds the earnings goal established for the year.
The earnings goal is established on the basis of the annual operating plan
developed by management and approved by the Board of Directors. The annual
operating plan, which is designed to maximize profitability within
8
<PAGE> 11
the constraints of prevailing economic and competitive conditions, some of which
are outside the control of the Company, is developed on the basis of (i) the
Company's performance in the prior year; (ii) estimates of sales revenue for the
plan year based upon recent market conditions and trends and other factors
which, based on historical experience, are expected to affect the level of sales
that can be achieved; (iii) historical operating costs and cost savings that
management believes can be realized; and (iv) competitive conditions faced by
the Company. By taking all of these factors into account, the earnings goal in
the annual operating plan, which is also the basis on which bonus awards are
determined under the incentive plan, is fixed at what is believed to be a
realistic level so as to make the incentives meaningful to executives and to
avoid penalizing executives and other key management personnel for conditions
outside of their control.
In certain instances, bonuses under the incentive plan are awarded not only
on the basis of the Company's overall profitability, but also on the achievement
by an executive of specific objectives within his or her area of responsibility.
For example, a bonus may be awarded for an executive's efforts in achieving
greater than anticipated cost savings, or establishing new or expanding existing
markets for the Company's products. Typically, the maximum bonus that may be
awarded for achievement of specific objectives is determined at the beginning of
the year to provide the requisite incentive for such performance.
As a result of this performance-based bonus program, executive compensation
generally increases in those years in which the Company's profitability
increases. On the other hand, in years in which the Company experiences less
than anticipated profit growth, bonuses, and therefore also total executive
compensation, tend to be lower. The Company did not achieve the earnings goal
that had been established for 1996, and, accordingly, no bonuses were awarded to
executive officers under the incentive compensation program described above.
However, special, one-time bonuses were awarded to the Named Executive Officers
in the second quarter of 1996, in recognition of additional services performed
by such Officers in establishing new supply sources and introducing new products
in response to changes in supply relationships and increased competition in the
Company's markets. The amounts of such bonuses paid to the Named Executive
Officers are reflected in the Summary Compensation Table.
Stock Options and Equity-Based Programs. In order to align the financial
interests of senior executives and other key employees with those of the
shareholders, the Company grants stock options to its senior executives and
other key employees on a periodic basis and makes contributions to an employee
stock purchase plan under which officers and employees may elect to have a
portion of their salaries withheld and used, together with the Company's
contributions, to purchase common stock of the Company. Stock option grants, in
particular, reward senior executives and other key employees for performance
that results in increases in the market price of the Company's common stock,
which directly benefits all shareholders. Moreover, the Compensation Committee
generally has followed the practice of granting options on terms which provide
that the options become exercisable in cumulative annual installments, generally
over a three-to-five-year period. The Compensation Committee believes that these
features of the option grants not only provide an incentive for senior
executives to remain in the employ of the Company, but also makes the Company's
earnings performance and longer term growth in share prices important for the
executives who receive stock options.
The Company did not grant any options to the Named Executive Officers
during 1996. The Company did, however, grant options to certain other senior
executives, as well as to other key employees, and made contributions to the
Company's Employee Stock Purchase Plan, which were designed to increase
management ownership of the Company's Common Stock and provide them with a
continuing interest in the Company's share performance.
Louis B. Sullivan
John E. Turco
Robert S. Throop
Notwithstanding anything to the contrary set forth in the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the foregoing Report, and
the performance graph on page 10, shall not be incorporated by reference into
any such filings.
9
<PAGE> 12
COMPANY PERFORMANCE
The following graph shows a five-year comparison of cumulative total
returns for the Company, the American Stock Exchange composite index (the "AMEX
Composite"), and an index of peer group companies (the "Peer Group") selected by
the Company as described below.
COMPARISON OF CUMULATIVE TOTAL RETURN
(COMPANY, AMEX COMPOSITE, PEER GROUP)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD COAST
(FISCAL YEAR COVERED) DISTRIBUTION PEER GROUP INDEX AMEX MARKET INDEX
--------------------- ------------ ---------------- -----------------
<S> <C> <C> <C>
1991 100 100 100
1992 210 136.55 101.37
1993 245 146.59 120.44
1994 305 139.28 106.39
1995 240 175.77 137.13
1996 145 191.62 144.70
</TABLE>
The total cumulative return on investment (change in the period-end stock
price plus reinvested dividends) for each of the periods for the Company, the
AMEX Composite and the Peer Group is based on the stock price or index at the
end of fiscal 1991.
The graph above compares the performance of the Company with that of (i)
the AMEX Composite index and (ii) a Peer Group consisting of six original
equipment manufacturers that compete in the same markets as the Company. The
Company is the only publicly-traded company whose primary activity is the
wholesale distribution of recreational vehicle and boating parts and
accessories. The Peer Group consists of Brunswick Corporation, Coachmen
Industries Inc., Fleetwood Enterprises, Inc., Outboard Marine Corporation, Thor
Industries, Inc. and Winnebago Industries, Inc.
10
<PAGE> 13
PROPOSAL TWO
REINCORPORATION IN DELAWARE
INTRODUCTION
For the reasons set forth below, the Board of Directors believes that the
best interests of the Company and its shareholders will be served by changing
the state of incorporation of the Company from California to Delaware (the
"Reincorporation Proposal" or the "Proposed Reincorporation"). Shareholders are
urged to read carefully the following sections of this Proxy Statement,
including the related exhibits, before voting on the Reincorporation Proposal.
Throughout this Proxy Statement, the term "Coast California" refers to the
existing California corporation and the term "Coast Delaware" refers to the new
Delaware corporation, a wholly-owned subsidiary of Coast California that has
been formed under the name "The Coast Distribution System, Inc.," in preparation
for the Proposed Reincorporation and which is the proposed successor to Coast
California.
The Reincorporation Proposal will be effected by merging Coast California
into Coast Delaware (the "Merger"), which is to be effected in accordance with
the terms of an Agreement and Plan of Merger, in substantially the form attached
hereto as Exhibit A (the "Merger Agreement"). Upon completion of the Merger, (i)
Coast California will cease to exist; (ii) Coast Delaware will operate the
business of the Company under the name "The Coast Distribution System, Inc.";
(iii) each outstanding share of Coast California Common Stock will be converted
automatically into one share of Coast Delaware Common Stock and, as a result,
the shareholders of Coast California automatically will become the stockholders
of Coast Delaware; (iv) the rights of shareholders, as stockholders of Coast
Delaware and no longer as shareholders of Coast California, will be governed by
Delaware law and the Certificate of Incorporation and Bylaws of Coast Delaware,
rather than by California law, and the existing Articles of Incorporation and
Bylaws of Coast California; (v) all options and rights to purchase shares of
Coast California's Common Stock automatically will be converted into options or
rights to acquire an equal number of shares of Coast Delaware's Common Stock;
(vi) no change will occur in the physical location, business, management,
assets, liabilities or net worth of the Company; and (vii) the incumbent
directors and officers of Coast California will serve in their respective
capacities as directors and officers of Coast Delaware.
The shareholders' approval of the Proposed Reincorporation will constitute
their approval of all of the provisions of the Certificate of Incorporation and
Bylaws of Coast Delaware, including those provisions creating a new class of
authorized, but unissued, shares of preferred stock; provisions relating to the
limitation of director liability and expanded scope of indemnification of
directors, officers and key employees under Delaware law; provisions creating a
classified Board of Directors; and provisions having "anti-takeover"
implications, which may be of significance to the Company and its shareholders
in the future. The governance of Coast Delaware by Delaware law and the
Certificate of Incorporation and Bylaws of Coast Delaware will or may in the
future alter certain rights of the shareholders. See "The Charters and Bylaws of
Coast California and Coast Delaware" and "Significant Differences Between the
Corporation Laws of California and Delaware."
Pursuant to the Merger Agreement, each outstanding share of Coast
California Common Stock, no par value, automatically will be converted into one
share of Coast Delaware Common Stock, $0.001 par value, upon the filing of the
Merger Agreement and related documentation with both Delaware's and California's
respective Secretaries of State (the "Effective Date"). Each stock certificate
representing issued and outstanding shares of Coast California Common Stock will
continue to represent the same number of shares of Common Stock of Coast
Delaware. IT WILL NOT BE NECESSARY FOR SHAREHOLDERS TO EXCHANGE THEIR EXISTING
COAST CALIFORNIA STOCK CERTIFICATES FOR COAST DELAWARE STOCK CERTIFICATES.
Shareholders may, however, exchange their certificates if they so choose. The
Common Stock of Coast California is listed for trading on the American Stock
Exchange (the "AMEX"). Before the Merger, the shares of Coast Delaware's Common
Stock will be prequalified for such listing on the AMEX under the same symbol
("CRV") as the shares of Coast California Common Stock are traded on the AMEX.
After the Merger, Coast Delaware's Common Stock will be traded on the AMEX
11
<PAGE> 14
without any interruption having occurred to the trading of Coast California's
Common Stock because of the Merger.
As part of the Proposed Reincorporation, Coast Delaware will assume all of
the obligations of Coast California under the Amended and Restated 1983
Incentive Stock Option Plan, the 1987 Non-Qualified Option Plan, the 1993 Stock
Option Plan, the 1987 Employee Stock Purchase Plan, as amended, and the 1997
Employee Stock Purchase Plan (collectively, the "Plans"). If the shareholders
approve the Proposed Reincorporation, outstanding stock options to purchase
Coast California Common Stock assumed under the Plans will be exercisable for
equivalent numbers of shares of Coast Delaware Common Stock, and all parties
having participated in the Plans and holding such options will be entitled to
purchase shares of Coast Delaware Common Stock. As part of the Proposed
Reincorporation, Coast Delaware also will assume all other employee benefit
plans and arrangements of Coast California. The shareholders' approval of the
Proposed Reincorporation will constitute their approval of the assumption by
Coast Delaware of the Plans and all other employee benefit plans and
arrangements of Coast California.
Under California law, the affirmative vote of a majority of the outstanding
shares of Common Stock of Coast California is required for approval of the
Merger Agreement and the other terms of the Proposed Reincorporation. See "Vote
Required for the Reincorporation Proposal." The Proposed Reincorporation has
been unanimously approved by Coast California's Board of Directors. If approved
by the shareholders, and if certain other conditions set forth in the Merger
Agreement are satisfied, the Proposed Reincorporation will become effective upon
the Effective Date. The Board of Directors intends that the Proposed
Reincorporation be consummated as soon as practicable following the Annual
Meeting of Shareholders. Nonetheless, the Merger Agreement allows for the Board
of Directors to abandon or postpone the Proposed Reincorporation or to amend the
Merger Agreement (except that its principal terms may not be amended without
shareholder approval) either before or after the shareholders' approval has been
obtained and before the Effective Date, if circumstances arise causing the Board
of Directors to deem either such action advisable.
Shareholders of Coast California will have no dissenters' rights of
appraisal with respect to the Reincorporation Proposal. See "Significant
Differences Between the Corporation Laws of California and Delaware -- Appraisal
Rights."
The discussion set forth below is qualified in its entirety by reference to
the Merger Agreement, the Certificate of Incorporation of Coast Delaware (the
"Certificate of Incorporation") and the Bylaws of Coast Delaware, copies of
which are attached hereto as Exhibits A, B and C, respectively.
APPROVAL BY SHAREHOLDERS OF THE PROPOSED REINCORPORATION WILL CONSTITUTE
APPROVAL OF THE MERGER AGREEMENT, THE CERTIFICATE OF INCORPORATION AND THE
BYLAWS OF COAST DELAWARE, AND ALL PROVISIONS THEREOF.
VOTE REQUIRED FOR THE REINCORPORATION PROPOSAL
The affirmative vote of the holders of a majority of the outstanding shares
of Coast California's Common Stock entitled to vote at the Annual Meeting will
be required for approval of the Reincorporation Proposal, which also will
constitute approval of (i) the Merger Agreement, the Certificate of
Incorporation and the Bylaws of Coast Delaware, (ii) the assumption of Coast
California's Plans by Coast Delaware, (iii) the creation of a new class of
preferred stock which is provided for in the Certificate of Incorporation and
which will be available for issuance in the future at such times and on such
terms as the Board of Directors shall determine, without the requirement of
further action on the part of the stockholders of the Company, (iv) the creation
of a Board of Directors divided into three classes of directors serving
staggered terms of three years each, and (v) revisions in the Company's
indemnification agreements with its officers and directors to conform such
agreements to Delaware law. Proxies solicited by management will be voted FOR
approval of the Proposed Reincorporation. Abstentions and broker non-votes will
have the same effect as votes against the Reincorporation Proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED
REINCORPORATION.
12
<PAGE> 15
PRINCIPAL REASONS FOR THE PROPOSED REINCORPORATION
Advantages of Delaware Corporation Law. For many years, Delaware has
followed a policy of encouraging incorporation under its jurisdiction. In
furtherance of that policy, Delaware has long been the leading state in
adopting, construing and implementing comprehensive and flexible corporate laws
responsive to the legal and business needs of corporations. As a result,
Delaware's General Corporation Law has become widely regarded as the most
extensive and well-defined body of corporate law in the United States. Because
of Delaware's prominence as the state of incorporation for many major
corporations, both the legislature and courts in Delaware have demonstrated an
ability and a willingness to act quickly and effectively to meet changing
business needs. Moreover, the Delaware courts have rendered a substantial number
of decisions interpreting and explaining Delaware law. The Proposed
Reincorporation accordingly will be beneficial to the Company in that it will
give the Company (i) a greater degree of predictability and certainty regarding
how the Company's affairs should be conducted in order to comply with applicable
laws (such predictability and certainty resulting from a large body of case law
decided under those laws) and (ii) the comfort and security resulting from the
Company's awareness of the responsiveness of Delaware's legislature and courts
to the needs of corporations organized under Delaware's jurisdiction. For these
reasons, many United States corporations that have initially chosen their home
states for their states of incorporation have subsequently changed their
corporate domicile to Delaware in a manner similar to the Proposed
Reincorporation.
Anti-takeover Implications. Delaware, like many other states, permits a
corporation to adopt a number of measures (through amendment of the corporate
charter or bylaws or otherwise) designed to reduce a corporation's vulnerability
to unsolicited takeover attempts. These measures, which would enhance the
ability of the Board of Directors to negotiate with an unsolicited bidder,
include, but are not limited to, the adoption of severance agreements for the
Company's management and key employees that become effective upon the occurrence
of a change in control of the Company, and the designation and issuance of
preferred stock, the rights and preferences of which are determined by the Board
of Directors. Although these measures may be implemented under California law,
substantial judicial precedent exists in the Delaware courts as to the legal
principles applicable to such defensive measures and as to the conduct of the
Board of Directors under the business judgment rule with respect to unsolicited
takeover attempts, and, in the context of a future unsolicited takeover event,
such precedent will give the Board of Directors greater assurance and confidence
that the defensive strategies and conduct of the Board of Directors are in full
compliance with applicable laws and will be effective under the circumstances.
Certain effects of the Proposed Reincorporation may be considered to have
anti-takeover implications. Section 203 of the Delaware General Corporation Law,
from which Coast Delaware does NOT intend to opt out, restricts certain
"business combinations" with "interested shareholders" for three (3) years
following the date on which a person becomes an interested shareholder, unless
the Board of Directors approves the business combination. See "Significant
Differences Between the Corporation Laws of California and Delaware --
Shareholder Approval of Certain Business Combinations."
The Board of Directors believes that unsolicited takeover attempts may be
unfair or disadvantageous to the Company and its shareholders because:
1. A non-negotiated takeover bid may be timed to take advantage of
temporarily depressed stock prices.
2. A non-negotiated takeover bid may be designed to foreclose or minimize
the possibility of more favorable competing bids.
3. A non-negotiated takeover bid may involve the acquisition of only a
controlling interest in the Company's stock, without affording all
shareholders the opportunity to receive the same economic benefits.
By contrast, in a transaction in which an acquiror must negotiate with an
independent board of directors, such board of directors can and should take
account of the underlying and long-term values of the Company's assets, the
possibilities for alternative transactions on more favorable terms, the possible
advantages of a tax-free reorganization, the anticipated favorable developments
in the Company's business not yet reflected in the stock price, and the equality
of treatment of all the Company's shareholders.
13
<PAGE> 16
The Reincorporation Proposal is not being proposed in order to prevent any
known attempt to acquire control of the Company, obtain representation on the
Board of Directors or take any significant action affecting the Company.
Directors' Liability and Indemnification. Over the past decade, the
frequency and magnitude of claims and litigation against directors and officers
of corporations have increased. Over the same period, the cost of directors' and
officers' insurance policies has increased substantially, with the amount of
risk covered by such policies having significantly decreased. As a result, and
because potential personal liability associated with service as a director or
officer of a corporation can be significant, it has become increasingly
difficult for corporations to find and retain talented and experienced directors
and officers. The Board of Directors believes that the Proposed Reincorporation
will enable the Company to reduce the potential personal liability of members of
the Board of Directors associated with their service as directors and to expand
the scope of the Company's indemnification of its directors and officers, which
should enable the Company to continue finding and retaining talented and
experienced directors and officers.
POSSIBLE DISADVANTAGES
Despite the unanimous belief of the Board of Directors that the Proposed
Reincorporation is in the best interests of the Company and its shareholders, it
should be noted that Delaware law has been criticized by some commentators on
the grounds that it does not afford minority shareholders the same substantive
rights and protections as are available in a number of other states.
The Proposed Reincorporation also may be disadvantageous to the extent that
it has the effect of discouraging a future takeover attempt that is not approved
by the Board of Directors that may be deemed by a majority of the shareholders
to be in their best interests (because, for example, the possible takeover could
result in shareholders receiving a substantial premium for their shares over the
then current market value). As a result of such effects of the Proposed
Reincorporation, shareholders who might wish to participate in a tender offer
may not have an opportunity to do so. In addition, to the extent that the
Proposed Reincorporation will enable the Board of Directors to resist a takeover
or a change in control of the Company, the Proposed Reincorporation could make
it more difficult to change the existing Board of Directors and management.
For a comparison of shareholders' rights and the powers of management under
Delaware and California law, see "Significant Differences Between the
Corporation Laws of California and Delaware."
NO CHANGE IN THE BOARD MEMBERS, BUSINESS, MANAGEMENT, EMPLOYEE PLANS OR LOCATION
OF PRINCIPAL FACILITIES OF THE COMPANY
The Proposed Reincorporation will effect only a change in the legal
domicile and name of the Company and other changes of a legal nature, certain of
which are described in this Proxy Statement. The Proposed Reincorporation will
NOT result in any change in the business, management, fiscal year, assets or
liabilities or location of the principal facilities of the Company. The six (6)
directors who are elected at the Annual Meeting of Shareholders will become the
directors of Coast Delaware. All the Plans and all other employee benefit plans
of Coast California will be continued by Coast Delaware and upon the Effective
Date each option issued pursuant to such Plans automatically will be converted
into an option to purchase the same number of shares of Coast Delaware Common
Stock, at the same price per share, under the same terms and subject to the same
conditions as set forth in such Plans. Shareholders should note that their
approval of the Reincorporation Proposal also will constitute their approval of
the assumption of these plans by Coast Delaware. Other employee benefit
arrangements of Coast California also will be continued by Coast Delaware under
the terms and subject to the conditions currently in effect. As noted above,
after the Merger, the shares of Common Stock of Coast Delaware will continue to
be traded, without interruption, in the same principal market and under the same
symbol ("CRV") as the shares of Common Stock of Coast California are traded
under before the Merger.
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<PAGE> 17
THE CHARTERS AND BYLAWS OF COAST CALIFORNIA AND COAST DELAWARE
If the Proposed Reincorporation is approved by the shareholders and becomes
effective, the Company will be governed by the Certificate of Incorporation and
Bylaws of Coast Delaware and by the Delaware General Corporation Law. The
material differences between Coast California's Articles of Incorporation and
Bylaws and Coast Delaware's Certificate of Incorporation and Bylaws are
described below. Certain changes altering the rights of shareholders and powers
of management could be implemented in the future by amendment of the Certificate
of Incorporation following shareholder approval, and certain of such changes
could be implemented by amendment of the Bylaws of Coast Delaware without
shareholder approval. For a discussion of such changes, see "Significant
Differences Between the Corporation Laws of California and Delaware." Approval
by the shareholders of the Proposed Reincorporation will constitute an approval
of the inclusion in the Coast Delaware Certificate of Incorporation and Bylaws
of each of the provisions described below. This discussion of the Certificate of
Incorporation and Bylaws of Coast Delaware is qualified by reference to Exhibits
B and C hereto, respectively.
Name Change. The Articles of Incorporation of Coast California provide that
the name of the Company is "The Coast Distribution System." The Certificate of
Incorporation for Coast Delaware provides that the name shall be "The Coast
Distribution System, Inc." Accordingly, if the Reincorporation Proposal is
approved, the name of the Company shall be changed to "The Coast Distribution
System, Inc." upon the effectiveness of the Merger.
Board of Directors. See "Significant Differences Between the Corporation
Laws of California and Delaware -- Size of the Board of Directors" and
"-- Classified Board of Directors."
Authorized Stock. The Articles of Incorporation of Coast California
authorize 10,000,000 shares of Common Stock, without par value. The Certificate
of Incorporation of Coast Delaware provides for 20,000,000 shares of Common
Stock, $.001 par value per share, and 5,000,000 shares of Preferred Stock, with
a par value of $.001 per share. The Certificate of Incorporation of Coast
Delaware authorizes the Board of Directors of Coast Delaware to fix the rights,
preferences, privileges and restrictions of one or more series of the authorized
shares of Preferred Stock, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences, without further vote or
action by the stockholders. Although the Board has no present intention of doing
so, issuance of the authorized Preferred Stock with terms giving it substantial
voting power, conversion or other rights could have the effect of (i) delaying,
deferring or preventing a change in control of the Company or (ii) otherwise
modifying the rights of holders of the Company's Common Stock. See "Preferred
Stock of Coast Delaware."
Common Stock of Coast Delaware. Of the 20,000,000 authorized shares of
Common Stock of Coast Delaware, 5,246,879 shares will be issued upon conversion
of the outstanding shares of Coast California's Common Stock in the Proposed
Reincorporation and approximately 761,335 shares of Common Stock will be
reserved for issuance under the Plans to be assumed by Coast Delaware. The
balance of approximately 13,991,786 shares of Common Stock, and all of the
authorized shares of Preferred Stock, of Coast Delaware will be available for
issuance from time to time in connection with acquisitions of other businesses,
to raise additional capital or for other corporate purposes, without further
action by the stockholders of Coast Delaware. At this time, there are no
specific plans or commitments or any agreements or arrangements for the issuance
of any of these remaining shares.
Preferred Stock of Coast Delaware. The Preferred Stock of Coast Delaware
will be issuable from time to time in one or more series as determined by the
Board of Directors of Coast Delaware without further vote or action by the
stockholders. Dividend rates, conversion rights, if any, liquidation
preferences, rights and terms of redemption (including sinking fund provisions)
and redemption prices will also be determined by the Board of Directors of Coast
Delaware at the time that Preferred Stock, if any, is issued.
The Board of Directors believes that the availability of authorized but
unissued preferred stock can be of considerable value by providing an
alternative form of consideration in connection with the raising of capital or
the acquisition of other businesses through the issuance of securities of Coast
Delaware, the terms and
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<PAGE> 18
characteristics of which can be determined by the Board of Directors at the time
of actual issuance based on market conditions and to meet other circumstances
then existing.
If the Reincorporation Proposal is approved by the Company's shareholders
and the Proposed Reincorporation is consummated, no further stockholder vote or
action will be necessary for the issuance of the Preferred Stock, unless
required by Delaware law or AMEX rules. In general, Delaware law and AMEX rules
would require that the issuance of shares of Preferred Stock in a merger or
business combination or other transaction be approved by the Company's
stockholders at an annual or a special meeting of the stockholders if the
Preferred Stock could be converted into a number of shares of Common Stock that
would increase the shares of Common Stock outstanding by twenty percent (20%) or
more. The Board of Directors of Coast Delaware will determine matters such as
the Preferred Stock dividend rights, conversion ratios, voting rights,
redemption prices, and similar matters. The issuance of shares of Preferred
Stock may affect the rights of existing stockholders by diluting their
percentage interests of Common Stock, if the Preferred Stock is convertible into
Common Stock; granting the holders of Preferred Stock preferences as to
dividends or proceeds on liquidation; and diluting their voting rights if the
Preferred Stock provides for voting rights.
The availability of authorized but unissued shares of Preferred Stock could
affect the ability of a third party to gain voting control of the Company,
because the Board of Directors would be able to authorize the issuance, in a
private placement or otherwise, of shares of Preferred Stock with voting rights
to one or more persons and, thereby, dilute the voting power of a potential
acquiror without first having to obtain stockholder approval. Additionally,
unissued shares of Preferred Stock would be available in connection with the
adoption of a stockholders' rights plan pursuant to which the Company would be
able to issue to existing stockholders rights to purchase Preferred Stock that
could be issued in circumstances that would dilute the equity position of a
potential acquiror. In either of these situations, the issuance of shares of
Preferred Stock could adversely affect a potential takeover bid.
At this time, there are no specific plans, commitments, agreements or
arrangements to issue any shares of Preferred Stock, either as defensive or
anti-takeover measures or for any other purpose.
Monetary Liability of Directors. The Articles of Incorporation of Coast
California and the Certificate of Incorporation of Coast Delaware both provide
for the elimination of personal monetary liability of directors to the fullest
extent permissible under the laws of each corporation's respective state of
incorporation. The provision eliminating monetary liability of directors set
forth in the Certificate of Incorporation of Coast Delaware is potentially more
expansive in that it incorporates future amendments to Delaware law with respect
to the elimination of such liability. See "Significant Differences Between the
Corporation Laws of California and Delaware -- Indemnification and Limitation of
Liability."
Shareholder Voting by Ballot. The Articles of Incorporation of Coast
California contain no provision relating to shareholder election of directors by
ballot. Coast California's Bylaws, however, provide that the election of
directors at shareholders' meetings may be by voice or ballot, unless before
such vote a shareholder demands a vote by ballot, in which case such vote must
be by ballot. The Certificate of Incorporation of Coast Delaware provides that
election of directors need not be by written ballot. See "Significant
Differences Between the Corporation Laws of California and Delaware -- Voting by
Ballot."
Certain Anti-Takeover Provisions. The Bylaws of Coast California provide
that shareholders may take action either at a duly called and held meeting or by
written consent of the shareholders and that the record holders of 10% or more
of the outstanding shares of Coast California Common Stock ("10% shareholders")
may call a special meeting of the shareholders to take action on any matter upon
which shareholders of a California corporation may vote, which include the
election and removal of directors, the amendment of the articles of
incorporation or bylaws of a corporation and mergers, reorganizations and
business combinations. The Certificate of Incorporation and Bylaws of Coast
Delaware provide that the shareholders may only take action at a duly called and
held meeting of stockholders and not by written consent, and that stockholders
may not call special meetings of stockholders. These provisions will make it
more difficult to effect a takeover of the Company by means of certain
transactions, such as a merger or sale of substantially all the Company's
assets, or by a proxy contest, by requiring a shareholders' meeting to be held
before such a transaction can be
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<PAGE> 19
consummated and by delaying any such meeting until the next annual or special
meeting of stockholders is called by action of the Board of Directors.
Delaware Law provides other anti-takeover protection through Section 203 of
the Delaware General Corporation Law. See "Significant Differences Between the
Corporation Laws of California and Delaware -- Shareholder Approval of Certain
Business Combinations."
SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF CALIFORNIA AND DELAWARE
The General Corporation Laws of California and Delaware differ in many
respects. It is not practical to summaries all of such differences in this Proxy
Statement, but some of the principal differences that could materially affect
the rights of shareholders are discussed below.
Size of the Board of Directors. The Bylaws of Coast California provide for
a Board of Directors of from six (6) to eleven (11) members, with the exact
number currently set at six (6) directors. Under California law, although
changes in the number of directors must in general be approved by a majority of
the outstanding shares, the Board of Directors may fix the exact number of
directors within a stated range set forth in the articles of incorporation or
bylaws, if that stated range has been approved by the shareholders. Delaware law
permits the Board of Directors alone to change the authorized number of
directors unless the directors are not authorized to amend the bylaws or the
number of directors is fixed in the certificate of incorporation (in which case
a change in the number of directors may be made only by amendment to the
certificate of incorporation following approval of such change by the
stockholders). The Certificate of Incorporation of Coast Delaware provides that
the number of directors shall be designated in the manner provided in the Bylaws
and authorizes the Board of Directors to make, alter, amend or repeal the
Bylaws. The Bylaws of Coast Delaware provide for a Board of Directors initially
consisting of six (6) members, and that such number may be changed from time to
time by resolution adopted by the Board of Directors. Following the Proposed
Reincorporation, the Board of Directors of Coast Delaware could (although it has
no current intention to do so) change the number of directors without
shareholder approval. If the Reincorporation Proposal is approved, the six (6)
directors of Coast California who are elected at the Annual Meeting of
Shareholders will continue as the directors of Coast Delaware after the Proposed
Reincorporation is consummated, but will be divided into three (3) classes of
two (2) directors each, with each class serving a term of three (3) years
expiring in successive years. See "Classified Board of Directors" below.
Classified Board of Directors. A classified board is one on which a certain
number, but not all, of the directors are elected on a rotating basis each year.
Under California law, directors generally are elected annually, but corporations
that have eight hundred (800) or more shareholders of record and have their
stock listed on the AMEX may designate a classified board by adopting amendments
to their articles and bylaws, which amendments must be approved by the
shareholders. Delaware law permits, but does not require, a classified board of
directors, with staggered terms under which one-half or one-third of the
directors are elected for terms of two or three years, respectively. This method
of electing directors makes a change in the composition of the board of
directors and, consequently, a potential change in control of a corporation a
lengthier and more difficult process. The Articles of Incorporation and Bylaws
of Coast California do not provide for a classified board of directors.
The Bylaws of Coast Delaware provide for a classified board of directors
consisting of three (3) classes of two (2) directors each, with each class
elected for a term of three (3) years expiring in successive years. The persons
elected as directors of Coast California at the Annual Meeting will, if the
Reincorporation is approved and becomes effective, serve as the directors of
Coast Delaware and will be designated as Class I, Class II and Class III
directors as set forth in "Proposal One -- Election of Directors" above.
The Board believes that the staggered three-year terms of a classified
board, with the election of one-third of the directors each year, will help to
assure the continuity and stability of the Company's long-term policies in the
future and permit it to more effectively represent the interests of
shareholders, since at least two-thirds of the directors at any given time will
have prior experience as directors of the Company.
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<PAGE> 20
The classification of directors, however, will have the effect of making it
more difficult to change the overall composition of the Board of Directors. At
least three meetings of the shareholders, instead of one, will be required for
the shareholders to change the entire Board. In addition, the provision under
Delaware law that the directors of a classified board may only be removed for
cause (unless provided otherwise in the certificate of incorporation) will also
make it more difficult to change the composition of the Board. See "Removal of
Directors" below.
Cumulative Voting. Under California law, if any shareholder has given
notice of his or her intention to cumulate votes for the election of directors,
any other shareholder of the corporation also is entitled to cumulative his or
her votes at such election. Under California law, corporations such as Coast
California that have eight hundred (800) or more shareholders of record and have
their stock listed on the AMEX may eliminate such cumulative voting rights by
adopting amendments to their articles and bylaws, which amendments must be
approved by the shareholders. Under Delaware law, cumulative voting in the
election of directors is not mandatory and not allowed unless specifically
provided for in a corporation's certificate of incorporation. The Certificate of
Incorporation and Bylaws of Coast Delaware specifically provide for cumulative
voting and, therefore, the stockholders of Coast Delaware will continue to have
cumulative voting rights.
Removal of Directors. Under California law, any director or the entire
board of directors may be removed, with or without cause, with the approval of a
majority of the outstanding shares entitled to vote. Nonetheless, California law
does not permit the removal of any individual director (unless the entire board
is removed) if the number of votes cast against such removal would be sufficient
to elect the director under cumulative voting. Under Delaware law, a director of
a corporation that does not have cumulative voting may be removed with or
without cause with the approval of a majority of the outstanding shares entitled
to vote. In the case of a Delaware corporation having cumulative voting, if less
than the entire board is to be removed, a director may not be removed without
cause unless the number of shares voted against such removal would not be
sufficient to elect the director under cumulative voting. The Certificate of
Incorporation of Coast Delaware provides for cumulative voting. Furthermore,
under Delaware law, directors on a classified board may not be removed without
cause unless the certificate of incorporation provides otherwise. The Bylaws of
Coast Delaware provide for a classified board and the Certificate of
Incorporation of Coast Delaware is silent regarding removal of directors.
Consequently, the directors of Coast Delaware may be removed only for cause.
Filling Vacancies on the Board of Directors. Under California law, any
vacancy on the board of directors, other than one created by removal of a
director, may be filled by the board. If the number of directors is less than a
quorum, a vacancy may be filled by the unanimous written consent of the
directors then in office, by the affirmative vote of a majority of the directors
at a meeting held pursuant to notice or waivers of notice or by a sole remaining
director. A vacancy created by removal of a director may be filled by the board
only if so authorized by a corporation's articles of incorporation or by a bylaw
approved by the corporation's shareholders. Coast California's Bylaws provide
that vacancies occurring in the Board of Directors by reason of removal of
directors may be filled only by approval of the shareholders. Under Delaware
law, vacancies and newly created directorships may be filled by a majority of
the directors then in office (even though less than a quorum) unless otherwise
provided in the certificate of incorporation or bylaws (and unless the
certificate of incorporation directs that a particular class is to elect such
director, in which case other directors elected by such class, or a sole
remaining director, shall fill such vacancy). In the case of a classified board
of directors, Delaware law provides that a new director chosen to fill a vacancy
in the manner described above shall hold office until the next election of the
class for which he or she was chosen. The Bylaws of Coast Delaware provide that
vacancies occurring in the Board of Directors for any reason may be filled by
vote of a majority of the remaining members of the Board of Directors.
Written Consent of Shareholders. Both the California and Delaware General
Corporation Laws provide that the shareholders of a corporation may take action
by written consent without a meeting, unless the corporation's charter documents
provide otherwise. The Articles of Incorporation of Coast California do not
prohibit shareholder actions by written consent, and accordingly, the
shareholders of Coast California may take action without a meeting. The
Certificate of Incorporation of Coast Delaware explicitly prohibits
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shareholder actions by written consent. As a result, the shareholders of Coast
Delaware will be able to take action only at a duly called meeting of the
shareholders.
The provision which prohibits shareholder action by written consent would
give all shareholders of the Company the opportunity to participate in
determining any proposed shareholder action and would prevent the holders of a
majority of the voting power of the Company from using the written consent
procedure to take shareholder action. Persons attempting unfriendly takeovers of
corporations have attempted to use written consent procedures in order to deal
directly with the shareholders and avoid negotiations with the boards of
directors of such companies.
The provision prohibiting shareholder action by written consent may have
the effect of delaying consideration of a shareholder proposal until the next
annual meeting unless a special meeting is called by the Board of Directors.
Because the elimination of the procedures for shareholders to act by written
consent could make more difficult an attempt to obtain control of the Company,
such action could have the effect of discouraging a third party from making a
tender offer or otherwise attempting to obtain control of the Company.
Elimination of the written consent procedure also means that a meeting of
shareholders would be required in order for the Company's shareholders to
replace the Board. This provision will thus make the removal of incumbent
directors more difficult. In addition, since this provision could increase the
amount of time required for a takeover bidder to obtain control of the Company,
such provision could discourage certain tender offers and other attempts to
obtain control of the Company, even though such attempts may be beneficial to
the Company and its stockholders. Because tender offers for control usually
involve a purchase price higher than the prevailing market price, the provision
prohibiting shareholder action by written consent could also discourage open
market purchases by a potential takeover bidder. Such tender offers or open
market purchases could increase the market price of the Company's Common Stock,
enabling shareholders to sell their shares at a price higher than that which
would otherwise prevail. In addition, this provision could make the Company's
Common Stock less attractive to persons who invest in securities in anticipation
of an increase in price if a takeover attempt develops and could discourage
accumulation of large blocks of the Company's Common Stock, thus tending to
reduce temporary fluctuations in the market price of the Company's Common Stock
which are caused by such accumulations. Therefore, shareholders could be
deprived of certain opportunities to sell their shares at temporarily higher
prices.
Power to Call Special Shareholders' Meetings. Under California law, a
special meeting of shareholders may be called by the board of directors, the
chairman of the board, the president, 10% shareholders and such additional
persons as are authorized by the articles of incorporation or the bylaws. Under
Delaware law, a special meeting of shareholders may be called by the board of
directors or by any other person authorized to do so in the certificate of
incorporation or the bylaws. Unlike the Bylaws of Coast California, the Bylaws
of Coast Delaware do NOT contain provisions entitling 10% shareholders to call a
special meeting of shareholders.
The elimination of the provision entitling 10% shareholders to call special
meetings of the shareholders is designed to prevent persons attempting
unfriendly takeovers to bypass and avoid negotiations with the Board of
Directors and to avoid the disruption and expense that would be associated with
the holding of such special meetings with respect to matters that have not been
given full consideration by the Board of Directors.
The elimination of the provision entitling holders of 10% of the
outstanding voting stock of the Company to call special meetings may have the
effect of delaying consideration of a shareholder proposal until the next annual
meeting, unless a special meeting of stockholders is called by the Board of
Directors. In addition, since elimination of this provision could increase the
amount of time required for a takeover bidder to obtain control of the Company,
it could discourage certain tender offers and other attempts to obtain control
of the Company, even though such attempts may be beneficial to the Company and
its stockholders. Because tender offers for control usually involve a purchase
price higher than the prevailing market price, the elimination of this provision
could also discourage open market purchases by a potential takeover bidder. Such
tender offers or open market purchases could increase the market price of the
Company's Common Stock, enabling shareholders to sell their shares at a price
higher than that which would otherwise prevail. In addition, elimination of this
provision could make the Company's Common Stock less attractive to persons who
invest in securities in anticipation of an increase in price if a takeover
attempt develops and could discourage
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accumulation of large blocks of the Company's Common Stock, thus tending to
reduce temporary fluctuations in the market price of the Company's Common Stock
which are caused by such accumulations. Therefore, shareholders could be
deprived of certain opportunities to sell their shares at temporarily higher
prices. Elimination of this provision also means that shareholders seeking to
remove or replace incumbent directors would be required to wait until the next
annual stockholders meeting to attempt to take such action, thereby making
removal of incumbent directors more difficult.
Shareholder Approval of Certain Business Combinations. In the last several
years, a number of states (but not California) have adopted special laws
designated to make certain kinds of "unfriendly" corporate takeovers, or other
transactions involving a corporation and one or more of its significant
shareholders, more difficult. Under Section 203 of the Delaware General
Corporation Law ("Section 203"), a Delaware corporation is prohibited from
engaging in a "business combination" with an "interested shareholder" for three
(3) years following the time such person becomes an interested shareholder,
unless specified conditions are met.
An "interested shareholder" is defined under Section 203 to include, with
certain exceptions, a person or group who or which owns fifteen percent (15%) or
more of the corporation's outstanding voting stock (including rights to acquire
stock pursuant to an option, warrant, agreement, arrangement or understanding,
or upon the exercise of conversion or exchange rights, and stock with respect to
which the person has voting rights only) or is an affiliate or associate of the
corporation and was the owner of fifteen percent (15%) or more of such voting
stock at any time within the previous three years.
For the purposes of Section 203, the term "business combination" is defined
broadly to include (i) mergers with or caused by the interested shareholder;
(ii) sales or other dispositions to the interested shareholder (except
proportionately with the corporation's other shareholders) of assets of the
corporation or a subsidiary equal to ten percent (10%) or more of the aggregate
market value of the consolidated assets or its outstanding stock; (iii) the
issuance or transfer by the corporation or a corporation's subsidiary of stock
of the corporation or such subsidiary to the interested shareholder (except for
transfers in a conversion or exchange or a pro rata distribution or certain
other transactions, none of which increase the interested shareholder's
proportionate ownership of any class or series of the corporation's or such
subsidiary's stock); or (iv) receipt by the interested shareholder (except
proportionately as a shareholder), directly or indirectly, of loans, advances,
guarantees, pledges or other financial benefits provided by or through the
corporation or a subsidiary.
The three (3) year moratorium imposed on business combinations by Section
203 does not apply if: (i) before the time such shareholder becomes an
interested shareholder the board of directors approves either the business
combination or the transaction that caused the person to become an interested
shareholder; (ii) the interested shareholder owns eighty-five percent (85%) of
the corporation's voting stock upon consummation of the transaction that caused
him or her to become an interested shareholder (excluding from the eighty-five
percent (85%) calculation shares owned by directors who are also officers of
such corporation and shares held by employee stock plans that do not permit
employees to decide confidentially whether to accept a tender or exchange
offer); or (iii) at or after the time such person becomes an interested
shareholder, the board approves the business combination and it also is approved
at a shareholder meeting by sixty-six and two-thirds percent (66 2/3%) of the
voting stock not owned by the interested shareholder.
Section 203 applies only to Delaware corporations that have a class of
voting stock listed on a national securities exchange (as is Coast California
and as Coast Delaware would be), or are quoted on an interdealer quotation
system such as the Nasdaq National Market, or are held of record by more than
two thousand (2,000) shareholders. Such a corporation may, however, elect not to
be governed by Section 203 by a provision in its original certificate of
incorporation or an amendment thereto or to its bylaws, which amendment must be
approved by majority shareholder vote and may not be further amended by the
board of directors. Coast Delaware voting stock will be quoted on the AMEX, and
Coast Delaware does not intend to elect not to be governed by Section 203.
Therefore, Section 203 will apply to Coast Delaware
Section 203 would allow the Company additional time to evaluate a takeover
proposal, prepare appropriate alternatives, and thereby encourage persons
contemplating a transaction with the Company to
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negotiate directly with the Company on a fair and equitable basis. Section 203
could make more difficult or discourage a tender offer for the Company's Common
Stock, or the completion of a "two-tiered" merger by a holder of a substantial
block of the Company's Common Stock, irrespective of whether such action might
be perceived by shareholders holding a majority of the Company's Common Stock to
be beneficial to the Company and its shareholders.
Section 203 could adversely affect the ability of shareholders to benefit
from certain transactions which are opposed by the Board or by shareholders
owning 15% of the Company's Common Stock, even if the price offered in such
transactions represents a premium over the then-current market price of the
Company's Common Stock. To the extent that the Board's disapproval of a proposed
transaction discourages establishment of a controlling stock interest, the
position of the Board and current management may be strengthened, thereby
assisting those persons in retaining their positions.
The Board believes that becoming subject to the provisions of Section 203
will be in the best interests of the Company and its shareholders. In the past,
there have been a number of surprise takeovers of publicly-owned corporations
which have occurred through tender offers or other sudden purchases of a
substantial number of outstanding shares. Such tender offers and other share
purchases are often followed by a merger or acquisition of the target
corporation by the purchaser without negotiations with the Board of Directors of
the target corporation. Such a "two-tiered" business combination automatically
eliminates minority interests in the target corporation, often for less valuable
consideration per share then was paid in the purchaser's original tender offer
or market purchases. In other instances, a purchaser has used its controlling
interest to effect other transactions having an adverse impact on the target
corporation and its shareholders. The protections afforded by Section 203 will
increase the likelihood that anyone contemplating a transaction with the Company
would negotiate directly with the Company in advance. The Board believes that it
is in a better position than the individual shareholders of the Company to
negotiate effectively for an adequate price for all the shareholders, since the
Board is likely to be more knowledgeable than any individual shareholder in
assessing the business and prospects of the Company.
Loans to Officers and Employees. Under California law, any loan or guaranty
to or for the benefit of a director or officer of the corporation or its parent
requires approval of the shareholders unless such loan or guaranty is provided
under a plan approved by shareholders owning a majority of the outstanding
shares of the corporation. In addition, under California law, shareholders of
any corporation with one hundred (100) or more shareholders of record may
approve a bylaw authorizing the board of directors alone to approve loans or
guaranties to or on behalf of officers (whether or not such officers are
directors) if the board of directors determines that any such loan or guaranty
reasonably may be expected to benefit the corporation. The Bylaws of Coast
California do not authorize the Board of Directors to make such loans or
guarantees. Under Delaware law, a corporation may make loans to, guarantee the
obligations of or otherwise assist its officers or other employees and those of
its subsidiaries (including directors who are also officers or employees) when
such action, in the judgment of the directors, may reasonably be excepted to
benefit the corporation.
Indemnification and Limitation of Liability. California and Delaware have
similar laws respecting indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states also permit
corporations to adopt a provision in their articles or certificate of
incorporation eliminating the liability of a director to the corporation or its
shareholders for monetary damages for breach of the director's fiduciary duty of
care. Nonetheless, certain differences exist between the laws of the two states
respecting indemnification and limitation of liability.
The Articles of Incorporation of Coast California contain a provision that
eliminates the liability of directors to the corporation to the fullest extent
permissible under California law. California law does not permit the elimination
of monetary liability where such liability is based on: (a) intentional
misconduct or knowing and culpable violation of law; (b) acts or omissions that
a director believes to be contrary to the best interests of the corporation or
its shareholders, or that involve the absence of good faith on the part of the
director; (c) receipt of an improper personal benefit; (d) acts or omissions
that show reckless disregard for the director's duty to the corporation or its
shareholders, where the director in the ordinary course of performing a
director's duties should be aware of a risk of serious injury to the corporation
or its shareholders; (e) acts or
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omissions that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation and its shareholders; (f)
interested transactions between the corporation and a director in which a
director has a material financial interest; and (g) liability for improper
distributions, loans or guarantees.
The Certificate of Incorporation of Coast Delaware also contains a
provision that eliminates the liability of directors to the fullest extent
permissible under Delaware law, as such law exists currently or as it may be
amended in the future. Under Delaware law, such provision may not eliminate or
limit a director's monetary liability for (a) breaches of the director's duty of
loyalty to the corporation or its shareholders; (b) acts or omissions not in
good faith or involving intentional misconduct or knowing violations of law; (c)
payment of unlawful dividends or unlawful stock repurchases or redemptions; or
(d) transactions in which the director received an improper personal benefit.
Such limitation of liability provision also may not limit a director's liability
for violation of, or otherwise relieve Coast Delaware or its directors from the
necessity of complying with, federal or state securities laws, or affect the
availability of non-monetary remedies such as injunctive relief or rescission.
Although the laws of both states allow for the elimination of the liability
of directors for damages resulting from a breach of the directors' fiduciary
duty of care to the corporation, California's General Corporation Law and
Delaware's General Corporation Law differ with regard to the extent to which
they allow directors' personal liability for monetary damages resulting from a
breach of the duty of care to be limited. While Delaware law implies that a
Delaware corporation may limit the liability of a director even for gross
negligence, California law contains no such implication and in fact contains
provisions that imply the contrary. Those provisions expressly proscribe the
inclusion in a California corporation's articles of incorporation of any
provision intended to eliminate or limit a director's liability "for acts or
omissions that show a reckless disregard for the director's duty to the
corporation or its shareholders" or for "acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation or its shareholders." Delaware's General Corporation Law
contains no such restrictions. Accordingly, a director of a Delaware corporation
apparently can commit acts or make omissions that would result in such
director's liability under California law but may not under Delaware law.
California law permits indemnification of expenses incurred in derivative
or third-party actions, except that with respect to derivative actions (a) no
indemnification may be made without court approval when a person is adjudged
liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, unless a court determines that such person is
entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine, and (b) no indemnification
may be made without court approval in respect of amounts paid or expenses
incurred in settling or otherwise disposing of a threatened or pending action or
amounts incurred in defending a pending action that is settled or otherwise
disposed of without court approval.
Indemnification is permitted by California law only for acts taken in good
faith and believed to be in the best interests of the corporation and its
shareholders, as determined by a majority vote of a disinterested quorum of the
directors, independent legal counsel (if a quorum of independent directors is
not obtainable), a majority vote of a quorum of the shareholders (excluding
shares owned by the indemnified party), or the court handling the action.
California law requires indemnification when the individual has successfully
defended the action on the merits (as opposed to Delaware law, which requires
indemnification relating to a successful defense on the merits or otherwise).
Delaware law generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the shareholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in or (in contrast to California law) not opposed to the best interests of
the corporation. Without court approval, however, no indemnification maybe made
in respect of any derivative action in which such person is adjudged liable for
negligence or misconduct in the performance of his or her duty to the
corporation. Delaware law requires indemnification of
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expenses when the individual being indemnified has successfully defended the
action on the merits or otherwise.
California corporations may include in their articles of incorporation a
provision that extends the scope of indemnification through agreements, bylaws
or other corporate action beyond that specifically authorized by statute. The
Articles of Incorporation of Coast California include such a provision.
In 1988, following shareholder approval, Coast California amended its
Articles of Incorporation to permit indemnification beyond that expressly
mandated by the California Corporations Code and to limit director monetary
liability to the extent permitted by California law. Coast California also
entered into indemnification agreements with its officers and directors,
following approval of such agreements by the Company's shareholders.
A provision of Delaware law states that the indemnification provided by
statute shall not be deemed exclusive of other rights under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise. Under
Delaware law, therefore, the indemnification agreements entered into by Coast
California with its officers and directors may be assumed by Coast Delaware upon
completion of the Proposed Reincorporation. If the Proposed Reincorporation is
approved, the indemnification agreements will be amended to the extent necessary
to conform the agreements to Delaware law, and a vote in favor of the Proposed
Reincorporation is also approval of such amendments to the indemnification
agreements. In particular, the indemnification agreements will be amended to
include within their purview future changes in Delaware law that will expand the
permissible scope of indemnification of directors and officers of Delaware
corporations.
Although the General Corporation Laws of both California and Delaware
provide that corporations may include in their bylaws, or in agreements with
their directors and officers, provisions expanding the scope of indemnification
beyond that otherwise provided by law, California's General Corporation Law,
just as it restricts the power of California corporations to eliminate or limit
directors' liability stemming from gross negligence in the performance of
directorial duties, does not allow California corporations to indemnify
directors and officers for liabilities stemming from gross negligence. Delaware
General Corporation Law, on the other hand, does not so restrict Delaware
corporations. Accordingly, Delaware corporations apparently may provide greater
indemnification to their directors and officers than may California
corporations.
Currently, no actions are pending or threatened against officers or
directors of the Company in their capacities as such. The Board of Directors is
not aware of any threatened litigation or proceeding that may result in any
potential liability of a director or a claim for indemnification by any director
or officer.
The indemnification and limitation of liability provisions of California
law, and not Delaware law, will apply to actions of the directors and officers
of Coast California made before the Proposed Reincorporation becomes effective.
Inspection of Shareholders List. Both California and Delaware law allow any
shareholder to inspect the shareholders' list for a purpose reasonably related
to such person's interest as a shareholder. California law also gives an
absolute right to inspect and copy the corporation's shareholder list by persons
holding an aggregate of five percent (5%) or more of a corporation's voting
shares, or shareholders holding an aggregate of one percent (1%) or more of such
shares who have filed a Schedule 14A with the Securities and Exchange Commission
relating to the election of directors. Delaware law does not provide for any
such absolute right of inspection, and no such right is granted under the
Certificate of Incorporation or Bylaws of Coast Delaware. Lack of access to
shareholder records although unrelated to a shareholder's interest as a
shareholder could result in impairment of the shareholder's ability to
coordinate opposition to management proposals, including proposals with respect
to a change in control of the Company.
Dividends and Repurchases of Shares. California law dispenses with the
concepts of par value of shares as well as statutory definitions of capital,
surplus and the like. The concepts of par value, capital and surplus are
retained under Delaware law.
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Under California law, a corporation may not make any distribution
(including dividends, whether in cash or other property, and repurchases of its
shares) unless either the corporation's retained earnings immediately before the
proposed distribution equal or exceed the amount of the proposed distribution
or, immediately after giving effect to such distribution, the corporation's
assets (exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 1 1/4 times its liabilities (not
including deferred taxes, deferred income and other deferred credits), and the
corporation's current assets would be at least equal to its current liabilities
(or 1 1/4 times its current liabilities if the average pre-tax and pre-interest
expense earnings for the preceding two fiscal years were less than the average
interest expense for such years). Such tests apply to California corporations on
a consolidated basis.
Delaware law permits a corporation to declare and pay dividends out of
surplus, or, if no surplus exists, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year, as long as
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if such redemption or
repurchase would not impair the capital of the corporation.
To date, the Company has not paid cash dividends on its capital stock. It
is the present policy of the Board of Directors to retain earnings for use in
the Company's business, and, therefore, the Company does not anticipate making
payment of cash dividends on its Common Stock in the foreseeable future.
Shareholder Voting. Both California and Delaware law generally require that
a majority of the shareholders of both acquiring and target corporations approve
statutory mergers. Delaware law does not require a shareholder vote of the
surviving corporation in a merger (unless the corporation provides otherwise in
its certificate of incorporation) if (a) the merger agreement does not amend the
existing certificate of incorporation, (b) each share of the surviving
corporation outstanding before the merger is an identical outstanding or
treasury share after the merger, and (c) the number of shares to be issued by
the surviving corporation in the merger does not exceed twenty percent (20%) of
the shares outstanding immediately before the merger. California law contains a
similar exception to its voting requirements for reorganizations where
shareholders or the corporation itself, or both, immediately before the
reorganization will own immediately after the reorganization equity securities
constituting more than five-sixths of the voting power of the surviving or
acquiring corporation or its parent entity.
Both California and Delaware law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the voting shares of the corporation transferring such assets.
With certain exceptions, California law also requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. In contrast, Delaware law
generally does not require class voting, except in certain transactions
involving an amendment to the certificate of incorporation that adversely
affects a specific class of shares.
California law also requires that holders of nonredeemable common stock
receive nonredeemable common stock in a merger of the corporation with the
holder of more than fifty percent (50%) but less than ninety percent (90%) of
such common stock or its affiliate unless all of the holders of such common
stock consent to the transaction. This provision of California law may have the
effect of making a "cash-out" merger by a majority shareholder more difficult to
accomplish. Although Delaware law does not parallel California law in this
respect, under some circumstances Section 203 of the Delaware General
Corporation Law does provide similar protection against coercive two-tiered bids
for a corporation in which the shareholders are not treated equally. See
"Shareholder Approval of Certain Business Combinations."
California law also provides that, except in certain circumstances, when a
tender offer or a proposal for a reorganization or for a sale of assets is made
by an interested party (generally a controlling or managing party of the target
corporation), an affirmative opinion in writing as to the fairness of the
consideration to be paid to the shareholders must be delivered to shareholders.
This fairness opinion requirement does not apply to a corporation that does not
have shares held of record by at least one hundred (100) persons or to a
transaction
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that has been qualified under California state securities laws. California law
also provides that if a tender of shares or vote is sought pursuant to an
interested party's proposal and a later proposal is made by another party at
least ten (10) days before the date of acceptance of the interested party
proposal, the shareholders must be informed of the later offer and be afforded a
reasonable opportunity to withdraw any vote, consent or proxy, or to withdraw
any tendered shares. Delaware law has no comparable provisions, and the
shareholders of Coast Delaware might therefore be deprived of an opportunity to
consider such other proposal.
Amendment of Articles of Incorporation. In general, Delaware law requires
an amendment to a certificate of incorporation to be approved by a majority of
the outstanding stock entitled to vote thereon. In addition, a separate class
vote is required if the amendment would:
(a) increase or decrease the aggregate number of authorized shares of such
class;
(b) increase or decrease the par value of the shares of such class; or
(c) alter or change the powers and rights of such class so as to adversely
affect the holders of shares of such class.
Notwithstanding, Delaware law allows the number of authorized shares of a class
to be increased or decreased by the affirmative vote of holders of a majority of
the stock of the corporation (without class voting) if the certificate of
incorporation so provides (and such provision was adopted by the affirmative
vote of holders of a majority of such class). Coast Delaware's Certificate of
Incorporation does not so provide.
The California General Corporation Law also requires approval of a majority
of the outstanding shares for an amendment of articles of incorporation. It
further provides that approval of a majority of a class of shares is required,
whether or not otherwise required in the articles of incorporation, if the
amendment would:
(a) increase or decrease the aggregate number of authorized shares of such
class;
(b) effect an exchange, reclassification or cancellation of all or part of
such class;
(c) effect an exchange, or create a right of exchange, of all or part of
the shares of another class into shares of such class;
(d) change the rights, preferences, privileges or restrictions of the
shares of such class;
(e) create a new class of shares having rights, preferences or privileges
senior to such class, or increase the rights, preferences or privileges
or the number of authorized shares of a class having rights preferences
or privileges that are senior to the shares of such class;
(f) in the case of preferred shares, divide the shares into series having
different rights, preferences and privileges; or
(g) cancel or otherwise affect dividends on the shares of such class which
have accrued but have not been paid.
In addition, if a series of a class of stock would be adversely affected by
such amendment differently than other series of the same class, the amendment
must also be approved by holders of such series.
Supermajority Provisions. Delaware law permits a Delaware corporation to
specify a supermajority vote requirement for approval of certain transactions by
shareholders. California law similarly permits supermajority provisions. If a
California corporation has one hundred (100) or more shareholders, however, then
(a) an amendment to its articles of incorporation for the purpose of including
therein a supermajority voting requirement must be approved by the same
proportion of the outstanding shares as the supermajority vote provision
requires, (b) a supermajority vote provision may not require a vote in excess of
sixty-six and two-thirds percent (66 2/3%), and (c) any supermajority provision
automatically becomes inoperative after two years, unless renewed by another
shareholder vote.
Interested Director Transactions. Under both California and Delaware law,
certain contracts or transactions in which one or more of a corporation's
directors has an interest are not void or voidable because of such interest
provided that certain conditions, such as obtaining the required approval and
fulfilling the require-
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ments of good faith and full disclosure, are met. With certain exceptions, the
conditions are similar under California and Delaware law. Under California and
Delaware law, (a) either the shareholders or the board of directors must approve
any such contract or transaction after full disclosure of the material facts,
and, under California law, the contract or transaction must also be "just and
reasonable" to the corporation in the case of approval of the board of
directors, or (b) the contract or transaction must have been "just and
reasonable" (in California) or "fair" (in Delaware) as to the corporation at the
time it was approved. In the latter case, California law explicitly places the
burden of proof on the interested director. Under California law, if shareholder
approval is sought, the interested director is not entitled to vote his shares
at a shareholder meeting with respect to any action regarding such contract or
transaction. If board approval is sought, the contract or transaction must be
approved by a majority vote of a quorum of the directors, without counting the
vote of any interested directors (except that interested directors may be
counted for the purpose of establishing a quorum). Under Delaware law, if board
approval is sought, the contract or transaction must be approved by a majority
of the disinterested directors (even though less than a majority of a quorum).
Therefore, certain transactions that the Board of Directors of Coast California
might not be able to approve because the number of disinterested directors is
not large enough to constitute a majority of a quorum could be approved by a
majority of the disinterested directors of Coast Delaware, although less than a
majority of a quorum. The Company is not aware of any plan to propose any
transaction involving directors of the Company that could not be so approved
under California law but could be so approved under Delaware law.
Voting by Ballot. California law provides that the election of directors
may proceed in the manner described in a corporation's bylaws. Coast
California's Bylaws provide that the election of directors at shareholders'
meetings may be by voice vote or ballot, unless before such vote a shareholder
demands a vote by ballot, in which case such vote must be by ballot. Under
Delaware law, the right to vote by written ballot may be restricted as so
provided in the certificate of incorporation. The Certificate of Incorporation
and Bylaws of Coast Delaware provide that election need not be by ballot. It may
be more difficult for a shareholder to contest the outcome of a vote that has
not been conducted by written ballot.
Shareholder Derivative Suits. California law provides that a shareholder
bringing a derivative action on behalf of a corporation need not have been a
shareholder at the time of the transaction in question, provided that certain
tests are met. Under Delaware law, a shareholder may only bring a derivative
action on behalf of the corporation if the shareholder was a shareholder of the
corporation at the time of the transaction in question or his or her stock
thereafter devolved upon him or her by operation of law. California law also
provides that the corporation or the defendant in a derivative suit may make a
motion to the court for an order requiring the plaintiff shareholder to furnish
a security bond. Delaware does not have a similar bonding requirement.
Appraisal Rights. Under both California and Delaware law, a shareholder of
a corporation participating in certain major corporate transactions may, under
varying circumstances, be entitled to appraisal rights pursuant to which such
shareholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she otherwise would receive in the
transaction. Under Delaware law, such appraisal rights are not available (a)
with respect to the sale, lease or exchange of all or substantially all of the
assets of a corporation, (b) with respect to a merger or consolidation by a
corporation the shares of which either are listed on a national securities
exchange or are held of record by more than two thousand (2,000) holders if such
shareholders receive only shares of the surviving corporation or shares of any
other corporation that either are listed on a national securities exchange or
are held of record by more than two thousand (2,000) holders, plus cash in lieu
of fractional shares, or (c) to shareholders of a corporation surviving a merger
if no vote of the shareholders of the surviving corporation is required to
approve the merger because the merger agreement does not amend the existing
certificate of incorporation, each share of the surviving corporation
outstanding before the merger is an identical outstanding or treasury share
after the merger and the number of shares to be issued in the merger does not
exceed twenty percent (20%) of the shares of the surviving corporation
outstanding immediately before the merger and if certain other conditions are
met.
The limitations on the availability of appraisal rights under California
law are different from those under Delaware law. California law generally
affords appraisal rights in sales of asset reorganizations as well as in
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corporate mergers and other business combinations involving a California
corporation. However, shareholders of a California corporation whose shares are
listed on a national securities exchange (as are the shares of Coast California)
or on a list of over-the-counter margin stocks issued by the Board of Governors
of the Federal Reserve System generally do not have such appraisal rights unless
the holders of at least five percent (5%) of the class of outstanding shares
make written demands for cash payments by exercise of their appraisal rights or
the corporation or any law restricts the transferability of the corporation's
shares. In addition, shareholders of a California corporation that is a party to
a merger or other corporate reorganization will not have such appraisal rights
if the corporation's shareholders or the corporation itself, or both,
immediately before the reorganization will own, immediately after the
reorganization, equity securities (other than warrants or rights to subscribe to
such equity securities) constituting more than five-sixths (5/6ths) of the
voting power of the surviving or acquiring corporation or its parent entity (as
will be the case in the Proposed Reincorporation).
Appraisal or dissenters' rights are, therefore, not available to
shareholders of Coast California with respect to the Proposed Reincorporation.
Dissolution. Under California law, shareholders holding fifty percent (50%)
or more of the total voting power of a corporation may authorize a dissolution
of the corporation, with or without the approval of the corporation's board of
directors, and this right may not be modified by the articles of incorporation.
Under Delaware law, unless the board of directors approves a proposal to
dissolve the corporation, the dissolution must be approved by shareholders
holding one hundred percent (100%) of the total voting power of the corporation.
Only if the dissolution is initiated by the board of directors may it be
approved by a simple majority of the corporation's shareholders. In the event of
such a board-initiated dissolution, Delaware law allows a Delaware corporation
to include in its certificate of incorporation a supermajority voting
requirement in connection with dissolutions. Coast Delaware's Certificate of
Incorporation contains no such supermajority voting requirement, however, and a
majority of shares voting at a meeting at which quorum is present would be
sufficient to approve a dissolution of Coast Delaware if such a dissolution were
to be first approved by its Board of Directors.
APPLICATION OF THE GENERAL CORPORATION LAW OF CALIFORNIA TO DELAWARE
CORPORATIONS
Under Section 2115 of the California General Corporation Law, certain
foreign corporations (i.e. corporations not organized under California law) are
placed in a special category if they have characteristics of ownership and
operation which indicate that they have significant contacts with California. If
Coast Delaware does not qualify for one of the statutory exemptions, it would be
subject to a number of key provisions of the California General Corporation Law
applicable to corporations incorporated in California. Among the more important
provisions are those relating to the election and removal of directors,
cumulative voting, classified boards of directors, standards of liability and
indemnification of directors, dividends and repurchases of shares, shareholder
meetings, approval of certain corporate transactions, dissenters' and appraisal
rights and inspection of corporate records. See "Significant Differences Between
the Corporation Laws of California and Delaware" above. Exceptions from Section
2115 are provided for corporations whose shares are listed on a major national
securities exchange, such as the AMEX, and for corporations that have eight
hundred (800) or more shareholders of record and whose shares are traded in the
Nasdaq National Market. The shares of Coast Delaware Common Stock will be listed
on the AMEX and, therefore, Coast Delaware will not be subject to Section 2115.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain federal income tax consequences to
holders of Coast California Common Stock who receive Coast Delaware Common Stock
in exchange for their Coast California Common Stock as a result of the Proposed
Reincorporation. The discussion does not address all the tax consequences of the
Proposed Reincorporation that may be relevant to particular Coast California
shareholders, such as dealers in securities, holders of stock options or those
Coast Delaware shareholders who acquired their shares of Coast California Common
Stock upon the exercise of stock options. In view of the varying nature of such
tax consequences, each shareholder is urged to consult his or her own tax
advisor as to the specific tax
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consequences of the Proposed Reincorporation, including the applicability of
federal, state, local or foreign tax laws.
The Proposed Reincorporation will constitute a tax-free reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). No gain or loss will be recognized by holders of Common Stock of Coast
California upon receipt of Common Stock of Coast Delaware pursuant to the
Proposed Reincorporation. The aggregate tax basis of the Common Stock of Coast
Delaware received by each shareholder will be the same as the aggregate tax
basis of the Common Stock of Coast California held by each shareholder of Coast
California and will include the period of time during which such shareholder
held the Common Stock of Coast California surrendered in exchange therefor,
provided that such Coast California stock was held by such shareholder as a
capital asset at the time of the Proposed Reincorporation.
State, local or foreign income tax consequences to shareholders may vary
from the federal tax consequences described above.
The Company should not recognize gain or loss for federal income tax
purposes as a result of the Proposed Reincorporation, and Coast Delaware should
succeed, without adjustment, to the federal income tax attributes of Coast
California.
REGULATORY REQUIREMENTS
In connection with the Proposed Reincorporation, the Company will be
required to comply with certain state securities and corporate laws and
regulations. It is anticipated that the Company will comply with such
requirements either before or immediately following approval of the Proposed
Reincorporation by the shareholders.
PROPOSAL THREE
APPROVAL OF THE
1997 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has adopted, subject to shareholder approval, the
1997 Employee Stock Purchase Plan (the "Purchase Plan"). The purposes of the
Purchase Plan are to provide to employees an incentive to join and remain in the
service of the Company and its subsidiaries, to promote employee morale and to
encourage employee ownership of the Company's Common Stock by permitting them to
purchase shares at a discount through payroll deductions. The Purchase Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code. The Purchase Plan authorizes the sale of up to
400,000 shares of Common Stock.
The Purchase Plan is substantially similar to the Company's 1987 Employee
Stock Purchase Plan, which will expire as of October 13, 1997.
Approval of the Purchase Plan will require the affirmative vote of a
majority of the shares of the Company's Common Stock present or represented and
entitled to vote at the meeting. THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PURCHASE PLAN.
The following description of the Purchase Plan is qualified in all respects
by reference to the Purchase Plan itself, the full text of which may be obtained
from the Company upon written request to the Secretary of the Company.
DESCRIPTION OF THE PURCHASE PLAN
Every employee of the Company who customarily works more than 20 hours per
week and more than 5 months per year will be eligible to participate in
offerings made under the Purchase Plan if on the offering date such employee has
been employed by the Company for at least 3 months. Employees of any present or
future subsidiary of the Company may also participate in the Purchase Plan in
the discretion of the Board of
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Directors. An employee may not participate in an offering under the Purchase
Plan if he owns shares of stock possessing 5% or more of the total combined
voting power or value of all classes of stock of the Company or of any parent or
subsidiary of the Company. The approximate number of persons who currently are
eligible to participate in the Purchase Plan is 250. The Company believes that
the benefits or amounts that have been received or will be received by any
participant under the Purchase Plan cannot be determined.
The Purchase Plan may be administered by either the Board of Directors or a
committee consisting of at least two directors appointed by the Board (the
"Committee"). The Board has delegated administration of the Purchase Plan to the
Compensation Committee, which is comprised of three non-employee directors who
are not eligible to participate in the Purchase Plan. Subject to the provisions
of the Purchase Plan, the Committee has full authority to implement, administer
and make all determinations necessary under the Purchase Plan.
Each offering under the Purchase Plan will commence on such date (the
"Offering Date") and shall continue for such period (the "Offering Period") as
the Committee in its direction shall designate from time to time. Unless the
Committee designates otherwise, offerings will be made once each year and each
Offering Period will be for a period of 12 months.
Eligible employees who elect to participate in an offering will purchase
shares of Common Stock through regular payroll deductions in an amount of not
lees than 1% nor more than 15% of base pay, as designated by the employee. For
this purpose, "base pay" includes all salaries and regularly hourly wages, but
does not include bonuses, commissions, overtime pay, or other special payments,
fees or allowances. Shares of Common Stock will be purchased automatically on
the last day of the Offering Period (the "Purchase Date") at a price equal to
85% of the fair market value of the shares on the Offering Date or 85% of the
fair market value of the shares as of the Purchase Date, whichever is lower. A
participant may withdraw from an offering at any time prior to the Purchase
Date, whichever is lower. A participant may withdraw form an offering at any
time prior to the Purchase Date and receive a refund of his payroll deductions,
without interest. A participant's rights in the Purchase Plan are
nontransferable. The Purchase Plan is administered in a manner designed to
ensure that any affiliate participant's commencement or discontinuation of
participation in the Purchase Plan or increase or decrease of payroll deductions
will be effected in compliance with the exemptions from liability under Section
16(b) of the Securities Exchange Act of 1934 as set forth in Rule 16b-3
promulgated thereunder.
A maximum of 2,500 shares may be purchased by a participant in any one
offering. Furthermore, no employee may purchase stock in an amount which would
require his rights under the Purchase Plan (and any similar purchase plans of
the Company and any parent and subsidiaries of the Company) to accrue at a rate
which exceeds $25,000 in fair market value, determined as of the Offering Date,
for each calendar year.
The Board of Directors may at any time amend, suspend or terminate the
Purchase Plan; provided that any amendment that would (i) increase the aggregate
number of shares authorized for sale under the Purchase Plan (except pursuant to
adjustments provided for in the Purchase Plan), or (ii) change the standards of
eligibility for participation, shall not be effective unless approved by the
shareholders within 12 months of the adoption of such amendment by the Board.
Unless previously terminated by the Board, the Purchase Plan will terminate on
May 1, 2007 or when all shares authorized for sale thereunder have been sold,
whichever is earlier.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF PURCHASE PLAN
No taxable income is recognized by a participant either at the time of
election to participate in an offering under the Purchase Plan or at the time
shares are purchased thereunder.
If shares are disposed of at least two years after the offering date and at
least one year after the date of purchase, then the lessor of (i) the excess of
the fair market value of the shares at the time of such disposition over the
purchase price of the shares or (ii) the excess of the fair market value of the
shares on the offering date over the purchase price will be treated as ordinary
income to the participant. Any further gain upon such disposition will be taxed
as long-term capital gain. Any long-term capital gain will be taxed as capital
gain at the rates then in effect. If the shares are sold and the sale price is
less than the purchase price, there is no
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<PAGE> 32
ordinary income and the participant will have a capital loss equal to the
difference between the sale price and the purchase price. The ability of a
participant to utilize such a capital loss will depend on the participant's
other tax attributes and the statutory limitation on a capital loss deductions
not discussed herein.
If a participant disposes of the shares before the expiration of the
one-year and two-year holding periods described above (a "disqualifying
disposition"), then upon such disposition the federal income tax consequences
will be as follows: (1) the difference between the purchase price and the fair
market value of the shares on the date of purchase will be taxed to the
participant as ordinary income, and (2) the excess, if any, of the fair market
value of the shares on the date of disposition over their fair market value on
the date of purchase will be taxed as capital gain. If the shares are sold for
less than their fair market value on the purchase date, the same amount of
ordinary income will be attributed to the participant and a capital loss
recognized equal to the difference between the sale price and the value of the
shares on such purchase date. As indicated above, the ability of the participant
to utilize such a capital loss will depend on the participant's other tax
attributes and the statutory limitation on capital losses not discussed herein.
The amount of ordinary income recognized by the participant will be deducible by
the Company for federal income tax purposes.
INDEPENDENT ACCOUNTANTS
During 1996, Grant Thornton provided audit services to the Company which
included the examination of the Company's financial statements for the year
ended December 31, 1996. The Company has not yet selected auditors for 1997. A
representative of Grant Thornton is expected to be present at the Annual Meeting
to respond to appropriate questions from shareholders, and will have an
opportunity to make a statement if he so desires.
ANNUAL REPORT
The 1996 Annual Report to Shareholders of the Company is being sent with
this Proxy Statement to each shareholder of record as of the Record Date. The
Annual Report is not to be regarded as proxy solicitation material.
SHAREHOLDER PROPOSALS
Any shareholder desiring to submit a proposal for action at the 1998 Annual
Meeting of Shareholders and presentation in the Company's Proxy Statement with
respect to such meeting should arrange for such proposal to be delivered to the
Company at its principal place of business no later than March 6, 1998 in order
to be considered for inclusion in the Company's proxy statement relating to that
meeting. Matters pertaining to such proposals, including the number and length
thereof, eligibility of persons entitled to have such proposals included and
other aspects are regulated by the Securities Exchange Act of 1934, Rules and
Regulations of the Securities and Exchange Commission and other laws and
regulations to which interested persons should refer.
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<PAGE> 33
OTHER MATTERS
Management is not aware of any other matters to come before the Annual
Meeting. If any other matter not mentioned in this Proxy Statement is brought
before the Annual Meeting, the proxy holders named in the enclosed Proxy will
have discretionary authority to vote all proxies with respect thereto in
accordance with their judgment.
By Order of the Board of Directors
Sandra A. Knell
Secretary
July 3, 1997
COPIES OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K, AS AMENDED, FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
WILL BE PROVIDED TO SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
SECRETARY, THE COAST DISTRIBUTION SYSTEM, 1982 ZANKER ROAD, SAN JOSE, CALIFORNIA
95112.
31
<PAGE> 34
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
OF
THE COAST DISTRIBUTION SYSTEM, INC., A DELAWARE CORPORATION,
AND
THE COAST DISTRIBUTION SYSTEM, A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER, dated as of August , 1997 ("Merger
Agreement") is entered into by and between The Coast Distribution System, a
California corporation ("Coast California"), and The Coast Distribution System,
Inc., a Delaware corporation ("Coast Delaware"), which corporations are
sometimes referred to herein as the "Constituent Corporations."
RECITALS
A. Coast California is a corporation duly organized and existing under the
laws of the State of California and has authorized capital of 10,000,000 shares
of Common Stock, no par value (the "Coast California Common Stock"). As of
August , 1997, shares of Coast California Common Stock were issued
and outstanding.
B. Coast Delaware is a corporation duly organized and existing under the
laws of the State of Delaware and has authorized capital of 20,000,000 shares of
Common Stock, par value $.001 per share (the "Coast Delaware Common Stock"), and
5,000,000 shares of Preferred Stock, par value $.001 per share. As of August ,
1997, 100 shares of Coast Delaware Common Stock were issued and outstanding, all
of which were held by Coast California. No shares of Preferred Stock were issued
and outstanding.
C. The Board of Directors of Coast California has determined that it is
advisable and in the best interests of Coast California and its shareholders
that Coast California merge with and into Coast Delaware upon the terms and
subject to the conditions of this Merger Agreement for the purpose of effecting
the reincorporation of Coast California in the State of Delaware.
D. The respective Boards of Directors of Coast California and Coast
Delaware have adopted and approved the terms and conditions of this Merger
Agreement.
E. The parties intend by this Merger Agreement to effect a reorganization
under Section 368 of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements contained herein, the parties hereto agree, subject to the terms
and conditions set forth herein, as follows:
I.
MERGER
1.1 Merger. In accordance with the provisions of this Merger Agreement,
the California General Corporation Law and the Delaware General Corporation Law,
Coast California shall be merged with and into Coast Delaware (the "Merger"),
the separate existence of Coast California shall cease and Coast Delaware shall
be, and is herein sometimes referred to as, the "Surviving Corporation," and the
name of the Surviving Corporation shall be "The Coast Distribution System, Inc."
1.2 Filing and Effectiveness. The Merger shall become effective when the
following actions have been completed:
A-1
<PAGE> 35
(a) All of the conditions precedent to the consummation of the Merger
specified in this Merger Agreement and required under the California
General Corporation Law and the Delaware General Corporation Law have been
satisfied or duly waived by the party entitled to satisfaction thereof;
(b) An executed Certificate of Merger or an executed counterpart of
this Merger Agreement meeting the requirements of the California General
Corporation Law has been filed with the Secretary of State of the State of
California; and
(c) An executed Certificate of Merger or an executed counterpart of
this Merger Agreement meeting the requirements of the Delaware General
Corporation Law has been filed with the Secretary of State of the State of
Delaware.
The date and time when the Merger shall become effective is herein called
the "Effective Time of the Merger."
1.3 Effect of the Merger. At the Effective Time of the Merger, the
separate existence and corporate organization of Coast California shall cease
and Coast Delaware, as the Surviving Corporation, (i) shall continue to possess
all of its assets, rights, powers and property as constituted immediately before
the Effective Time of the Merger, (ii) shall be subject to all actions
previously taken by its and Coast California's Board of Directors, (iii) shall
succeed, without other transfer, to all of the assets, rights, powers and
property of Coast California in the manner more fully set forth in Section
259(a) of the Delaware General Corporation Law, (iv) shall continue to be
subject to all of its debts, liabilities and obligations as constituted
immediately before the Effective Time of the Merger and (v) shall succeed,
without other transfer, to all of the debts, liabilities and obligations of
Coast California in the same manner as if Coast Delaware had itself incurred
them, all as more fully provided under the applicable provisions of the Delaware
General Corporation Law and the California General Corporation Law.
II.
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation of
Coast Delaware as in effect immediately before the Effective Time of the Merger
shall continue in full force and effect as the Certificate of Incorporation of
the Surviving Corporation until duly amended or repealed in accordance with the
provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of Coast Delaware as in effect immediately before
the Effective Time of the Merger shall continue in full force and effect as the
Bylaws of the Surviving Corporation until duly amended or repealed in accordance
with the provisions thereof and applicable law.
2.3 Officers and Directors. The persons who are officers and directors of
Coast California immediately prior to the Effective Time of the Merger shall,
after the Effective Time of the Merger, be the officers and directors of the
Surviving Corporation, without change until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Certificate of
Incorporation, Bylaws and applicable law; provided, however, that Brian P.
Friedman and Robert S. Throop shall serve as Class I directors of Coast
Delaware, with their term of office to expire at the 1998 Annual Meeting of
Stockholders of Coast Delaware, Louis B. Sullivan and John E. Turco shall serve
as Class II directors of Coast Delaware, with their term of office to expire at
the 1999 Annual Meeting of Stockholders of Coast Delaware, and Thomas R. McGuire
and Ben A. Frydman shall serve as Class III directors of Coast Delaware, with
their term of office to expire at the 2000 Annual Meeting of Stockholders of
Coast Delaware.
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III.
MANNER OF CONVERSION OF STOCK
3.1 Coast California Shares. Upon the Effective Time of the Merger, each
share of Coast California Common Stock, no par value, issued and outstanding
immediately before the Effective Time of the Merger shall by virtue of the
Merger and without any action by the Constituent Corporations, by the holder of
such shares or by any other person, be converted into and become one fully paid
and nonassessable share of Common Stock, $.001 par value per share, of the
Surviving Corporation.
3.2 Coast California Options, Warrants and Convertible Securities. At the
Effective Time of the Merger, the Surviving Corporation shall assume and
continue the stock option and stock purchase plans of Coast California
(including the 1983 Incentive Stock Option Plan, the 1987 Non-Qualified Option
Plan, the 1993 Stock Option Plan, the 1987 Employee Stock Purchase Plan and the
1997 Employee Stock Purchase Plan), and all other options, warrants and rights
to purchase or acquire shares of Coast California Common Stock. At the Effective
Time of the Merger, each outstanding and unexercised option, warrant and right
to purchase or acquire shares of Coast California Common Stock shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into and become an option, warrant or right to purchase or acquire
shares of the Surviving Corporation's Common Stock on the basis of one share of
the Surviving Corporation's Common Stock for each share of Coast California
Common Stock issuable pursuant to any such option, warrant or right, and under
the same terms and conditions and at an exercise price per share equal to the
exercise price per share applicable to any such Coast California option, warrant
or right.
A number of shares of the Surviving Corporation's Common Stock shall be
reserved for issuance upon the exercise of options, warrants and other
securities equal to the number of shares of Coast California Common Stock so
reserved immediately before the Effective Time of the Merger.
3.3 Coast Delaware Common Stock. Upon the Effective Time of the Merger,
each share of Coast Delaware Common Stock, $.001 par value per share, issued and
outstanding immediately before the Effective Time of the Merger shall, by virtue
of the Merger and without any action by Coast Delaware, by the holder of such
shares or by any other person, be canceled and returned to the status of
authorized but unissued shares.
3.4 Exchange of Certificates. After the Effective Time of the Merger, each
holder of an outstanding certificate representing shares of Coast California
Common Stock may, at such shareholder's option, surrender the same for
cancellation to U.S. Stock Transfer Corporation, as transfer agent (the
"Transfer Agent"), and each such holder shall be entitled to receive in exchange
therefor a certificate or certificates representing the number of shares of the
Surviving Corporation's Common Stock into which the surrendered shares were
converted as herein provided. Until so surrendered, each outstanding certificate
theretofore representing shares of Coast California Common Stock shall be deemed
for all purposes to represent the number of whole shares of the Surviving
Corporation's Common Stock into which the shares of Coast California Common
Stock were converted in the Merger.
The registered owner on the books and records of the Surviving Corporation
or the Transfer Agent of any such outstanding certificate shall, until such
certificate has been surrendered for transfer or conversion or otherwise
accounted for to the Surviving Corporation or the Transfer Agent, have and be
entitled to exercise any voting or other rights with respect to and to receive
dividends and other distributions upon the shares of Common Stock of the
Surviving Corporation represented by such outstanding certificate as provided
above.
Each certificate representing Common Stock of the Surviving Corporation so
issued in the Merger shall bear the same legends, if any, with respect to
restrictions on transferability as the certificates of Coast California so
converted and given in exchange therefor, unless otherwise determined by the
Board of Directors of the Surviving Corporation in compliance with applicable
laws.
A-3
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IV.
GENERAL
4.1 Covenants of Coast Delaware. Coast Delaware covenants and agrees that
it will, on or before the Effective Time of the Merger:
(a) Qualify to do business as a foreign corporation in the State of
California and, in connection therewith, appoint an agent for service of
process as required under the provisions of Section 2105 of the California
General Corporation Law.
(b) Take such other actions as may be required by the California
General Corporation Law in or to effectuate the Merger.
4.2 Further Assurances. From time to time, as and when required by Coast
Delaware or by its successors or assigns, there shall be executed and delivered
on behalf of Coast California such deeds and other instruments, and there shall
be taken or caused to be taken by it such further and other actions as shall be
appropriate or necessary in order to vest or perfect in or conform of record or
otherwise by Coast Delaware the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of Coast California and otherwise to carry out the purposes of this
Merger Agreement, and the officers and directors of Coast Delaware are fully
authorized in the name and on behalf of Coast California or otherwise to take
all such actions and to execute and deliver all such deeds and other
instruments.
4.3 Deferral. Consummation of the Merger may be deferred by the Board of
Directors of Coast California for a reasonable period of time if the Board of
Directors determines that deferral would be in the best interests of Coast
California and its shareholders.
4.4 Amendment. The parties hereto, by mutual consent of their respective
Boards of Directors, may amend, modify or supplement this Merger Agreement in
such manner as may be agreed upon by them in writing at any time before or after
approval of this Merger Agreement by the shareholders of Coast California and
Coast Delaware, but not later than the Effective Time of the Merger; provided,
however, that no such amendment, modification or supplement not approved by the
shareholders of Coast California and Coast Delaware shall adversely affect the
rights of such shareholders or change any of the principal terms of this Merger
Agreement.
4.5 Abandonment. At any time before the Effective Time of the Merger, this
Merger Agreement may be terminated and the Merger may be abandoned for any
reason whatsoever by the Board of Directors of either Coast California or of
Coast Delaware, or of both, notwithstanding the approval of this Merger
Agreement by the shareholders of Coast California or Coast Delaware, or by both,
if circumstances arise which make the Merger inadvisable. In the event of
abandonment of this Merger Agreement, as above provided, this Merger Agreement
shall become wholly void and of no effect, and no liability on the part of the
Board of Directors or shareholders of Coast California or Coast Delaware shall
arise by virtue of such termination.
4.6 Expenses. If the Merger becomes effective, the Surviving Corporation
shall assume and pay all expenses in connection therewith not theretofore paid
by the respective parties. If for any reason the Merger shall not become
effective, Coast California shall pay all expenses incurred in connection with
all the proceedings taken in respect of this Merger Agreement or relating
thereto.
4.7 Registered Office. The registered office of the Surviving Corporation
in the State of Delaware is located at 1013 Centre Road, Wilmington, Delaware
19805, and Corporation Service Company is the registered agent of the Surviving
Corporation at such address.
4.8 Agreement. An executed copy of this Merger Agreement will be on file
at the principal place of business of the Surviving Corporation at 1982 Zanker
Road, San Jose, California 95112, and, upon request and without cost, a copy
thereof will be furnished to any shareholder.
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4.9 Governing Law. This Merger Agreement shall in all respects be
construed, interpreted and enforced in accordance with and governed by the laws
of the State of Delaware and, so far as applicable, the Merger provisions of the
California General Corporation Law.
4.10 Counterparts. This Merger Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Coast California and Coast Delaware have caused this
Merger Agreement to be signed by their respective duly authorized officers.
THE COAST DISTRIBUTION SYSTEM,
a California corporation
--------------------------------------
Thomas R. McGuire, Chief Executive
Officer
ATTEST:
- ---------------------------------------------------------
Sandra A. Knell, Secretary
THE COAST DISTRIBUTION SYSTEM, INC.,
a Delaware corporation
--------------------------------------
Thomas R. McGuire, Chief Executive
Officer
ATTEST:
- ---------------------------------------------------------
Sandra A. Knell, Secretary
A-5
<PAGE> 39
EXHIBIT B
CERTIFICATE OF INCORPORATION
OF
THE COAST DISTRIBUTION SYSTEM, INC.
ARTICLE I -- NAME
The name of this Corporation is The Coast Distribution System, Inc.
ARTICLE II -- REGISTERED OFFICE AND AGENT
The registered office of the Corporation in the State of Delaware is
located 1013 Centre Road, Wilmington, Delaware 19805, County of New Castle, and
Corporation Service Company is the registered agent of the Corporation.
ARTICLE III -- PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law, as amended from time to time.
ARTICLE IV -- AUTHORIZED CAPITAL
The aggregate number of shares of all classes of stock which the
Corporation shall have authority to issue is 25,000,000 shares, consisting of
(a) 20,000,000 shares of Common Stock, $.001 par value per share (the "Common
Stock"), and (b) 5,000,000 shares of Preferred Stock, $.001 par value per share
(the "Preferred Stock").
The Board of Directors is authorized, subject to limitations prescribed by
law, to provide for the issuance of the shares of Preferred Stock in one or more
series, and by filing a certificate as required by the General Corporation Law
of the State of Delaware, to establish from time to time the number of shares to
be included in each such series, and to fix the designation, powers, preferences
and relative, participating, optional or other special rights of the shares of
each such series and any qualifications, limitations or restrictions thereof.
ARTICLE V -- LIMITATION OF DIRECTORS' LIABILITY
A director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director: (i) for any breach of his duty of loyalty to the
Corporation or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law; (iii)
under Section 174 of the Delaware General Corporation Law; or (iv) for any
transaction from which the director derives an improper personal benefit. If the
Delaware General Corporation Law is hereafter amended to authorize corporate
action further limiting or eliminating the personal liability of directors, then
the liability of the directors of the Corporation shall be limited or eliminated
to the fullest extent permitted by the Delaware General Corporation Law, as so
amended from time to time. Any repeal or modification of this Article V by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation existing at the time of such repeal or modification.
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<PAGE> 40
ARTICLE VI -- NUMBER AND ELECTION OF DIRECTORS
A. The number of directors that constitute the whole Board of Directors of
the Corporation shall be designated in the manner provided in the Bylaws of the
Corporation.
B. At all elections of directors of the Corporation, subject to the
requirements of the next sentence, each holder of stock of the Corporation shall
be entitled to as many votes as shall equal the number of votes which (except
for this provision as to cumulative voting) such holder would be entitled to
cast for the election of directors with respect to his shares of stock
multiplied by the number of directors to be elected, and such holder may cast
all of such votes for a single director or may distribute them among the number
to be voted for or for any two or more of them as such holder may see fit. No
stockholder shall be entitled to cumulate votes unless the name of the candidate
for whom such votes would be cast has been placed in nomination prior to the
voting, and any stockholder entitled to vote in the election of directors has
given notice at the meeting, prior to the voting, of such stockholder's
intention to cumulate his votes.
C. Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws of the Corporation.
ARTICLE VII -- AMENDMENT OF BYLAWS
The Board of Directors of the Corporation shall have the power to make,
alter, amend, change, add to or repeal the Bylaws of the Corporation.
ARTICLE VIII -- ACTION BY STOCKHOLDERS
Stockholders of the Corporation may not take action by written consent in
lieu of a meeting. Any action required or permitted to be taken by the
stockholders of the Corporation may be taken only at a duly held annual or
special meeting of such holders.
ARTICLE IX -- INCORPORATOR
The name and address of the Incorporator of the Corporation is as follows:
Stewart A. Smith
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660-6441
I, THE UNDERSIGNED, being the Incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and accordingly, have hereunto set my hand this 30th day of June 1997.
--------------------------------------
Stewart A. Smith
B-2
<PAGE> 41
EXHIBIT C
================================================================================
BYLAWS
OF
THE COAST DISTRIBUTION SYSTEM, INC.,
A DELAWARE CORPORATION
AS ADOPTED JULY 2, 1997
================================================================================
<PAGE> 42
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify that:
(1) I am the duly elected and acting Secretary of THE COAST
DISTRIBUTION SYSTEM, INC., a Delaware corporation (the "Corporation"); and
(2) Attached hereto is a true and complete copy of the Bylaws of the
Corporation as duly adopted by the Corporation's Board of Directors as of
July 2, 1997.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal
of the Corporation on this 2nd day of July 1997.
--------------------------------------
Sandra A. Knell, Secretary
<PAGE> 43
BYLAWS
OF
THE COAST DISTRIBUTION SYSTEM, INC.
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE The registered office of the Corporation in
the State of Delaware shall be in the City of Wilmington, County of New Castle.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
SECTION 3. BOOKS. The books of the Corporation may be kept within or
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of stockholders shall be held at
such place either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors.
SECTION 2. ANNUAL MEETINGS. Annual meetings of stockholders, for the
purpose of electing directors and transacting such other business as may
properly be brought before the meeting, shall be held on such date and at such
time as shall be designated from time to time by the Board of Directors.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, for any
purpose or purposes, may be called by the Board of Directors, by the Chairman of
the Board, or by the Chief Executive Officer.
SECTION 4. NOTIFICATION OF BUSINESS TO BE TRANSACTED AT MEETING. To be
properly brought before a meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder entitled to vote at the meeting.
SECTION 5. NOTICE; WAIVER OF NOTICE. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise required by law, such notice shall be given not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the Corporation. A written waiver of any such notice signed by the
person entitled thereto, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
the meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
SECTION 6. QUORUM; ADJOURNMENT. Except as otherwise required by law, or
provided by the Certificate of Incorporation or these Bylaws, the holders of a
majority of the capital stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at all meetings of the stockholders. A meeting
at which a quorum is initially present may continue to transact business,
notwithstanding the withdrawal of enough votes to leave less than a quorum, if
any action taken is approved by at least a majority of the required quorum to
conduct that meeting. If, however, such
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quorum shall not be present or represented at any meeting of the stockholders,
the majority of the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting of the time and place of
the adjourned meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder entitled to
vote at the meeting.
SECTION 7. VOTING. Any matter, other than the election of directors,
brought before a meeting of stockholders at which a quorum is present shall,
unless otherwise provided by law, the Certificate of Incorporation or these
Bylaws, be decided by the vote of the holders of a majority of the stock
represented and entitled to vote thereon. Unless otherwise provided in the
Certificate of Incorporation, each stockholder represented at a meeting of
stockholders shall be entitled to cast one vote for each share of the capital
stock entitled to vote thereat held by such stockholder. At all elections of
directors of the Corporation, subject to the requirements of the next sentence,
each holder of stock of the Corporation shall be entitled to as many votes as
shall equal the number of votes which (except for this provision as to
cumulative voting) such holder would be entitled to cast for the election of
directors with respect to his shares of stock multiplied by the number of
directors to be elected, and such holder may cast all of such votes for a single
director or may distribute them among the number to be voted for or for any two
or more of them as such holder may see fit. No stockholder shall be entitled to
cumulate votes unless the name of the candidate for whom such votes would be
cast has been placed in nomination prior to the voting, and any stockholder
entitled to vote in the election of directors has given notice at the meeting,
prior to the voting, of such stockholder's intention to cumulate his votes.
Elections of directors need not be by ballot unless the Chairman of the meeting
so directs or unless a stockholder demands election by ballot at the meeting and
before the voting begins.
SECTION 8. PROXIES. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three (3) years from
its date, unless the proxy provides for a longer period. A proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or by delivering a proxy in accordance with applicable law bearing a later
date to the Secretary of the Corporation.
SECTION 9. NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Except as otherwise
provided in the Certificate of Incorporation, stockholders of the Corporation
may not take action by written consent in lieu of a meeting. Any action required
or permitted to be taken by the stockholders of the Corporation may be taken
only at a duly held annual or special meeting of such holders.
SECTION 10. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting. Stockholders on the record date are entitled to
notice and to vote or to receive the dividend, distribution or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after the record date,
except as otherwise provided by agreement or by applicable law.
SECTION 11. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has
charge of the stock ledger of the Corporation shall prepare and make, at least
ten (10) days before every meeting of stockholders, a
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complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present. The stock ledger of the Corporation shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list required
by this Section or the books of the Corporation, or to vote in person or by
proxy at any meeting of stockholders.
SECTION 12. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board of Directors may appoint one or more persons as
inspectors of election to act at the meeting or any adjournment thereof. If an
inspector or inspectors are not so appointed, or if an appointed inspector fails
to appear or fails or refuses to act at a meeting, the Chairman of any meeting
of stockholders may, and on the request of any stockholder or his proxy shall,
appoint an inspector or inspectors of election at the meeting. The duties of
such inspector(s) shall include: determining the number of shares outstanding
and the voting power of each; the shares represented at the meeting; the
existence of a quorum; the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents; determining the result; and such acts as may
be proper to conduct the election or vote with fairness to all stockholders. In
the event of any dispute between or among the inspectors, the determination of
the majority of the inspectors shall be binding.
SECTION 13. CONDUCT OF MEETING. At each meeting of stockholders the
Chairman of the Board of Directors, if one shall have been elected, (or in his
absence or if one shall not have been elected, the Chief Executive Officer)
shall act as Chairman of the meeting. The Secretary (or in his absence or
inability to act, the person whom the Chairman of the meeting shall appoint
Secretary of the meeting) shall act as Secretary of the meeting and keep the
minutes thereof. The order and manner of transacting business at all meetings of
stockholders shall be determined by the Chairman of the meeting.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Except as otherwise required by law or provided by the
Certificate of Incorporation, the business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors.
SECTION 2. NUMBER AND ELECTION OF DIRECTORS. Subject to any limitations in
the Certificate of Incorporation, the authorized number of directors of the
Corporation shall be fixed from time to time by the Board of Directors either by
a resolution of an amendment to this Bylaw duly adopted by the Board of
Directors. Until changed in the foregoing manner, the number of directors shall
be six (6). Directors shall be elected at each annual meeting of stockholders to
replace directors whose terms then expire, and, subject to the provisions of
Section 3 of this Article III, each director elected shall hold office for a
term of three (3) years or until his successor is duly elected and qualified, or
until his earlier death, resignation or removal. Any director may resign at any
time effective upon giving written notice to the Board of Directors, unless the
notice specifies a later time for such resignation to become effective. Unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. If the resignation of a director is effective at
a future time, the Board of Directors may elect a successor prior to such
effective time to take office when such resignation becomes effective. Directors
need not be stockholders.
SECTION 3. CLASSIFIED BOARD OF DIRECTORS. The Board of Directors shall be
divided into three (3) classes, as nearly equal in number as possible,
designated Class I, Class II and Class III. The number of directors constituting
each Class shall be fixed from time to time by a resolution duly adopted by the
Board of Directors. Class I directors shall hold office for an initial term
expiring at the first annual meeting of
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stockholders, Class II directors shall hold office for an initial term expiring
at the second annual meeting of stockholders, and Class III directors shall hold
office for a full term expiring at the third annual meeting of stockholders. At
each annual meeting of stockholders held thereafter, directors shall be elected
for a full term to succeed the directors of the Class whose terms then expire.
SECTION 4. VACANCIES. Subject to the limitations in the Certificate of
Incorporation, vacancies in the Board of Directors resulting from death,
resignation, removal or otherwise and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, although less than a quorum, or by a sole
remaining director. Each director so selected shall hold office for the
remainder of the full term of office of the former director which such director
replaces and until his successor is duly elected and qualified, or until his
earlier death, resignation or removal. No decrease in the authorized number of
directors constituting the Board of Directors shall shorten the term of any
incumbent directors.
SECTION 5. TIME AND PLACE OF MEETINGS. The Board of Directors shall hold
its meetings at such place, either within or without the State of Delaware, and
at such time as may be determined from time to time by the Board of Directors.
SECTION 6. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
place, either within or without the State of Delaware, on such date and at such
time as shall be specified in a notice thereof given as hereinafter provided in
Section 8 of this Article III or in a waiver of notice thereof.
SECTION 7. REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held at such places within or without the State of Delaware at such date and
time as the Board of Directors may from time to time determine and, if so
determined by the Board of Directors, notices thereof need not be given.
SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the Chairman of the Board, the Chief Executive Officer, or by any
two (2) directors. Notice of the date, time and place of special meetings shall
be delivered personally or by telephone to each director or sent by first-class
mail or telegram, charges prepaid, addressed to each director at the director's
address as it is shown on the records of the Corporation. In case the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. In case the notice is delivered
personally or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours before the
time of the holding of the meeting. The notice need not specify the purpose of
the meeting. A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 9. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT. Except as
otherwise required by law, or provided in the Certificate of Incorporation or
these Bylaws, a majority of the directors shall constitute a quorum for the
transaction of business at all meetings of the Board of Directors and the
affirmative vote of not less than a majority of the directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors.
If a quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting, from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
A meeting at which a quorum is initially present may continue to transact
business, notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum to conduct that meeting.
When a meeting is adjourned to another time or place (whether or not a quorum is
present), notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the Board of Directors may transact any business which
might have been transacted at the original meeting.
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SECTION 10. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by the
Certificate of Incorporation, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if all the members of the Board of Directors or committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or committee.
SECTION 11. TELEPHONE MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, members of the Board of Directors of the
Corporation, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors or such committee, as the
case may be, by conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this Section 11 shall constitute presence
in person at such meeting.
SECTION 12. COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the entire Board, designate one or more committees, each committee
to consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any such
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the event of absence or disqualification of a member of a
committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the committee
member or members present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of the
absent or disqualified member. Any such committee, to the extent provided by
resolution of the Board of Directors or in the Bylaws of the Corporation, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to the
following matters: (i) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by law to be submitted to
the stockholders for approval, or (ii) adopting, amending or repealing any Bylaw
of the Corporation. Each committee shall keep regular minutes of its meetings
and report to the Board of Directors when required.
SECTION 13. COMPENSATION. The directors may be paid such compensation for
their services as the Board of Directors shall from time to time determine.
SECTION 14. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or the committee thereof
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose if: (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders. Interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
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ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a President,
a Secretary and a Chief Financial Officer. The Corporation may also have, at the
discretion of the Board of Directors, a Chairman of the Board, a Vice Chairman
of the Board, a Chief Executive Officer, one or more Vice Presidents, one or
more Assistant Financial Officers and Treasurers, one or more Assistant
Secretaries and such other officers as may be appointed in accordance with the
provisions of Section 3 of this Article IV.
SECTION 2. APPOINTMENT OF OFFICERS. The officers of the Corporation, except
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article IV, shall be appointed by the Board of Directors,
and each shall serve at the pleasure of the Board, subject to the rights, if
any, of an officer under any contract of employment.
SECTION 3. SUBORDINATE OFFICERS. The Board of Directors may appoint, and
may empower the Chief Executive Officer or President to appoint, such other
officers as the business of the Corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in the Bylaws or as the Board of Directors may from time to time
determine.
SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights of an
officer under any contract, any officer may be removed at any time, with or
without cause, by the Board of Directors or, except in case of an officer chosen
by the Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors. Any officer may resign at any time by
giving written notice to the Corporation. Any resignation shall take effect at
the date of the receipt of that notice or at any later time specified in that
notice; and, unless otherwise specified in that notice, the acceptance of the
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights of the Corporation under any contract to
which the officer is a party.
SECTION 5. VACANCIES IN OFFICES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to that office.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer is elected, shall, if present, preside at meetings of the stockholders
and of the Board of Directors. He shall, in addition, perform such other
functions (if any) as may be prescribed by the Bylaws or the Board of Directors.
SECTION 7. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
Corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the Corporation. He shall exercise the duties usually vested in the chief
executive officer of a corporation and perform such other powers and duties as
may be assigned to him from time to time by the Board of Directors or prescribed
by the Bylaws. In the absence of the Chairman of the Board and any Vice Chairman
of the Board, the Chief Executive Officer shall preside at all meetings of the
stockholders and of the Board of Directors.
SECTION 8. PRESIDENT. The President of the Corporation shall, subject to
the control of the Board of Directors and the Chief Executive Officer of the
Corporation, if there be such an officer, have general powers and duties of
management usually vested in the office of president of a corporation and shall
have such other powers and duties as may be prescribed by the Board of Directors
or the Bylaws or the Chief Executive Officer of the Corporation. In the absence
of the Chairman of the Board, Vice Chairman of the Board and Chief Executive
Officer, the President shall preside at all meetings of the Board of Directors
and stockholders.
SECTION 9. VICE PRESIDENT. In the absence or disability of the President,
the Vice Presidents, if any, in order of their rank as fixed by the Board of
Directors or, if not ranked, a Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them, respectively, by
the Board of Directors or the Bylaws, and the President, or the Chairman of the
Board.
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SECTION 10. SECRETARY. The Secretary shall keep or cause to be kept, at the
principal executive office or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of Directors, committees
of Directors, and stockholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice given, the names
of those present at Directors' meetings or committee meetings, the number of
shares present or represented at stockholders' meetings, and a summary of the
proceedings.
The Secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the Corporation's transfer agent or registrar, as
determined by resolution of the Board of Directors, a share register, or a
duplicate share register, showing the names of all stockholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same, and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors required by the Bylaws or by law
to be given, and he shall keep or cause to be kept the seal of the Corporation
if one be adopted, in safe custody, and shall have such powers and perform such
other duties as may be prescribed by the Board of Directors or by the Bylaws.
SECTION 11. CHIEF FINANCIAL OFFICER. Unless the Board of Directors
specifies otherwise, the Chief Financial Officer shall be the treasurer of the
Corporation and shall keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of accounts of the properties and
business transactions of the Corporation. The Chief Financial Officer shall
deposit all moneys and other valuables in the name and to the credit of the
Corporation with such depositories as may be designated by the Board of
Directors. He shall make such disbursements of the funds of the Corporation as
are authorized and shall render from time to time an account of all of his
transactions as Chief Financial Officer and of the financial condition of the
Corporation. The Chief Financial Officer shall also have such other powers and
perform such other duties as may be prescribed by the Board of Directors or the
Bylaws.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed in the name of the Corporation by
the Chairman or Vice Chairman of the Board of Directors, or the President or a
Vice President and by the Treasurer or an Assistant Treasurer, or by the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such stockholder in the Corporation.
SECTION 2. SIGNATURES. Any or all of the signatures on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Corporation may issue a new certificate
to be issued in place of any certificate theretofore issued by the Corporation,
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate to be lost, stolen or
destroyed. The Board of Directors may in its discretion require a bond in such
form and amount and with such surety as it may determine, before issuing a new
certificate.
SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in the
manner prescribed by law and in these Bylaws or in any agreement with the
stockholder making the transfer. Transfers of stock shall be made on the books
of the Corporation only by the person named in the certificate or by his
attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be canceled before a new certificate shall be
issued.
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SECTION 5. RECORD HOLDERS. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the record holder of
shares to receive dividends, and to vote as such record holder, and to hold
liable for calls and assessments a person registered on its books as the record
holder of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise required by law.
SECTION 6. TRANSFER AGENT. The Board of Directors may at its discretion
appoint one or more transfer agents, registrars and agents for making payment
upon any class of stock, bond, debenture or other security of the Corporation.
Such agents shall be located either within or outside of Delaware. They shall be
entitled to such compensation as may be agreed.
ARTICLE VI
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party
or is threatened to be made a party to or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director or officer of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director or officer and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that,
except as provided in Section 2 of this Article VI with respect to proceedings
to enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the Board
of Directors of the Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition (hereinafter an "advancement of expenses"); provided,
however, that, if the Delaware General Corporation Law requires, an advancement
of expenses incurred by an indemnitee in his capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such
indemnitee, including without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal that such indemnitee is not entitled to be indemnified
for such expenses under this Article VI or otherwise (hereinafter an
"undertaking").
SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 1 of
this Article VI is not paid in full by the Corporation within forty-five (45)
days after a written claim has been received by the Corporation, the indemnitee
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or part in any such suit or
in a suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be entitled to be
paid also the expense of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to indemnification hereunder (but
not in a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) any suit by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be
C-8
<PAGE> 51
entitled to recover such expenses upon a final adjudication that, the indemnitee
has not met the applicable standard of conduct set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right hereunder, or by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
burden of proving that the indemnitee is not entitled to be indemnified or to
such advancement of expenses under this Article VI or otherwise shall be on the
Corporation.
SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The rights of indemnification and to
the advancement of expenses conferred in this Article VI shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote
of stockholders or disinterested directors or otherwise.
SECTION 4. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
SECTION 5. INDEMNIFICATION OF EMPLOYEES OR AGENTS OF THE CORPORATION. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses,
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article VI with respect to the indemnification and
advancement of expenses of directors or officers of the Corporation.
SECTION 6. INDEMNIFICATION CONTRACTS. The Board of Directors is authorized
to enter into a contract with any director, officer, employee or agent of the
Corporation, or any person serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including employee benefit plans, providing
for indemnification rights equivalent to or, if the Board of Directors so
determines, greater than, those provided for in this Article VI.
SECTION 7. EFFECT OF TERMINATION OF ACTION. The termination of any action,
suit or proceeding by judgment, order, settlement, or conviction or upon a plea
of nolo contendere or its equivalent shall not of itself create a presumption
that the person seeking indemnification did not act in good faith and in the
best interests of the Corporation and, with respect to any criminal action or
proceeding, had a reasonable cause to believe that his conduct was unlawful.
Entry of a judgment by a consent as part of a settlement shall not be deemed a
final adjudication of liability for negligence or misconduct in the performance
of duty, nor of any other issue or matter.
SECTION 8. EFFECT OF AMENDMENT. Any amendment, repeal or modification of
any provision of this Article VI by the stockholders or the directors of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such amendment, repeal or
modification.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to limitations contained in the General
Corporation Law of the State of Delaware and the Certificate of Incorporation,
the Board of Directors may declare and pay dividends upon the shares of capital
stock of the Corporation, which dividends may be paid either in cash, securities
of the Corporation or other property.
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<PAGE> 52
SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The Corporation shall have a corporate seal in
such form as shall be prescribed by the Board of Directors.
SECTION 5. VOTING OF STOCK OWNED BY THE CORPORATION. The Chairman of the
Board, the Chief Executive Officer, the President and any other officer of the
Corporation authorized by the Board of Directors shall have power, on behalf of
the Corporation, to attend, vote and grant proxies to be used at any meeting of
stockholders of any corporation (except this Corporation) in which the
Corporation may hold stock.
SECTION 6. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction and definitions in the
General Corporation Law of the State of Delaware shall govern the construction
of these Bylaws.
SECTION 7. AMENDMENTS. Subject to the General Corporation Law of the State
of Delaware, the Certificate of Incorporation and these Bylaws, the Board of
Directors may by the affirmative vote of a majority of the entire Board of
Directors amend or repeal these Bylaws, or adopt other Bylaws as in their
judgment may be advisable for the regulation of the conduct of the affairs of
the Corporation. Unless otherwise restricted by the Certificate of
Incorporation, these Bylaws may be altered, amended or repealed, and new Bylaws
may be adopted, at any annual meeting of the stockholders (or at any special
meeting thereof duly called for that purpose) by a majority of the combined
voting power of the then outstanding shares of capital stock of all classes and
series of the Corporation entitled to vote generally in the election of
directors, voting as a single class, provided that, in the notice of any such
special meeting, notice of such purpose shall be given.
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<PAGE> 53
PROXY THE COAST DISTRIBUTION SYSTEM
1997 ANNUAL MEETING OF SHAREHOLDERS -- AUGUST 7, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas R. McGuire, Louis B. Sullivan and John E.
Turco, and each of them, individually, as attorneys and Proxies, with full power
of substitution, to represent the undersigned and to vote, as designated below,
all the shares of Common Stock of The Coast Distribution System (the "Company")
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
of The Coast Distribution System to be held at the Executive Offices of the
Company, 1982 Zanker Road, San Jose, California, on Thursday, August 7, 1997, at
10:00 A.M. Pacific Time, or at any postponement or adjournment thereof.
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS: [ ] FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) (to vote for the nominees listed
below)
</TABLE>
Thomas R. McGuire, Louis B. Sullivan, John E. Turco, Brian P. Friedman, Ben A.
Frydman and Robert S. Throop
(INSTRUCTION: To withhold authority to vote for any nominee, write that
nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
2. APPROVAL OF A CHANGE IN THE COMPANY'S STATE OF INCORPORATION FROM CALIFORNIA
TO DELAWARE BY MEANS OF A MERGER OF THE COMPANY WITH AND INTO A WHOLLY-OWNED
DELAWARE SUBSIDIARY:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF THE COMPANY'S 1997 EMPLOYEE STOCK PURCHASE PLAN:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. IN THEIR DISCRETION, UPON OTHER BUSINESS WHICH PROPERLY COMES BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF.
IMPORTANT--PLEASE SIGN AND DATE ON OTHER SIDE AND RETURN PROMPTLY.
<PAGE> 54
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
SHAREHOLDER ON THE REVERSE SIDE OF THIS PROXY. WHERE NO DIRECTION IS GIVEN, SUCH
SHARES WILL BE VOTED "FOR" THE ELECTION AS DIRECTORS OF THE NOMINEES NAMED ON
THE REVERSE SIDE OF THIS PROXY AND "FOR" PROPOSALS 2 AND 3. THIS PROXY CONFERS
DISCRETIONARY AUTHORITY TO CUMULATE VOTES FOR ANY OR ALL OF THE NOMINEES FOR
ELECTION OF DIRECTORS FOR WHICH AUTHORITY TO VOTE HAS NOT BEEN WITHHELD.
Date , 1997
------------------------
(Signature of
shareholder)
------------------------
Please sign your name
exactly as it appears
hereon. Executors,
administrators,
guardians, officers of
corporations, and others
signing in a fiduciary
capacity should state
their full titles as
such.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND
RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.
