<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
POLK AUDIO, INC.
(Name of Issuer)
POLK AUDIO, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
730900-10-7
(CUSIP Number of Class of Securities)
GEORGE M. KLOPFER
CHIEF EXECUTIVE OFFICER
POLK AUDIO, INC.
5601 METRO DRIVE,
BALTIMORE, MARYLAND 21215
410-358-3600
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of the Person(s) Filing Statement)
WITH A COPY TO:
LAWRENCE R. SEIDMAN, ESQ.
PIPER & MARBURY L.L.P.
36 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201
410-576-5013
MARCH 30, 1999
(Date Tender Offer First Published, Sent or Given to Security Holders)
<PAGE> 2
CALCULATION OF FILING FEE
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Transaction Valuation(1) Amount of Filing Fee(2)
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$10,320,000 $2,064
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[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing.
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Amount Previously Paid: Not Applicable Filing Party: Not Applicable
Form or Registration No.: Not Applicable Date Filed: Not Applicable
</TABLE>
- ------------------
(1) The total transaction value is based on a maximum aggregate offer price of
$12.00 based on the purchase of 860,000 Shares, pursuant to the terms of
the offer.
(2) Calculated as 1/50 of 1% of the transaction value.
2
<PAGE> 3
INTRODUCTION
This Issuer Tender Offer Statement (the "Statement") is being filed by Polk
Audio, Inc., a Maryland corporation (the "Company"), pursuant to Section 13(e)
of the Securities Exchange Act of 1934, as amended, and Rule 13e-4 thereunder in
connection with the tender offer by the Company to purchase up to 860,000 (or
such lesser number as are properly tendered) of its shares of common stock,
$0.01 par value per share (the "Shares"), at a price of $12.00 per Share (the
"Purchase Price"), net to the seller in cash, without interest thereon, upon
the terms and subject to the conditions set forth in the Offer to Purchase
dated March 30, 1999 (the "Offer to Purchase") and the related Letter of
Transmittal dated March 30, 1999 (which together with the Offer to Purchase
constitute the "Offer"), copies of which are attached hereto as Exhibits (a)(1)
and (a)(2), respectively.
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is Polk Audio, Inc., a Maryland corporation
which has its principal executive offices at 5601 Metro Drive, Baltimore,
Maryland 21215.
(b) This Statement relates to the offer by the Company to purchase up to
860,000 Shares (or such lesser number of Shares as are properly tendered) at a
price of $12.00 per Share, net to the seller in cash, without interest thereon,
subject to the conditions set forth in the Offer. The Offer is being made to all
holders of Shares, including directors and executive officers of the Company.
The Company has been advised that none of its directors and executive officers
intend to tender any Shares pursuant to the Offer. The information set forth
under "Introduction," "Special Factors -- Interests of Certain Persons in the
Offer and the Second-Step Transaction" and "The Tender Offer -- Terms of the
Offer; Expiration Date" of the Offer to Purchase are incorporated herein by
reference.
(c) The information set forth in "The Tender Offer -- Price Range of
Shares; Dividends" of the Offer to Purchase is incorporated herein by reference.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) and (b) The information set forth under "The Tender Offer -- Financing
of the Offer and the Second-Step Transaction" of the Offer to Purchase is
incorporated herein by reference.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF
THE ISSUER OR AFFILIATE.
(a)-(d) and (f)-(g) The information set forth under "Introduction,"
"Special Factors - Background and Purpose of the Offer; Certain Effects of the
Offer; Plans of the Company After the Offer" and "Special Factors -- Rights of
Stockholders in the Event of the Second-Step Transaction" of the Offer to
Purchase are incorporated herein by reference.
<PAGE> 4
(e) The information set forth under "The Tender Offer -- Price Range of
Shares; Dividends" and "The Tender Offer -- Financing of the Offer and the
Second-Step Transaction" of the Offer to Purchase are incorporated herein by
reference.
(h)-(j) The information set forth under "The Tender Offer -- Effect of the
Offer on the Market for the Shares; AMEX Listing and Exchange Act
Registration" of the Offer to Purchase is incorporated herein by reference.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth under "Special Factors -- Interests of Certain
Persons in the Offer and the Second-Step Transaction" is incorporated by
reference herein.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR
RELATIONSHIPS WITH RESPECT TO THE ISSUER'S SECURITIES.
Reference is hereby made to the sections "Special Factors -- Purpose and
Background of the Offer; Certain Effects of the Offer; Plans of the Company
After the Offer," "Special Factors -- Beneficial Ownership of Shares" and
"Special Factors -- Interests of Certain Persons in the Offer and the
Second-Step Transaction" of the Offer to Purchase regarding the relationship
between the Company and the Remaining Stockholders.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth under "Introduction," "Special Factors - Opinion
of Ferris, Baker Watts, Incorporated", "Special Factors -- Fees and Expenses"
and "The Tender Offer --Fees and Expenses" of the Offer to Purchase are
incorporated herein by reference.
ITEM 7. FINANCIAL INFORMATION.
(a) The information set forth under "The Tender Offer -- Certain
Information Concerning the Company" of the Offer to Purchase is incorporated
herein by reference. In addition, the Company's audited financial statements as
of March 29, 1998, and March 30, 1997, and for each of the three years in the
period ended March 29, 1998, are included in the Company's Annual Report on Form
10-K for the year ended March 29, 1998, which is incorporated herein by
reference. Also, the Company's unaudited financial statements for the three and
nine month periods ended December 27, 1998, are included in the Company's
Quarterly Report on Form 10-Q for the period ended December 27, 1998, which is
incorporated herein by reference.
(b) The information set forth under "The Tender Offer -- Certain
Information Concerning the Company" is incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) Not applicable.
2
<PAGE> 5
(b) The information set forth under "The Tender Offer -- Certain Legal
Matters and Regulatory Approvals" of the Offer to Purchase is incorporated
herein by reference.
(c) The information set forth under "The Tender Offer -- Effect of the
Offer on the Market for the Shares; AMEX Listing and Exchange Act
Registration" of the Offer to Purchase is incorporated herein by reference.
(d) Not applicable.
(e) The information set forth in the Offer to Purchase and the Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2),
respectively, are incorporated in their entirety herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Form of the Offer to Purchase dated March 30, 1999.
(a)(2) Form of the Letter of Transmittal.
(a)(3) Form of Notice of Guaranteed Delivery.
(a)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Nominees.
(a)(5) Form of Letter from Brokers, Dealers, Commercial Banks, Trust
Companies and Nominees to Clients.
(a)(6) Form of Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7) Press Release issued by the Company on March 24, 1999.
(a)(8) Letter to Stockholders from George M. Klopfer, Chief Executive
Officer of the Company, dated as of March 30, 1999.
(b)(1) Commitment Letter from NationsBank, N.A. to the Company dated March
23, 1999.
(b)(2) Form of Financing and Security Agreement between the Company and
NationsBank, N.A.
(b)(3) Form of Security Agreement between the Company and NationsBank, N.A.
(c) None.
(d) None.
(e) Not applicable.
(f) None.
3
<PAGE> 6
(g) (1) Audited Consolidated Financial Statements of the Company as of and
for the fiscal years ended March 29, 1998 and March 30, 1997 (incorporated by
reference to the Company's Annual Report, filed as Exhibit 13.1 to and
incorporated by reference into the Company's Annual Report on Form 10-K for the
fiscal year ended March 29, 1998).
(g) (2) Unaudited Consolidated Financial Statements of the Company as of
and for the nine-month periods ended December 28, 1997 and December 27, 1998
(incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended December 27, 1998).
4
<PAGE> 7
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: March 30, 1999
POLK AUDIO, INC.
By: /s/ George M. Klopfer
-----------------------------
Name: George M. Klopfer
Title: Chief Executive Officer
5
<PAGE> 8
EXHIBIT INDEX
(a)(1) Form of the Offer to Purchase dated March 30, 1999.
(a)(2) Form of the Letter of Transmittal.
(a)(3) Form of Notice of Guaranteed Delivery.
(a)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Nominees.
(a)(5) Form of Letter from Brokers, Dealers, Commercial Banks, Trust
Companies and Nominees to Clients.
(a)(6) Form of Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7) Press Release issued by the Company on March 24, 1999.
(a)(8) Letter to Stockholders from George M. Klopfer, Chief Executive
Officer of the Company, dated as of March 30, 1999.
(b)(1) Commitment Letter from NationsBank, N.A. to the Company dated March
23, 1999.
(b)(2) Form of Financing and Security Agreement between the Company and
NationsBank, N.A.
(b)(3) Form of Security Agreement between the Company and NationsBank, N.A.
(c) None.
(d) None.
(e) Not applicable.
(f) None.
(g) (1) Audited Consolidated Financial Statements of the Company as of
and for the fiscal years ended March 29, 1998 and March 30, 1997 (incorporated
by reference to the Company's Annual Report, filed as Exhibit 13.1 to and
incorporated by reference into the Company's Annual Report on Form 10-K for the
fiscal year ended March 29, 1998).
(g) (2) Unaudited Consolidated Financial Statements of the Company as of
and for the nine-month periods ended December 28, 1997 and December 27, 1998
(incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended December 27, 1998).
<PAGE> 1
EXHIBIT (a) (1)
POLK AUDIO, INC.
OFFER TO PURCHASE FOR CASH
UP TO 860,000 SHARES
OF ITS COMMON STOCK
AT A PURCHASE PRICE OF $12.00 NET PER SHARE
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
EASTERN DAYLIGHT TIME, ON APRIL 30, 1999 UNLESS THE OFFER IS EXTENDED.
Polk Audio, Inc., a Maryland corporation (the "Company"), hereby offers to
purchase up to 860,000 of its shares of Common Stock, $0.01 par value per share
(the "Shares"), at $12.00 per Share (the "Purchase Price"), net to the seller in
cash, without interest thereon, upon the terms and subject to the conditions set
forth in this Offer to Purchase (the "Offer to Purchase") and in the related
Letter of Transmittal (which together with this Offer to Purchase constitutes
the "Offer"). Due to the very small stockholder base and the infrequent trading
activity of the Company's Common Stock and certain other factors described
herein, the Company intends to delist its Common Stock from trading on the
American Stock Exchange, to terminate its registration of the Shares under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and thus cause
the Company to become a private company. The purpose of the Offer is to provide
stockholders with liquidity for their Shares prior to delisting and
deregistration.
All Shares properly tendered and not properly withdrawn will be purchased at
the Purchase Price, upon the terms and subject to the conditions of the Offer,
including the proration provisions. All Shares acquired in the Offer will be
acquired at the Purchase Price. The Company reserves the right, in its sole
discretion, to purchase more than 860,000 Shares pursuant to the Offer, although
it has no current intention to do so. Shares tendered and not purchased because
of proration will be returned. The Offer is being made to all holders of Shares,
including directors and executive officers of the Company. The Company has been
advised that none of its directors and executive officers intends to tender any
Shares pursuant to the Offer. See "The Tender Offer -- Terms of the Offer;
Expiration Date."
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE "THE
TENDER OFFER -- CERTAIN CONDITIONS OF THE OFFER."
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER, NONE
OF THE COMPANY, ITS BOARD OF DIRECTORS OR THE DEALER MANAGER MAKES ANY
RECOMMENDATION TO STOCKHOLDERS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING
THEIR SHARES. EACH STOCKHOLDER MUST MAKE THE DECISION WHETHER TO TENDER SUCH
STOCKHOLDER'S SHARES AND, IF SO, HOW MANY SHARES TO TENDER. THE COMPANY HAS BEEN
ADVISED THAT NONE OF ITS DIRECTORS OR EXECUTIVE OFFICERS INTEND TO TENDER ANY
SHARES PURSUANT TO THE OFFER.
The Shares are traded on the American Stock Exchange (the "AMEX") under the
ticker symbol "PKA." On March 22, 1999, the last day the Shares were traded on
AMEX before the announcement of the Offer, the last reported sales price of the
Shares on the AMEX was $11.25 per Share. See "The Tender Offer -- Price Range of
Shares; Dividends."
UPON TERMINATION OF THE OFFER AND REGARDLESS OF THE NUMBER OF SHARES
TENDERED PURSUANT TO THE OFFER, IF ANY, THE SHARES WILL CEASE TO BE LISTED ON
THE AMEX AND THE COMPANY WILL CEASE TO BE A REPORTING COMPANY UNDER THE EXCHANGE
ACT. ACCORDINGLY, NO PUBLIC MARKET FOR THE SHARES IS LIKELY TO EXIST AFTER
TERMINATION OF THE OFFER. SEE "THE TENDER OFFER -- EFFECT OF THE OFFER ON THE
MARKET FOR THE SHARES; AMEX LISTING AND EXCHANGE ACT REGISTRATION." MOREOVER,
THE PURCHASE OF SHARES PURSUANT TO THE OFFER MAY BE FOLLOWED BY A MERGER,
REVERSE STOCK SPLIT OR OTHER CORPORATE TRANSACTION THAT WILL RESULT IN THE
CONVERSION OF SHARES NOT TENDERED INTO THE RIGHT TO RECEIVE THE PURCHASE PRICE
PER SHARE IN CASH (THE "SECOND - STEP TRANSACTION").
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION OR THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
------------------------
The Dealer Manager for the Offer is:
FERRIS, BAKER WATTS, INCORPORATED
The Information Agent for the Offer is:
GEORGESON & COMPANY INC.
March 30, 1999
<PAGE> 2
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
shares should either (1) complete and sign the Letter of Transmittal (or a
facsimile thereof) in accordance with the instructions in the Letter of
Transmittal and mail or deliver it and any other required documents to the
Depositary and either deliver the certificate(s) evidencing the tendered shares
to the Depositary along with the Letter of Transmittal or deliver such shares
pursuant to the procedure for book-entry transfer set forth in "The Tender
Offer -- Procedures for Accepting the Offer and Tendering Shares" or (2) request
such stockholder's broker, dealer, commercial bank, trust company or other
nominee to effect the transaction for such stockholder. Any stockholder whose
shares are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee must contact such broker, dealer, commercial bank,
trust company or other nominee if such stockholder desires to tender such
shares.
Any stockholder who desires to tender shares and whose certificates
evidencing such shares are not immediately available, or who cannot comply with
the procedure for book-entry transfer on a timely basis, may tender such shares
by following the procedure for Guaranteed Delivery set forth in "The Tender
Offer -- Procedures for Accepting the Offer and Tendering Shares."
TO PROPERLY TENDER SHARES, STOCKHOLDERS MUST VALIDLY COMPLETE THE LETTER OF
TRANSMITTAL.
Questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
set forth on the back cover of this Offer to Purchase. Additional copies of this
Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may also be obtained from the Information Agent or from brokers,
dealers, commercial banks or trust companies.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
COMPANY AS TO WHETHER STOCKHOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING
SHARES PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER
THAN THOSE CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL.
IF MADE OR GIVEN, SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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INTRODUCTION..................................................... 1
SPECIAL FACTORS.................................................. 4
1. Background and Purpose of the Offer; Certain Effects of the
Offer; Plans of the Company after the Offer................. 4
2. Rights of Stockholders in the Event of the Second-Step
Transaction................................................. 9
3. Position of the Company's Board; Fairness of the Offer...... 10
4. Opinion of Ferris, Baker Watts, Incorporated................ 12
5. Interests of Certain Persons in the Offer and the
Second-Step Transaction..................................... 14
6. Beneficial Ownership of Shares.............................. 16
7. Fees and Expenses........................................... 17
THE TENDER OFFER................................................. 18
1. Terms of the Offer; Expiration Date......................... 18
2. Acceptance for Payment and Payment for Shares............... 20
3. Procedures for Accepting the Offer and Tendering Shares..... 22
4. Withdrawal Rights........................................... 25
5. Certain Federal Income Tax Consequences..................... 26
6. Price Range of Shares; Dividends............................ 28
7. Certain Information Concerning the Company.................. 28
8. Financing of the Offer and the Second Step Transaction...... 34
9. Dividends and Distributions................................. 35
10. Effect of the Offer on the Market for the Shares; AMEX
Listing and Exchange Act Registration....................... 35
11. Certain Conditions of the Offer............................. 37
12. Certain Legal Matters and Regulatory Approvals.............. 38
13. Fees and Expenses........................................... 39
14. Miscellaneous............................................... 40
SCHEDULE I -- Directors and Executive Officers of the Company.... I-1
SCHEDULE II -- Opinion of Ferris, Baker Watts, Incorporated...... II-1
SCHEDULE III -- Summary of Stockholder Appraisal Rights and Text
of Section 3 - 201 through 3 - 213 of the Maryland General
Corporation Law................................................ III-1
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<PAGE> 4
To the Stockholders of Polk Audio, Inc.:
INTRODUCTION
Polk Audio, Inc., a Maryland corporation (the "Company"), hereby offers to
purchase up to 860,000 (or such lesser number as are properly tendered) of its
shares of Common Stock, $0.01 par value per share (the "Shares"), at a price of
$12.00 per Share, upon the terms and subject to the conditions set forth in this
Offer to Purchase (the "Offer to Purchase") and in the related Letter of
Transmittal (which together with this Offer to Purchase constitutes the
"Offer").
The Company will, upon the terms and subject to the conditions of the
Offer, pay $12.00 per Share, net to the seller in cash, without interest thereon
(the "Purchase Price") for Shares properly tendered pursuant to the Offer,
taking into account the number of Shares so tendered. All Shares properly
tendered pursuant to the Offer and not properly withdrawn will be purchased at
the Purchase Price, upon the terms and subject to the conditions of the Offer,
including the proration provisions. All Shares acquired in the Offer will be
acquired at the Purchase Price. The Offer is being made to all holders of
Shares, including directors and executive officers of the Company. The Company
has been advised that none of its directors and executive officers intend to
tender any Shares pursuant to the Offer. See "The Tender Offer -Terms of the
Offer; Expiration Date."
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE "THE
TENDER OFFER -- CERTAIN CONDITIONS OF THE OFFER," WHICH SETS FORTH IN FULL THE
CONDITIONS OF THE OFFER.
At March 22, 1999, there were (a) 1,849,035 Shares issued and outstanding
and (b) 167,500 Shares reserved for future issuance to employees pursuant to
outstanding employee stock options. Prior to the announcement of the Offer,
there were approximately 112 holders of record of the issued and outstanding
Shares. Pursuant to the Offer, the Company seeks to acquire up to 860,000
Shares. The directors and executive officers of the Company listed in Schedule I
hereto (the "Remaining Stockholders"), who beneficially own in the aggregate
975,849 Shares, or approximately 52.8% of the issued and outstanding Shares,
have informed the Company that they do not intend to tender any Shares owned by
them pursuant to the Offer. The 860,000 Shares which the Company is seeking to
acquire in this Offer represents practically all of the outstanding Shares not
owned by the Remaining Stockholders.
Because of the very small stockholder base and the infrequent trading
activity of the Company's Common Stock and certain other factors described in
this Offer to Purchase, the Company intends to delist its Common Stock from
trading on AMEX and to terminate the registration of the Shares under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and thus cause
the Company to become a private company. The purpose of the Offer is to provide
the stockholders other than the Remaining Stockholders (the "Public
Stockholders") with liquidity for their Shares prior to the delisting of the
Shares and the termination of Exchange Act registration by enabling them to
achieve liquidity for their Shares at a price which the Company's Board of
Directors has determined to be fair. Following the completion of the Offer, the
Remaining Stockholders may, in their sole discretion, cause the Company to
acquire any remaining equity interest in the Company not then owned by the
Remaining Stockholders by effecting a merger, reverse stock split or other
corporate transaction as described below. Following the Offer, and whether or
not any Shares are tendered pursuant to the Offer, the Company will become a
private company. If the Offer is consummated, following the Offer all or most of
the Shares will be owned by the Remaining Stockholders. In determining whether
to tender their Shares pursuant to the Offer, stockholders should consider the
possibility that, following completion of the Offer, they may not be able to
sell their Shares in the future at a net price as high as the Purchase Price.
See "The Tender
1
<PAGE> 5
Offer -- Effect of the Offer on the Market for the Shares; AMEX Listing and
Exchange Act Registration."
If fewer than all of the Shares owned by the Public Stockholders are
tendered pursuant to the Offer, the Company may enter into a merger or other
form of business combination with an entity to be formed, which will be
wholly-owned by the Remaining Stockholders (the "Merger") or effect a reverse
stock split (the "Reverse Stock Split") or other form of corporate transaction
such that any shares not tendered by the Public Stockholders will be converted
into only the right to receive the Purchase Price in cash (the Merger, the
Reverse Stock Split, or other form of corporate transaction collectively, the
"Second-Step Transaction"). If necessary, the Company will seek stockholder
approval of the Second-Step Transaction in accordance with applicable laws. The
Remaining Stockholders currently own 52.8% of the outstanding Shares and intend
to vote all of their Shares in favor of the Second-Step Transaction if a
stockholder vote is required, should such a Second-Step Transaction be
implemented. It is contemplated that the consideration payable to the Public
Stockholders in the Second-Step Transaction will be cash in an amount equal to
the Purchase Price.
In determining whether to delist the Shares from trading on AMEX and to
terminate the registration of the Shares under the Exchange Act, the Board of
Directors considered several factors, several of which are listed below (see
"Special Factors -- Position of the Company's Board; Fairness of the Offer"):
- The Company currently has a very small stockholder base for an
exchange-traded public company as indicated by its 112 stockholders of
record, a number substantially below the 300 minimum which triggers the
obligation to file periodic financial reports and other information
pursuant to the Exchange Act.
- The market for the Company's common stock provides limited liquidity for
stockholders to liquidate or add to their investments and has made it
difficult for the Company to attract institutional investors.
Additionally, because of the limited liquidity available, the Company has
been unable to utilize the public equity capital markets effectively as a
source of financing.
- There are considerable costs associated with remaining a public company.
In addition to the time expended by the Company's management, the legal,
accounting and other expenses involved in the preparation, filing and
dissemination of annual and other periodic reports is considerable.
- The reporting requirements of public companies can lead to disclosure of
sensitive information, resulting in a competitive disadvantage in the
marketplace.
In determining whether the Purchase Price to be paid to the Company's
Public Stockholders was fair, the Board of Directors of the Company relied in
part on an opinion dated March 24, 1999, rendered by Ferris, Baker Watts,
Incorporated ("FBW" or the "Dealer Manager"), the Company's financial advisor,
to the effect that, and subject to the limitations contained therein, the
consideration to be received by the stockholders of the Company in the Offer
and, if deemed desirable by the Company, the Second-Step Transaction, is fair,
from a financial point of view, to such stockholders. See Schedule II.
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, stock transfer taxes with respect to the Company's purchase of the
Shares pursuant to this Offer. The Company will pay all charges and expenses of
American Stock Transfer & Trust Company (the "Depositary"), FBW, and Georgeson &
Company Inc. (the "Information Agent") incurred in connection with the Offer.
The Offer provides stockholders who are considering a sale of all or a portion
of their Shares, to sell those Shares for cash at the Purchase Price without,
where Shares are tendered by the registered owner thereof directly to the
2
<PAGE> 6
Depositary, the usual transaction costs associated with open market sales. See
"Special Factors -- Fees and Expenses" and "The Tender Offer -- Fees and
Expenses."
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER, NONE
OF THE COMPANY, ITS BOARD OF DIRECTORS OR THE DEALER MANAGER MAKES ANY
RECOMMENDATION TO STOCKHOLDERS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING
THEIR SHARES. EACH STOCKHOLDER MUST MAKE THE DECISION WHETHER TO TENDER SUCH
STOCKHOLDER'S SHARES AND, IF SO, HOW MANY SHARES TO TENDER. THE COMPANY HAS BEEN
ADVISED THAT NONE OF ITS DIRECTORS OR EXECUTIVE OFFICERS INTEND TO TENDER ANY
SHARES PURSUANT TO THE OFFER.
Upon the terms and subject to the conditions of the Offer, if at the
Expiration Date (as defined below) more than 860,000 Shares (or such greater
number of Shares as the Company may elect to purchase) are properly tendered and
not properly withdrawn, the Company will buy Shares first from all Odd Lot
Holders (as defined under "The Tender Offer -- Terms of the Offer; Expiration
Date") who properly tender all their Shares and then on a pro rata basis from
all other stockholders who properly tender Shares (and do not properly withdraw
them prior to the expiration of the Offer). The term "Expiration Date" means
12:00 midnight, Eastern Daylight Time, on April 30, 1999, unless and until the
Company, in its sole discretion, shall have extended the period during which the
Offer is open, in which event the term "Expiration Date" shall mean the latest
time and date at which the Offer, as so extended by the Company, shall expire.
See "The Tender Offer -- Terms of the Offer; Expiration Date."
The Purchase Price will be paid net to the tendering stockholder in cash,
without interest thereon, for all Shares purchased. Tendering stockholders who
hold Shares in their own name and who tender their Shares directly to the
Depositary will not be obligated to pay brokerage commissions, solicitation fees
or, subject to Instruction 6 of the Letter of Transmittal, stock transfer taxes
on the purchase of Shares by the Company pursuant to the Offer. Stockholders
holding Shares through brokers or banks are urged to consult the brokers or
banks to determine whether transaction costs are applicable if stockholders
tender Shares through the brokers or banks and not directly to the Depositary.
HOWEVER, ANY TENDERING STOCKHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE, SIGN
AND RETURN TO THE DEPOSITARY THE SUBSTITUTE FORM W-9 THAT IS INCLUDED AS PART OF
THE LETTER OF TRANSMITTAL MAY BE SUBJECT TO REQUIRED UNITED STATES FEDERAL
INCOME TAX BACK-UP WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAYABLE TO THE
TENDERING STOCKHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. See "The Tender
Offer -- Certain Federal Income Tax Consequences."
On March 22, 1999, the last day the Shares were traded before the
announcement of the Offer, the last reported sales price of the Shares on the
AMEX was $11.25 per Share. On March 26, 1999, the last reported sales price of
the Shares on the AMEX was $11.50 per Share. See "The Tender Offer -- Price
Range of Shares; Dividends."
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION THAT SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
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SPECIAL FACTORS
1. BACKGROUND AND PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER; PLANS OF
THE COMPANY AFTER THE OFFER.
BACKGROUND OF THE OFFER. The Board of Directors believes that since June
1986, when the Company completed its initial public offering, the public market
has not responded to the sustained profitability of the Company, and the Shares
have remained very thinly traded and have provided little liquidity for the
Company's stockholders, particularly those stockholders with larger equity
positions in the Company. In addition, because of the fluctuating pattern of
earnings of the Company, the low price-earnings multiple accorded the Shares in
the public market, the low trading volume and illiquidity of the Shares, the
Company has been unable to utilize the Shares effectively as a source of
financing. For those reasons, the Company has been unable to realize the
principal benefits of public ownership and the Company's management expects no
change in the situation regarding the Shares for the foreseeable future.
The Board of Directors also believes that there are considerable costs and
detriments to the Company in remaining a public reporting company. In addition
to the time expended by the Company's management, the legal, accounting and
other expense involved in the preparation, filing and dissemination of annual
and other periodic reports is considerable. Additionally, the Company's
management believes that required public disclosures under the Exchange Act give
its competitors, some of which are not public companies, certain information and
insights about the Company's operations which have helped them in competing
against the Company.
Due to the aforementioned reasons, on May 6, 1998, the Board of Directors
of the Company engaged in a lengthy discussion regarding the possibility of
selling the Company. At this meeting, the Board authorized management of the
Company to engage a financial advisor to assist the Company in investigating its
strategic alternatives. Management interviewed several firms to act as financial
advisor in a possible sale of the Company. On August 3, 1998, the Board
entertained a proposal from NationsBanc Montgomery Securities LLC ("Montgomery")
and on August 11, 1998, entered into an agreement engaging Montgomery to act as
financial advisor to the Company in investigating strategic alternatives,
including the possible sale of the Company.
A decision was made by the Company's management in August 1998 to delay the
sale effort until the Company's financial results for the quarter ending
September 1998 were available. During the interim period, market conditions
became unfavorable, the Company's stock price declined and the decision was made
to postpone exploring the sale of the Company. Although the Company had received
some preliminary indications of interest from potential buyers prior to the time
the sale effort was terminated, in the view of the Company's management, none of
these indications of interest looked like they would lead to a credible offer
for the Company which offered fair value to all of the Company's stockholders.
Further, the Board of Directors was concerned regarding the possible damage that
could occur to the Company's reputation, competitive position and trade
relations as a result of an unsuccessful bid to sell the Company. Accordingly,
the Board of Directors decided that, in light of the indications of interest
received to date and market conditions at the time, it was unlikely that the
Company would be sold for an attractive price and it would, therefore, be better
to discontinue the process immediately.
Montgomery then suggested to the Board of Directors that the Company
explore the possibility of a "going-private" transaction. For the above reasons,
certain of the Remaining Stockholders informed the Board of Directors of the
Company that they desired to convene a meeting of the Board on October 20, 1998,
for the purpose of further exploring the feasibility of a going-private
transaction. At the October 20, 1998 Board meeting, a general discussion was
held concerning a proposed going-private transaction and the Board determined
that such a proposed transaction should be explored. The possible structures of
a
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<PAGE> 8
going-private transaction that were discussed included a merger, a reverse stock
split and a tender offer. Counsel to the Company discussed the process involved
in a "going-private" transaction and explained to the Board the fiduciary duties
of the members of the Board of Directors to the Public Stockholders. The Board
also considered delisting the Shares from AMEX and terminating the registration
of the Shares under the Exchange Act in combination with the other alternatives
or as a stand-alone alternative because the Company had fewer record holders of
its stock than is required by the AMEX listing requirements and than is required
under the Exchange Act to remain a public reporting company. During this Board
meeting, the Remaining Stockholders who beneficially own 975,849 Shares, or
approximately 52.8% of the outstanding Shares, informed the Board of Directors
that they do not intend to tender any Shares owned by them pursuant to the
Offer.
Management then commenced discussions with NationsBank, N.A., the
commercial bank affiliate of Montgomery, regarding the provision of financing
for a going-private transaction. After due deliberation, Montgomery advised the
Company that it was concerned about the potential conflict of interest issues
involved in its acting both as financial advisor to the Company and having its
commercial bank affiliate provide the financing for a potential going-private
transaction. As a result, on November 4, 1998, the Board of Directors approved
the termination of the engagement of Montgomery.
On November 11, 1998, the Board of Directors met again to discuss the
possibility of initiating a going-private transaction and the Board of Directors
reviewed and evaluated the factors surrounding the decision of initiating a
going-private transaction. These factors included the costs to the Company of
being a public entity, the lack of an active trading market for the Shares and
the lack of liquidity for stockholders. The Board also reviewed the Company's
financial condition and the condition and recent downward trends of the audio
loudspeaker market industry in which the Company participates. The Board also
discussed the engagement of a financial advisor regarding a going-private
transaction and, if necessary, to render an opinion as to the fairness of the
consideration, from a financial point of view, in connection with such
transaction.
The Board of Directors solicited proposals from several investment banking
firms regarding their interest and qualifications in serving as financial
advisor to the Company in connection with a possible going-private transaction.
After evaluating such proposals, the Board of Directors decided to retain FBW as
its exclusive financial advisor to advise the Board of Directors with respect to
a possible going-private transaction and to render an opinion as to the fairness
of the consideration provided to the Company's stockholders in the transaction.
The terms of the engagement of FBW by the Board of Directors were finalized by a
letter agreement dated November 16, 1998.
On December 4, 1998, the Board of Directors met again to consider a
possible going-private transaction. Present at the meeting, in addition to all
of the members of the Board of Directors, were representatives from FBW and a
representative from Piper & Marbury L.L.P., the Company's legal counsel. A
representative from FBW made a presentation to the Board on the advisability of
pursuing a going-private transaction, including a discussion of the benefits and
costs to the Company of remaining a public reporting company. In his
presentation, the FBW representative discussed the business reasons for
considering a going-private transaction such as the lack of public float with
respect to the Company's Common Stock, the cost and expense of remaining a
public company and the disclosure burden that may put the Company at a
competitive disadvantage compared to its non-public company competitors. The FBW
representative also discussed alternative transaction structures, including a
self-tender offer followed by the delisting and deregistration of the Company's
Common Stock. The Board of Directors then discussed the recent trading history
of the Company's Common Stock, the current bid and asked prices for the stock on
AMEX, the Company's recent historical operating results and the Company's
prospects over the next six to nine months. The Board then discussed the
advisability of pursuing a going-private transaction at the current time and the
various alternative structures that could be utilized. In the course of the
deliberations, the members of the Board unanimously concluded that it would not
be
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<PAGE> 9
appropriate for the Company to pursue a going-private transaction at the present
time. The Board did indicate that it would be willing to reconsider the
advisability of a going-private transaction at another time.
On January 20, 1999, the Company issued a press release containing its
results for the third quarter and nine month period ended December 27, 1998. In
commenting on those results, Mr. George Klopfer, the Company's Chief Executive
Officer, indicated that the near-term operating outlook for the first six months
of 1999 was problematic because (i) the first six months of calendar 1998
reflected substantial deliveries to stock-up Circuit City outlets, a new dealer,
which would not be repeated in the first six months of calendar 1999 and (ii)
the previously-announced termination of the Eosone business with Best Buy
Company would adversely affect the Company's results going forward. Mr. Klopfer
stated that as a result of these factors, the Company expected that both sales
and net income for the first half of calendar 1999 would be down, perhaps
significantly, from their levels during the same period in 1998.
A meeting of the Board of Directors was held on March 24, 1999, in order to
reconsider a possible going-private transaction. At this meeting,
representatives of FBW presented their final report to the Board of Directors
concerning the advisability of a possible going-private transaction. FBW
concluded that, in light of the costs of remaining a public company and the
competitive disadvantages associated therewith and in light of the fact that the
Company was not able to realize any of the benefits associated with being a
public company, a form of going-private transaction was advisable. In addition,
FBW presented to the Board of Directors its opinion as to the fairness, from a
financial point of view, of the proposed cash Purchase Price of $12.00 per
Share. This price was determined by the Board of Directors of the Company, which
was then passed upon by FBW. FBW was questioned by the Board of Directors
concerning its advice as to the advisability of a possible going-private
transaction and the methods used and factors considered by FBW in rendering its
opinion as to the fairness of the consideration, from a financial point of view,
provided to the Company's stockholders. At this meeting, FBW summarized its
valuation analysis, which was based on the historical operating results of the
Company, management's projected operating results of the Company and the
historical trading performance of the Shares. The valuation methodologies
utilized by FBW included a discounted free cash flow analysis and a publicly-
traded comparable companies analysis. See "Special Factors -- Opinion of Ferris,
Baker Watts, Incorporated."
After a discussion of a proposed going-private transaction and the
structure of such a transaction, the Board of Directors, by unanimous vote of
all members present and voting, including all of the non-employee directors,
based in part on the recommendation and advice provided by FBW, elected to
initiate a going-private transaction for the Company. The Board of Directors
approved the delisting of the Shares from AMEX and the termination of the
registration of the Shares under the Exchange Act, which would be preceded by
the Offer. The Board of Directors also reserved the right to initiate the
Second-Step Transaction depending upon the success of the Offer. On March 24,
1999, the Company issued a press release regarding the proposed going-private
transaction and the Offer.
No limitations were imposed by the Board of Directors or management of the
Company on FBW with respect to the investigation made, or the procedures
followed in rendering its advice with respect to a possible going-private
transaction or the opinion as to the fairness of the consideration, from a
financial point of view provided to the Company's stockholders; however, FBW's
assignment did not include investigating or pursuing any other parties
interested in acquiring control of the Company, and FBW did not solicit any
offers for the acquisition of the Company because the Board of Directors
instructed FBW that the Remaining Stockholders were unwilling to consider a sale
of their interest in the Company.
Because of the engagement of FBW to advise the Company and to render an
opinion as to the fairness of the consideration, from a financial point of view,
with respect to the consideration to be received by the Public Stockholders in a
possible going-private transaction, the Board of Directors did
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<PAGE> 10
not consider it necessary to form an independent committee of the Board of
Directors composed of directors who are not employees of the Company or to
retain any other unaffiliated representative to act solely on behalf of the
Public Stockholders for the purpose of negotiating the terms or structure of a
possible going-private transaction. In addition, all of the members of the Board
of Directors indicated their intent to remain as stockholders of the Company
following a possible going-private transaction and are, therefore, included as
Remaining Stockholders.
During the period between the engagement of FBW and the presentation of its
final report to the Board of Directors on March 24, 1999, the Company provided
extensive information to representatives of FBW regarding the Company and its
prospects including, without limitation, the Company's historical financial
results, projected financial results, customers, suppliers, competitors,
expansion plans and sales and marketing plans. In addition, representatives of
FBW met with members of the Company's senior management to discuss the
projections and underlying assumptions thereto provided to, and relied upon by,
FBW in preparing its analyses.
PURPOSE OF THE OFFER. The Board of Directors of the Company has determined
that it is in the best interests of the Company and its stockholders to
terminate its status as a public reporting company by delisting the Shares from
AMEX and terminating the registration of the Shares under the Exchange Act.
Currently, there are 112 record holders of the outstanding Shares, which is
significantly below the AMEX listing requirements of 300 holders of record. In
addition, under Section 12(g)(4) of the Exchange Act, registration under the
Exchange Act may be terminated by the issuer if there are fewer than 300 holders
or record of a class of security. The Company's duty to file periodic reports
with the Commission, such as quarterly and annual reports, will be immediately
suspended once the Company's securities are no longer registered under the
Exchange Act. The purpose of the Offer is to provide the Public Stockholders
with liquidity for their Shares by enabling them to sell their Shares at a fair
price prior to the delisting of the Shares from trading on AMEX and the
termination of registration of the Shares under the Exchange Act. Following the
Offer and regardless of whether the Offer is consummated, the Shares will no
longer be listed for trading on the AMEX, there will likely be no public market
for the Company's securities, the registration of the Shares under the Exchange
Act will be terminated, the Company will no longer be required to file periodic
reports with the Commission and the Company will become a private company.
Following the Offer and regardless of whether the Offer is consummated, the
Remaining Stockholders will retain a significant equity interest in the Company.
The Company may, in its sole discretion, acquire any remaining equity interest
in the Company not then owned by the Remaining Stockholders by effecting the
Second-Step Transaction described below. See "The Tender Offer -- Effect of the
Offer on the Market for the Shares; AMEX Listing and Exchange Act Registration."
Management believes that consummation of the Offer and, if deemed desirable
by the Company, the Second-Step Transaction will result in substantially greater
flexibility for the Company in the utilization of assets and in the planning of
its future. If the Offer and/or the Second-Step Transaction are completed,
management will be able to make investments in the Company's business without
considering whether other stockholders would approve of such decisions. Such
flexibility is believed to be especially appropriate in view of the belief of
management that the risks of making such investments may not be appropriate for
the Company as a publicly-held entity.
CERTAIN EFFECTS OF THE OFFER; PLANS OF THE COMPANY AFTER THE
OFFER. Consummation of the Offer and, if deemed desirable by the Company, the
Second-Step Transaction will permit the Remaining Stockholders to receive the
benefits that result from ownership of all, or a significant amount, of the
equity interest in the Company. Such benefits include management and investment
discretion with regard to the future conduct of the business of the Company, the
benefits of the profits generated by operations and any increase in the
Company's value. Similarly, the Remaining Stockholders will also bear the risk
of any decrease in the value of the Company.
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<PAGE> 11
If the Offer and, if deemed desirable by the Company, the Second-Step
Transaction are consummated, after giving effect to the Offer and the
Second-Step Transaction, the Remaining Stockholders will have close to a 100%
interest in the pro forma net book value and net earnings of the Company ($9.2
million and $1.8 million, respectively, based on the unaudited financial
statements of the Company for the nine-month period ended December 27, 1998).
Currently, the Remaining Stockholders have an approximately 52.8% interest in
the net book value and net earnings of the Company ($10.4 million and $1.1
million, respectively, based on the unaudited financial statements of the
Company as of December 27, 1998). Currently, Messrs. George M. Klopfer and
Matthew S. Polk, Jr. collectively have an approximately 36.8% interest in the
net book value and net earnings of the Company ($7.3 million and $0.8 million,
respectively, based on the unaudited financial statements of the Company as of
December 27, 1998).
Consummation of the Offer and, if deemed desirable by the Company, the
Second-Step Transaction will also allow the Remaining Stockholders to
recapitalize the Company by increasing its debt to equity ratio, thereby
leveraging their equity investment to a degree that might not be appropriate for
the Company as a public company. Such high leveraging entails high risk to
equity investors. Furthermore, high leveraging and associated high debt service
costs may have an adverse effect on earnings and the value of the Company.
Under the Maryland General Corporation Law ("MGCL") and the Company's
Charter, the approval of the Board and the affirmative vote of a majority of the
outstanding Shares are required to approve the Merger or the Reverse Stock Split
at a meeting of the stockholders. The Remaining Stockholders, who currently own
approximately 52.8% of the outstanding Shares, intend to vote all of their
Shares in favor of the Merger or Reverse Stock Split if a stockholder vote is
required. Accordingly, regardless of whether any Shares are purchased pursuant
to the Offer, the Remaining Stockholders have sufficient voting power to cause
the approval and adoption of the Merger or the Reverse Stock Split immediately
after the Offer, without the affirmative vote of any other stockholders of the
Company. It is contemplated that the consideration payable to the Public
Stockholders in the Second-Step Transaction will be cash in an amount equal to
the Purchase Price. Under the MGCL, an entity which owns 90% or more of the
outstanding shares of another entity may effect a merger with such other entity
without submitting the merger to a vote of stockholders of the other entity (a
"short-form merger"). Accordingly, if the Remaining Stockholders own 90% or more
of the Shares that remain outstanding after completion of the Offer, the Merger
may be effected as a short-form merger, without a vote of the Company's
stockholders. If, however, the percentage of ownership of the Remaining
Stockholders after completion of the Offer is less than 90% of the Shares then
outstanding, a vote of the Company's stockholders will be required under the
applicable laws, and a longer period of time may be required to effect the
Merger. See "Special Factors -- Rights of Stockholders in the Event of the
Second-Step Transaction."
Following the Offer, the Shares will no longer be listed for trading on the
AMEX, and the registration of the Shares under the Exchange Act will be
terminated. Following the completion of the Offer, the Company will become a
private company and the Remaining Stockholders will retain a significant equity
interest in the Company and may acquire any remaining equity interest in the
Company not then owned by the Remaining Stockholders by causing the Company to
effect the Second-Step Transaction. Following the Offer and, if deemed desirable
by the Company, the Second-Step Transaction, there will be no publicly traded
equity securities of the Company outstanding and the Company will no longer file
periodic reports with the Commission. After the Second-Step Transaction, if it
is initiated, there will be few, if any, Public Stockholders of the Company. See
"The Tender Offer -- Effect of the Offer on the Market for the Shares; AMEX
Listing and Exchange Act Registration."
All Shares purchased in the Offer will return to the status of authorized
but unissued shares of capital stock of the Company and may be reissued from
time to time as determined by the Board of
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<PAGE> 12
Directors. However, the Company has no current plans for the issuance of Shares
repurchased pursuant to the Offer.
The Remaining Stockholders have informed the Board of Directors that,
assuming the completion of the Offer and, if deemed desirable by the Company,
the Second-Step Transaction, they have no present intention to cause the Company
to change its fundamental business, sell or otherwise dispose of the Company or
all or any material part of its business, merge, liquidate or otherwise wind-up
its business. Nevertheless, the Remaining Stockholders may initiate a review of
the Company and its assets, corporate structure, capitalization, operations,
properties and personnel to determine what changes, if any, would be desirable
following the Offer to enhance the operations of the Company.
The Company anticipates that following the Offer and, if deemed desirable
by the Company, the Second-Step Transaction, the Remaining Stockholders will
cause the Company to change the composition of the Board of Directors to include
only certain of the Remaining Stockholders who are also officers of the Company.
The persons who are presently officers of the Company will continue in their
same positions following consummation of the Offer and, if desirable, the
Second-Step Transaction. If more than 464,000 shares are purchased pursuant to
the Offer, then Messrs. George M. Klopfer and Matthew S. Polk, Jr. together will
own in the aggregate a majority of the outstanding Shares and will be able to
control all matters requiring approval of the Company's stockholders, including
the election of directors.
As a result of the borrowing incurred in connection with the financing of
the Offer and, if deemed desirable by the Company, the Second-Step Transaction,
the consolidated indebtedness of the Company will be substantially greater. See
"The Tender Offer -- Financing of the Offer and the Second-Step Transaction."
2. RIGHTS OF STOCKHOLDERS IN THE EVENT OF THE SECOND-STEP TRANSACTION
No appraisal rights are available in connection with the Offer. Holders of
Shares may be entitled to appraisal rights in connection with the Second-Step
Transaction if such transaction is structured as a Merger. Under Section 3-202
of the MGCL, appraisal rights are not available for the shares of any class or
series of stock which, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of stockholders to act
upon the agreement of merger, were either (i) listed on a national securities
exchange or designated as a national market system security on an inter-dealer
quotation system by the National Association of Securities Dealers, Inc. or (ii)
the stock is that of the successor in a merger, unless (x) the merger alters the
contract rights of the stock as expressly set forth in the charter and the
charter does not reserve the right to do so, or (y) the stock is to be changed
or converted in the merger into something other than either stock in the
successor or cash arising out of the provision for the treatment of fractional
shares of stock in the successor. If the Second-Step Transaction is completed as
a Merger and does not satisfy the requirements set forth above, stockholders of
the Company may have certain rights under Section 3-202 of the MGCL to dissent
and demand appraisal of, and payment in cash of the fair market value of, their
Shares. Such rights, if the statutory procedures were complied with, could lead
to a judicial determination of the fair value (excluding any element of value
arising from the accomplishment or expectation of the Second-Step Transaction)
required to be paid in cash to such dissenting holders for their Shares. Any
such judicial determination of the fair value of Shares could be based upon
considerations other than, or in addition to, the Purchase Price paid in the
Offer and the market value of the Shares, including asset values and the
investment value of the Shares. The value so determined could be more or less
than the Purchase Price per Share pursuant to the Offer or the consideration per
Share to be paid in the Second-Step Transaction. Stockholders would not have any
appraisal rights in the event the Second-Step Transaction is structured as a
Reverse Stock Split.
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THE FOREGOING SUMMARY OF THE RIGHTS OF OBJECTING STOCKHOLDERS DOES NOT
PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY
STOCKHOLDERS DESIRING TO EXERCISE ANY AVAILABLE APPRAISAL RIGHTS. THE
PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS REQUIRE STRICT ADHERENCE TO THE
APPLICABLE PROVISIONS OF THE MGCL. SEE SCHEDULE III ATTACHED HERETO FOR A
DISCUSSION OF APPRAISAL RIGHTS THAT MAY BE AVAILABLE.
3. POSITION OF THE COMPANY'S BOARD; FAIRNESS OF THE OFFER
POSITION OF THE COMPANY'S BOARD OF DIRECTORS. On March 24, 1999, the Board
of Directors, by unanimous vote of all directors present and voting, approved
the Offer. The Board of Directors of the Company determined that the Offer is
fair to, and in the best interests of, the Public Stockholders of the Company.
However, the Board of Directors does not make any recommendation to stockholders
as to whether to tender or refrain from tendering their Shares. Each stockholder
must make the decision whether to tender such stockholder's Shares and, if so,
how many Shares to tender. The Offer is being made to all holders of Shares,
including directors and executive officers of the Company. However, none of the
Company's directors or executive officers intends to tender any Shares pursuant
to the Offer.
FAIRNESS OF THE OFFER. In reaching its determinations referred to
immediately above, the Board of Directors considered the following factors, each
of which, in the view of the Board of Directors, supported such determination:
a. the historical market prices and trading activity of the Shares,
including the fact that the average daily trading volume of the Shares for
calendar 1998 and the first two months of calendar 1999 has been
approximately 3,400 shares per day;
b. the opinion of FBW to the Board of Directors that the consideration
to be offered to the Public Stockholders is fair to such stockholders from
a financial point of view, and the report and analysis presented by FBW
which included discussion and analysis of historical trading performance of
the Shares, discounted free cash flow analysis based on the Company's
historical and projected operating results and comparable company analysis;
c. the market price for the Shares as compared to the performance of
the Company;
d. the very small stockholder base of the Company, as indicated by its
112 stockholders of record;
e. the fact that the Company could delist the Shares from trading with
AMEX and terminate the registration of the Shares under the Exchange Act
without initiating the Offer because of the number of current record
holders of the Shares;
f. the nature of the Company's business and the industry in which the
Company operates, including information received by the Board of Directors
regarding trends in the loudspeaker systems industry and various
uncertainties associated with current and potential future industry and
market conditions;
g. the structure of the going-private transaction, which is designed,
among other things, to result in the receipt by the Public Stockholders of
cash consideration at the earliest practicable time without any brokerage
fees;
h. the fact that the Company has not paid a cash dividend since its
inception to its stockholders, and the expectation that no such cash
dividends are expected to be paid in the foreseeable future;
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<PAGE> 14
i. the lack of credible buyers of the Company and financial market
conditions, which made pursuit of other strategic alternatives (such as a
sale of the Company as a going concern) impracticable;
j. the desire of the Remaining Stockholders not to consider a sale of
their majority interest in the Company at the valuation levels of the
preliminary indications of interest received, which made the pursuit of
other strategic alternatives (such as a sale of the Company as a going
concern) impracticable; and
k. the intention of the Remaining Stockholders to continue the
business as a going concern, which makes any consideration of liquidation
of the Company or values that ultimately might be obtained from such a
liquidation highly speculative.
With respect to the matters contained in the opinion of FBW, the Board of
Directors reviewed the report and adopted the analysis contained therein and
considered the other factors set forth herein in determining that the Offer is
fair. In light of the number and variety of factors that the Board of Directors
considered in connection with their evaluation of the Offer, they did not find
it practicable to assign relative weights to the foregoing factors, and,
accordingly, did not do so.
In addition to the factors listed above, the Board of Directors considered
the fact that consummation of the Offer would eliminate the opportunity of the
Public Stockholders to participate in any potential future growth in the value
of the Company, but determined that this loss of opportunity was ameliorated in
part by the Purchase Price of $12.00 net per Share to be paid in the Offer. See
"Special Factors -- Background and Purpose of the Offer; Certain Effects of the
Offer; Plans of the Company after the Offer."
In connection with its deliberations, the Board of Directors did not
consider, and did not request that FBW evaluate, the Company's liquidation
value. The Board did not view the Company's liquidation value to be a relevant
measure of valuation given that the Purchase Price exceeded the book value per
Share of the Company on December 27, 1998, and it was the Board's view that the
Company is more valuable as a going concern than its book value of $10.70 per
share as of December 27, 1998 based on shares outstanding at that time.
Further, while it is possible that prices of certain of the Company's
assets might be realized in a liquidation in excess of the book values over a
period of time, the Board believed that the length of time to accomplish an
orderly liquidation, overall costs attendant to liquidation and the fact that
certain assets would have to be sold at a discount (particularly inventory) in a
liquidation would possibly offset any gains on other assets. In addition,
substantial expenses could be incurred in a liquidation in connection with
contract terminations, severance pay and other matters, as well as legal fees
and brokers' commissions. In view of these factors, the Board believed that it
would be highly unlikely that liquidation would generate net proceeds with a
current value in excess of $12.00 per Share. However, there can be no assurance
that the liquidation value would not produce a higher valuation of the Company
than its value as a going concern.
The Remaining Stockholders also believe the Offer is fair to the Public
Stockholders based on (i) the conclusions of, and approval of the Board of
Directors, as well as the basis therefor, which conclusion and basis, as set
forth above, are incorporated by reference herein, and (ii) notwithstanding the
fact that the FBW opinion was provided for the information and assistance of the
Board of Directors and that the Remaining Stockholders are not entitled to rely
on such opinion, the fact that the Board of Directors had received the written
opinion of FBW that the initial offer price of $12.00 in cash was fair, from a
financial point of view to the Public Stockholders. The Remaining Stockholders
adopted the analysis of the Board of Directors in determining that the Offer is
fair, from a financial point of view, to
11
<PAGE> 15
the Public Stockholders. The Remaining Stockholders did not find it practical
to, and did not, quantify or otherwise attach relative weights to the specific
factors which they considered.
4. OPINION OF FERRIS, BAKER WATTS, INCORPORATED
FBW was engaged to render an opinion to the Board of Directors as to the
fairness, from a financial point of view, of the proposed Purchase Price of
$12.00 per Share, net to the seller in cash (the "Initial Offer") to the
Company's stockholders. See "Special Factors -- Background and Purpose of the
Offer; Certain Effects of the Offer; Plans of the Company after the Offer."
On March 24, 1999, in connection with the Board of Directors' evaluation of
the Initial Offer, FBW made a presentation to the Board of Directors with
respect thereto (the "Report"). As part of the presentation, FBW reviewed with
the Board of Directors certain of the information and financial data described
below. Final copies of the Report dated March 24, 1999, were delivered to the
Board of Directors in connection with the Board of Directors' evaluation of the
Initial Offer.
FBW delivered its written opinion to the Board of Directors dated March 24,
1999 (the "FBW Opinion"). A copy of the FBW Opinion, which sets forth the
assumptions made, matters considered and limitations of review undertaken by
FBW, is attached as Schedule II hereto. A copy of the FBW Opinion is available
for inspection and copying at the offices of the Company, 5601 Metro Drive,
Baltimore, Maryland 21215, Attention: Gary Davis, during regular business hours
by any interested Public Stockholder or his representative who has been so
designated in writing.
No limitations were imposed by the Company or the Board of Directors on the
scope of the FBW investigation or the procedures to be followed by FBW in
rendering the FBW Opinion, except that FBW was not authorized to solicit, and
did not solicit, any indications of interest from any third party with respect
to a purchase of all or a part of the Company's business. The FBW Opinion does
not address nor should it be construed to address the relative merits of the
Offer and the Second-Step Transaction with any alternative business strategy
that may be available to the Company. In arriving at the FBW Opinion, FBW did
not ascribe a specific range of value to the Company, but rather made its
determination as to the fairness, from a financial point of view, of the
consideration to be offered to the Company's stockholders in the Initial Offer
on the basis of the financial and comparative analyses described below.
THE FBW OPINION IS FOR THE USE AND BENEFIT OF THE BOARD OF DIRECTORS AND
WAS RENDERED TO THEM IN CONNECTION WITH THEIR CONSIDERATION OF THE INITIAL OFFER
AND IS NOT INTENDED TO BE AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER AS TO WHETHER TO ACCEPT THE CONSIDERATION TO BE OFFERED TO SUCH
STOCKHOLDER IN THE OFFER.
The Company's Board of Directors engaged FBW to render the opinion referred
to above because FBW regularly engages in the valuation of businesses and their
securities. FBW is a Mid-Atlantic based investment bank whose corporate finance
activities are focused on small to middle market companies. FBW provides a full
range of investment banking services to its clients, ranging from merger and
acquisition services, public offerings, private placements, and advisory
services. The Board of Directors requested proposals from two other investment
banking firms and decided to retain FBW based on the Board's evaluation of all
the proposals.
The following paragraphs summarize the financial and comparative analyses
performed by FBW in connection with its opinion. The summary does not represent
a complete description of the analyses performed by FBW.
In arriving at the FBW Opinion, FBW: (a) reviewed certain publicly
available historical financial and operating data concerning the Company
including the Annual Reports to Stockholders and Annual Reports on Form 10-K for
the previous five years ended March 29, 1998 and the Quarterly Reports on
12
<PAGE> 16
Form 10-Q for each of the quarters during the previous five years ended December
27, 1998; (b) interviewed certain members of senior management of the Company to
discuss the prospects for the Company's business; (c) reviewed certain
information of the Company, including financial projections relating to the
business, earnings, cash flow, assets and prospects of the Company prepared by
the management of the Company; (d) reviewed publicly available financial
operating and stock market data concerning certain companies engaged in
businesses which the Company's management deemed relatively comparable to the
Company; (e) reviewed the historical market prices and trading volumes of the
Shares; (f) reviewed the relationship between the Shares' historical market
prices and its reported earnings per share data; and (g) reviewed and conducted
such other financial studies, analyses and investigations as FBW deemed
appropriate.
In arriving at the FBW Opinion, FBW assumed and relied upon the accuracy
and completeness of the financial information provided by the Company and other
information used by FBW without assuming any responsibility for independent
verification of such information and further relied upon the assurances of
management of the Company that they were not aware of any facts that would make
the information provided by the Company inaccurate or misleading. With respect
to the financial projections of the Company, FBW assumed that such projections
were prepared in good faith on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company. In arriving at the FBW Opinion, FBW
conducted a limited physical inspection of the properties and facilities of the
Company and did not make any evaluations or appraisals of the assets or
liabilities of the Company and was not presented with any such appraisal. The
FBW Opinion was necessarily based upon economic, financial, market and other
conditions as they existed on, and could be evaluated as of, the date of the FBW
Opinion.
The preparation of an opinion as to the fairness of the consideration, from
a financial point of view, involves various determinations as to the most
appropriate and relevant methods of financial and comparative analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Furthermore,
in arriving at the FBW Opinion, FBW did not attribute any particular weight to
the analyses or factors considered by it, but rather made qualitative judgments
as to the significance and relevancy of each analysis and factor. Accordingly,
FBW believes that its analyses must be considered as a whole and that
considering any portions of its analyses and of the factors considered by it,
without considering all analyses and factors, could create a misleading or
incomplete view of the process underlying the FBW Opinion. In its analyses, FBW
made numerous assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond the
Company's control. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth therein. Additionally,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses actually may be sold. Accordingly,
such analyses and estimates are inherently subject to substantial uncertainty.
Subject to the foregoing, the following is a summary of the material financial
analyses presented by FBW to the Company's Board of Directors on March 24, 1999.
FBW considered several methods to evaluate the fair market value of the
Shares. These methods included (i) the discounted future free cash flow of the
Company, and (ii) the earnings and multiple comparisons to publicly traded
comparable companies.
DISCOUNTED FREE CASH FLOW ANALYSIS. A discounted cash flow analysis was
employed by FBW to establish an implied per share valuation for the Shares. This
methodology is premised on the assumption that a buyer purchases a time series
of free cash flows that are generated by the assets of a business. This analysis
separates and ascribes value only to the cash flows that can ultimately be taken
out of the business. Cash that is generated but used to sustain the business
(such as increases in working capital and capital expenditures) creates no
incremental value to the buyer. These free cash flows are then
13
<PAGE> 17
discounted to the present at the firm's weighted average cost of capital. The
weighted average cost of capital can be described as the average price a company
must pay to attract both debt and equity to properly capitalize the firm's
growth. It is this series of free cash flows that, when discounted to the
present, and after subtracting claims by debt holders and others, represents the
economic value of a firm to its stockholders. The Offer value per Share
represents a 10.5% premium to the intrinsic value of Shares as determined by
FBW's discounted free cash flow analysis.
Projected financial and other information concerning the Company are not
necessarily indicative of future results. The Company provided the financial
projections that FBW utilized in this analysis. All projected financial
information is subject to numerous contingencies, many of which are beyond the
control of management of the Company.
PUBLICLY TRADED COMPARABLE COMPANIES ANALYSIS. A comparable company
analysis was employed by FBW to establish implied ranges for the per share
valuation for the Shares. FBW analyzed publicly-available historical and
projected financial results, including multiples of net market capital to
earnings before interest and taxes ("EBIT"), price to earnings, price to forward
projected earnings, price to revenues and price to book ratios. FBW examined the
financial results and market multiplies of publicly traded comparable companies,
which consisted of selected manufacturers of audio components with market
capitalizations below $50 million and average daily trading volumes below 6,000.
All of the trading multiples of the comparable companies were based on closing
stock prices on March 19, 1999. The comparable companies were found to have
average multiples of 4.7x net market capital to EBIT, 6.9x price to earnings,
8.5x price to fiscal 1999 projected earnings, 5.6x price to fiscal 2000
projected earnings, 0.7x enterprise value to revenues and 1.1x price to book
ratios. Applying such multiples to the Company's historical and projected
operating results resulted in an implied valuation range for the Shares of $8.16
to $27.87 per Share. The values derived from the application of net earnings
multiples ranged from $8.16 to $12.61. The Offer value per Share to the
Company's stockholders is within the range for the Offer value per Share implied
by FBW's publicly traded comparable companies analysis.
None of the companies utilized in the above analysis for comparative
purposes is, of course, identical to the Company. Accordingly, a complete
analysis of the results of the foregoing calculations cannot be limited to a
quantitative review of such results and involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the public trading
value of the comparable companies as well as that of the Company.
The engagement letter between the Company and FBW provides that the Company
will pay FBW an advisory fee of $65,000 upon the closing of the going-private
transaction and a fee of $75,000 due upon the delivery by FBW to the Board of
Directors of the FBW Opinion. In the event that the going-private transaction is
not consummated, the Company shall pay to FBW a fee of $25,000. In addition, the
engagement letter between the Company and FBW provides that the Company will
reimburse FBW for certain of its out-of-pocket expenses and will indemnify FBW
and certain related persons against certain liabilities, including liabilities
under securities laws, arising out of its engagement.
5. INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE SECOND-STEP TRANSACTION
In considering the Offer and the fairness of the consideration to be
received in the Offer and, if deemed desirable by the Company, the Second-Step
Transaction, stockholders should be aware that certain officers and directors of
the Company have interests in the Offer that are described below and which may
present them with certain actual or potential conflicts of interest.
As of March 22, 1999, the directors and executive officers as a group
beneficially owned 1,033,209 Shares, or 54.2% of the Shares, which includes
57,360 shares issuable upon exercise of outstanding stock
14
<PAGE> 18
options that are currently exercisable. Even if no Shares are tendered in the
Offer, the Remaining Stockholders together own more than a majority of the
outstanding Shares and, if acting together, will be able to control all matters
requiring approval of the Company's stockholders, including the election of
directors. Matthew S. Polk, Jr. (Chairman of the Board, Director and Secretary
of the Company) and George M. Klopfer (Chief Executive Officer and Director of
the Company) together currently own 36.8% of the outstanding Shares. If more
than 464,000 shares are purchased pursuant to the Offer, then Messrs. Klopfer
and Polk together will own in the aggregate a majority of the outstanding Shares
and will be able to control all matters requiring approval of the Company's
stockholders, including the election of directors. The Board was aware of these
actual and potential conflicts of interest and considered them along with the
other matters described under "Special Factors -- Position of the Company's
Board; Fairness of the Offer" and "Special Factors -- Beneficial Ownership of
Shares."
Each of the Remaining Stockholders has advised the Company that he or she
does not intend to tender any Shares pursuant to the Offer. If the Company
purchases 860,000 Shares pursuant to the Offer, then after the purchase of
Shares pursuant to the Offer, the Remaining Stockholders would beneficially own
approximately 99% of the outstanding Shares immediately after the Offer,
assuming the exercise by such persons of their currently exercisable options. In
addition, certain other employees of the Company who are not affiliated with the
Remaining Stockholders may not tender their Shares pursuant to the Offer.
Except as described herein, based on the Company's records and on
information provided to the Company by its directors, executive officers and
subsidiaries, neither the Company, nor any associate or subsidiary of the
Company nor, to the best of the Company's knowledge, any of the directors or
executive officers of the Company or any of its subsidiaries, nor any associates
or affiliates of any of the foregoing, has effected any transactions involving
the Shares during the 40 business days prior to the date hereof. Except as
otherwise described herein, neither the Company nor, to the best of the
Company's knowledge, any of its affiliates, directors or executive officers, is
a party to any contract, arrangement, understanding or relationship with any
other person relating, directly or indirectly, to the Offer with respect to any
securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or the voting
of any such securities, joint ventures, loan or option arrangements, puts or
calls, guarantees of loans, guarantees against loss or the giving or withholding
of proxies, consents or authorizations.
Under the MGCL, corporations organized under the laws of Maryland are
permitted to indemnify their current and former directors, officers, employees
and agents under certain circumstances against certain liabilities and expenses
incurred by them by reason of their serving in such capacities. The Company's
Charter provides that each director and officer will be indemnified by the
Company against liabilities and expenses incurred in connection with any
threatened, pending or completed legal action or proceeding to which he or she
may be made a party or threatened to be made a party by reason of being a
director of the Company or a predecessor company, or serving any other
enterprise as a director or officer at the request of the Company. The Company's
Charter provides that, to the fullest extent that limitations on the liability
of directors and officers are permitted by the MGCL, no director or officer of
the Company shall have any liability to the Company or its stockholders for
monetary damages. The MGCL provides that a corporation's charter may include a
provision which restricts or limits the liability of its directors or officers
to the corporation or its stockholders for money damages except: (1) to the
extent that it is provided that the person actually received an improper benefit
or profit in money, property or services, for the amount of the benefit or
profit in money, property or services actually received, or (2) to the extent
that a judgment or other final adjudication adverse to the person is entered in
a proceeding based on a finding in the proceeding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the
15
<PAGE> 19
proceeding. The Company has also purchased directors' and officers' liability
insurance for the benefit of these persons.
6. BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth certain information, as of March 22, 1999,
regarding the ownership of Shares by each person known by the Company to be the
beneficial owner of more than 5% of the outstanding Shares, each director of the
Company, each executive officer of the Company, and all executive officers and
directors of the Company as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS(1) AMOUNT AND NATURE OF
OF STOCKHOLDERS BENEFICIAL OWNERSHIP(2) PERCENT OF CLASS
------------------- ----------------------- ----------------
<S> <C> <C>
DIRECTOR AND EXECUTIVE OFFICERS:
George M. Klopfer...................................... 346,458 18.7%
Matthew S. Polk, Jr.................................... 346,458 18.7%
Craig C. Georgi........................................ 120,800 6.5%
Wilbert H. Sirota...................................... 11,000 *
Robert B. Barnhill, Jr................................. 10,000 *
Dennis J. Shaughnessy.................................. 11,110 *
James M. Herd.......................................... 106,250 5.7%
Peter D. Gaskarth...................................... 55,000 3.0%
Gary B. Davis.......................................... 17,633 *
Thomas C. Roddam....................................... 2,500 *
Robert E. Limbaugh..................................... 2,500 *
Keith A. Ballard....................................... 3,500 *
All directors and executive officers as a group (12
persons)............................................. 1,033,209 54.2%
5% STOCKHOLDERS:
Lighthouse Capital Management, Inc.(3)................. 115,900 6.3%
1000 Memorial Drive, #660
Houston, TX 77024
Athena Capital Management, Inc. (4).................... 119,690 6.5%
621 E. Germantown Pike, Suite 105
Plymouth Valley, PA 19401
</TABLE>
- ---------------
* Represents less than 1% of the issued and outstanding shares.
(1) Unless otherwise indicated, the address of each of the stockholders is the
address of the Company.
(2) The number of shares stated as "beneficially owned" includes shares that
such persons have the right to acquire beneficial ownership within 60 days
upon the exercise of outstanding stock options. If such options are
exercised Mr. Klopfer would acquire 6,250 shares; Mr. Polk, 6,250 shares;
Mr. Georgi, 2,500 shares; Mr. Sirota, 10,000 shares; Mr. Shaughnessy, 11,110
shares; Mr. Herd, 6,250 shares; Mr. Gaskarth, 5,000 shares; Mr. Davis, 2,500
shares; Mr. Roddam, 2,500 shares; Mr. Limbaugh, 2,500 shares; Mr. Ballard,
2,500 shares; and all directors and executive officers as a group, 57,360
shares.
(3) Based on information provided to the Company on Form 13G dated February 12,
1999. Lighthouse Capital Management, Inc. has sole voting and disposition
power with respect to such shares.
(4) Based on information provided to the Company on Form 13G dated January 27,
1999. Athena Capital Management, Inc. has shared voting and disposition
power with respect to 117,690 of such shares and sole voting and disposition
power with respect to 2,000 of such shares.
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<PAGE> 20
7. FEES AND EXPENSES
The following is an estimate of expenses incurred or to be incurred in
connection with the Offer. Also see "The Tender Offer -- Fees and Expenses."
<TABLE>
<S> <C>
Legal Fees.................................................. $ 60,000
Printing and Mailing........................................ 25,000
Filing Fees................................................. 2,064
Depositary Fees............................................. 3,500
Information Agent Fees...................................... 20,000
Investment Banker's Fees.................................... 140,000
Accountant's Fees........................................... 25,000
Financing Fees.............................................. 50,000
Miscellaneous............................................... 24,436
--------
TOTAL.................................................. $350,000
========
</TABLE>
17
<PAGE> 21
THE TENDER OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of such extension or amendment), the Company will purchase
up to 860,000 Shares or such lesser number of Shares as are validly tendered
prior to the Expiration Date (as hereinafter defined) and not withdrawn as
permitted by "The Tender Offer -- Withdrawal Rights" at a price of $12.00 per
Share (the "Purchase Price"), net to the seller in cash, without interest
thereon. The term "Expiration Date" means 12:00 midnight, Eastern Daylight Time,
on April 30, 1999, unless and until the Company, in its sole discretion shall
have extended the period during which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date at which the Offer, as so
extended by the Company, shall expire.
The Company reserves the right, in its sole discretion, to purchase more
than 860,000 Shares pursuant to the Offer, although it has no current intention
to do so. In accordance with applicable regulations of the Securities and
Exchange Commission (the "Commission"), the Company may purchase, pursuant to
the Offer, an additional amount of Shares not to exceed 2% of the outstanding
Shares without amending or extending the Offer. In the event of an
over-subscription of the Offer as described below, Shares tendered prior to the
Expiration Date will be subject to proration, except for Odd Lots (as defined
below). The proration period also expires on the Expiration Date. If (i)(a) the
Company increases or decreases the Purchase Price to be paid for Shares, (b) the
Company materially increases the Dealer Manager fee, (c) the Company increases
the number of Shares being sought in the Offer and such increase in the number
of Shares being sought exceeds 2% of the outstanding Shares, or (d) the Company
decreases the number of Shares being sought, and (ii) the Offer is scheduled to
expire at any time earlier than the expiration of the period ending on the tenth
business day from, and including, the date that notice of such increase or
decrease is first published, sent or given in the manner specified below, the
Offer will be extended until the expiration of such period of ten business days.
Shares properly tendered pursuant to the Offer, and not properly withdrawn,
will be purchased at the Purchase Price, upon the terms and subject to the
conditions of the Offer, including the proration provisions. All Shares tendered
and not purchased pursuant to the Offer, because of proration, will be returned
to the tendering stockholders at the Company's expense as promptly as
practicable following the Expiration Date.
If the number of Shares properly tendered and not properly withdrawn prior
to the Expiration Date is less than or equal to 860,000 Shares (or such greater
number of Shares as the Company may elect to purchase pursuant to the Offer),
the Company will, upon the terms and subject to the conditions of the Offer,
purchase all Shares so tendered at the Purchase Price.
PRIORITY OF PURCHASES. If the number of Shares validly tendered by the
Expiration Date and not properly withdrawn is greater than the number of Shares
the Company determines to purchase pursuant to the Offer, the Company will, upon
the terms and subject to the conditions of the Offer, accept the number of
Shares to be purchased on the basis set forth below:
(a) first, all Shares properly tendered and not properly withdrawn
prior to the Expiration Date by any Odd Lot Holder (as defined below) who:
(1) tenders all Shares owned beneficially or of record by such Odd
Lot Holder (tenders of less than all the Shares owned by such Odd Lot
Holder will not qualify for this preference); and
(2) completes the section entitled "Odd Lots" in the Letter of
Transmittal and, if applicable, in the Notice of Guaranteed Delivery;
and
18
<PAGE> 22
(b) second, after the purchase of all of the foregoing Shares, all
other Shares properly tendered and not properly withdrawn prior to the
Expiration Date, on a pro rata basis (with appropriate adjustments to avoid
purchases of fractional Shares), as described below.
ODD LOTS. For purposes of the Offer, the term "Odd Lots" means all Shares
properly tendered prior to the Expiration Date and not properly withdrawn by any
person (an "Odd Lot Holder") who owned beneficially or of record as of the close
of business on March 24, 1999 and who continues to own beneficially or of record
as of the Expiration Date, an aggregate of fewer than 100 Shares and so
certified in the appropriate place on the Letter of Transmittal and, if
applicable, on the Notice of Guaranteed Delivery. In order to qualify for this
preference, an Odd Lot Holder must tender all Shares owned by the Odd Lot Holder
in accordance with the procedures described in Instruction 7 of the Letter of
Transmittal. As set forth above, Odd Lots will be accepted for payment before
proration, if any, of the purchase of other tendered Shares. This preference is
not available to partial tenders or to beneficial or record holders of an
aggregate of 100 or more Shares, even if these holders have separate accounts or
certificates representing fewer than 100 Shares. By accepting the Offer, an Odd
Lot Holder who holds Shares in its name and tenders its Shares directly to the
Depositary would not only avoid the payment of brokerage commissions, but also
would avoid any applicable odd lot discount in a sale of the holder's Shares.
Any stockholder wishing to tender all of such stockholder's Shares pursuant to
the Offer should complete the section entitled "Odd Lots" in the Letter of
Transmittal and, if applicable, in the Notice of Guaranteed Delivery.
The Company also reserves the right, but will not be obligated, to purchase
all Shares duly tendered by any stockholder who tenders any Shares beneficially
owned and who, as a result of proration, would then beneficially own an
aggregate of fewer than 100 Shares. If the Company exercises this right, it will
increase the number of Shares that it is offering to purchase in the Offer by
the number of Shares purchased through the exercise of such right.
PRORATION. In the event that proration of tendered Shares is required, the
Company will determine the proration factor as soon as practicable following the
Expiration Date. Proration for each stockholder tendering Shares, other than Odd
Lot Holders, will be based on the ratio of the number of Shares properly
tendered and not properly withdrawn by such stockholder to the total number of
Shares properly tendered and not properly withdrawn by all stockholders, other
than Odd Lot Holders. Because of the difficulty in determining the number of
Shares properly tendered (including Shares tendered by guaranteed delivery
procedures, as described in "The Tender Offer -- Procedures For Accepting the
Offer and Tendering Shares") and not properly withdrawn, and because of the Odd
Lot procedure, the Company does not expect that it will be able to announce the
final proration factor or commence payment for any Shares purchased pursuant to
the Offer until approximately five business days after the Expiration Date. The
preliminary results of any proration will be announced by press release as
promptly as practicable after the Expiration Date. Stockholders may obtain
preliminary proration information from the Information Agent or the Dealer
Manager and may be able to obtain such information from their brokers.
The Company expressly reserves the right, in its sole discretion, at any
time and from time to time, to extend for any reason the period of time during
which the Offer is open, including the occurrence of any of the conditions
specified in "The Tender Offer -- Certain Conditions of the Offer," by giving
oral or written notice of such extension to the Depositary. During any such
extension, all Shares previously tendered and not withdrawn will remain subject
to the Offer, subject to the rights of a tendering stockholder to withdraw such
stockholder's Shares. See "The Tender Offer -- Withdrawal Rights."
Subject to the applicable regulations of the Commission, the Company also
expressly reserves the right, in its sole discretion, at any time and from time
to time, (i) to delay acceptance for payment of, or, regardless of whether such
Shares were theretofore accepted for payment, payment for, any Shares,
19
<PAGE> 23
pending receipt of any regulatory approval specified in "The Tender
Offer -- Certain Legal Matters and Regulatory Approvals," (ii) to terminate the
Offer and not accept for payment any Shares upon the occurrence of any of the
conditions specified in "The Tender Offer -- Certain Conditions of the Offer"
and (iii) to waive any condition or otherwise amend the Offer in any respect, by
giving oral or written notice of such delay, termination, waiver or amendment to
the Depositary and by making a public announcement thereof. The Company
acknowledges that (i) Rule 13e-4(f) under the Exchange Act requires the Company
to pay the consideration offered or return the Shares tendered promptly after
the termination or withdrawal of the Offer and (ii) the Company may not delay
acceptance for payment of, or payment for (except as provided in clause (i) of
the first sentence of this paragraph), any Shares upon the occurrence of any of
the conditions specified in "The Tender Offer -- Certain Conditions of the
Offer" without extending the period of time during which the Offer is open.
Any such extension, delay, termination, waiver or amendment will be
followed as promptly as practicable by public announcement thereof, such
announcement in the case of an extension to be made no later than 9:00 a.m.,
Eastern Daylight Time, on the next business day after the previously scheduled
Expiration Date. Subject to applicable law (including Rules 13e-3(e)(2),
13e-4(e)(2) and 13e-4(f) under the Exchange Act, which require that material
changes be promptly disseminated to stockholders in a manner reasonably designed
to inform them of such changes) and without limiting the manner in which the
Company may choose to make any public announcement, the Company shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a press release to the Dow Jones News
Service.
If the Company makes a material change in the terms of the Offer or other
information concerning the Offer, or if it waives a material condition of the
Offer, the Company will extend the Offer to the extent required by Rules
13e-3(e)(2), 13e-4(e)(2) and 13e-4(f) under the Exchange Act.
If, prior to the Expiration Date, the Company should decide to decrease the
number of Shares being sought or to increase or decrease the consideration being
offered in the Offer, such decrease in the number of Shares being sought or such
increase or decrease in the consideration being offered will be applicable to
all stockholders whose Shares are accepted for payment pursuant to the Offer
and, if at the time notice of any such decrease in the number of Shares being
sought or such increase or decrease in the consideration being offered is first
published, sent or given to holders of such Shares, the Offer is scheduled to
expire at any time earlier than the period ending on the tenth (10th) business
day from and including the date that such notice is first so published, sent or
given, the Offer will be extended at least until the expiration of such ten (10)
business day period. For purposes of this Offer, a "business day" means any day
other than a Saturday, Sunday or federal holiday and consists of the time period
from 12:01 a.m. through 12:00 midnight, Eastern Daylight Time.
This Offer to Purchase and the related Letter of Transmittal will be mailed
to record holders of Shares whose names appear on the Company's stockholder list
and will be furnished, for subsequent transmittal to beneficial owners of
Shares, to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the stockholder
list or, if applicable, who are listed as participants in a clearing agency's
security position listing.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and
subject to the conditions of the Offer (including, if the Offer is extended or
amended, the terms and conditions of any such extension or amendment), the
Company will accept for payment and pay for (and thereby purchase) Shares
properly tendered not properly withdrawn prior to the Expiration Date. For
purposes of the Offer, the Company will be deemed to have accepted for payment
(and therefore purchased) Shares that are properly tendered and not properly
withdrawn (subject to the proration provisions of the Offer) only when and if it
gives written notice to the Depositary of its acceptance of the Shares for
payment pursuant to the Offer.
20
<PAGE> 24
Upon the terms and subject to the conditions of the Offer, promptly after
the latest to occur of (i) the Expiration Date and (ii) the satisfaction or
waiver of the conditions to the Offer set forth in "The Tender Offer -- Certain
Conditions of the Offer" the Company will accept for payment and pay a Purchase
Price of $12.00 per Share for up to 860,000 Shares (subject to increase or
decrease as provided in "The Tender Offer -- Terms of the Offer; Expiration
Date") properly tendered, and not properly withdrawn. Subject to applicable
rules of the Commission, the Company expressly reserves the right to delay
acceptance for payment of, or payment for, Shares pending receipt of any
regulatory approvals specified in "The Tender Offer -- Certain Legal Matters and
Regulatory Approvals" or in order to comply in whole or in part with any other
applicable law.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i) the
certificates evidencing such Shares (the "Share Certificates") or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such
Shares into the Depositary's account at The Depository Trust Company or the
Philadelphia Depository Trust Company (each, a "Book-Entry Transfer Facility"
and, collectively, the "Book-Entry Transfer Facilities") pursuant to the
procedures set forth in "The Tender Offer -- Procedures for Accepting the Offer
and Tendering Shares," (ii) the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees or,
in the case of a book-entry transfer, an Agent's Message (as defined below) in
lieu of the Letter of Transmittal and (iii) any other documents required under
the Letter of Transmittal.
For purposes of the Offer, the Company will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when the Company gives oral or written notice to the
Depositary of the Company's acceptance for payment of such Shares pursuant to
the Offer. Upon the terms and subject to the conditions of the Offer, payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payments from the Company
and transmitting such payments to tendering stockholders whose Shares have been
accepted for payment. Under no circumstances will interest on the purchase price
for Shares be paid, regardless of any delay in making such payment.
In the event of proration, the Company will determine the proration factor
and pay for those tendered Shares accepted for payment as soon as practicable
after the Expiration Date; however, the Company does not expect to be able to
announce the final results of any proration and commence payment for Shares
purchased until approximately five business days after the Expiration Date.
Certificates for all Shares tendered and not purchased, including all Shares not
purchased due to proration, will be returned (or, in the case of Shares tendered
by book-entry transfer, will be credited to the account maintained with the
Book-Entry Transfer Facility by the participant therein who so delivered the
Shares) to the tendering stockholder at the Company's expense as promptly as
practicable after the Expiration Date or termination of the Offer without
expense to the tendering stockholders. UNDER NO CIRCUMSTANCES WILL INTEREST ON
THE PURCHASE PRICE BE PAID BY THE COMPANY BY REASON OF ANY DELAY IN MAKING
PAYMENT. In addition, if certain events occur, the Company may not be obligated
to purchase Shares pursuant to the Offer. See "The Tender Offer -- Procedures
for Accepting the Offer and Tendering Shares" and "The Tender Offer -- Certain
Conditions of the Offer."
The Company will pay all stock transfer taxes, if any, payable on the
transfer to it of Shares purchased pursuant to the Offer. If, however, payment
of the Purchase Price is to be made to, or (in the circumstances permitted by
the Offer) if unpurchased Shares are to be registered in the name of, any person
other than the registered holder, or if tendered certificates are registered in
the name of any person other than the person signing the Letter of Transmittal,
the amount of all stock transfer taxes, if any (whether imposed on the
registered holder or the other person), payable on account of the transfer to
21
<PAGE> 25
the person will be deducted from the Purchase Price unless satisfactory evidence
of the payment of the stock transfer taxes, or exemption therefrom, is
submitted. See Instruction 6 of the Letter of Transmittal.
The Company reserves the right to transfer or assign, in whole or from time
to time in part, to one or more of its affiliates, the right to purchase all or
any portion of the Shares tendered pursuant to the Offer, but any such
transferor assignment will not relieve the Company of its obligations under the
Offer and will in no way prejudice the rights of tendering stockholders to
receive payment for Shares validly tendered and accepted for payment pursuant to
the Offer.
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES. In order for a
holder of Shares validly to tender Shares pursuant to the Offer, the Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed,
together with any required signature guarantees (or, in the case of a book-
entry transfer, an Agent's Message (as defined below) in lieu of the Letter of
Transmittal) and any other documents required by the Letter of Transmittal, must
be received by the Depositary at one of its addresses set forth on the back
cover of this Offer to Purchase and either (i) the Share Certificates evidencing
tendered Shares must be received by the Depositary at such address or such
Shares must be tendered pursuant to the procedure for book-entry transfer
described below and a Book-Entry Confirmation must be received by the Depositary
(including an Agent's Message if the tendering stockholder has not delivered a
Letter of Transmittal), in each case prior to the Expiration Date, or (ii) the
tendering stockholder must comply with the guaranteed delivery procedures
described below. The term "Agent's Message" means a message, transmitted by a
Book-Entry Transfer Facility to, and received by, the Depositary and forming a
part of a Book-Entry Confirmation, which states that such Book-Entry Transfer
Facility has received an express acknowledgment from the participant in such
book-entry confirmation, that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal and that the Company may enforce
such agreement against such participant.
ODD LOT HOLDERS WHO TENDER ALL SHARES MUST COMPLETE THE SECTION CAPTIONED
"ODD LOTS" IN THE LETTER OF TRANSMITTAL AND, IF APPLICABLE, IN THE NOTICE OF
GUARANTEED DELIVERY, TO QUALIFY FOR THE PREFERENTIAL TREATMENT AVAILABLE TO ODD
LOT HOLDERS AS SET FORTH IN "TERMS OF THE OFFER; EXPIRATION DATE -- ODD LOTS."
STOCKHOLDERS WHO HOLD SHARES THROUGH BROKERS OR BANKS ARE URGED TO CONSULT
THE BROKERS OR BANKS TO DETERMINE WHETHER TRANSACTION COSTS ARE APPLICABLE IF
STOCKHOLDERS TENDER SHARES THROUGH THE BROKERS OR BANKS AND NOT DIRECTLY TO THE
DEPOSITARY.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
BOOK-ENTRY TRANSFER. The Depositary will establish accounts with respect
to the Shares at the Book-Entry Transfer Facilities for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of Book-Entry Transfer Facility
may make a book-entry delivery of Shares by causing such Book-Entry Transfer
Facility to transfer such Shares into the Depositary's account at such
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for such transfer. However, although delivery of Shares
may be effected through book-entry transfer at a Book-Entry Transfer Facility,
either the Letter
22
<PAGE> 26
of Transmittal (or a facsimile thereof), properly completed and duly executed,
together with any required signature guarantees, or an Agent's Message in lieu
of the Letter of Transmittal, and any other required documents, must, in any
case, be received by the Depositary at one of its addresses set forth on the
back cover of this Offer to Purchase prior to the Expiration Date, or the
tendering stockholder must comply with the guaranteed delivery procedure
described below. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES
NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
SIGNATURE GUARANTEES. Signatures on all Letters of Transmittal must be
guaranteed by a firm that is a member of the Medallion Signature Guarantee
Program, or by any other "eligible guarantor institution," as such term is
defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing referred
to as an "Eligible Institution"), except in cases where Shares are tendered (i)
by a registered holder of Shares who has not completed either the box entitled
"Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. If a Share Certificate is registered in the name of a
person other than the signer of the Letter of Transmittal, or if payment is to
be returned, to a person other than the registered holder(s), then the Share
Certificate must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name(s) of the registered holder(s) appear on
the Share Certificate, with the signature(s) on such Share Certificate or stock
powers guaranteed by an Eligible Institution. See Instructions 1 and 6 of the
Letter of Transmittal.
GUARANTEED DELIVERY. If a stockholder desires to tender Shares pursuant to
the Offer and the Share Certificates evidencing such stockholder's Shares are
not immediately available or such stockholder cannot deliver the Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date, or such stockholder cannot complete the procedure for delivery
by book-entry transfer on a timely basis, such Shares may nevertheless be
tendered, provided that all the following conditions are satisfied:
i. such tender is made by or through an Eligible Institution;
ii. a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Company is
received prior to the Expiration Date by the Depositary as provided
below; and
iii. the Share Certificates (or a Book-Entry Confirmation)
evidencing all tendered Shares, in proper form for transfer, in each
case together with the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature
guarantees, and any other documents required by the Letter of
Transmittal are received by the Depositary within three AMEX trading
days after the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by telegram or facsimile transmission to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the form
of Notice of Guaranteed Delivery made available by the Company.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of the
Share Certificates evidencing such Shares, or a Book-Entry Confirmation of the
delivery of such Shares, and the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
and any other documents required by the Letter of Transmittal.
DETERMINATION OF VALIDITY. All questions as to the number of Shares to be
accepted, the validity, form, eligibility (including time of receipt) and
acceptance for payment of any tender of Shares will be
23
<PAGE> 27
determined by the Company in its sole discretion, which determination shall be
final and binding on all parties. The Company reserves the absolute right to
reject any and all tenders determined by it not to be in proper form or the
acceptance for payment of which may, in the opinion of its counsel, be unlawful.
The Company also reserves the absolute right to waive any condition of the Offer
or any defect or irregularity in the tender of any Shares of any particular
stockholder, whether or not similar defects or irregularities are waived in the
case of other stockholders. No tender of Shares will be deemed to have been
validly made until all defects and irregularities have been cured or waived.
None of the Company, the Dealer Manager, the Depositary, the Information Agent
or any other person will be under any duty to give notification of any defects
or irregularities in tenders or incur any liability for failure to give any such
notification. The Company's interpretation of the terms and conditions of the
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding.
LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificates for the Shares
have been lost, destroyed or stolen, stockholders should contact the Depositary
immediately at the address and telephone number set forth on the back cover of
this Offer to Purchase. In such event, the Depositary will forward additional
documentation necessary to be completed in order to surrender effectively such
lost, destroyed or stolen certificates. The Purchase Price with respect to the
relevant Shares will not be paid until the procedures for replacing lost,
destroyed or stolen certificates have been followed.
OTHER REQUIREMENTS. By executing the Letter of Transmittal as set forth
above, a tendering stockholder irrevocably appoints designees of the Company as
such stockholder's proxies, each with full power of substitution, in the manner
set forth in the Letter of Transmittal, to the full extent of such stockholder's
rights with respect to the Shares tendered by such stockholder and accepted for
payment by the Company (and with respect to any and all Shares or other
securities issued or issuable in respect of such Shares on or after March 24,
1999). All such proxies shall be considered coupled with an interest in the
tendered Shares. Such appointment will be effective when, and only to the extent
that, the Company accepts such Shares for payment. Upon such acceptance for
payment, all prior proxies given by such stockholder with respect to such Shares
(and such other Shares and securities) will be revoked without further action,
and no subsequent proxies may be given nor any subsequent written consent
executed by such stockholder (and, if given or executed, will not be deemed to
be effective) with respect thereto. The designees of the Company will, with
respect to the Shares for which the appointment is effective, be empowered to
exercise all voting and other rights of such stockholder as they in their sole
discretion may deem proper at any annual or special meeting of the Company's
stockholders or any adjournment or postponement thereof, by written consent in
lieu of any such meeting or otherwise.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT TO
CERTAIN STOCKHOLDERS OF THE PURCHASE PRICE OF SHARES PURCHASED PURSUANT TO THE
OFFER, EACH SUCH STOCKHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH STOCKHOLDER'S
CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH STOCKHOLDER IS NOT
SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE
FORM W-9 IN THE LETTER OF TRANSMITTAL. IF BACKUP WITHHOLDING APPLIES WITH
RESPECT TO A STOCKHOLDER, THE DEPOSITARY IS REQUIRED TO WITHHOLD 31% OF ANY
PAYMENTS MADE TO SUCH STOCKHOLDER. SEE INSTRUCTION 11 OF THE LETTER OF
TRANSMITTAL.
TENDERING STOCKHOLDER'S REPRESENTATION AND WARRANTY; COMPANY'S ACCEPTANCE
CONSTITUTES AN AGREEMENT. A tender of Shares pursuant to any of the procedures
described above will constitute the tendering stockholder's acceptance of the
terms and conditions of the Offer, as well as the tendering stockholder's
representation and warranty to the Company that (a) the stockholder has a "net
long position" (as defined in Rule 14e-4 promulgated by the Commission under the
Exchange Act) in the Shares or equivalent securities at least equal to the
Shares tendered within the meaning of Rule 14e-4
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<PAGE> 28
and (b) the tender of Shares complies with Rule 14e-4. It is a violation of Rule
14e-4 for a person, directly or indirectly, to tender Shares for that person's
own account unless, at the time of tender and at the end of the proration period
or period during which Shares are accepted by lot (including any extensions
thereof), the person so tendering (i) has a net long position equal to or
greater than the amount of (x) Shares tendered or (y) other securities
immediately convertible into or exchangeable or exercisable for the Shares
tendered and will acquire the Shares for tender by conversion, exchange or
exercise and (ii) will deliver or cause to be delivered the Shares in accordance
with the terms of the Offer. Rule 14e-4 provides a similar restriction
applicable to the tender or guarantee of a tender on behalf of another person.
The Company's acceptance for payment of Shares tendered pursuant to the Offer
will constitute a binding agreement between the tendering stockholder and the
Company upon the terms and conditions of the Offer.
CERTIFICATES FOR SHARES, TOGETHER WITH A PROPERLY COMPLETED LETTER OF
TRANSMITTAL AND ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL, MUST
BE DELIVERED TO THE DEPOSITARY AND NOT TO THE COMPANY. ANY SUCH DOCUMENTS
DELIVERED TO THE COMPANY WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE
WILL NOT BE DEEMED TO BE PROPERLY TENDERED.
4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer are
irrevocable except that such Shares may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment by the Company
pursuant to the Offer, may also be withdrawn at any time after May 26, 1999. If
the Company extends the Offer, is delayed in its acceptance for payment of
Shares or is unable to accept Shares for payment pursuant to the Offer, the
Depositary may, nevertheless, on behalf of the Company, retain tendered Shares,
and such Shares may not be withdrawn except to the extent that tendering
stockholders are entitled to withdrawal rights as described in this Section 4.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover page of this Offer to Purchase.
Any such notice of withdrawal must specify the name of the person who tendered
the Shares to be withdrawn, the number of Shares to be withdrawn and the name of
the registered holder of such Shares, if different from that of the person who
tendered such Shares. If Share Certificates evidencing Shares to be withdrawn
have been delivered or otherwise identified to the Depositary, then, prior to
the physical release of such Share Certificates, the serial numbers shown on
such Share Certificates must be submitted to the Depositary and the signature(s)
on the notice of withdrawal must be guaranteed by an Eligible Institution,
unless such Shares have been tendered for the account of an Eligible
Institution. If Shares have been tendered pursuant to the procedure for
book-entry transfer as set forth in the "The Tender Offer -- Procedures for
Accepting the Offer and Tendering Shares," any notice of withdrawal must specify
the name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Shares.
All questions as to the form and validity (including the time of receipt)
or any notice of withdrawal will be determined by the Company, in its sole
discretion, whose determination will be final and binding. None of the Company,
the Dealer Manager, the Information Agent or any other person will be under any
duty to give notification of any defects or irregularities in any notice of
withdrawal or incur any liability for failure to give any such notification.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
re-tendered at any time prior to the Expiration Date by following one of the
procedures described in "The Tender Offer -- Procedures for Accepting the Offer
and Tendering Shares."
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<PAGE> 29
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. Sales of Shares by
stockholders pursuant to the Offer will be taxable transactions for federal
income tax purposes and may also be taxable transactions under applicable state,
local, foreign and other tax laws. The federal income tax consequences to a
stockholder may vary depending upon the stockholder's particular facts and
circumstances.
Under section 302 of the Internal Revenue Code of 1986, as amended (the
"Code"), a sale of Shares pursuant to the Offer will, as a general rule, be
treated as a sale or exchange if the receipt of cash upon such sale (a) is
"substantially disproportionate" with respect to the stockholder, (b) results in
a "complete redemption" of the stockholder's interest in the Company or (c) is
"not essentially equivalent to a dividend" with respect to the stockholder. If
any of those three tests is satisfied, a tendering stockholder will recognize
gain or loss equal to the difference between the amount of cash received by the
stockholder pursuant to the Offer and the stockholder's tax basis in the Shares
sold pursuant to the Offer. Recognized gain or loss will be capital gain or
loss, assuming the Shares are held as capital assets, which will be long-term
capital gain or loss if the Shares are held for more than one year.
Net capital gain recognized by an individual upon the sale of, or otherwise
attributable to, a capital asset that has been held for more than one year will
generally be subject to tax at a rate not to exceed 20%. Capital gain recognized
from the sale of, or otherwise attributable to, a capital asset held for one
year or less will be subject to tax at the ordinary income tax rates. In
addition, capital gain recognized by a corporate taxpayer will continue to be
subject to tax at the ordinary income tax rates applicable to corporations. The
deductibility of capital losses is subject to certain limitations.
In determining whether any of the tests under section 302 of the Code is
satisfied, stockholders must take into account not only the shares of Common
Stock they actually own, but also any shares of Common Stock they are deemed to
own pursuant to the constructive ownership rules of section 318 of the Code.
Pursuant to those constructive ownership rules, a stockholder is deemed to own
Common Stock actually owned, and in some cases constructively owned, by certain
related individuals or entities, and any Common Stock that the stockholder has
the right to acquire by exercise of an option or by conversion or exchange of a
security. The receipt of cash will be "substantially disproportionate" with
respect to a stockholder if, among other things, the percentage of the
outstanding Common Stock actually and constructively owned by the stockholder
immediately following the sale of Shares pursuant to the Offer (treating as no
longer outstanding all Shares purchased pursuant to the Offer) is less than 80%
of the percentage of the outstanding Common Stock actually and constructively
owned by such stockholder immediately before the sale of Shares pursuant to the
Offer (treating as outstanding all Shares purchased pursuant to the Offer).
Stockholders should consult their tax advisors with respect to the application
of the "substantially disproportionate" test to their particular facts and
circumstances.
The receipt of cash by a stockholder will result in a "complete redemption"
of the stockholder's interest in the Company if either (a) all the Common Stock
actually and constructively owned by the stockholder is sold pursuant to the
Offer or otherwise or (b) all the Common Stock actually owned by the stockholder
is sold pursuant to the Offer or otherwise and the stockholder is eligible to
waive and does effectively waive attribution of all Common Stock constructively
owned by the stockholder in accordance with section 302(c) of the Code.
Even if the receipt of cash by a stockholder fails to satisfy the
"substantially disproportionate" test or the "complete redemption" test, such
stockholder may nevertheless satisfy the "not essentially equivalent to a
dividend" test, if the stockholder's sale of Shares pursuant to the Offer
results in a "meaningful reduction" in the stockholder's proportionate interest
in the Company. Whether the receipt of cash by a stockholder will be "not
essentially equivalent to a dividend" will depend upon the individual
stockholder's facts and circumstances. In certain circumstances, even a small
reduction in a stockholder's proportionate interest may satisfy this test. For
example, the Internal Revenue Service ("IRS") has indicated in a published
ruling that a 3.3% reduction in the proportionate interest of a small minority
26
<PAGE> 30
(substantially less than 1%) stockholder in a publicly held corporation who
exercises no control over corporate affairs constitutes such a "meaningful
reduction." Stockholders expecting to rely upon the "not essentially equivalent
to a dividend" test should, therefore, consult their tax advisors as to its
application in their particular situations. If none of the three tests under
section 302 is satisfied then, to the extent the Company has sufficient earnings
and profits, the tendering stockholder will be treated as having received a
dividend includible in gross income (and treated as ordinary income) in an
amount equal to the entire amount of cash received by the stockholder pursuant
to the Offer (without regard to gain or loss, if any).
In the case of a corporate stockholder, if the cash paid is treated as a
dividend, the dividend income may be eligible for the 70% dividends-received
deduction. The dividends-received deduction is subject to certain limitations,
and may not be available if the corporate stockholder does not satisfy certain
holding period requirements with respect to the Shares or if the Shares are
treated as "debt financed portfolio stock" within the meaning of section 246A(c)
of the Code. Generally, if a dividends-received deduction is available, it is
expected that the dividend will be treated as an "extraordinary dividend" under
section 1059(a) of the Code, in which case such corporate stockholder's tax
basis in Shares retained by such stockholder would be reduced, but not below
zero, by the amount of the nontaxed portion of the dividend. Any amount of the
nontaxed portion of the dividend in excess of the stockholder's basis will
generally be treated as capital gain and will be recognized in the taxable year
in which the extraordinary dividend is received. If a redemption of Shares from
a corporate stockholder pursuant to the Offer is treated as a dividend as a
result of the stockholder's constructive ownership of other Common Stock that it
has an option or other right to acquire, the portion of the extraordinary
dividend not otherwise taxed because of the dividends-received deduction would
reduce the stockholder's adjusted tax basis only in its Shares sold pursuant to
the Offer, and any excess of such non-taxed portion over such basis would be
currently taxable as gain on the sale of such Shares. Corporate stockholders
should consult their tax advisors as to the availability of the
dividends-received deduction and the application of section 1059 of the Code.
"Backup withholding" at a rate of 31% will apply to payments made to
stockholders pursuant to the Offer unless the stockholder has furnished its
taxpayer identification number in the manner prescribed in applicable Treasury
regulations, has certified that such number is correct, has certified as to no
loss of exemption from backup withholding and meets certain other conditions.
Any amounts withheld from a stockholder of Shares under the backup withholding
rules generally will be allowed as a refund or a credit against such
stockholder's United States federal income tax liability, provided the required
information is furnished to the IRS. The foregoing discussion may not apply to
Shares acquired pursuant to certain compensation arrangements with the Company.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY
AND IS BASED ON THE FEDERAL INCOME TAX LAW NOW IN EFFECT, WHICH IS SUBJECT TO
CHANGE, POSSIBLY RETROACTIVELY. THE TAX CONSEQUENCES OF A SALE PURSUANT TO THE
OFFER MAY VARY DEPENDING UPON, AMONG OTHER THINGS, THE PARTICULAR CIRCUMSTANCES
OF THE TENDERING STOCKHOLDER. NO INFORMATION IS PROVIDED HEREIN AS TO THE STATE,
LOCAL OR FOREIGN TAX CONSEQUENCES OF THE TRANSACTION CONTEMPLATED BY THE OFFER.
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
PARTICULAR FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SALES MADE BY
THEM PURSUANT TO THE OFFER AND THE EFFECT OF THE CONSTRUCTIVE STOCK OWNERSHIP
RULES MENTIONED ABOVE.
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<PAGE> 31
6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are listed and principally
traded on the AMEX market under the ticker symbol "PKA." The following table
sets forth, for the periods indicated, the high and low sales prices per Share
reported on the AMEX:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year ended March 30, 1997:
First Quarter............................................. $16.00 $ 8.25
Second Quarter............................................ 14.50 10.88
Third Quarter............................................. 13.25 9.88
Fourth Quarter............................................ 12.38 9.13
Year ended March 29, 1998:
First Quarter............................................. $ 9.88 $ 8.00
Second Quarter............................................ 10.00 8.13
Third Quarter............................................. 11.50 8.00
Fourth Quarter............................................ 11.88 8.75
Year ended March 28, 1999:
First Quarter............................................. $18.50 $11.00
Second Quarter............................................ 20.50 10.50
Third Quarter............................................. 17.00 9.75
Fourth Quarter (through March 22, 1999)................... 17.94 9.50
</TABLE>
On March 22, 1999, the last day the shares were traded prior to the
announcement of the Offer, the last reported sales price per Share as reported
on the AMEX was $11.25 per share. On March 22, 1999, the closing price per share
increased by $1.125 to $11.25 on trading volume of 10,100 shares. During the
twenty trading days prior to March 22, 1999, the average closing price of the
Shares was $10.28 and the average daily volume was 1,865. The Company brought
this unusual trading activity and the possibility of a material public
announcement to the attention of AMEX, which determined not to open the Shares
for trading on March 23, 1999. As of March 22, 1999, the Shares were held by
approximately 112 stockholders of record.
The Company has not declared or paid any dividends on the Shares since the
Company's inception. The Company does not anticipate paying cash dividends on
the Shares in the foreseeable future. In addition, the Company's Revolving
Credit Facility prohibits the Company from paying cash dividends without the
lender's prior consent. The Company intends to retain future earnings to finance
its operations and to fund the growth of the business. Any payment of future
dividends will be at the discretion of the Board of Directors and will depend
upon, among other things, the Company's earnings, financial condition, capital
requirements, level of indebtedness, contractual restrictions with respect to
the payment of dividends and other factors that the Board of Directors deems
relevant.
7. CERTAIN INFORMATION CONCERNING THE COMPANY. Except as otherwise set
forth herein, the information concerning the Company contained in this Offer to
Purchase, including financial information, has been furnished by the Company.
GENERAL. The Company is a Maryland corporation with its principal
executive offices located at 5601 Metro Drive, Baltimore, Maryland 21215. The
Company engineers, manufactures and markets high quality loudspeaker systems for
use in home audio and video entertainment systems and in after-market automotive
audio systems. The Company's loudspeaker systems are marketed under the Polk
Audio(R) brand name.
RECENT DEVELOPMENTS. On March 5, 1999, the Company executed a nonbinding
letter of intent with Hewlett Packard Company ("HP") providing that HP will
assist the Company with certain marketing support activities and programs
intended to supplement the Company's efforts in the
28
<PAGE> 32
marketing and sale of certain aftermarket models of accessory computer
loudspeakers developed by the Company. In exchange for such marketing
assistance, the letter of intent contemplates that HP would be paid a royalty on
sales of such computer loudspeaker models by the Company, based upon the actual
gross sales of such products by the Company to certain retailers of home
computers and accessories. No assurance can be given at the present time that a
definitive agreement will result from the nonbinding letter of intent executed
by the Company and by HP. If a definitive agreement is eventually reached, it is
not possible at the present time to estimate what economic and other benefits,
if any, the Company would realize as a result thereof.
On January 20, 1999, the Company issued a press release containing its
results for the third quarter and nine month period ended December 27, 1998. In
commenting on those results, Mr. Klopfer, indicated that the near-term operating
outlook for the next two quarters was problematic because (i) the first six
months of calendar 1998 reflected substantial deliveries to stock-up Circuit
City outlets, a new dealer, which would not be repeated in the first six months
of calendar 1999 and (ii) the previously-announced termination of the Eosone
business with Best Buy Company would adversely affect the Company's results
going forward. Mr. Klopfer stated that as a result of these factors, the Company
expected that both sales and net income for the first half of calendar 1999
would be down, perhaps significantly, from their levels during the same period
in 1998. On March 29, 1999, the Company announced that its net sales for the
fiscal quarter ending March 28, 1999 were approximately $17.1 million, subject
to minor adjustments for credits and returns, which represents a decline of
approximately 20% from the same period during the prior fiscal year. The Company
also announced that, based upon the foregoing net sales for the quarter, it
expected that its net earnings for that quarter to be at least 40% below the net
earnings for the same period in the prior fiscal year.
FINANCIAL INFORMATION. Set forth below is certain summary financial
information relating to the Company for the periods indicated. The summary
financial information (other than the ratio of earnings to fixed charges and
book value per share) set forth for the years ended March 30, 1997 and March 29,
1998 have been excerpted or derived from the audited financial statements
contained in the Company's Annual Report on Form 10-K for the year ended March
29, 1998 (the "Form 10-K"). The summary financial information (other than the
ratio of earnings to fixed charges and book value per share) set forth below for
the nine months ended December 28, 1997 and December 27, 1998 have been
excerpted or derived from the unaudited financial statements set forth in the
Company's Quarterly Report on Form 10-Q for the quarter ended December 27, 1998
(the "Form 10-Q"). The financial information for the nine month periods ended
December 27, 1997 and December 27, 1998, has not been audited and, in the
opinion of management, reflects all adjustments (consisting of normal recurring
adjustments) which are necessary for a fair presentation of such information.
Results for the nine month periods are not necessarily indicative of results for
the full year. More comprehensive financial information is included in the Form
10-K, the Form 10-Q and other documents filed by the Company with the
Commission. The financial information that follows is qualified in its entirety
by reference to such reports and other documents, including the financial
statements and related notes contained therein. The Company's Form 10-K and Form
10-Q are being provided to the Company's stockholders simultaneously with the
delivery of this Offer to Purchase. In addition, such reports and other
documents may be examined and copies may be obtained from the offices of the
Commission in the manner set forth below under "Available Information."
29
<PAGE> 33
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
FISCAL YEARS ENDED NINE MONTHS ENDED
------------------------------- ----------------------------------
MARCH 30, 1997 MARCH 29, 1998
(52 WEEKS) (52 WEEKS) DEC. 28, 1997 DEC. 27, 1998
-------------- -------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Earnings Statement Data:
Net sales..................... $54,416 $54,153 $32,980 $54,675
Gross profit.................. 23,067 21,133 12,713 21,427
Selling, research, general and
administrative expenses.... 21,455 19,351 13,219 17,410
Operating income (loss)....... 1,612 1,782 (506) 4,017
Earnings (loss) before income
taxes...................... 1,284 1,948 (368) 3,783
Net earnings (loss)........... 752 1,106 (215) 2,068
Earnings (loss) per
share -- basic............. $ 0.41 $ 0.60 $ (0.12) $ 1.12
Earnings (loss) per share --
diluted.................... $ 0.41 $ 0.60 $ (0.12) $ 1.09
Balance Sheet Data:
Working capital............... $13,568 $14,532 $13,805 $14,068
Total assets.................. 24,997 31,775 27,845 26,344
Long-term debt................ 2,347 3,615 4,138 --
Stockholders' equity.......... 16,544 17,727 16,422 19,783
Other Data:
Book value per common share... $ 9.08 $ 9.59 $ 8.88 $ 10.70
Ratio of earnings to fixed
charges.................... 2.4x 3.2x 0.4x 8.2x
</TABLE>
SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION. The following
unaudited pro forma condensed financial information and explanatory notes give
effect to the Offer and are based on the estimates and assumptions set forth in
the notes to such statements. This pro forma information has been prepared using
the historical financial statements of the Company and should be read in
conjunction with the historical financial statements and notes thereto included
in the Form 10-K and the Form 10-Q.
The pro forma condensed balance sheet information gives effect to the Offer
as if it had occurred on December 27, 1998. The pro forma condensed statement of
earnings for the year ended March 29, 1998, and for the nine months ended
December 27, 1998, gives effect to the Offer as if it had occurred on March 31,
1997, and March 30, 1998, respectively. The pro forma condensed financial data
may not be indicative of actual results that would have been achieved if the
Offer had occurred on the dates indicated or the results that may be realized in
the future.
30
<PAGE> 34
SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 29, 1998 NINE MONTHS ENDED DEC. 27, 1998
------------------------------------------- -------------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS(1) PRO FORMA HISTORICAL ADJUSTMENTS(1) PRO FORMA
---------- -------------- --------- ---------- -------------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA CONDENSED
STATEMENT OF EARNINGS
Net sales.................. $54,153 -- 54,153 54,675 -- 54,675
Cost of goods sold......... 33,020 -- 33,020 33,248 -- 33,248
------- ------ ------ ------ ----- ------
Gross profit............... 21,133 -- 21,133 21,427 -- 21,427
Selling, research, general
& administrative
expenses................. 19,351 -- 19,351 17,410 -- 17,410
------- ------ ------ ------ ----- ------
Operating income........... 1,782 -- 1,782 4,017 -- 4,017
Other income (expense),
net...................... 166 (662)(2)(5) (496) (234) (496)(2)(5) (730)
------- ------ ------ ------ ----- ------
Earnings before income
taxes.................... 1,948 (662) 1,286 3,783 (496) 3,287
Income taxes............... 842 (286)(6) 556 1,715 (206)(6) 1,509
------- ------ ------ ------ ----- ------
Net earnings............... $ 1,106 (376) 730 2,068 (290) 1,778
======= ====== ====== ====== ===== ======
Weighted average shares
outstanding:
Basic.................... 1,838 (860) 978 1,849 (860) 989
Diluted.................. 1,845 (860) 985 1,899 (860) 1,039
Earnings per share:
Basic.................... $ 0.60 $ 0.75 $ 1.12 $ 1.80
Diluted.................. $ 0.60 $ 0.74 $ 1.09 $ 1.71
Ratio of earnings to fixed
charges(3)............... 3.2x 1.9x 8.2x 4.4x
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS(1) FORMA
---------- -------------- -----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
PRO FORMA CONDENSED BALANCE SHEET AT DECEMBER 27, 1998
ASSETS
CURRENT ASSETS:
Cash and short-term investments........................... $ 3,196 (1,670) 1,526
Trade accounts receivable, less allowance................. 6,150 -- 6,150
Total inventories......................................... 9,064 -- 9,064
Other current assets...................................... 1,759 -- 1,759
------- ------- -------
Total current assets............................... 20,169 (1,670) 18,499
Property and equipment, net............................... 4,714 -- 4,714
Other assets, net......................................... 1,461 50(2) 1,511
------- ------- -------
Total assets....................................... $26,344 (1,620) 24,724
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable and accrued expenses............... $ 5,553 -- 5,553
Current portion of long-term debt......................... -- -- --
Accrued product warranty, current portion................. 548 -- 548
------- ------- -------
Total current liabilities.......................... 6,101 -- 6,101
Long-term debt, less current portion...................... -- 9,000 9,000
Other long-term liabilities............................... 460 -- 460
------- ------- -------
Total liabilities.................................. 6,561 9,000 15,561
Total stockholders' equity.................................. 19,783 (10,620) 9,163
------- ------- -------
$26,344 (1,620) 24,724
======= ======= =======
Working capital............................................. $14,068 $12,398
Total bank debt............................................. -- 9,000
Book value per common share(4).............................. $ 10.70 $ 9.27
</TABLE>
31
<PAGE> 35
- ---------------
(1) Pro forma adjustments reflect the effect of purchasing 860,000 Shares at
$12.00 per Share. Expenses directly related to the Offer are assumed to be
$350,000, with $300,000 relating to the cost of Shares Purchased and $50,000
relating to deferred financing costs classified under "Other Assets" on the
Company's balance sheet. The purchase price for the Shares, including the
estimated transaction costs, are assumed to be financed using available cash
of $1,670,000 and through borrowings under the Company's Credit Facility. An
interest rate of 6.5% was assumed for borrowings under the Company's Credit
Facility. See "Financing of the Offer and the Second-Step Transaction."
(2) Financing fees associated with the borrowing transaction are estimated to be
approximately $50,000 and are recorded as deferred financing costs
classified under "Other Assets" on the Company's balance sheet. Such costs
are being amortized over a 60-month period and are included with interest
expense, classified in Other Income (Expense).
(3) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consists of earnings before income taxes, net financing expenses
and "fixed charges." "Fixed charges" consist of net financing expenses and
the estimated interest components of rental expenses.
(4) Book value per share is calculated as total stockholders' equity divided by
the number of shares outstanding at the end of the period, giving effect in
the case of the pro forma amounts to the Shares repurchased as contemplated
herein.
(5) The pro forma adjustment for other income (expense) is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
MARCH 29, 1998 DECEMBER 27, 1998
----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Reduction in cash equivalents of $1,670 at
4%.......................................... 67 50
Borrowing of $9,000 at 6.5% rate.............. 585 439
Amortization of deferred financing costs of
$50......................................... 10 7
--- ---
662 496
=== ===
</TABLE>
(6) The pro forma adjustment to income taxes represents Federal and state income
taxes at a combined effective tax rate of 43.2% for the fiscal year ended
March 29, 1998 and 41.5% for the nine months ended December 27, 1998.
AVAILABLE INFORMATION. The Company is subject to the informational filing
requirements of the Exchange Act and, in accordance therewith, is required to
file periodic reports, proxy statements and other information with the
Commission relating to its business, financial condition and other matters.
Information as of particular dates concerning the Company's directors and
officers, their remuneration, stock options granted to them, the principal
holders of the Company's securities and any material interest of such persons in
transactions with the Company is required to be disclosed in proxy statements
distributed to the Company's stockholders and filed with the Commission. Such
reports, proxy statements and other information should be available for
inspection at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and also should be
available for inspection at the Commission's regional offices located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and the Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials may also be obtained by mail, upon payment of the Commission's
customary fees, by writing to its principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549. These materials filed by the Company with the Commission
are also available at the website of the Commission at http://www.sec.gov. The
information should also be available for inspection at the American Stock
Exchange, 86 Trinity Place, New York, New York 10006.
32
<PAGE> 36
CERTAIN ESTIMATES PREPARED BY THE COMPANY. In December 1998, the Company's
management provided the Remaining Stockholders and FBW with certain information
about the Company which is not publicly available, which information was
subsequently updated in February 1999. The information provided included
financial projections which contain, among other things, the summary financial
information set forth below. The Company does not, as a matter of course,
publicly disclose forward-looking information (such as the financial projections
referred to above) as to future revenues, earnings or other financial
information. Projections of this type are based on estimates and assumptions
that are inherently subject to significant economic, industry and competitive
uncertainties and contingencies, all of which are difficult to predict and many
of which are beyond the control of the Company. Accordingly, there can be no
assurance that the projected results would be realized or that actual results
would not be significantly higher or lower than those projected. In addition,
these projections were prepared by the Company solely for internal use and not
for publication or with a view to complying with the published guidelines of the
Commission regarding projections or with guidelines established by the American
Institute of Certified Public Accountants for prospective financial statements
and are included in this Offer to Purchase only because they were furnished to
the Remaining Stockholders and FBW. The financial projections necessarily make
numerous assumptions with respect to industry performance, general business and
economic conditions, access to markets and distribution channels, availability
and pricing of raw materials and other matters, all of which are inherently
subject to significant uncertainties and contingencies and many of which are
beyond the Company's control. One cannot predict whether the assumptions made in
preparing the financial projections will be accurate, and actual results may be
materially higher or lower than those contained in the projections. The
inclusion of this forward-looking information should not be regarded as fact or
an indication that the Company, the Remaining Stockholders or anyone who
received this information considered it a reliable predictor of future results,
and this information should not be relied on as such. Neither the Company's
independent auditors, nor any other independent accountants or financial
advisors, have compiled, examined, or performed any procedures with respect to
the prospective financial information contained herein, nor have they expressed
any opinion or any form of assurance on such information or its achievability,
and assume no responsibility for, and disclaim any association with, the
projected financial information.
The projections assume that 860,000 Shares are purchased by the Company
pursuant to the Offer at the beginning of the second fiscal quarter of the
fiscal year ending March 2000 for total consideration of $10.7 million,
including, $350,000 for expenses estimated to be incurred in connection with the
Offer.
POLK AUDIO, INC. SUMMARY PROJECTED FINANCIAL INFORMATION
(in millions)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING MARCH 1999E 2000E 2001E 2002E 2003E
------------------------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Sales............................................... $71.8 $80.4 $83.4 $88.0 $91.2
Earnings Before Income Taxes............................ 4.9 4.6 4.9 5.4 5.3
Net Earnings............................................ 2.7 2.7 2.9 3.2 3.1
</TABLE>
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS. This Offer
to Purchase contains certain forward-looking statements and information relating
to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. Such
forward-looking statements are principally contained in this section and
include, without limitation, the Company's expectation and estimates as to the
operating results for the fiscal quarter ended March 28, 1999 and the Company's
business operations, including the introduction of new products, future
financial performance, including net sales and earnings, cash flows from
operations and capital expenditures. In addition, in this and other portions of
this Offer to Purchase, the words "anticipates," "believes," "estimates,"
"expects," "plans," "intends" and similar expressions, as they
33
<PAGE> 37
relate to the Company or the Company's management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. In addition to factors that may be described in
this Offer to Purchase, the following factors, among others, could cause the
actual results to differ materially from those expressed in any forward-looking
statements made by the Company: (i) pricing and merchandising policies from the
major electronics manufacturers and distributors; (ii) difficulties or delays in
developing and introducing new products or failure of customers to accept new
product offerings; (iii) changes in consumer preferences and the ability of the
Company to adequately anticipate such changes; (iv) the ability of the Company
to develop relationships with new electronics distributors; (v) effects of and
changes in general economic and business conditions; (vi) actions by
competitors, including new product offerings and marketing and promotional
successes; (vii) the Company's ability to execute its business plan; and (viii)
changes in business strategy or new product lines. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated or expected. The Company does not intend to
update these forward-looking statements.
8. FINANCING OF THE OFFER AND THE SECOND-STEP TRANSACTION. The total
amount of funds required by the Company to consummate the Offer (and to pay
related fees and expenses estimated to be approximately $350,000) assuming that
860,000 Shares are validly tendered and not withdrawn, is $10.7 million. The
Company plans to finance the Offer using available cash of $1.7 million and
through borrowings from NationsBank, N.A. ("NationsBank") under a $7.0 million
term loan (the "Term Loan") and a $4.0 million revolving line of credit facility
(the "Revolving Credit Loan") (the Term Loan and the Revolving Credit Loan are
referred to collectively as the "NationsBank Loans").
The borrowers under the NationsBank Loans are to be the Company, Britannia
Investment Corporation ("Britannia"), Polk Audio Europe, Inc. ("Polk Europe"),
and Eosone International, Inc. ("Eosone") (the Company, Britannia, Polk Europe
and Eosone, collectively, the "Borrowers").
The Borrowers plan to repay the NationsBank Loans when due through
internally generated funds.
The Term Loan is an unsecured term loan in the initial amount of $7.0
million. The committed principal amount of the Revolving Credit Loan is $4.0
million; provided, however, the maximum principal amount advanced is not to
exceed $2.0 million until the Borrowers grant to NationsBank a first priority
security interest in all of the Borrowers' accounts receivable, and thereafter
advances under the Revolving Credit Loan are not to exceed the lesser of $4.0
million or 80% of Borrowers' accounts receivable.
The Revolving Credit Loan matures on September 30, 2000. Interest on the
Revolving Credit Loan is due and payable monthly.
The Term Loan matures sixty (60) months after closing (the "Fifth
Anniversary"). Interest on the Term Loan is due and payable monthly for the
initial 12-month period after closing (the "Interest-Only Period"). After the
Interest-Only Period, the Term Loan shall be repaid in monthly installments of
principal based on a 10-year amortization plus interest. Unless sooner paid in
full, the unpaid principal balance of the Term Loan, and all accrued and unpaid
interest thereon, shall be due and payable in full on the Fifth Anniversary.
Interest on the NationsBank Loans shall accrue at a daily adjusted interest
rate equal to the one-month London Interbank Offered Rate (LIBOR) as quoted by
NationsBank (and as adjusted for Federal Reserve Board reserve requirements)
plus the Applicable Margin. The Applicable Margin shall be 0.9% per annum, 1.0%
per annum or 1.5% per annum, depending upon the Borrowers' Pricing Ratio (ratio
of (x) funded debt to (y) EBBITDA) (as defined in the NationsBank loan
documents) tested not more frequently than quarterly. The initial Applicable
Margin shall be 1.0% per annum. The Borrowers
34
<PAGE> 38
will also pay an annual fee of 0.20% on the unused portion of the Revolving
Credit Loan. The Borrowers will pay a commitment fee of $35,000 for the Term
Loan.
The NationsBank Loans contain restrictive covenants which impose on the
Borrowers limitations on, among other things: (i) indebtedness for borrowed
money; (ii) the creation of mortgages and security interests and other liens;
(iii) the making of loans, guaranties and investments; (iv) transactions with
affiliates; (v) acquisitions of all or substantially all of the assets of any
person; (vi) mergers; (vii) dispositions of material assets; (viii) changes in
capital structure; (ix) creation or acquisition of subsidiaries; and (x) certain
significant changes of control of the Borrowers. Under the NationsBank Loans,
the Borrowers are required to maintain certain specified minimum ratios of
current assets to current liabilities, cash flow to fixed charges and to total
borrowings and certain minimum levels of net worth. The NationsBank Loans also
contain various event of default provisions, including default in payment of
principal or interest of the NationsBank Loans, material misrepresentations,
default in compliance with other terms of the NationsBank Loans, bankruptcy,
default in other indebtedness, failure to satisfy or stay certain judgments or
orders entered against the Borrowers, failure to pay when due certain amounts
with respect to certain employee benefit plans and other events with respect to
such plans, significant change in ownership, and change in senior management.
9. DIVIDENDS AND DISTRIBUTIONS. If, on or after March 24, 1999, the
Company should declare or pay any dividend on the Shares or make any other
distribution (including the issuance of additional shares of capital stock
pursuant to a stock dividend or stock split, the issuance of other securities or
the issuance of rights for the purchase of any securities) with respect to the
Shares that is payable or distributable to stockholders of record on a date
prior to the transfer to the name of the Company on the Company's stock transfer
records of the Shares purchased pursuant to the Offer, then, without prejudice
to the Company's rights under "The Tender Offer -- Certain Conditions of the
Offer," (i) the purchase price per Share payable by the Company pursuant to the
Offer will be reduced to the extent any such dividend or distribution is payable
in cash; and (ii) any non-cash dividend, distribution or right shall be received
and held by the tendering stockholder for the account of the Company and will be
required to be promptly remitted and transferred by each tendering stockholder
to the Depositary for the account of the Company, accompanied by appropriate
documentation of transfer.
10. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; AMEX LISTING AND
EXCHANGE ACT REGISTRATION. The purchase of Shares by the Company pursuant to
the Offer will reduce the number of Shares that might otherwise trade publicly
and will reduce the number of holders of Shares, which could adversely affect
the liquidity and market value of the remaining Shares held by the public.
Whether or not the Offer is consummated, the Company intends to cause the Shares
not to be listed for trading on the AMEX and to terminate the registration of
the Shares under the Exchange Act. If consummated, the Offer alone, or the Offer
followed by the Second-Step Transaction, would also result in a change in the
composition of the present board of directors of the Company and a change in the
capitalization of the Company.
The Shares are currently listed for trading on the AMEX. Regardless of
whether the Offer is consummated, the Shares will be delisted from the AMEX and
deregistered under the Exchange Act. As of March 22, 1999, there were 1,849,035
Shares issued and outstanding and 112 holders of record of the outstanding
Shares. Pursuant to the AMEX's published guidelines, shares of common stock are
not eligible to be included for listing if, among other things, the number of
shares publicly held falls below 250,000, the number of record and beneficial
holders of shares falls below 300 or the aggregate market value of such publicly
held shares is less than $1,000,000. In addition, under Section 12(g) of the
Exchange Act, registration under the Exchange Act may be terminated by the
issuer if there are fewer than 300 holders of record of a class of security.
Accordingly, even before commencing the Offer, the Company could delist the
Shares from AMEX because of the failure to meet the listing requirement and
could cause the termination of registration of the Shares under the Exchange
Act. Shares held directly or
35
<PAGE> 39
indirectly by an officer or director of the issuer or by any beneficial owner of
more than 5% of the shares of the issuer will ordinarily not be considered as
being publicly held for this purpose. In the event the Shares were no longer
listed on the AMEX, price quotations might still be available from other
sources. The extent of the public market for the Shares and the availability of
such quotations would, however, depend upon the number of holders of Shares
remaining at such time, the interest in maintaining a market in the Shares on
the part of securities firms, the termination of registration under the Exchange
Act as described below and other factors.
The Shares are currently "margin securities" under the rules of the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board"). Among
other things, this has the effect of allowing brokers to extend credit on the
collateral of such Shares. Depending upon factors similar to those described
above regarding listing and market quotations, it is likely that, following the
tender and purchase of the Shares pursuant to the Offer, the Shares will no
longer constitute "margin securities" for purposes of the Federal Reserve
Board's margin regulations. In such event, Shares could no longer be used as
collateral for margin loans made by brokers.
The Shares are currently registered under the Exchange Act, which requires,
among other things, that the Company furnish certain information to its
stockholders and to the Commission and comply with the Commission's proxy rules
in connection with meetings of the Company's stockholders. Registration of the
Shares under the Exchange Act will be terminated upon application by the Company
to the Commission if the Shares are not listed on a national securities exchange
and there are fewer than 300 holders of record of the Shares.
The termination of the registration of the Shares under the Exchange Act
would substantially reduce the information required to be furnished by the
Company to its stockholders and to the Commission and would render inapplicable
certain provisions of the Exchange Act, including requirements that the Company
file periodic reports (including financial statements), the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions,
requirements that the Company's officers, directors and ten-percent stockholders
file certain reports concerning ownership of the Company's equity securities and
provisions that any profit by such officers, directors and stockholders realized
through purchases and sales of the Company's equity securities within any
six-month period may be recaptured by the Company. In addition, the ability of
"affiliates" of the Company and other persons to dispose of Shares which are
"restricted securities" under Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"), may be impaired or eliminated. If registration
of the Shares under the Exchange Act were terminated, the Shares would no longer
be "margin securities" or eligible for listing on the AMEX, Nasdaq National
Market or other similar exchanges. Except as disclosed in this section and
elsewhere in this Offer to Purchase, the Company has no other present plans or
proposals that relate to or would result in (i) the acquisition by any person of
additional securities of the Company, or the disposition of securities of the
Company, (ii) any extraordinary corporate transaction, such as a merger,
reorganization, liquidation or sale or transfer of a material amount of assets,
involving the Company, (iii) any material change in the present dividend policy
or indebtedness or capitalization of the Company, (iv) any other material change
in the Company's corporate structure or business, or (v) any change in the
Company's Charter, bylaws or instruments corresponding thereto or any other
actions which may impede the acquisition of control of the Company by any
person.
The Company anticipates that following the Offer and, if deemed desirable
by the Company, the Second-Step Transaction, the Remaining Stockholders will
cause the Company to change the composition of the Board of Directors to include
only certain of the Remaining Stockholders who are also officers of the Company.
The persons who are presently officers of the Company will continue in their
same positions following consummation of the Offer and, if necessary, the
Second-Step Transaction. If more than 464,000 Shares are purchased pursuant to
the Offer, then Messrs. George M. Klopfer and Matthew S. Polk, Jr. together will
own in the aggregate a majority of the outstanding Shares and will be
36
<PAGE> 40
able to control all matters requiring approval of the Company's stockholders,
including the election of directors.
11. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision
of the Offer, the Company shall not be required to accept for payment or pay for
any Shares tendered pursuant to the Offer, and may terminate or amend the Offer
and may postpone the acceptance for payment of, and payment for, Shares
tendered, if prior to the acceptance for payment of Shares, any of the following
conditions exist:
a. there shall have been threatened, instituted or pending any action
or proceeding by any government or governmental, regulatory or
administrative agency, authority or tribunal or any other person, domestic
or foreign, before any court, authority, agency or tribunal that directly
or indirectly (i) challenges the making of the Offer, the acquisition of
some or all of the Shares pursuant to the Offer or otherwise relates in any
manner to the Offer, or (ii) in the Company's reasonable judgment, could
materially and adversely affect the business, condition (financial or
other), income, operations or prospects of the Company and its
subsidiaries, taken as a whole, or otherwise materially impair in any way
the contemplated future conduct of the business of the Company or any of
its subsidiaries or materially impair the contemplated benefits of the
Offer to the Company;
b. there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered,
amended, enforced or deemed to be applicable to the Offer or the Company or
any of its subsidiaries, by any court or any authority, agency or tribunal
that, in the Company's reasonable judgment, would or might directly or
indirectly (i) make the acceptance for payment of, or payment for, some or
all of the Shares illegal or otherwise restrict or prohibit consummation of
the Offer, (ii) delay or restrict the ability of the Company, or render the
Company unable to accept for payment or pay for some or all of the Shares,
(iii) materially impair the contemplated benefits of the Offer to the
Company, or (iv) materially and adversely affect the business, condition
(financial or other), income, operations or prospects of the Company and
its subsidiaries, taken as a whole, or otherwise materially impair in any
way the contemplated future conduct of the business of the Company or any
of its subsidiaries;
c. there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or in the over-the-counter market, (ii) the declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (iii) the commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States, (iv) any limitation (whether or not mandatory) by any
governmental, regulatory or administrative agency or authority on, or any
event that, in the Company's reasonable judgment, might affect, the
extension of credit by banks or other lending institutions in the United
States, (v) any significant decrease in the market price of the Shares or
any change in the general political, market, economic or financial
conditions in the United States or abroad that could, in the reasonable
judgment of the Company, have a material adverse effect on the Company's
business, operations or prospects or the trading in the Shares, (vi) in the
case of any of the foregoing existing at the time of the commencement of
the Offer, a material acceleration or worsening thereof, or (vii) any
decline in either the Dow Jones Industrial Average or the Standard and
Poor's Index of 500 Industrial Companies by an amount in excess of 10%
measured from the close of business on March 24, 1999;
d. a tender or exchange offer for any or all of the Shares (other than
the Offer), or any merger, business combination or other similar
transaction with or involving the Company or any subsidiary, shall have
been proposed, announced or made by any person;
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<PAGE> 41
e. (i) any entity, person or "group" (as that term is used in Section
13(d)(3) of the Exchange Act) shall have acquired or proposed to acquire
beneficial ownership of more than 5% of the outstanding Shares (other than
any such person, entity or group who has filed a Schedule 13D or Schedule
13G with the Commission on or before March 24, 1999), (ii) any such entity,
group or person who has filed a Schedule 13D or Schedule 13G with the
Commission on or before the Expiration Date shall have acquired or proposed
to acquire beneficial ownership of an additional 2% or more of the
outstanding Shares, or (iii) any person, entity or group shall have filed a
Notification and Report Form under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, or made a public announcement
reflecting an intent to acquire the Company or any of its subsidiaries or
any of their respective assets or securities other than in connection with
a transaction authorized by the Board of Directors of the Company;
f. any change or changes shall have occurred in the business,
financial condition, assets, income, operations, prospects or stock
ownership of the Company or its subsidiaries that, in the Company's
reasonable judgment, is or may have a material adverse significance to the
Company or its subsidiaries;
g. the Company (with the approval of a majority of the Board of
Directors) shall have agreed that the Company shall terminate the Offer or
postpone the acceptance for payment of or payment for Shares thereunder;
which, in the reasonable judgment of the Company in any such case, and
regardless of the circumstances giving rise to any such condition, makes it
inadvisable to proceed with such acceptance for payment or payment; or
h. if the Company shall not have obtained sufficient financing to
enable it to consummate the Offer.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at anytime and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right; the waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances; and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.
12. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS.
GENERAL. The Company is not aware of any license or other regulatory
permit that appears to be material to the business of the Company that might be
adversely affected by the acquisition of Shares by the Company pursuant to the
Offer or of any approval or other action by any domestic (federal or state) or
foreign governmental, administrative or regulatory authority or agency which
would be required prior to the acquisition of Shares by the Company pursuant to
the Offer. Should any such approval or other action be required, it is the
Company's present intention to seek such approval or action. The Company does
not currently intend, however, to delay the purchase of Shares tendered pursuant
to the Offer pending the outcome of any such action or the receipt of any such
approval (subject to the Company's right to decline to purchase Shares if any of
the conditions in "The Tender Offer -- Certain Conditions of the Offer" shall
have occurred). There can be no assurance that any such approval or other
action, if needed, would be obtained without substantial conditions or that
adverse consequences might not result to the business of the Company, or that
certain parts of the businesses of the Company, might not have to be disposed of
or held separate or other substantial conditions complied with in order to
obtain such approval or other action or in the event that such approval was not
obtained or such other action was not taken. The Company's obligation under the
Offer to accept for payment and pay for Shares is subject to certain conditions,
including conditions relating to the legal matters discussed in this Section 12.
See "The Tender Offer -- Certain Conditions of the Offer."
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<PAGE> 42
ANTITRUST. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules that have been promulgated thereunder by the Federal
Trade Commission (the "FTC"), certain transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice and the FTC and certain waiting period requirements have
been satisfied. The acquisition of Shares by the Company pursuant to the Offer,
however, is not subject to such requirements.
MARYLAND BUSINESS COMBINATION STATUTE. The Company is a Maryland
corporation and is subject to Sections 3-601 through 3-604 of the MGCL (known as
the "Maryland Business Combination Statute"), absent an exemption therefrom. In
general, Section 3-602 of the MGCL prevents an "interested stockholder" (defined
generally as a person owning 10% or more of the Company's outstanding voting
stock) from engaging in a "business combination" (as defined in Section 3-601)
with the Company for five years following the date it becomes an interested
stockholder. Section 3-603(d)(1) of the MGCL provides that, unless the charter
or bylaws provide otherwise, Section 3-602 does not apply to any corporation
that on July 1, 1983 had an existing interested stockholder. This exception
applies even if the business combination is with an interested stockholder other
than the stockholder that was an interested stockholder on July 1, 1983.
However, the corporation may opt into the provisions of the Maryland Business
Combination Statute by resolution of the Board of Directors at any time
subsequent to July 1, 1983. The Company had an interested stockholder at July 1,
1983 and the Company has not opted into the provisions of the Maryland Business
Combination Statute. Accordingly, the provisions of the Maryland Business
Combination Statute do not apply to the Company.
MARYLAND CONTROL SHARE STATUTE. The Company is a Maryland corporation and
is subject to Sections 3-701 through 3-709 of the MGCL (known as the "Maryland
Control Share Statute"), absent an exemption therefrom. In general, the Maryland
Control Share Statute provides that any "control shares" (as defined in Section
3-701(d)) have no voting rights except to the extent approved by the affirmative
vote of two-thirds of all votes entitled to be cast on the matter, excluding all
interested shares. Section 3-702(b) of the MGCL permits the adoption of a
provision in either the charter or bylaws, prior to the acquisition of the
shares, approving or exempting the acquisition. The Board of Directors of the
Company has amended the bylaws to exempt the Offer and the Second-Step
Transaction from the provisions of the Maryland Control Share Statute.
LITIGATION. To the best knowledge of the Company, no lawsuits have been
filed relating to the Offer or the Second-Step Transaction.
13. FEES AND EXPENSES. Except as set forth below, the Company will not pay
any fees or commissions to any broker, dealer or other person for soliciting
tenders of Shares pursuant to the Offer.
The Company has retained FBW to act as its financial advisor, as well as
the Dealer Manager, in connection with the Offer. The engagement letter between
the Company and FBW provides that the Company will pay FBW an advisory fee of
$65,000 upon the closing of the going-private transaction and a fee of $75,000
due upon the delivery by FBW to the Board of Directors of the FBW Opinion. In
the event that the going-private transaction is not consummated, the Company
shall pay to FBW a fee of $25,000. In addition, the engagement letter between
the Company and FBW provides that the Company will reimburse FBW for certain of
its out-of-pocket expenses and will indemnify FBW and certain related persons
against certain liabilities, including liabilities under securities laws,
arising out of its engagement. FBW has not rendered investment banking or other
advisory services to the Company in the past, but it may render such services to
the Company in the future.
The Company has retained Georgeson & Company Inc. to act as Information
Agent and American Stock Transfer & Trust Company to act as Depositary in
connection with the Offer. The Information Agent may contact holders of Shares
by mail, telephone, telegraph and personal interviews and may request brokers,
dealers and other nominee stockholders to forward materials relating to the
Offer to
39
<PAGE> 43
beneficial owners. The Information Agent and the Depositary will each receive
reasonable and customary compensation for their respective services, will be
reimbursed by the Company for certain reasonable out-of-pocket expenses and will
be indemnified against certain liabilities in connection with the Offer,
including certain liabilities under the federal securities laws.
No fees or commissions will be payable by the Company to brokers, dealers
or other persons (other than fees to the Dealer Manager and the Information
Agent as described above) for soliciting tenders of Shares pursuant to the
Offer. Stockholders holding Shares through brokers or banks are urged to consult
the brokers or banks to determine whether transaction costs are applicable if
stockholders tender Shares through such brokers or banks and not directly to the
Depositary. The Company, however, upon request, will reimburse brokers, dealers
and commercial banks for customary mailing and handling expenses incurred by
them in forwarding the Offer and related materials to the beneficial owners of
Shares held by them as a nominee or in a fiduciary capacity. No broker, dealer,
commercial bank or trust company has been authorized to act as the agent of the
Company, the Dealer Manager, the Information Agent or the Depositary for
purposes of the Offer. The Company will pay or cause to be paid all stock
transfer taxes, if any, on its purchase of Shares except as otherwise provided
in Instruction 6 in the Letter of Transmittal.
14. MISCELLANEOUS. The Company is not aware of any jurisdiction in which
the making of the Offer is prohibited by any administrative or judicial action
pursuant to any valid state statute. If the Company becomes aware of any valid
state statute prohibiting the making of the Offer or the acceptance of Shares
pursuant thereto, the Company will make a good faith effort to comply with any
such state statute. If, after such good faith effort, the Company cannot comply
with any such state statute, the Offer will not be made to (nor will tenders be
accepted from or on behalf of) the holders of Shares in such state. In any
jurisdiction where the securities, blue sky or other laws require the Offer to
be made by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of the Company by the Dealer Manager or one or more registered brokers or
dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE COMPANY OR THE DEALER MANAGER NOT CONTAINED IN
THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE DEALER MANAGER.
Pursuant to Rule 13e-3 and Rule 13e-4 of the General Rules and Regulations
under the Exchange Act, the Company has filed with the Commission the Schedule
13E-3 and the Schedule 13E-4 together with exhibits, furnishing additional
information with respect to the Offer and may file amendments thereto. Such
statements, including exhibits and any amendments thereto, which furnish certain
additional information with respect to the Offer, may be inspected at, and
copies may be obtained from, the same places and in the same manner as set forth
in "The Tender Offer -- Certain Information Concerning the Company" (except that
they will not be available at the regional offices of the Commission).
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<PAGE> 44
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of the members of the
Board of Directors of the Company as of March 24, 1999 and the year in which
they were first elected directors of the Company. All directors of the Company
hold office until the next Annual Meeting of the Stockholders and until the
election and qualification of their successors. Each officer was elected in 1998
at the annual meeting of the Board of Directors to serve for one year or, if
earlier or later, until the next annual meeting of the Board of Directors. Each
individual listed below is a citizen of the United States.
<TABLE>
<CAPTION>
SERVED AS
NAME AND ADDRESS AGE DIRECTOR SINCE
---------------- --- --------------
<S> <C> <C>
Matthew S. Polk, Jr.
5601 Metro Drive
Baltimore, Maryland 21215................................... 49 1972
George M. Klopfer
5601 Metro Drive
Baltimore, Maryland 21215................................... 48 1972
Craig C. Georgi
5601 Metro Drive
Baltimore, Maryland 21215................................... 50 1977
Wilbert H. Sirota
36 South Charles Street
Baltimore, Maryland 21201................................... 60 1986
Robert B. Barnhill, Jr.
11126 McCormick Road
Hunt Valley, Maryland 21031................................. 54 1992
Dennis J. Shaughnessy
9690 Deerco Road
Timonium, Maryland 21093.................................... 51 1997
</TABLE>
MATTHEW S. POLK, JR., a founder of the Company, has served as Chairman of
the Board of Directors of the Company since its founding in June 1972. In
addition, he served as the Company's Treasurer from 1972 to 1983 and has been
its Secretary from 1977 to the present. Mr. Polk also served as Vice
President -- Engineering from 1981 to 1995. Mr. Polk graduated from The Johns
Hopkins University in 1971 with an undergraduate degree in physics and has spent
his entire working career with the Company.
GEORGE M. KLOPFER, a founder of the Company, has been a Director of the
Company since its founding in June 1972. He has been the Company's Chief
Executive Officer from 1984 to the present. In addition, he served as the
Company's President from 1972 through 1995, the Company's Secretary from 1972 to
1977 and the Company's Treasurer from 1984 to 1995. Mr. Klopfer graduated from
The Johns Hopkins University in 1971 and has spent his entire working career
with the Company.
CRAIG C. GEORGI joined the Company as its first assembly worker in 1974. He
became a Director in 1977 and has been Vice President -- Manufacturing since
1981 . Mr. Georgi has a Masters in Business Administration from Loyola College
and has spent his entire working career with the Company.
WILBERT H. SIROTA joined the law firm of Piper & Marbury L.L.P., Baltimore,
Maryland, as a partner in June 1992. Prior to that time, he had been a partner
of the Baltimore law firm of Frank, Bernstein, Conaway & Goldman since 1966. Mr.
Sirota holds an LLM in taxation from Georgetown University.
ROBERT B. BARNHILL, JR. is Chairman and Chief Executive Officer of TESSCO
Technologies, Incorporated (NASDAQ: TESS). TESSCO is a technology supplier to
the wireless communications industry. Mr. Barnhill holds a Bachelor of Science
degree in Electrical Engineering from Cornell
I-1
<PAGE> 45
University and a Masters in Business Administration from the Wharton School of
Business at the University of Pennsylvania. Mr. Barnhill is also a member of the
Board of Directors of Provident Bankshares Corporation, a Maryland-based bank
holding company (NASDAQ: PBKS).
DENNIS J. SHAUGHNESSY is Managing Director at Grotech Capital Group, Inc.,
a Mid-Atlantic venture capital firm. Prior to joining Grotech, Mr. Shaughnessy
was the President and CEO of CRI International, Inc. Mr. Shaughnessy is also a
member of the Board of Directors of FTI Consulting Inc. (AMEX: FCN), Secured
Computing, Inc. (NASDAQ: SCUR), TESSCO Technologies Incorporated (NASDAQ: TESS)
and US Vision (NASDAQ: USVI). In addition to these public company boards, Mr.
Shaughnessy also serves on the boards of several private companies and as a
trustee of the Baltimore Museum of Art.
EXECUTIVE OFFICERS. The following information is provided regarding James
M. Herd, the President of the Company, Gary B. Davis, the Treasurer and Chief
Financial Officer of the Company, Peter D. Gaskarth, Vice President of Polk Home
Entertainment Products, Robert E. Limbaugh, Vice President of Polk Automotive
Products, Thomas C. Roddam, Vice President of Eosone Home Products, and Keith A.
Ballard, Vice President of Marketing. These are the only executive officers of
the Company who are not also Directors.
JAMES M. HERD, age 48, was elected President in March 1996, and has been
with the Company since December 1991. He served as Vice President of Sales and
Marketing from 1991 through 1995. Mr. Herd was employed at Bose Corporation, a
manufacturer of stereo loudspeaker systems, as Director of North American Sales
prior to his employment at the Company. Mr. Herd's career at Bose Corporations
spanned 15 years where he held various sales and management positions.
GARY B. DAVIS, age 39, Treasurer since July 1995 and Chief Financial
Officer since July 1989, has been with the Company since October 1983. Mr. Davis
was employed with Heine & Hermann, P.A., Certified Public Accountants, prior to
his employment at the Company and attained his C.P.A. in 1982. Mr. Davis
graduated from Westminster College in 1981 with an undergraduate degree in
Business and Accounting.
PETER D. GASKARTH, age 53, Vice President of Polk Home Entertainment
Products since March 1996, has been with the Company since 1992. Mr. Gaskarth
was previously employed at AGI (Electronics) Ltd. where he acted as Chief
Executive Officer for ten years. Mr. Gaskarth graduated from Bradford University
in the U.K. in 1968.
ROBERT E. LIMBAUGH, age 44, Vice President of Polk Automotive Products
since March 1996, has been with the Company since May 1993. Mr. Limbaugh has
been involved in the consumer electronics industry since 1973, most recently
employed as U.S. National Sales Manager for seven years at Linear Power, Inc., a
manufacturer of automotive amplifiers.
THOMAS C. RODDAM, age 45, Vice President of Eosone Home Products since
March 1996, has been with the Company since September 1994. Prior to joining the
Company, Mr. Roddam had been in the consumer electronics industry for seventeen
years and most recently served as Western Regional Manager for the Bose
Corporation. Mr. Roddam graduated with a Masters in Business Administration from
the University of Denver in 1991.
KEITH A. BALLARD, age 48, Vice President of Marketing since March 1996, has
been with the Company since February 1985. Mr. Ballard has been involved in the
advertising and design industry for the past twenty-four years. Mr. Ballard
graduated from North Carolina State University in 1973 with a dual undergraduate
degree in Industrial and Visual Design.
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<PAGE> 46
SCHEDULE II
OPINION OF FERRIS, BAKER WATTS, INCORPORATED
March 24, 1999
The Board of Directors
Polk Audio, Inc.
5601 Metro Drive
Baltimore, Maryland 21215
Gentlemen:
Polk Audio, Inc. ("Polk" or the "Company") has requested a review of the
proposed transaction (the "Transaction") involving the proposed fixed price self
tender offer and subsequent de-listing of the Company's shares. Specifically,
you have requested a review of the financial consideration to be offered to the
stockholders as consideration for tendering their shares in the Transaction. We
were retained by the Board of Directors and commenced our investigation of the
Transaction on November 16, 1998.
Pursuant to the Transaction, the Company will effect a fixed price self
tender offer for the outstanding shares of the Company not held by insiders. The
proposed price offered to the unaffiliated stockholders is $12.00 per share.
In connection with the opinion, we have reviewed, among other things, (i)
the proposed Transaction, (ii) drafts of the Offer to Purchase, Letter of
Transmittal, Issuer Tender Offer Statement on Schedule 13E-4 and the
Going-Private Transaction Statement on Schedule 13E-3, (iii) historical
operating results of the Company, (iv) internally prepared projections of the
Company, and (v) the historical trading performance of the Company's stock. We
have held discussions with the members of the management of the Company
regarding the past and current business operations as well as the future
prospects of the Company. We have reviewed industry specific data regarding the
valuation of publicly traded companies in the audio component manufacturing
market as well as other such information as we considered appropriate.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information reviewed by us for purposes
of this opinion whether publicly available or provided to us by the Company or
representatives of the Company, and we have not assumed any responsibility for
independent verification of such information. We express no opinion as to the
allocation to be received by holders of interests who may perfect dissenters'
statutory fair appraisal remedies, if available. Based upon the foregoing and
based upon other such matters that we considered relevant, it is our opinion
that the consideration to be received by the stockholders of the Company as a
result of the Transaction is fair from a financial point of view as of the date
hereof.
Our opinion is necessarily based upon economic, market and other conditions
as in effect on, and the information made available to us as of March 23, 1999.
Our opinion is directed to the Board of Directors of the Company and does not
constitute a recommendation to any stockholder of the Company as to whether to
tender or refrain from tendering their shares. It is understood that subsequent
developments may affect the conclusions reached in this opinion and that we do
not have any obligation to update, revise or reaffirm this opinion.
Very truly yours,
Ferris, Baker Watts, Incorporated
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<PAGE> 47
SCHEDULE III
SUMMARY OF STOCKHOLDER APPRAISAL RIGHTS AND TEXT OF SECTIONS 3 - 201 THROUGH
3 - 213 OF THE MARYLAND GENERAL CORPORATION LAW
Under the Maryland General Corporation Law (MGCL), in the event that the
Company elects to pursue the Second Step Transaction in the form of a Merger,
each holder of Common Stock may be entitled to demand and receive payment of the
fair value of his Shares in cash, exclusive of any appreciation or depreciation
which directly or indirectly results from the transaction objected to or from
its proposal, provided that the stockholder strictly adheres to the procedures
as set forth in Title 3, Subtitle 2 of the MGCL, which is attached hereto. Any
stockholder who fails to comply with the requirements described below and as
more fully stated in Title 3, Subtitle 2 of the MGCL will be bound by the terms
of the Merger.
To be entitled to demand and receive payment of the fair value of his
Shares in cash, each holder of Common Stock must file with the Company a written
objection to the Merger. With respect to a Merger structured in accordance with
Section 3-106 of the MGCL, whereby a 90% or more owned subsidiary is merged into
its parent (the "Merger1"), such objection must be filed within 30 days after
the notice of the Merger1 is given or waived under Section 3-106. With respect
to any other Merger (the "Merger2") such objection must be filed with the
Company at or before the stockholders' meeting at which the Merger2 will be
considered.
After filing the written objection with the Company, each holder of Common
Stock must (i) not vote in favor of the Merger and (ii) within 20 days after the
Articles of Merger have been accepted for record by the Maryland State
Department of Assessments and Taxation (the "MSDAT"), make written demand on the
Company for payment of his or her Shares, stating the number and class of Shares
for which payment is demanded.
A written objection to the Merger should be sent to the Company, 5601 Metro
Drive, Baltimore, Maryland 21215, Attention: Secretary. A written demand for
payment should also be sent to the Company at 5601 Metro Drive, Baltimore,
Maryland 21215, Attention: Secretary. A demand for payment may be withdrawn only
with the consent of the Company.
The Company will promptly deliver or mail to each objecting stockholder
written notice of the date of acceptance of the Articles of Merger for record by
the MSDAT. The Company may also deliver or mail to each objecting stockholder a
written offer to pay for his stock at a price deemed by the Company to be the
fair value thereof. Within 50 days after acceptance of the Articles of Merger
for record by the MSDAT, either the Company or any objecting stockholder who has
not received payment for his or her shares may petition a court of equity in
Baltimore City, Maryland, for an appraisal to determine the fair value of such
shares. If the court finds that an objecting stockholder is entitled to
appraisal of his or her stock, the court will appoint three disinterested
appraisers to determine the fair value of such shares on terms and conditions
the court determines proper. Within 60 days after appointment (or such longer
period as the court may direct), the appraisers will file with the court and
mail to each party to the proceeding their report stating their conclusion as to
the fair value of the shares as of the Effective Date, as defined below.
Within 15 days after the filing of the appraisers' report, any party may
object to the report and request a hearing thereon. The court will, upon motion
of any party, enter an order either confirming, modifying or rejecting the
report and, if confirmed or modified, enter judgment directing the time within
which payment must be made. If the appraisers' report is rejected, the court may
determine the fair value of the shares of the objecting stockholders or may
remit the proceeding to the same or other appraisers, on terms and conditions
the court deems proper.
If the court determines that the objecting stockholder is entitled to
demand and receive the fair value of his or her shares, fair value will be
determined as of the close of business, with respect to
III-1
<PAGE> 48
Merger1, on the day notice is given or waived under Section 3-106 of the MGCL,
and with respect to Merger2, on the day the stockholders voted on the Merger2
objected to (collectively the "Effective Date"). Fair value may not include any
appreciation or depreciation which directly or indirectly results from the
transaction objected to or from its proposal. Any judgment entered pursuant to a
court proceeding will include interest from the Effective Date, unless the court
finds that the stockholder's refusal to accept a written offer to purchase the
stock made by the Company as described above was arbitrary and vexatious or not
in good faith. Costs of the proceeding (not including attorney's fees) will be
determined by the court and will be assessed against the Company or, under
certain circumstances, the objecting stockholder, or both.
At any time after the filing of a petition for appraisal, the court may
require any objecting stockholder to submit his or her certificates representing
shares to the clerk of the court for notation of the pendency of the appraisal
proceedings. If the stockholder fails to comply with the court order to submit
his or her certificates for notation, the court may dismiss the proceeding as to
him or her or grant other appropriate relief. In order to receive payment,
whether by agreement with the Company or pursuant to a judgment, the stockholder
must surrender to the Company the stock certificates endorsed in blank and in
proper form for transfer.
A stockholder demanding payment for shares will not have the right to
receive any dividends or distribution payable to holders of record of that stock
on a record date after the Effective Date and shall cease to have any rights as
a stockholder with respect to the shares except the right to receive payment of
the fair value thereof. The stockholder's rights may be restored in full only
upon the withdrawal, with the consent of the Company, of the demand for payment,
failure of either party to file a petition for appraisal within the time
required, a determination of the court that the stockholder is not entitled to
an appraisal, or the abandonment or rescission of the Merger. However, the
restoration of the rights of a stockholder who demands payment does not
prejudice any corporate proceedings taken before the restoration.
The foregoing summary of the rights of objecting stockholders does not
purport to be a complete statement of the procedures to be followed by
stockholders desiring to exercise their dissenters' rights. The preservation and
exercise of dissenters' rights are conditioned on strict adherence to the
applicable provisions of the MGCL. Each stockholder desiring to exercise
dissenters' rights should refer to Title 3, Subtitle 2 of the MGCL, a copy of
which is attached hereto, for a complete statement of the stockholder's rights
and the steps which must be followed in connection with the exercise of those
rights.
MARYLAND GENERAL CORPORATION LAW
SEC. 3-201. "SUCCESSOR" DEFINED.
(a) Corporation amending charter. In this subtitle, except as provided in
subsection (b) of this section, "successor" includes a corporation which amends
its charter in a way which alters the contract rights, as expressly set forth in
the charter, of any outstanding stock, unless the right to do so is reserved by
the charter of the corporation.
(b) Corporation whose stock is acquired. When used with reference to a
share exchange, "successor" means the corporation the stock of which was
acquired in the share exchange.
SEC. 3-202. RIGHT TO FAIR VALUE OF STOCK.
(a) General rule. Except as provided in subsection (c) of this section, a
stockholder of a Maryland corporation has the right to demand and receive
payment of the fair value of the stockholder's stock from the successor if:
(1) The corporation consolidates or merges with another corporation;
(2) The stockholder's stock is to be acquired in a share exchange;
(3) The corporation transfers its assets in a manner requiring action
under sec. 3-105 (d) of this title;
III-2
<PAGE> 49
(4) The corporation amends its charter in a way which alters the
contract rights, as expressly set forth in the charter, of any outstanding
stock and substantially adversely affects the stockholder's rights, unless
the right to do so is reserved by the charter of the corporation; or
(5) The transaction is governed by sec. 3-602 of this title or
exempted by sec. 3-603 (b) of this title.
(b) Basis of fair value.
(1) Fair value is determined as of the close of business:
(i) With respect to a merger under sec. 3-106 of this title of a 90
percent or more owned subsidiary into its parent, on the day notice is
given or waived under sec. 3-106; or
(ii) With respect to any other transaction, on the day the
stockholders voted on the transaction objected to.
(2) Except as provided in paragraph (3) of this subsection, fair value
may not include any appreciation or depreciation which directly or
indirectly results from the transaction objected to or from its proposal.
(3) In any transaction governed by sec. 3-602 of this title or
exempted by sec. 3-603 (b) of this title, fair value shall be value
determined in accordance with the requirements of sec. 3-603 (b) of this
title.
(c) When right to fair value does not apply. Unless the transaction is
governed by sec. 3-602 of this title or is exempted by sec. 3-603 (b) of this
title, a stockholder may not demand the fair value of his stock and is bound by
the terms of the transaction if:
(1) The stock is listed on a national securities exchange or is
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.:
(i) With respect to a merger under sec. 3-106 of this title of a 90
percent or more owned subsidiary into its parent, on the date notice is
given or waived under sec. 3-106; or
(ii) With respect to any other transaction, on the record date for
determining stockholders entitled to vote on the transaction objected
to;
(2) The stock is that of the successor in a merger, unless:
(i) The merger alters the contract rights of the stock as expressly
set forth in the charter, and the charter does not reserve the right to
do so; or
(ii) The stock is to be changed or converted in whole or in part in
the merger into something other than either stock in the successor or
cash, scrip, or other rights or interests arising out of provisions for
the treatment of fractional shares of stock in the successor; or
(3) The stock is that of an open-end investment company registered
with the Securities and Exchange Commission under the Investment Company
Act of 1940 and the value placed on the stock in the transaction is its net
asset value.
SEC. 3-203. PROCEDURE BY STOCKHOLDER.
(a) Specific duties. A stockholder of a corporation who desires to receive
payment of the fair value of his stock under this subtitle:
(1) Shall file with the corporation a written objection to the
proposed transaction:
(i) With respect to a merger under sec. 3-106 of this title of a 90
percent or more owned subsidiary into its parent, within 30 days after
notice is given or waived under sec. 3-106; or
(ii) With respect to any other transaction, at or before the
stockholders' meeting at which the transaction will be considered;
III-3
<PAGE> 50
(2) May not vote in favor of the transaction; and
(3) Within 20 days after the Department accepts the articles for
record, shall make a written demand on the successor for payment for his
stock, stating the number and class of shares for which he demands payment.
(b) Failure to comply with section. A stockholder who fails to comply with
this section is bound by the terms of the consolidation, merger, share exchange,
transfer of assets, or charter amendment.
SEC. 3-204. EFFECT OF DEMAND ON DIVIDEND AND OTHER RIGHTS.
A stockholder who demands payment for his stock under this subtitle:
(1) Has no right to receive any dividends or distributions payable to
holders of record of that stock on a record date after the close of
business on the day as at which fair value is to be determined under
sec. 3-202 of this subtitle; and
(2) Ceases to have any rights of a stockholder with respect to that
stock, except the right to receive payment of its fair value.
SEC. 3-205. WITHDRAWAL OF DEMAND.
A demand for payment may be withdrawn only with the consent of the
successor.
SEC. 3-206. RESTORATION OF DIVIDEND AND OTHER RIGHTS.
(a) When rights restored. The rights of a stockholder who demands payment
are restored in full, if:
(1) The demand for payment is withdrawn;
(2) A petition for an appraisal is not filed within the time required
by this subtitle;
(3) A court determines that the stockholder is not entitled to relief;
or
(4) The transaction objected to is abandoned or rescinded.
(b) Effect of restoration. The restoration of a stockholder's rights
entitles him to receive the dividends, distributions, and other rights he would
have received if he had not demanded payment for his stock. However, the
restoration does not prejudice any corporate proceedings taken before the
restoration.
SEC. 3-207. NOTICE AND OFFER TO STOCKHOLDERS.
(a) Duty of successor.
(1) The successor promptly shall notify each objecting stockholder in
writing of the date the articles are accepted for record by the Department.
(2) The successor also may send a written offer to pay the objecting
stockholder what it considers to be the fair value of his stock. Each offer
shall be accompanied by the following information relating to the
corporation which issued the stock:
(i) A balance sheet as of a date not more than six months before
the date of the offer;
(ii) A profit and loss statement for the 12 months ending on the
date of the balance sheet; and
(iii) Any other information the successor considers pertinent.
(b) Manner of sending notice. The successor shall deliver the notice and
offer to each objecting stockholder personally or mail them to him by certified
mail, return receipt requested, bearing a postmark from the United States Postal
Service, at the address he gives the successor in writing, or, if none, at his
address as it appears on the records of the corporation which issued the stock.
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<PAGE> 51
SEC. 3-208. PETITION FOR APPRAISAL; CONSOLIDATION OF PROCEEDINGS; JOINDER OF
OBJECTORS.
(a) Petition for appraisal. Within 50 days after the Department accepts the
articles for record, the successor or an objecting stockholder who has not
received payment for his stock may petition a court of equity in the county
where the principal office of the successor is located or, if it does not have a
principal office in this State, where the resident agent of the successor is
located, for an appraisal to determine the fair value of the stock.
(b) Consolidation of suits; joinder of objectors.
(1) If more than one appraisal proceeding is instituted, the court
shall direct the consolidation of all the proceedings on terms and
conditions it considers proper.
(2) Two or more objecting stockholders may join or be joined in an
appraisal proceeding.
SEC. 3-209. NOTATION ON STOCK CERTIFICATE.
(a) Submission of certificate. At any time after a petition for appraisal
is filed, the court may require the objecting stockholders parties to the
proceeding to submit their stock certificates to the clerk of the court for
notation on them that the appraisal proceeding is pending. If a stockholder
fails to comply with the order, the court may dismiss the proceeding as to him
or grant other appropriate relief.
(b) Transfer of stock bearing notation. If any stock represented by a
certificate which bears a notation is subsequently transferred, the new
certificate issued for the stock shall bear a similar notation and the name of
the original objecting stockholder. The transferee of this stock does not
acquire rights of any character with respect to the stock other than the rights
of the original objecting stockholder.
SEC. 3-210. APPRAISAL OF FAIR VALUE.
(a) Court to appoint appraisers. If the court finds that the objecting
stockholder is entitled to an appraisal of his stock, it shall appoint three
disinterested appraisers to determine the fair value of the stock on terms and
conditions the court considers proper. Each appraiser shall take an oath to
discharge his duties honestly and faithfully.
(b) Report of appraisers -- Filing. Within 60 days after their appointment,
unless the court sets a longer time, the appraisers shall determine the fair
value of the stock as of the appropriate date and file a report stating the
conclusion of the majority as to the fair value of the stock.
(c) Same -- Contents. The report shall state the reasons for the conclusion
and shall include a transcript of all testimony and exhibits offered.
(d) Same -- Service; objection.
(1) On the same day that the report is filed, the appraisers shall
mail a copy of it to each party to the proceedings.
(2) Within 15 days after the report is filed, any party may object to
it and request a hearing.
SEC. 3-211. ACTION BY COURT ON APPRAISERS' REPORT.
(a) Order of court. The court shall consider the report and, on motion of
any party to the proceeding, enter an order which:
(1) Confirms, modifies, or rejects it; and
(2) If appropriate, sets the time for payment to the stockholder.
(b) Procedure after order.
(1) If the appraisers' report is confirmed or modified by the order,
judgment shall be entered against the successor and in favor of each
objecting stockholder party to the proceeding for the appraised fair value
of his stock.
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<PAGE> 52
(2) If the appraisers' report is rejected, the court may:
(i) Determine the fair value of the stock and enter judgment for
the stockholder; or
(ii) Remit the proceedings to the same or other appraisers on terms
and conditions it considers proper.
(c) Judgment includes interest.
(1) Except as provided in paragraph (2) of this subsection, a judgment
for the stockholder shall award the value of the stock and interest from
the date as at which fair value is to be determined under sec. 3-202 of
this subtitle.
(2) The court may not allow interest if it finds that the failure of
the stockholder to accept an offer for the stock made under sec. 3-207 of
this subtitle was arbitrary and vexatious or not in good faith. In making
this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information furnished to
the stockholder; and
(iii) Any other circumstances it considers relevant.
(d) Costs of proceedings.
(1) The costs of the proceedings, including reasonable compensation
and expenses of the appraisers, shall be set by the court and assessed
against the successor. However, the court may direct the costs to be
apportioned and assessed against any objecting stockholder if the court
finds that the failure of the stockholder to accept an offer for the stock
made under sec. 3-207 of this subtitle was arbitrary and vexatious or not
in good faith. In making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information furnished to
the stockholder; and
(iii) Any other circumstances it considers relevant.
(2) Costs may not include attorney's fees or expenses. The reasonable
fees and expenses of experts may be included only if:
(i) The successor did not make an offer for the stock under
sec. 3-207 of this subtitle; or
(ii) The value of the stock determined in the proceeding materially
exceeds the amount offered by the successor.
(e) Effect of judgment. The judgment is final and conclusive on all parties
and has the same force and effect as other decrees in equity. The judgment
constitutes a lien on the assets of the successor with priority over any
mortgage or other lien attaching on or after the effective date of the
consolidation, merger, transfer, or charter amendment.
SEC. 3-212. SURRENDER OF STOCK.
The successor is not required to pay for the stock of an objecting
stockholder or to pay a judgment rendered against it in a proceeding for an
appraisal unless, simultaneously with payment:
(1) The certificates representing the stock are surrendered to it,
indorsed in blank, and in proper form for transfer; or
(2) Satisfactory evidence of the loss or destruction of the
certificates and sufficient indemnity bond are furnished.
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<PAGE> 53
SEC. 3-213. RIGHTS OF SUCCESSOR WITH RESPECT TO STOCK.
(a) General rule. A successor which acquires the stock of an objecting
stockholder is entitled to any dividends or distributions payable to holders of
record of that stock on a record date after the close of business on the day as
at which fair value is to be determined under sec. 3-202 of this subtitle.
(b) Successor in transfer of assets. After acquiring the stock of an
objecting stockholder, a successor in a transfer of assets may exercise all the
rights of an owner of the stock.
(c) Successor in consolidation, merger, or share exchange. Unless the
articles provide otherwise, stock in the successor of a consolidation, merger,
or share exchange otherwise deliverable in exchange for the stock of an
objecting stockholder has the status of authorized but unissued stock of the
successor. However, a proceeding for reduction of the capital of the successor
is not necessary to retire the stock or to reduce the capital of the successor
represented by the stock.
III-7
<PAGE> 54
POLK AUDIO, INC.
March 30, 1999
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates for Shares and any other
required documents should be sent or delivered by each stockholder of the
Company or such stockholder's broker, dealer, commercial bank, trust company or
other nominee to the Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand/Overnight Delivery:
40 Wall Street, 46th Floor (Eligible Institutions Only) 40 Wall Street, 46th Floor
New York, NY 10005 (718) 234-5001 New York, NY 10005
(Attention: Reorganization (Attention: Reorganization
Department) Confirm by Telephone: Department)
(718) 921-8200
For Information Call:
(718) 921-8200
</TABLE>
Questions and requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery
or any other tender offer materials may be directed to the Information Agent or
the Dealer Manager at their respective addresses and telephone numbers listed
below. You may also contact your broker, dealer, commercial bank, trust company
or other nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
[Georgeson Logo]
<TABLE>
<S> <C> <C>
Wall Street Plaza Banks and Brokers Call
New York, New York 10005 Collect
(212) 440-9800
All Others Call Toll Free
(800) 223-2064
</TABLE>
The Dealer Manager for the Offer is:
[Ferris Logo]
100 Light Street
Baltimore, Maryland 21202
(410) 659-4612
<PAGE> 1
EXHIBIT (a)(2)
FORM OF LETTER OF TRANSMITTAL
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK OF
POLK AUDIO, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED MARCH 30, 1999
THE OFFER, PRORATION AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
EASTERN DAYLIGHT TIME, ON APRIL 30, 1999, UNLESS THE OFFER IS EXTENDED.
THE DEPOSITARY FOR THE OFFER IS:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(THE "DEPOSITARY")
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand/Overnight Delivery:
40 Wall Street, 46th Floor (Eligible Institutions Only) 40 Wall Street, 46th Floor
New York, NY 10005 (718) 234-5001 New York, NY
(Attention: Reorganization (Attention: Reorganization
Department) Department)
Confirm by Telephone:
(718) 921-8200
For Information Call:
(718) 921-8200
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY.
DELIVERIES TO THE COMPANY WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE
WILL NOT CONSTITUTE VALID DELIVERY. DELIVERIES TO THE BOOK-ENTRY TRANSFER
FACILITY WILL NOT CONSTITUTE VALID DELIVERY TO THE DEPOSITARY.
THIS LETTER OF TRANSMITTAL, INCLUDING THE ACCOMPANYING INSTRUCTIONS, SHOULD BE
READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
<PAGE> 2
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
(SEE INSTRUCTIONS 3 AND 4)
- -----------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF
REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY
AS NAME(S) APPEAR(S) ON SHARES TENDERED
SHARE CERTIFICATE(S) (ATTACH ADDITIONAL LIST IF NECESSARY)
- -----------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
REPRESENTED BY
SHARE CERTIFICATE SHARE NUMBER OF SHARES
NUMBER(S)* CERTIFICATE(S) TENDERED**
<S> <C> <C> <C>
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
TOTAL NUMBER
OF SHARES
- -----------------------------------------------------------------------------------------------------------------
NOTE: IF THE NAME OR ADDRESS ON THE LABEL ABOVE IS NOT CORRECT, PLEASE MAKE ANY NECESSARY CHANGES.
- -----------------------------------------------------------------------------------------------------------------
[ ] CHECK HERE IF ANY OF THE SHARE CERTIFICATES THAT YOU OWN AND WISH TO SURRENDER HAVE BEEN LOST, DESTROYED
OR STOLEN. (SEE INSTRUCTION 12.)
* DOES NOT need to be completed by stockholders tendering shares by book-entry transactions.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by each certificate are being
tendered hereby. See Instruction 4.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
This Letter of Transmittal is to be completed only if (a) certificates
representing Shares (as defined below) are to be forwarded herewith, or (b) a
tender of Shares is to be made concurrently by book-entry transfer to the
account maintained by the Depositary at The Depository Trust Company
(hereinafter referred to as the "Book-Entry Transfer Facility") pursuant to "The
Tender Offer--Procedures for Accepting the Offer and Tendering Shares" in the
Offer to Purchase (as defined below).
- 2 -
<PAGE> 3
Stockholders who desire to tender Shares pursuant to the Offer (as defined
below), but whose Share certificates are not immediately available or who cannot
deliver such certificates and all other documents required by this Letter of
Transmittal to the Depositary on or prior to the Expiration Date (as defined in
the Offer to Purchase), or who cannot comply with the procedure for book-entry
transfer on a timely basis, may nevertheless tender their Shares pursuant to the
guaranteed delivery procedure set forth in "The Tender Offer -- Procedures for
Accepting the Offer and Tendering Shares" in the Offer to Purchase. See
Instruction 2.
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY AT THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
----------------------------------------
Account Number:
-------------------------------------------------------
Transaction Code Number:
----------------------------------------------
[ ] CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s):
--------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-------------------
Name of Institution that Guaranteed Delivery:
-------------------------
Window Ticket Number (if any):
----------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
- 3 -
<PAGE> 4
To American Stock Transfer & Trust Company:
The undersigned hereby tenders to Polk Audio, Inc., a Maryland corporation
(the "Company") the above-described shares of common stock, $0.01 par value per
share, of the Company (all such shares from time to time outstanding being,
collectively, the "Shares"), pursuant to the Company's offer to purchase up to
860,000 Shares at $12.00 per Share (the "Purchase Price"), net to the seller in
cash, without interest thereon, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated March 30, 1999 (the "Offer to Purchase"),
receipt of which is hereby acknowledged, and in this Letter of Transmittal
(which, as amended or supplemented from time to time, together with the Offer to
Purchase, constitute the "Offer").
Subject to, and effective upon, acceptance for payment of the Shares
tendered hereby, in accordance with the terms and subject to the conditions of
the Offer (including, if the Offer is extended or amended the terms and
conditions of such extension or amendment), the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Company all right, title and
interest in and to all the Shares that are being tendered hereby and all
dividends, distributions (including, without limitation, distributions of
additional Shares) and rights declared, paid or distributed in respect of such
Shares on or after March 24, 1999 (collectively, "Distributions") and orders the
registration of all such Shares if tendered by Book-Entry transfer and
irrevocably constitutes and appoints the Depositary the true and lawful agent
and attorney-in-fact of the undersigned with respect to such Shares and all
Distributions (with full knowledge that the Depositary also acts as agent for
the Company), with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (i) deliver
Share Certificates evidencing such Shares and all Distributions, or transfer
ownership of such Shares and all Distributions on the account books maintained
by the Book-Entry Transfer Facility, together, in either case, with all
accompanying evidences of transfer and authenticity, to or upon the order of the
Company, upon receipt by the Depositary as the undersigned's agent, of the
Purchase Price (as defined below) with respect to such Shares (ii) present
certificates for such Shares and all Distributions for cancellation and transfer
on the books of the Company and (iii) receive all benefits and otherwise
exercise all rights of beneficial ownership of such Shares and all
Distributions, all in accordance with the terms of the Offer.
The undersigned hereby covenants, represents and warrants to the Company
that:
(a) the undersigned has full power and authority to tender, sell,
assign and transfer the Shares tendered hereby and all Distributions, that
when and to the extent such Shares are accepted for payment by the Company,
the Company will acquire good, marketable and unencumbered title thereto
and to all Distributions, free and clear of all security interests, liens,
restrictions, charges, encumbrances, conditional sales agreements or other
obligations relating to the sale or transfer of such Shares, and that none
of such Shares and Distributions will be subject to any adverse claim;
(b) the undersigned understands that tenders of Shares pursuant to any
one of the procedures described in "The Tender Offer -- Procedures for
Accepting the Offer and Tendering Shares" in the Offer to Purchase and in
the instructions hereto will constitute the undersigned's acceptance of the
terms and conditions of the Offer, including the undersigned's
representation and warranty that (i) the undersigned has a net long
position in the Shares or equivalent securities at least equal to the
Shares tendered within the meaning of Rule 14e-4 under the Securities
Exchange Act of 1934, as amended ("Rule 14e-4"), and (ii) such tender of
Shares complies with Rule 14e-4;
(c) the undersigned, upon request, shall execute and deliver all
additional documents deemed by the Depositary or the Company to be
necessary or desirable to complete the sale, assignment and transfer of the
Shares tendered hereby and all Distributions;
(d) in addition, the undersigned shall remit and transfer promptly to
the Depositary for the account of the Company all Distributions in respect
of the Shares tendered hereby, accompanied by appropriate documentation of
transfer, and pending such remittance and transfer or appropriate assurance
thereof, the Company shall be entitled to all rights and privileges as
owner of each such Distribution and may withhold the entire purchase price
of the Shares tendered hereby, or deduct from such purchase price the
amount or value of such Distribution as determined by the Company in its
sole discretion; and
- 4 -
<PAGE> 5
(e) the undersigned has read, understands and agrees to all of the
terms of the Offer.
No authority herein conferred or agreed to be conferred shall be affected
by, and all such authority shall survive, the death or incapacity of the
undersigned. All obligations of the undersigned hereunder shall be binding upon
the heirs, personal representatives, executors, administrators, trustees in
bankruptcy, successors, assigns and legal representatives of the undersigned.
Except as stated in the Offer to Purchase, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in the Offer to Purchase under "The Tender
Offer -- Procedures for Accepting the Offer and Tendering Shares" and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Offer. The
undersigned acknowledges that no interest will be paid on the Purchase Price for
tendered Shares regardless of any extension of the Offer or any delay in making
such payment.
The name(s) and address(es) of the registered holder(s) should be printed,
if they are not already printed above, exactly as they appear on the
certificates representing Shares tendered hereby. The certificate numbers, the
number of Shares represented by such certificates and the number of Shares that
the undersigned wishes to tender should be set forth in the appropriate boxes
above.
The undersigned recognizes that, under certain circumstances set forth in
the Offer to Purchase, the Company may terminate or amend the Offer or may
postpone the acceptance for payment of, or the payment for, Shares tendered or
may accept for payment fewer than all of the Shares tendered hereby. In any such
event, the undersigned understands that certificate(s) for any Shares not
tendered or not purchased will be returned to the undersigned at the address
indicated above, unless otherwise indicated under the box entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions" below.
The undersigned understands that acceptance of Shares by the Company for
payment will constitute a binding agreement between the undersigned and the
Company upon the terms and subject to the conditions of the Offer.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions," please issue the check for the Purchase Price of all Shares
purchased, and return all Share Certificates evidencing Shares not purchased or
not tendered in the name(s) of the registered holder(s) appearing above under
"Description of Shares Tendered." Similarly, unless otherwise indicated in the
box entitled "Special Delivery Instructions," please mail the check for the
purchase price of all Shares purchased and all Share Certificates evidencing
Shares not tendered or not purchased (and accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing above
under "Description of Shares Tendered." In the event that the boxes entitled
"Special Payment Instructions" and "Special Delivery Instructions" are both
completed, please issue the check for the Purchase Price of all Shares purchased
and return all Share Certificates evidencing Shares not purchased or not
tendered in the name(s) of, and mail such check and Share Certificates to, the
person(s) so indicated. The undersigned recognizes that the Company has no
obligation, pursuant to the Special Payment Instructions, to transfer any Shares
from the name of the registered holder(s) thereof, or to order the registration
or transfer of any Shares tendered by book-entry transfer, if the Company does
not purchase any of the Shares tendered hereby.
- 5 -
<PAGE> 6
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 8)
To be completed ONLY if certificate(s) for Shares not tendered or not
purchased and any check for the Purchase Price of Shares are to be issued in a
name other than the name(s) of the registered holder(s) appearing above under
"Description of Certificates Tendered" or if Shares tendered hereby and
delivered by book-entry transfer which are not purchased are to be returned by
credit to an account at the Book-Entry Transfer Facility other than that
designated above.
Issue check and/or Share Certificate to:
Name
- -------------------------------------------------------------------------------
(PLEASE PRINT)
Address
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(ZIP CODE)
- -------------------------------------------------------------------------------
(TAX IDENTIFICATION NO. OR SOCIAL SECURITY NUMBER)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 8)
To be completed ONLY if certificate(s) for Shares not tendered or not
purchased and any check for the Purchase Price of Shares are to be mailed or
sent to a name other than to the undersigned or to the address of the registered
Share holder(s) appearing above under "Description of Share Certificates
Tendered" or, if the box immediately to the left is filled in, other than to the
address appearing therein.
Mail or deliver check and/or Share Certificate to:
Name
- -------------------------------------------------------------------------------
(PLEASE PRINT)
Address
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(ZIP CODE)
(SEE SUBSTITUTE FORM W-9)
ODD LOTS
(SEE INSTRUCTION 7.)
To be completed ONLY if Shares are being tendered by or on behalf of a
person owning, beneficially or of record, as of the close of business on March
24, 1999 and who continues to own, beneficially or of record, as of the
Expiration Date, an aggregate of fewer than 100 Shares. The undersigned either
(check one box):
[ ] was the beneficial or record owner of, as of the close of business on March
24, 1999, and continues to own beneficially or of record as of the
Expiration Date, an aggregate of fewer than 100 Shares, all of which are
being tendered; or
[ ] is a broker, dealer, commercial bank, trust company, or other nominee that
(a) is tendering, for the beneficial owner(s) thereof, Shares with respect
to which it is the record holder, and (b) believes, based upon
representations made to it by such beneficial owner(s), that each such
person was the beneficial or record owner of, as of the close of business on
March 24, 1999, and continues to own beneficially or of record as of the
Expiration Date, an aggregate of fewer than 100 Shares and is tendering all
of such Shares.
- 6 -
<PAGE> 7
IMPORTANT
STOCKHOLDERS SIGN HERE
(PLEASE COMPLETE AND RETURN THE SUBSTITUTE FORM W-9 BELOW)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s) of Stockholder(s)
Dated:
----------------------------------------
(Must be signed by registered holder(s) exactly as such holder(s) name(s)
appear(s) on stock certificate(s) or on a security position listing or by
person(s) authorized to become registered holder(s) by certificates and
documents transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, please set forth full
title and see Instruction 5.)
Name(s):
------------------------------------------------------------------------
(Please Print)
Capacity (full title):
----------------------------------------------------------
Address:
------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No.:
----------------------------------------------------
Tax Identification or Social Security No.:
--------------------------------------
(See Substitute Form W-9 on Reverse Side)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED - SEE INSTRUCTIONS 1 AND 5)
FOR USE BY FINANCIAL INSTITUTIONS ONLY
FINANCIAL INSTITUTIONS: PLACE MEDALLION
GUARANTEE IN SPACE BELOW.
Name of Firm:
-------------------------------------------------------------------
(please print)
Authorized Signature:
-----------------------------------------------------------
Name:
---------------------------------------------------------------------------
(please print)
Title:
--------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
(zip code)
Area Code and Telephone Number:
----------------------------------------------------
Dated:
----------------------------------------
- 7 -
<PAGE> 8
TO BE COMPLETED BY ALL TENDERING STOCKHOLDERS (SEE INSTRUCTION 11)
PAYOR'S NAME: AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND ----------------------------
SUBSTITUTE CERTIFY BY SIGNING AND DATING BELOW. SOCIAL SECURITY NUMBER
FORMW-9
OR
----------------------------
EMPLOYER IDENTIFICATION NUMBER
---------------------------------------------------------------------------------------------
NAME PART 2 -- CERTIFICATION -- UNDER PENALTIES OF PERJURY, I PART 3 --
ADDRESS CERTIFY THAT: AWAITING TIN [ ]
(NUMBER AND STREET) (1) THE NUMBER SHOWN ON THIS FORM IS MY CORRECT TIN (OR I
AM WAITING FOR A NUMBER TO BE ISSUED TO ME) AND PART 4 --
(2) I AM NOT SUBJECT TO BACKUP WITHHOLDING BECAUSE (A) I EXEMPT [ ]
(CITY, STATE AND ZIP CODE) AM EXEMPT FROM BACKUP WITHHOLDING, OR (B) I HAVE NOT
BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE ("IRS")
THAT I AM SUBJECT TO REPORT ALL INTEREST OR DIVIDENDS,
OR (C) THE IRS HAS NOTIFIED ME THAT I AM NO LONGER
SUBJECT TO BACKUP WITHHOLDING.
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
DEPARTMENT OF THE TREASURY CERTIFICATION INSTRUCTIONS -- YOU MUST CROSS OUT ITEM (2) IN PART 2 ABOVE IF YOU HAVE
INTERNAL REVENUE SERVICE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDER
REPORTING INTEREST OR DIVIDENDS ON YOUR TAX RETURN. HOWEVER, IF AFTER BEING NOTIFIED BY
THE IRS THAT YOU WERE SUBJECT TO BACKUP WITHHOLDING YOU RECEIVED ANOTHER NOTIFICATION
PAYER'S REQUEST FOR FROM THE IRS STATING THAT YOU ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING, DO NOT CROSS
TAXPAYER IDENTIFICATION OUT ITEM (2). IF YOU ARE EXEMPT FROM BACKUP WITHHOLDING CHECK THE BOX IN PART 4 ABOVE.
NUMBER ("TIN")
CERTIFICATION SIGNATURE _____ DATE __________ , 1999
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE TENDER OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
THE SUBSTITUTE FORM W-9.
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I CERTIFY UNDER PENALTIES OF PERJURY THAT A TAXPAYER IDENTIFICATION NUMBER HAS NOT BEEN ISSUED TO ME, AND EITHER
(A) I HAVE MAILED OR DELIVERED AN APPLICATION TO RECEIVE A TAXPAYER IDENTIFICATION NUMBER TO THE APPROPRIATE
INTERNAL REVENUE SERVICE CENTER OR SOCIAL SECURITY ADMINISTRATION OFFICE OR (B) I INTEND TO MAIL OR DELIVER AN
APPLICATION IN THE NEAR FUTURE. I UNDERSTAND THAT 31% OF ALL REPORTABLE PAYMENTS MADE TO ME WILL BE WITHHELD UNTIL
I PROVIDE A NUMBER AND THAT, IF I DO NOT PROVIDE A TAXPAYER IDENTIFICATION NUMBER WITHIN 60 DAYS, SUCH RETAINED
AMOUNTS SHALL BE REMITTED TO THE IRS AS BACKUP WITHHOLDING.
</TABLE>
<TABLE>
<S> <C> <C> <C>
----------------------------------------------------- --------------------------- , 1999
Signature Date
- --------------------------------------------------------------------------------------------------------
</TABLE>
- 8 -
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee Of Signatures. All signatures on this Letter of Transmittal
must be guaranteed by a firm that is a member of the Medallion Signature
Guarantee Program, or by any other "eligible guarantor institution," as such
term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended (each of the foregoing being referred to as an "Eligible Institution"),
unless (i) this Letter of Transmittal is signed by the registered holder(s) of
the Shares (which term, for purposes of this document, shall include any
participant in a Book-Entry Transfer Facility whose name appears on a security
position listing as the owner of Shares) tendered hereby and such holder(s) has
(have) completed neither the box entitled "Special Payment Instructions" nor the
box entitled "Special Delivery Instructions" on the reverse hereof or (ii) such
Shares are tendered for the account of an Eligible Institution. See Instruction
5.
2. Delivery Of Letter Of Transmittal And Share Certificates; Guaranteed
Delivery Procedures. This Letter of Transmittal is to be used either if Share
Certificates are to be forwarded herewith or if Shares are to be delivered by
book-entry transfer pursuant to the procedure set forth under "The Tender
Offer -- Procedures for Accepting the Offer and Tendering Shares" in the Offer
to Purchase. Share Certificates evidencing all physically tendered Shares, or a
confirmation of a book-entry transfer into the Depositary's account at a
Book-Entry Transfer Facility of all Shares delivered by book-entry transfer as
well as a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other documents required by this Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth on the reverse hereof prior to the Expiration Date (as defined under "The
Tender Offer -- Terms of the Offer; Expiration Date" in the Offer to Purchase).
If Share Certificates are forwarded to the Depositary in multiple deliveries, a
properly completed and duly executed Letter of Transmittal must accompany each
such delivery.
Stockholders whose Share Certificates are not immediately available, who
cannot deliver their Share Certificates and all other required documents to the
Depositary prior to the Expiration Date or who cannot complete the procedure for
delivery by book-entry transfer on a timely basis may tender their Shares
pursuant to the guaranteed delivery procedure described under "The Tender
Offer -- Procedures for Accepting the Offer and Tendering Shares" in the Offer
to Purchase. Pursuant to such procedure: (i) such tender must be made by or
through an Eligible Institution; (ii) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form made available by the
Company, must be received by the Depositary prior to the Expiration Date; and
(iii) the Share Certificates evidencing all physically delivered Shares in
proper form for transfer by delivery, or a confirmation of a book-entry transfer
into the Depositary's account at a Book-Entry Transfer Facility of all Shares
delivered by book-entry transfer, in each case together with a Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other documents required by this
Letter of Transmittal, must be received by the Depositary within three AMEX
trading days after the date of execution of such Notice of Guaranteed Delivery,
all as described under "The Tender Offer -- Procedures for Accepting the Offer
and Tendering Shares" in the Offer to Purchase.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, facsimile transmission or mail to the Depositary and must include a
signature guarantee by an Eligible Institution in the form set forth therein.
For Shares to be tendered validly pursuant to the guaranteed delivery procedure,
the Depositary must receive the Notice of Guaranteed Delivery on or before the
Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING
STOCKHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY
THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased, except as expressly provided in the Offer
to Purchase. By execution of this Letter of Transmittal (or a facsimile hereof),
all tendering stockholders waive any right to receive any notice of the
acceptance of their Shares for payment.
- 9 -
<PAGE> 10
3. Inadequate Space. If the space provided herein under "Description of
Shares Tendered" is inadequate, the Share Certificate numbers, the number of
Shares evidenced by such Share Certificates and the number of Shares tendered
should be listed on a separate signed schedule and attached hereto.
4. Partial Tenders and Unpurchased Shares (not applicable to stockholders
who tender by book-entry transfer). If fewer than all the Shares evidenced by
any Share Certificate delivered to the Depositary herewith are to be tendered
hereby, fill in the number of Shares which are to be tendered in the box
entitled "Number of Shares Tendered." In such case, new Share Certificate(s)
evidencing the remainder of the Shares that were evidenced by the Share
Certificates delivered to the Depositary herewith will be sent to the person(s)
signing this Letter of Transmittal, unless otherwise provided in the box
entitled "Special Delivery Instructions" on the reverse hereof, as soon as
practicable after the expiration or termination of the Offer. All Shares
evidenced by Share Certificates delivered to the Depositary will be deemed to
have been tendered unless otherwise indicated.
5. Signatures On Letter Of Transmittal; Stock Powers And Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the Share Certificates evidencing such Shares without alteration,
enlargement or any other change whatsoever.
If any Share tendered hereby is owned of record by two or more persons, all
such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in the names of
different holders, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of such
Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of Share Certificates or separate stock
powers are required, unless payment is to be made to, or Share Certificates
evidencing Shares not tendered or not purchased are to be issued in the name of,
a person other than the registered holder(s), in which case, the Share
Certificate(s) evidencing the Shares tendered hereby must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear(s) on such Share Certificate(s).
Signatures on such Share Certificate(s) and stock powers must be guaranteed by
an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Share Certificate(s). Signatures on such
Share Certificate(s) and stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Share Certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Company of such person's authority so to act must be
submitted.
6. Stock Transfer Taxes. Except as otherwise provided in this Instruction
6, the Company will pay all stock transfer taxes with respect to the sale and
transfer of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price of any Shares purchased is to be made to, or Share
Certificate(s) evidencing Shares not tendered or not purchased are to be issued
in the name of, a person other than the registered holder(s), the amount of any
stock transfer taxes (whether imposed on the registered holder(s), such other
person or otherwise) payable on account of the transfer to such other person
will be deducted from the purchase price of such Shares purchased, unless
evidence satisfactory to the Company of the payment of such taxes, or exemption
therefrom, is submitted. Except as provided in this Instruction 6, it will not
be necessary for transfer tax stamps to be affixed to the Share Certificates
evidencing the Shares tendered hereby.
7. Odd Lots. As described in "The Tender Offer -- Terms of the Offer;
Expiration Date" in the Offer to Purchase, if the Company is to purchase fewer
than all Shares properly tendered before the Expiration Date and not
- 10 -
<PAGE> 11
properly withdrawn, the Shares purchased first will consist of all Shares
properly tendered by any stockholder who owned, beneficially or of record, as of
the close of business on March 24, 1999 and as of the Expiration Date, an
aggregate of fewer than 100 Shares, and who tenders all of such holder's Shares
(an "Odd Lot Holder"). This preference will not be available unless the box
captioned "Odd Lots" is completed.
8. Special Payment And Delivery Instructions. If a check for the Purchase
Price of any Shares tendered hereby is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name of
a person other than the person(s) signing this Letter of Transmittal or if such
check or any such Share Certificate is to be sent to someone other than the
person(s) signing this Letter of Transmittal or to the person(s) signing this
Letter of Transmittal but at an address other than that shown in the box
entitled "Description of Shares Tendered" on the reverse hereof, the appropriate
boxes on the reverse of this Letter of Transmittal must be completed.
9. Request For Assistance; Additional Copies. If you need assistance in
submitting Share Certificates to the Depositary or need additional copies of the
Offer to Purchase or this Letter of Transmittal, you may contact the Information
Agent or the Dealer Manager at their addresses and telephone numbers listed on
the front of this Letter of Transmittal.
10. Irregularities. All questions as to the number of Shares to be
accepted, the price to be paid therefor and the validity, form, eligibility
(including time of receipt) and acceptance for payment of any tender of Shares
will be resolved by the Company in its sole discretion, which determination
shall be final and binding on all parties. The Company reserves the absolute
right to reject any or all tenders of Shares it determines not to be in proper
form or the acceptance of which or payment for which may, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Offer or any defect or irregularity in any
tender with respect to any particular Shares or any particular stockholder, and
the Company's interpretation of the terms of the Offer (including these
Instructions) will be final and binding on all parties. No tender of Shares will
be deemed to be properly made until all defects and irregularities have been
cured by the tendering stockholder or waived by the Company. Unless waived, any
defects or irregularities in connection with tenders must be cured within such
time as the Company shall determine. None of the Company, the Dealer Manager (as
defined in the Offer to Purchase), the Depositary, the Information Agent (as
defined in the Offer to Purchase) or any other person is or will be obligated to
give notice of any defects or irregularities in tenders and none of them will
incur any liability for failure to give any such notice.
11. Substitute Form W-9. Each tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9, which is provided under "Important Tax Information" below,
and to certify, under penalties of perjury, that such number is correct and that
such stockholder is not subject to backup withholding of federal income tax. If
a tendering stockholder has been notified by the Internal Revenue Service that
such stockholder is subject to backup withholding, such stockholder must cross
out item (2) of the Certification box of the Substitute Form W-9, unless such
stockholder has since been notified by the Internal Revenue Service that such
stockholder is no longer subject to backup withholding. Failure to provide the
information on the Substitute Form W-9 may subject the tendering stockholder to
31% federal income tax withholding on the payment of the purchase price of all
Shares purchased from such stockholder. If the tendering stockholder has not
been issued a TIN and has applied for one or intends to apply for one in the
near future, such stockholder should write "Applied For" in the space provided
for the TIN in Part I of the Substitute Form W-9, check the box in Part 3 marked
"Awaiting TIN" and sign and date the Substitute Form W-9. If "Applied For" is
written in Part I, the box marked "Awaiting TIN" has been checked and the
Depositary is not provided with a TIN within 60 days, the Depositary will
withhold 31% on all payments of the purchase price to such stockholder until a
TIN is provided to the Depositary.
- 11 -
<PAGE> 12
IMPORTANT TAX INFORMATION
Under the federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required by law to provide the Depositary (as payer)
with such stockholder's correct TIN on Substitute Form W-9 below. If such
stockholder is an individual, the TIN is such stockholder's social security
number. If the Depositary is not provided with the correct TIN, the stockholder
may be subject to a $50 penalty imposed by the Internal Revenue Service and
payments that are made to such stockholder with respect to Shares purchased
pursuant to the Offer may be subject to backup withholding of 31%. In addition,
if a stockholder makes a false statement that results in no imposition of backup
withholding, and there was no reasonable basis for such a statement, a $500
penalty may also be imposed by the Internal Revenue Service. Certain
stockholders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such individual must submit a statement, signed under penalties of
perjury, attesting to such individual's exempt status. Forms of such statements
can be obtained from the Depositary. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions. A stockholder should consult his or her tax advisor as
to such stockholder's qualification for an exemption from backup withholding and
the procedure for obtaining such exemption. If backup withholding applies, the
Depositary is required to withhold 31% of any payments made to the stockholder.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of such stockholder's correct TIN by
completing the form below certifying that (a) the TIN provided on Substitute
Form W-9 is correct (or that such stockholder is awaiting a TIN) and (b) that
(i) such stockholder has not been notified by the Internal Revenue Service that
such stockholder is subject to backup withholding as a result of a failure to
report all interest or dividends or (ii) the Internal Revenue Service has
notified such stockholder that such stockholder is no longer subject to backup
withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the record holder of the Shares
tendered hereby. If the Shares are in more than one name or are not in the name
of the actual owner, consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional guidance on
which number to report. If the tendering stockholder has not been issued a TIN
and has applied for a number or intends to apply for a number in the near
future, the stockholder should write "Applied For" in the space provided for the
TIN in Part I, check the box in Part 3 marked "Awaiting TIN" and sign and date
the Substitute Form W-9. If "Applied For" is written in Part I, the box marked
"Awaiting TIN" has been checked and the Depositary is not provided with a TIN
within 60 days, the Depositary will withhold 31% of all payments of the purchase
price to such stockholder until a TIN is provided to the Depositary.
12. Lost, Destroyed Or Stolen Certificates. If any certificate
representing Shares has been lost, stolen, destroyed or mutilated, the
stockholder should promptly notify either the Depositary or the Transfer Agent.
The stockholder will then be instructed as to the steps that must be taken in
order to replace the certificate. This Letter of Transmittal and related
documents cannot be processed until the procedures for replacing lost, stolen,
destroyed or mutilated certificates have been followed.
13. Order of Purchase in Event of Proration. Stockholders may designate
the order in which their Shares are to be purchased in the event of proration.
The order of purchase may have an effect on the United States federal income tax
treatment of any gain or loss on the Shares purchased.
- 12 -
<PAGE> 13
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED (TOGETHER WITH ANY REQUIRED
SIGNATURE GUARANTEES AND SHARE CERTIFICATES OR CONFIRMATION OF
BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A
PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE
EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE).
- 13 -
<PAGE> 14
The Information Agent for the Offer is:
[GEORGESON LOGO]
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect:
(212) 440-9800
All Others Toll Free:
(800) 223-2064
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand/Overnight Delivery:
40 Wall Street, 46th Floor (Eligible Institutions Only) 40 Wall Street, 46th Floor
New York, NY 10005 (718) 234-5001 New York, NY
(Attention: Reorganization (Attention: Reorganization
Department) Department)
Confirm by Telephone:
(718) 921-8200
For Information Call:
(718) 921-8200
</TABLE>
The Dealer Manager for the Offer is:
[FERRIS LOGO]
100 Light Street
Baltimore, Maryland 21202
(410) 659-4612
<PAGE> 1
EXHIBIT (a) (3)
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
POLK AUDIO, INC.
This Notice of Guaranteed Delivery or a form substantially equivalent
hereto must be used to accept the Offer (as defined below) (i) if certificates
("Share Certificates") evidencing shares of common stock, $0.01 par value per
share, of Polk Audio, Inc., a Maryland corporation (the "Shares"), are not
immediately available, (ii) if Share Certificates and all other required
documents cannot be delivered to American Stock Transfer & Trust Company, as
Depositary (the "Depositary"), prior to the Expiration Date (as defined in
Section 1 of the Offer to Purchase (as defined below)) or (iii) if the procedure
for delivery by book-entry transfer cannot be completed on a timely basis. This
Notice of Guaranteed Delivery, properly completed and duly executed, may be
delivered by hand or mail or transmitted by telegram or facsimile transmission
to the Depositary. See "The Tender Offer -- Procedures for Accepting the Offer
and Tendering Shares" in the Offer to Purchase.
THE TENDER OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
EASTERN DAYLIGHT TIME, ON APRIL 30, 1999, UNLESS EXTENDED (THE "EXPIRATION
DATE").
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(THE "DEPOSITARY")
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand/Overnight Delivery:
40 Wall Street, 46th Floor (Eligible Institutions Only) 40 Wall Street, 46th Floor
New York, NY 10005 (718) 234-5001 New York, NY 10005
(Attention: Reorganization (Attention: Reorganization
Department) Department)
Confirm by Telephone:
(718) 921-8200
For Information Call:
(718) 921-8200
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR
TRANSMISSION VIA FACSIMILE TRANSMISSION OR TELEX, OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY. DELIVERIES TO THE COMPANY WILL NOT BE
FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT CONSTITUTE VALID DELIVERY.
DELIVERIES TO THE BOOK-ENTRY TRANSFER FACILITY WILL NOT CONSTITUTE VALID
DELIVERY TO THE DEPOSITARY.
The Tender Offer is not being made to (nor will the surrender of Share
Certificates be accepted from or on behalf of) stockholders in any jurisdiction
in which the making or acceptance of the Tender Offer would not be in compliance
with the laws of such jurisdiction.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated March 30, 1999 (the
"Offer to Purchase"), and the related Letter of Transmittal (which together
constitute the "Offer"), receipt of each of which is hereby acknowledged, the
number of Shares specified below pursuant to the guaranteed delivery procedure
described under "The Tender Offer -- Procedures for Accepting the Offer and
Tendering Shares" in the Offer to Purchase.
PLEASE SIGN AND COMPLETE
<TABLE>
<S> <C>
Signature(s) of Registered Holders Address(es):
-----------------------------------
or Authorized Signatory: -----------------------------------
--------------------------- (Zip Code)
Name(s) of Registered Holder(s): Area Code and Telephone No.:
------------------- -------------------
Certificate Nos. (if available): If Shares will be delivered by book-entry
------------------- transfer,
- --------------------------------------------------- check appropriate box below:
Date: [ ] Depository Trust Company
---------------------------------------------- [ ] Midwest Securities Trust Company
[ ] Philadelphia Depository Trust Company
[ ] Account No.
</TABLE>
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Share Certificates exactly as their name(s) appear(s) on the Share
Certificates or on a security position listing as the owner(s) of the Share
Certificates, or by person(s) authorized to become registered holder(s) by
endorsements and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, guardian, attorney-in-fact, officer of a
corporation, executor, administrator, agent or other representative, such person
must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
<TABLE>
<S> <C>
Names(s):
-----------------------------------------------------------------------
Capacity:
-----------------------------------------------------------------------
Address(es):
--------------------------------------------------------------------
------------------------------------------------------------------------
(zip code)
</TABLE>
Do not send Share Certificates with this form. Share Certificates should be
sent to the Depositary together with a properly completed and validly executed
Letter of Transmittal.
- 2 -
<PAGE> 3
ODD LOTS
To be completed ONLY if Shares are being tendered by or on behalf of a
person owning beneficially or of record as of the close of business on March 24,
1999 and who continues to own, beneficially or of record, as of the Expiration
Date, an aggregate of fewer than 100 Shares. The undersigned either (check one
box):
[ ] was the beneficial or record owner of, as of the close of
business on March 24, 1999, and continues to own beneficially
or of record as of the Expiration Date, an aggregate of fewer
than 100 Shares, all of which are being tendered; or
[ ] is a broker, dealer, commercial bank, trust company, or other
nominee that (a) is tendering, for the beneficial owner(s)
thereof, Shares with respect to which it is the record
holder, and (b) believes, based upon representations made to
it by such beneficial owner(s), that each such person was the
beneficial or record owner of, as of the close of business on
March 24, 1999, and continues to own beneficially or of
record as of the Expiration Date, an aggregate of fewer than
100 Shares and is tendering all of such Shares.
Signature(s):
--------------------------
- 3 -
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a bank, broker, dealer, credit union, savings association
or other entity which is a member in good standing of the Securities Transfer
Agents Medallion Program or a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or a correspondent in the
United States or another "Eligible Guarantor Institution" as defined in Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees
that, within three American Stock Exchange trading days from the date of this
Notice of Guaranteed Delivery, a properly completed and validly executed Letter
of Transmittal (or a facsimile thereof), together with Share Certificates
tendered hereby in proper form for transfer (or confirmation of the book-entry
transfer of such Share Certificates into the Depositary's account at a
Book-Entry Transfer Facility pursuant to the procedure for book-entry transfer
set forth in the Offer to Purchase under the heading "The Tender
Offer -- Procedures for Accepting the Offer and Tendering Shares"), and all
other required documents will be deposited by the undersigned with the
Depositary at one of its addresses set forth above.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates representing Shares to the Depositary within the time period set
forth herein. Failure to do so could result in a financial loss to such Eligible
Institution.
Name of Firm:
-------------------------------------------------------------------
Authorized Signature:
-----------------------------------------------------------
Name:
---------------------------------------------------------------------------
Title:
--------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Area Code and Telephone No.:
---------------------------------------------------
Dated:
--------------------------------------------------------------------------
DO NOT SEND SHARE CERTIFICATES WITH THIS FORM. ACTUAL SURRENDER OF SHARE
CERTIFICATES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY A PROPERLY
COMPLETED AND VALIDLY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED
DOCUMENTS.
- 4 -
<PAGE> 1
EXHIBIT (a) (4)
FORM OF LETTER FROM
FERRIS, BAKER WATTS, INCORPORATED
TO BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
AND NOMINEES.
OFFER TO PURCHASE FOR CASH
UP TO 860,000 OF ITS COMMON SHARES AT A
PURCHASE PRICE OF $12.00 PER SHARE
BY
POLK AUDIO, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN
DAYLIGHT TIME, ON APRIL 30, 1999, UNLESS THE OFFER IS EXTENDED.
MARCH 30, 1999
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
We have been appointed by Polk Audio, Inc., a Maryland corporation (the
"Company"), to act as Dealer Manager in connection with the Company's offer to
purchase up to 860,000 shares (or such lesser number of shares as are properly
tendered) of common stock, $0.01 par value per share (the "Shares"), of the
Company at a price of $12.00 Share, net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set forth in the Company's
Offer to Purchase, dated March 30, 1999 (the "Offer to Purchase"), and in the
related Letter of Transmittal (which, as amended or supplemented from time to
time, together constitute the "Offer"), enclosed herewith. Please furnish copies
of the enclosed materials to those of your clients for whose accounts you hold
Shares registered in your name or in the name of your nominee.
THE OFFER IS NOT CONDITIONED ON A MINIMUM NUMBER OF SHARES BEING TENDERED. THE
OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS.
Upon the terms and subject to the conditions of the Offer, if at the
Expiration Date more than 860,000 Shares (or such greater amount of Shares as
the Company may elect to purchase) are properly tendered at or below the
Purchase Price and not properly withdrawn, the Company will buy Shares first
from any person (an "Odd Lot Holder") who owned beneficially or of record as of
the close of business on March 30, 1999 and who continue to own beneficially or
of record as of the Expiration Date, an aggregate of fewer than 100 Shares and
so certified in the appropriate place in the Letter of Transmittal (and, if
applicable, on a notice of guaranteed delivery), who properly tender all their
Shares, and then on a pro rata basis from all other stockholders who properly
tender Shares (and do not properly withdraw such Shares prior to the Expiration
Date).
Enclosed for your information and use are copies of the following
documents:
1. Offer to Purchase, dated March 30, 1999;
2. Letter of Transmittal to be used by holders of Shares in accepting
the Offer and tendering Shares (together with the accompanying Substitute
Form W-9);
3. A letter to stockholders of the Company dated March 30, 1999 from
George M. Klopfer, Chief Executive Officer of the Company;
4. Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents are not immediately available or
cannot be delivered to American Stock Transfer & Trust Company (the
"Depositary") by the Expiration Date (as defined in the Offer to Purchase)
or if the procedure for book-entry transfer cannot be completed by the
Expiration Date;
5. A letter which may be sent to your clients for whose accounts you
hold Shares registered in your name or in the name of your nominee, with
space provided for obtaining such clients' instructions with regard to the
Offer;
<PAGE> 2
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
7. Return envelope addressed to the Depositary.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, EASTERN DAYLIGHT
TIME, ON APRIL 30, 1999, UNLESS THE OFFER IS EXTENDED.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of certificates
evidencing such Shares (or a confirmation of a book-entry transfer of such
Shares into the Depositary's account at one of the Book-Entry Transfer
Facilities (as defined in the Offer to Purchase)), a Letter of Transmittal (or
facsimile thereof) properly completed and duly executed and any other required
documents.
If holders of Shares wish to tender, but cannot deliver their certificates
or other required documents, or cannot comply with the procedure for book-entry
transfer, prior to the expiration of the Offer, a tender of Shares may be
effected by following the guaranteed delivery procedure described under "The
Tender Offer -- Procedures for Accepting the Offer and Tendering Shares" in the
Offer to Purchase.
The Company will not pay any fees or commissions to any broker, dealer or
other person (other than the Dealer Manager, the Depositary and the Information
Agent as described in the Offer) in connection with the solicitation of tenders
of Shares pursuant to the Offer. However, the Company will reimburse you for
customary mailing and handling expenses incurred by you in forwarding any of the
enclosed materials to your clients. The Company will pay or cause to be paid any
stock transfer taxes payable with respect to the transfer of Shares to it,
except as otherwise provided in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to
Ferris, Baker Watts, Incorporated (the "Dealer Manager") or to Georgeson &
Company Inc. (the "Information Agent") at their respective addresses and
telephone numbers set forth on the back cover page of the Offer to Purchase.
Additional copies of the enclosed material may be obtained from the Dealer
Manager or the Information Agent, at their respective addresses and telephone
numbers set forth on the back cover page of the Offer to Purchase.
Very Truly Yours,
FERRIS, BAKER WATTS, INCORPORATED
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU,
OR ANY OTHER PERSON, THE AGENT OF THE COMPANY, THE DEALER MANAGER, THE
INFORMATION AGENT OR THE DEPOSITARY, OR OF ANY AFFILIATE OF ANY OF THEM, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR TO MAKE ANY STATEMENT
ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED
DOCUMENT AND THE STATEMENTS CONTAINED THEREIN.
- 2 -
<PAGE> 1
EXHIBIT (a)(5)
FORM OF LETTER FROM BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND NOMINEES TO CLIENTS.
OFFER TO PURCHASE FOR CASH
UP TO 860,000 SHARES OF ITS COMMON SHARES
AT A
PURCHASE PRICE OF $12.00 PER SHARE
BY
POLK AUDIO, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN
DAYLIGHT TIME, ON APRIL 30, 1999, UNLESS THE OFFER IS EXTENDED.
MARCH 30, 1999
To Our Clients:
Enclosed for your consideration are an Offer to Purchase, dated March 30,
1999 (the "Offer to Purchase"), and a related Letter of Transmittal in
connection with the offer by Polk Audio, Inc., a Maryland corporation (the
"Company") to purchase up to 860,000 shares of common stock, $0.01 par value per
share (the "Shares"), of the Company at a Purchase Price of $12.00 per share,
net to the seller in cash, without interest thereon upon the terms and subject
to the conditions set forth in the Offer to Purchase and in a related Letter of
Transmittal (which together constitute the "Offer").
THE OFFER IS NOT CONDITIONED ON A MINIMUM NUMBER OF SHARES BEING TENDERED.
THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS.
Upon the terms and subject to the conditions of the Offer, if at the
Expiration Date more than 860,000 Shares (or such greater amount of Shares as
the Company may elect to purchase) are properly tendered and not properly
withdrawn, the Company will buy Shares first from any person (an "Odd Lot
Holder") who owned beneficially or of record as of the close of business on
March 24, 1999 and who continue to own beneficially or of record as of the
Expiration Date, an aggregate of fewer than 100 Shares and so certified in the
appropriate place in the Letter of Transmittal (and, if applicable, on a Notice
of Guaranteed Delivery), who properly tender all their Shares, and then on a pro
rata basis from all other stockholders who properly tender Shares (and do not
properly withdraw such Shares prior to the Expiration Date).
We are (or our nominee is) the holder of record of Shares held by us for
your account. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US OR OUR NOMINEE AS
THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF
TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY
YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender on your
behalf any or all of the Shares held by us for your account, upon the terms and
subject to the conditions set forth in the Offer.
YOUR ATTENTION IS INVITED TO THE FOLLOWING:
1. The tender price is $12.00 per Share, as indicated in the attached
Instruction Form, net to the seller in cash, without interest thereon.
2. The Offer is conditioned on the Company being satisfied, in its
sole discretion, that sufficient financing is available to consummate the
Offer.
3. The Board of Directors of the Company has approved the Offer.
However, none of the Company, its Board of Directors or the Dealer Manager
makes any recommendation to stockholders
<PAGE> 2
as to whether to tender or refrain from tendering their Shares. Each
stockholder must make the decision whether to tender such stockholder's
Shares and, if so, how many Shares to tender and at the price or prices at
which such Shares should be tendered.
4. The Offer, and withdrawal rights will expire at 12:00 Midnight,
Eastern Daylight Time, on April 30, 1999, unless the Offer is extended.
5. Tendering stockholders will not be obligated to pay brokerage fees
or commissions or solicitation fees to the Dealer Manager, Depositary,
Information Agent or the Company or, except as otherwise provided in
Instruction 6 of the Letter of Transmittal, stock transfer taxes with
respect to the purchase of Shares by the Company pursuant to the Offer.
If (i) you owned beneficially or of record as of the close of business on
March 24, 1999, and continue to own beneficially or of record as of the
Expiration Date, an aggregate of fewer than 100 Shares; (ii) you instruct us to
tender on your behalf all such Shares prior to the Expiration Date; and (iii)
you complete the section entitled "Odd Lots" in the attached Instruction Form,
the Company, upon the terms and subject to the conditions of the Offer, will
accept all such Shares for purchase before proration, if any, of the purchase of
other Shares properly tendered.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing and returning to us the Instruction Form contained
in this letter. An envelope in which to return your Instruction Form to us is
enclosed. If you authorize the tender of your Shares, all such Shares will be
tendered unless otherwise specified in your instructions.
YOUR INSTRUCTION FORM SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US
TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER.
As described in the Offer to Purchase, if more than 860,000 Shares (or such
greater amount of Shares as the Company may elect to purchase) have been
properly tendered and not properly withdrawn prior to the Expiration Date, the
Company will purchase tendered Shares on the basis set forth below:
1. first, all Shares tendered and not withdrawn prior to the
Expiration Date by any Odd Lot Holder who:
(a) tenders all Shares owned beneficially or of record by such Odd
Lot Holder (tenders of less than all Shares owned by such Odd Lot Holder
will not qualify for this preference); and
(b) completes the box captioned "Odd Lots" in the attached
Instruction Form and, if applicable, on the Notice of Guaranteed
Delivery; and
2. second, after purchase of all of the foregoing Shares, all other
Shares properly tendered and not properly withdrawn prior to the Expiration
Date, on a pro rata basis (with appropriate adjustments to avoid purchases
of fractional Shares) as described in the Offer to Purchase.
The Offer is made solely by the Offer to Purchase and the related Letter of
Transmittal and is being made to all holders of Shares who were record holders
on March 24, 1999. The Company is not aware of any state where the making of the
Offer is prohibited by administrative or judicial action pursuant to any valid
state statute. If the Company becomes aware of any valid state statute
prohibiting the making of the Offer or the acceptance of Shares pursuant
thereto, the Company will make a good faith effort to comply. If after such good
faith effort, the Company cannot comply with such state statute, the Offer will
not be made to (nor will tenders be accepted from or on behalf of) the holders
of Shares in such state. In any jurisdiction where the securities, blue sky or
other laws require the Offer to be made by a licensed broker or dealer, the
Offer shall be deemed to be made on behalf of the Company by Ferris, Baker
Watts, Incorporated or one or more registered brokers or dealers licensed under
the laws of such jurisdiction.
- 2 -
<PAGE> 3
INSTRUCTION FORM
INSTRUCTIONS FOR TENDER OF SHARES OF POLK AUDIO, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated March 30, 1999, (the "Offer to Purchase") and the
related Letter of Transmittal (which together constitute the "Offer") in
connection with the offer by Polk Audio, Inc., a Maryland corporation (the
"Company") to purchase up to 860,000 shares (or such amount of shares as are
properly tendered) of common stock, $0.01 par value per share (the "Shares") at
a price of $12.00 per Share, net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions of the Offer.
This will instruct you to tender to the Company, on (our)(my) behalf, the
number of Shares indicated below (or if no number is indicated below, all
Shares) which are beneficially owned by (us)(me) and registered in your name,
upon the terms and subject to the conditions set forth in the Offer.
Number of Shares to be Tendered:
________ Shares*
- ---------------
* Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
- 3 -
<PAGE> 4
ODD LOTS
[ ] By checking this box the undersigned represents that the undersigned owned
beneficially or of record as of the close of business on March 24, 1999 and
continues to own beneficially or of record as of the Expiration Date, an
aggregate of fewer than 100 Shares and is tendering all of such Shares.
THE METHOD OF DELIVERY OF THIS DOCUMENT IS AT THE OPTION AND RISK OF THE
TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY.
Dated , 1999. SIGN HERE:
Signature(s)
--------------------------------------
--------------------------------------
Please Type or Print Name(s)
--------------------------------------
Please Type or Print Address
--------------------------------------
(Zip Code)
--------------------------------------
Area Code and Telephone Number
--------------------------------------
Taxpayer Identification Number or
Social Security Number
THIS FORM MUST BE RETURNED TO THE
BROKERAGE FIRM MAINTAINING YOUR ACCOUNT
- 4 -
<PAGE> 1
EXHIBIT (a) (6)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security Numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
<C> <S> <C>
- ----------------------------------------------------------
<C> <S> <C>
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ----------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, any one of the
individuals(1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint
funds, either person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for a incompetent person(3)
designated ward, minor, or
incompetent person
7. a. The usual revocable The grantor-trustee(1)
savings trust account
(grantor is also trustee)
b. So-called trust account The actual owner(1)
that is not a legal or
valid trust under State
law
8. Sole proprietorship account The owner(4)
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
- ----------------------------------------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ----------------------------------------------------------
<C> <S> <C>
9. A valid trust, estate or The legal entity (do
pension trust not furnish the
identification number
of the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title(5))
10. Corporate account The corporation
11. Religious, charitable, or The organization
education organization
account
12. Partnership account held in The partnership
the name of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered The broker or nominee
nominee
15. Account with the Department The public entity
of Agriculture in the name
of a public entity (such as
a State or local government,
school district or prison)
that receives agricultural
program payments
- ----------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER--If you don't have a taxpayer identification number or you
don't know your number, obtain Form SS-5, Application for a Social Security
Number Card, or Form SS-4, Application for Employer Identification Number, at
the local office of the Social Security Administration or the Internal Revenue
Service (the "IRS") and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING--Payees specifically exempted from backup
withholding on ALL payments including the following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), or an individual retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a) of the Code.
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1) of the Code.
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441 of
the Code.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one non-resident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including the exempt-interest dividends
under section 852 of the Code).
- Payments described in section 6049(b)(5) of the Code to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451 of the Code.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above should file the Substitute Form W-9 enclosed
herewith to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE
PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE
OF THE FORM, AND RETURN IT TO THE PAYER, IF THE PAYMENTS ARE INTEREST,
DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049,
6050A and 6050N of the Code and their regulations.
PRIVACY ACT NOTICE.--Section 6109 of the Code requires most recipients of
dividends, interest, or other payments to give taxpayer identification numbers
to payers who must report the payments to the IRS. The IRS uses the numbers for
identification purposes and to help verify the accuracy of your tax return.
Payers must be given the numbers whether or not recipients are required to file
tax returns. Payers must generally withhold 31% of taxable interest, dividends,
and certain other payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE> 1
EXHIBIT (a)(7)
POLK AUDIO, INC. ANNOUNCES SELF-TENDER OFFER FOR UP TO 860,000
SHARES; DELISTING OF SHARES FROM AMEX AND
DEREGISTRATION OF SHARES
BALTIMORE--(BUSINESS WIRE)--March 24, 1999 --Polk Audio, Inc. (AMEX: PKA)
announced today that its Board of Directors has approved a tender offer for up
to 860,000 shares of the Company's common stock from existing stockholders for a
purchase price of $12.00 per share, net to the seller in cash. The Company
reserves the right, in its sole discretion, to purchase more than 860,000
Shares, although it has no current intention to do so.
The Offer is expected to commence on March 30, 1999, and expire at midnight,
eastern daylight time, on April 30, 1999, unless extended.
The tender offer will be subject to various terms and conditions described in
the Offer to Purchase and Letter of Transmittal to be distributed to
stockholders next week. The Company indicated it would use borrowings under a
new term loan credit facility to purchase the shares. The Company has been
advised that none of its directors or executive officers intends to tender any
Shares pursuant to the offer.
Because of the very small stockholder base and the infrequent trading activity
for the Company's common stock and certain other factors, the Company intends to
delist its common stock from quotation on the American Stock Exchange (AMEX), to
terminate the registration of its Common Stock under the Securities Exchange Act
of 1934, and thus cause the Company to become a private company. The Company
intends to delist its stock from quotation on AMEX and terminate the
registration of its shares under the Securities Exchange Act of 1934 regardless
of whether the tender offer is consummated or of the number of shares that may
be purchased in the tender offer. The purpose of the tender offer is to provide
stockholders with liquidity for their shares prior to delisting and
deregistration.
Depending upon the results of the tender, the Company reserves the right to
engage in a subsequent merger, reverse stock split or other corporate
transaction that will result in additional shares not tendered being converted
into cash.
Ferris, Baker Watts, Incorporated will act as Dealer Manager, Georgeson &
Company will act as Information Agent and American Stock & Transfer Company will
act as Depositary for the tender offer.
On March 22, 1999, the closing price of the Company's common stock on AMEX was
$11.25. At the Company's request, the stock did not open for trading on March
23, 1999 on the American Stock Exchange.
Polk Audio, Inc. is a manufacturer of high-quality loudspeaker systems based in
Baltimore, Maryland.
- 1 -
<PAGE> 2
This release contains forward-looking statements within the meaning of that term
in the Private Securities Litigation Reform Act of 1995 (the Act). Statements
contained herein that are not historical facts are forward-looking statements
made pursuant to the safe harbor provisions of the Act. Forward-looking
statements may include, but are not limited to, projections of revenue, income,
or loss and capital expenditures, statements regarding future operations,
financing needs, and plans relating to products of the Company, assessments of
materiality, and predictions of future events, as well as assumptions relating
to the foregoing. Forward-looking statements are inherently subject to risks and
uncertainties, and the Company's actual results could differ materially from
those set forth in or underlying the forward-looking statements contained in
this release as a result of various factors including, without limitation,
consumer acceptance of new technology and new products, competition, pricing,
borrowing costs, foreign manufacturing, sourcing, and sales, and other risk
factors.
- 2 -
<PAGE> 1
EXHIBIT (a) (8)
[POLK AUDIO LOGO]
March 30, 1999
Dear Stockholders:
Polk Audio, Inc. is offering to purchase up to 860,000 shares of its common
stock (the "Shares") from existing stockholders for a purchase price of $12.00
per Share, net to the Seller in cash. The Company reserves the right, in its
sole discretion, to purchase more than 860,000 Shares, although it has no
current intention to do so.
The Board of Directors of the Company believes that the public market has
not responded to the sustained profitability of the Company and the Company's
Shares have remained very thinly traded and have provided little liquidity for
the Company's stockholders, particularly those stockholders with larger equity
positions in the Company. In addition, because of the fluctuating pattern of
earnings of the Company, the low price-earnings multiple accorded the Shares in
the public market, and the low trading volume and illiquidity of the Shares, the
Company has been unable to utilize the Shares effectively as a source of
financing. For those reasons, the Company has been unable to realize the
principal benefits of public ownership and the Company's management expects no
change in the situation regarding the Shares for the foreseeable future.
The Board of Directors also believes that there are considerable costs and
detriments to the Company in remaining a public reporting company. In addition
to the time expended by the Company's management, the legal, accounting and
other expense involved in the preparation, filing and dissemination of annual
and other periodic reports is considerable. Additionally, the Company's
management believes that required public disclosures under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") give its competitors, some
of which are not public companies, certain information and insights about the
Company's operations which have helped them in competing against the Company.
As of March 22, 1999, the Company had only 112 stockholders of record,
substantially fewer than the 300 stockholder of record minimum which triggers
public reporting obligations under the Exchange Act. Because of the reasons
mentioned above and because of the very small stockholder base and infrequent
trading activity of the Company's common stock, the Company intends to delist
its common stock from trading on the American Stock Exchange ("AMEX"), to
terminate the registration of the Shares under the Exchange Act, and thus cause
the Company to become a private company.
The Company intends to delist its stock from trading on AMEX and terminate
the registration of the Shares under the Exchange Act regardless of whether the
tender offer is consummated or of the number of Shares that may be purchased in
the tender offer. The purpose of the offer is to provide stockholders with
liquidity for their Shares prior to delisting and deregistration.
On March 22, 1999, the last day the shares were traded prior to the
announcement of the offer, the last reported sales price per Share for the
Company's common stock on AMEX was $11.25. Any stockholder tendering Shares
directly to the Depositary, whose Shares are purchased in the offer, will
receive the net purchase price in cash and will not incur the usual transaction
costs associated with open-market sales. Any stockholders owning an aggregate of
less than 100 Shares whose Shares are properly tendered directly to the
Depositary and purchased pursuant to the offer will avoid the applicable odd lot
discounts payable on sales of odd lots on the AMEX.
<PAGE> 2
The offer is explained in detail in the enclosed Offer to Purchase and
Letter of Transmittal. I encourage you to read these materials carefully before
making any decision with respect to the offer. The instructions on how to tender
Shares are also explained in detail in the accompanying materials.
Depending upon the results of the tender, the Company reserves the right
to, but is not obligated to, implement a subsequent merger, reverse stock split
or other corporate transaction that will result in additional shares not
tendered being converted into cash.
Neither the Company nor the Board of Directors makes any recommendation to
stockholders as to whether to tender or refrain from tendering their Shares.
Each stockholder must make the decision whether to tender Shares. The Company
has been advised that none of its directors or executive officers intends to
tender any Shares pursuant to the Offer. However, the Board of Directors has
determined that a price of $12.00 per share is fair from a financial point of
view and moreoever has received an opinion from its financial advisor, Ferris,
Baker Watts, Incorporated, that a price of $12.00 per Share is fair from a
financial point of view.
The offer will expire at midnight, eastern daylight time, on April 30,
1999, unless extended by the Company. If you have any questions or requests for
assistance or for additional copies of the Offer to Purchase and the Letter of
Transmittal, you may call the Information Agent for the Offer, Georgeson &
Company Inc. at 800-223-2064.
Sincerely,
George M. Klopfer
Chief Executive Officer
Enclosures
<PAGE> 1
EXHIBIT (b)(1)
[Letterhead of NationsBank, N.A.]
March 23, 1999
George M. Klopfer
Chief Executive Officer
Polk Audio, Inc.
5601 Metro Drive
Baltimore, MD 21215
Dear George:
Thank you for the opportunity to make the following commitment to you.
NationsBank, N.A. (the "Lender") is pleased to have approved for Polk Audio,
Inc. and subsidiaries (the "Borrowers") credit facilities consisting of a
$2,000,000 (with a Borrowers' option to increase to $4,000,000) Revolving Line
of Credit (the "Revolving Loan") and a $7,000,000 Term Loan (the "Term Loan").
This commitment is to be used for general corporate purposes, including the
repurchase of stock and the related costs.
This commitment is subject to the execution and delivery to the Lender of the
attached legal documents. The making and funding of any loans under this
commitment is expressly subject to the terms and conditions set forth in the
attached legal documents.
If you find the terms and conditions of this commitment acceptable, please
execute and return the enclosed copy of this letter. If not accepted, this
commitment shall expire on April 6, 1999, and if accepted, this commitment is
to be closed by June 24, 1999.
Thank you for entrusting your financial needs to NationsBank.
Sincerely,
James H. Peterson
Senior Vice President
Accepted and agreed to this 23 day of March, 1999.
Polk Audio, Inc.
By: /s/ George Klopfer
Title: Chief Executive Officer
<PAGE> 1
EXHIBIT (b)(2)
FINANCING AND SECURITY AGREEMENT
DATED
____________ __, 1999
BY AND BETWEEN
POLK AUDIO, INC.
BRITANNIA INVESTMENT CORP.,
POLK AUDIO EUROPE, INC.,
AND
EOSONE INTERNATIONAL, INC
AND
NATIONSBANK, N.A.
<PAGE> 2
FINANCING AGREEMENT
THIS FINANCING AGREEMENT (this "Agreement") is made this ___
day of April 1999, by and among POLK AUDIO, INC., a corporation organized under
the laws of the State of Maryland ("Polk Audio"), BRITANNIA INVESTMENT CORP., a
corporation organized under the laws of the State of Delaware ("Polk
Investment"), POLK AUDIO EUROPE, INC., a corporation organized under the laws
of the State of Maryland ("Polk Europe") and EOSONE INTERNATIONAL, INC., a
corporation organized under the laws of the State of Maryland, ("Eosone"; each
a "Borrower"; collectively, the "Borrowers"), jointly and severally and
NATIONSBANK, N. A., a national banking association (the "Lender").
RECITALS
A. The Borrowers have applied to the Lender for
credit facilities consisting of (i) a revolving credit and letter of credit
facility in the maximum principal amount of $4,000,000 and (ii) a term loan
facility in the maximum principal amount of $7,000,000 to be used by the
Borrowers for the Permitted Uses described in this Agreement.
B. The Lender is willing to make those credit
facilities available jointly and severally to the Borrowers upon the terms and
subject to the conditions set forth in this Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms.
As used in this Agreement, the terms defined in the Preamble
and Recitals hereto shall have the respective meanings specified therein, and
the following terms shall have the following meanings:
"Account" individually and "Accounts" collectively mean all
presently existing or hereafter acquired or created accounts, accounts
receivable, contract rights, notes, drafts, instruments, acceptances, chattel
paper, leases and writings evidencing a monetary obligation or a security
interest in, or a lease of, goods, all rights to receive the payment of money
or other consideration under present or future contracts (including, without
limitation, all rights to receive payments under presently existing or
hereafter acquired or created letters of credit), or by virtue of merchandise
sold or leased, services rendered, loans and advances made or other
considerations given, by or set forth in or arising out of any present or
future chattel paper, note, draft, lease, acceptance, writing, bond, insurance
policy, instrument, document or general intangible, and all extensions and
renewals of any thereof, all rights under or arising out of
1
<PAGE> 3
present or future contracts, agreements or general interest in merchandise
which gave rise to any or all of the foregoing, including all goods, all claims
or causes of action now existing or hereafter arising in connection with or
under any agreement or document or by operation of law or otherwise, all
collateral security of any kind (including, without limitation, real property
mortgages and deeds of trust) and letters of credit given by any Person with
respect to any of the foregoing, all books and records in whatever media
(paper, electronic or otherwise) recorded or stored, with respect to any or all
of the foregoing and all equipment and general intangibles necessary or
beneficial to retain, access and/or process the information contained in those
books and records, and all proceeds (cash and non-cash) of the foregoing.
"Affiliate" means, with respect to any designated Person, any
other Person, (a) directly or indirectly controlling, directly or indirectly
controlled by, or under direct or indirect common control with the Person
designated, (b) directly or indirectly owning or holding five percent (5%) or
more of any equity interest in such designated Person, or (c) five percent (5%)
or more of whose stock or other equity interest is directly or indirectly owned
or held by such designated Person. For purposes of this definition, the term
"control" (including with correlative meanings, the terms "controlling",
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through ownership of voting securities or
other equity interests or by contract or otherwise.
"Agreement" means this Financing Agreement, as amended,
restated, supplemented or otherwise modified in writing in accordance with the
provisions of Section 7.2 (Amendments; Waivers).
"Assets" means at any date all assets that, in accordance with
GAAP consistently applied, should be classified as assets on a consolidated
balance sheet of the Borrowers and their respective Subsidiaries.
"Assignee" means any Person to which the Lender assigns all or
any portion of its interests under this Agreement, any Commitment, and any
Loan, in accordance with the provisions of Section 7.5 (Assignments by Lender),
together with any and all successors and assigns of such Person; "Assignees"
means the collective reference to all Assignees.
"Bankruptcy Code" means Title 11 of the United States Code, as
amended from time to time, and any successor Laws.
"Borrower" means each Person defined as a "Borrower" in the
preamble of this Agreement; "Borrowers" means the collective reference to all
Persons defined as "Borrowers" in the preamble to this Agreement.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the State are authorized or required to
close.
"Capital Lease" means with respect to any Person any lease of
real or personal property, for which the related Lease Obligations have been or
should be, in accordance with GAAP consistently applied, capitalized on the
balance sheet of that Person.
2
<PAGE> 4
"Cash Equivalents" means (a) securities with maturities of one
year or less from the date of acquisition issued or fully guaranteed or insured
by the United States Government or any agency thereof, (b) certificates of
deposit with maturities of one (1) year or less from the date of acquisition
of, or money market accounts maintained with, the Lender, any Affiliate of the
Lender, or any other domestic commercial bank having capital and surplus in
excess of One Hundred Million Dollars ($100,000,000.00) or such other domestic
financial institutions or domestic brokerage houses to the extent disclosed to,
and approved by, the Lender and (c) commercial paper of a domestic issuer rated
at least either A-1 by Standard & Poor's Corporation (or its successor) or P-1
by Moody's Investors Service, Inc. (or its successor) with maturities of six
(6) months or less from the date of acquisition.
"Closing Date" means the Business Day, in any event not later
than June 24, 1999, on which the Lender shall be satisfied that the conditions
precedent set forth in Section 4.1 (Conditions to Initial Advance) have been
fulfilled or otherwise waived by the Lender.
"Commitment" means the Lender's Revolving Credit Commitment or
Term Loan Commitment, as the case may be, and "Commitments" means the
collective reference to the Revolving Credit Commitments and the Term Loan
Commitments of the Lender.
"Committed Amount" means the Lender's Revolving Loan Committed
Amount or the Term Loan Committed Amount, as the case may be, and "Committed
Amounts" means collectively the Revolving Loan Committed Amount and the Term
Loan Committed Amount of the Lender.
"Compliance Certificate" means a periodic Compliance
Certificate described in Section 5.1.1 (Financial Statements).
"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with any Borrower within the
meaning of Section 414(b) or (c) of the Internal Revenue Code.
"Credit Facility" means the Revolving Credit Facility, the
Letter of Credit Facility or the Term Loan Facility, as the case may be, and
"Credit Facilities" means collectively the Revolving Credit Facility, the
Letter of Credit Facility and the Term Loan Facility and any and all other
credit facilities now or hereafter extended under or secured by this Agreement.
"Current Assets" means as to each Borrower and its
Subsidiaries, at any date, the amount which, in accordance with GAAP
consistently applied, would be set forth opposite the caption "total current
assets" (or any like caption) on a consolidated balance sheet of the Borrowers
and their Subsidiaries.
"Current Liabilities" means as to each Borrower and its
Subsidiaries, at any date, the amount which, in accordance with GAAP
consistently applied, would be set forth opposite the caption "total current
liabilities" (or any like caption) on a consolidated balance sheet of the
Borrower and their Subsidiaries.
3
<PAGE> 5
"Current Ratio" means for the date of any determination
thereof the ratio of (a) Current Assets to (b) Current Liabilities.
"Default" means an event which, with the giving of notice or
lapse of time, or both, could or would constitute an Event of Default under the
provisions of this Agreement.
"EBITDA" means as to the Borrowers for any period of
determination thereof, the sum of (a) the operating income (or loss) before
income taxes and/or subchapter S corporation distributions to shareholders of
the Borrowers made for the purpose of funding payment of income taxes payable
by shareholders of the Borrowers in connection with or arising from the taxable
profits of the Borrowers, interest and other non-operating expenses, as
determined in accordance with GAAP, plus (b) royalty income earned during such
period, plus (c) depreciation and amortization of assets for such period less
(d) subchapter S corporation distributions above and beyond those distributions
required to fully fund the payment of income taxes payable by shareholders of
the Borrowers in connection with or arising from the taxable profits of the
Borrowers.
"EBBITDA" means as to the Borrowers for any period of
determination thereof, the sum of (a) EBITDA plus (b) cash bonuses and
distributions paid or payable to officers of the Borrowers for such period,
classified as operating expense on the books of the Borrowers, plus (c)
subchapter S corporation distributions above and beyond those distributions
required to fully fund the payment of income taxes payable by shareholders of
the Borrowers in connection with or arising from the taxable profits of the
Borrowers.
"Enforcement Costs" means all expenses, charges, costs and
fees whatsoever (including, without limitation, reasonable outside and
allocated in-house counsel attorney's fees and expenses) of any nature
whatsoever paid or incurred by or on behalf of the Lender in connection with
(a) any or all of the Obligations, this Agreement and/or any of the other
Financing Documents, (b) the creation, collection, maintenance, preservation,
defense, protection or enforcement of all or any part of this Agreement or any
of the other Financing Documents, including, without limitation, those costs
and expenses more specifically enumerated in Section 7.10 (Enforcement Costs),
and (c) the monitoring, administration, processing and/or servicing of any or
all of the Obligations and/or the Financing Documents.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Event of Default" has the meaning described in ARTICLE VI
(Default and Rights and Remedies).
"Facilities" means the collective reference to the loan,
letter of credit, interest rate protection, foreign exchange risk, cash
management, and other credit facilities now or hereafter provided to any one or
more of the Borrowers by the Lender under this Agreement.
"Fees" means the collective reference to each fee payable to
the Lender under the terms of this Agreement or under the terms of any of the
other Financing Documents, including,
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<PAGE> 6
without limitation, the Revolving Credit Unused Line Fees, Letter of Credit
Fees and the Origination Fee.
"Financing Documents" means at any time collectively this
Agreement, the Notes, the Security Documents, the Letter of Credit Documents,
any Interest Rate Protection Agreement and any other instrument, agreement or
document previously, simultaneously or hereafter executed and delivered by any
Borrower, any Guarantor and/or any other Person, singly or jointly with another
Person or Persons, evidencing, securing, guarantying or in connection with this
Agreement, any Note, any of the Security Documents, any of the Facilities,
and/or any of the Obligations.
"Fixed Charge Coverage Ratio After Bonuses" means the ratio of
(a) EBITDA plus rent expense for such period on real property leases with
related party landlords to (b) Fixed Charges plus income taxes paid or payable
in such period.
"Fixed Charge Coverage Ratio Before Bonuses" means the ratio
of (a) EBBITDA plus rent expense for such period on real property leases with
related party landlords to (b) Fixed Charges.
"Fixed Charges" means as to each Borrower and its Subsidiaries
for any period of determination, the scheduled or required principal payments
on all Funded Indebtedness (but excluding balloon payments), plus the sum of
all interest paid or payable during such period, less the sum of all interest
and dividend income received or receivable during such period, plus rent
expense on real property leases with related party landlords, all calculated in
accordance with GAAP consistently applied.
"Funded Indebtedness" means at any date, the aggregate of all
interest bearing Indebtedness for Borrowed Money of each Borrower and its
Subsidiaries, whether secured or unsecured, having a final maturity (or which
by the terms thereof is renewable or extendible at the option of the obligor
for a period ending) more than a year after that date.
"GAAP" means generally accepted accounting principles in the
United States of America in effect from time to time.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government and any department, agency or instrumentality thereof.
"Hazardous Materials" means (a) any "hazardous waste" as
defined by the Resource Conservation and Recovery Act of 1976, as amended from
time to time, and regulations promulgated thereunder; (b) any "hazardous
substance" as defined by the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended from time to time, and regulations
promulgated thereunder; (c) any substance the presence of which on any property
now or hereafter owned, acquired or operated by any of the Borrowers is
prohibited by any Law similar to those set forth in this definition; and (d)
any other substance which by Law requires special handling in its collection,
storage, treatment or disposal.
5
<PAGE> 7
"Hazardous Materials Contamination" means the contamination
(whether presently existing or occurring after the date of this Agreement) by
Hazardous Materials of any property owned, operated or controlled by any of the
Borrowers or for which any of the Borrowers has responsibility, including,
without limitation, improvements, facilities, soil, ground water, air or other
elements on, or of, any property now or hereafter owned, acquired or operated
by any of the Borrowers, and any other contamination by Hazardous Materials for
which any of the Borrowers is, or is claimed to be, responsible.
"Indebtedness" of a Person means at any date the total
liabilities of such Person at such time determined in accordance with GAAP
consistently applied.
"Indebtedness for Borrowed Money" of a Person means at any
time the sum at such time of (a) Indebtedness of such Person for borrowed money
or for the deferred purchase price of property or services, (b) any obligations
of such Person in respect of letters of credit, banker's or other acceptances
or similar obligations issued or created for the account of such Person, (c)
Lease Obligations of such Person with respect to Capital Leases, (d) all
liabilities secured by any Lien on any property owned by such Person, to the
extent attached to such Person's interest in such property, even though such
Person has not assumed or become personally liable for the payment thereof, (e)
obligations of third parties which are being guarantied or indemnified against
by such Person or which are secured by the property of such Person; (f) any
obligation of such Person under a employee stock ownership plan or other
similar employee benefit plan; (g) any obligation of such Person or a Commonly
Controlled Entity to a Multi-employer Plan; and (h) any obligations,
liabilities or indebtedness, contingent or otherwise, under or in connection
with, any interest rate or currency swap agreements, cap, floor, and collar
agreements, currency spot, foreign exchange and forward contracts and other
similar agreements and arrangements; but excluding trade and other accounts
payable in the ordinary course of business in accordance with customary trade
terms and which are not overdue (as determined in accordance with customary
trade practices) or which are being disputed in good faith by such Person and
for which adequate reserves are being provided on the books of such Person in
accordance with GAAP.
"Indemnified Parties" has the meaning set forth in Section
7.19 (Indemnification).
"Interest Rate Protection Agreement" and "Interest Rate
Protection Agreements" mean any agreements between any of the Borrowers and the
Lender, or any affiliate of the Lender, now existing or hereafter entered into,
that provides for an interest rate or commodity swap, cap, floor, collar,
forward foreign exchange transaction, currency swap, cross-currency rate swap,
currency option or any combination of, or option with respect to, these or
similar transactions, for the purpose of hedging the applicable Borrower's
exposure to fluctuation in interest rates, currency valuation or commodity
prices.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time, and the Income Tax Regulations issued and
proposed to be issued thereunder.
"Inventory" means all inventory of each Borrower and all
right, title and interest of each Borrower in and to all of its now owned and
hereafter acquired goods, merchandise and other personal property furnished
under any contract of service or intended for sale or lease, including,
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<PAGE> 8
without limitation, all raw materials, work-in-process, finished goods and
materials and supplies of any kind, nature or description which are used or
consumed in the any Borrower's business or are or might be used in connection
with the manufacture, packing, shipping, advertising, selling or finishing of
such goods, merchandise and other licenses, warranties, franchises, general
intangibles, personal property and all documents of title or documents relating
to the same and all proceeds (cash and non-cash) of the foregoing.
"Laws" means all ordinances, statutes, rules, regulations,
orders, injunctions, writs, or decrees of any Governmental Authority.
"Lease Obligations" of a Person means for any period the
rental commitments of such Person for such period under leases for real and/or
personal property (net of rent from subleases thereof, but including taxes,
insurance, maintenance and similar expenses which such Person, as the lessee,
is obligated to pay under the terms of said leases, except to the extent that
such taxes, insurance, maintenance and similar expenses are payable by
sublessees), including rental commitments under Capital Leases.
"Letter of Credit" and "Letters of Credit" shall have the
meanings described in Section 2.3.1 (Letters of Credit).
"Letter of Credit Agreement" means the collective reference to
each letter of credit application and agreement substantially in the form of
the Lender's then standard form of application for letter of credit or such
other form as may be approved by the Lender, executed and delivered by any one
or more of the Borrowers in connection with the issuance of a Letter of Credit,
as the same may from time to time be amended, restated, supplemented or
modified; and "Letter of Credit Agreements" means all of the foregoing in
effect at any time and from time to time.
"Letter of Credit Documents" means any and all drafts under or
purporting to be under a Letter of Credit, any Letter of Credit Agreement, and
any other instrument, document or agreement executed and/or delivered by any
one or more of the Borrowers or any other Person under, pursuant to or in
connection with a Letter of Credit or any Letter of Credit Agreement.
"Letter of Credit Facility" means the facility established
pursuant to Section 2.3 (Letter of Credit Facility).
"Letter of Credit Fee" and "Letter of Credit Fees" have the
meanings described in Section 2.3.2 (Letter of Credit Fees).
"Letter of Credit Obligations" means the collective reference
to all Obligations of any one or more of the Borrowers with respect to the
Letters of Credit and the Letter of Credit Agreements.
"Liabilities" means at any date all liabilities that in
accordance with GAAP consistently applied should be classified as liabilities
on a consolidated balance sheet of the Borrowers and their respective
Subsidiaries.
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<PAGE> 9
"Lien" means any mortgage, deed of trust, deed to secure debt,
grant, pledge, security interest, assignment, encumbrance, judgment, lien,
hypothecation, provision in any instrument or other document for confession of
judgment, cognovit or other similar right or remedy, claim or charge of any
kind, whether perfected or unperfected, avoidable or unavoidable, including,
without limitation, any conditional sale or other title retention agreement,
any lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction,
excluding the precautionary filing of any financing statement by any lessor in
a true lease transaction, by any bailor in a true bailment transaction or by
any consignor in a true consignment transaction under the Uniform Commercial
Code of any jurisdiction or the agreement to give any financing statement by
any lessee in a true lease transaction, by any bailee in a true bailment
transaction or by any consignee in a true consignment transaction.
"Loan" means each of the Revolving Loan or the Term Loan, as
the case may be, and "Loans" means the collective reference to the Revolving
Loan and the Term Loan.
"Loan Notice" has the meaning described in Section 2.1.2
(Procedure for Making Advances).
"Multi-employer Plan" means a Plan that is a Multi-employer
plan as defined in Section 4001(a)(3) of ERISA.
"Net Worth" means as to each of the Borrowers and its
Subsidiaries at any date the excess of (a) the Assets, over (b) the
Liabilities.
"Note" means any Revolving Credit Note or any Term Note, as
the case may be, and "Notes" means collectively each Revolving Credit Note and
each Term Note, and any other promissory note which may from time to time
evidence all or any portion of the Obligations.
"Obligations" means all present and future indebtedness,
duties, obligations, and liabilities, whether now existing or contemplated or
hereafter arising, of any one or more of the Borrowers to the Lender under,
arising pursuant to, in connection with and/or on account of the provisions of
this Agreement, each Note, each Security Document, and/or any of the other
Financing Documents, the Loans, and/or any of the Facilities including, without
limitation, the principal of, and interest on, each Note, late charges, the
Fees, Enforcement Costs, and prepayment fees (if any), letter of credit fees or
fees charged with respect to any guaranty of any letter of credit; also means
all other present and future indebtedness, liabilities and obligations, whether
now existing or contemplated or hereafter arising, of any one or more of the
Borrowers to the Lender or its Affiliates of any nature whatsoever (including,
without limitation, any obligations, liabilities or indebtedness, under or in
connection with, any Interest Rate Protection Agreements), regardless of
whether such indebtedness, obligations and liabilities be direct, indirect,
primary, secondary, joint, several, joint and several, fixed or contingent; and
also means any and all renewals, extensions, substitutions, amendments,
restatements and rearrangements of any such debts, obligations and liabilities.
"Origination Fee" has the meaning described in Section 2.4.3
(Origination Fee).
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"Outstanding Letter of Credit Obligations" has the meaning
described in Section 2.3.3 (Terms of Letters of Credit).
"Patents" means and includes, in each case whether now
existing or hereafter arising, all of each Borrower's rights, title and
interest in and to (a) any and all patents and patent applications, (b) any and
all inventions and improvements described and claimed in such patents and
patent applications, (c) reissues, divisions, continuations, renewals,
extensions and continuations-in-part of any patents and patent applications,
(d) income, royalties, damages, claims and payments now or hereafter due and/or
payable under and with respect to any patents or patent applications,
including, without limitation, damages and payments for past and future
infringements, (e) rights to sue for past, present and future infringements of
patents, and (f) all rights corresponding to any of the foregoing throughout
the world.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means: (a) Liens for Taxes which are not
delinquent or which the Lender has determined in the exercise of its sole and
absolute discretion (i) are being diligently contested in good faith and by
appropriate proceedings, and such contest operates to suspend collection of the
contested Taxes and enforcement of a Lien, (ii) the respective Borrower has the
financial ability to pay, with all penalties and interest, at all times without
materially and adversely affecting such Borrower, and (iii) are not, and will
not be with appropriate filing, the giving of notice and/or the passage of
time, entitled to priority over any Lien of the Lender; (b) deposits or pledges
to secure obligations under workers' compensation, social security or similar
laws, or under unemployment insurance in the ordinary course of business; and
(c) judgment Liens to the extent the entry of such judgment does not constitute
a Default or an Event of Default under the terms of this Agreement.
"Permitted Uses" means (a) with respect to the Term Loan the
payment of sums due to complete stock repurchases and redemptions and related
expenses and (b) with respect to the Revolving Loan, the payment of expenses
incurred in the ordinary course of any Borrower's business.
"Person" means and includes an individual, a corporation, a
partnership, a joint venture, a limited liability company or partnership, a
trust, an unincorporated association, a Governmental Authority, or any other
organization or entity.
"Plan" means any pension plan that is covered by Title IV of
ERISA and in respect of which any Borrower or a Commonly Controlled Entity is
an "employer" as defined in Section 3 of ERISA.
"Post-Default Rate" means with respect to all of the
Obligations, the Prime Rate in effect from time to time, plus three percent
(3%) per annum.
"Prepayment" means a Revolving Loan Optional Prepayment or a
Term Loan Optional Prepayment, as the case may be, and "Prepayments" mean
collectively all Revolving Loan Optional Prepayments and all Term Loan Optional
Prepayments.
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"Pricing Ratio" means the ratio of Funded Debt to EBITDA.
"Prime Rate" means the floating and fluctuating per annum
prime commercial lending rate of interest of the Lender, as established and
declared by the Lender at any time or from time to time. The Prime Rate shall
be adjusted automatically, without notice, as of the effective date of any
change in such prime commercial lending rate. The Prime Rate does not
necessarily represent the lowest rate of interest charged by the Lender to
borrowers.
"Reportable Event" means any of the events set forth in
Section 4043(c) of ERISA or the regulations thereunder.
"Responsible Officer" means for each Borrower, its chief
executive officer or president or, with respect to financial matters, its chief
financial officer.
"Revolving Credit Commitment" means the agreement of the
Lender relating to the making the Revolving Loan and advances thereunder
subject to and in accordance with the provisions of this Agreement.
"Revolving Credit Commitment Period" means the period of time
from the Closing Date to the Business Day preceding the Revolving Credit
Termination Date.
"Revolving Credit Committed Amount" has the meaning described
in Section 2.1.1 (Revolving Credit Facility).
"Revolving Credit Expiration Date" means September 30, 2000.
"Revolving Credit Facility" means the facility established by
the Lender pursuant to Section 2.1 (Revolving Credit Facility).
"Revolving Credit Note" has the meanings described in Section
2.1.3 (Revolving Credit Notes).
"Revolving Credit Termination Date" means the earlier of (a)
the Revolving Credit Expiration Date, or (b) the date on which the Revolving
Credit Commitments are terminated pursuant to Section 6.2 (Remedies) or
otherwise.
"Revolving Credit Unused Line Fee" and "Revolving Credit
Unused Line Fees" have the meanings described in Section 2.1.6 (Revolving
Credit Unused Line Fee).
"Revolving Loan" has the meaning described in Section 2.1.1
(Revolving Credit Facility).
"Revolving Loan Account" has the meaning described in Section
2.1.5 (Revolving Loan Account).
"Revolving Loan Optional Prepayment" and "Revolving Loan
Optional Prepayments" have the meanings described in Section 2.1.4 (Optional
Prepayment of Revolving Loan).
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"Security Agreement" has the meaning described in Section
2.1.7 (Increase of Revolving Credit Committed Amount).
"Security Documents" means collectively any assignment, pledge
agreement, security agreement, mortgage, deed of trust, deed to secure debt,
financing statement and any similar instrument, document or agreement under or
pursuant to which a Lien is now or hereafter granted to, or for the benefit of,
the Lender on any real or personal property of any Person to secure all or any
portion of the Obligations, all as the same may from time to time be amended,
restated, supplemented or otherwise modified.
"State" means the State of Maryland.
"Subordinated Indebtedness" means all Indebtedness incurred at
any time by any one or more of the Borrowers, which is in amounts, subject to
repayment terms, and subordinated to the Obligations, as set forth in one or
more written agreements, all in form and substance satisfactory to the Lender
in its sole and absolute discretion.
"Subsidiary" means any corporation the majority of the voting
shares of which at the time are owned directly by any Borrower and/or by one or
more Subsidiaries of any Borrower.
"Tangible Net Worth" means as to each of the Borrowers and its
Subsidiaries at any date of determination thereof, the sum at such time of:
the Net Worth less the total of (a) all Assets which would be classified as
intangible assets under GAAP consistently applied, (b) leasehold improvements,
(c) applicable reserves, allowances and other similar properly deductible items
to the extent such reserves, allowances and other similar properly deductible
items have not been previously deducted by the Lender in the calculation of Net
Worth, (d) any revaluation or other write-up in book value of assets subsequent
to the date of the most recent financial statements delivered to the Lender,
and (e) the amount of all loans and advances to, or investments in, any Person,
excluding Cash Equivalents and deposit accounts maintained by the Borrower or
its Subsidiaries with any financial institution.
"Taxes" means all taxes and assessments whether general or
special, ordinary or extraordinary, or foreseen or unforeseen, of every
character (including all penalties or interest thereon), which at any time may
be assessed, levied, confirmed or imposed by any Governmental Authority on any
or all of the Borrowers or any of its or their properties or assets or any part
thereof or in respect of any of its or their franchises, businesses, income or
profits.
"Term Loan" has the meaning described in Section 2.2.1 (Term
Loan Commitment).
"Term Loan Commitment" and "Term Loan Commitments" have the
meanings described in Section 2.2.1 (Term Loan Commitment).
"Term Loan Committed Amount" has the meaning described in
Section 2.2.1 (Term Loan Commitment).
"Term Loan Facility" means the facility established by the
Lender pursuant to Section 2.2 (Term Loan Facility).
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"Term Loan Optional Prepayment" and "Term Loan Optional
Prepayments" have the meanings described in Section 2.2.4 (Optional Prepayments
of Term Loan).
"Term Note" has the meaning described in Section 2.2.2 (The
Term Note).
"Trademarks" means and includes in each case whether now
existing or hereafter arising, all of each Borrower's rights, title and
interest in and to (a) any and all trademarks (including service marks), trade
names and trade styles, and applications for registration thereof and the
goodwill of the business symbolized by any of the foregoing, (b) any and all
licenses of trademarks, service marks, trade names and/or trade styles, whether
as licensor or licensee, (c) any renewals of any and all trademarks, service
marks, trade names, trade styles and/or licenses of any of the foregoing, (d)
income, royalties, damages and payments now or hereafter due and/or payable
with respect thereto, including, without limitation, damages, claims, and
payments for past, present and future infringements thereof, (e) rights to sue
for past, present and future infringements of any of the foregoing, including
the right to settle suits involving claims and demands for royalties owing, and
(f) all rights corresponding to any of the foregoing throughout the world.
"Uniform Commercial Code" means, unless otherwise provided in
this Agreement, the Uniform Commercial Code as adopted by and in effect from
time to time in the State or in any other jurisdiction, as applicable.
"Wholly Owned Subsidiary" means any domestic United States
corporation all the shares of stock of all classes of which (other than
directors' qualifying shares) at the time are owned directly or indirectly by a
Borrower and/or by one or more Wholly Owned Subsidiaries of a Borrower.
Section 1.2 Accounting Terms and Other Definitional
Provisions.
Unless otherwise defined herein, as used in this Agreement and
in any certificate, report or other document made or delivered pursuant hereto,
accounting terms not otherwise defined herein, and accounting terms only partly
defined herein, to the extent not defined, shall have the respective meanings
given to them under GAAP, as consistently applied to the applicable Person.
All terms used herein which are defined by the Uniform Commercial Code shall
have the same meanings as assigned to them by the Uniform Commercial Code
unless and to the extent varied by this Agreement. The words "hereof",
"herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and article, section, subsection, schedule and
exhibit references are references to articles, sections or subsections of, or
schedules or exhibits to, as the case may be, this Agreement unless otherwise
specified. As used herein, the singular number shall include the plural, the
plural the singular and the use of the masculine, feminine or neuter gender
shall include all genders, as the context may require. Reference to any one or
more of the Financing Documents shall mean the same as the foregoing may from
time to time be amended, restated, substituted, extended, renewed, supplemented
or otherwise modified. Reference in this Agreement and the other Financing
Documents to the "Borrower", the "Borrowers", "each Borrower" or otherwise with
respect to any one or more of the Borrowers shall mean each and
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every Borrower and any one or more of the Borrowers, jointly and severally,
unless a specific Borrower is expressly identified.
ARTICLE II
THE CREDIT FACILITIES
Section 2.1 The Revolving Credit Facility.
2.1.1 Revolving Credit Facility.
Subject to and upon the provisions of this
Agreement, the Lender agrees to establish a revolving credit facility in favor
of the Borrowers. The aggregate of all advances under the Revolving Credit
Facility is sometimes referred to in this Agreement collectively as the
"Revolving Loan".
The principal amount of Four Million Dollars
($4,000,000) is the "Revolving Credit Committed Amount"; provided, however, the
maximum principal amount which may be advanced and outstanding at any time
shall not exceed Two Million Dollars ($2,000,000) until such time as the
Borrowers have complied with the provisions of Section 2.1.7 (Increase of
Revolving Credit Committed Amount).
During the Revolving Credit Commitment
Period, any or all of the Borrowers may request advances under the Revolving
Credit Facility in accordance with the provisions of this Agreement; provided
that after giving effect to any Borrower's request the aggregate outstanding
principal balance of the Revolving Loan and all Letter of Credit Obligations
would not exceed the Revolving Credit Committed Amount less the aggregate
amount of all Obligations (fixed or contingent) with respect to Interest Rate
Protection Agreements.
2.1.2 Procedure for Making Advances Under
the Revolving Loan; Lender Protection Loans.
The Borrowers may borrow under the Revolving
Credit Facility on any Business Day. Advances under the Revolving Loan shall be
deposited to a demand deposit account of a Borrower with the Lender or shall be
otherwise applied as directed by the Borrowers, which direction the Lender may
require to be in writing. Not later than 10:00 a.m. (Baltimore, Maryland Time)
on the date of the requested borrowing, the Borrowers shall give the Lender
oral or written notice (a "Loan Notice") of the amount and (if requested by the
Lender) the purpose of the requested borrowing. Any oral Loan Notice shall be
confirmed in writing by the Borrowers within three (3) Business Days after the
making of the requested advance under the Revolving Loan. Each Loan Notice
shall be irrevocable. Notwithstanding the foregoing provisions, the Lender and
the Borrowers may from time to time agree to make advances pursuant to an
"auto-borrow" and "zero balance" or other similar arrangement, subject however
to the conditions and limitations set out herein.
In addition, each of the Borrowers hereby
irrevocably authorize the Lender at any time and from time to time, without
further request from or notice to the Borrowers, to make advances under the
Revolving Loan which the Lender, in its sole and
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absolute discretion, deems necessary or appropriate to protect the interests of
the Lender under this Agreement, including, without limitation, advances under
the Revolving Loan made to cover debit balances in the Revolving Loan Account,
principal of, and/or interest on, any Loan, the Obligations (including any
Letter of Credit Obligations), and/or Enforcement Costs, prior to, on, or after
the termination of other advances under this Agreement, regardless of whether
the outstanding principal amount of the Revolving Loan which the Lender may
advance hereunder exceeds the Revolving Credit Committed Amount.
2.1.3 Revolving Credit Note.
The obligation of the Borrowers to pay the
Revolving Loan, with interest, shall be evidenced by a promissory note (as from
time to time extended, amended, restated, supplemented or otherwise modified,
the "Revolving Credit Note") substantially in the form of EXHIBIT A-1 attached
hereto and made a part hereof, with appropriate insertions. The Revolving
Credit Note shall be dated as of the Closing Date, shall be payable to the
order of the Lender at the times provided in the Revolving Credit Note, and
shall be in the principal amount of the Revolving Credit Committed Amount.
Each of the Borrowers acknowledge and agree that, if the outstanding principal
balance of the Revolving Loan outstanding from time to time exceeds the face
amount of the Revolving Credit Note, the excess shall bear interest at the
rates provided from time to time for advances under the Revolving Loan
evidenced by the Revolving Credit Note and shall be payable, with accrued
interest, ON DEMAND. The Revolving Credit Note shall not operate as a novation
of any of the Obligations or nullify, discharge, or release any such
Obligations or the continuing contractual relationship of the parties hereto in
accordance with the provisions of this Agreement.
2.1.4 Optional Prepayments of Revolving
Loan.
The Borrowers shall have the option at any
time and from time to time to prepay (each a "Revolving Loan Optional
Prepayment" and collectively the "Revolving Loan Optional Prepayments") the
Revolving Loan, in whole or in part without premium or penalty.
2.1.5 Revolving Loan Account.
The Lender will establish and maintain a loan
account on its books (the "Revolving Loan Account") to which the Lender will
(a) debit (i) the principal amount of each advance under the Revolving Loan
made by the Lender hereunder as of the date made, (ii) the amount of any
interest accrued on the Revolving Loan as and when due, and (iii) any other
amounts due and payable by the Borrowers to the Lender from time to time under
the provisions of this Agreement in connection with the Revolving Loan,
including, without limitation, Enforcement Costs, Fees, late charges, and
service, collection and audit fees, as and when due and payable, and (b) credit
all payments made by the Borrowers to the Lender on account of the Revolving
Loan as of the date made. The Lender may debit the Revolving Loan Account for
the amount of any Item of Payment that is returned to the Lender unpaid. All
credit entries to the Revolving Loan Account are conditional and shall be
readjusted as of the date made if final and indefeasible payment is not
received by the Lender in cash or solvent credits. Any and all periodic or
other statements or reconciliations, and the information contained in those
statements or reconciliations, of the Revolving Loan Account shall be presumed
to be correct, and shall constitute an account stated between the Lender and
the Borrowers unless the Lender receives
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specific written objection thereto from any Borrower within thirty (30)
Business Days after such statement or reconciliation shall have been sent by
the Lender.
2.1.6 Revolving Credit Unused Line Fee.
The Borrowers shall pay to the Lender a
monthly revolving credit facility fee (collectively, the "Revolving Credit
Unused Line Fees" and individually, a "Revolving Credit Unused Line Fee") in an
amount equal to twenty (20) basis points per annum on the average daily unused
and undisbursed portion of the Revolving Credit Committed Amount in effect from
time to time accruing during each calendar month. The accrued and unpaid
portion of the Revolving Credit Unused Line Fee shall be paid by the Borrowers
to the Lender on the first day of each month, commencing on the first such date
following the date hereof, and on the Revolving Credit Termination Date.
2.1.7 Increase of Revolving Credit
Committed Amount.
Upon the Borrowers, execution and delivery of
(a) the Security Agreement attached hereto as EXHIBIT B and made a part hereof
and (b) financing statements necessary to perfect the security interests
granted pursuant to the Security Agreement, the maximum principal amount of the
Revolving Credit Facility shall be increased to the lesser of (y) $4,000,000 or
(z) eighty percent (80%) of the Borrowers' Accounts.
Section 2.2 The Term Loan Facility.
2.2.1 Term Loan Commitment.
Subject to and upon the provisions of this
Agreement, the Lender agrees to make a loan (the "Term Loan") to the Borrowers
on the Closing Date in the maximum principal amount of Seven Million Dollars
($7,000,000) (herein called the "Term Loan Committed Amount"). The obligation
of the Lender to make the Term Loan is herein called its "Term Loan Commitment"
and such obligation of the Lender is herein called its "Term Loan Commitment".
2.2.2 Procedure for Making Advances Under
the Term Loan.
The Borrowers may borrow under the Term Loan
Facility on any Business Day through and including April 30, 2000. Advances
under the Term Loan shall be deposited to a demand deposit account of a
Borrower with the Lender or shall be otherwise applied as directed by the
Borrowers, which direction the Lender may require to be in writing. Not later
than 10:00 a.m. (Baltimore, Maryland Time) on the date of the requested
borrowing, the Borrowers shall give the Lender a Loan Notice of the amount and
the purpose of the requested borrowing. Any oral Loan Notice shall be
confirmed in writing by the Borrowers within three (3) Business Days after the
making of the requested advance under the Term Loan. Each Loan Notice shall be
irrevocable.
2.2.3 The Term Note.
The obligation of the Borrowers to pay the
Term Loan with interest shall be evidenced by a promissory note (as from time
to time extended, amended, restated, supplemented or otherwise modified, the
"Term Note") substantially in the form of EXHIBIT A-2 attached hereto and made
a part hereof with appropriate insertions. The Term Note shall be
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dated as of the Closing Date, shall be payable to the order of the Lender at
the times provided in the Term Note, and shall be in the principal amount of
the Term Loan Committed Amount.
2.2.4 Optional Prepayments of Term Loan.
The Borrowers may, at their option, at any
time and from time to time, prepay (each a "Term Loan Optional Prepayment" and
collectively the "Term Loan Optional Prepayments") the Term Loan, in whole or
in part, upon five (5) Business Days prior written notice, specifying the date
and amount of prepayment. The amount to be so prepaid, together with interest
accrued thereon to date of prepayment if the amount is intended as a prepayment
of the Term Loan in whole, shall be paid by the Borrowers to the Lender on the
date specified for such prepayment. Partial Term Loan Optional Prepayments
shall be applied first to all accrued and unpaid interest on the principal of
the Term Note, then to the balloon payments due at maturity and then to
principal against the principal installments in the inverse order of their
maturity.
Section 2.3 The Letter of Credit Facility.
2.3.1 Letters of Credit.
Subject to and upon the provisions of this
Agreement, and as a part of the Revolving Credit Commitment, each of the
Borrowers, upon the prior approval of the Lender, may obtain commercial letters
of credit (as the same may from time to time be amended, supplemented or
otherwise modified, each a "Letter of Credit" and collectively the "Letters of
Credit") from the Lender from time to time from the Closing Date until the
Business Day preceding the Revolving Credit Termination Date. The Borrowers
will not be entitled to obtain a Letter of Credit unless the Borrowers are then
able to obtain a Revolving Loan from the Lender in an amount not less than the
proposed face amount of the Letter of Credit requested by the Borrowers.
2.3.2 Letter of Credit Fees.
Prior to or simultaneously with the opening
of each Letter of Credit, the Borrowers shall pay to the Lender, a letter of
credit fee (each a "Letter of Credit Fee" and collectively the "Letter of
Credit Fees") in an amount equal to one and one-quarter percent (1-1/4%) per
annum of the face amount of the Letter of Credit. The Letter of Credit Fees
shall be paid upon the opening of each Letter of Credit and upon each
anniversary thereof, if any. In addition, the Borrowers shall pay to the
Lender, for its own account, any and all additional issuance, negotiation,
processing, transfer or other fees to the extent and as and when required by
the provisions of any Letter of Credit Agreement.
2.3.3 Terms of Letters of Credit;
Post-Expiration Date Letters of Credit.
Each Letter of Credit shall (a) be opened
pursuant to a Letter of Credit Agreement and (b) expire on a date not later
than the Business Day preceding the Revolving Credit Expiration Date; provided,
however, if any Letter of Credit does have an expiration date later than the
Business Day preceding the Revolving Credit Termination Date (each a
"Post-Expiration Date Letter of Credit" and collectively, the "Post-Expiration
Date Letters of Credit"), effective as of the Business Day preceding the
Revolving Credit Termination Date and without prior notice to or the consent of
the Borrowers, the Lender shall make advances under the
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Revolving Loan for the account of the Borrowers in the aggregate face amount of
all such Letters of Credit. The Lender shall deposit the proceeds of such
advances into one or more non-interest bearing accounts with and in the name of
the Lender and over which the Lender alone shall have exclusive power of access
and withdrawal (collectively, the "Letter of Credit Cash Collateral Account").
The Letter of Credit Cash Collateral Account is to be held by the Lender as
additional collateral and security for any Letter of Credit Obligations
relating to the Post-Expiration Date Letters of Credit. The Borrowers hereby
assign, pledge, grant and set over to the Lender a first priority security
interest in, and Lien on, all of the funds on deposit in the Letter of Credit
Cash Collateral Account, together with any and all proceeds (cash and non-cash)
and products thereof as additional collateral and security for the Letter of
Credit Obligations relating to the Post-Expiration Date Letters of Credit. The
Borrowers acknowledge and agree that the Lender shall be entitled to fund any
draw or draft on any Post-Expiration Date Letter of Credit from the monies on
deposit in the Letter of Credit Cash Collateral Account without notice to or
consent of the Borrowers or the Lender. The Borrowers further acknowledge and
agree that the Lender's election to fund any draw or draft on any
Post-Expiration Date Letter of Credit from the Letter of Credit Cash Collateral
shall in no way limit, impair, lessen, reduce, release or otherwise adversely
affect the Borrowers' obligation to pay any Letter of Credit Obligations under
or relating to the Post-Expiration Date Letters of Credit. At such time as all
Post-Expiration Date Letters of Credit have expired and all Letter of Credit
Obligations relating to the Post-Expiration Date Letters of Credit have been
paid in full, the Lender agrees to apply the amount of any remaining funds on
deposit in the Letter of Credit Cash Collateral Account to the then unpaid
balance of the Obligations under the Revolving Credit Facility in such order
and manner as the Lender shall determine in its sole and absolute discretion in
accordance with the provisions of this Agreement.
The aggregate face amount of all Letters of
Credit at any one time outstanding and issued by the Lender pursuant to the
provisions of this Agreement, including, without limitation, any and all
Post-Expiration Date Letters of Credit, plus the amount of any unpaid Letter of
Credit Fees accrued or scheduled to accrue thereon, and less the aggregate
amount of all drafts issued under or purporting to have been issued under such
Letters of Credit that have been paid by the Lender and for which the Lender
has been reimbursed by the Borrowers in full in accordance with Section 2.3.5
(Payments of Letters of Credit) and the Letter of Credit Agreements, and for
which the Lender has no further obligation or commitment to restore all or any
portion of the amounts drawn and reimbursed, is herein called the "Outstanding
Letter of Credit Obligations".
2.3.4 Procedures for Letters of Credit.
The Borrowers shall give the Lender written
notice at least three (3) Business Days prior to the date on which the Borrower
desires the Lender to issue a Letter of Credit. Such notice shall be
accompanied by a duly executed Letter of Credit Agreement specifying, among
other things: (a) the name and address of the intended beneficiary of the
Letter of Credit, (b) the requested face amount of the Letter of Credit, (c)
whether the Letter of Credit is to be revocable or irrevocable, (d) the
Business Day on which the Letter of Credit is to be opened and the date on
which the Letter of Credit is to expire, (e) the terms of payment of any draft
or drafts which may be drawn under the Letter of Credit, and (f) any other
terms or provisions the Borrowers desire to be contained in the Letter of
Credit. Such notice shall also be
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accompanied by such other information, certificates, confirmations, and other
items as the Lender may require to assure that the Letter of Credit is to be
issued in accordance with the provisions of this Agreement and a Letter of
Credit Agreement. In the event of any conflict between the provisions of this
Agreement and the provisions of a Letter of Credit Agreement, the provisions of
this Agreement shall prevail and control unless otherwise expressly provided in
the Letter of Credit Agreement. Upon (x) receipt of such notice, (y) payment
of all Letter of Credit Fees and all other Fees payable in connection with the
issuance of such Letter of Credit, and (z) receipt of a duly executed Letter of
Credit Agreement, the Lender shall process such notice and Letter of Credit
Agreement in accordance with its customary procedures and open such Letter of
Credit on the Business Day specified in such notice.
2.3.5 Payments of Letters of Credit.
The Borrowers hereby promise to pay to the
Lender, ON DEMAND and in United States Dollars, the following which are herein
collectively referred to as the "Current Letter of Credit Obligations":
(a) the amount which the Lender
has paid or will be required to pay under each draft or draw on a Letter of
Credit when drafted or drawn, whether such demand be in advance of the Lender's
payment or for reimbursement for such payment;
(b) any and all reasonable
charges and expenses which the Lender may pay or incur relative to the Letter
of Credit and/or such draws or drafts; and
(c) interest on the amounts
described in (a) and (b) not paid by the Borrowers as and when due and payable
under the provisions of (a) and (b) above from the day the same are due and
payable until paid in full at a rate per annum equal to the then current
highest rate of interest on the Revolving Loan.
Section 2.4 General Financing Provisions.
2.4.1 Borrowers' Representatives.
The Borrowers hereby represent and warrant to
the Lender that each of them will derive benefits, directly and indirectly,
from each Letter of Credit and from each Loan, both in their separate capacity
and as a member of the integrated group to which each of the Borrowers belong
and because the successful operation of the integrated group is dependent upon
the continued successful performance of the functions of the integrated group
as a whole, because (a) the terms of the consolidated financing provided under
this Agreement are more favorable than would otherwise would be obtainable by
the Borrowers individually, and (b) the Borrowers' additional administrative
and other costs and reduced flexibility associated with individual financing
arrangements which would otherwise be required if obtainable would
substantially reduce the value to the Borrowers of the financing. The
Borrowers in the discretion of their respective managements are to agree among
themselves as to the allocation of the benefits of Letters of Credit and the
proceeds of Loans, provided, however, that the Borrowers shall be deemed to
have represented and warranted to the Lender at the time of allocation that
each benefit and use of proceeds is a Permitted Use.
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For administrative convenience, each Borrower
hereby irrevocably appoints Polk Audio as the Borrower's attorney-in-fact, with
power of substitution (with the prior written consent of the Lender in the
exercise of its sole and absolute discretion), in the name of Polk Audio or in
the name of the Borrower or otherwise to take any and all actions with respect
to the this Agreement, the other Financing Documents and/or the Obligations as
Polk Audio may so elect from time to time, including, without limitation,
actions to (i) request advances under the Loans, apply for and direct the
benefits of Letters of Credits, and direct the Lender to disburse or credit the
proceeds of any Loan directly to an account of Polk Audio, any one or more of
the Borrowers or otherwise, which direction shall evidence the making of such
Loan and shall constitute the acknowledgement by each of the Borrowers of the
receipt of the proceeds of such Loan or the benefit of such Letter of Credit,
(ii) enter into, execute, deliver, amend, modify, restate, substitute, extend
and/or renew this Agreement, any other Financing Documents, security
agreements, mortgages, deposit account agreements, instruments, certificates,
waivers, letter of credit applications, releases, documents and agreements from
time to time, and (iii) endorse any check or other item of payment in the name
of the Borrower or in the name of Polk Audio. The foregoing appointment is
coupled with an interest, cannot be revoked without the prior written consent
of the Lender, and may be exercised from time to time through Polk Audio's duly
authorized officer, officers or other Person or Persons designated by Polk
Audio to act from time to time on behalf of Polk Audio.
Each of the Borrowers hereby irrevocably
authorizes the Lender to make Loans to any one or more of the Borrowers, and
hereby irrevocably authorizes the Lender to issue or cause to be issued Letters
of Credit for the account of any or all of the Borrowers, pursuant to the
provisions of this Agreement upon the written, oral or telephone request of any
one or more of the Persons who is from time to time a Responsible Officer of a
Borrower under the provisions of the most recent certificate of corporate
resolutions and/or incumbency of the Borrowers on file with the Lender and also
upon the written, oral or telephone request of any one of the Persons who is
from time to time a Responsible Officer of Polk Audio under the provisions of
the most recent certificate of corporate resolutions and/or incumbency for Polk
Audio on file with the Lender.
The Lender assumes no responsibility or
liability for any errors, mistakes, and/or discrepancies in the oral,
telephonic, written or other transmissions of any instructions, orders,
requests and confirmations between the Lender and the Borrowers in connection
with the Credit Facilities, any Loan, any Letter of Credit or any other
transaction in connection with the provisions of this Agreement. Without
implying any limitation on the joint and several nature of the Obligations, the
Lender agrees that, notwithstanding any other provision of this Agreement, the
Borrowers may create reasonable inter-company indebtedness between or among the
Borrowers with respect to the allocation of the benefits and proceeds of the
advances and Credit Facilities under this Agreement. The Borrowers agree among
themselves, and the Lender consents to that agreement, that each Borrower shall
have rights of contribution from all of the other Borrowers to the extent such
Borrower incurs Obligations in excess of the proceeds of the Loans received by,
or allocated to purposes for the direct benefit of, such Borrower. All such
indebtedness and rights shall be, and are hereby agreed by the Borrowers to be,
subordinate in priority and payment to the indefeasible repayment in full in
cash of the Obligations, and, unless the Lender agrees in writing otherwise,
shall not be exercised or repaid in whole or in part until
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all of the Obligations have been indefeasibly paid in full in cash. Each
Borrower hereby waives all rights of counterclaim, recoupment and offset
between or among themselves arising on account of that indebtedness and
otherwise. Each Borrower shall not evidence the inter-company indebtedness or
rights of contribution by note or other instrument, and shall not secure such
indebtedness or rights of contribution with any Lien or security.
Notwithstanding anything contained in this Agreement to the contrary, the
amount covered by each Borrower under the Obligations (including, without
limitation, Section 2.4.8 (Guaranty)) shall be limited to an aggregate amount
(after giving effect to any collections from, rights to receive contribution
from or payments made by or on behalf of any other Borrower in respect of the
Obligations) which, together with other amounts owing by such Borrowers to the
Lender under the Obligations, is equal to the largest amount that would not be
subject to avoidance under the Bankruptcy Code or any applicable provisions of
any applicable, comparable state or other Laws.
2.4.2 Use of Proceeds of the Loans.
The proceeds of each advance under the Loans
shall be used by the Borrowers for Permitted Uses, and for no other purposes
except as may otherwise be agreed by the Lender in writing. The Borrowers
shall use the proceeds of the Loans promptly.
2.4.3 Origination Fee.
The Borrowers shall pay to the Lender on or
before the Closing Date a loan origination fee (the "Origination Fee") in the
amount of Thirty Five Thousand Dollars ($35,000), which fee has been fully
earned and is non-refundable.
2.4.4 Computation of Interest and Fees.
All applicable Fees and interest shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed. Any change in the interest rate on any of the Obligations resulting
from a change in the Prime Rate shall become effective as of the opening of
business on the day on which such change in the Prime Rate is announced.
2.4.5 Payments.
All payments of the Obligations, including,
without limitation, principal, interest, Prepayments, and Fees, shall be paid
by the Borrowers without setoff or counterclaim to the Lender (except as
otherwise provided herein) at the Lender's office specified in Section 7.1
(Notices) in immediately available funds not later than noon (Baltimore,
Maryland Time) on the due date of such payment. All payments received by the
Lender after such time shall be deemed to have been received by the Lender for
purposes of computing interest and Fees and otherwise as of the next Business
Day. Payments shall not be considered received by the Lender until such
payments are paid to the Lender in immediately available funds.
2.4.6 Liens; Setoff.
The Borrowers hereby grant to the Lender a
continuing Lien for all of the Obligations upon any and all monies, securities,
and other property of the Borrowers and the proceeds thereof, now or hereafter
held or received by or in transit to, the Lender, and/or any Affiliate of the
Lender, from or for the Borrowers, and also upon any and all deposit accounts
(general or special) and credits of the Borrowers, if any, with the Lender or
any Affiliate of the
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Lender, at any time existing, excluding any deposit accounts held by the
Borrowers in their capacity as trustee for Persons who are not Borrowers or
Affiliates of the Borrowers. Without implying any limitation on any other
rights the Lender may have under the Financing Documents or applicable Laws,
during the continuance of an Event of Default, the Lender is hereby authorized
by the Borrowers at any time and from time to time, without notice to the
Borrowers, to set off, appropriate and apply any or all items hereinabove
referred to against all Obligations then outstanding (whether or not then due),
all in such order and manner as shall be determined by the Lender in its sole
and absolute discretion.
2.4.7 Requirements of Law.
In the event that the Lender shall have
determined in good faith that (a) the adoption of any Laws regarding capital
adequacy, or (b) any change therein or in the interpretation or application
thereof or (c) compliance by the Lender or any corporation controlling the
Lender with any request or directive regarding capital adequacy (whether or not
having the force of law) from any central bank or Governmental Authority, does
or shall have the effect of reducing the rate of return on the capital of the
Lender or any corporation controlling the Lender, as a consequence of the
obligations of the Lender hereunder to a level below that which the Lender or
any corporation controlling the Lender would have achieved but for such
adoption, change or compliance (taking into consideration the policies of the
Lender and the corporation controlling the Lender, with respect to capital
adequacy) by an amount deemed by the Lender to be material, then from time to
time, after submission by the Lender to the Borrowers of a written request
therefor and a statement of the basis for such determination, the Borrowers
shall pay to the Lender such additional amount or amounts in order to
compensate for such reduction.
2.4.8 Guaranty.
(a) Each Borrower hereby
unconditionally and irrevocably, guarantees to the Lender:
(i) the due and
punctual payment in full (and not merely the
collectibility) by the other Borrowers of the
Obligations, including unpaid and accrued interest
thereon, in each case when due and payable, all
according to the terms of this Agreement, the Notes
and the other Financing Documents;
(ii) the due and
punctual payment in full (and not merely the
collectibility) by the other Borrowers of all other
sums and charges which may at any time be due and
payable in accordance with this Agreement, the Notes
or any of the other Financing Documents;
(iii) the due and punctual
performance by the other Borrowers of all of the
other terms, covenants and conditions contained in
the Financing Documents; and
(iv) all the other
Obligations of the other Borrowers.
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(b) The obligations and liabilities
of each Borrower as a guarantor under this Section 2.4.8 shall be absolute and
unconditional and joint and several, irrespective of the genuineness, validity,
priority, regularity or enforceability of this Agreement, any of the Notes or
any of the Financing Documents or any other circumstance which might otherwise
constitute a legal or equitable discharge of a surety or guarantor. Each
Borrower in its capacity as a guarantor expressly agrees that the Lender may,
in its sole and absolute discretion, without notice to or further assent of
such Borrower and without in any way releasing, affecting or in any way
impairing the joint and several obligations and liabilities of such Borrower as
a guarantor hereunder:
(i) waive compliance
with, or any defaults under, or grant any other
indulgences under or with respect to any of the
Financing Documents;
(ii) modify, amend,
change or terminate any provisions of any of the
Financing Documents;
(iii) grant extensions
or renewals of or with respect to the Credit
Facilities, the Notes or any of the other Financing
Documents;
(iv) effect any release,
subordination, compromise or settlement in connection
with this Agreement, any of the Notes or any of the
other Financing Documents;
(v) agree to the
substitution, exchange, release or other disposition
of any collateral for the Loans or to the
subordination of any lien or security interest
therein;
(vi) make advances for
the purpose of performing any term, provision or
covenant contained in this Agreement, any of the
Notes or any of the other Financing Documents with
respect to which the Borrowers shall then be in
default;
(vii) make future
advances pursuant to the Financing Agreement or any
of the other Financing Documents;
(viii) assign, pledge,
hypothecate or otherwise transfer the Commitments,
the Obligations, the Notes, any of the other Financing
Documents or any interest therein, all as and to the
extent permitted by the provisions of this Agreement;
(ix) deal in all
respects with the other Borrowers as if this Section
2.4.8 were not in effect;
(x) effect any release,
compromise or settlement with any of the other
Borrowers, whether in their capacity as a Borrower or
as a guarantor under this Section 2.4.8, or any other
guarantor; and
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(xi) provide debtor-in-
possession financing or allow use of cash collateral
in proceedings under the Bankruptcy Code, it being
expressly agreed by all Borrowers that any such
financing and/or use would be part of the
Obligations.
(c) The obligations and liabilities
of each Borrower, as guarantor under this Section 2.4.8, shall be primary,
direct and immediate, shall not be subject to any counterclaim, recoupment,
set off, reduction or defense based upon any claim that a Borrower may have
against any one or more of the other Borrowers, the Lender, and/or any other
guarantor and shall not be conditional or contingent upon pursuit or
enforcement by the Lender of any remedies it may have against the Borrowers
with respect to this Agreement, the Notes or any of the other Financing
Documents, whether pursuant to the terms thereof or by operation of law.
Without limiting the generality of the foregoing, the Lender shall not be
required to make any demand upon any of the Borrowers, or otherwise pursue,
enforce or exhaust its remedies against the Borrowers either before,
concurrently with or after pursuing or enforcing its rights and remedies
hereunder. Any one or more successive or concurrent actions or proceedings may
be brought against each Borrower under this Section 2.4.8, either in the same
action, if any, brought against any one or more of the Borrowers or in separate
actions or proceedings, as often as the Lender may deem expedient or advisable.
Without limiting the foregoing, it is specifically understood that any
modification, limitation or discharge of any of the liabilities or obligations
of any one or more of the Borrowers, any other guarantor or any obligor under
any of the Financing Documents, arising out of, or by virtue of, any
bankruptcy, arrangement, reorganization or similar proceeding for relief of
debtors under federal or state law initiated by or against any one or more of
the Borrowers, in their respective capacities as borrowers and guarantors under
this Section 2.4.8, or under any of the Financing Documents shall not modify,
limit, lessen, reduce, impair, discharge, or otherwise affect the liability of
each Borrower under this Section 2.4.8 in any manner whatsoever, and this
Section 2.4.8 shall remain and continue in full force and effect. It is the
intent and purpose of this Section 2.4.8 that each Borrower shall and does
hereby waive all rights and benefits which might accrue to any other guarantor
by reason of any such proceeding, and the Borrowers agree that they shall be
liable for the full amount of the obligations and liabilities under this
Section 2.4.8, regardless of, and irrespective to, any modification, limitation
or discharge of the liability of any one or more of the Borrowers, any other
guarantor or any obligor under any of the Financing Documents, that may result
from any such proceedings.
(d) Each Borrower, as guarantor under
this Section 2.4.8, hereby unconditionally, jointly and severally, irrevocably
and expressly waives:
(i) presentment and
demand for payment of the Obligations and protest of
non-payment;
(ii) notice of
acceptance of this Section 2.4.8 and of presentment,
demand and protest thereof;
(iii) notice of any
default hereunder or under the Notes or any of the
other Financing Documents and notice of all
indulgences;
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(iv) notice of any increase in the amount of any
portion of or all of the indebtedness guaranteed by this Section 2.4.8;
(v) demand for observance, performance or
enforcement of any of the terms or provisions of this Section 2.4.8, the Notes
or any of the other Financing Documents;
(vi) all errors and omissions in connection with the
Lender's administration of all indebtedness guaranteed by this Section 2.4.8,
except errors and omissions resulting from acts of bad faith, gross negligence
or willful misconduct;
(vii) any right or claim of right to cause a
marshalling of the assets of any one or more of the other Borrowers;
(viii) any act or omission of the Lender which changes
the scope of the risk as guarantor hereunder; and
(ix) all other notices and demands otherwise
required by law which the Borrower may lawfully waive.
Within ten (10) days following any request of the Lender so
to do, each Borrower will furnish the Lender and such other persons as the
Lender may direct with a written certificate, duly acknowledged stating in
detail whether or not any credits, offsets or defenses exist with respect to
this Section 2.4.8.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties.
The Borrowers, for themselves and for each other, represent and warrant
to the Lender, as follows:
3.1.1 Subsidiaries.
The Borrowers have the Subsidiaries listed on EXHIBIT B
attached hereto and made a part hereof and no others. Each of the Subsidiaries
is a Wholly Owned Subsidiary except as shown on EXHIBIT B, which correctly
indicates the nature and amount of each Borrower's ownership interests therein.
3.1.2 Good Standing.
Each Borrower and its Subsidiaries (a) is a corporation duly
organized, existing and in good standing under the laws of the jurisdiction of
its incorporation, (b) has the corporate power to own its property and to carry
on its business as now being conducted, and (c) is duly qualified to do
business and is in good standing in each jurisdiction in which the character of
the properties owned by it therein or in which the transaction of its business
makes such qualification necessary except where the failure to be qualified
would not have a material
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adverse effect on the business, properties, condition (financial or otherwise)
or operations, present or prospective, of any Borrower.
3.1.3 Power and Authority.
Each Borrower has full corporate power and authority to
execute and deliver this Agreement, and the other Financing Documents to which
it is a party, to make the borrowings and request Letters of Credit under this
Agreement and to incur and perform the Obligations whether under this
Agreement, the other Financing Documents or otherwise, all of which have been
duly authorized by all proper and necessary corporate action. No consent or
approval of shareholders or any creditors of any Borrower, and no consent,
approval, filing or registration with or notice to any Governmental Authority
on the part of any Borrower, is required as a condition to the execution,
delivery, validity or enforceability of this Agreement, or any of the other
Financing Documents or the performance by any Borrower of the Obligations.
3.1.4 Binding Agreements.
This Agreement and the other Financing Documents executed
and delivered by the Borrowers have been properly executed and delivered and
constitute the valid and legally binding obligations of the Borrowers and are
fully enforceable against each of the Borrowers in accordance with their
respective terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting the rights and remedies of
creditors and secured parties, and general principles of equity regardless of
whether applied in a proceeding in equity or at law.
3.1.5 No Conflicts.
Neither the execution, delivery and performance of the terms
of this Agreement or of any of the other Financing Documents executed and
delivered by any Borrower nor the consummation of the transactions contemplated
by this Agreement will conflict with, violate or be prevented by (a) any
Borrower's charter or bylaws, (b) any existing mortgage, indenture, contract or
agreement binding on any Borrower or affecting its property, or (c) any Laws.
3.1.6 No Defaults, Violations.
(a) No Default or Event of Default has occurred
and is continuing.
(b) None of the Borrowers nor any of their
respective Subsidiaries is in default under or with respect to any obligation
under any existing mortgage, indenture, contract or agreement binding on it or
affecting its property in any respect which could be materially adverse to the
business, operations, property or financial condition of any Borrower, or which
could materially adversely affect the ability of any Borrower to perform its
obligations under this Agreement or the other Financing Documents, to which any
Borrower is a party.
3.1.7 Compliance with Laws.
None of the Borrowers nor any of their respective
Subsidiaries is in violation of any applicable Laws (including, without
limitation, any Laws relating to employment practices, to environmental,
occupational and health standards and controls) or
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order, writ, injunction, decree or demand of any court, arbitrator, or any
Governmental Authority affecting any Borrower or any of its properties, the
violation of which, considered in the aggregate, could materially adversely
affect the business, operations or properties of any Borrower and/or its
Subsidiaries.
3.1.8 Margin Stock.
Except as disclosed to the Lender, none of the proceeds of
the Loans will be used, directly or indirectly, by any Borrower or any
Subsidiary for the purpose of purchasing or carrying, or for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry, any "margin security" within the meaning of Regulation G (12 CFR Part
207), or "margin stock" within the meaning of Regulation U (12 CFR Part 221),
of the Board of Governors of the Federal Reserve System or for any other
purpose which might make the transactions contemplated in this Agreement a
"purpose credit" within the meaning of said Regulation G or Regulation U, or
cause this Agreement to violate any other regulation of the Board of Governors
of the Federal Reserve System or the Securities Exchange Act of 1934 or the
Small Business Investment Act of 1958, as amended, or any rules or regulations
promulgated under any of such statutes.
3.1.9 Investment Company Act; Margin Securities.
None of the Borrowers nor any of their respective
Subsidiaries is an investment company within the meaning of the Investment
Company Act of 1940, as amended, nor is it, directly or indirectly, controlled
by or acting on behalf of any Person which is an investment company within the
meaning of said Act. None of the Borrowers nor any of their respective
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
"margin security" within the meaning of Regulation G (12 CFR Part 207), or
"margin stock" within the meaning of Regulation U (12 CFR Part 221), of the
Board of Governors of the Federal Reserve System.
3.1.10 Litigation.
Except as otherwise disclosed on Schedule 3.1.10 attached to
and made a part of this Agreement, there are no proceedings, actions or
investigations pending or, so far as any Borrower knows, threatened before or
by any court, arbitrator or any Governmental Authority which, in any one case
or in the aggregate, if determined adversely to the interests of any Borrower
or any Subsidiary, would have a material adverse effect on the business,
properties, condition (financial or otherwise) or operations, present or
prospective, of any Borrower.
3.1.11 Financial Condition.
The consolidated financial statements of the Borrowers dated
December 27, 1998, are complete and correct and fairly present the financial
position of each of the Borrowers and its Subsidiaries and the results of their
operations and transactions in their surplus accounts as of the date and for
the period referred to and have been prepared in accordance with GAAP applied
on a consistent basis throughout the period involved. There are no liabilities,
direct or indirect, fixed or contingent, of any Borrower or any Subsidiary as
of the date of such financial statements that are not reflected therein or in
the notes thereto. There has been no
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adverse change in the financial condition or operations of any Borrower or any
Subsidiary since the date of such financial statements and to the Borrowers'
knowledge no such adverse change is pending or threatened. None of the
Borrowers nor any Subsidiary has guaranteed the obligations of, or made any
investment in or advances to, any Person, except as disclosed in such financial
statements.
3.1.12 Full Disclosure.
The financial statements referred to in Section 3.1.11
(Financial Condition) of this Agreement, the Financing Documents (including,
without limitation, this Agreement), and the statements, reports or
certificates furnished by any Borrower in connection with the Financing
Documents (a) do not contain any untrue statement of a material fact and (b)
when taken in their entirety, do not omit any material fact necessary to make
the statements contained therein not misleading. There is no fact known to any
Borrower which such Borrower has not disclosed to the Lender in writing prior
to the date of this Agreement with respect to the transactions contemplated by
the Financing Documents that materially and adversely affects or in the future
could, in the reasonable opinion of that Borrower materially adversely affect
the condition, financial or otherwise, results of operations, business, or
assets of any Borrower or of any Subsidiary.
3.1.13 Indebtedness for Borrowed Money.
Except for the Obligations and except as set forth in
Schedule 3.1.13 attached to and made a part of this Agreement, the Borrowers
have no Indebtedness for Borrowed Money. The Lender has received photocopies of
all promissory notes evidencing any Indebtedness for Borrowed Money set forth
in Schedule 3.1.13, together with any and all subordination agreements, other
agreements, documents, or instruments securing, evidencing, guarantying or
otherwise executed and delivered in connection therewith.
3.1.14 Taxes.
Each of the Borrowers and its Subsidiaries has filed all
returns, reports and forms for Taxes which, to the knowledge of the Borrowers,
are required to be filed, and has paid all Taxes as shown on such returns or on
any assessment received by it, to the extent that such Taxes have become due,
unless and to the extent only that such Taxes, assessments and governmental
charges are currently contested in good faith and by appropriate proceedings by
a Borrower, such Taxes are not the subject of any Liens other than Permitted
Liens, and adequate reserves therefor have been established as required under
GAAP. All tax liabilities of the Borrowers were as of the date of audited
financial statements referred to in Section 3.1.11 (Financial Condition), and
are now, adequately provided for on the books of the Borrowers and its
Subsidiaries, as appropriate. No tax liability has been asserted by the
Internal Revenue Service or any state or local authority against any Borrower
for Taxes in excess of those already paid.
3.1.15 ERISA.
With respect to any Plan that is maintained or contributed
to by any Borrower and/or by any Commonly Controlled Entity or as to which any
of the Borrowers retains material liability: (a) no "accumulated funding
deficiency" as defined in Code Section 412 or
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ERISA Section 302 has occurred, whether or not that accumulated funding
deficiency has been waived; (b) no Reportable Event has occurred other than
events for which reporting has been waived or that are unlikely to result in
material liability for any of the Borrowers; (c) no termination of any plan
subject to Title IV of ERISA has occurred; (d) neither any Borrower nor any
Commonly Controlled Entity has incurred a "complete withdrawal" within the
meaning of ERISA Section 4203 from any Multi-employer Plan that is likely to
result in material liability for one or more of the Borrowers; (e) neither any
Borrower nor any Commonly Controlled Entity has incurred a "partial withdrawal"
within the meaning of ERISA Section 4205 with respect to any Multi-employer
Plan that is likely to result in material liability for one or more of the
Borrowers; (f) no Multi-employer Plan to which any Borrower or any Commonly
Controlled Entity has an obligation to contribute is to the knowledge of the
Borrowers, in "reorganization" within the meaning of ERISA Section 4241 nor has
notice been received by any Borrower or any Commonly Controlled Entity that
such a Multi-employer Plan will be placed in "reorganization."
3.1.16 Title to Properties.
The Borrowers have good and marketable title to all of their
respective properties, including, without limitation, the properties and assets
reflected in the balance sheets described in Section 3.1.11 (Financial
Condition), with immaterial exceptions.
3.1.17 Patents, Trademarks, Etc.
Each of the Borrowers and its Subsidiaries owns, possesses,
or has the right to use all necessary Patents, licenses, Trademarks, permits
and franchises to own its properties and to conduct its business as now
conducted, without known conflict with the rights of any other Person. Any and
all obligations to pay royalties or other charges with respect to such
properties and assets are properly reflected on the financial statements
described in Section 3.1.11 (Financial Condition).
3.1.18 Presence of Hazardous Materials or Hazardous
Materials Contamination.
To the best of each Borrower's knowledge, (a) no Hazardous
Materials are located on any real property owned, controlled or operated by of
any Borrower or for which any Borrower is, or is claimed to be, responsible,
except for reasonable quantities of necessary supplies for use by a Borrower in
the ordinary course of its current line of business and stored, used and
disposed in accordance with applicable Laws; and (b) no property owned,
controlled or operated by any Borrower or for which any Borrower has, or is
claimed to have, responsibility has ever been used as a manufacturing, storage,
or dump site for Hazardous Materials nor is affected by Hazardous Materials
Contamination at any other property.
3.1.19 Year 2000 Compliance.
Each Borrower has (a) initiated a review and assessment of
all areas within its and each of its Subsidiaries' businesses and operations
(including those affected by suppliers, vendors and customers) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by any of the Borrowers or any of their Subsidiaries (or
suppliers, vendors and customers) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31,
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1999), (b) developed a plan and timeline for addressing the Year 2000 Problem
on a timely basis, and (c) to date, implemented that plan in accordance with
that timetable. Based on the foregoing, the Borrowers believe that all computer
applications (including those of its suppliers, vendors and customers) that are
material to its or any of its Subsidiaries' business and operations are
reasonably expected on a timely basis to be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000 (that
is, be 'Year 2000 compliant"), except to the extent that a failure to do so
could not reasonably expected to have a material adverse effect on the
business, properties, condition (financial or otherwise) or operations, present
or prospective, of any of the Borrowers.
Section 3.2 Survival; Updates of Representations and
Warranties.
All representations and warranties contained in or made
under or in connection with this Agreement and the other Financing Documents
shall survive the Closing Date, the making of any advance under the Loans and
extension of credit made hereunder, and the incurring of any other Obligations
and shall be deemed to have been made at the time of each request for, and
again at the time of the making of, each advance under the Loans or the
issuance of each Letter of Credit, except that the representations and
warranties which relate to the financial statements which are referred to in
Section 3.1.11 (Financial Condition), shall also be deemed to cover financial
statements furnished from time to time to the Lender pursuant to Section 5.1.1
(Financial Statements).
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1 Conditions to the Initial Advance and
Initial Letter of Credit.
The making of the initial advance under the Loans and the
issuance of the initial Letter of Credit is subject to the fulfillment on or
before the Closing Date of the following conditions precedent in a manner
satisfactory in form and substance to the Lender and its counsel:
4.1.1 Organizational Documents -
Borrowers.
The Lender shall have received for each
Borrower:
(a) a certificate of good standing certified by
the Secretary of State, or other appropriate Governmental Authority, of
the state of incorporation of such Borrower;
(b) a certificate of qualification to do business
for such Borrower certified by the Secretary of State or other
Governmental Authority of each state in which such Borrower conducts
business;
(c) a certificate dated as of the Closing Date by
the Secretary or an Assistant Secretary of such Borrower covering:
(i) true and complete copies of that
Borrower's corporate charter, bylaws, and all amendments thereto;
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(ii) true and complete copies of the
resolutions of its Board of Directors authorizing (A) the
execution, delivery and performance of the Financing Documents to
which it is a party and (B) the borrowings hereunder;
(iii) the incumbency, authority and
signatures of the officers of such Borrower authorized to sign
this Agreement and the other Financing Documents to which such
Borrower is a party; and
(iv) the identity of such Borrower's
current directors, common stock holders and other equity holders,
as well as their respective percentage ownership interests.
4.1.2 Opinion of Borrowers' Counsel.
The Lender shall have received the favorable opinion of
counsel for the Borrowers addressed to the Lender in form satisfactory to the
Lender.
4.1.3 Consents, Licenses, Approvals, Etc.
The Lender shall have received copies of all consents,
licenses and approvals, required in connection with the execution, delivery,
performance, validity and enforceability of the Financing Documents, and such
consents, licenses and approvals shall be in full force and effect.
4.1.4 Notes.
The Lender shall have received Term Note and the Revolving
Credit Note, each conforming to the requirements hereof and executed by a
Responsible Officer of each Borrower and attested by a duly authorized
representative of each Borrower.
4.1.5 Financing Documents.
Each Borrower shall have executed and delivered the
Financing Documents to be executed by it.
4.1.6 Other Financing Documents.
In addition to the Financing Documents to be delivered by
the Borrowers, the Lender shall have received the Financing Documents duly
executed and delivered by Persons other than the Borrowers.
4.1.7 Other Documents, Etc.
The Lender shall have received such other certificates,
opinions, documents and instruments confirmatory of or otherwise relating to
the transactions contemplated hereby as may have been reasonably requested by
the Lender.
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4.1.8 Payment of Fees.
The Lender shall have received payment of any Fees due on or
before the Closing Date.
4.1.9 Insurance Certificate.
The Lender shall have received an insurance certificate in
accordance with the provisions of Section 5.1.8 (Insurance).
Section 4.2 Conditions to all Extensions of Credit.
The making of all advances under the Loans and the issuance of all
Letters of Credit is subject to the fulfillment of the following conditions
precedent in a manner satisfactory in form and substance to the Lender and its
counsel:
4.2.1 Compliance.
Each Borrower shall have complied and shall then be in
compliance with all terms, covenants, conditions and provisions of this
Agreement and the other Financing Documents that are binding upon it.
4.2.2 Default.
There shall exist no Event of Default or Default hereunder.
4.2.3 Representations and Warranties.
The representations and warranties of each of the Borrowers
contained among the provisions of this Agreement shall be true and with the
same effect as though such representations and warranties had been made at the
time of the making of, and of the request for, each advance under the Loans or
the issuance of each Letter of Credit, except that the representations and
warranties which relate to financial statements which are referred to in
Section 3.1.11 (Financial Condition), shall also be deemed to cover financial
statements furnished from time to time to the Lender pursuant to Section 5.1.1
(Financial Statements).
4.2.4 Adverse Change.
No adverse change shall have occurred in the condition
(financial or otherwise), operations or business of any Borrower that would, in
the good faith judgment of the Lender, materially impair the ability of that
Borrower to pay or perform any of the Obligations.
4.2.5 Legal Matters.
All legal documents incident to each advance under the Loans
and each of the Letters of Credit shall be reasonably satisfactory to counsel
for the Lender.
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ARTICLE V
COVENANTS OF THE BORROWERS
Section 5.1 Affirmative Covenants.
So long as any of the Obligations (or any the Commitments therefor) shall
be outstanding hereunder, the Borrowers agree jointly and severally with the
Lender as follows:
5.1.1 Financial Statements.
The Borrowers shall furnish to the Lender:
(a) Annual Statements and Certificates. The
Borrowers shall furnish to the Lender as soon as available, but in no event
more than ninety (90) days after the close of the Borrowers' fiscal years, (i)
a copy of the annual audited financial statement in reasonable detail
satisfactory to the Lender relating to the Borrowers and their Subsidiaries,
prepared in accordance with GAAP and examined and certified by independent
certified public accountants satisfactory to the Lender, which financial
statement shall include a consolidated and consolidating balance sheet of the
Borrowers and their Subsidiaries as of the end of such fiscal year and
consolidated and consolidating statements of income, cash flows and changes in
shareholders equity of the Borrowers and their Subsidiaries for such fiscal
year, and (ii) a detailed computation of each financial covenant in this
Agreement which is applicable for the period reported and consolidated and
consolidating budget and pro form financial statements on a month-to-month
basis for the current fiscal year, each prepared by a Responsible Officer of
the Borrowers in a format acceptable to the Lender.
(b) Annual Opinion of Accountant. The Borrowers
shall furnish to the Lender as soon as available, but in no event more than
ninety (90) days after the close of the Borrowers' fiscal years, a letter or
opinion of the accountant who examined and certified the annual financial
statement relating to the Borrowers and their Subsidiaries (i) stating
whether anything in such accountant's examination has revealed the occurrence
of a Default or an Event of Default hereunder, and, if so, stating the facts
with respect thereto and (ii) acknowledging that the Lender will rely on the
statement and that the Borrowers know of the intended reliance by the Lender;
provided, however, it shall not constitute a Default if the Borrowers'
accountant does not , as a matter of general policy, provide such letters or
opinions.
(c) Quarterly Statements and Certificates. The
Borrowers shall furnish to the Lender as soon as available, but in no event
more than forty-five (45) days after the close of the Borrowers' fiscal
quarters, consolidated and consolidating balance sheets of the Borrowers and
its Subsidiaries as of the close of such period, consolidated and consolidating
income, cash flows and changes in shareholders equity statements for such
period, projected cash flow on a month to month basis and projected income
statements, and a detailed computation of each financial covenant in this
Agreement which is applicable for the period reported and a cash flow
projection report on a month-to-month basis, each prepared by a Responsible
Officer of or on behalf of each Borrower in a format acceptable to the Lender,
all as prepared and certified by a Responsible Officer of the Borrowers and
accompanied by a certificate of that officer stating whether any event has
occurred which constitutes a Default or an Event of Default hereunder, and, if
so, stating the facts with respect thereto.
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(d) Additional Reports and Information. The
Borrowers shall furnish to the Lender promptly, such additional information,
reports or statements as the Lender may from time to time reasonably request.
5.1.2 Reports to SEC and to Stockholders.
The Borrowers will furnish to the Lender, promptly upon the
filing or making thereof, at least one (1) copy of all financial statements,
reports, notices and proxy statements sent by any Borrower to its stockholders,
and of all regular and other reports filed by any Borrower with any securities
exchange or with the Securities and Exchange Commission.
5.1.3 Recordkeeping, Rights of Inspection, Etc.
(a) Each of the Borrowers shall, and shall cause
each of its Subsidiaries to, maintain (i) a standard system of accounting in
accordance with GAAP, and (ii) proper books of record and account in which
full, true and correct entries are made of all dealings and transactions in
relation to its properties, business and activities.
(b) Each of the Borrowers shall, and shall cause
each of its Subsidiaries to, permit authorized representatives of the Lender to
visit and inspect the properties of the Borrowers and its Subsidiaries, to
review, audit, check and inspect the Borrowers' other books of record at any
time with or without notice and to make abstracts and photocopies thereof, and
to discuss the affairs, finances and accounts of the Borrowers and their
Subsidiaries, with the officers, directors, employees and other representatives
of the Borrowers and their Subsidiaries and their respective accountants, all
at such times during normal business hours and other reasonable times and as
often as the Lender may reasonably request.
(c) Each of the Borrowers hereby irrevocably
authorizes and directs all accountants and auditors employed by any of the
Borrowers and/or any of their Subsidiaries at any time prior to the repayment
in full of the Obligations to exhibit and deliver to the Lender copies of any
and all of the financial statements, trial balances, management letters, or
other accounting records of any nature of any or all of the Borrowers and/or
any or all of their respective Subsidiaries in the accountant's or auditor's
possession, and to disclose to the Lender any information they may have
concerning the financial status and business operations of any or all of the
Borrowers and/or any or all of their respective Subsidiaries. Further, each of
the Borrowers hereby authorizes all Governmental Authorities to furnish to the
Lender copies of reports or examinations relating to any and all of the
Borrowers and/or any or all Subsidiaries, whether made by the Borrowers or
otherwise.
5.1.4 Corporate Existence.
Each of the Borrowers shall maintain, and cause each of its
Subsidiaries to maintain, its corporate existence in good standing in the
jurisdiction in which it is incorporated and in each other jurisdiction where
it is required to register or qualify to do business if the failure to do so in
such other jurisdiction might have a material adverse effect on the ability of
the Borrower to perform the Obligations, on the conduct of the Borrower's
operations or on the Borrower's financial condition.
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5.1.5 Compliance with Laws.
Each of the Borrowers shall comply, and cause each of its
Subsidiaries to comply, with all applicable Laws and observe the valid
requirements of Governmental Authorities, the noncompliance with or the
nonobservance of which might have a material adverse effect on the ability of
the Borrowers to perform the Obligations, on the conduct of the Borrowers'
operations or on the Borrowers' consolidated financial condition.
5.1.6 Preservation of Properties.
Each of the Borrowers will, and will cause each of its
Subsidiaries to, at all times (a) maintain, preserve, protect and keep its
properties, whether owned or leased, in good operating condition, working order
and repair (ordinary wear and tear excepted), and from time to time will make
all proper repairs, maintenance, replacements, additions and improvements
thereto needed to maintain such properties in good operating condition, working
order and repair, and (b) do or cause to be done all things necessary to
preserve and to keep in full force and effect its material franchises, leases
of real and personal property, trade names, Patents, Trademarks and permits
which are necessary for the orderly continuance of its business.
5.1.7 Line of Business.
Each of the Borrowers will continue to engage only in lines
of business substantially the same as those in which they engage as of the date
hereof.
5.1.8 Insurance.
Each of the Borrowers will, and will cause each of its
Subsidiaries to, at all times maintain with "A" or better rated insurance
companies such insurance as is required by applicable Laws and such other
insurance, in such amounts, of such types and against such risks, hazards,
liabilities, casualties and contingencies as are usually insured against in the
same geographic areas by business entities engaged in the same or similar
business. Without limiting the generality of the foregoing, each of the
Borrowers will, and will cause each of its Subsidiaries to, keep adequately
insured all of its property against loss or damage resulting from fire or other
risks insured against by extended coverage and maintain public liability
insurance against claims for personal injury, death or property damage
occurring upon, in or about any properties occupied or controlled by it, or
arising in any manner out of the businesses carried on by it, all in such
amounts not less than the Lender shall reasonably determine from time to time.
Within thirty (30) days after notice in writing from the Lender, the Borrowers
will obtain such additional insurance as the Lender may reasonably request.
5.1.9 Taxes.
Except to the extent that the validity or amount thereof is
being contested in good faith and by appropriate proceedings, each of the
Borrowers will, and will cause each of its Subsidiaries, to pay and discharge
all Taxes prior to the date when any interest or penalty would accrue for the
nonpayment thereof. Each of the Borrowers shall furnish to the Lender at such
times as the Lender may require proof satisfactory to the Lender of the making
of payments or deposits required by applicable Laws including, without
limitation, payments or deposits with respect to amounts withheld by any of the
Borrowers from wages and salaries of employees and
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amounts contributed by any of the Borrowers on account of federal and other
income or wage taxes and amounts due under the Federal Insurance Contributions
Act, as amended.
5.1.10 ERISA.
Each Borrower will, and will cause each of its Commonly
Controlled Entities to, comply with the funding requirements of ERISA with
respect to Plans for its respective employees. No Borrower will permit with
respect to any Plan (a) any prohibited transaction or transactions under ERISA
or the Internal Revenue Code, which results, or may result, in any material
liability of the Borrower, or (b) any Reportable Event if, upon termination of
the plan or plans with respect to which one or more such Reportable Events
shall have occurred, there is or would be any material liability of the
Borrower to the PBGC. Upon the Lender's request, each Borrower will deliver to
the Lender a copy of the most recent actuarial report, financial statements and
annual report completed with respect to any Plan.
5.1.11 Notification of Events of Default and Adverse
Developments.
Polk Audio shall promptly notify the Lender upon obtaining
knowledge of the occurrence of:
(a) any Event of Default;
(b) any Default;
(c) any litigation instituted or threatened
against any of the Borrowers or any of their Subsidiaries and of the entry of
any judgment or Lien (other than any Permitted Liens) against any of the assets
or properties of any of the Borrowers or any Subsidiary where the claims
against any Borrower or any Subsidiary exceed One Hundred Thousand Dollars
($100,000) and are not covered by insurance;
(d) any event, development or circumstance whereby
the financial statements furnished hereunder fail in any material respect to
present fairly, in accordance with GAAP, the financial condition and
operational results of any of the Borrowers or any of their respective
Subsidiaries;
(e) any loss through fire, theft, liability or
property damage in excess of an aggregate of $100,000;
(f) any judicial, administrative or arbitral
proceeding pending against any of the Borrowers or any of their respective
Subsidiaries and any judicial or administrative proceeding known by any of the
Borrowers to be threatened against any Borrower or any Subsidiary which, if
adversely decided, could materially adversely affect the financial condition or
operations (present or prospective) of any Borrower or any Subsidiary;
(g) the receipt by any of the Borrowers or any
Subsidiary of any notice, claim or demand from any Governmental Authority which
alleges that any of the Borrowers or any Subsidiary is in violation of any of
the terms of, or has failed to comply with any applicable Laws regulating its
operation and business, including, but not limited to, the Occupational Safety
and Health Act and the Environmental Protection Act; and
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(h) any other development in the business or
affairs of any of the Borrowers or any of their respective Subsidiaries which
may be materially adverse;
in each case describing in detail satisfactory to the Lender the nature thereof
and the action the Borrowers propose to take with respect thereto.
5.1.12 Hazardous Materials; Contamination.
Each of the Borrowers agrees to:
(a) give notice to the Lender immediately upon
acquiring knowledge of the presence of any Hazardous Materials or any Hazardous
Materials Contamination on any property owned, operated or controlled by any
Borrower or for which any Borrower is, or is claimed to be, responsible
(provided that such notice shall not be required for Hazardous Materials placed
or stored on such property in accordance with applicable Laws in the ordinary
course (including, without limitation, quantity) of a Borrower's line of
business expressly described in this Agreement), with a full description
thereof;
(b) promptly comply with any Laws requiring the
removal, treatment or disposal of Hazardous Materials or Hazardous Materials
Contamination and provide the Lender with satisfactory evidence of such
compliance;
(c) provide the Lender, within thirty (30) days
after a demand by the Lender, with a bond, letter of credit or similar
financial assurance evidencing to the Lender's satisfaction that the necessary
funds are available to pay the cost of removing, treating, and disposing of
such Hazardous Materials or Hazardous Materials Contamination and discharging
any Lien which may be established as a result thereof on any property owned,
operated or controlled by any Borrower or for which any Borrower is, or is
claimed to be, responsible; and
(d) as part of the Obligations, defend, indemnify
and hold harmless the Lender and its agents, employees, trustees, successors
and assigns from any and all claims which may now or in the future (whether
before or after the termination of this Agreement) be asserted as a result of
the presence of any Hazardous Materials or any Hazardous Materials
Contamination on any property owned, operated or controlled by any Borrower for
which any Borrower is, or is claimed to be, responsible. Each Borrower
acknowledges and agrees that this indemnification shall survive the termination
of this Agreement and the Commitments and the payment and performance of all of
the other Obligations.
5.1.13 Financial Covenants.
(a) Current Ratio. The Borrowers will maintain,
tested as of the end of each of the Borrowers' fiscal quarters, a Current
Ratio so that it is not less than 1.5 to 1.0.
(b) Tangible Net Worth. The Borrowers will
maintain, tested as of the end of each of the Borrowers' fiscal quarters, a
Tangible Net Worth of not less than the sum of (a) $18,500,000 increased by, as
of July 1 of each year hereafter, (b) an amount equal to 75% of the Borrowers'
net income after distributions, if any, from each twelve-month period ending
June 30 (commencing with the twelve-month period ending June 30, 1999) in which
the Borrowers had a positive net income after distributions and decreased by
(c) an amount equal to
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the amount of the cash purchases of treasury stock of Polk Audio subsequent to
June 30, 1998 plus expenses directly related thereto which are payable to
parties other than Affiliates of the Borrowers.
(c) Fixed Charge Coverage Ratio Before Bonuses.
The Borrowers will maintain, tested as of the last day of each of the
Borrowers' fiscal quarters for the four (4) quarter period ending on that date,
a Fixed Charge Coverage Ratio Before Bonuses of not less than 3.5 to 1.0
(d) Fixed Charge Coverage Ratio After Bonuses. The
Borrowers will maintain, tested as of the last day of each of the Borrowers'
fiscal quarters for the four (4) quarter period ending on that date, a Fixed
Charge Coverage Ratio After Bonuses of not less than 1.25 to 1.0.
(e) Funded Indebtedness to EBBITDA. The Borrowers
will maintain, tested as of the last day of each of the Borrowers' fiscal
quarters for the four (4) quarter period ending on that date, a ratio of (i)
Funded Indebtedness to (ii) EBBITDA of not more than 2.0 to 1.0.
5.1.14 Senior Debt to Accounts and Inventory.
The Borrowers agree that at all times the aggregate of the
Borrowers' (a) cash on hand (b) Accounts that are less than ninety (90) days
past due (not older than sixty (60) days from the date of invoice) and (c)
Inventory shall exceed the aggregate outstanding principal balance of the
Revolving Loan, all Letter of Credit Obligations and Obligations (fixed or
contingent) with respect to Interest Rate Protection Agreements.
Section 5.2 Negative Covenants.
So long as any of the Obligations or the Commitments or Letters of Credit
therefor shall be outstanding hereunder, the Borrowers agree with the Lender
that without the prior written consent of the Lender which consent, unless
otherwise specifically noted hereinbelow, shall not be unreasonably withheld,
conditioned or delayed:
5.2.1 Capital Structure, Merger, Acquisition or Sale of
Assets.
None of the Borrowers will alter or amend their capital
structure, authorize any additional class of equity, issue any stock or equity
of any class, enter into any merger or consolidation or amalgamation, windup or
dissolve themselves (or suffer any liquidation or dissolution) or acquire all
or substantially all the assets of any Person, or sell, lease or otherwise
dispose of any of its assets (except Inventory disposed of in the ordinary
course of business prior to an Event of Default). Any consent of the Lender to
the disposition of any assets may be conditioned on a specified use of the
proceeds of disposition (if any).
5.2.2 Subsidiaries.
None of the Borrowers will create or acquire any
Subsidiaries other than the Subsidiaries identified on EXHIBIT B.
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5.2.3 Purchase of Securities, Dividend Restrictions.
Except for redemption of issued and outstanding stock, none
of the Borrowers will purchase or otherwise acquire any shares of its capital
stock or warrants now or hereafter outstanding, declare or pay any dividends
thereon (other than stock dividends), apply any of its property or assets to
the purchase or other retirement of, set apart any sum for the payment of any
dividends on, or for the purchase or other retirement of, make any distribution
by reduction of capital or otherwise in respect of, any shares of any class of
capital stock of any Borrower, or any warrants, permit any Subsidiary to
purchase or acquire any shares of any class of capital stock of, or warrants
issued by, any Borrower, make any distribution to stockholders or set aside any
funds for any such purpose, and not prepay, purchase or redeem any Indebtedness
for Borrowed Money other than the Obligations. Notwithstanding the foregoing,
so long as any of the Borrowers are eligible for taxation as a corporation
under Subchapter S of the Internal Revenue Code, the Borrowers that are
Subchapter S corporations may distribute to each of its shareholders (a) an
amount sufficient to cover that shareholder's actual tax liability due and
payable as a result of income of the Borrower attributed to such shareholder
and (b) provided no Default or Event of Default exists, such other sums as may
be available for distribution by such Borrower so long as the distribution
thereof does not cause a Default or Event of Default to occur.
5.2.4 Indebtedness.
None of the Borrowers will create, incur, assume or suffer
to exist any Indebtedness for Borrowed Money or permit any Subsidiary to do so,
except:
(a) the Obligations;
(b) current accounts payable arising in the
ordinary course;
(c) Indebtedness secured by Permitted Liens;
(d) Subordinated Indebtedness;
(e) Indebtedness owed to any of the other
Borrowers;
(f) Indebtedness of the Borrowers existing on the
date hereof and reflected on the financial statements furnished pursuant to
Section 3.1.11 (Financial Condition); and
(g) Unsecured Indebtedness of the Borrowers
incurred subsequent to the Closing Date provided that no Event of Default
exists at the time incurred and the incurrence of such indebtedness does not
cause a Default.
5.2.5 Investments, Loans and Other Transactions.
Except as otherwise provided in this Agreement, none of the
Borrowers will, and will permit any of its Subsidiaries to, (a) make, assume,
acquire or continue to hold any investment in any real property (unless used in
connection with its business and treated as a Fixed or Capital Asset of any
Borrower or any Subsidiary) or any Person, whether by stock
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purchase, capital contribution, acquisition of indebtedness of such Person or
otherwise (including, without limitation, investments in any joint venture or
partnership), (b) guaranty or otherwise become contingently liable for the
Indebtedness or obligations of any Person, or (c) make any loans or advances,
or otherwise extend credit to any Person, except:
(i) any advance to an officer or employee of any
Borrower or any Subsidiary for travel or other business expenses in
the ordinary course of business, provided that the aggregate amount of
all such advances by all of the Borrowers and their Subsidiaries
(taken as a whole) outstanding at any time shall not exceed that
amount which is consistent with current practices;
(ii) the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course
of business;
(iii) any investment in Cash Equivalents; and
(iv) trade credit extended to customers in the
ordinary course of business.
5.2.6 Subordinated Indebtedness.
None of the Borrowers will, and will permit any Subsidiary
to make:
(a) any payment of principal of, or interest on,
any of the Subordinated Indebtedness if a Default or an Event of Default then
exists hereunder or would result from such payment;
(b) any payment of the principal or interest due on
the Subordinated Indebtedness as a result of acceleration thereunder or a
mandatory prepayment thereunder;
(c) any amendment or modification of or
supplement to the documents evidencing or securing the Subordinated
Indebtedness; and
(d) payment of principal or interest on the
Subordinated Indebtedness other than when due (without giving
effect to any acceleration of maturity or mandatory prepayment).
5.2.7 Liens.
Each Borrower agrees that it (a) will not create, incur,
assume or suffer to exist any Lien upon any of its properties or assets,
whether now owned or hereafter acquired, or permit any Subsidiary so to do,
except for Permitted Liens, (b) will not agree to, assume or suffer to exist
any provision in any instrument or other document for confession of judgment,
cognovit or other similar right or remedy and (c) will not enter into any
contracts for the consignment of goods in which it is the consignee, will not
execute or suffer the filing of any financing statements or the posting of any
signs giving notice of consignments, and will not, as a material part of its
business, engage in the sale of goods belonging to others.
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5.2.8 Transactions with Affiliates.
None of the Borrowers nor any of their Subsidiaries will
enter into or participate in any transaction with any Affiliate or with the
officers, directors, employees and other representatives of any Borrower and/or
any Subsidiary except in the ordinary course of business and provided the same
is carried out as an arms length transaction.
5.2.9 Other Businesses.
None of the Borrowers nor any of their Subsidiaries will
engage directly or indirectly in any business other than its current line of
business described elsewhere in this Agreement.
5.2.10 ERISA Compliance.
None of the Borrowers nor any Commonly Controlled Entity
shall: (a) engage in or permit any "prohibited transaction" (as defined in
ERISA); (b) cause any "accumulated funding deficiency" as defined in ERISA
and/or the Internal Revenue Code; (c) terminate any pension plan in a manner
which could result in the imposition of a lien on the property of any Borrower
pursuant to ERISA; (d) terminate or consent to the termination of any
Multi-employer Plan; or (e) incur a complete or partial withdrawal with respect
to any Multi-employer Plan.
5.2.11 Prohibition on Hazardous Materials.
None of the Borrowers shall place, manufacture or store or
permit to be placed, manufactured or stored any Hazardous Materials on any
property owned, operated or controlled by any Borrower or for which any
Borrower is responsible other than Hazardous Materials placed or stored on such
property in accordance with applicable Laws in the ordinary course of a
Borrower's business expressly described in this Agreement.
5.2.12 Method of Accounting; Fiscal Year.
Each Borrower agrees that:
(a) it shall not change the method of accounting
employed in the preparation of any financial statements furnished to the Lender
under the provisions of Section 5.1.1 (Financial Statements), unless required
to conform to GAAP and on the condition that the Borrowers' accountants shall
furnish such information as the Lender may request to reconcile the changes
with the Borrowers' prior financial statements
(b) it will not change its fiscal year from a year
ending on March 31.
5.2.13 Sale and Leaseback.
None of the Borrowers nor any of the Subsidiaries will
directly or indirectly enter into any arrangement to sell or transfer all or
any substantial part of its fixed assets and thereupon or within one year
thereafter rent or lease the assets so sold or transferred.
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ARTICLE VI
DEFAULT AND RIGHTS AND REMEDIES
Section 6.1 Events of Default.
The occurrence of any one or more of the following events shall
constitute an "Event of Default" under the provisions of this Agreement:
6.1.1 Failure to Pay.
The failure of the Borrowers to pay any of the Obligations
as and when due and payable in accordance with the provisions of this
Agreement, the Notes and/or any of the other Financing Documents which failure
continues for five (5) days.
6.1.2 Breach of Representations and Warranties.
Any representation or warranty made in this Agreement or in
any report, statement, schedule, certificate, opinion (including any opinion of
counsel for the Borrowers), financial statement or other document furnished in
connection with this Agreement, any of the other Financing Documents, or the
Obligations, shall prove to have been false or misleading when made (or, if
applicable, when reaffirmed) in any material respect.
6.1.3 Failure to Comply with Certain Covenants.
The failure of the Borrowers to perform, observe or comply
with any covenant, condition or agreement contained in Section 5.1.1 (Financial
Statements), Section 5.1.3 (Recordkeeping, etc.), Section 5.1.4 (Corporate
Existence), Section 5.1.8 (Insurance), Section 5.1.9 (Taxes), Section 5.1.10
(ERISA), Section 5.1.11 (Notification of Events of Default etc.), Section
5.1.13 (Financial Covenants), Section 5.1.14 (Senior Debt to Accounts and
Inventory) and Section 5.2 (Negative Covenants).
6.1.4 Failure to Comply with Other Covenants.
The failure of the Borrowers to perform observe or comply
with any covenant, condition or agreement contained in this Agreement other
than those referred to in the other subsections of this ARTICLE VI and such
failure continues for thirty (30) days after written notice by the Lender to
the Borrowers.
6.1.5 Default Under Other Financing Documents or
Obligations.
A default shall occur under any of the other Obligations,
and such default is not cured within any applicable grace period provided
therein.
6.1.6 Receiver; Bankruptcy.
Any Borrower or any Subsidiary shall (a) apply for or
consent to the appointment of a receiver, trustee or liquidator of itself or
any of its property, (b) admit in writing its inability to pay its debts as
they mature, (c) make a general assignment for the benefit of creditors, (d) be
adjudicated a bankrupt or insolvent, (e) file a voluntary petition in
bankruptcy or a petition or an answer seeking or consenting to reorganization
or an arrangement with
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creditors or to take advantage of any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation law or statute, or an answer
admitting the material allegations of a petition filed against it in any
proceeding under any such law, or take corporate action for the purposes of
effecting any of the foregoing, (f) by any act indicate its consent to,
approval of or acquiescence in any such proceeding or the appointment of any
receiver of or trustee for any of its property, or suffer any such
receivership, trusteeship or proceeding to continue undischarged for a period
of sixty (60) days, or (g) by any act indicate its consent to, approval of or
acquiescence in any order, judgment or decree by any court of competent
jurisdiction or any Governmental Authority enjoining or otherwise prohibiting
the operation of a material portion of any Borrower's or any Subsidiary's
business or the use or disposition of a material portion of any Borrower's or
any Subsidiary's assets.
6.1.7 Involuntary Bankruptcy, etc.
(a) An order for relief shall be entered in any involuntary
case brought against any Borrower or any Subsidiary under the Bankruptcy Code,
or (b) any such case shall be commenced against any Borrower or any Subsidiary
and shall not be dismissed within sixty (60) days after the filing of the
petition, or (c) an order, judgment or decree under any other Law is entered by
any court of competent jurisdiction or by any other Governmental Authority on
the application of a Governmental Authority or of a Person other than any
Borrower or any Subsidiary (i) adjudicating any Borrower, or any Subsidiary
bankrupt or insolvent, or (ii) appointing a receiver, trustee or liquidator of
any Borrower or of any Subsidiary, or of a material portion of any Borrower's
or any Subsidiary's assets, or (iii) enjoining, prohibiting or otherwise
limiting the operation of a material portion of any Borrower's or any
Subsidiary's business or the use or disposition of a material portion of any
Borrower's or any Subsidiary's assets, and such order, judgment or decree
continues unstayed and in effect for a period of thirty (30) days from the date
entered.
6.1.8 Judgment.
Unless adequately insured in the opinion of the Lender, the
entry of a final judgment for the payment of money involving more than $100,000
against any Borrower or any Subsidiary, and the failure by such Borrower or
such Subsidiary to discharge the same, or cause it to be discharged, within
thirty (30) days from the date of the order, decree or process under which or
pursuant to which such judgment was entered, or to secure a stay of execution
pending appeal of such judgment.
6.1.9 Default Under Other Borrowings.
Default shall be made with respect to any Indebtedness for
Borrowed Money of any of the Borrowers (other than the Loans) in the aggregate
in excess of $100,000 if the effect of such default is to accelerate the
maturity of such Indebtedness for Borrowed Money or to permit the holder or
obligee thereof or other party thereto to cause such Indebtedness for Borrowed
Money to become due prior to its stated maturity, unless the Lender is in good
faith satisfied that the Borrowers are in good faith contesting (by legal or
other proceedings, if appropriate) the right of the holder so to accelerate and
that the Borrowers have established sufficient reserves if such contest is
unsuccessful.
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<PAGE> 44
6.1.10 Change in Ownership.
Any change in the ownership of the Borrowers such that Polk
Audio no longer owns 100% of the other Borrowers or such that George M.
Klopfer, Matthew S. Polk, Jr., and Craig C. Georgi, and their immediate
families, in the aggregate own less than thirty-five percent (35%) of the
voting common stock of Polk Audio.
6.1.11 Liquidation, Termination, Dissolution, Change in
Management, etc.
Any Borrower shall liquidate, dissolve or terminate its
existence or any change occurs in the senior management or control of any
Borrower without the prior written consent of the Lender, which consent shall
not be unreasonably withheld, conditioned or delayed.
Section 6.2 Remedies.
Upon the occurrence of any Event of Default, the Lender may, in the
exercise of its sole and absolute discretion from time to time, at any time
thereafter exercise any one or more of the following rights, powers or remedies.
6.2.2 Acceleration.
The Lender may declare any or all of the Obligations to be
immediately due and payable, notwithstanding anything contained in this
Agreement or in any of the other Financing Documents to the contrary, without
presentment, demand, protest, notice of protest or of dishonor, or other notice
of any kind, all of which the Borrowers hereby waive.
6.2.2 Further Advances.
The Lender may from time to time without notice to the
Borrowers suspend, terminate or limit any further advances, loans or other
extensions of credit under the Commitment, under this Agreement and/or under
any of the other Financing Documents. Further, upon the occurrence of an Event
of Default or Default specified in Sections 6.1.6 (Receiver; Bankruptcy) or
6.1.7 (Involuntary Bankruptcy, etc.), the Revolving Credit Commitments and any
agreement in any of the Financing Documents to provide additional credit and/or
to issue Letters of Credit shall immediately and automatically terminate and
the unpaid principal amount of the Notes (with accrued interest thereon) and
all other Obligations then outstanding, shall immediately become due and
payable without further action of any kind and without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived by the
Borrowers.
6.2.3 Performance by Lender.
If the Borrowers shall fail to pay the Obligations or
otherwise fail to perform, observe or comply with any of the conditions,
covenants, terms, stipulations or agreements contained in this Agreement or any
of the other Financing Documents, the Lender without notice to or demand upon
the Borrowers and without waiving or releasing any of the Obligations or any
Default or Event of Default, may (but shall be under no obligation to) at any
time thereafter make such payment or perform such act for the account and at
the expense of the
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<PAGE> 45
Borrowers, and may enter upon the premises of the Borrowers for that purpose
and take all such action thereon as the Lender may consider necessary or
appropriate for such purpose and each of the Borrowers hereby irrevocably
appoints the Lender as its attorney-in-fact to do so, with power of
substitution, in the name of the Lender, in the name of any or all of the
Borrowers or otherwise, for the use and benefit of the Lender, but at the cost
and expense of the Borrowers and without notice to the Borrowers. All sums so
paid or advanced by the Lender together with interest thereon from the date of
payment, advance or incurring until paid in full at the Post-Default Rate and
all costs and expenses, shall be deemed part of the Enforcement Costs, shall be
paid by the Borrowers to the Lender on demand, and shall constitute and become
a part of the Obligations.
6.2.4 Other Remedies.
The Lender may from time to time proceed to protect or
enforce the rights of the Lender by an action or actions at law or in equity or
by any other appropriate proceeding, whether for the specific performance of
any of the covenants contained in this Agreement or in any of the other
Financing Documents, or for an injunction against the violation of any of the
terms of this Agreement or any of the other Financing Documents, or in aid of
the exercise or execution of any right, remedy or power granted in this
Agreement, the Financing Documents, and/or applicable Laws. The Lender is
authorized to offset and apply to all or any part of the Obligations all
moneys, credits and other property of any nature whatsoever of any or all of
the Borrowers now or at any time hereafter in the possession of, in transit to
or from, under the control or custody of, or on deposit with, the Lender or any
Affiliate of the Lender.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Notices.
All notices, requests and demands to or upon the parties to this
Agreement shall be in writing and shall be deemed to have been given or made
when delivered by hand on a Business Day, or two (2) days after the date when
deposited in the mail, postage prepaid by registered or certified mail, return
receipt requested, or when sent by overnight courier, on the Business Day next
following the day on which the notice is delivered to such overnight courier,
addressed as follows:
Borrowers: Polk Audio, Inc.
5601 Metro Drive
Baltimore, Maryland 21215
Attention: George M. Klopfer,
Chief Executive Officer
with a copy to: Wilbert H. Sirota, Esquire
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, Maryland 21201
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<PAGE> 46
Lender: NationsBank, N. A.
MD4-302-16-01
10 Light Street, 16th Floor
Baltimore, Maryland 21202
Attention: James H. Peterson
Senior Vice President
with a copy to: Kathleen M. Donahue, Esquire
Miles & Stockbridge P.C.
10 Light Street
Baltimore, Maryland 21202
By written notice, each party to this Agreement may change the address
to which notice is given to that party, provided that such changed notice shall
include a street address to which notices may be delivered by overnight courier
in the ordinary course on any Business Day.
Section 7.1 Amendments; Waivers.
7.2.1 In General.
This Agreement and the other Financing Documents may not be
amended, modified, or changed in any respect except by an agreement in writing
signed by the Lender and the Borrowers. No waiver of any provision of this
Agreement or of any of the other Financing Documents, nor consent to any
departure by the Borrowers therefrom, shall in any event be effective unless
the same shall be in writing signed by the Lender. No course of dealing between
the Borrowers and the Lender and no act or failure to act from time to time on
the part of the Lender shall constitute a waiver, amendment or modification of
any provision of this Agreement or any of the other Financing Documents or any
right or remedy under this Agreement, under any of the other Financing
Documents or under applicable Laws. Without implying any limitation on the
foregoing:
(a) Any waiver or consent shall be effective only
in the specific instance, for the terms and purpose for which given, subject to
such conditions as the Lender may specify in any such instrument.
(b) No waiver of any Default or Event of Default
shall extend to any subsequent or other Default or Event of Default, or impair
any right consequent thereto.
(c) No notice to or demand on the Borrowers in any
case shall entitle the Borrowers to any other or further notice or demand in
the same, similar or other circumstance.
(d) No failure or delay by the Lender to insist
upon the strict performance of any term, condition, covenant or agreement of
this Agreement or of any of the other Financing Documents, or to exercise any
right, power or remedy consequent upon a breach thereof, shall constitute a
waiver, amendment or modification
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of any such term, condition, covenant or agreement or of any such breach or
preclude the Lender from exercising any such right, power or remedy at any time
or times.
(e) By accepting payment after the due date of any
amount payable under this Agreement or under any of the other Financing
Documents, the Lender shall not be deemed to waive the right either to require
prompt payment when due of all other amounts payable under this Agreement or
under any of the other Financing Documents, or to declare a default for failure
to effect such prompt payment of any such other amount.
Section 7.3 Cumulative Remedies.
The rights, powers and remedies provided in this Agreement and in the
other Financing Documents are cumulative, may be exercised concurrently or
separately, may be exercised from time to time and in such order as the Lender
shall determine, subject to the provisions of this Agreement, and are in
addition to, and not exclusive of, rights, powers and remedies provided by
existing or future applicable Laws. In order to entitle the Lender to exercise
any remedy reserved to it in this Agreement, it shall not be necessary to give
any notice, other than such notice as may be expressly required in this
Agreement. Without limiting the generality of the foregoing and subject to the
terms of this Agreement, the Lender may:
(a) proceed against any one or more of the
Borrowers with or without proceeding against any other Person (including,
without limitation, any one or more of the Guarantors) who may be liable
(by endorsement, guaranty, indemnity or otherwise) for all or any part of
the Obligations;
(b) proceed against any one or more of the
Borrowers with or without proceeding under any of the other Financing
Documents or against any collateral and security for all or any part of
the Obligations;
(c) without reducing or impairing the obligation of
the Borrowers and without notice, release or compromise with any
guarantor or other Person liable for all or any part of the Obligations
under the Financing Documents or otherwise;
(d) without reducing or impairing the obligations
of the Borrowers and without notice thereof:
(i) approve the making of advances under the
Revolving Loan under this Agreement;
(ii) waive any provision of this Agreement or
the other Financing Documents;
(iii) exercise or fail to exercise rights of
set-off or other rights; or
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<PAGE> 48
(iv) accept partial payments or extend from
time to time the maturity of all or any part of the
Obligations.
Section 7.4 Severability.
In case one or more provisions, or part thereof, contained in this
Agreement or in the other Financing Documents shall be invalid, illegal or
unenforceable in any respect under any Law, then without need for any further
agreement, notice or action:
(a) the validity, legality and enforceability of
the remaining provisions shall remain effective and binding on the
parties thereto and shall not be affected or impaired thereby;
(b) the obligation to be fulfilled shall be reduced
to the limit of such validity;
(c) if such provision or part thereof pertains to
repayment of the Obligations, then, at the sole and absolute discretion
of the Lender, all of the Obligations of the Borrowers to the Lender
shall become immediately due and payable; and
(d) if the affected provision or part thereof does
not pertain to repayment of the Obligations, but operates or would
prospectively operate to invalidate this Agreement in whole or in part,
then such provision or part thereof only shall be void, and the remainder
of this Agreement shall remain operative and in full force and effect.
Section 7.5 Assignments by Lender.
The Lender may, with notice to but without the consent of the Borrowers,
assign to any Person (each an "Assignee" and collectively, the "Assignees") all
or a portion of the Lender's Commitments. The Lender and its Assignee shall
notify the Borrowers in writing of the date on which the assignment is to be
effective (the "Adjustment Date"). On or before the Adjustment Date, the
assigning Lender, the Borrowers and the respective Assignee shall execute and
deliver a written assignment agreement in a form acceptable to the Lender,
which shall constitute an amendment to this Agreement to the extent necessary
to reflect such assignment. Upon the request of any assigning Lender following
an assignment made in accordance with this Section 7.5, the Borrowers shall
issue new Notes to the assigning Lender and its Assignee reflecting such
assignment, in exchange for the existing Notes held by the assigning Lender.
In addition, notwithstanding the foregoing, the Lender may at any time
pledge all or any portion of the Lender's rights under this Agreement, any of
the Commitments or any of the Obligations to a Federal Reserve Bank.
Section 7.6 Participations by Lender.
The Lender may at any time sell to one or more financial institutions
participating interests in any of the Lender's Obligations or Commitments;
provided, however, that (a) no such participation shall relieve the Lender from
its obligations under this Agreement or under
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any of the other Financing Documents to which it is a party, (b) the Lender
shall remain solely responsible for the performance of its obligations under
this Agreement and under all of the other Financing Documents to which it is a
party, and (c) the Borrowers shall continue to deal solely and directly with th
eLender in connection with the Lender's rights and obligations under this
AGreement and the other Financing Documents.
Section 7.7 Disclosure of Information by Lender.
In connection with any sale, transfer, assignment or participation
by the Lender in accordance with Section 7.5 (Assignments by Lender) or Section
7.6 (Participations by Lender), the Lender shall have the right to disclose to
any actual or potential purchaser, assignee, transferee or participant all
financial records, information, reports, financial statements and documents
obtained in connection with this Agreement and/or any of the other Financing
Documents or otherwise.
Section 7.8 Successors and Assigns.
This Agreement and all other Financing Documents shall be binding
upon and inure to the benefit of the Borrowers and the Lender and their
respective heirs, personal representatives, successors and assigns, except that
the Borrowers shall not have the right to assign their rights hereunder or any
interest herein without the prior written consent of the Lender.
Section 7.9 Continuing Agreements.
All covenants, agreements, representations and warranties made by
the Borrowers in this Agreement, in any of the other Financing Documents, and
in any certificate delivered pursuant hereto or thereto shall survive the
making by the Lender of the Loans, the issuance of Letters of Credit by the
Lender and the execution and delivery of the Notes, shall be binding upon the
Borrowers regardless of how long before or after the date hereof any of the
Obligations were or are incurred, and shall continue in full force and effect
so long as any of the Obligations are outstanding and unpaid. From time to time
upon the Lender's request, the Borrowers and other Persons obligated with
respect to the Obligations shall provide the Lender with such acknowledgments
and agreements as the Lender may require to the effect that there exists no
defenses, rights of setoff or recoupment, claims, counterclaims, actions or
causes of action of any kind or nature whatsoever against the Lender and/or any
of its agents and others, or to the extent there are, describing the same or
stating that the same are waived and released.
Section 7.10 Enforcement Costs.
The Borrowers agree to pay to the Lender on demand all Enforcement
Costs, together with interest thereon from the date incurred or advanced until
paid in full at a per annum rate of interest equal at all times to the
Post-Default Rate. Enforcement Costs shall be immediately due and payable at
the time advanced or incurred, whichever is earlier. Without implying any
limitation on the foregoing, the Borrowers agree, as part of the Enforcement
Costs, to pay upon demand any and all stamp and other Taxes and fees payable or
determined to be payable in connection with the execution and delivery of this
Agreement and the other Financing Documents and to save the Lender harmless
from and against any and all liabilities with respect to or resulting from any
delay in paying or omission to pay any Taxes or fees referred to in this
Section. The provisions of this Section shall survive the execution and
delivery of this
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Agreement, the repayment of the other Obligations and shall survive the
termination of this Agreement.
Section 7.11 Applicable Law; Jurisdiction.
7.11.1 Applicable Law.
Borrowers acknowledge and agree that the Financing
Documents, including, this Agreement, shall be governed by the Laws of the
State, as if each of the Financing Documents and this Agreement had each been
executed, delivered, administered and performed solely within the State even
though for the convenience and at the request of the Borrowers, one or more of
the Financing Documents may be executed elsewhere. The Lender acknowledges,
however, that remedies under certain of the Financing Documents that relate to
property outside the State may be subject to the laws of the state in which the
property is located.
7.11.2 Submission to Jurisdiction.
The Borrowers irrevocably submit to the jurisdiction
of any state or federal court sitting in the State over any suit, action or
proceeding arising out of or relating to this Agreement or any of the other
Financing Documents. Each of the Borrowers irrevocably waives, to the fullest
extent permitted by law, any objection that it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding brought in any such
court and any claim that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum. Final judgment in any
such suit, action or proceeding brought in any such court shall be conclusive
and binding upon the Borrowers and may be enforced in any court in which the
Borrowers are subject to jurisdiction, by a suit upon such judgment, provided
that service of process is effected upon the Borrowers in one of the manners
specified in this Section or as otherwise permitted by applicable Laws.
7.11.3 Appointment of Agent for Service of Process.
The Borrowers hereby irrevocably designate and
appoint Wilbert H. Sirota, Esq., c/o Piper & Marbury L.L.P., 36 South Charles
Street, Baltimore, Maryland 21201, as the Borrowers' authorized agent to
receive on the Borrowers' behalf service of any and all process that may be
served in any suit, action or proceeding of the nature referred to in this
Section in any state or federal court sitting in the State. If such agent shall
cease so to act, the Borrowers shall irrevocably designate and appoint without
delay another such agent in the State satisfactory to the Lender and shall
promptly deliver to the Lender evidence in writing of such other agent's
acceptance of such appointment and its agreement that such appointment shall be
irrevocable.
7.11.4 Service of Process.
Each of the Borrowers hereby consents to process
being served in any suit, action or proceeding of the nature referred to in
this Section by (a) the mailing of a copy thereof by registered or certified
mail, postage prepaid, return receipt requested, to the Borrower at the
Borrower's address designated in or pursuant to Section 7.1 (Notices), and (b)
serving a copy thereof upon the agent, if any, designated and appointed by the
Borrower as the Borrower's agent for service of process by or pursuant to this
Section. The Borrowers irrevocably agree that such service (y) shall be deemed
in every respect effective service of process upon the Borrowers
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in any such suit, action or proceeding, and (z) shall, to the fullest extent
permitted by law, be taken and held to be valid personal service upon the
Borrowers. Nothing in this Section shall affect the right of the Lender to
serve process in any manner otherwise permitted by law or limit the right of
the Lender otherwise to bring proceedings against the Borrowers in the courts
of any jurisdiction or jurisdictions.
Section 7.12 Duplicate Originals and Counterparts.
This Agreement may be executed in any number of duplicate originals
or counterparts, each of such duplicate originals or counterparts shall be
deemed to be an original and all taken together shall constitute but one and
the same instrument.
Section 7.13 Headings.
The headings in this Agreement are included herein for convenience
only, shall not constitute a part of this Agreement for any other purpose, and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section 7.14 No Agency.
Nothing herein contained shall be construed to constitute the
Borrowers as the agent of the Lender for any purpose whatsoever or to permit
the Borrowers to pledge any of the credit of the Lender. The Lender shall not,
by anything herein or in any of the Financing Documents or otherwise, assume
any of the Borrowers' obligations under any contract or agreement assigned to
the Lender, and the Lender shall not be responsible in any way for the
performance by the Borrowers of any of the terms and conditions thereof.
Section 7.15 Date of Payment.
Should the principal of or interest on the Notes become due and
payable on other than a Business Day, the maturity thereof shall be extended to
the next succeeding Business Day and in the case of principal, interest shall
be payable thereon at the rate per annum specified in the Notes during such
extension.
Section 7.16 Entire Agreement.
This Agreement is intended by the Lender and the Borrowers to be a
complete, exclusive and final expression of the agreements contained herein.
Neither the Lender nor the Borrowers shall hereafter have any rights under any
prior agreements pertaining to the matters addressed by this Agreement but
shall look solely to this Agreement for definition and determination of all of
their respective rights, liabilities and responsibilities under this Agreement.
Section 7.17 Waiver of Trial by Jury.
THE BORROWERS AND THE LENDERS HEREBY JOINTLY AND SEVERALLY WAIVE
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE BORROWER AND THE LENDER
MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT
OR (B) ANY OF THE FINANCING DOCUMENTS. THIS WAIVER CONSTITUTES A WAIVER OF
TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
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PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS
AGREEMENT.
This waiver is knowingly, willingly and voluntarily made by the
Borrowers and the Lender, and the Borrowers and the Lender hereby represent
that no representations of fact or opinion have been made by any individual to
induce this waiver of trial by jury or to in any way modify or nullify its
effect. The Borrowers and the Lender further represent that they have been
represented in the signing of this Agreement and in the making of this waiver
by independent legal counsel, selected of their own free will, and that they
have had the opportunity to discuss this waiver with counsel.
Section 7.18 Liability of the Lender.
The Borrowers hereby agree that the Lender shall not be chargeable
for any negligence, mistake, act or omission of any accountant, examiner,
agency or attorney employed by the Lender in making examinations,
investigations or collections, or otherwise in perfecting, maintaining,
protecting or realizing upon any lien or security interest or any other
interest in any security for the Obligations excepting gross negligence and
willful misconduct.
Section 7.19 Indemnification.
The Borrowers agrees to indemnify and hold harmless, Lender, the
respective parent and Affiliates of the Lender and the respective parent's and
Affiliates' officers, directors, shareholders, employees and agents (each an
"Indemnified Party," and collectively, the "Indemnified Parties"), from and
against any and all claims, liabilities, losses, damages, costs and expenses
(whether or not such Indemnified Party is a party to any litigation), including
without limitation, reasonable attorney's fees and costs and costs of
investigation, document production, attendance at depositions or other
discovery, incurred by any Indemnified Party with respect to, arising out of or
as a consequence of (a) this Agreement or any of the other Financing Documents,
including without limitation, any failure of the Borrowers to pay when due (at
maturity, by acceleration or otherwise) any principal, interest, fee or any
other amount due under this Agreement or the other Loan documents, or any other
Event of Default; (b) the use by the Borrowers of any proceeds advanced
hereunder; (c) the transactions contemplated hereunder; or (d) any claim,
demand, action or cause of action being asserted against (i) the Borrowers or
any of their Affiliates by any other Person, or (ii) any Indemnified Party by
the Borrowers in connection with the transactions contemplated hereunder.
Notwithstanding anything herein or elsewhere to the contrary, the Borrowers
shall not be obligated to indemnify or hold harmless any Indemnified Party from
any liability, loss or damage resulting from the gross negligence, willful
misconduct or unlawful actions of such Indemnified Party. Any amount payable to
the Lender under this Section will bear interest at the Post-Default Rate from
the due date until paid.
IN WITNESS WHEREOF, each of the parties hereto have executed and
delivered this Agreement under their respective seals as of the day and year
first written above.
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<TABLE>
<S> <C>
WITNESS OR ATTEST: POLK AUDIO, INC.
- -------------------------- By: (SEAL)
--------------------------
George M. Klopfer
Chief Executive Officer
- -------------------------- By: (SEAL)
--------------------------
Matthew S. Polk, Jr.
Chairman of the Board of Directors
WITNESS: BRITANNIA INVESTMENT CORP.
- -------------------------- By: (SEAL)
--------------------------
George M. Klopfer
Chief Executive Officer
WITNESS: POLK AUDIO EUROPE, INC.
- -------------------------- By: (SEAL)
--------------------------
George M. Klopfer
Chief Executive Officer
WITNESS: EOSONE INTERNATIONAL, INC.
- -------------------------- By: (SEAL)
--------------------------
George M. Klopfer
Chief Executive Officer
</TABLE>
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<TABLE>
<S> <C>
WITNESS: NATIONSBANK, N. A.
- -------------------------- By: (SEAL)
--------------------------
James H. Peterson
Senior Vice President
</TABLE>
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LIST OF EXHIBITS
A-1. Revolving Credit Note
A-2. Term Note
B. Security Agreement
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LIST OF SCHEDULES
Schedule 3.1.10 Litigation
Schedule 3.1.13 Indebtedness for Borrowed Money
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TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS 1
Section 1.1 Certain Defined Terms. 1
Section 1.2 Accounting Terms and Other Definitional Provisions. 12
ARTICLE II THE CREDIT FACILITIES 13
Section 2.1 The Revolving Credit Facility. 13
2.1.1 Revolving Credit Facility. 13
2.1.2 Procedure for Making Advances Under the Revolving Loan; Lender Protection Loans. 13
2.1.3 Revolving Credit Note. 14
2.1.4 Optional Prepayments of Revolving Loan. 14
2.1.5 Revolving Loan Account. 14
2.1.6 Revolving Credit Unused Line Fee. 15
2.1.7 Increase of Revolving Credit Committed Amount. 15
Section 2.2 The Term Loan Facility. 15
2.2.1 Term Loan Commitment. 15
2.2.2 Procedure for Making Advances Under the Term Loan. 15
2.2.3 The Term Note. 15
2.2.4 Optional Prepayments of Term Loan. 16
Section 2.3 The Letter of Credit Facility. 16
2.3.1 Letters of Credit. 16
2.3.2 Letter of Credit Fees. 16
2.3.3 Terms of Letters of Credit; Post-Expiration Date Letters of Credit. 16
2.3.4 Procedures for Letters of Credit. 17
2.3.5 Payments of Letters of Credit. 18
Section 2.4 General Financing Provisions. 18
2.4.1 Borrowers' Representatives. 18
2.4.2 Use of Proceeds of the Loans. 20
2.4.3 Origination Fee. 20
2.4.4 Computation of Interest and Fees. 20
2.4.5 Payments. 20
2.4.6 Liens; Setoff. 20
2.4.7 Requirements of Law. 21
2.4.8 Guaranty. 21
ARTICLE III REPRESENTATIONS AND WARRANTIES 24
Section 3.1 Representations and Warranties. 24
3.1.1 Subsidiaries. 24
3.1.2 Good Standing. 24
3.1.3 Power and Authority. 25
3.1.4 Binding Agreements. 25
3.1.5 No Conflicts. 25
3.1.6 No Defaults, Violations. 25
3.1.7 Compliance with Laws. 25
3.1.8 Margin Stock. 26
3.1.9 Investment Company Act; Margin Securities. 26
3.1.10 Litigation. 26
3.1.11 Financial Condition. 26
3.1.12 Full Disclosure. 27
3.1.13 Indebtedness for Borrowed Money. 27
3.1.14 Taxes. 27
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3.1.15 ERISA. 27
3.1.16 Title to Properties. 28
3.1.17 Patents, Trademarks, Etc. 28
3.1.18 Presence of Hazardous Materials or Hazardous Materials Contamination. 28
3.1.19 Year 2000 Compliance. 28
Section 3.2 Survival; Updates of Representations and Warranties. 29
ARTICLE IV CONDITIONS PRECEDENT 29
Section 4.1 Conditions to the Initial Advance and Initial Letter of Credit. 29
4.1.1 Organizational Documents - Borrowers. 29
4.1.2 Opinion of Borrowers' Counsel. 30
4.1.3 Consents, Licenses, Approvals, Etc. 30
4.1.4 Notes. 30
4.1.5 Financing Documents. 30
4.1.6 Other Financing Documents. 30
4.1.7 Other Documents, Etc. 30
4.1.8 Payment of Fees. 31
4.1.9 Insurance Certificate. 31
Section 4.2 Conditions to all Extensions of Credit. 31
4.2.1 Compliance. 31
4.2.2 Default. 31
4.2.3 Representations and Warranties. 31
4.2.4 Adverse Change. 31
4.2.5 Legal Matters. 31
ARTICLE V COVENANTS OF THE BORROWERS 32
Section 5.1 Affirmative Covenants. 32
5.1.1 Financial Statements. 32
5.1.2 Reports to SEC and to Stockholders. 33
5.1.3 Recordkeeping, Rights of Inspection, Etc. 33
5.1.4 Corporate Existence. 33
5.1.5 Compliance with Laws. 34
5.1.6 Preservation of Properties. 34
5.1.7 Line of Business. 34
5.1.8 Insurance. 34
5.1.9 Taxes. 34
5.1.10 ERISA. 35
5.1.11 Notification of Events of Default and Adverse Developments. 35
5.1.12 Hazardous Materials; Contamination. 36
5.1.13 Financial Covenants. 36
5.1.14 Senior Debt to Accounts and Inventory. 37
Section 5.2 Negative Covenants. 37
5.2.1 Capital Structure, Merger, Acquisition or Sale of Assets. 37
5.2.2 Subsidiaries. 37
5.2.3 Purchase of Securities, Dividend Restrictions. 38
5.2.4 Indebtedness. 38
5.2.5 Investments, Loans and Other Transactions. 38
5.2.6 Subordinated Indebtedness. 39
5.2.7 Liens. 39
5.2.8 Transactions with Affiliates. 40
5.2.9 Other Businesses. 40
5.2.10 ERISA Compliance. 40
5.2.11 Prohibition on Hazardous Materials. 40
5.2.12 Method of Accounting; Fiscal Year. 40
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5.2.13 Sale and Leaseback. 40
ARTICLE VI DEFAULT AND RIGHTS AND REMEDIES 41
Section 6.1 Events of Default. 41
6.1.1 Failure to Pay. 41
6.1.2 Breach of Representations and Warranties. 41
6.1.3 Failure to Comply with Certain Covenants. 41
6.1.4 Failure to Comply with Other Covenants. 41
6.1.5 Default Under Other Financing Documents or Obligations. 41
6.1.6 Receiver; Bankruptcy. 41
6.1.7 Involuntary Bankruptcy, etc. 42
6.1.8 Judgment. 42
6.1.9 Default Under Other Borrowings. 42
6.1.10 Change in Ownership. 43
6.1.11 Liquidation, Termination, Dissolution, Change in Management, etc. 43
Section 6.2 Remedies. 43
6.2.1 Acceleration. 43
6.2.2 Further Advances. 43
6.2.3 Performance by Lender. 43
6.2.4 Other Remedies. 44
ARTICLE VII MISCELLANEOUS 44
Section 7.1 Notices. 44
Section 7.2 Amendments; Waivers. 45
7.2.1 In General. 45
Section 7.3 Cumulative Remedies. 46
Section 7.4 Severability. 47
Section 7.5 Assignments by Lender. 47
Section 7.6 Participations by Lender. 47
Section 7.7 Disclosure of Information by Lender. 48
Section 7.8 Successors and Assigns. 48
Section 7.9 Continuing Agreements. 48
Section 7.10 Enforcement Costs. 48
Section 7.11 Applicable Law; Jurisdiction. 49
7.11.1 Applicable Law. 49
7.11.2 Submission to Jurisdiction. 49
7.11.3 Appointment of Agent for Service of Process. 49
7.11.4 Service of Process. 49
Section 7.12 Duplicate Originals and Counterparts. 50
Section 7.13 Headings. 50
Section 7.14 No Agency. 50
Section 7.15 Date of Payment. 50
Section 7.16 Entire Agreement. 50
Section 7.17 Waiver of Trial by Jury. 50
Section 7.18 Liability of the Lender. 51
Section 7.19 Indemnification. 51
LIST OF SCHEDULES 55
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EXHIBIT (b)(3)
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of the _____day
of ___________, _____, by POLK AUDIO, INC., a corporation organized under the
laws of the State of Maryland ("Polk Audio"), BRITANNIA INVESTMENT CORP., a
corporation organized under the laws of the State of Delaware ("Polk
Investment"), POLK AUDIO EUROPE, INC., a corporation organized under the laws
of the State of Maryland ("Polk Europe") and EOSONE INTERNATIONAL, INC., a
corporation organized under the laws of the State of Maryland, ("Eosone"; each
a "Borrower"; collectively, the "Borrowers"), jointly and severally and
NATIONSBANK, N. A., a national banking association (the "Lender").
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which each of the Borrowers hereby acknowledges,
FOR THE PURPOSE OF SECURING all present and future debts, obligations,
and liabilities of any nature whatsoever (direct or indirect, fixed or
contingent), and whether or not now contemplated, of the Borrowers to Lender
relating to and in connection with this Agreement and the Revolving Credit
Facility as defined in a Financing Agreement dated April __, 1999 by and
between the Borrowers and the Lender (collectively, the "Obligations"),
EACH OF THE BORROWERS HEREBY assigns, pledges and grants to Lender,
and covenants and agrees that Lender shall have a perfected and continuing
security interest in all of the Borrowers' accounts, both now owned and
hereafter created or acquired (as the term "Accounts" is more fully defined in
the Financing Agreement between the Borrowers and the Lender executed on
________, 1999 (individually, an "Account" and collectively, the "Accounts")
and all returned, rejected or repossessed goods, the sale or lease of which
shall have given or shall give rise to an Account, all whether now owned or
existing or hereafter acquired or created wherever situated (collectively, the
"Collateral") and
WITH RESPECT TO EACH AND ALL OF THE FOREGOING, all insurance policies
and insurance proceeds related to any and all of the foregoing and all cash and
non-cash proceeds thereof, and all books and records in whatever media (paper,
electronic or otherwise) recorded or stored, with respect to any or all of the
foregoing and all equipment, hardware and general intangibles necessary,
beneficial or desirable to retain, access and/or process the information
contained in those books and records, and all proceeds (cash and non-cash) of
the foregoing.
Each of the Borrowers further agrees that the Lender shall have in
respect thereof all of the rights and remedies of a Lender under the Maryland
Uniform Commercial Code as well as those provided in this Agreement.
Notwithstanding the fact that the proceeds of the Collateral constitute a part
of the Collateral, the Borrowers may not dispose of the Collateral, or any part
thereof except in the ordinary course of business.
1. Each of the Borrowers covenants with and warrants to Lender
that:
(a) The Borrowers will store the Collateral in safe and
secure locations, and in accordance with applicable laws, will take all steps
necessary to preserve and maintain the Collateral and its value, and will not
permit anything to be done to the Collateral which may
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materially impair its value or security. Lender, or agents designated by
Lender, shall be permitted to enter the premises of the Borrowers and examine,
audit and inspect the Collateral at any reasonable time and from time to time
without notice.
(b) At their expense, the Borrowers will defend the title
to the Collateral (or any part thereof), and will promptly upon request by the
Lender execute, acknowledge and deliver any financing statement, continuation
statement, security agreement, assignment, instruments, filings or other
documents as may be necessary or beneficial, in the opinion of the Lender, to
perfect, preserve, provide notice of, maintain, continue, realize upon, protect
and/or extend the assignment, lien or security interest granted to the Lender
under this Agreement and its priority. Each of the Borrowers agrees that a
copy of a fully executed financing statement shall be sufficient to satisfy for
all purposes the requirements of a financing statement as set forth in Article
9 of the applicable Uniform Commercial Code.
2. Each of the Borrowers hereby represents and warrants to the
Lender that:
(a) This Agreement constitutes the valid and legally
binding obligation of each such Borrower, enforceable in accordance with its
terms.
(b) There is no charter, bylaw, stock provision or other
document pertaining to the organization, power or authority of the Borrower and
no provision of any existing agreement, mortgage, indenture, contract, law,
court or administrative order or proceeding binding on or applicable to the
Borrower or affecting its property, which would conflict with or in any way
prevent the execution, delivery or carrying out of the terms of this Agreement.
(c) The Borrower has good title to the Collateral and the
Collateral is free and clear of liens, other security interests, claims,
encumbrances, and assignments, except those granted to the Lender and other
Permitted Liens (as defined in the Financing Agreement).
(d) The Lender has and will continue to have as security
for the Obligations a valid and perfected security interest in all of the
Collateral.
(e) The information contained in EXHIBIT A, which is
attached to and a part of this Agreement, is complete and correct.
3. The Borrowers shall be in default under this Agreement if (a)
an Event of Default (as defined in the Financing Agreement) occurs or (b) any
of the Borrowers (i) transfers to another location any of the Collateral, or
makes any change which would cause the information contained on EXHIBIT A to
this Agreement to be no longer true, complete and correct, (ii) transfers or
assigns (including, without limitation, transfers or assignments by merger,
consolidation or operation of law) or sells, conveys, leases, assigns,
transfers or otherwise disposes of all or any part of the Collateral (except
for the liquidation of Accounts in the ordinary course of business), (iii)
permits (or if there shall arise) any security interest, encumbrance, financing
statement, lien (including, without limitation, tax lien) or charge of any kind
on the Collateral, except for the liens of Lender pursuant to this Agreement
and other Permitted Liens (as defined in the Financing Agreement) or (iv)
changes the name under which any of the Borrowers conducts its business without
notice to the Lender and filing of all documents deemed
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necessary by the Lender to continue the perfection of the Lender's security
interest in the Collateral.
4. Upon the occurrence of a default under this Agreement (and in
addition to all of its rights, powers and remedies under this Agreement any
other promissory notes, documents, instruments, guaranties, mortgages or other
contract with or for the benefit of the Lender, or securing or evidencing
payment of any indebtedness of the Borrowers, at any time executed by the
Borrowers and/or any other person in connection with any of the Obligations,
all as the same may be amended, modified, restated, substituted, extended and
renewed at any time and from time to time, the "Financing Documents"), the
Lender shall have all of the rights and remedies of a Lender under the Maryland
Uniform Commercial Code and other applicable laws. If the sale or other
disposition of the Collateral fails to satisfy all of the Obligations, the
Borrowers shall remain liable to Lender for any deficiency. Upon demand by
Lender, the Borrowers shall assemble the Collateral and make it available to
Lender, at a place reasonably convenient for such purpose as designated by
Lender. The Borrowers shall hold in trust for the Lender all collections and
proceeds of Collateral in the form received, shall not commingle those
collections or proceeds with any other assets of the Borrowers and shall
deliver those collections and proceeds immediately to the Lender with any
necessary endorsement. The Lender or its agents may enter upon and remain on
the Borrowers' premises to take possession of the Collateral, to remove it, to
render it unusable, to collect it, or to sell or otherwise dispose of it and to
take any other action permitted to be taken under this Agreement or under
applicable laws. Any proceeds of the collection, the sale or other disposition
of the Collateral will be applied by the Lender to the Obligations (whether
then due or not), at such time or times and in such order and manner of
application as the Lender may from time to time in its sole and absolute
discretion determine.
5. If any of the Borrowers fail to take any action required to be
taken by the Borrowers under this Agreement the Lender may do so in the name of
the Lender or the Borrower or Borrowers as the Lender may elect, but at the
cost and expense of the Borrowers. In addition, following a default under this
Agreement, in addition to all other rights and remedies provided hereunder or
as shall exist at law or in equity from time to time, the Lender may (but shall
be under no obligation to), without notice to the Borrowers, in the name of the
Lender or in the name of the Borrowers or otherwise, for the use and benefit of
the Lender, but at the cost and expense of the Borrowers, (a) extend, renew,
demand, collect, enforce by legal or equitable proceedings or otherwise,
exchange, surrender, compromise, give receipt for and give renewals,
extensions, discharges and releases of, any and all of the Collateral; (b)
endorse or sign the name of any of the Borrowers upon any items of payment,
certificates of title, instruments, securities, powers, documents, documents of
title, or other writing relating to or part of the Collateral; and (c) take any
other action necessary or beneficial to realize upon or dispose of the
Collateral. Each of the Borrowers hereby irrevocably appoints the Lender as
its attorney-in-fact, with power of substitution from time to time, to take
such actions as are described in this paragraph as well as any other action
which the Borrowers are required to take under this Agreement or under any of
the other Financing Documents, including, without limitation, the execution,
acknowledgment and delivery of any financing statement, continuation statement,
security agreement, assignment, instruments, filings or other document as may
be necessary or beneficial, in the opinion of the Lender, to perfect, preserve,
provide notice of, maintain, continue, realize upon, protect and/or
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<PAGE> 4
extend the assignment, lien or security interest granted to the Lender under
this Agreement and its priority.
6. Without precluding other means for giving notice, any written
notice of the sale, disposition or other intended action by Lender with respect
to the Collateral given at least ten (10) days prior to such sale, disposition
or other action, shall in all events constitute reasonable commercially notice
to the Borrowers.
7. The Borrowers agree to pay to Lender as part of the
Obligations all reasonable expenses, charges, costs, taxes, and fees
(including, without limitation, reasonable attorney's fees and expenses,
whether incurred prior to the institution of any suit or other proceeding or
otherwise) of any nature whatsoever paid or incurred by or on behalf of Lender
in connection with the perfection, collection, maintenance, preservation,
inspection, insuring, defense, protection, realization upon, disposition, sale
or enforcement of all or any part of the Collateral or the enforcement or
collection of the Obligations.
8. This Agreement may not be amended, modified, or changed in any
respect except by an agreement in writing signed by the Lender and the
Borrowers. The Lender shall have the right at all times to enforce the
provisions of this Agreement in strict accordance with the terms hereof,
notwithstanding any conduct or custom on the part of the Lender in refraining
from so doing at any time or times. The failure or delay of the Lender at any
time or times to enforce the rights under such provisions, strictly in
accordance with the same, shall not be construed as having created a custom in
any way or manner contrary to specific provisions of this Agreement or as
having in any way or manner modified or waived the same.
9. The rights, powers and remedies provided in this Agreement are
cumulative, may be exercised concurrently or separately, may be exercised from
time to time and in such order as the Lender shall determine, and are in
addition to, and not exclusive of, rights, powers and remedies provided by
applicable laws. Without limiting the generality of the foregoing, the Lender
may:
(a) proceed against the Borrowers and/or the Collateral
with or without proceeding against any person obligated under any of the
Obligations;
(b) proceed against the Borrowers with or without
proceeding under the other Financing Documents;
(c) without reducing or impairing the obligation of the
Borrowers and without notice, release or compromise with any guarantor or other
person liable for all or any part of the Obligations;
(d) without reducing or impairing the obligations of the
Borrowers and without notice thereof: (i) fail to perfect the security
interests and/or other interests of the Lender in any or all Collateral or to
release any or all the Collateral or to accept substitute Collateral, (ii)
allow all or any Obligations to arise after the date of this Agreement, (iii)
waive any provision of this Agreement, (iv) exercise or fail to exercise rights
of set-off or other rights, (v) accept partial payments or extend from time to
time the maturity of all or any part of the Obligations, and (vi)
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<PAGE> 5
take or fail to take any action under this Agreement or against any one or more
persons obligated under the Obligations.
Each of the Borrowers hereby waives and releases all claims and defenses
against the Lender and/or with respect to the payment or enforcement of the
Obligations and the Lender's rights in the Collateral on account of any of the
foregoing.
10. In case one or more provisions contained in this Agreement
shall be invalid, illegal or unenforceable in any respect under any law, the
validity, legality and enforceability of the remaining provisions contained
herein shall remain effective and binding on the parties hereto and shall not
be affected or impaired thereby.
11. This Agreement shall be binding upon and inure to the benefit
of the Borrowers and Lender and their respective successors and assigns.
IN WITNESS WHEREOF, each of the Borrowers has executed and delivered
this Agreement under seal as of the day and year first written above.
WITNESS OR ATTEST: POLK AUDIO, INC.
By: (SEAL)
- ---------------------------- ------------------------------
George M. Klopfer
Chief Executive Officer
By: (SEAL)
- ---------------------------- --------------------------
Matthew S. Polk, Jr.
Chairman of the Board of Directors
WITNESS: BRITANNIA INVESTMENT CORP.
By: (SEAL)
- ---------------------------- --------------------------
George M. Klopfer
Chief Executive Officer
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<PAGE> 6
WITNESS: POLK AUDIO EUROPE, INC.
By: (SEAL)
- ---------------------------- --------------------------
George M. Klopfer
Chief Executive Officer
WITNESS: EOSONE INTERNATIONAL, INC.
By: (SEAL)
- ---------------------------- --------------------------
George M. Klopfer
Chief Executive Officer
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EXHIBIT A TO SECURITY AGREEMENT
Each of the Borrowers further represents and warrants to the Lender as
follows:
1. The exact legal name of each of the Borrowers is as stated in
the initial paragraph to this Agreement.
2. The Federal Tax Identification Number of each of the Borrowers
is:
3. (a) The Borrowers' chief executive office is:
Street Address: 5601 Metro Drive
City or Town: Baltimore
County: City
State: Maryland 21215
(b) the Borrowers manage the main part of their business
operations from that address; and
(c) it is at that address that persons dealing with the
Borrowers would normally look for credit information.
4. The mailing address of the Borrowers to be inserted on
financing statements covering the Collateral is as shown above in Item 3 (a).
5. In the twelve years preceding the date hereof, the Borrowers
have not changed their names, identity or structure, have not conducted
business under any name other than their current names, and have not conducted
their business in any jurisdiction other than the jurisdiction in which their
chief executive office is currently located, except as follows:
Britannia Investment Corporation was formerly known as Polk Investment
Corporation
7
