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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
PURSUANT TO SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
GLOBAL MOTORSPORT GROUP, INC.
(NAME OF ISSUER)
GLOBAL MOTORSPORT GROUP, INC.
(NAME OF PERSON(S) FILING STATEMENT)
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COMMON STOCK, PAR VALUE $0.001 PER SHARE (AND ASSOCIATED PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
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378937106
(CUSIP NUMBER OF CLASS OF SECURITIES)
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JAMES J. KELLY, JR.
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
GLOBAL MOTORSPORT GROUP, INC.
16100 JACQUELINE COURT
MORGAN HILL, CALIFORNIA 95037
TELEPHONE: (408) 778-0500
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
COPIES TO:
KENTON J. KING, ESQ. THOMAS D. MAGILL, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP GIBSON, DUNN & CRUTCHER LLP
FOUR EMBARCADERO CENTER, SUITE 3800 4 PARK PLAZA JAMBOREE CENTER
SAN FRANCISCO, CALIFORNIA 94111 IRVINE, CALIFORNIA 92614
(415) 984-6400 (949) 451-3800
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July 13, 1998
(Date Tender Offer First Published,
Sent or Given to Security Holders)
CALCULATION OF FILING FEE
TRANSACTION VALUATION* $104,835,000
AMOUNT OF FILING FEE $20,967
* For purposes of calculating fee only. This amount assumes the purchase of
up to 4,820,000 outstanding shares of common stock of Global Motorsport
Group, Inc. at $21.75 in cash per share. The amount of the filing fee
calculated in accordance with Rule 0-11 promulgated under the Securities
Exchange Act of 1934, as amended, equals 1/50 of one percentum of the value
of shares to be purchased.
[_] 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.
Amount Previously Paid: Not applicable.
Filing Party: Not applicable.
Form or Registration No.: Not applicable.
Date Filed: Not applicable.
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SCHEDULE 13E-4
INTRODUCTION
This Issuer Tender Offer Statement on Schedule 13E-4 (this "Statement")
relates to the offer by Global Motorsport Group, Inc., a Delaware corporation
(the "Company"), to purchase up to 4,820,000 outstanding shares ("Shares") of
common stock, par value $0.001 per Share (the "Common Stock"), including the
associated rights to purchase shares of Common Stock issued pursuant to that
certain Rights Agreement, dated as of November 13, 1996, by and between the
Company and American Stock Transfer and Trust Company (the "Rights"), at
$21.75 per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated July 13, 1998 (the "Offer
to Purchase"), a copy of which is attached hereto as Exhibit (a)(1), and in
the related Letter of Transmittal, a copy of which is attached hereto as
Exhibit (a)(2) (which together constitute the "Offer").
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is Global Motorsport Group, Inc. and the address
of its principal executive offices is 16100 Jacqueline Court, Morgan Hill,
California 95037.
(b) The class of securities to which this Statement relates is the Common
Stock. As of June 25, 1998, there were (i) 5,173,077 Shares issued and
outstanding and (ii) 1,016,129 Shares reserved under the Company's stock plans
in respect of outstanding awards. The Company is seeking to purchase up to
4,820,000 Shares at a purchase price of $21.75 per Share, net to the seller in
cash. The information set forth in the Offer to Purchase under "INTRODUCTION,"
"SPECIAL FACTORS--Section 6. Management Stockholder Arrangements; Section 13.
Purposes and Reasons of Purchaser and Management Stockholders for the Offer
and Merger" and "THE OFFER AND MERGER--Section 1. Background of the Offer and
Merger; Section 2. Interests of Certain Persons in the Offer and Merger;
Section 8. The Agreement and Plan of Merger; Stockholder Agreement" is
incorporated herein by reference.
(c) The information set forth in the Offer to Purchase under "THE TENDER
OFFER--Section 6. Price Range of the Shares; Dividends on the Shares" is
incorporated herein by reference.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth in the Offer to Purchase under
"INTRODUCTION" and "THE TENDER OFFER--Section 9. Source and Amount of Funds"
is incorporated herein by reference.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
(a)-(j) The information set forth in the Offer to Purchase under
"INTRODUCTION," "SPECIAL FACTORS--Section 3. Recapitalization; Section 4.
Proration; Section 5. Substantial Indebtedness; Liquidity and Capital
Resources; Section 6. Management Stockholder Arrangements; Section 12.
Purposes and Reasons of the Company for the Offer and Merger; Section 13.
Purposes and Reasons of Purchaser and Management Stockholders for the Offer
and Merger," "THE OFFER AND MERGER--Section 1. Background of the Offer and
Merger; Section 2. Interests of Certain Persons in the Offer and Merger;
Section 6. Plans for the Company; Certain Effects of the Offer and Merger;
Section 8. The Agreement and Plan of Merger; Stockholder Agreement" and "THE
TENDER OFFER--Section 7. Effect of the Offer on the Market for the Shares;
Stock Listing; Exchange Act Registration; Margin Regulations; Section 11.
Dividends and Distributions; Section 16. Recapitalization" is incorporated
herein by reference.
2
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ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth in the Offer to Purchase under "INTRODUCTION,"
"THE OFFER AND MERGER--Section 8. The Agreement and Plan of Merger;
Stockholder Agreement; Section 10. Beneficial Ownership of Common Stock" and
"THE TENDER OFFER--Section 6. Price Range of the Shares; Dividends on the
Shares" is incorporated herein by reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS, WITH RESPECT
TO THE ISSUER'S SECURITIES.
The information set forth in the Offer to Purchase under "INTRODUCTION,"
"SPECIAL FACTORS--Section 1. Golden Cycle Offer; Section 6. Management
Stockholder Arrangements; Section 12. Purposes and Reasons of the Company for
the Offer and Merger; Section 13. Purposes and Reasons of Purchaser and
Management Stockholders for the Offer and Merger," and "THE OFFER AND MERGER--
Section 1. Background of the Offer and Merger; Section 2. Interests of Certain
Persons in the Offer and Merger; Section 8. The Agreement and Plan of Merger;
Stockholder Agreement; Section 10. Beneficial Ownership of Common Stock" is
incorporated herein by reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Information set forth in the Offer to Purchase under "INTRODUCTION,"
"SPECIAL FACTORS--Section 6. Management Stockholder Arrangements; Section 7.
Fees Payable to Purchaser and Purchaser Affiliates," "THE OFFER AND MERGER--
Section 2. Interests of Certain Persons in the Offer and Merger; Section 8.
The Agreement and Plan of Merger; Stockholder Agreement; Section 9. Related
Party Transactions" and "THE TENDER OFFER--Section 14. Fees and Expenses" is
incorporated herein by reference.
ITEM 7. FINANCIAL INFORMATION.
(a) The information set forth in the Offer to Purchase under "THE TENDER
OFFER--Section 8. Certain Information concerning the Company" is incorporated
herein by reference. In addition, the Company's audited consolidated financial
statements (and related notes) as of January 31, 1998 and 1997 and for the
three year period ended January 31, 1998, and the Company's unaudited
condensed consolidated financial statements (and related notes) as of April
30, 1998 and for the three month periods ended April 30, 1998 and 1997 are
attached to the Offer to Purchase as Annex C and Annex D, respectively.
(b) The information set forth in the Offer to Purchase under "THE OFFER AND
MERGER--Section 3. Cautionary Statement concerning Forward-Looking Statements;
Section 4. Company Financial Projections; Section 5. Selected Historical and
Pro Forma Consolidated Financial Data" is incorporated herein by reference. In
addition, the Company's unaudited pro forma consolidated financial data (and
related notes) are attached to the Offer to Purchase as Annex E.
ITEM 8. ADDITIONAL INFORMATION.
(a) None.
(b) The information set forth in the Offer to Purchase under "THE TENDER
OFFER--Section 13. Certain Legal Matters" is incorporated herein by reference.
(c) Not applicable.
(d) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS--Section 1. Golden Cycle Offer" is incorporated herein by reference.
(e) The information set forth in the Offer to Purchase and the related
Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1)
and (a)(2), respectively, are incorporated herein by reference in their
entirety.
3
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Offer to Purchase, dated July 13, 1998.
(a)(2) Letter of Transmittal, dated July 13, 1998.
(a)(3) Letter to Clients, dated July 13, 1998, for use by Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and other
Nominees, dated July 13, 1998.
(a)(5) Notice of Guaranteed Delivery, dated July 13, 1998.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Press Release issued by the Company and Fremont Acquisition Company
III, LLC on June 29, 1998.
(a)(8) Form of Summary Advertisement, as published in the Wall Street Journal
on July 13, 1998.
(a)(9) Fairness Opinion of Cleary Gull Reiland & Devitt, Inc., dated June 28,
1998 (attached as Annex A to the Offer to Purchase filed as Exhibit
(a)(1) above).
(a)(10) Letter to Stockholders, dated July 13, 1998, from Joseph F. Keenan,
Chairman of the Board of the Company.
(b)(1) Commitment letter, dated June 28, 1998, by Bank of America National
Trust and Savings Association, Bankers Trust Company and BancAmerica
Robertson Stephens to Fremont Acquisition Company III, LLC.
(b)(2) Letter, dated June 27, 1998, by BT Alex. Brown Incorporated and
BancAmerica Robertson Stephens to Fremont Acquisition Company III, LLC.
(c)(1) Amended and Restated Agreement and Plan of Merger, dated as of June 28,
1998, by and among the Company, Fremont Acquisition Company III, LLC,
and GMS Acquisition Corp.
(c)(2) Stockholder Agreement, dated as of June 28, 1998, by and among Fremont
Acquisition Company III, LLC and each individual whose name appears on
the signature pages thereto.
(c)(3) Mutual Confidentiality Agreement, dated April 8, 1998, by and between
the Company and Fremont Partners.
(c)(4) Rights Agreement, dated as of November 13, 1996, by and between the
Company and American Stock Transfer and Trust Company.
(d) None.
(e) Not applicable.
(f) None.
4
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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.
Date: July 13, 1998
GLOBAL MOTORSPORT GROUP, INC.
By: /s/ Joseph F. Keenan
_________________________________
Joseph F. Keenan
Chairman of the Board of Directors
5
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
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<C> <S>
(a)(1) Offer to Purchase, dated July 13, 1998.
(a)(2) Letter of Transmittal, dated July 13, 1998.
(a)(3) Letter to Clients, dated July 13, 1998, for use by Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
other Nominees, dated July 13, 1998.
(a)(5) Notice of Guaranteed Delivery, dated July 13, 1998.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Press Release issued by the Company and Fremont Acquisition Company
III, LLC on June 29, 1998.
(a)(8) Form of Summary Advertisement, as published in the Wall Street Journal
on July 13, 1998.
(a)(9) Fairness Opinion of Cleary Gull Reiland & Devitt, Inc., dated June 28,
1998 (attached as Annex A to the Offer to Purchase filed as Exhibit
(a)(1) above).
(a)(10) Letter to Stockholders, dated July 13, 1998, from Joseph F. Keenan,
Chairman of the Board of the Company.
(b)(1) Commitment letter, dated June 28, 1998, by Bank of America National
Trust and Savings Association, Bankers Trust Company and BancAmerica
Robertson Stephens to Fremont Acquisition Company III, LLC.
(b)(2) Letter, dated June 27, 1998, by BT Alex. Brown Incorporated and
BancAmerica Robertson Stephens to Fremont Acquisition Company III,
LLC.
(c)(1) Amended and Restated Agreement and Plan of Merger, dated as of June
28, 1998, by and among the Company, Fremont Acquisition Company III,
LLC, and GMS Acquisition Corp.
(c)(2) Stockholder Agreement, dated as of June 28, 1998, by and among Fremont
Acquisition Company III, LLC and each individual whose name appears on
the signature pages thereto.
(c)(3) Mutual Confidentiality Agreement, dated April 8, 1998, by and between
the Company and Fremont Partners.
(c)(4) Rights Agreement, dated as of November 13, 1996, by and between the
Company and American Stock Transfer and Trust Company.
</TABLE>
6
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EXHIBIT (a)(1)
OFFER TO PURCHASE FOR CASH BY
GLOBAL MOTORSPORT GROUP, INC.
Up to 4,820,000 Outstanding Shares
of Its Common Stock
(Including the Associated Rights)
at
$21.75 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON WEDNESDAY, AUGUST 12, 1998, UNLESS THE OFFER IS EXTENDED.
GLOBAL MOTORSPORT GROUP, INC., A DELAWARE CORPORATION (THE "COMPANY"), IS
OFFERING TO PURCHASE UP TO 4,820,000 OUTSTANDING SHARES (SUCH AMOUNT ALSO
REFERRED TO HEREIN AS THE "TENDER OFFER NUMBER") OF COMMON STOCK, PAR VALUE
$0.001 PER SHARE ("COMMON STOCK" OR "SHARES"), OF THE COMPANY FOR $21.75 PER
SHARE, NET TO THE SELLER IN CASH (SUCH AMOUNT, OR ANY GREATER AMOUNT PER SHARE
AS MAY BE PAID PURSUANT TO THE OFFER, BEING REFERRED TO HEREIN AS THE "PER
SHARE AMOUNT"), UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THIS
OFFER TO PURCHASE AND IN THE RELATED LETTER OF TRANSMITTAL, WHICH TOGETHER
CONSTITUTE THE "OFFER."
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF
SHARES THAT REPRESENTS AT LEAST A MAJORITY OF THE SHARES OUTSTANDING ON A
FULLY DILUTED BASIS, THE COMPANY OBTAINING THE DEBT FINANCING (AS DEFINED
HEREIN) AND THE OTHER CONDITIONS SET FORTH IN THIS OFFER TO PURCHASE. SEE "THE
TENDER OFFER--SECTION 12. CERTAIN CONDITIONS OF THE OFFER."
THE OFFER IS BEING MADE PURSUANT TO THAT CERTAIN AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER, DATED AS OF JUNE 28, 1998, AMONG THE COMPANY,
FREMONT ACQUISITION COMPANY III, LLC ("PURCHASER") AND GMS ACQUISITION CORP.
(THE "MERGER AGREEMENT"). THE BOARD OF DIRECTORS OF THE COMPANY HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE OFFER AND THE MERGER (AS DEFINED HEREIN),
(COLLECTIVELY, THE "TRANSACTIONS" OR THE "RECAPITALIZATION"), AND DETERMINED
THAT THE TERMS OF THE OFFER, THE STOCK PURCHASE (AS DEFINED HEREIN) AND THE
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF THE COMMON
STOCK AND UNANIMOUSLY RECOMMENDS THAT SUCH HOLDERS ACCEPT THE OFFER AND TENDER
THEIR SHARES.
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Cleary Gull Reiland & McDevitt, Inc. has delivered to the Board of Directors
of the Company its written opinion, dated June 28, 1998, that as of the date
of such opinion and based upon and subject to certain factors and assumptions
stated therein, the consideration to be received by the Company's stockholders
pursuant to the Offer and/or the consideration to be received by the Company's
stockholders (other than Purchaser and the Management Stockholders (each, as
defined herein)) pursuant to the Merger is fair from a financial point of view
to such stockholders. See "SPECIAL FACTORS--Section 11. Opinion of Cleary Gull
Reiland & McDevitt, Inc."
IMPORTANT
Any stockholder who desires to tender all or any portion of such
stockholder's Shares should either (i) complete and sign the Letter of
Transmittal (or a facsimile thereof) in accordance with the instructions in
the Letter of Transmittal, mail or deliver it and any other required documents
to the Depositary and either deliver the certificates for such Shares to the
Depositary or tender such Shares pursuant to the procedures for book-entry
transfer set forth in "THE TENDER OFFER--Section 3. Procedure for Tendering
Shares" or (ii) 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 person to
tender such Shares.
Any stockholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available, or who cannot comply
with the procedures for book-entry transfer on a timely basis, may tender such
Shares by following the procedures for guaranteed delivery set forth in "THE
TENDER OFFER--Section 3. Procedure for Tendering Shares."
The shares are listed and traded on the Nasdaq National Market ("Nasdaq").
On June 26, 1998, the last full day of trading prior to the announcement of
the Offer, the closing sale price of Shares on Nasdaq was $21 per Share.
Stockholders are urged to obtain current market quotations for the Shares.
Questions and requests for assistance relating to the Offer may be directed
to the Information Agent at the location and telephone numbers set forth on
the back cover of this Offer to Purchase. Requests for additional copies of
this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the Information Agent, or the Depositary, or to
brokers, dealers, commercial banks or trust companies. A stockholder also may
contact brokers, dealers, commercial banks or trust companies for assistance
relating to the Offer.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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THE INFORMATION AGENT FOR THE OFFER IS:
[MacKenzie Partners, Inc. Logo Appears Here]
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July 13, 1998
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TABLE OF CONTENTS
<TABLE>
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PAGE
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INTRODUCTION............................................................ 1
SPECIAL FACTORS......................................................... 5
1. Golden Cycle Offer................................................ 5
2. Market Price for the Shares....................................... 5
3. Recapitalization.................................................. 5
4. Proration......................................................... 5
5. Substantial Indebtedness; Liquidity and Capital Resources......... 6
6. Management Stockholder Arrangements............................... 6
7. Fees Payable to Purchaser and Purchaser Affiliates................ 7
8. Delisting of Common Stock......................................... 7
9. Termination of Exchange Act Reporting............................. 7
Recommendation of the Board of Directors; Fairness of the Offer
10. and Merger........................................................ 8
11. Opinion of Cleary Gull Reiland & McDevitt, Inc.................... 9
12. Purposes and Reasons of the Company for the Offer and Merger...... 14
Purposes and Reasons of Purchaser and Management Stockholders for
13. the Offer and Merger.............................................. 14
THE OFFER AND MERGER.................................................... 15
1. Background of the Offer and Merger................................ 15
2. Interests of Certain Persons in the Offer and Merger.............. 19
3. Cautionary Statement concerning Forward-Looking Statements........ 19
4. Company Financial Projections..................................... 19
5. Selected Historical and Pro Forma Consolidated Financial Data..... 20
6. Plans for the Company; Certain Effects of the Offer and Merger.... 24
7. Rights of the Stockholders in the Offer and Merger................ 25
8. The Agreement and Plan of Merger; Stockholder Agreement........... 26
9. Related Party Transactions........................................ 39
10. Beneficial Ownership of Common Stock.............................. 40
THE TENDER OFFER........................................................ 41
1. Terms of the Offer................................................ 41
2. Acceptance for Payment and Payment................................ 42
3. Procedure for Tendering Shares.................................... 43
4. Withdrawal Rights................................................. 45
5. Certain Federal Income Tax Consequences........................... 46
6. Price Range of the Shares; Dividends on the Shares................ 48
7. Effect of the Offer on the Market for the Shares; Stock Listing;
Exchange Act Registration; Margin Regulations..................... 48
8. Certain Information concerning the Company........................ 49
9. Source and Amount of Funds........................................ 50
10. Other Matters..................................................... 52
11. Dividends and Distributions....................................... 53
12. Certain Conditions of the Offer................................... 53
13. Certain Legal Matters............................................. 54
14. Fees and Expenses................................................. 55
15. Certain Information concerning Purchaser.......................... 56
16. Recapitalization.................................................. 56
17. Miscellaneous..................................................... 56
</TABLE>
Schedule I--Directors and Executive Officers of the Company
Schedule II--Executive Officers of Fremont Acquisition Company III, LLC
Annex A--Opinion of Cleary Gull Reiland & McDevitt, Inc.
Annex B--Section 262 of the General Corporation Law of the State of Delaware
Annex C--Audited Consolidated Financial Statements (and Related Notes) of the
Company as of January 31, 1998 and 1997 and for the Three Year Period
Ended January 31, 1998
Annex D--Unaudited Condensed Consolidated Financial Statements (and Related
Notes) of the Company as of April 30, 1998 and for the Three Month
Periods Ended April 30, 1998 and 1997
Annex E--Unaudited Pro Forma Consolidated Financial Data (and Related Notes)
of the Company
i
<PAGE>
TO THE HOLDERS OF COMMON STOCK OF GLOBAL MOTORSPORT GROUP, INC.:
INTRODUCTION
GLOBAL MOTORSPORT GROUP, INC., a Delaware corporation (the "Company"),
hereby offers to purchase up to 4,820,000 issued and outstanding shares (such
amount also referred to herein as the "Tender Offer Number") of its common
stock, par value $0.001 per share ("Common Stock" or "Shares"), at a price of
$21.75 per Share net to the seller in cash, upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (which, together with any amendments or supplements hereto or
thereto, collectively constitute the "Offer"). Tendering stockholders will not
be obligated to pay brokerage fees or commissions or, except as set forth in
Instruction 6 of the Letter of Transmittal, transfer taxes on the sale of
Shares pursuant to the Offer. The Company will pay all fees and expenses of
MacKenzie Partners, Inc., which is acting as the Information Agent (the
"Information Agent"), and American Stock Transfer & Trust Company, which is
acting as the Depositary (the "Depositary") incurred in connection with the
Offer.
The Shares are currently listed and traded on Nasdaq under the symbol
"CSTM." On June 26, 1998, the last full day of trading prior to the
announcement of the Offer, the closing sale price of the Shares on Nasdaq was
$21. On July 10, 1998, the last full trading day prior to the commencement of
the Offer, the closing sale price of the Shares on Nasdaq was $20.81.
Stockholders are urged to obtain a current market quotation for the Shares.
The consummation of the Offer and the Merger, if required, will result in: (i)
the delisting of the Shares from Nasdaq, (ii) the Shares continuing to be
eligible for termination of registration pursuant to Section 12(g)(4) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (iii) a
change in the composition of the present Board of Directors and executive
officers of the Company and (iv) a change in the capitalization of the
Company.
The Company, Fremont Acquisition Company III, LLC, a Delaware limited
liability company ("Purchaser"), and GMS Acquisition Corp., a newly formed
Delaware corporation and a wholly-owned subsidiary of the Company
("Acquisition Sub"), entered into that certain Agreement and Plan of Merger,
dated as of June 28, 1998, which was amended and restated by the parties
thereto pursuant to that certain Amended and Restated Agreement and Plan of
Merger, dated as of June 28, 1998 (as amended, the "Merger Agreement").
Pursuant to the Merger Agreement, Purchaser has agreed to purchase from the
Company (the "Stock Purchase") 2,666,667 newly-issued Shares on the day after
the expiration of the Offer (or at such other time as the Company and
Purchaser mutually agree) at a price per Share equal to the Per Share Amount.
The Stock Purchase will provide the Company with a portion of the funds needed
to consummate the Offer and the Merger, if required, and it is anticipated
that the remainder of the funds needed to consummate the Offer and, if
required, the Merger and to pay certain fees and expenses will be obtained by
the Company through a combination of (i) borrowings of approximately $25
million by GMG Operating Corp. (the "Operating Company"), a wholly-owned
subsidiary of the Company to be formed prior to the consummation of the Offer
to hold all of the assets and liabilities of the Company, under a $55 million
senior secured credit facility, (ii) proceeds from the sale of senior notes by
the Operating Company in the aggregate amount of $80 million and (iii) gross
proceeds of $25 million from the sale of senior discount notes by the Company
(collectively, the "Debt Financing"). See "THE TENDER OFFER--Section 9. Source
and Amount of Funds" and "THE OFFER AND MERGER--Section 8. The Agreement and
Plan of Merger; Stockholder Agreement."
The purposes of the Offer and the Merger, if required, are: (i) to enable
Purchaser to obtain majority ownership in the Company and (ii) to provide the
Company's stockholders with liquidity for their Shares by enabling them to
sell potentially all of their Shares at a fair price and at a premium over the
price offered by Golden Cycle, LLC in its offer to purchase all Shares for
$18.00 per share and recent market prices. See "SPECIAL FACTORS--Section 1.
Golden Cycle Offer" and "THE TENDER OFFER--Section 6. Price Range of the
Shares; Dividends on Shares."
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF
SHARES THAT REPRESENTS AT LEAST A MAJORITY OF THE SHARES OUTSTANDING ON A
FULLY DILUTED BASIS (THE "MINIMUM CONDITION"). SEE "THE TENDER OFFER--
SECTION 1.
1
<PAGE>
TERMS OF THE OFFER. As used in this Offer to Purchase, "fully diluted basis"
takes into account the conversion or exercise of all outstanding options and
other rights and securities exercisable or convertible into shares of Common
Stock. The Company has represented to Purchaser that, as of June 25, 1998,
there were (i) 5,173,077 Shares issued and outstanding and (ii) 1,016,129
Shares reserved under the Company's employee and director stock incentive
plans in respect of outstanding awards. The Merger Agreement provides, among
other things, that the Company will not, without the prior written consent of
Purchaser, issue any additional Shares except for the Stock Purchase and upon
the exercise of outstanding options and other rights and securities. Based on
the foregoing and giving effect to the exercise of all outstanding options and
warrants, the Company believes that the Minimum Condition will be satisfied if
approximately 3.1 million Shares are validly tendered and not withdrawn prior
to the expiration of the Offer.
As a condition and inducement to Purchaser's entering into the Merger
Agreement and incurring the liabilities therein, each of Joseph Piazza, Sr.,
James J. Kelly, Jr., Lionel M. Allan, Joseph F. Keenan, R. Steven Fisk, Joseph
P. Piazza, Jr., David Clark, Lee Katsuda, Frances Mora, Dennis Navarra, Audy
Sisk, Nate Stewart and Rick Saunders (collectively, the "Management
Stockholders") has entered into a Stockholder Agreement, dated as of June 28,
1998, with Purchaser (the "Stockholder Agreement"). Pursuant to the
Stockholder Agreement, the Management Stockholders have agreed, among other
things, to retain and not to tender in the Offer an aggregate of 87,979 Shares
held by them or acquired by them upon exercise of outstanding stock options
prior to the consummation of the Offer pursuant to the Stockholder Agreement.
Shares to be retained by the Management Stockholders represent, in the
aggregate, approximately 1.7% of the Shares outstanding as of June 28, 1998,
after giving effect to the exercise of 52,191 outstanding options necessary
for the Management Stockholders to obtain, net, 87,979 Shares.
In addition, pursuant to the Stockholder Agreement, Purchaser and each of
the Management Stockholders who is an employee of the Company have agreed to
use their good faith to negotiate and enter into agreements with respect to
any Shares retained by such Management Stockholder. See "SPECIAL FACTORS--
Section 6. Management Stockholder Arrangements" and "THE OFFER AND MERGER--
Section 8. The Agreement and Plan of Merger; Stockholder Agreement." Pursuant
to such arrangements, following consummation of the Offer and the Merger, if
required, such Management Stockholders will have the right under certain
circumstances to sell their Shares to the Company, and the Company will have
the right, under certain circumstances, to repurchase the Shares held by the
Management Stockholders.
Subject to the conditions to the Offer more fully described herein (see "THE
TENDER OFFER--Section 12. Certain Conditions of the Offer"), in the event that
the number of Shares validly tendered and not withdrawn prior to the
expiration of the Offer is equal to the Tender Offer Number, the Company will
accept for payment, purchase and pay for all such tendered Shares, which will
then be cancelled and retired. Shares held by Purchaser or any of its
affiliates, 87,979 Shares held or acquired upon the exercise of outstanding
options by the Management Stockholders and Shares held by any stockholders of
the Company who do not tender their Shares in the Offer will remain
outstanding, the Merger will not be effected, and each of such holders of
Shares will remain stockholders of the Company. See "SPECIAL FACTORS--Section
4. Proration."
Subject to the conditions of the Offer and the proration more fully
described herein (see "SPECIAL FACTORS--Section 4. Proration"), the Company
will not accept for payment, purchase or pay for Shares tendered pursuant to
the Offer in excess of the Tender Offer Number. In the event the number of
Shares validly tendered and not withdrawn exceeds the Tender Offer Number,
then each holder of tendered Shares will (i) receive an amount in cash equal
to the product obtained by multiplying the number of Shares tendered by such
stockholder by the Per Share Amount and a fraction whose numerator is the
Tender Offer Number and whose denominator is the number of Shares tendered in
the Offer and (ii) retain that number of Shares of the Company rounded up to
the nearest whole share equal to the product obtained by multiplying the
number of Shares tendered by such stockholder and a fraction whose numerator
is the difference between the number of Shares tendered and the Tender Offer
Number and whose denominator is equal to the number of Shares tendered in the
Offer. The tendering stockholders will thus retain an equity stub, the holders
of the remaining untendered Shares of the Company also will remain
stockholders of the Company, and the Merger will not be effected. See "SPECIAL
FACTORS--Section 4. Proration."
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<PAGE>
In the event that the number of Shares validly tendered and not withdrawn
prior to the expiration of the Offer is equal to or greater than the Minimum
Condition but less than the Tender Offer Number, then the Company will accept
for payment, purchase and pay for all such Shares, and all such Shares will
thereupon be cancelled and retired. Shares held by Purchaser or any of its
affiliates, 87,979 Shares held or acquired upon the exercise of outstanding
options by Management Stockholders and Shares held by any stockholders of the
Company who do not tender their Shares in the Offer will remain outstanding.
All tendering stockholders will receive the Per Share Amount for each Share
tendered, and the Merger will be effected pursuant to the terms of the Merger
Agreement. See "SPECIAL FACTORS--Section 4. Proration" and "THE OFFER AND
MERGER--Section 8. The Agreement and Plan of Merger; Stockholder Agreement."
Further, in the event that the number of Shares validly tendered and not
withdrawn prior to the expiration of the Offer is greater than the Minimum
Condition but less than the Tender Offer Number, then after satisfaction or
waiver, if permissible, of all conditions to the Merger, Acquisition Sub will
be merged with and into the Company and the corporate existence of Acquisition
Sub will thereupon cease. Such merger, as effected pursuant to the immediately
preceding sentence, is referred to herein as the "Merger," and the Company as
the surviving corporation of the Merger is sometimes herein referred to as the
"Surviving Corporation." At the effective time of the Merger (the "Effective
Time"), the outstanding shares held by each holder of Shares (other than (i)
Shares held by Purchaser, (ii) 87,979 Shares held or acquired upon the
exercise of outstanding options by the Management Stockholders and (iii)
Shares held by stockholders who properly perfect their appraisal rights under
Delaware law) will be converted into the right to receive (i) an amount in
cash (the "Cash Merger Consideration") equal to the product obtained by
multiplying the number of Shares owned by such stockholder by the Per Share
Amount and an amount equal to one (1) minus the Merger Proration Factor (as
defined below) and (ii) a number of shares of identical common stock of the
Company as the Surviving Corporation (the "Stock Merger Consideration" and,
together with the Cash Merger consideration, the "Merger Consideration") equal
to the product obtained by multiplying the number of Shares owned by such
stockholder by the Merger Proration Factor. The Merger Proration Factor is a
fraction whose numerator is equal to the Public Rollover Shares (as defined
herein), and whose denominator is equal to the number of Shares issued and
outstanding immediately following the acceptance and payment for all validly
tendered and not withdrawn Shares, less (i) Shares held by Purchaser, (ii)
Dissenting Shares, if any, as of the Effective Time and (iii) 87,979 Shares.
The Company's stockholders will thus receive a combination of cash and stock
(based on a purchase price equal to the Per Share Amount) adjusted so that
following consummation of the Merger, the Company's existing stockholders
other than the Purchaser, dissenting stockholders, and Management Stockholders
will continue to own approximately 10.3% of the Shares then currently
outstanding, or approximately 6.1% of the Shares outstanding before the
Transactions. Public Rollover Shares means the total number of Shares
outstanding prior to the Offer and Stock Purchase less 4,907,979 Shares. See
"SPECIAL FACTORS--Section 4. Proration" and "THE OFFER AND MERGER--Section 8.
The Agreement and Plan of Merger; Stockholder Agreement."
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE
MERGER AGREEMENT, AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
OFFER AND THE MERGER, ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS
OF COMMON STOCK, AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER
AND TENDER THEIR SHARES.
Cleary Gull Reiland & McDevitt, Inc., the Company's financial advisor
("Cleary Gull" or the "Financial Advisor"), has delivered to the Company's
Board of Directors its written opinion, dated June 28, 1998 (the "Fairness
Opinion"), that, as of the date of such opinion and based upon and subject to
certain factors and assumptions stated therein, the consideration to be
received by the Company's stockholders pursuant to the Offer and/or the
consideration to be received by the Company's stockholders (other than
Purchaser and the Management Stockholders) pursuant to the Merger is fair from
a financial point of view to such stockholders. See "SPECIAL FACTORS--Section
11. Opinion of Cleary Gull Reiland & McDevitt, Inc." The Fairness Opinion is
set forth in full as Annex A to this Offer to Purchase.
The Merger Agreement provides that the initial scheduled expiration date of
the Offer will be August 12, 1998, but that if all conditions to the Offer
have not been satisfied or waived by such date, the Company will not be
required to accept for payment or pay for, and may delay the acceptance for
payment of, or the payment for,
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<PAGE>
any Shares; provided, however, that the Company cannot assert failure of, or
waive, any condition to the Offer without the prior written consent of
Purchaser. In addition, the Merger Agreement provides that the Company will,
on the terms and subject to the prior satisfaction or waiver of the conditions
of the Offer, accept for payment and purchase, as soon as permitted under the
terms of the Offer, all Shares validly tendered and not withdrawn prior to the
expiration of the Offer; provided, however, that the consideration to be
received by tendering stockholders may be subject to proration, depending upon
the number of Shares validly tendered and not withdrawn prior to the
expiration of the Offer. See "SPECIAL FACTORS--Section 4. Proration" and "THE
OFFER AND MERGER--Section 8. The Agreement and Plan of Merger, Stockholder
Agreement." The Offer will not remain open following the time Shares are
accepted for payment.
Consummation of the Merger is conditioned upon, among other things, the
approval and adoption by the requisite vote of stockholders of the Company of
the Merger Agreement, if required by applicable law in order to consummate the
Merger. See "THE OFFER AND MERGER--Section 8. The Agreement and Plan of
Merger, Stockholders Agreement." Under the Delaware General Corporation Law
(the "DGCL"), except as otherwise provided below, the affirmative vote of a
majority of the outstanding Shares is required to approve the Merger Agreement
and the Merger.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION AND SHOULD BE READ IN THEIR ENTIRETY BEFORE ANY DECISION
IS MADE WITH RESPECT TO THE OFFER.
4
<PAGE>
SPECIAL FACTORS
1. GOLDEN CYCLE OFFER. On March 23, 1998, the Company received a written
proposal by Golden Cycle, L.L.C., a Delaware limited liability company
("Golden Cycle"), for a business combination between Golden Cycle and the
Company pursuant to which Golden Cycle proposed that the stockholders of the
Company would receive cash consideration in the amount of $18.00 per Share. On
April 7, 1998, Golden Cycle commenced a tender offer for all of the issued and
outstanding Shares for an amount equal to $18.00 per Share, net to the seller
in cash (the "Golden Cycle Offer"). In addition, Golden Cycle commenced a
consent solicitation to remove the members of the Board of Directors of the
Company and replace them with directors selected by Golden Cycle. Such consent
solicitation expired without change to the composition of the Company's Board
of Directors. At meetings on April 9 and 11, 1998, the Board of Directors
considered the Company's business, financial condition, results of operations,
business strategy and future prospects, recent and historical market prices
for the Common Stock, the terms of Golden Cycle's original proposal, the
Golden Cycle Offer, potential alternatives to the Golden Cycle Offer and
certain other matters, including the advice of Cleary Gull and the Company's
legal advisors. At the April 11, 1998 meeting, the Board of Directors
unanimously determined that the Golden Cycle Offer was inadequate and not in
the best interests of the Company or its stockholders and further determined
that the interests of the stockholders and the Company would be best served by
exploring alternatives available to it to maximize stockholder value. Golden
Cycle and a number of other third parties have filed lawsuits in connection
with Golden Cycle's tender offer and consent solicitation.
The Offer allows holders of Common Stock to receive the Per Share Amount
which is $3.75 higher (or approximately 21%) than the Golden Cycle Offer. In
addition, the Per Share Amount is higher than any price at which the Company's
Common Stock has traded for at least six weeks prior to the announcement of
the Offer. The Per Share Amount represents a premium of 3.5% over the closing
sales price of the Shares on Nasdaq on June 26, 1998, the last trading day
prior to the public announcement of the Offer. If the number of Shares
tendered pursuant to the Offer is greater than the Tender Offer Number, all
tendering stockholders will receive an amount of cash for their Shares as well
as retain an equity interest in the Company after the Offer and Merger, which
equity interest will allow such stockholders to participate in the future
performance of the Company.
2. MARKET PRICE FOR THE SHARES. Since January 1, 1998, the Company's high
and low per Share sales prices, as reported on Nasdaq, were $22 3/8 and $11,
respectively, as shown in the following table.
<TABLE>
<CAPTION>
MONTH HIGH LOW
----- ------- -------
<S> <C> <C>
January 1998................................................. $13 1/4 $11
February 1998................................................ 14 12 1/4
March 1998................................................... 19 12 1/4
April 1998................................................... 21 1/4 18 1/8
May 1998..................................................... 22 3/8 19 3/4
June 1998.................................................... 21 1/2 20 1/2
July 1998 (through July 10, 1998)............................ 21 1/4 20 3/4
</TABLE>
3. RECAPITALIZATION. The Offer is being made as part of a comprehensive plan
to recapitalize the Company through the Company's purchase of the Shares and
the Stock Purchase by Purchaser. Following consummation of the Offer and the
Merger, if required, approximately 7.8% of the Shares outstanding prior to the
Recapitalization (including 87,979 Shares held or acquired upon the exercise
of 52,191 outstanding options by Management Stockholders) will remain
outstanding and will represent approximately 13.2% of the shares of common
stock of the Company as the Surviving Corporation in the event the Merger is
effected, outstanding after the Offer and Merger, assuming in both cases no
additional stock options are exercised. Following consummation of the Offer,
Purchaser will be able, by virtue of its majority equity interest in the
Company, to direct and control the policies of the Company, including
decisions relating to mergers, sales of assets and similar transactions.
4. PRORATION. If the aggregate number of Shares tendered pursuant to the
Offer is greater than the Tender Offer Number, each tendering stockholder will
be required to retain a certain number of its tendered Shares as a
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<PAGE>
result of the proration procedures more fully described herein (see "THE OFFER
AND MERGER--Section 8. The Agreement and Plan of Merger; Stockholder
Agreement").
If the aggregate number of Shares tendered pursuant to the Offer is equal to
the Minimum Condition or greater but less than the Tender Offer Number, all
tendering stockholders will receive in cash the Per Share Amount for each
Share tendered. Acquisition Sub and the Company would then effect the Merger,
pursuant to which Shares held by non-tendering stockholders (other than (i)
Shares held by Purchaser or its affiliates, (ii) 87,979 Shares held by
Management Stockholders and (iii) Shares held by dissenting stockholders, if
any) would be converted into the right to (a) receive an amount in cash
prorated and (b) retain shares of common stock of the Company as the Surviving
Corporation as described herein under "THE OFFER AND MERGER--Section 8. The
Agreement and Plan of Merger; Stockholder Agreement." The amount of cash to be
received and the number of Shares retained will be calculated on a pro rata
basis, based on the ratio of the number of Shares required to be retained by
stockholders for recapitalization accounting purposes and the number of Shares
outstanding immediately following consummation of the Offer (other than Shares
held by Purchaser, 87,979 Shares held or acquired upon the exercise of
outstanding options by Management Stockholders and Shares held by dissenting
stockholders, if any). Following consummation of the Offer and the Merger, if
required, approximately 7.8% of the Shares outstanding prior to the
Transactions (including 87,979 Shares held or acquired upon the exercise of
52,191 outstanding options by Management Stockholders) will remain outstanding
and will represent approximately 13.2% of the shares of common stock of the
Company as the Surviving Corporation in the event the Merger is effected,
outstanding after the Offer and Merger, assuming in both cases no additional
stock options are exercised.
5. SUBSTANTIAL INDEBTEDNESS; LIQUIDITY AND CAPITAL RESOURCES. In connection
with consummating the Offer and Merger as contemplated by the Merger
Agreement, the Company will enter into the Debt Financing to (i) fund payment
of the cash consideration in the Offer and the Merger, if effected, (ii) repay
or repurchase certain indebtedness of the Company, (iii) make cash payments in
cancellation of stock options, (iv) pay fees and expenses incurred in
connection with the Offer and the Merger and (v) fund working capital
requirements of the Company. Although the definitive terms of certain of the
financing agreements have not been finalized as of the date of this Offer, the
Company expects that such terms will include significant operating and
financial restrictions, such as limits on the Company's ability to incur
indebtedness, create liens, sell assets, engage in mergers or consolidations,
make investments and pay dividends.
As of April 30, 1998, after giving effect to the recapitalization and the
Debt Financings, the Company would have had $133 million of total indebtedness
on a pro forma consolidated basis, consisting of borrowings of up to
$28 million by the Operating Company under a $55 million senior secured credit
facility, $80 million in senior notes issued by the Operating Company, and $25
million in senior discount notes issued by the Company. See "THE OFFER AND
MERGER--Section 5. Selected Historical and Pro Forma Consolidated Financial
Data," "THE TENDER OFFER--Section 9. Sources and Amount of Funds" and "Annex
E. Unaudited Pro Forma Consolidated Financial Data."
The Company's level of indebtedness could have important consequences for
the Company, including the following: (i) the ability of the Company to obtain
additional financing for working capital, capital expenditures, acquisitions,
debt service requirements or other purposes may be impaired; (ii) a
substantial portion of the Company's cash flow from operations will be
required to pay the Company's interest expense and principal repayment
obligations and will not be available for its general corporate needs; (iii)
the Company's flexibility to adjust to changing market conditions may be
limited, and its ability to compete against its competitors may be reduced;
(iv) certain indebtedness under the Debt Financing will be at variable rates
of interest, which will cause the Company to become vulnerable to increases in
interest rates; and (v) a portion of the indebtedness outstanding under the
Debt Financing will be secured by substantially all the assets of the Company.
6. MANAGEMENT STOCKHOLDER ARRANGEMENTS. Pursuant to the Stockholder
Agreement, the Management Stockholders have agreed not to tender 87,979 of the
Shares held by them or acquired by them upon exercise of outstanding stock
options prior to the consummation of the Offer pursuant to the Stockholder
Agreement. Pursuant to the terms of the Stockholder Agreement, Purchaser and
each of the Management Stockholders who
6
<PAGE>
is an employee of the Company have agreed to use their good faith to negotiate
and enter into agreements with respect to the 87,979 Shares that will be
retained by them, which agreements will provide for "put" and "call" rights
exercisable by the Management Stockholder and the Company, respectively, in
the event that the Management Stockholder's employment with the Company is
terminated. Stockholders should be aware in considering their decision to
participate in the Offer that the contemplated put and call rights with
respect to Shares retained by Management Stockholders will provide such
Management Stockholders with liquidity for their Shares in the event their
employment with the Company is terminated following the consummation of the
Offer. The put and call rights provided to Management Stockholders are not and
will not be available to other stockholders of the Company. See "THE OFFER AND
MERGER--Section 8. The Agreement and Plan of Merger; Stockholder Agreement."
In addition, it is contemplated that each of James J. Kelly, R. Steven Fisk,
Joseph P. Piazza, Jr. and Gus Kuelbs (each, an "Executive") will enter into a
severance agreement with the Company before the consummation of the Offer
(each, a "Severance Agreement"). The Severance Agreement will generally
provide that if, during the first year following consummation of the Offer,
the Company terminates the Executive's employment with the Company without
Cause (to be defined in the Severance Agreement), then the Executive will
receive an amount equal to fifty percent of the Executive's annual cash
compensation (including bonuses) at the highest rate paid during his
employment with the Company.
7. FEES PAYABLE TO PURCHASER AND PURCHASER AFFILIATES. Pursuant to the
Merger Agreement, upon the consummation of the Offer, all costs and expenses
incurred by each of Purchaser, the Company and Acquisition Sub in connection
with the Merger Agreement (including the fees and disbursements of counsel,
financial advisors and accountants) and a transaction fee of $2,380,000 (to be
paid to Purchaser or its affiliates) will be paid by the Company, or the
Company will reimburse such party, as the case may be. See "THE OFFER AND
MERGER--Section 8. The Agreement and Plan of Merger; Stockholder Agreement"
and "THE TENDER OFFER--Section 14. Fees and Expenses." In addition, Fremont
Partners, L.P. ("Fremont Partners") or one of its affiliates typically
receives an annual management fee from Fremont Partners' portfolio companies
in exchange for financial advisory services and other advice rendered to such
companies. The amount of the fee varies depending upon a number of factors,
including the level of services expected to be rendered. It has not yet been
determined if a management fee will be requested from the Company or, if one
is requested, what the amount of the fee would be. If a fee is sought,
however, Fremont Partners has indicated to the Company that it does not expect
the fee to exceed $300,000 in the first year following the consummation of the
Offer.
8. DELISTING OF COMMON STOCK. As a result of the Offer and the Merger, if
required, it is likely that the Common Stock will no longer meet the listing
requirements of Nasdaq and that Nasdaq may unilaterally act to delist the
Common Stock. Even if Nasdaq does not act unilaterally to delist the Common
Stock, it is Purchaser's intention that, after the consummation of the Offer
or the Effective Time, the Common Stock will not be listed on Nasdaq or any
national securities exchange. The delisting of the Common Stock is likely to
have a material adverse effect on the trading market for, and the value of,
the Common Stock, and there can be no assurance that any trading market will
exist for the Common Stock after the consummation of the Offer or the Merger,
if required.
9. TERMINATION OF EXCHANGE ACT REPORTING. As a result of the Offer and the
Merger, if required, it is expected that the Shares will be held by fewer than
300 stockholders of record. In such case, the Company will deregister the
Common Stock under Section 12 of the Exchange Act. If the Common Stock is so
deregistered, the Company will not be required to comply with the proxy or
periodic reporting requirements of the Exchange Act and does not plan to
provide any reports or information to its stockholders, other than pursuant to
the right to inspect the books and records of the Company, as required by
Delaware law. As a result of such deregistration, the information available to
stockholders on the business and financial condition of the Company will be
reduced, which could have a material adverse effect on the value of the Common
Stock.
7
<PAGE>
10. RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE OFFER AND
MERGER. The Company's Board of Directors met on June 26 and 28, 1998 to
consider the terms of the Merger Agreement. On June 28, 1998, the Board of
Directors unanimously (i) determined that the Merger Agreement and the
Transactions, including the Offer and the Merger, are fair to, and in the best
interests of, the stockholders of the Company and (ii) approved the Merger
Agreement and the Transactions, including the Offer and Merger, in all
respects and that such approval constitutes approval for purposes of Sections
203 and 251 of the DGCL and (iii) resolved to recommend that the stockholders
of the Company accept the Offer, and approve and adopt the Merger Agreement
and the Merger.
In reaching its conclusion, the Board of Directors considered a number of
factors, including, but not limited to, the following:
1. The Board's belief that the Offer and the Merger represent the most
attractive financial alternative available to the Company's stockholders
based upon the efforts of management and its financial advisors to explore
alternatives to the Golden Cycle Offer, and the Board's judgment, after
consultation with its financial advisors, that under existing circumstances
the likelihood of receiving a more attractive offer from any other party
(including Golden Cycle) was low.
2. The Fairness Opinion to the effect that, as of the date of such
opinion and based upon and subject to certain factors and assumptions
stated therein, the consideration to be received by the Company's
stockholders pursuant to the Offer and/or the consideration to be received
by the Company's stockholders (other than Purchaser and the Management
Stockholders) pursuant to the Merger is fair from a financial point of view
to such stockholders. See "--Section 11. Opinion of Cleary Gull Reiland &
McDevitt, Inc."
3. The relationship of the Per Share Amount to the historical market
prices for the Common Stock (see "--Section 2. Market Price for the
Shares"), and the valuation of the Company as analyzed by Cleary Gull (see
"--Section 11. Opinion of Cleary Gull Reiland & McDevitt, Inc.").
4. The fact that in rejecting the Golden Cycle Offer as inadequate on
April 13, 1998, the Board announced that it had instructed management and
its advisors to explore a possible sale of the Company, that the Company
then engaged in a thorough process of soliciting indications of interest
from prospective purchasers and that none of the prospective purchasers
that had been contacted and that continued to express an interest in
acquiring the Company had made a proposal for a transaction with a price
equal to or in excess of the Per Share Amount. See "THE OFFER AND THE
MERGER--Section 1. Background of the Offer and Merger."
5. The view of the Board of Directors, after consultation with its
financial and legal advisors, that the terms of the Merger Agreement,
including the amounts payable to Purchaser in the event of termination,
would not materially deter bona fide acquisition proposals by third
parties.
In addition to the foregoing, the Board considered certain negative factors
relating to the Offer and the Merger, including (i) the reduced liquidity of
the Shares remaining outstanding following consummation of the Offer and the
Merger, if required, (ii) the need for Purchaser to arrange for substantial
financing in order to consummate the proposed transactions and (iii) the fact
that the Merger can be approved without the vote of unaffiliated stockholders.
The Board of Directors did not consider the fairness of the Per Share Amount
in relation to the net book value or liquidation value of the Company because
it did not view such valuations as reliable indicators of the value of the
Company since such an analysis would not consider the significantly higher
value of the Company as a going concern.
The foregoing discussion of the information and factors considered by the
Board of Directors is not meant to be exhaustive but includes the material
factors considered by the Board in reaching its conclusions and
recommendations. In view of the variety of factors considered in its reaching
a determination, the Board of Directors did not find it practicable to, and
did not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its conclusions and recommendations. In addition,
individual members of the Board of Directors may have placed different
emphasis on different factors.
8
<PAGE>
The Board of Directors was aware that all of its members and certain members
of management of the Company have been requested by Purchaser not to tender
certain of their Shares pursuant to the Offer (see "--Section 6. Management
Stockholder Arrangements"). The Board of Directors did not consider this fact
as weighing either in favor of or against approving the Merger Agreement but
did note that such retention of Shares by management was a condition to the
execution of the Merger Agreement by Purchaser. The Board of Directors also
determined that it was not necessary to appoint a committee of independent
directors or an unaffiliated representative to act solely on behalf of the
Company's unaffiliated stockholders for the purpose of negotiating the terms
of the Merger Agreement. All of the members of the Board of Directors,
including those who are not employees of the Company, voted to approve the
transactions contemplated by the Merger Agreement.
11. OPINION OF CLEARY GULL REILAND & MCDEVITT, INC. The Company has retained
Cleary Gull to act as its investment banker with respect to the Offer, the
Merger and related matters. At a meeting of the Company's Board of the
Directors held on June 28, 1998, Cleary Gull delivered the Fairness Opinion to
the Board to the effect that, as of that date, and based upon the assumptions
contained therein, the consideration to be received by the Company's
stockholders pursuant to the Offer and/or the consideration to be received by
the Company's stockholders pursuant to the Merger (other than Purchaser and
the Management Stockholders) is fair from a financial point of view to such
stockholders.
The full text of the Fairness Opinion, which sets forth the assumptions
made, matters considered and limits of the review undertaken in connection
with the opinion, is attached to this Offer to Purchase as Annex A and is
incorporated herein by reference. The Fairness Opinion was delivered to the
Board for its use in connection with its consideration of the Offer and the
Merger Agreement and is not intended to be, and does not constitute, a
recommendation to any stockholder of the Company as to whether such
stockholder should tender Shares in the Offer or vote in favor of the Merger,
if it occurs. The summary of the Fairness Opinion set forth herein is
qualified in its entirety by reference to the full text of the opinion.
HOLDERS OF COMMON STOCK ARE URGED TO, AND SHOULD, READ THE FAIRNESS OPINION
CAREFULLY IN ITS ENTIRETY.
In connection with its opinion, Cleary Gull reviewed and analyzed, among
other things, the financial terms and conditions of the Merger Agreement and
certain related documents as set forth in the draft Merger Agreement dated
June 28, 1998; analyzed certain historical business and financial information
relating to the Company; reviewed various financial forecasts and schedules
and other data provided by the Company; reviewed and discussed the business
and prospects of the Company and its subsidiaries with representatives of the
Company's management; reviewed public information with respect to certain
other companies in lines of business believed to be generally comparable to
the business of the Company; reviewed the historical prices and trading
volumes of the Common Stock; calculated the unleveraged after-tax discounted
cash flow of the Company; calculated the value a financial investor might be
willing to pay to acquire all or, as in the case of the Merger or other
recapitalization transactions, a controlling and substantial portion of the
Company's equity if it were interested in pursuing such a transaction;
computed the present value of future hypothetical implied trading values based
upon earnings estimates provided by the Company and based on analyst
expectations for future growth; compared the purchase price premium to be paid
for the Common Stock to premiums paid in recent transactions; and considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria that Cleary Gull deemed appropriate.
In connection with its review, Cleary Gull has not assumed any
responsibility for or independently verified any of the foregoing information
and has relied on such information being complete and accurate in all material
respects. Cleary Gull has not made an independent evaluation or appraisal of
any assets or liabilities (contingent or otherwise) of the Company or any of
its subsidiaries, nor has Cleary Gull been furnished with any such evaluation
or appraisal that has not been publicly disclosed. With respect to the
financial plans, estimates and analyses provided to Cleary Gull by the
Company, Cleary Gull has assumed, with the Board's permission, that all such
information was reasonably prepared on a basis reflecting the best currently
available estimates and judgments of management of the Company as to future
financial performance of the Company, based upon the
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historical performance of the Company and certain estimates and assumptions
which were reasonable at the time made. Cleary Gull has also assumed, at the
Board's direction, that the number of Shares to be retained by the Management
Stockholders after the consummation of the Merger, or if the Merger is not
consummated, then after the consummation of the Offer, will not exceed 125,000
Shares. Finally, Cleary Gull has assumed that the executed Merger Agreement
will be in the same form as the draft Merger Agreement reviewed by Cleary
Gull, and that the Merger will be consummated on the terms described in the
Merger Agreement, without any waiver of any material term or condition, and
that obtaining any necessary regulatory or third party approval for the Merger
will not have an adverse effect on the Company. Cleary Gull's opinion is based
on economic, monetary and market conditions existing on the date thereof.
Cleary Gull is not opining or providing any advice with respect to the impact
of the Transactions on the solvency, viability or the financial condition of
the Company or its ability to satisfy its obligations as they become due.
The opinion does not address or imply any conclusion as to the likely
trading range or value of the Common Stock following the Effective Time, which
may vary depending upon, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other
factors that generally influence the price of securities as well as the terms
of the financing for the Transactions, the operating and financial results and
prospects of the Company and other factors relating to the Company and its
lines of business.
In connection with the opinion, Cleary Gull performed certain financial and
comparative analyses. In connection with the Board's consideration of
proposals involving a change of control of the Company, including the
Transactions, financial and comparative analyses generally conducted as part
of the financial review of acquisition transactions were considered relevant.
These analyses were (i) public company trading analysis, (ii) selected
transactions analysis, (iii) unleveraged after-tax discounted cash flow
valuation analysis, (iv) leveraged buy-out/recapitalization analysis (which is
intended to determine the value a financial investor might be willing to pay
to acquire all or, as in the case of the Transactions or other
recapitalization transactions, a controlling and substantial portion of the
Company's equity if it were interested in pursing such a transaction), (v)
hypothetical implied trading values based upon earnings and (vi) premiums paid
in the Transactions compared to average premiums paid. Each of these analyses
were considered relevant to a financial review of the terms of the Merger
Agreement and the strategic alternatives available to the Company. At a number
of meetings of the Board, these analyses were reviewed with the Board. The
material analyses and their findings are summarized below.
Comparable Public Company Trading Analysis. Cleary Gull reviewed certain
publicly available financial and stock market information relating to nine
selected companies in lines of business believed to be somewhat similar to
those of the Company. The companies selected were in related businesses such
as distribution, catalog retailing or motorcycle parts (collectively, the
"Selected Companies"), although it was noted that there were no public
companies with precisely the same mix of businesses or financial condition as
the Company. This analysis indicated that (i) the price multiples, based on
latest twelve months earnings per share, ranged from 15.8x to 35.7x for the
Selected Companies, with a median of 21.7x , as compared to 19.7x for the
Company, based upon an Offer price of $21.75 per share for the entire equity
interest (as noted below, the actual value of the non-cash consideration in
the Transactions may vary, but variations in the value of any retained shares
should not significantly impact the analysis), (ii) based on 1998 year-end
estimated earnings per share (based on estimates of First Call Corporation, a
data service that monitors and publishes compilations of earnings estimates
produced by selected research analysts regarding companies of interest to
investors, for the Selected Companies and management estimates for the
Company), the 1998 estimated price earnings multiples ranged from 13.0x to
31.1x for the Selected Companies, with a median of 19.8x, as compared to 14.1x
for the Company's fiscal year ended January 31, 1999, (iii) the ratio of firm
value to latest twelve months revenues ranged from 0.52x to 3.37x, with a
median of 1.08x, compared to 1.31x for the Company, and (iv) the ratio for
firm value to latest twelve months earnings before interest, taxes,
depreciation and amortization (as used in this Section 11, "EBITDA") for the
Selected Companies ranged from 7.4x to 21.6x, with a median of 10.6x, compared
to 10.1x for the Company. Based on this analysis, Cleary Gull derived an
equity value range for the Company of $16.00 to $24.00 per fully diluted
share. Cleary Gull noted that the Offer price of $21.75 was within the
indicated range.
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Selected Transactions Analysis. Cleary Gull reviewed and analyzed selected
publicly available financial, operating and stock market information relating
to 20 acquisition transactions in the distribution and catalog industries
since 1996 (collectively, the "Selected Transactions"), including three
recapitalization transactions in the distribution and manufacturing
industries. This analysis indicated that (i) the price multiples, based on
latest twelve months net income, ranged from 9.2x and 31.1x, with a median of
17.4x, as compared to 19.7x for the Company, based upon an Offer price of
$21.75 per share for the entire equity interest, (ii) the ratio of firm value
to latest twelve months revenues ranged from 0.27x to 1.76x for the Selected
Transactions, with a median of 0.61x, compared to 1.31x for the Company, and
(iii) the ratio of firm value to latest twelve months EBITDA for the Selected
Transactions ranged from 6.3x to 15.1x, with a median of 9.5x, compared to
10.1x for the Company. Based on this analysis, Cleary Gull derived an equity
value range for the Company of $15.00 to $22.00 per fully diluted share.
Cleary Gull noted that the Offer price of $21.75 was toward the top end of the
indicated range.
Discounted Cash Flow Analysis. Cleary Gull analyzed the Company's fully
diluted per share value based on an unleveraged after-tax discounted cash flow
analysis of the projected five-year financial performance of the Company.
Cleary Gull estimated the net present value of the future cash flows of the
Company using the financial plan prepared by the Company for the fiscal year
ended January 31, 1999 and extrapolations therefrom for the fiscal years ended
January 31, 2000 through January 31, 2003 and the fiscal year-end January 31,
2003 terminal value of the Company based upon a range of multiples of
projected fiscal year 2003 EBITDA. In conducting this analysis, Cleary Gull
applied discount rates ranging from 10% to 12% and terminal value multiples
ranging from 7.0x to 8.0x. This analysis indicated a discounted cash flow
valuation as of year-ended January 31, 1998 ranging from approximately $23.73
per share to $30.15 per share. Cleary Gull noted that the Offer price of
$21.75 was below the indicated range.
Leveraged Buy-out/Recapitalization Analysis. Cleary Gull prepared an
analysis based on the same projections utilized in the discounted cash flow
analysis as to the value paid pursuant to a recapitalization transaction. A
range of possible acquisition prices was derived by reviewing the estimated
return on equity investment which would result from a leveraged buy-out based
upon various assumptions, including the financial ratios required by the bank
financing and high yield debt markets, and interest rates. Assuming terminal
values at the end of the fifth year following a buy-out transaction ranging
from 8.0x to 10.0x EBITDA and required internal rates of return on equity of
20.0% to 30.0%, this methodology indicated that a recapitalization transaction
could earn Purchaser a market return on their investment at the Offer price of
$21.75 per share. Cleary Gull cautioned the Board that the actual price which
a party would be willing to pay in a leveraged buy-out or recapitalization
transaction was dependent on various factors not included in this methodology
and, therefore, that this analysis was not necessarily indicative of actual
prices realizable or of rates of return on Shares retained in the
Transactions, which rates of return may be more or less favorable than those
indicated in this analysis, are dependent on many contingencies and,
therefore, are speculative.
Hypothetical Implied Trading Values Based upon Earnings. Cleary Gull
calculated the present value of the implied hypothetical future trading values
of the Common Stock obtained by multiplying projected stand-alone earnings per
share for the years ending January 31, 1999, 2000, and 2001 based upon
analysts' estimates of the Company's long-term earnings per share growth rate
by the Company's historic 5-year average forward price/earnings ratio of
14.7x. The Company's implied forward stock price was discounted at an equity
discount rate of 14.0%. The present value of such implied hypothetical future
trading values ranged from $23.52 to $23.93 per share. In connection with this
presentation, Cleary Gull advised the Board that this analysis was not
necessarily indicative of future trading ranges and that any estimate of
future market prices is speculative and subject to significant uncertainties
and contingencies, all of which are difficult to predict and beyond the
control of Cleary Gull. Therefore, the actual trading prices of the Common
Stock might be outside the estimated range and would depend upon, and
fluctuate with, changes in interest rates, market conditions, the condition,
results of operations, and prospects, financial and otherwise, of the Company
and other factors which generally influence the prices of securities. Cleary
Gull noted that the Offer price of $21.75 was below the indicated range.
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Premium Analysis. Cleary Gull analyzed the closing price of the Common Stock
over the one-day, one-week, one-month, six-month periods and the 52-week
average and 52-week low prices preceding the announcement date of the Golden
Cycle Offer (the "Announcement Date") and the premiums implied by the Merger
Consideration as of such dates. This analysis resulted in a range of purchase
price premiums for the Common Stock of (i) 45.6% based upon the last trade of
the Common Stock prior to the Announcement Date ($14.94 per share on March 24,
1998), (ii) 67.3% based upon the last trade of the Common Stock one-week prior
to the Announcement Date ($13.00 per share on March 16, 1998), (iii) 59.6%
based upon the last trade of the Common Stock one-month prior to the
Announcement Date ($13.63 per share on February 20, 1998), (iv) 35.9% based
upon the last trade of the Common Stock six months prior to the Announcement
Date ($16.00 per share on September 24, 1997), (v) 56.5% based upon the
average closing price during the 52-week period prior to the Announcement
Date, and (vi) 97.7% based upon the lowest closing price during the 52-week
period prior to the Announcement Date ($11.00 per share on May 29, 1997).
Cleary Gull compared the premium paid in the Transactions to those paid in all
transactions during the 1993 to 1997 time period, as compiled by the
Securities Data Corporation. Premiums over the closing stock price four weeks
prior to the announcement date ranged from 46.8% to 39.0% during the period,
with 1997 average premiums of 42.2%. Premiums over the closing stock price one
week prior to the announcement date ranged from 41.6% to 32.7% during the
period, with 1997 average premiums of 36.3%. Premiums over the closing stock
price one day prior to the announcement date ranged from 27.5% to 36.4% during
the period, with 1997 average premiums of 33.0%. Cleary Gull noted that the
premiums paid in the Transactions were above the top end of the range in every
case.
Stub Analysis/Review of Post-Transaction Common Stock. Cleary Gull reviewed
the implied public market trading values for shares of Common Stock to be
outstanding following the Effective Time derived from an application of
various multiples to the Company's pro forma earnings per share and EBITDA
giving effect to the Transactions and based upon management's projections and
extrapolations therefrom. This calculation indicated that (i) applying price-
earnings multiples ranging from 14.7x to 21.0x to pro forma earnings per share
in the fiscal years ending January 31, 2000 through 2003 and a range of equity
discount rates from 14.0% to 17.0%, the resulting hypothetical stock price in
such years resulted in a net present value implied market per share trading
value of $16.36 to $30.09, (ii) applying a range of EBITDA multiples from 8.0x
to 10.0x to pro forma EBITDA in fiscal year ending January 31, 2000 resulted
in an implied per share trading value of $20.29 to $35.64, and (iii) using the
present value of the unleveraged cash flows at discount rates ranging from
10.0% to 12.0% resulted in an implied trading price of $26.50 to $39.31 per
share.
Cleary Gull further applied a 30% discount to these implied per share prices
to reflect the reduced liquidity and increased leverage of the business. On a
per share basis, after applying the 30% discount, the range of implied value
per retained Share would be $0.84 to $1.34 per share. Assuming that holders of
the Common Stock receive 94% of their consideration in cash ($20.45 per share)
and retain 6% of their shares in the Company, holders of the Common Stock
would receive consideration pursuant to the Transactions (on a fully diluted
basis) having an implied valuation ranging from approximately $21.29 to
approximately $21.79 for each Share.
In connection with this analysis, it was concluded that following the
Effective Time, the market valuation of the Common Stock would be
significantly influenced by estimates of the forward-looking pro forma
earnings and EBITDA forecasts, if available. In arriving at these estimates of
possible implied trading values for Shares following the Effective Time,
Cleary Gull advised the Board that trading in the post-Transactions Common
Stock for a period following the Effective Time could be characterized by a
redistribution of such securities among the stockholders of the Company
immediately preceding the Merger and other investors and, accordingly, such
securities may be subject to downward price pressures during this period
resulting in trading prices below the estimated ranges. In addition, in
connection with this presentation, Cleary Gull advised the Board that any
estimate of trading ranges is speculative and subject to uncertainties and
contingencies, all of which are difficult to predict and beyond the control of
Cleary Gull. Therefore, the actual trading prices of the post-Transactions
Common Stock may be outside the estimated range and will depend upon, and
fluctuate with, changes in interest rates, market conditions, the terms of
financing for the Transactions, the condition and prospects, financial and
otherwise, of the Company and other factors which generally influence the
prices of securities. In addition, the
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reduced float of Shares, the lack of a public market for the securities and
the fact that the Company may not be required to publicly disclose its
financial statements to investors may adversely affect the liquidity of the
Shares and result in greater volatility in trading prices following the
Effective Time, in addition to the increased volatility resulting from the
increased leverage of the Company, as compared to trading prices prior to the
Effective Time.
The summary set forth above does not purport to be a complete description of
the analyses performed by Cleary Gull, although it is a summary of the
material financial and comparative analyses performed by the investment bank
in arriving at its opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying the Fairness Opinion. In arriving at its fairness
determination, Cleary Gull considered the results of all such analyses and did
not assign relative weights to any of the analyses.
The analyses were prepared for the purpose of providing the Board an opinion
as to the fairness from a financial point of view of the consideration to be
received in the Offer and/or the Merger and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may
be sold, which are inherently subject to uncertainty and may be significantly
more or less favorable than as set forth in these analyses. Similarly, any
estimates incorporated in the analyses performed by Cleary Gull are not
necessarily indicative of actual past or future values or results, which may
be significantly more or less favorable than any such estimates. No company
utilized as a comparison is identical to the Company or the business segment
for which a comparison is being made, and none of the comparable acquisition
transactions or other business combinations utilized as a comparison is
identical to the Transactions. Accordingly, an analysis of publicly traded
comparable companies and comparable business combinations resulting from the
transactions is not mathematical; rather it involves complex considerations
and judgments concerning differences in financial and operating
characteristics of the value of the comparable companies or company to which
they are being compared. The discount rates, terminal values and multiples
used in the analyses were considered appropriate after consideration of
current economic and financial market conditions, including price earnings
multiples and capital structures of selected public companies and rates of
return on debt and equity investments in public and private companies and a
qualitative judgment as to the most relevant information and its application
to the Company. In connection with the analyses, Cleary Gull made, and was
provided with estimates and forecasts by the Company's management based upon
numerous assumptions with respect to the industry performance, general
business and economic conditions and other matters, many of which are beyond
the control of the Company and its advisors. Similarly, analyses based upon
forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the Company
or its advisors, none of the Company, its investment banker or any other
person assumes responsibility if future results or actual values are
materially different from these forecasts or assumptions. The Fairness Opinion
necessarily was based on the economic, market and other conditions as in
effect on, and the information made available to Cleary Gull as of, the date
of the opinion. The foregoing summary is qualified by reference to the written
opinion of Cleary Gull set forth in Annex A to this Offer to Purchase.
As described above, the opinions and presentation of Cleary Gull to the
Board were only one of many factors taken into consideration by the Board in
making its determination to approve the Merger Agreement. In addition, the
terms of the Merger Agreement were determined through negotiations between the
Company and Purchaser and were approved by the Board. Although Cleary Gull
provided advice to the Company during the course of these negotiations, the
decision to enter into the Merger Agreement and to accept the consideration to
be received in the Transactions was solely that of the Board.
Cleary Gull was selected by the Company as its financial advisor in
connection with the Merger because of Cleary Gull's reputation and expertise
as an investment banking firm and its expertise and familiarity with the
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distribution and motorcycle industries. Clearly Gull is continually engaged in
the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements, leveraged buyouts,
recapitalizations, and valuations for estates, corporate and other purposes.
In connection with the services of Cleary Gull as investment bankers to the
Company with respect to the Transactions and related matters, the Company has
agreed to pay Cleary Gull (i) a quarterly retainer of $50,000 payable in
connection with their retention as investment bankers to the Company in
connection with the Transactions, (ii) an offer fee of $250,000 was paid upon
the execution of the letter of intent, and (iii) a transaction fee of $2.23
million payable upon consummation of the Transactions. The retainer and offer
fees, which have totaled $350,000 to date, are credited against the
transaction fee.
In addition, the Company has agreed to reimburse Cleary Gull for their
reasonable out-of-pocket expenses (including the fees and disbursements of
their attorneys) and to indemnify them and certain related persons against
certain liabilities, including certain liabilities under the federal
securities laws, arising out of its engagement.
Cleary Gull has from time to time in the past provided investment banking
services to the Company for which it has received fees. In the ordinary course
of business, Cleary Gull and their respective affiliates may actively trade in
the securities of the Company for their own account and for the accounts of
their customers and, accordingly, may at any time hold a long or short
position in such securities. Cleary Gull currently makes a market in the
Common Stock on the Nasdaq National Market.
12. PURPOSES AND REASONS OF THE COMPANY FOR THE OFFER AND MERGER. The
purpose of the Offer and Merger is to provide the Company's stockholders with
an alternative to the Golden Cycle Offer by enabling such stockholders to sell
significantly all, if not all of their Shares at a fair price and at a premium
over the market price of the Common Stock prior to the Golden Cycle Offer. The
primary benefits of the Offer and the Merger to the stockholders of the
Company are that such stockholders are being afforded an alternative to the
Golden Cycle Offer and an opportunity to sell significantly all, if not all of
their Shares for cash at a price that represents a premium of approximately
21% over the Golden Cycle Offer and a premium of approximately 3.5% over the
closing market price of the Common Stock on the last full trading day prior to
the public announcement of the Offer, and a more substantial premium over
recent historical trading prices. See "--Section 1. Golden Cycle Offer" and
"THE TENDER OFFER--Section 6. Price Range of the Shares; Dividends on the
Shares."
13. PURPOSES AND REASONS OF PURCHASER AND MANAGEMENT STOCKHOLDERS FOR THE
OFFER AND MERGER. Purchaser's purpose for entering into the Merger Agreement
and engaging in the Offer and Merger is to enable Purchaser, through the Stock
Purchase, the Offer and the Merger (if required), to obtain a majority
ownership interest in the Company, thereby becoming entitled to all benefits
that result from such ownership, including 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, Purchaser will also bear the risk of any decrease
in the value of the Company.
The Management Stockholders' purpose for engaging in the Offer and Merger is
to be able to obtain the Per Share Amount with respect to a portion of their
respective holdings of the Shares or Shares issuable upon exercise of
outstanding stock options while also maintaining an ownership position in the
Company.
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THE OFFER AND MERGER
1. BACKGROUND OF THE OFFER AND MERGER. The following description was
prepared by the Company and Purchaser. Information about Purchaser was
provided to the Company, and the Company takes no responsibility for the
accuracy or completeness of any information regarding meetings or discussions
in which the Company or its representatives did not participate.
On March 23, 1998, the Company received a written proposal from Golden Cycle
for a business combination between Golden Cycle and the Company in which
stockholders of the Company would receive $18.00 per share in cash. On March
25, 1998, Cleary Gull met with the Board of Directors to discuss Cleary Gull's
capabilities, the Golden Cycle proposal, as well as other available strategic
options. The Golden Cycle Offer was commenced on April 7, 1998.
On April 2, 1998, David Lorsch of Fremont Partners called the Company and
spoke to a Company representative who referred Mr. Lorsch to David Prokupek of
Cleary Gull. Mark Williamson of Fremont Partners called Mr. Prokupek on April
2, 1998 and briefly introduced Fremont Partners and described the firm's
background and its interest in the motorsports industry. Mr. Williamson also
asked Mr. Prokupek whether he believed the Company would be receptive to a
friendly offer to acquire all, or a substantial portion of, the Company. Mr.
Prokupek indicated that he believed the Company would be interested in such an
offer and he and Mr. Williamson agreed to speak again on April 6, 1998 after
Mr. Prokupek had a chance to review some literature regarding Fremont Partners
that Mr. Williamson had committed to send to Mr. Prokupek on April 3, 1998.
Messrs. Williamson and Lorsch called Mr. Prokupek on April 6, 1998, and Mr.
Prokupek indicated that he had had a chance to review the Fremont Partners'
literature that had been sent to him by Mr. Williamson. The parties discussed
Fremont Partners in more detail and talked at some length about the Company.
Mr. Prokupek stated that the Company was exploring all of its alternatives and
that it was compiling some material regarding the Company that Cleary Gull
hoped to share, following the execution of appropriate confidentiality and
standstill agreements, with a number of parties that had expressed an interest
in the Company or who Mr. Prokupek believed might have an interest in the
Company. Following the call, Mr. Prokupek sent a confidentiality and
standstill agreement to Fremont Partners which Fremont Partners executed and
returned to Mr. Prokupek on April 8, 1998.
On April 9, 1998, Cleary Gull presented to the Board a valuation analysis of
the Company as well as a variety of strategic alternatives available to the
Company. On that day, the Board of Directors formally ratified the retention
of Cleary Gull as its investment banker to assist in its evaluation of the
Golden Cycle Offer as well as other strategic alternatives available to the
Company. Cleary Gull discussed various types of transaction structures, such
as a sale of the entire Company, leveraged buyout/recapitalization, leveraged
share repurchases, and financial valuation analyses that, in Cleary Gull's
opinion, would be relevant in evaluating proposals, including the Golden Cycle
Offer. The analyses reviewed were similar to those reviewed in connection with
the evaluation of the Offer and Merger, are described in "SPECIAL FACTORS--
Section 11. Opinion of Cleary Gull Reiland & McDevitt, Inc.," and included
comparable public company trading analysis, selected acquisition transactions
analysis, dilution analyses, a leveraged buy-out/recapitalization analysis, a
leveraged share repurchase analysis and a discounted cash flow valuation
analysis.
Following this presentation, the Board of Directors discussed the
appropriate long-term strategy for the Company and, at a meeting held on April
11, 1998, concluded that the Golden Cycle Offer was inadequate and that Cleary
Gull should conduct a more formal investigation of third-party interest in
order to provide additional information for ongoing evaluation by the Board of
Directors of alternatives to maximize stockholder value.
Thereafter, Cleary Gull contacted a number of potential strategic and
financial buyers (including motorcycle part distributors and manufacturers,
auto part distributors, and other leisure product distributors and
manufacturers) to determine their interest in executing a customary
confidentiality agreement with the Company, in order to receive non-public
information concerning the Company so that they could more fully evaluate the
Company.
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Subsequently, Mr. Prokupek called Mr. Williamson and stated that he was
planning to meet with the Company in Morgan Hill, California on April 23, 1998
and that he would be interested in coming to San Francisco to meet with
Fremont Partners while he was in California for his meeting with the Company.
Mr. Prokupek and Mr. Williamson met in the offices of Fremont Partners on
April 23, 1998. Mr. Williamson indicated that he had reviewed some of the
Company's public filings with the Securities and Exchange Commission (the
"Commission") and that he believed Fremont Partners may be able to offer a
higher price than the $18.00 per share price that was currently being offered
by Golden Cycle. During the meeting, Mr. Prokupek brought to Mr. Williamson's
attention certain operating initiatives that management had undertaken and
additional opportunities that Mr. Prokupek believed the Company had available
to it. Mr. Prokupek also provided Mr. Williamson with certain background
information with respect to the management changes that had occurred at the
Company, and he also shared with Mr. Williamson some company projections which
were prepared for inclusion in a confidential offering memorandum that the
Company was in the process of finalizing. Mr. Prokupek stated that the
confidential offering memorandum would be available on April 27, 1998 to every
interested party that had executed a confidentiality and standstill agreement
with the Company.
Fremont Partners received the confidential offering memorandum on April 27,
1998. Mr. Williamson spoke to Mr. Prokupek on that day and expressed Fremont
Partners' interest in a possible transaction and emphasized Fremont Partners'
ability to move forward quickly. Mr. Prokupek indicated that the Company would
need a period of time before any meetings with management could be held in
order to put together a management presentation. Mr. Prokupek indicated that
he believed management meetings could be scheduled during the week of May 11,
1998.
On May 4, 1998, Mr. Williamson sent a letter to Cleary Gull reiterating
Fremont Partners' interest in a transaction with the Company. The indication
of interest stated that Fremont Partners' preliminary range of value for the
Company's Common Stock was $20 to $22 per share, but that such prices were
subject to confirmatory due diligence and assumed the transaction would take
the form of a leveraged recapitalization with management rolling over some or
all of its equity in the Company. The indication of interest also had attached
to it a proposed letter of intent from Purchaser, which is an affiliate of
Fremont Partners.
On May 12, 1998, Robert Jaunich of Fremont Partners and Mr. Williamson
attended a management meeting in Morgan Hill, California. Messrs. Jaunich and
Williamson were accompanied by certain consultants and associates of Purchaser
as well as by representatives of Bank of America and Bankers Trust
Corporation, as potential financing sources. Following the management
presentations, Messrs. Jaunich and Williamson met with certain directors of
the Company (James Kelley, Lionel Allan and Joseph Keenan). Certain officers
of the Company (Rick Saunders, Joe Piazza, Jr., Dennis Navarra and Steve Fisk)
also attended the meeting. At this meeting, Purchaser again expressed its
ability and willingness to move forward quickly and its preliminary belief,
subject to confirmatory due diligence, that it could offer a price in the
range of $20 to $22 per share. Mr. Williamson indicated that Purchaser would
need to perform customary due diligence and the parties discussed what the
next step might be in the due diligence process.
Between May 13 and May 18, 1998, the Company's management made formal
presentations to three other parties, concerning the operations and financial
condition of the Company. In the course of these meetings (including those
with Purchaser), members of the Company's management made clear to each
potential buyer management's desire to seek a transaction that maximized
stockholder value. Prior to these meetings, two of the three parties had
provided Cleary Gull with draft letters of intent indicating the type of
transaction such party would be willing to pursue and the range of values such
party would be willing to consider. One of the buyers proposed a merger
transaction structured in a manner similar to the Transactions, including the
ability of existing stockholders to retain a minority equity stake in the
Company.
All four transactions presented to the Company (including Purchaser's)
contemplated the incurrence by the Company of a substantial amount of
indebtedness. In addition, each potential buyer told Cleary Gull that the
ranges of values indicated were very preliminary, were subject to completion
of their respective due diligence
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investigations of the Company, and were subject to revision or complete
withdrawal for any reason. Following the meetings with management and Cleary
Gull, each party was requested to resubmit its proposal.
On May 19, 1998, Mr. Prokupek and Tom Magill of Gibson, Dunn & Crutcher LLP,
counsel to the Company, met with certain members of Purchaser at Fremont
Partners' offices in San Francisco to discuss an appropriate valuation for the
Company and Purchaser's proposed form of letter of intent. The parties
negotiated various provisions of the proposed letter of intent other than
price. These provisions included an exclusivity provision, a termination fee
provision and an expense reimbursement clause. Cleary Gull requested that
Purchaser consider making its best and final offer. Mr. Williamson then
indicated his belief that an appropriate value of the Company was in the
$21.00 to $22.00 per share range but that such prices were premised on
receiving recapitalization accounting treatment for the transaction and would
need to be confirmed in detailed due diligence to be conducted by Purchaser.
Mr. Williamson also stated that it was critical from Purchaser's point of view
that management retain an equity stake in the Company following consummation
of a transaction. Mr. Prokupek indicated that he would discuss the proposed
range with the Board, but requested Mr. Williamson to determine if a price in
excess of $22.00 per share could be paid. The meeting was then terminated.
Following the meeting on May 19, 1998, Purchaser continued to refine its
financial models to see if it would be possible for it to pay more than $22.00
per share for the Company. On May 21, 1998, Mr. Williamson telephoned Mr.
Prokupek and indicated that Purchaser might be able to pay $23.00 per share
for the Company. Mr. Williamson indicated that such price represented
Purchaser's highest possible price and final offer and that it was based upon
management's expectations regarding various items in management's business
plan, which expectations Purchaser indicated it would have to determine are
reasonable during its due diligence. These expectations included the ability
to achieve inventory level reductions, increase inventory turns, improve gross
margins, achieve projected revenue growth and earnings estimates, sell certain
parcels of real estate and lease more appropriately sized facilities and
similar matters. Mr. Prokupek indicated that he would discuss the proposal
with the Board at the Board's nightly conference call and would call Purchaser
back with the Board's response. That night, the Board of Directors met to
review the status of the discussions with third parties and the indications of
interest received. The Board of Directors, after consultation with its legal
counsel and Cleary Gull, determined that in light of the indications of
interest received from other parties, Purchaser's proposal represented the
best available course of action for the Company.
Following the Board meeting, Mr. Prokupek called Mr. Williamson to inform
him that the Board had agreed to move forward with Purchaser's proposal on the
terms outlined in the proposed letter of intent that had been negotiated. On
May 22, 1998, following the closing of the market, Purchaser executed the
letter of intent with the Company. The letter of intent contemplated a $23.00
per share price, which was expressly subject to confirmatory due diligence to
be conducted by Purchaser during the period from May 22, 1998 to June 27,
1998. Following its execution, the Company made a public announcement
regarding the execution of the letter of intent.
During the ensuing four weeks, a draft merger agreement was negotiated
between the Company and Purchaser, and Purchaser conducted extensive due
diligence along with its advisors, Skadden, Arps, Slate, Meagher & Flom LLP,
Arthur Andersen LLP, Environ and AON. Purchaser also retained an outside
consulting firm, Fletcher Spaght to assist Purchaser in connection with its
due diligence. In connection with its due diligence, Purchaser visited
facilities, interviewed Company personnel, spoke with suppliers and customers
and performed an analysis of the market in which the Company operates.
Early in the week of June 22, 1998, Mr. Williamson called Mr. Prokupek and
informed him that in connection with Purchaser's due diligence Purchaser was
questioning some of the assumptions underlying management's projections as
being overly aggressive. Mr. Williamson requested that Mr. Prokupek and the
Company provide Purchaser with a reasonable explanation of how management's
projections would be achieved.
On June 22, 23 and 24, 1998, Purchaser received due diligence reports from
its various advisors. In light of the results of the due diligence, Purchaser
determined that it could proceed but only at a price of $21.00 per
17
<PAGE>
share. In the afternoon of June 24, 1998, Mr. Williamson again telephoned Mr.
Prokupek and requested that Cleary Gull and the Company provide Purchaser with
a reasonable explanation of how management's projections might be achieved.
Subsequently, Mr. Lorsch spoke with Mr. Prokupek, who explained to Mr. Lorsch
that management was preparing additional analyses to demonstrate how
management's projections might be achieved.
On June 25, 1998, Messrs. Jaunich, Williamson and Lorsch met with Mr.
Prokupek and Ron Miller of Cleary Gull in the San Francisco offices of Fremont
Partners to discuss the achieveability of management's projections and other
findings in Purchaser's due diligence review of the Company. After hearing
Cleary Gull's explanation with respect to the manner in which management's
projections might be achieved, Mr. Williamson indicated that Purchaser did not
feel comfortable proceeding at any price other than $21.00 per share. The
meeting then concluded to enable Mr. Prokupek to attend a Board meeting that
was scheduled to be held by conference call.
On June 26, 1998, Mr. Prokupek informed Mr. Williamson that the Board
requested Purchaser to increase the per share price above $21.00 and to
eliminate from the Merger Agreement the non-solicitation provision and the
termination fee. Mr. Williamson stated that Purchaser would not be willing to
proceed at any price or on any basis without a termination fee of some amount
and the obligation on the part of the Company to reimburse Purchaser for up to
$1 million of out-of-pocket expenses in the event the transaction with the
Company did not close. After speaking again with the Board, Mr. Prokupek
telephoned Mr. Williamson and informed him that the Company would only agree
to a termination fee (which had to be a lesser amount than the $5 million
amount agreed to in the previously executed letter of intent) if Purchaser
were willing to raise its per share offer. In the afternoon on June 26, 1998,
Mr. Williamson telephoned Mr. Prokupek and informed him that Fremont Partners'
final offer would be $21.75 per share, with a $3.5 million termination fee, a
$1 million expense reimbursement provision and a non-solicitation provision,
subject to a "fiduciary out" in certain circumstances. Mr. Prokupek then
telephoned the Board members which agreed to move forward on that basis
provided that the other open issues with the merger agreement could be
resolved to the Company's satisfaction.
During June 27 and 28, 1998, the Company and its advisors negotiated the
remaining terms of the merger agreement with Purchaser and its advisors. On
June 28, 1998, after the Company's and Purchaser's legal counsel had finalized
the form of the Merger Agreement, the Board of Directors reconvened by
telephone, was updated on developments since June 26, 1998 and received the
written and oral opinion of Cleary Gull that, as of the date of such opinion
and based upon and subject to certain factors and assumptions stated therein,
the consideration to be received by the Company's stockholders pursuant to the
Offer and/or the consideration to be received by the Company's stockholders
(other than Purchaser and the Management Stockholders) pursuant to the Merger
is fair from a financial point of view to such stockholders. In presenting its
opinion, Cleary Gull reviewed financial and comparative analyses as described
in "SPECIAL FACTORS--Section 11. Opinion of Cleary Gull Reiland & McDevitt,
Inc.," including comparable public company trading analysis, selected
acquisition transaction analysis, a leveraged buy-out/recapitalization
analysis, and a discounted cash flow valuation analysis, and compared these
analyses to the proposed Transaction. The Company's legal counsel reviewed
with the Board of Directors the legal standards applicable to its review of
the proposed transaction, including the duties of care and loyalty owed to the
Company and its stockholders, and also reviewed for the Board of Directors the
regulatory process that would apply to the transaction, including required
filings with the Commission. Following such presentations, the Board of
Directors determined that the Offer and Merger are fair to and in the best
interests of the Company and its stockholders and, by a unanimous vote,
approved and adopted the Merger Agreement and the transactions contemplated
thereby, and unanimously recommended that stockholders accept the Offer and
tender their Shares. Later, on the evening of June 28, 1998, the parties
entered into the Merger Agreement, and a public announcement of the execution
of the Merger Agreement was made before the open of market on June 29, 1998.
On July 13, 1998, the Company commenced the Offer.
18
<PAGE>
2. INTERESTS OF CERTAIN PERSONS IN THE OFFER AND MERGER. Stockholders should
be aware in considering their decision to participate in the Offer that each
member of the Board has, to some degree, interests which may present such
directors with an actual or potential conflict of interest in connection with
the Offer and the Merger. Pursuant to the Offer, the directors and executive
officers of the Company will receive an aggregate of approximately
$4.4 million in cash for their Shares and Shares issuable upon exercise of
outstanding stock options, excluding the 87,979 Shares being retained. As of
June 28, 1998, the directors and executive officers of the Company as a group
beneficially owned 381,632 shares, or approximately 6.9% of the Shares, which
includes Shares that would be issued upon exercise of stock options
exercisable within 60 days of such date. The Company has been informed by its
directors and executive officers that they intend to tender all of the Shares
(except for 87,979 shares they have agreed to retain following consummation of
the Offer pursuant to the Stockholder Agreement) owned by them pursuant to the
Offer. Moreover, following consummation of the Offer and the Merger (if
required), such Management Stockholders will have "put" and "call" rights with
respect to such retained Shares providing liquidity otherwise unavailable to
other stockholders. See "SPECIAL FACTORS--Section 6. Management Stockholder
Arrangements" and "THE OFFER AND MERGER--Section 8. The Agreement and Plan of
Merger; Stockholder Agreement."
3. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS. Certain
matters discussed herein are forward-looking statements that involve risks and
uncertainties. When used in this Offer to Purchase, the words "estimate,"
"anticipate," "expect," "intend," "believe," "may," "will," "continue" (or the
negative thereof or variations thereon) and similar expressions are intended
to identify forward-looking statements. Forward-looking statements include the
financial projections set forth below. Information of this type is based on
estimates and assumptions that are inherently subject to significant economic
and competitive risks, uncertainties and contingencies, all of which are
difficult to predict and many of which are beyond the Company's control.
Important factors that could cause actual results to differ materially from
estimates and projections included in the forward-looking statements include
those factors described under the caption "Additional Factors that May Affect
Future Results" in Item 1 of the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1998, which is available from the Commission
(see "THE TENDER OFFER--Section 8. Certain Information concerning the
Company"). Accordingly, undue reliance should not be placed upon such forward-
looking statements. No assurance can be given that any of such projections or
statements will be realized or that actual results will not be significantly
higher or lower than those set forth in such projections and statements.
4. COMPANY FINANCIAL PROJECTIONS. The Company does not as a matter of course
make public projections as to its future performance or earnings. However, in
connection with the preliminary discussions concerning the feasibility of the
Offer and Merger, the Company prepared and furnished Purchaser with the
Projections. The Projections have been included in this Offer to Purchase for
the limited purpose of giving the Company's stockholders access to financial
projections made by the Company's management in connection with the Offer, the
Merger and the Debt Financing. The Projections were based on assumptions
concerning the Company's products and business prospects for fiscal year 1998
through fiscal year 2003. The Projections were not prepared with a view to
public disclosure or compliance with published guidelines of the Commission or
the guidelines established by the American Institute of Certified Public
Accountants regarding projections or forecasts. These forward-looking
statements (as that term is defined in the Private Securities Litigation
Reform Act of 1995) are subject to certain risks and uncertainties that could
cause actual results to differ materially from the Projections. The
Projections reflect numerous assumptions (not all of which were provided to
Purchaser), all made by management of the Company, with respect to industry
performance, general business, economic, market and financial conditions and
other matters, including assumed interest expense and effective tax rates
consistent with historical levels for the Company, all of which are difficult
to predict, many of which are beyond the Company's control and none of which
were subject to approval by Purchaser. Accordingly, there can be no assurance
that the assumptions made in preparing the Projections will prove accurate,
and actual results may be materially greater or less than those contained in
the Projections. The inclusion of the Projections herein should not be
regarded as an indication that any of Purchaser, the Company or their
respective affiliates or representatives considered or consider the
Projections to be a reliable prediction of future events, and the
19
<PAGE>
Projections should not be relied upon as such. None of Purchaser, the Company
and their respective affiliates or representatives assumes any responsibility
for the validity, reasonableness, accuracy or completeness of the Projections.
The Company's independent auditors have not examined, compiled or otherwise
applied procedures to the financial forecast presented herein and,
accordingly, do not express an opinion or any other form of assurance on it.
None of Purchaser, the Company and any of their respective affiliates or
representatives has made, or makes any representation to any person regarding
the information contained in the Projections and none of them intends to
update or otherwise revise the Projections to reflect circumstances existing
after the date when made or to reflect the occurrence of future events even in
the event that any or all of the assumptions underlying the Projections are
shown to be in error. See "THE OFFER AND MERGER--Section 3. Cautionary
Statement concerning Forward-Looking Statements."
Projections. In April 1998, the Financial Advisor delivered to Purchaser the
Company's projections of anticipated future operating performance for the five
fiscal years ending January 31, 2003. The projections for fiscal year 1999
exclude costs associated with the Golden Cycle Offer and the Transactions, as
these projections were prepared before such events occurred or were
anticipated. The projections are summarized below:
PROJECTED INCOME STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
----------------------------------
1999E 2000E 2001E 2002E 2003E
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total Revenue.............................. $159.3 $177.0 $196.6 $218.5 $242.9
Gross Profit............................... 60.6 70.9 78.8 87.6 97.5
Earnings before Interest and Taxes......... 19.3 25.5 29.8 34.6 40.2
Pre-Tax Income............................. 14.4 21.9 27.6 33.9 41.1
Net Income................................. 8.7 13.2 16.6 20.4 24.7
Diluted Earnings per Share................. $ 1.60 $ 2.44 $ 3.07 $ 3.77 $ 4.58
Average Shares Outstanding................. 5.39 5.39 5.39 5.39 5.39
Earnings before Interest, Taxes, Deprecia-
tion and Amortization..................... 23.9 30.3 34.7 39.7 45.5
</TABLE>
5. SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA.
The following tables present selected financial data for the three months
ended April 30, 1998 and April 30, 1997, and for each of the years in the
five-year period ended January 31, 1998. The historical financial data for the
years ended January 31, 1996, 1997 and 1998 are derived from, and should be
read in conjunction with, the audited financial statements of the Company and
the related notes thereto attached as annexes to this Offer to Purchase. The
selected financial data for the Company for the years ended January 31, 1994
and 1995 are derived from audited financial statements of the Company
available from the Commission (see "THE TENDER OFFER--Section 8. Certain
Information concerning the Company"). The historical financial data of the
Company for the three months ended April 30, 1998 and April 30, 1997 are
derived from, and should be read in conjunction with, the Company's unaudited
financial statements and the related notes thereto which are attached as
annexes to this Offer to Purchase which, in the opinion of management of the
Company, contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of this data. The results for
the three month period ended April 30, 1998 are not necessarily indicative of
the results for the full year or for any future period.
The unaudited pro forma consolidated balance sheet data is based on the
unaudited consolidated balance sheet of the Company as of April 30, 1998, and
is adjusted to give effect to the Recapitalization as if it had occurred on
April 30, 1998. The unaudited pro forma consolidated statements of operations
are based on the audited consolidated statement of operations of the Company
for the year ended January 31, 1998, the unaudited consolidated statements of
operations of the Company for the three months ended April 30, 1998 and 1997,
and are adjusted to give effect to the Recapitalization as though it had
occurred as of February 1, 1997, excluding
20
<PAGE>
certain one time costs of the Transactions as described in Note (d). In
addition, the consolidated statements of operations for the year ended January
31, 1998 and the three months ended April 30, 1997 are adjusted to give effect
to the Company's acquisition of Chrome Specialities, Inc. ("CSI") on September
15, 1997 (which transaction was accounted for by the Company as a purchase),
as if it had occurred as of February 1, 1997. The unaudited pro forma
consolidated financial data do not purport to represent what the Company's
financial condition or the results of operations would actually have been had
the acquisition of CSI and Recapitalization in fact occurred on the assumed
dates, nor do they project the Company's financial condition or results of
operations for any future period or date.
21
<PAGE>
The financial data set forth below should be read in conjunction with the
historical financial statements, and the related notes thereto, and the
unaudited pro forma consolidated financial data set forth in Annexes C, D and
E to this Offer to Purchase.
<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED
APRIL 30,
YEAR ENDED JANUARY 31, THREE MONTHS ENDED APRIL 30, 1998
-------------------------------------------------------- ------------------------------------- ------------
PRO FORMA PRO FORMA PRO FORMA
1994 1995 1996 1997 1998 1998(D) 1997 1997(D) 1998 1998(D) PRO FORMA(E)
------- ------- ------- -------- -------- --------- ------- --------- ------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net Sales........ $67,252 $74,904 $93,906 $108,557 $122,725 $146,694 $31,707 $41,575 $44,796 $44,796 $149,915
Cost of Sales... 38,583 43,333 54,779 64,834 77,716 92,769 19,872 26,006 28,029 28,029 94,792
------- ------- ------- -------- -------- -------- ------- ------- ------- ------- --------
Gross Profit..... 28,669 31,571 39,127 43,723 45,009 53,925 11,835 15,569 16,767 16,767 55,123
Selling, General
and
Administrative
Expenses....... 17,497 18,695 23,522 27,039 33,114 39,808 7,166 9,780 10,337 10,337 40,365
Other Operating
Expenses....... -- -- -- -- 3,127 3,127 -- -- 437 437 3,564
Product
Development.... 1,165 1,535 1,652 1,723 1,407 1,407 363 363 252 252 1,296
------- ------- ------- -------- -------- -------- ------- ------- ------- ------- --------
Operating
Income.......... 10,007 11,341 13,953 14,961 7,361 9,583 4,306 5,426 5,741 5,741 9,898
Interest
Expense........ 827 701 1,637 1,915 2,964 14,226 457 3,556 1,508 3,556 14,226
------- ------- ------- -------- -------- -------- ------- ------- ------- ------- --------
Income (Loss)
Before Income
Taxes........... 9,180 10,640 12,316 13,046 4,397 (4,643) 3,849 1,870 4,233 2,185 (4,328)
Income Tax
Provision
(Benefit)...... 3,672 4,224 4,395 5,174 2,114 (1,857) 1,506 748 1,772 874 (1,731)
Cumulative
effect of
accounting
change......... 1,600 -- -- -- -- -- -- -- -- -- --
------- ------- ------- -------- -------- -------- ------- ------- ------- ------- --------
Net Income
(Loss).......... $ 7,108 $ 6,416 $ 7,921 $ 7,872 $ 2,283 $ (2,786) $ 2,343 $ 1,122 $ 2,461 $ 1,311 $ (2,597)
======= ======= ======= ======== ======== ======== ======= ======= ======= ======= ========
PER SHARE DATA:
Net income
Basic........... $ 1.46 $ 1.28 $ 1.57 $ 1.49 $ 0.45 $ (0.91) $ 0.45 $ 0.37 $ 0.48 $ 0.43 $ (0.85)
Diluted......... $ 1.42 $ 1.27 $ 1.52 $ 1.48 $ 0.44 $ (0.91) $ 0.45 $ 0.37 $ 0.46 $ 0.43 $ (0.85)
Shares used in
per share
calculation
Basic........... 4,855 5,001 5,048 5,272 5,094 3,072 5,218 3,072 5,111 3,072 3,072
Diluted......... 5,006 5,052 5,209 5,327 5,233 3,072 5,224 3,072 5,393 3,072 3,072
OTHER FINANCIAL
DATA:
Depreciation and
amortization.... $ 1,513 $ 1,561 $ 1,612 $ 1,896 $ 3,087 $ 4,120 $ 583 $ 986 $ 1,047 $ 1,047 $ 4,180
EBITDA(a)........ $11,490 $12,872 $15,535 $ 16,827 $ 15,696 $ 18,951 $ 5,205 $ 6,729 $ 7,303 $ 7,303 $ 19,525
EBITDA
margin(b)....... 17.1% 17.2% 16.5% 15.5% 12.8% 12.9% 16.4% 16.2% 16.3% 16.3% 13.0%
Capital
expenditures.... $ 1,544 $ 3,331 $ 4,659 $ 3,601 $ 3,992 $ 3,992 $ 991 $ 991 $ 1,602 $ 1,602 $ 4,603
Cash interest
expense......... $ 827 $ 701 $ 1,637 $ 1,915 $ 2,964 $ 10,314 $ 457 $ 2,579 $ 1,508 $ 2,579 $ 10,314
Ratio of EBITDA
to cash interest
expense......... 13.9 18.4 9.5 8.8 5.3 1.8 11.4 2.6 4.8 2.8 1.9
Ratio of EBITDA
minus capital
expenditures to
cash interest
expense......... 12.0 13.6 6.6 6.9 3.9 1.5 9.2 2.2 3.8 2.2 1.4
Ratio of earnings
to fixed
charges(c)...... 10.4 12.3 7.1 6.7 2.2 -- 5.1 1.3 2.5 1.4 --
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 30, 1998
--------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 72 $ 72
Working capital............................................ 61,112 75,872
Total assets............................................... 142,306 151,942
Total debt................................................. 62,081 133,220
Shareholder's equity....................................... 62,799 1,296
Book value per share....................................... 12.14 0.42
</TABLE>
22
<PAGE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) EBITDA represents earnings before (i) interest expense, (ii) income
taxes, (iii) depreciation and amortization, (iv) the provision for the
remaining benefits to be paid under an employment agreement with the Company's
past Chairman, President and Chief Executive Officer, who ceased to be
employed by or related to the Company on November 5, 1997, which provided for
a bonus ranging from 3% to 5% of operating earnings before non-recurring
charges (similar benefits are not being provided to any of the Company's
current employees or members of the Board of Directors (the "Employment
Agreement Provision")), (v) operating cash losses recognized in the Company's
historical financial statements related to its investment in Bikers Discount
Supply ("BDS") which the Company intends to sell or shut-down (the "BDS
Losses"), (vi) the provision for the closure of the Custom Chrome, Inc.
Dallas-Fort Worth, Texas distribution facility (the "Dallas Warehouse Closure
Costs"), (vii) the provision for the settlement of $307,000 with the State of
Kentucky for personal property taxes related to the Company's operation of its
Louisville, Kentucky facility, net of expenses of $30,000 for each of the
years ended January 31, 1994, 1995, 1996, 1997 and 1998 and $7,500 for the
three months ended April 30, 1997, which adjusts historical property tax
expense to normalized amounts for the respective periods. (the "PPT Settlement
Expense"), and (viii) costs associated with the Golden Cycle Offer.
EBITDA data is included because management understands that such information
is considered by certain investors as an additional basis on which to evaluate
the Company's ability to pay interest, repay debt and make capital
expenditures. Items excluded from EBITDA could significantly affect the
Company's results of operations and liquidity and should be considered in
evaluating the Company's financial performance. EBITDA is not intended to
represent and should not be considered more meaningful than, or an alternative
to, measures of operating performance as determined in accordance with
generally accepted accounting principles.
EBITDA was derived as follows (in thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
APRIL 30,
YEAR ENDED JANUARY 31, THREE MONTHS ENDED APRIL 30, 1998
----------------------------------------------------- ---------------------------------- -------------
PRO FORMA PRO FORMA PRO FORMA
1994 1995 1996 1997 1998 1998 1997 1997 1998 1998 PRO FORMA
------- ------- ------- ------- ------- --------- ------ --------- ------ --------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (Loss)
Before Income
Taxes............. $ 9,180 $10,640 $12,316 $13,046 $ 4,397 $ (4,643) $3,849 $1,870 $4,233 $2,185 $ (4,328)
Interest expense... 827 701 1,637 1,915 2,964 14,226 457 3,556 1,508 3,556 14,226
Depreciation and
amortization...... 1,513 1,561 1,612 1,896 3,087 4,120 583 986 1,047 1,047 4,180
Employment
Agreement
Provision......... -- -- -- -- 3,127 3,127 -- -- -- -- 3,127
BDS Losses......... -- -- -- -- 1,225 1,225 324 324 78 78 979
Dallas Warehouse
Closure Costs..... -- -- -- -- 619 619 -- -- -- -- 619
Property Tax
Settlement
Expense........... (30) (30) (30) (30) 277 277 (8) (8) -- -- 285
Costs Associated
with the Golden
Cycle Offer....... -- -- -- -- -- -- -- -- 437 437 437
------- ------- ------- ------- ------- -------- ------ ------ ------ ------ --------
EBITDA............. $11,490 $12,872 $15,535 $16,827 $15,696 $ 18,951 $5,205 $6,729 $7,303 $7,303 $ 19,525
======= ======= ======= ======= ======= ======== ====== ====== ====== ====== ========
</TABLE>
(b) Represents EBITDA as a percentage of net sales.
(c) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed charges
for this purpose include interest expense, amortization of deferred financing
costs and one third of operating lease payments (the portion deemed to be
representative of the interest factor). On a pro forma basis, earnings were
insufficient to cover fixed charges by $4,643,000 and $4,328,000 for the years
ended January 31, 1998 and April 30, 1998, respectively.
(d) The pro forma adjustments do not reflect (i) estimated transaction fees
and expenses of approximately $9,140,000, (ii) a non-cash compensation expense
of approximately $1,135,000 related to management's "cashless" exercise of
certain stock options, (iii) a cash compensation expense of $8,564,000 to be
recognized in connection with the repurchase of the remaining stock options,
(iv) the write-off of deferred financing costs of $964,000 associated with the
Company's existing debt obligations, and (v) deferred tax benefits of
approximately $4,000,000 related to (ii), (iii) and (iv), which management
believes are more likely, than not, to be realized based on anticipated future
earnings, all of which are expected to be incurred in connection with the
Recapitalization. Such amounts will be recorded in the consolidated statement
of operations for the period in which the Recapitalization occurs.
(e) Reflects the pro forma results of operations for the year ended January
31, 1998, plus the pro forma results of operations for the three months ended
April 30, 1998, less the pro forma results of operations for the three months
ended April 30, 1997.
23
<PAGE>
6. PLANS FOR THE COMPANY; CERTAIN EFFECTS OF THE OFFER AND MERGER. Pursuant
to the Merger Agreement, upon completion of the Offer, Purchaser and the
Company intend to effect the Merger only in the event that the number of
Shares tendered is equal to or greater than the Minimum Condition but less
than the Tender Offer Number.
Except as otherwise described in this Offer to Purchase, the Company has no
current plans or proposals that relate to or would result in: (a) other than
the Offer and Merger, an extraordinary corporate transaction, such as a
merger, reorganization or liquidation involving the Company; (b) a sale or
transfer of a material amount of assets of the Company; (c) any change in the
management of the Company or any material change in the employment contract of
any executive officer; or (d) any other material change in the Company's
corporate structure or business.
Nevertheless, Purchaser may initiate a review of the Company and its assets,
corporate structure, capitalization, operations, properties, policies,
management and personnel to determine what changes, if any, would be desirable
following consummation of the Offer and the Merger in order to best organize
the activities of the Company. Purchaser expressly reserves the right to make
any changes that it deems necessary or appropriate in light of its review or
in light of future developments. The Merger Agreement provides that, promptly
after the Stock Purchase and the purchase and payment for no more than the
number of Shares equal to Tender Offer Number and the Minimum Condition having
been satisfied, Purchaser will have the right to designate such number of
directors, rounded up to the next whole number, on the Company's Board of
Directors as is equal to the product of the total number of directors on the
Company's Board of Directors (giving effect to the directors designated by
Purchaser) multiplied by the percentage that the number of Shares beneficially
owned by Purchaser or any affiliate of Purchaser bears to the total number of
Shares then outstanding. See "THE OFFER AND MERGER--Section 8. The Agreement
and Plan of Merger; Stockholder Agreement." The Merger Agreement provides that
the directors and officers of the Company at the Effective Time of the Merger
will, from and after the Effective Time, be the initial directors and
officers, respectively, of the Surviving Corporation. Thereafter the Board of
Directors will be elected annually by a vote of all stockholders.
Successful consummation of the Offer and the Merger, if required, will make
Purchaser and the Management Stockholders, in the aggregate, owners of more
than 85%, but less than 90%, of the Shares. As such, Purchaser and the
Management Stockholders will be entitled to all benefits resulting from such
ownership, including management and investment direction with regard to the
future conduct of the business of the Company, the benefits of any profits
generated by the Company's operations and any increase in the Company's value.
Similarly, Purchaser and the Management Stockholders will also bear the risk
of any losses generated by operations and any decrease in the value of the
Company. In addition, pursuant to the terms of the Stockholder Agreement,
Purchaser and each of the Management Stockholders who is an employee of the
Company have agreed to use their good faith to negotiate and enter into
agreements with respect to the Shares that will be retained by each of them
following consummation of the Offer, which agreements will provide for "put"
and "call" rights exercisable by the Management Stockholder and the Company,
respectively, in the event that the Management Stockholder's employment with
the Company is terminated. See "--Section 8. The Agreement and Plan of Merger;
Stockholder Agreement."
Upon consummation of the Offer and the Merger, if required, the Company will
become a corporation with a minority of public stockholders. The minority
interest held by stockholders will have the opportunity to participate in the
future performance of the Company and will retain the right to vote on
corporate matters.
IMMEDIATELY FOLLOWING CONSUMMATION OF THE OFFER AND THE MERGER, IF REQUIRED,
PURCHASER INTENDS TO CAUSE THE SHARES TO CEASE TO BE QUOTED ON NASDAQ. In
addition, the registration of the Shares under the Exchange Act will be
terminated as soon as permissible. Accordingly, following consummation of the
Offer, there will be no publicly-traded Shares outstanding. See "THE TENDER
OFFER--Section 7. Effect of the Offer on the Market for the Shares; Stock
Listing; Exchange Act Registration; Margin Regulation."
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7. RIGHTS OF THE STOCKHOLDERS IN THE OFFER AND MERGER. Under the DGCL, the
approval of the Board of Directors of the Company and the affirmative vote of
the holders of a majority of the outstanding Shares are required to adopt and
approve the Merger Agreement and the Merger. The execution and delivery of the
Merger Agreement by the Company and the consummation by the Company of the
transactions contemplated by the Merger Agreement have been duly authorized by
all necessary corporate action on the part of the Company, subject to the
approval of the Merger by the Company's stockholders in accordance with the
DGCL. In addition, the affirmative vote of the holders of a majority of the
outstanding Shares is the only vote of the holders of any class or series of
the Company's capital stock necessary to approve the Merger Agreement and the
transactions contemplated thereby, including the Merger. Therefore, the only
remaining required corporate action of the Company will be the approval of the
Merger Agreement and the transactions contemplated thereby by the affirmative
vote of the holders of a majority of the Shares. As a result of the Stock
Purchase, Purchaser will acquire in the aggregate at least a majority of the
Shares. Each outstanding Share will be entitled to one vote in any such vote
of the stockholders of the Company. Accordingly, upon consummation of the
Offer, the vote of no other stockholder of the Company will be required to
approve the Merger Agreement and the Merger, if it is required to be effected.
DELAWARE BUSINESS COMBINATION STATUTE. Section 203 of the DGCL, in general,
prohibits a Delaware corporation such as the Company, from engaging in a
"Business Combination" (defined as a variety of transactions, including
mergers, as set forth below) with an "Interested Stockholder" (defined
generally as a person that is the beneficial owner of 15% or more of a
corporation's outstanding voting stock) for a period of three years following
the date that such person became an Interested Stockholder unless (a) prior to
the date such person became an Interested Stockholder, the board of directors
of the corporation approved either the Business Combination or the transaction
that resulted in the stockholder becoming an interested Stockholder, (b) upon
consummation of the transaction that resulted in the stockholder becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding stock held by directors who are also officers of the
corporation and employee stock ownership plans that do not provide employees
with the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer or (c) on or subsequent to
the date such person became an Interested Stockholder, the Business
Combination is approved by the board of directors of the corporation and
authorized at a meeting of stockholders, and not by written consent, by the
affirmative vote of the holders of a least 66 2/3% of the outstanding voting
stock of the corporation not owned by the Interested Stockholder.
Under Section 203, the restrictions described above do not apply if, among
other things (a) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by Section 203; (b)
the corporation, by action of its stockholders, adopts an amendment to its
certificate of incorporation or by-laws expressly electing not to be governed
by Section 203, provided that, in addition to any other vote required by law,
such amendment of the certificate of incorporation or by-laws must be approved
by the affirmative vote of a majority of the shares entitled to vote, which
amendment would not be effective until 12 months after the adoption of such
amendment and would not apply to any Business Combination between the
corporation and any person who became an Interested Stockholder of the
corporation on or prior to the date of such adoption; (c) the corporation does
not have a class of voting stock that is (1) listed on a national securities
exchange, (2) authorized for quotation on an inter-dealer quotation system of
a registered national securities association or (3) held of record by more
than 2,000 stockholders, unless any of the foregoing results from action
taken, directly or indirectly, by an Interested Stockholder or from a
transaction in which a person became an Interested Stockholder; or (d) a
stockholder become an Interested Stockholder "inadvertently" and thereafter
divests itself of a sufficient number of shares so that such stockholder
ceases to be an Interested Stockholder. Under Section 203, the restrictions
described above also do not apply to certain Business Combinations proposed by
an Interested Stockholder following the announcement or notification or one of
certain extraordinary transactions involving the corporation and a person who
had not been an Interested Stockholder during the previous three years or who
became an Interested Stockholder with the approval of a majority of the
corporation's directors.
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Section 203 provides that, during such three-year period, the corporation
may not merge or consolidate with an Interested Stockholder or any affiliate
or associate thereof, and also may not engage in certain other transactions
with an Interested Stockholder or any affiliate or associate thereof,
including, without limitation, (a) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of assets (except proportionately as a
stockholder of the corporation) having an aggregate market value equal to 10%
or more of the aggregate market value of all assets of the corporation
determined on a consolidated basis or the aggregate market value of all the
outstanding stock of a corporation; (b) any transaction which results in the
issuance or transfer by the corporation or by certain subsidiaries thereof of
any stock of the corporation or such subsidiaries to the Interested
Stockholder, except pursuant to a transaction that effects a pro rata
distribution to all stockholders of the corporation; (c) any transaction
involving the corporation or certain subsidiaries thereof which has the effect
of increasing the proportionate share of the stock of any class or series, or
securities convertible into the stock of any class or series, of the
corporation or any such subsidiary which is owned directly or indirectly by
the Interested Stockholder (except as a result of immaterial changes due to
fractional share adjustments); or (d) any receipt of the Interested
Stockholder of the benefit (except proportionately as a stockholder of such
corporation) of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation.
The provisions of Section 203 are not applicable to any of the Transactions
as a result of the approval by the Company's Board of Directors of the Merger
Agreement and each of the transactions contemplated thereby prior to the
execution of the Merger Agreement.
APPRAISAL RIGHTS. Holders of the Shares do not have appraisal rights as a
result of the Offer. However, if the Merger is consummated, holders of the
Shares at the effective time of the Merger will have certain rights pursuant
to the provisions of Section 262 of the DGCL. Dissenting stockholders of the
Company who comply with the applicable statutory procedures will be entitled
to receive a judicial determination of the fair value of their Shares
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) and to receive payment of such fair value in cash,
together with a fair rate of interest thereon, if any. Any such judicial
determination of the fair value of the Shares could be based upon factors
other than, or in addition to, the price per share of Common Stock, as the
case may be, to be paid in the Merger or the market value of the Shares. The
value so determined could be more or less than the price per Share to be paid
in the Merger.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING STOCKHOLDERS DOES NOT
PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY
STOCKHOLDERS DESIRING TO EXERCISE ANY AVAILABLE DISSENTERS' RIGHTS. THE
PRESERVATION AND EXERCISE OF DISSENTERS' RIGHTS REQUIRE STRICT ADHERENCE TO
THE APPLICABLE PROVISIONS OF THE DGCL.
8. THE AGREEMENT AND PLAN OF MERGER; STOCKHOLDER AGREEMENT.
AGREEMENT AND PLAN OF MERGER. As of June 28, 1998, Purchaser, Acquisition
Sub and the Company entered into the Merger Agreement, pursuant to which the
Company agreed to make the Offer. The following description of the Merger
Agreement does not purport to be complete and is qualified by reference to the
text of the Merger Agreement, a copy of which has been filed as Exhibit(c)(1)
to the Company's Issuer Tender Offer Statement on Schedule 13E-4 (the
"Schedule 13E-4"). Capitalized terms not otherwise defined herein have the
meanings set forth in the Merger Agreement. The Merger Agreement may be
examined and copies may be obtained at the places and in the manner set forth
in "THE TENDER OFFER--Section 8. Certain Information concerning the Company."
The Offer. The Merger Agreement provides that the Company will commence the
Offer and that, upon the terms and subject to the prior satisfaction or waiver
of the conditions of the Offer, the Company will purchase all Shares validly
tendered and not withdrawn pursuant to the Offer. The obligation of the
Company to accept for payment and pay for Shares tendered is subject to (i)
there being tendered, and not withdrawn prior to the expiration of the Offer,
that number of Shares that represents not less than a majority of the Shares
then
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outstanding on a fully diluted basis (after giving effect to the conversion or
exercise of all outstanding options, warrants and other rights and securities
exercisable or convertible in Shares) (the "Minimum Condition"), (ii) the
Stock Purchase Closing (as defined in Section 2.3 of the Merger Agreement)
having occurred and (iii) the Company or the Operating Company, as the case
may be, having obtained certain debt financing described in Annex A to the
Merger Agreement; (iv) certain proration conditions described below and in
Article III of the Merger Agreement and (v) to the satisfaction of the other
conditions described in Annex A to the Merger Agreement. Pursuant to the terms
of the Merger Agreement, the Company will make no other changes to the Offer
or waive any conditions to the Offer or take changes any other action,
including, without limitation, notice of acceptance of tendered Shares to the
depositary, with respect to the Offer without Purchaser's prior written
consent.
Purchase and Sale of Shares. Pursuant to the Merger Agreement, Purchaser
will purchase from the Company 2,666,667 Shares (the "Purchaser Shares"). The
aggregate purchase price for the Purchaser Shares will be the number of
Purchaser Shares multiplied by the Per Share Amount.
Pursuant to the Merger Agreement and subject to the conditions set forth
therein the Stock Purchase will take place at a closing (the "Stock Purchase
Closing") on the day after the Offer is scheduled to expire, or at such other
time or on such other date as the Company and Purchaser may mutually agree
upon in writing (the day on which the Stock Purchase Closing takes place being
the "Stock Purchase Closing Date").
Conditions to the Stock Purchase. The Merger Agreement provides that the
respective obligations of each party to effect the Stock Purchase are subject
to the satisfaction (or waiver) at or prior to the Stock Purchase Closing Date
of the following conditions: (i) no United States or state governmental
authority or other agency or commission or United States or state court of
competent jurisdiction will have enacted, issued, promulgated, enforced or
entered any law, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is then in
effect and has the effect of making the acquisition of Shares by Purchasers or
any affiliate of any of them illegal or otherwise restricting, preventing or
prohibiting consummation of the Transactions.
The Merger Agreement provides that the obligation of the Company to effect
the Stock Purchase is also subject to the satisfaction (or waiver) at or prior
to the Stock Purchase Closing Date of each of the following additional
conditions: all representations and warranties made by Purchaser in the Merger
Agreement will be true and correct in all material respects (except for
representations qualified by materiality or Purchaser Material Adverse Effect
(as defined in the Merger Agreement) which will be correct in all respects) on
the Stock Purchase Closing Date, with the same force and effect as though such
representations and warranties had been made on and as of the Stock Purchase
Closing Date, except for changes permitted or contemplated by the Merger
Agreement and except for representations and warranties that are made as of a
specified date or time, which will be true and correct in all material aspects
(except for representations qualified by materiality or Purchaser Material
Adverse Effect which will be correct in all respects) only as of such specific
date or time; Purchaser will have performed in all material respects all
obligations and agreements, and complied in all material respects with all
covenants, contained in the Merger Agreement to be performed or complied with
by it prior to or on the Stock Purchase Closing Date; and the Company will
have received such certificates of Purchaser, dated as of the Stock Purchase
Closing Date, signed by an executive officer of Purchaser to evidence
satisfaction of the conditions set forth in the previous two sentences as may
be reasonably requested by the Company.
The Merger Agreement provides that the obligation of Purchaser to effect the
Stock Purchase is also subject to the satisfaction (or waiver) at or prior to
the Stock Purchase Closing Date of each of the following additional
conditions: all representations and warranties made by the Company in the
Merger Agreement will be true and correct in all material respects (except for
representations qualified by materiality or Company Material Adverse Effect
which will be correct in all respects) on the Stock Purchase Closing Date,
except for changes permitted or contemplated by the Merger Agreement and
except for representations and warranties that are made as of a specified date
or time, which will be true and correct in all material respects (except for
representations qualified by materiality or Company Material Adverse Effect
which will be correct in all respects) only as of such specific
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date or time; the Company will have performed in all material respects all
obligations and agreements, and complied in all material respects with
covenants contained in the Merger Agreement to be performed or complied with
by it prior to or on the Stock Purchase Closing Date; Purchaser will have
received such certificate of the Company, dated as of the Stock Purchase
Closing Date, signed by an executive officer of the Company to evidence
satisfaction of the conditions set forth in the previous two sentences. The
conditions to the Offer set forth in Annex A to the Merger Agreement will have
been satisfied and the Company will, simultaneously with the Stock Purchase
Closing, but subject to Article III of the Merger Agreement, purchase all
Shares validly tendered and not withdrawn pursuant to the Offer.
Designation of Directors. The Merger Agreement provides that, promptly upon
consummation of the Stock Purchase and the purchase of and payment for no more
than that number of Shares equal to the Tender Offer Number by the Company
pursuant to the Offer, the Minimum Condition having been satisfied, and from
time to time thereafter as Shares are acquired by the Company, Purchaser will
be entitled to designate such number of directors, subject to compliance with
Section 14(f) of the Exchange Act, rounded up to the next whole number, on the
Board as is equal to the product of the total number of directors on such
Board (giving effect to the directors designated by Purchaser pursuant to this
sentence) multiplied by the percentage that the number of Shares which
Purchaser or any affiliate of Purchaser owns beneficially bears to the total
number of Shares then outstanding. In furtherance thereof, the Company will,
upon the request of Purchaser, promptly either increase the size of its Board
of Directors or use its best efforts to secure the resignations of such
directors as requested by Purchaser in writing, or both, as is necessary to
enable Purchaser's designees to be elected to the Board in accordance with the
above sentence and will cause Purchaser's designees to be so elected. At such
time, the Company will, if requested by Purchaser, also cause persons
designated by Purchaser to constitute at least the same percentage (rounded up
to the next whole number) as is on the Board of (i) each committee of the
Board, (ii) each board of directors (or similar body) of each Subsidiary of
the Company and (iii) each committee (or similar body) of each such board. In
future years the Board of Directors will be elected annually by a vote of all
stockholders.
The Merger Agreement also provides that, subject to applicable law, the
Company will promptly take all actions required pursuant to Section 14(f) of
the Exchange Act and Rule 14f-l promulgated thereunder in order to fulfill its
obligations under the previous paragraph and will include in the Schedule 13E-
4 mailed to stockholders promptly after the commencement of the Offer (or an
amendment thereof or an information statement pursuant to Rule 14f-1 if
Purchaser has not theretofore designated directors) such information with
respect to the Company and its officers and directors as is required under
Section 14(f) and Rule 14f-1 in order to fulfill its obligations under Section
2.6(a) of the Merger Agreement. Purchaser will supply the Company information
with respect to it and its nominees, officers, directors and affiliates
required by such Section 14(f) and Rule 14f-1.
The Merger Agreement further provides that in the event that the Merger is
effected and Purchaser's designees are elected to the Board and until the
Effective Time, the Board will have at least one director who is a director on
the date of the Merger Agreement and who may be Joseph Keenan, or otherwise is
neither an officer of the Company nor a designee, stockholder, affiliate or
associate (within the meaning of the Federal securities laws) of Purchaser
(one or more of such directors, the "Independent Directors"), provided that,
in such event, if the number of Independent Directors will be reduced below
two for any reason whatsoever, any remaining Independent Director will be
entitled to, or, if no Independent Director then remains, the other directors
will designate one person to fill one of the vacancies who will not be a
stockholder, affiliate or associate of Purchaser and such person will be
deemed to be an Independent Director for purposes of the Merger Agreement.
Notwithstanding anything in the Merger Agreement to the contrary, in the event
that Purchaser's designees are elected to the Board, after the acceptance for
payment of Shares pursuant to the Offer and prior to the Effective Time (as
defined in The Merger Agreement), the affirmative vote of a majority of the
Independent Directors will be required to (a) amend or terminate the Merger
Agreement on behalf of the Company, (b) exercise or waive any of the Company's
rights, benefits or remedies thereunder, (c) extend the time for performance
of Purchaser's obligations thereunder or (d) take any other action by the
Board under or in connection with the Merger
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Agreement; provided, however, that if there will be no such directors, such
actions may be effected by unanimous vote of the entire Company Board of
Directors.
Effects of Tender Offer on the Merger. The Merger Agreement provides that,
subject to Annex A and Article III of the Merger Agreement, in the event that
the number of Shares representing not less nor more than the Tender Offer
Number have been validly tendered and not withdrawn prior to the expiration of
the Offer, then the Company will accept for payment, purchase and pay for all
such Shares as provided in the Offer Documents. All such Shares so accepted
for payment, purchased and paid for will then be cancelled, retired and cease
to exist. Shares held by Purchaser or any of its affiliates, Management
Stockholders and any stockholders of the Company who did not tender their
Shares pursuant to the Offer will remain outstanding, and the Merger (as
defined and described in the Merger section below) will not be effected.
The Merger Agreement also provides that, in the event that the number of
Shares representing more than the Tender Offer Number will have been validly
tendered and not withdrawn prior to the expiration of the Offer, then each
holder of Shares so tendered will receive the following consideration in
accordance with the terms of Section 3.2 of the Merger Agreement in the
following manner, and the Merger will not be effected.
(a) (i) A cash proration factor (the "Cash Proration Factor") will be a
fraction whose numerator is the Tender Offer Number and whose denominator is
the total number of Shares tendered pursuant to the Offer, and (ii) a stock
proration factor (the "Stock Proration Factor") will be a fraction whose
numerator is the amount equal to the difference between the number of Shares
tendered pursuant to the Offer and the Tender Offer Number, and whose
denominator is the number of Shares tendered pursuant to the Offer. All
fractions will be carried out to four decimal places.
(b) Each tendering stockholder will be entitled to (A) receive an amount in
cash equal to the product obtained by multiplying (i) the number of Shares
tendered by such stockholder, (ii) the Per Share Amount and (iii) the Cash
Proration Factor, and (B) retain that number of Shares (the "Stock Tender
Offer Consideration") rounded up to the nearest whole share equal to the
product obtained by multiplying (i) the number of Shares tendered by such
stockholder, and (ii) the Stock Proration Factor. No fraction of a share of
Stock Tender Offer Consideration will be issued in exchange for Shares subject
to the Stock Proration Factor, no dividend or distribution of the Company will
relate to such fractional share interests and such fractional share interests
will not entitle the owner thereof to vote or to any rights of a Stockholder
of the Company. In lieu of fractional shares of Stock Tender Offer
Consideration, each holder who would otherwise be entitled to receive a
fraction of a share of Stock Tender Offer Consideration (after aggregating all
fractional shares of Stock Tender Offer Consideration to be received by such
holder) will receive from the Company an amount of cash (rounded down to the
nearest whole cent) equal to the product of (x) such fraction, multiplied by
(y) the Per Share Amount.
The Merger Agreement further provides that in the event that the number of
Shares validly tendered and not withdrawn prior to the expiration of the Offer
is equal to the Minimum Condition or greater but less than the Tender Offer
Number, then the Company will accept for payment, purchase and pay for all
such Shares as provided in the Offer Documents. All such Shares so accepted
for payment, purchased and paid for will then be cancelled, retired and cease
to exist. Shares held by Purchaser or any of its affiliates, Management
Stockholders and any stockholders of the Company who did not tender their
Shares pursuant to the Offer will remain outstanding. Subject to the terms and
conditions of the Merger Agreement, following the consummation of the Offer,
Acquisition Sub and the Company will effect the Merger as set forth below and
in Article IV of the Merger Agreement.
The Merger. The Merger Agreement provides that, in the event that the number
of Shares validly tendered and not withdrawn prior to the expiration of the
Offer is equal to the Minimum Condition or greater but less than the Tender
Offer Number, then at the Effective Time and upon the terms and subject to the
conditions of the Merger Agreement and in accordance with the DGCL, the
Company and Acquisition Sub will consummate the Merger pursuant to which (a)
Acquisition Sub will merge with and into the Company and the separate
corporate existence of Acquisition Sub will thereupon cease, (b) the Company
will be the Surviving Corporation
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in the Merger and will continue to be governed by the laws of the State of
Delaware, and (c) the corporate existence of the Company with all of its
rights, privileges, immunities, powers and franchises will continue unaffected
by the Merger. Purchaser may, upon notice to the Company, modify the structure
of the Merger if Purchaser determines it advisable to do so because of tax or
other considerations, and the Company will promptly enter into any amendment
to the Merger Agreement necessary or desirable to accomplish such structure
modification, provided that no such amendment will reduce the Merger
Consideration.
As of the Effective Time, by virtue of the Merger:
(a) Shares held by each stockholder (other than (i) Shares held by
Purchaser, (ii) 87,979 Shares held by Management Stockholders and (iii)
Shares held by stockholders who properly perfect their appraisal rights
under Delaware law) will be converted into the right to receive (i) an
amount in cash (the "Cash Merger Consideration") equal to the product
obtained by multiplying the number of Shares held by such stockholder by
the Per Share Amount and an amount equal to one (1) minus the Merger
Proration Factor (as defined below) and (ii) a number of shares of
identical common stock of the Company as the Surviving Corporation (the
"Stock Merger Consideration" and, together with the Cash Merger
consideration, the "Merger Consideration") equal to the product obtained by
multiplying the number of Shares owned by such stockholder by the Merger
Proration Factor. The Merger Proration Factor will be a fraction, the
numerator of which is equal to the Public Rollover Shares, and the
denominator of which is equal to the number of Shares issued and
outstanding as of immediately following the acceptance and payment for all
Shares validly tendered pursuant to the Offer less (i) Shares held by
Purchaser, (ii) Dissenting Shares if any, as of the Effective Time and
(iii) 87,979 Shares. The Cash Merger Consideration will be payable to the
holders of Shares, without interest thereon, upon the surrender of the
certificate formerly representing such Shares and less any required
withholding of taxes. No fraction of a share of Stock Merger Consideration
will be issued in exchange for Shares subject to the Merger Proration
Factor, no dividend or distribution of the Surviving Corporation will
relate to such fractional share interests and such fractional share
interests will not entitle the owner thereof to vote or to any rights of a
stockholder of the Surviving Corporation. In lieu of fractional shares,
each holder of Shares subject to the Merger Proration Factor who would
otherwise be entitled to a fraction of a share will receive from the
Surviving Corporation in the Merger an amount of cash (rounded down to the
nearest whole cent) equal to the product of (x) such fraction, multiplied
by (y) the Per Share Amount. From and after the Effective Time, all such
Shares will no longer be outstanding and will be deemed to be cancelled and
retired and will cease to exist, and each holder of a certificate
representing any such Shares will cease to have any rights with respect
thereto, except the right to receive the Merger Consideration therefor upon
the surrender of such certificate in accordance with Section 5.2 of the
Merger Agreement, or the right, if any, to receive payment from the
Surviving Corporation of the "fair value" of such Shares as determined in
accordance with Section 262 of the DGCL.
(b) Each Share held in the treasury of the Company and each Share owned
by any Subsidiary of the Company immediately prior to the Effective Time
will, by virtue of the Merger and without any action on the part of
Acquisition Sub, the Company or the holder thereof, be cancelled, retired
and cease to exist and no payment or distribution will be made with respect
thereto. In no event will Shares purchased or to be purchased by Purchaser
be deemed to be Shares held in the treasury of the Company.
(c) Each Share held by Purchaser or any affiliate thereof, and 87,979
Shares held or acquired upon the exercise of 52,191 outstanding options by
Management Stockholders will not be cancelled as provided above, but will
remain outstanding.
(d) Each issued and outstanding share of common stock, par value $0.01
per share, of Acquisition Sub will be cancelled, retired and will cease to
exist.
Certificate of Incorporation, By-laws, Directors and Officers. The Merger
Agreement provides that the Certificate of Incorporation and By-laws of the
Company will be the Certificate of Incorporation and By-laws of the Surviving
Corporation unless otherwise determined by the Company prior to the Effective
Time. The Merger Agreement also provides that the directors of the Company
immediately prior to the Effective Time will be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate
of
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Incorporation and By-laws of the Surviving Corporation, and the officers of
the Company immediately prior to the Effective Time will be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
Conditions to the Merger. The Merger Agreement provides that the respective
obligations of each party thereto to effect the Merger is subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any and all of which may be waived in whole or in part by
Purchaser or the Company, as the case may be, to the extent permitted by
applicable law: (i) the Merger and the Merger Agreement will have been
approved and adopted by the affirmative vote of the stockholders of the
Company by the requisite vote; (ii) no statute, rule, regulation, executive
order, decree, ruling or injunction will have been enacted, entered,
promulgated or enforced by any court or governmental authority of competent
jurisdiction which prohibits, restrains, enjoins or restricts the consummation
of the Merger; and there will be no order or injunction of a court of
competent jurisdiction in effect precluding consummation of the Merger; (iii)
any waiting period applicable to the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the regulations thereunder
(the "HSR Act") will have terminated or expired; (iv) Purchaser will have
purchased the Purchaser Shares; and (v) the Company will have received from a
nationally recognized accounting firm a letter in form and substance
reasonably satisfactory to Purchaser to the effect that the Transactions will
receive recapitalization accounting treatment and such letter has not been
withdrawn or modified.
The Merger Agreement provides that the obligation of the Company and
Acquisition Sub to effect the Merger is also subject to the satisfaction (or
waiver) at or prior to the Merger Closing Date of each of the following
additional conditions: all representations and warranties made by Purchaser in
the Merger Agreement will be true and correct in all material respects (except
for representations qualified by materiality or Purchaser Material Adverse
Effect (as defined in the Merger Agreement) which will be correct in all
respects) at the Effective Time, with the same force and effect as though such
representations and warranties had been made on and as of the Effective Time,
except for representations and warranties that are made as of a specified date
or time, which will be true and correct in all material respects (except for
representations qualified by materiality or Purchaser Material Adverse Effect
which will be correct in all respects) only as of such specific date or time.
Purchaser will have performed in all material respects all obligations and
agreements, and complied in all material respects with covenants, contained in
the Merger Agreement to be performed or complied with by it prior to or as of
the Effective Time. The Company will have received certificates of Purchaser
dated as of the Effective Time, signed by an executive officer of Purchaser to
evidence satisfaction of the conditions set forth above.
The Merger Agreement provides that the obligation of Purchaser to effect the
Merger is also subject to the satisfaction (or waiver) at or prior to the
Merger Closing Date of each of the following additional conditions: All
representations and warranties made by the Company herein will be true and
correct in all material respects (except for representations qualified by
materiality or Company Material Adverse Effect (as defined in the Merger
Agreement) which will be correct in all respects) as of the Effective Time,
with the same force and effect as though such representations and warranties
had been made on and as of the Effective Time, except for representations and
warranties that are made as of a specified date or time, which will be true
and correct in all material respects (except for representations qualified by
materiality or Company Material Adverse Effect which will be correct in all
respects) only as of such specific date or time; the Company will have
performed in all material respects all obligations and agreements and complied
in all material respects with covenants, contained in the Merger Agreement to
be performed or complied with by it prior to or as of the Effective Time;
Purchaser will have received certificates of the Company, dated as of the
Effective Time, signed by an executive officer of the Company to evidence
satisfaction of the conditions set forth in the above two sentences, and the
Company will have purchased no more than 4,656,400 Shares pursuant to the
Offer.
Cancellation of Stock Options. Under the Merger Agreement, the Company will
take all actions necessary to provide that immediately prior to consummation
of the Offer (or, if the Merger is required, immediately prior to consummation
of the Merger), all outstanding employee and director options to acquire
Shares will be cancelled (except 52,191 options to be exercised by the
Management Stockholders pursuant to the Stockholder Agreement), and in
consideration thereof option holders will receive, subject to applicable
withholding
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obligations, a payment in cash equal to the net "spread" on such options based
on the Per Share Amount. At the same time, all outstanding options under the
Company's Employee Stock Purchase Plan will also be cancelled, and
participants will receive in lieu of certificates an amount in cash, subject
to applicable withholding obligations, equal to the value of the Shares
otherwise issuable upon the exercise of such options, also based on the Per
Share Amount. Upon consummation of the Offer (or, if the Merger is required,
upon consummation of the Merger), other than with respect to those options to
be exercised by the Management Stockholders pursuant to the Stockholder
Agreement, no holder of options will have any right to receive any shares of
capital stock of the Company (or, if applicable, the Surviving Corporation),
upon the exercise of such options.
Company Stockholder Meeting. If required by applicable law, the Company has
agreed to: (i) hold a special meeting of its stockholders (the "Special
Meeting") as soon as practicable following the acceptance for payment and
purchase of Shares pursuant to the Offer for the purpose of considering and
taking action upon the approval of the Merger and adoption of the Merger
Agreement; (ii) prepare and file with the Commission a preliminary proxy or
information statement relating to the Merger and the Merger Agreement and use
its best efforts (A) to obtain and furnish the information required to be
included by it in the Proxy Statement (as hereinafter defined) and, after
consultation with Purchaser, respond promptly to any comments made by the
Commission with respect to the preliminary proxy or information statement, and
cause a definitive proxy or information statement, including any amendment or
supplement thereto (the "Proxy Statement") to be mailed to its stockholders at
the earliest practicable time following the expiration or termination of the
Offer and (B) subject to its fiduciary duties as unanimously determined in
good faith by the Board, based as to legal matters on the written advice of
legal counsel, to obtain the necessary approvals by its stockholders of the
Merger, the Merger Agreement and the Transactions. At such meeting, Purchaser
and its affiliates will vote, or cause to be voted, all Shares owned by them
in favor of approval and adoption of the Merger and the Merger Agreement and
the Transactions, and include in the Proxy statement (as hereinafter defined)
(i) the recommendation of the Board of the Company that stockholders of the
Company vote in favor of the approval of the Merger and the approval and
adoption of the Merger Agreement and (ii) the written opinion of the Financial
Advisor that the cash or combination of cash and retained Shares to be
received by the holders of Shares (other than Purchaser and the Management
Stockholders) pursuant to the Merger Agreement is fair from a financial point
of view to such holders.
Recommendation. The Company represents in the Merger Agreement that the
Board of Directors of the Company has (i) determined that the Merger Agreement
and the Transactions, including the Offer and the Merger, are fair to, and in
the best interests of, the stockholders of the Company, (ii) approved the
Merger Agreement and the Transactions, including the Offer and the Merger, in
all respects, (iii) has taken all action under the Rights Agreement to make
the representations and warranties contained in Section 6.13 of the Merger
Agreement true and correct in all respects, and (iv) resolved to recommend
that the stockholders of the Company accept the Offer, and approve and adopt
the Merger Agreement and the Merger. The recommendation of the Board may be
withdrawn, modified or amended to the extent that the Board by a majority vote
determines in its good faith judgment, based as to legal matters on the advice
of legal counsel, that the Board is required to do so in the exercise of its
fiduciary duties. The Company has further represented that the Financial
Advisor has delivered to the Board of Directors its written opinion that the
consideration to be received by the Company's stockholders pursuant to the
Offer and/or the consideration to be received by the Company's stockholders
pursuant to the Merger (other than Purchaser and the Management Stockholders)
is fair from a financial point of view to such stockholders.
Interim Operations; Covenants. Pursuant to the Merger Agreement, the Company
has agreed that, except (i) as expressly contemplated by the Merger Agreement,
(ii) as agreed to in writing by Purchaser or (iii) for the consummation of the
financing of the Transactions pursuant to and in accordance with the terms of
the Financing Documents (as defined in the Merger Agreement), during the
period from the date of the Merger Agreement to the time persons designated or
elected by Purchaser or any of its respective affiliates will constitute a
majority of the Board, the Board will not permit the Company or any of its
Subsidiaries (as defined in the Merger Agreement) to conduct its operations
otherwise than in the ordinary course of business consistent with past
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practice, and the Board will not, without the prior written consent of
Purchaser, permit the Company or any of its Subsidiaries to: (a) amend or
propose to amend its certificate of incorporation or by-laws; (b) authorize
for issuance, issue, sell, deliver, or agree or commit to issue, sell or
deliver, dispose of, encumber or pledge (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase
or otherwise) any stock of any class or any securities, except as required by
agreements with the Company's employees under the benefit plans as in effect
as of the date of the Merger Agreement or pursuant to the Rights Agreement, or
amend any of the terms of any such securities or agreements outstanding as of
the date of the Merger Agreement, except as specifically contemplated by the
Merger Agreement; (c) split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of its
capital stock, or redeem or otherwise acquire any of its securities or any
securities of its Subsidiaries; (d)(i) incur or assume any long-term or short-
term debt or issue any debt securities except for borrowings under existing
lines of credit in the ordinary course of business and in amounts not material
to the Company and its Subsidiaries taken as a whole; (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person except in
the ordinary course of business consistent with past practice and in amounts
not material to the Company and its Subsidiaries, taken as a whole, and except
for obligations of wholly owned Subsidiaries of the Company to the Company or
to other wholly owned Subsidiaries of the Company; (iii) make any loans,
advances or capital contributions to, or investments in, any other person
(other than to wholly owned Subsidiaries of the Company or customary loans or
advances to employees in the ordinary course of business consistent with past
practice and in amounts not material to the maker of such loan or advance) or
make any change in its existing borrowing or lending arrangements for or on
behalf of any such person, whether pursuant to an employee benefit plan or
otherwise; (iv) pledge or otherwise encumber shares of capital stock of the
Company or any of its Subsidiaries; or (v) mortgage or pledge any of its
material assets, tangible or intangible, or create or suffer to exist any
material Lien thereupon; (e) adopt a plan of complete or partial liquidation
or adopt resolutions providing for the complete or partial liquidation,
dissolution, consolidation, merger, restructuring or recapitalization of the
Company or any of its Subsidiaries; (f) (i) except as may be required by law
or as contemplated by the Merger Agreement, enter into, adopt or pay, agree to
pay, grant, issue, accelerate or accrue salary or other payments or benefits
pursuant to, or amend or terminate any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, restricted
stock, performance unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, severance, welfare, insurance
or other employee benefit agreement, trust, plan, fund or other arrangement
for the benefit or welfare of any director, officer or employee in any manner;
or (ii) (except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits or compensation expense to the Company, and as
required under existing agreements or in the ordinary course of business
consistent with past practice) increase in any manner the compensation or
fringe benefits of any director, officer or employee or pay any benefit not
required by any plan and arrangement as in effect as of the date of the Merger
Agreement (including, without limitation, the granting of stock appreciation
rights or performance units); (g) acquire, sell, transfer, lease, encumber or
dispose of any assets outside the ordinary course of business or any assets
which in the aggregate are material to the Company and its Subsidiaries taken
as a whole, or enter into any commitment or transaction outside the ordinary
course of business consistent with past practice which would be material to
the Company and its Subsidiaries taken as a whole; (h) except as may be
required as a result of a change in law or in generally accepted accounting
principles, change any of the accounting principles or practices used by it;
(i) revalue in any material respect any of its assets, including, without
limitation, writing down the value of inventory or writing-off notes or
accounts receivable other than in the ordinary course of business; (j)(A)
acquire (by merger, consolidation, or acquisition of stock or assets) any
corporation, partnership or other business organization or division thereof or
any equity interest therein; (B) enter into any contract or agreement other
than in the ordinary course of business consistent with past practice which
would be material to the Company and its Subsidiaries taken as a whole; (C)
authorize any new capital expenditure or expenditures which, individually, is
in excess of $50,000 or, in the aggregate, are in excess of $100,000; or (D)
enter into or amend any contract, agreement, commitment or arrangement
providing for the taking of any action that would be prohibited hereunder; (k)
make any tax election (unless required by law) or settle or compromise any
income tax liability of the Company or any of its Subsidiaries,
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except if such action is taken in the ordinary course of business, and, in any
event, the Company will consult with Purchaser before filing or causing to be
filed any tax return of the Company or before executing or causing to be
executed any agreement or waiver extending the period for assessment or
collection of any taxes of the Company; (l) pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction in
the ordinary course of business of liabilities reflected or reserved against
in, or contemplated by, the consolidated financial statements (or the notes
thereto) of the Company and its Subsidiaries or incurred in the ordinary
course of business consistent with past practice; (m) permit any insurance
policy naming it as a beneficiary or a loss payable payee to be cancelled or
terminated without notice to Purchaser except in the ordinary course of
business and consistent with past practice unless the Company will have
obtained a comparable replacement policy; (n) settle or compromise any pending
or threatened suit, action or claim relating to the Transactions; or (o) take,
or agree in writing or otherwise to take, any of the actions described in
clauses (a) through (n) above or any action which would make any of the
representations or warranties of the Company contained in the Merger Agreement
untrue or incorrect as of the date when made or would result in any of the
conditions set forth in Annex A to the Merger Agreement not being satisfied.
Acquisition Proposals. Under the Merger Agreement, neither the Company nor
any of its Subsidiaries will, directly or indirectly, through any officer,
director, employee, agent or otherwise, solicit, initiate or encourage the
submission of any proposal or offer from any Person (as defined in the Merger
Agreement) relating to any acquisition or purchase of all or (other than in
the ordinary course of business) any portion of the assets of, or any equity
interest in, the Company or any of its Subsidiaries or any recapitalization,
business combination or similar transaction with the Company or any of its
Subsidiaries (any communication with respect to the foregoing being an
"Acquisition Proposal") or participate in any negotiations regarding, or
furnish to any other Person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or
encourage any effort or attempt by any other Person to do or seek any of the
foregoing; provided, however, that, at any time prior to the purchase of
Shares by the Company pursuant to the Offer, the Company may furnish
information to, and negotiate or otherwise engage in discussions with, any
party who delivers a written Acquisition Proposal which was not solicited or
encouraged after the date of the Merger Agreement if the Board by majority
vote determines in good faith (i) after consultation with and receipt of
advice from its outside legal counsel, that failing to take such action is
reasonably determined to constitute a breach of the fiduciary duties of the
Board under applicable law, (ii) after consultation with and receipt of
written advice from the Financial Advisor or another nationally recognized
investment banking firm, that such proposal is more favorable to the Company's
stockholders from a financial point of view than the Transactions (including
any adjustment to the terms and conditions proposed by Purchaser in response
to such Acquisition Proposal), (iii) that sufficient commitments have been
obtained with respect to such Acquisition Proposal that the Board reasonably
expects a transaction pursuant to such Acquisition Proposal could be
consummated and (iv) that such Acquisition Proposal is not subject to any
regulatory approvals that could reasonably be expected to prevent
consummation. In connection with any party's Acquisition Proposal, the Company
will enter into a confidentiality agreement with such party, which
confidentiality agreement will have terms and conditions that will be no less
favorable to the Company than the terms and provisions contained in that
certain Confidentiality Agreement by and between the Company and Purchaser or
its affiliate. From and after the execution of the Merger Agreement, the
Company will promptly advise Purchaser of the receipt, directly or indirectly,
of any inquiries, discussions, negotiations, or proposals relating to an
Acquisition Proposal (including the material terms thereof and the identity of
the other party or parties involved) and furnish to Purchaser within 48 hours
of such receipt an accurate description of all material terms (including any
changes or adjustments to such terms as a result of negotiations or otherwise)
of any such written proposal. The Company will promptly provide to Purchaser
any material non-public information regarding the Company provided to any
other party, which information was not previously provided to Purchaser. In
addition, the Company will promptly advise Purchaser, in writing, if the Board
makes any determination as to any Acquisition Proposal as contemplated by the
proviso to the first sentence of this paragraph and will keep Purchaser
informed, on a current basis, of the status of any Acquisition Proposal.
Notwithstanding the foregoing, the Company will be permitted to take such
actions as may be required to comply with Rule 14e-2 of the Exchange Act.
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Indemnification and Insurance. Pursuant to the Merger Agreement, Purchaser
agrees that all rights to indemnification or exculpation now existing in favor
of the directors, officers, employees and agents of the Company and its
Subsidiaries as provided in their respective charters or by-laws or otherwise
in effect as of the date of the Merger Agreement with respect to matters
occurring prior to the consummation of the last to occur of any of the
Transactions will survive such consummation and will continue in full force
and effect. To the maximum extent permitted by the DGCL, such indemnification
will be mandatory rather than permissive and the Company or the Surviving
Corporation, as the case may be, will advance expenses in connection with such
indemnification. Purchaser will cause the Company or the Surviving
Corporation, as the case may be, to maintain in effect for not less than six
years from the consummation of the last to occur of any of the Transactions,
the policies of the directors' and officers' liability and fiduciary insurance
most recently maintained by the Company (provided that the Surviving
Corporation may substitute therefor policies of at least the same coverage
containing terms and conditions which are no less advantageous to the
beneficiaries thereof so long as such substitution does not result in gaps or
lapses in coverage) with respect to matters occurring prior to the
consummation of the last to occur of any of the Transactions to the extent
available, provided that in no event will the Company or the Surviving
Corporation, as the case may be, be required to expend more than an amount per
year equal to 150% of the current annual premiums paid by the Company (the
"Premium Amount") to maintain or procure insurance coverage pursuant hereto
and further provided that if the Surviving Corporation is unable to obtain the
required insurance, the Surviving Corporation will obtain as much comparable
insurance as is available for the Premium Amount per year. The Company agrees
to indemnify and hold harmless Purchaser and its affiliates (as that term is
defined in the Securities Act of 1933, as amended (the "Securities Act")),
successors, assigns, and the agents (including, without limitation, financing
sources and their affiliates) and employees of any of them (collectively, the
"Purchaser Indemnified Parties"), from and against any and all costs,
expenses, losses, damages and liabilities (including, without limitation,
reasonably attorneys' fees and expenses) suffered by any of the Purchaser
Indemnified Parties (other than with respect to (i) a claim arising directly
from the gross negligence or willful misconduct of a Purchaser Indemnified
Party or (ii) a claim of breach by Purchaser of the Merger Agreement or any
confidentiality agreement with the Company to which Purchaser is a party) to
the extent resulting from, arising out of, or incurred with respect to, any
litigation, legal action, arbitration proceeding, material demand, material
claim or investigation against any of the Purchaser Indemnified Parties in
connection with Purchaser's proposal to acquire Shares of the Company as set
forth in the Merger Agreement, or in connection with any Acquisition Proposal
relating to Purchaser or any circumstances related thereto.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parities thereto, including
representations by the Company as to, among other things, corporate existence
and good standing, organization, capitalization, corporate authorization,
financial statements, public filings, consents and approvals, conduct of
business, employee benefit plans, intellectual property, labor matters,
compliance with laws, tax matters, litigation, environmental matters, material
contracts, potential conflicts of interest, brokers' fees, real property and
leases, title and conditions of properties, insurance, accounts receivable and
inventory, undisclosed liabilities, certain business practices, product
liability, information in the Proxy Statement and the absence of any material
adverse effect on the Company since January 31, 1998. In addition, the Company
has represented that, since January 1, 1998, no material licensor, vendor,
supplier, licensee or customer of the Company or any of its Subsidiaries has
cancelled or otherwise modified (in a manner materially adverse to the
Company) its relationship with the Company or its Subsidiaries and, to the
Company's knowledge, (i) no such person has notified the Company of its
intention to do so, and (ii) the consummation of the Transactions will not
adversely affect any of such relationships. In addition, Purchaser represented
as to, among other things, corporate existence and good standing, corporate
authorization, consents and approvals, information to be included in public
filings, the financing commitments referred to in Section 7.5 of the Merger
Agreement and brokers' fees.
Termination. The Merger Agreement may be terminated and the Transactions may
be abandoned at any time before the Effective Time notwithstanding any
requisite approval and adoption of the Merger Agreement and the Transactions
by the stockholders of the Company:
(a) by mutual written consent duly authorized by the Board of Managers of
Purchaser and the directors of each of Acquisition Sub and the Company;
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(b) by Purchaser or the Company if (i) any court or other governmental
body of competent jurisdiction will have issued a final order, decree or
ruling (which order, decree or ruling the parties will use their best
efforts to lift) or taken any other final action restraining, enjoining or
otherwise prohibiting the Offer or the Merger and such order, decree,
ruling or other action is or will have become final and nonappealable or
(ii) the Effective Time will not have occurred on or before December 31,
1998; provided, however, that the right to terminate the Merger Agreement
under this provision will not be available to any party whose failure to
fulfill any obligation under the Merger Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such
date;
(c) by Purchaser if due to an occurrence or circumstance which would
result in a failure to satisfy any of the conditions set forth in Annex A
to the Merger Agreement, the Company will have (A) failed to commence the
Offer within two (2) business days of Purchaser's request, but in no event
later than ten business days from the date of the Merger Agreement, (B)
terminated the Offer without having accepted any Shares for payment
thereunder, or (C) failed to pay for Shares pursuant to the Offer by
October 31, 1998, unless, in each case, such failure to commence the Offer
or pay for Shares (whether before or after termination of the Offer) will
have been caused by or resulted from a material breach of any of
Purchaser's representations, warranties or covenants, which breach cannot
be or has not been cured within thirty (30) days following receipt of
written notice of such breach;
(d) by the Company if (i) due to an occurrence or circumstance which
would result in a failure to satisfy any of the conditions set forth in
Annex A to the Merger Agreement, the Company will have (A) failed to
commence the Offer within the time period prescribed in clause (c) above,
(B) terminated the Offer without having accepted any Shares for payment or
(C) failed to pay for Shares pursuant to the Offer by October 31, 1998,
unless, in each case, such failure to commence the Offer or pay for Shares
(whether before or after termination of the Offer) will have been caused by
or resulted from a material breach of any of the Company's representations,
warranties or covenants, or (ii) prior to the purchase of Shares pursuant
to the Offer, a corporation, partnership, person or other entity or group
will have made a bona fide offer that the Board by majority vote in good
faith determines (A) after consultation with and receipt of advice from its
outside legal counsel, that failing to take such action is reasonably
determined to constitute a breach of the fiduciary duties of the Board
under applicable law, and (B) after consultation with and receipt of
written advice from the Financial Advisor or another nationally recognized
investment banking firm, that such proposal is more favorable to the
Company's stockholders from a financial point of view than the Offer and
the Merger (including any adjustment to the terms and conditions proposed
by Purchaser in response to such bona fide offer), provided that such
termination under clause (ii) will not be effective until payment of the
fee required by Section 10.3(a) of the Merger Agreement;
(e) by Purchaser prior to the purchase of Shares pursuant to the Offer,
if (i) there has been a material breach of any of the Company's
representations, warranties or covenants which breach (A) would give rise
to the failure of a condition set forth in Annex A to the Merger Agreement
and (B) cannot be or has not been cured within thirty (30) days following
receipt of written notice of such breach, (ii) the Company Board of
Directors has withdrawn, modified, or changed (including by amendment of
the Schedule 13E-4) its recommendation or approval in respect of the Merger
Agreement or the Offer in a manner adverse to Purchaser, or has adopted any
resolution to effect any of the foregoing, (iii) the Board has recommended
any proposal other than Purchaser's in respect of an Acquisition Proposal,
(iv) the Company has exercised a right with respect to an Acquisition
Proposal and has, directly or through its representatives, continued
discussions with any third party concerning an Acquisition Proposal for
more than ten business days after the date of receipt of such Acquisition
Proposal, (v) an Acquisition Proposal that is publicly disclosed has been
commenced, publicly proposed or communicated to the Company which contains
a proposal as to price (without regard to whether such proposal specifies a
specific price or a range of potential prices) and the Company has not
rejected such proposal within ten business days of the earlier to occur of
(A) the Company's receipt of such Acquisition Proposal and (B) the date
such Acquisition Proposal first becomes publicly disclosed, (vi) any Person
or group (as defined in Section 13(d)(3) of the Exchange Act) other than
Purchaser or any of their respective subsidiaries or affiliates has become
the beneficial owner of more than 15% of the outstanding Shares (either on
a primary or a fully diluted basis); provided, however, that such
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provision does not apply to any Person that owns more than 15% of the
outstanding Shares on the date of the Merger Agreement; provided, further,
that such Person does not increase its beneficial ownership beyond the
number of Shares such Person beneficially owned on the date of the Merger
Agreement, or (vii) the Minimum Condition has not been satisfied by the
expiration date of the Offer and on or prior to such date an entity or
group (other than Purchaser) has made and not withdrawn a proposal with
respect to an Acquisition Proposal; or
(f) by the Company if there has been a material breach of any of
Purchaser's representations, warranties or covenants which breach cannot be
or has not been cured within thirty (30) days of the receipt of written
notice thereof.
Termination Fee and Expenses. (a) In the event that (i) Purchaser has
terminated the Merger Agreement pursuant to (e) or (f) of Section 10.1 thereof
and within 12 months following the date of any such termination the Company
enters into an Acquisition Proposal with a third party or an Acquisition
Proposal with respect to the Company is consummated; or (ii) the Company has
terminated the Merger Agreement pursuant to clause (d)(ii) of the Termination
section above, then the Company will pay to Purchaser, within one business day
following the execution and delivery of such agreement or such occurrence, as
the case may be, or simultaneously with such termination pursuant to (d)(ii)
of the Termination section above, a termination fee (the "Termination Fee"),
in cash, of $3,500,000; provided, however, that the Company in no event will
be obligated to pay more than one such Termination Fee with respect to all
such agreements and occurrences and such termination.
(b) Upon the termination of the Merger Agreement for any reason prior to the
purchase of Shares by the Company pursuant to the Offer (other than
termination by the Company pursuant to Section 10.1(f) of the Merger
Agreement) the Company will reimburse Purchaser and its affiliates (not later
than one business day after submission of statements therefor) for all actual
documented out-of-pocket fees and expenses, not to exceed $1,000,000, actually
and reasonably incurred by any of them or on their behalf in connection with
the Offer and the Merger and the consummation of all transactions contemplated
by the Merger Agreement (including, without limitation, fees payable to
financing sources, investment bankers, counsel to any of the foregoing, and
accountants).
Fees and Expenses. The Merger Agreement provides that upon the consummation
of the Offer, all costs and expenses incurred by each party thereto in
connection with the Merger Agreement and the transactions contemplated thereby
(including, without limitation, fees and disbursements of counsel, financial
advisors and accountants) and a transaction fee of $2,380,000 to Purchaser (or
such lesser amount as Purchaser will consent to in writing) will be paid by
the Company or the Company will promptly reimburse such party, as the case may
be. Except as specifically provided in Section 10.3 of the Merger Agreement,
the Merger Agreement provides that each party thereto will bear its own
expenses in connection with the Merger Agreement and the Transactions.
Amendments and Modifications. Subject to applicable law, the Merger
Agreement may be amended by action taken by the Company, Purchaser at any time
before or after approval of the Merger by the stockholders of the Company (if
required by applicable law) but, after any such approval, no amendment will be
made which requires the approval of such stockholders under applicable law
without such approval.
STOCKHOLDER AGREEMENT.
The following is a summary of the Stockholder Agreement, the form of which
is attached as an exhibit to the Merger Agreement, which is filed as an
exhibit to the Schedule 13E-4 filed by the Company with the Commission in
connection with the Offer. Such summary is qualified in its entirety by
reference to the Stockholder Agreement.
As a condition and inducement to Purchaser's entering into the Merger
Agreement and incurring the obligations therein, each of Joseph Piazza, Sr.,
James J. Kelly, Jr., Lionel M. Allan, Joseph F. Keenan, R. Steven Fisk, Joseph
P. Piazza, Jr., David Clark, Lee Katsuda, Frances Mora, Dennis Navarra, Audy
Sisk, Nate Stewart
37
<PAGE>
and Rick Saunders (collectively, the "Management Stockholders") has entered
into a Stockholder Agreement, dated as of the date of the Merger Agreement,
with Purchaser in the form attached to the Merger Agreement as Exhibit A (the
"Stockholder Agreement"). Under the Stockholder Agreement, (a) not later than
immediately prior to consummation of the Offer, each Management Stockholder
will exercise (or will be deemed to have exercised) certain of his Stock
Options as set forth on Annex I to the Stockholder Agreement pursuant to a
cashless exercise procedure whereby that number of Shares set forth in Column
D of Annex I to the Stockholder Agreement will be issued by the Company to
such Management Stockholder (individually and collectively, the "Management
Option Shares"). With respect to any Stock Option not so exercised, each
Management Stockholder agrees and consents to the cancellation of such Stock
Option in exchange for certain consideration as set forth in Section 4.9 of
the Merger Agreement; (b) each Management Stockholder will not tender into the
Offer the number of Shares set forth opposite his name in Column D of Annex I
to the Stockholder Agreement; (c) each Management Stockholder will tender into
the Offer all remaining Shares set forth on Annex I as being owned by or
issuable to such Management Stockholder.
The Stockholder Agreement also provides that, prior to consummation of the
Offer, each of the Management Stockholders who is an employee of the Company
and Purchaser agree to use their good faith to negotiate and enter into
agreements with respect to the Shares that will be retained by such Management
Stockholders following the consummation of the Transactions, substantially in
accordance with the terms and conditions set forth in Exhibit A to the
Stockholder Agreement. Pursuant to such agreements, in the event of a
termination of the executive's service for any reason prior to an initial
public offering of the Company's common stock, all shares and options owned by
the executive are to be subject to a right exercisable by the executive to
cause the Company to purchase such Shares and options (a "put") and a right
exercisable by the Company to cause the executive to sell such Shares and
options to the Company (a "call"), in each case within 90 days of the relevant
termination date. If such termination occurs on or prior to the first
anniversary of the closing of the acquisition (the "Closing"), then the price
per share paid upon the exercise of a put right or a call right will be $21.75
(less the exercise price in the case of a put or a call of an option). If a
termination of an executive's service occurs after the first anniversary of
the Closing but prior to the third anniversary and was a result of executive's
resignation or executive's termination for cause by the Company, then the
price per share paid upon exercise of a put right or call right will be the
lesser of (x) $21.75 plus 7% compounded annually from the Closing or (y) fair
market value as determined in good faith by the Board based upon the
enterprise value of the Company divided by its fully diluted shares
outstanding ("Fair Market Value") (less the exercise price in the case of a
put or call of an option). If a termination of an executive's service occurs
after the first anniversary of the Closing and was a consequence of death,
permanent disability or a termination by the Company other than for cause or
occurs for any reason on or after the third anniversary of the Closing, then
the price per share paid upon the exercise of a put right or call right will
be Fair Market Value (less the exercise price in the case of a put or call of
an option).
9. RELATED PARTY TRANSACTIONS. Commencing in February 1997, Joseph Piazza,
Sr., currently President and Chief Executive Officer of the Company, served as
a consultant to the Company to oversee the operations of its German
subsidiary, Custom Chrome Europe GmbH. For his services, Mr. Piazza was paid
$10,000 per month in consulting fees plus reimbursement of his living
expenses. Such consulting fees totaled $75,000 in the year ended January 31,
1998. Mr. Piazza ceased to serve as a consultant to the Company in October
1997.
Lionel M. Allan served as a legal consultant for the Company during the
fiscal year ended January 31, 1998. For his services, Mr. Allan received fees
of $5,000 per month through October 31, 1997 and $6,750 per month from
November 1, 1997 through January 31, 1998. In addition, he received a $1,000
per month office allowance. Such fees and office allowance totaled $77,250 for
the year ended January 31, 1998. Mr. Allan continues to serve as a legal
consultant to the Company.
In January 1998, the Company hired Joseph P. Piazza, Jr., the son of the
President and Chief Executive Officer, as Director of Outside Sales. In
February 1998 he was named Vice President, Sales. Mr. Piazza, Jr.'s annual
salary is $100,000.
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<PAGE>
The Company provides coverage under its group medical plan for both of the
Company's non-employee directors, Lionel M. Allan and Joseph F. Keenan, at a
cost of approximately $700 per month per director.
10. BENEFICIAL OWNERSHIP OF COMMON STOCK. The following table sets forth
information known to the Company regarding the beneficial ownership of the
outstanding Common Stock as of June 28, 1998, by (i) all persons who are
beneficial owners of 5% or more of the Common Stock, (ii) each director, (iii)
each senior executive officer and (iv) all current directors and executive
officers as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED
---------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------ ------- -------
<S> <C> <C>
Golden Cycle, L.L.C.(1)
4025 Crooked Hill Road
Harrisburg, PA 17110......................................... 528,100 10.21%
FMR Corp.(2)
82 Devonshire Street
Boston, MA 02109............................................. 526,100 10.17
State of Wisconsin Investment Board(3)
121 E. Wilson Street
Madison, WI 53702............................................ 470,300 9.09
Heartland Advisors, Inc.(4)
790 North Milwaukee Street
Milwaukee, WI 53202.......................................... 452,000 8.74
Dimensional Fund Advisors Inc. (5)
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401............................... 302,600 5.85
Investment Counselors of Maryland, Inc.(6)
803 Cathedral Street
Baltimore, MD 21201-5297..................................... 257,900 4.98
Joseph Piazza(7).............................................. 102,655 1.95
James J. Kelly, Jr.(8)........................................ 88,073 1.67
R. Steven Fisk(9)............................................. 77,628 1.48
Lionel M. Allan(10)........................................... 41,373 *
Joseph F. Keenan(11).......................................... 31,415 *
All current directors and executive officers as a group (nine
persons)(12)................................................. 387,520 6.9
</TABLE>
- --------
* Less than one percent (1%)
(1) Based on Schedule 13D, dated March 23, 1998, filed by Golden Cycle,
L.L.C.
(2) Based on Schedule 13G/A, dated February 14, 1998, filed by FMR Corp.
("FMR"). Represents shares beneficially owned by Fidelity Management &
Research Company, a wholly-owned subsidiary of FMR, as a result of its
serving as an investment advisor to various investment accounts.
(3) Based on Schedule 13G, dated January 20, 1998, filed by the State of
Wisconsin Investment Board.
(4) Based on Schedule 13G, dated January 23, 1998 filed by Heartland
Advisors, Inc.
(5) Based on Schedule 13G, dated February 6, 1997, filed by Dimensional Fund
Advisors Inc.
(6) Based on Schedule 13G, dated March 19, 1998 filed by Investment
Counselors of Maryland, Inc.
(7) Includes 102,655 Shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after June 28, 1998, without giving effect to the Transactions.
(8) Includes 84,176 Shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after June 28, 1998, without giving effect to the Transactions.
(9) Includes 62,933 Shares issuable upon exercise of options which are
currently exercisable or which will become exercisable within 60 days
after June 28, 1998, without giving effect to the Transactions.
(10) Represents 41,373 Shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after June 28, 1998, without giving effect to the Transactions.
(11) Includes 28,915 Shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after June 28, 1998, without giving effect to the Transactions.
(12) Includes 365,732 Shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after June 28, 1998, without giving effect to the transactions. A total
of 52,191 of the options are expected to be exercised prior to the
consummation of the Offering.
39
<PAGE>
THE TENDER OFFER
1. TERMS OF THE OFFER. Upon the terms and subject to the conditions of the
Offer, the Company will accept for payment and pay for all Shares validly
tendered prior to the Expiration Date and not theretofore withdrawn in
accordance with "--Section 4. Withdrawal Rights." The term "Expiration Date"
will mean 5:00 p.m., New York City time, on Wednesday, August 12, 1998, unless
and until the Company, with Purchaser's prior written consent, in accordance
with the terms of the Merger Agreement, will have extended the period of time
for which the Offer is open, in which event the term "Expiration Date" will
mean the latest time and date at which the Offer, as so extended by the
Company, will expire.
The Offer is conditioned upon, among other things, the satisfaction of the
Minimum Condition, and the expiration or termination of all waiting periods
imposed by the HSR Act. See "--Section 12. Certain Conditions of the Offer"
and "--Section 13. Certain Legal Matters." If such conditions are not
satisfied prior to the Expiration Date, the Company, subject to the prior
written consent of Purchaser, reserves the right (but will not be obligated)
to (i) decline to purchase any of the Shares tendered and terminate the Offer,
subject to the terms of the Merger Agreement, (ii) waive any of the conditions
to the Offer, to the extent permitted by applicable law and the provisions of
the Merger Agreement, and, subject to complying with applicable rules and
regulations of the Commission, purchase all Shares validly tendered or (iii)
subject to the terms of the Merger Agreement, extend the Offer and, subject to
the right of stockholders to withdraw Shares until the Expiration Date, retain
the Shares which will have been tendered during the period or periods for
which the Offer is open or extended.
Subject to the terms of the Merger Agreement, the Company expressly reserves
the right, in its sole discretion (but subject to the terms of the Merger
Agreement), at any time or from time to time, (i) to extend the period of time
during which the Offer is open and thereby delay acceptance for payment of,
and the payment for, any Shares, by giving oral or written notice of such
extension to the Depositary and (ii) to amend, with Purchaser's prior written
consent, the Offer in any respect (including, without limitation, by
decreasing or increasing the consideration offered in the Offer (the "Offer
Price") to holders of Shares and/or by decreasing the number of Shares being
sought in the Offer), by giving oral or written notice of such amendment to
the Depositary. The rights reserved by the Company in this paragraph are in
addition to the Company's rights to terminate the Offer as described in "--
Section 12. Certain Conditions of the Offer." Any extension, amendment or
termination will be followed as promptly as practicable by public announcement
thereof, the announcement in the case of an extension to be issued no later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date in accordance with the public
announcement requirements of Rule 14d-4(c) under the Exchange Act. Without
limiting the obligation of the Company under such Rule or the manner in which
the Company may choose to make any public announcement, the Company currently
intends to make announcements by issuing press releases to the Dow Jones News
Service. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE TO BE
PAID BY THE COMPANY FOR THE SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER
OR ANY DELAY IN MAKING SUCH PAYMENT.
The Merger Agreement provides that, at Purchaser's request, the Company will
increase the Per Share Amount and make such other changes to the Offer as
Purchaser may request; provided, however, that the Company will not be
required to make any changes that decrease the Per Share Amount, change the
form of consideration payable in the Offer or reduce the maximum number of
Shares to be purchased in the Offer.
If the Company extends the Offer, or if the Company (whether before or after
its acceptance for payment of Shares) is delayed in its purchase of or payment
for Shares or is unable to pay for Shares pursuant to the Offer for any
reason, then, without prejudice to the Company rights under the Offer, the
Depositary may retain tendered Shares on behalf of the Company and such Shares
may not be withdrawn except to the extent tendering stockholders are entitled
to withdrawal rights as described in "--Section 4. Withdrawal Rights."
However, the ability of the Company to delay the payment for Shares which the
Company has accepted for payment is limited by Rule 14e-l(c) under the
Exchange Act, which requires that a bidder pay the consideration offered or
return the securities deposited by or on behalf of holders of securities
promptly after the termination or withdrawal of the Offer.
40
<PAGE>
If the Company makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
the Company will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 13e-3, 13e-4, and 14e-1 under the
Exchange Act. The minimum period during which the Offer must remain open
following material changes in the terms of the Offer or information concerning
the Offer, other than a change in price or a change in percentage of
securities sought, will depend upon the facts and circumstances then existing,
including the relative materiality of the changed terms or information. In a
public release, the Commission has stated that in its view an offer must
remain open for a minimum period of time following a material change in the
terms of the Offer and that waiver of a material condition, such as the
Minimum Condition, is a material change in the terms of the Offer. The release
states than an offer should remain open for a minimum of five business days
from the date a material change is first published, sent or given to security
holders and that, if material changes are made with respect to information not
materially less significant than the offer price and the number of shares
being sought, a minimum of ten business days may be required to allow adequate
dissemination and investor response. The requirement to extend the Offer will
not apply to the extent that the number of business days remaining between the
occurrence of the change and the then-scheduled Expiration Date equals or
exceeds the minimum extension period that would be required because of such
amendment. As used in this Offer to Purchase, "business day" has the meaning
set forth in Rule 14d-1 under the Exchange Act.
This Offer to Purchase and the related Letter of Transmittal will be mailed
by the Company to record holders of Shares and will be furnished by the
Company to brokers, dealers, banks and similar persons whose names, or the
names of whose nominees, appear on the stockholder lists or, if applicable,
who are listed as participants in a clearing agency's security position
listing, for subsequent transmittal to beneficial owners of Shares.
In the event that proration of tendered Shares is required, the Company will
determine the final proration factor as promptly as practicable after the
Expiration Date. Although the Company does not expect to be able to announce
the final results of such proration until approximately seven Nasdaq trading
days after the Expiration Date, it will announce preliminary results of
proration by press release as promptly as practicable after the Expiration
Time. Stockholders may obtain such preliminary information from the
Information Agent and may be able to obtain such information from their
brokers.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT. 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 will pay, promptly after the Expiration Date, for all
Shares validly tendered prior to the Expiration Date and not properly
withdrawn in accordance with "--Section 4. Withdrawal Rights." Subject to
Purchaser's consent, all determinations concerning the satisfaction of such
terms and conditions will be within the Company's discretion, which
determinations will be final and binding. See "--Section 1. Terms of the
Offer" and "--Section 12. Certain Conditions of the Offer." The Company
expressly reserves the right, with Purchaser's prior written consent, to delay
acceptance for payment of or payment for Shares in order to comply in whole or
in part with any applicable law, including, without limitation, the HSR Act.
Any such delays will be effected in compliance with Rule 14e-l(c) under the
Exchange Act (relating to a bidder's obligation to pay the consideration
offered or return the securities deposited by or on behalf of holders of
securities promptly after the termination or withdrawal of such bidder's
offer).
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) certificates
for such Shares (or a timely Book-Entry Confirmation (as defined below) with
respect thereto), (ii) a Letter of Transmittal (or 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), and (iii) any other documents required by the Letter of Transmittal.
The per share consideration paid to any holder of Common Stock pursuant to the
Offer will be the highest per Share consideration paid to any other holder of
such shares pursuant to the Offer.
41
<PAGE>
For purposes of the Offer, the Company will be deemed to have accepted for
payment, and thereby purchased, Shares properly tendered to the Company and
not withdrawn as, if and when, with Purchaser's prior written consent, the
Company gives oral or written notice to the Depositary of the Company's
acceptance for payment of such Shares. 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 payment from the Company and transmitting payment to
tendering stockholders. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE
PURCHASE PRICE TO BE PAID BY THE COMPANY FOR THE SHARES, REGARDLESS OF ANY
EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
If the Company is delayed in its acceptance for payment of, or payment for,
Shares or is unable to accept for payment or pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Company's rights under
the Offer (including such rights as are set forth in Sections 1 and 12 under
the capiton "THE TENDER OFFER") (but subject to compliance with Rule 14e-1(c)
under the Exchange Act), the Depositary may, nevertheless, on behalf of the
Company, retain tendered Shares, and such Shares may not be withdrawn except
to the extent tendering stockholders are entitled to exercise, and duly
exercise, withdrawal rights as described in "--Section 4. Withdrawal Rights."
If any tendered Shares are not purchased pursuant to the Offer for any
reason, certificates for any such Shares will be returned, without expense to
the tendering stockholder (or, in the case of Shares delivered by book-entry
transfer of such Shares into the Depositary's account at the Book-Entry
Transfer Facility (as defined below) pursuant to the procedures set forth in
"--Section 3. Procedure for Tendering Shares," such Shares will be credited to
an account maintained at the Book-Entry Transfer Facility), as promptly as
practicable after the expiration or termination of the Offer.
3. PROCEDURE FOR TENDERING SHARES.
Valid Tender. For Shares to be validly tendered pursuant to the Offer,
either (i) a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), together with any required signature guarantees, or in the
case of a book-entry transfer, an Agent's Message, and any other required
documents, must be received by the Depositary at its address set forth on the
back cover of this Offer to Purchase prior to the Expiration Date and either
certificates for tendered Shares must be received by the Depositary at such
address or such Shares must be delivered pursuant to the procedures for book-
entry transfer set forth below (and a Book-Entry Confirmation received by the
Depositary), in each case, prior to the Expiration Date or (ii) the tendering
stockholder must comply with the guaranteed delivery procedures set forth
below.
The Depositary will establish an account with respect to the Shares at The
Depositary Trust Company (the "Book-Entry Transfer Facility") 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 Book-Entry Transfer
Facility's systems may make book-entry delivery of Shares by causing the Book-
Entry Transfer Facility to transfer such Shares into the Depositary's account
in accordance with the Book-Entry Transfer Facility's procedure for such
transfer. However, although delivery of Shares may be effected through book-
entry transfer into the Depositary's account at the Book-Entry Transfer
Facility, the Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, or an Agent's
Message, and any other required documents must, in any case, be transmitted
to, and received by, the Depositary at its address 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 procedures described
below. The confirmation of a book-entry transfer of Shares into the
Depositary's account at the Book-Entry Transfer Facility as described above is
referred to herein as a "Book-Entry Confirmation." DELIVERY OF DOCUMENTS TO
THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER
FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility
has received an express acknowledgment from the participant in the Book-Entry
Transfer
42
<PAGE>
Facility tendering the Shares that such participant has received and agrees to
be bound by the terms of the Letter of Transmittal and that the Purchaser may
enforce such agreement against the participant.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES
WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY
(INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION).
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.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal (i) if the Letter of Transmittal is signed by the registered
holder(s) (which term, for purposes of this Section, includes any participant
in the Book Entry Transfer Facility's systems whose name appears on a security
position listing as the owner of the Shares) of Shares tendered therewith and
such registered holder has not completed either the box entitled "Special
Delivery Instructions" or the box entitled "Special Payment Instructions" on
the Letter of Transmittal or (ii) if such Shares are tendered for the account
of a financial institution (including most commercial banks, savings and loan
associations and brokerage houses) that is a participant in the Security
Transfer Agent's Medallion Program, the New York Stock Exchange Medallion
Signature Guarantee Program or the Stock Exchange Medallion Program (each, an
"Eligible Institution" and, collectively, "Eligible Institutions"). In all
other cases, all signatures on Letters of Transmittal must be guaranteed by an
Eligible Institution. See Instructions 1 and 5 to the Letter of Transmittal.
If the certificates for Shares are registered in the name of a person other
than the signer of the Letter of Transmittal, or if payment is to be made, or
certificates for Shares not tendered or not accepted for payment are to be
returned, to a person other than the registered holder of the certificates
surrendered, then the tendered certificates for such Shares must be endorsed
or accompanied by appropriate stock powers, in either case, signed exactly as
the name or names of the registered holders or owners appear on the
certificates, with the signatures on the certificates or stock powers
guaranteed as aforesaid. See Instructions 1 and 5 to the Letter of
Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available or the procedures for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such stockholder's tender may be
effected if all the following conditions are met:
(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 provided by the Company, is received by
the Depositary, as provided below, prior to the Expiration Date; and
(iii) the certificates for (or a Book-Entry Confirmation with respect to)
such Shares, together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees
or, in the case of a book-entry transfer, an Agent's Message, and any other
required documents are received by the Depositary within three Nasdaq
trading days after the date of execution of such Notice of Guaranteed
Delivery.
The Notice of Guaranteed Delivery may be delivered by hand to the Depositary
or transmitted by telegram, facsimile transmission or mail to the Depositary
and must include a guarantee by an Eligible Institution in the form set forth
in such Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) certificates for (or a timely Book-Entry
Confirmation with respect to) such Shares, (ii) a Letter of Transmittal (or
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, and (iii) any other documents required by the Letter of Transmittal.
Accordingly, tendering
43
<PAGE>
stockholders may be paid at different times depending upon when certificates
for Shares or Book-Entry Confirmations with respect to Shares are actually
received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON
THE PURCHASE PRICE TO BE PAID BY THE COMPANY FOR THE SHARES, REGARDLESS OF ANY
EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
The valid tender of Shares pursuant to one of the procedures described above
will constitute a binding agreement between the tendering stockholder and the
Company upon the terms and subject to the conditions of the Offer.
Appointment. By executing the Letter of Transmittal as set forth above, the
tendering stockholder will irrevocably appoint designees of the Company, and
each of them, as such stockholder's attorneys-in-fact and proxies in the
manner set forth in the Letter of Transmittal, each with full power of
substitution, 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 other Shares or other securities or
rights issued or issuable in respect of such Shares. All such proxies will 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 for
payment Shares tendered by such stockholder as provided herein. Upon such
appointment, all prior powers of attorney, proxies and consents given by such
stockholder with respect to such Shares or other securities or rights will,
without further action, be revoked and no subsequent powers of attorney,
proxies, consents or revocations may be given by such stockholder (and, if
given, will not be deemed effective). The designees of the Company will
thereby be empowered to exercise all voting and other rights with respect to
such Shares and other securities or rights, including, without limitation, in
respect of any annual, special or adjourned meeting of the Company's
stockholders, actions by written consent in lieu of any such meeting or
otherwise, as they in their sole discretion deem proper.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tender of Shares
will be determined by the Company, in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject
any or all tenders of any Shares determined by it not to be in proper form or
the acceptance for payment of, or payment for which may, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the absolute right,
in its sole discretion, subject to the provisions of the Merger Agreement, to
waive, subject to prior written consent of Purchaser, any of the conditions 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 or irregularities relating thereto
have been cured or waived. None of the Purchaser, the Depositary, the
Information Agent, the Company 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. Subject to the terms of
the Merger Agreement, 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.
Backup Federal Income Tax Withholding. Under the "backup withholding"
provisions of federal income tax law, unless a tendering registered holder, or
his assignee (in either case, the "Payee"), satisfies the conditions described
in Instruction 9 of the Letter of Transmittal or is otherwise exempt, the cash
payable as a result of the Offer may be subject to backup withholding tax at a
rate 31% of the gross proceeds. To prevent backup withholding, each Payee
should complete and sign the Substitute Form W-9 provided in the Letter of
Transmittal. See Instruction 9 of the Letter of Transmittal.
4. WITHDRAWAL RIGHTS. Except as otherwise provided in this Section, tenders
of Shares are irrevocable. Shares tendered pursuant to the Offer may be
withdrawn pursuant to the procedures set forth below at any time prior to the
Expiration Date and, unless theretofore accepted for payment and paid for by
the Company pursuant to the Offer, may also be withdrawn at any time after
September 10, 1998.
44
<PAGE>
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
its address set forth on the back cover of this Offer to Purchase and 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 the
Shares to be withdrawn, if different from the name of the person who tendered
the Shares. If certificates for Shares have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such
certificates, the serial numbers shown on such certificates must be submitted
to the Depositary and, unless such Shares have been tendered by an Eligible
Institution, the signatures on the notice of withdrawal must be guaranteed by
an Eligible Institution. If Shares have been delivered pursuant to the
procedures for book-entry transfer as set forth in "--Section 3. Procedure for
Tendering Shares," any notice of withdrawal must also specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Shares and otherwise comply with the Book-Entry Transfer
Facility's procedures. Withdrawals of tenders of Shares may not be rescinded,
and any Shares properly withdrawn will thereafter be deemed not validly
tendered for purposes of the Offer. However, withdrawn Shares may be
retendered by again following one of the procedures described in "--Section 3.
Procedure for Tendering Shares" any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Company, in its sole
discretion, which determination will be final and binding. None of the
Purchaser, the Company, the Depositary, 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.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following is a summary of
certain Federal income tax consequences to stockholders tendering Shares
pursuant to the Offer. This summary is based upon existing Federal income tax
law, which is subject to change, possibly retroactively. This summary does not
discuss all aspects of Federal income tax law that may be important to a
particular stockholder in light of such stockholder's personal investment
circumstances or to stockholders subject to special tax rules (e.g., financial
institutions, insurance companies, broker-dealers, tax-exempt organizations
and foreign taxpayers). In addition, this summary does not discuss any
foreign, state or local tax considerations. This summary assumes that
stockholders hold their Shares as capital assets (generally, property held for
investment) under the Internal Revenue Code of 1986, as amended (the "Code").
Each stockholder is urged to consult a tax advisor as to the specific tax
consequences of such stockholder's tendering Shares pursuant to the Offer,
including the application and effect of Federal, state, local and foreign
income and other tax laws.
The sale of Shares pursuant to the Offer will be a taxable transaction for
Federal income tax purposes. If any one of the three tests of section 302 of
the Code described below is satisfied, the sale of Shares will be treated as a
sale or exchange and the stockholder will generally recognize capital gain or
loss equal to the difference between the cash proceeds received for the Shares
pursuant to the Offer and the adjusted tax basis of such Shares sold pursuant
to the Offer. If the sale of Shares does not qualify as a sale or exchange,
the entire cash proceeds received by a stockholder for his Shares pursuant to
the Offer will be treated as a distribution taxable as a dividend to the
extent of the Company's current and accumulated earnings and profits as
determined for Federal income tax purposes. It is anticipated, as described
below, that most stockholders should qualify for sale or exchange treatment.
Under section 302 of the Code, a sale of Shares pursuant to the Offer will,
as a general rule, be treated as a sale or exchange if the sale (i) results in
a complete termination of the stockholder's interest in the Company, (ii) is
"substantially disproportionate" with respect to the stockholder or (iii) is
"not essentially equivalent to a dividend" with respect to the stockholder. In
determining whether any of these tests is satisfied, a stockholder must take
into account both the Shares actually owned by such stockholder and Shares
considered owned by reason of certain constructive ownership rules set forth
in section 318 of the Code. Under section 318, a stockholder will generally be
considered to own Shares that such stockholder has the right to acquire (e.g.,
pursuant to options) and Shares actually (and in some cases constructively)
owned by certain members of the
45
<PAGE>
stockholder's family and by certain entities (such as corporations,
partnerships, trusts and estates) in which such stockholder, a member of such
stockholder's family, or a related entity has an interest.
A sale of Shares pursuant to the Offer will result in a complete termination
of a stockholder's interest in the Company if, immediately following the
disposition of Shares by the stockholder pursuant to the Offer, the
stockholder does not actually or constructively own any Shares.
The sale of Shares pursuant to the Offer will generally be "substantially
disproportionate" with respect to a stockholder if, immediately after
consummation of the Offer, such stockholder's actual and constructive
percentage ownership of Shares is less than 80% of the stockholder's actual
and constructive percentage ownership of such Shares immediately before the
sale of Shares pursuant to the Offer.
If a stockholder's sale of Shares fails to satisfy the "substantially
disproportionate" test and also fails to satisfy the "complete termination"
test, such stockholder may nevertheless satisfy the "not essentially
equivalent to a dividend" test, if the stockholder's disposition of Shares
pursuant to the Offer results in a "meaningful reduction" of the stockholder's
proportionate interest in the Company. Whether the receipt of cash by a
stockholder is "not essentially equivalent to a dividend" depends on the
particular stockholder's facts and circumstances. The Internal Revenue Service
has indicated in published rulings that even a small reduction in the
proportionate interest of a small minority stockholder in a publicly held
corporation may constitute such a "meaningful reduction" where the stockholder
exercises no control over corporate affairs. Any stockholder intending to rely
upon the "not essentially equivalent to a dividend" test should consult a tax
advisor as to its application in the stockholder's particular situation.
Because of the contemporaneous investment by Purchaser, it is anticipated
that stockholders whose Shares are purchased pursuant to the Offer should
generally satisfy the "substantially disproportionate" or "not essentially
equivalent to a dividend" test and would thus qualify for capital gain or loss
treatment.
For purposes of the foregoing tests, any acquisition or disposition of
Shares substantially contemporaneous with the Offer may be taken into account
in determining whether any of the three tests described above is satisfied.
If none of the tests described above is satisfied with respect to a
stockholder, such stockholder's receipt of cash for Shares pursuant to the
Offer will be treated as a distribution taxable as a dividend to the extent of
the current and accumulated earnings and profits of the Company. Any cash
received in excess of such earnings and profits will be treated, first, as a
return of capital to the extent of the stockholder's adjusted basis, which
will not be subject to tax, and, thereafter, as capital gain.
If all Shares tendered by a stockholder are purchased, the adjusted tax
basis of the Shares sold will be the adjusted tax basis of those that are
tendered at such price. If less than all such tendered Shares are accepted for
purchase, the adjusted tax basis will depend on adequate identification of the
Shares sold. In the absence of adequate identification, applicable regulations
provide that the Shares sold will be charged against the earliest of such
shares purchased or acquired by the stockholder.
Net capital gain (i.e., generally, capital gain in excess of capital loss)
recognized by an individual upon the sale of a capital asset that has been
held for (i) more than 18 months will generally be subject to tax at a rate
not to exceed 20%, (ii) more than 12 months but not more than 18 months will
be subject to tax at a rate not to exceed 28% and (iii) 12 months or less will
be subject to tax at ordinary income tax rates. If the Internal Revenue
Service Restructuring and Reform Act of 1998 passed by Congress is enacted
into law, the minimum holding period required to qualify for the 20% rate of
tax imposed upon net capital gain would be reduced from 18 months to 12
months. In addition, capital gain recognized by a corporate holder will be
subject to tax at the ordinary income tax rates applicable to corporations.
46
<PAGE>
6. PRICE RANGE OF THE SHARES; DIVIDENDS ON THE SHARES. The Shares are traded
on Nasdaq under the symbol "CSTM." The following table sets forth, for each of
the calendar quarters indicated, the high and low reported sales price per
share of Common Stock on Nasdaq based on published financial sources. The
Company has never paid a cash dividend on the Common Stock.
<TABLE>
<CAPTION>
COMMON STOCK
---------------
HIGH LOW
------ -----
<S> <C> <C>
Year Ended January 31,
1997
First Quarter........... $ 27 1/2 $24
Second Quarter.......... 27 7/8 22
Third Quarter........... 22 5/8 16 1/4
Fourth Quarter.......... 21 3/8 18 1/4
Year Ended January 31,
1998
First Quarter........... $13 3/4 11 1/2
Second Quarter.......... 17 15
Third Quarter........... 16 13
Fourth Quarter.......... 13 1/4 11
Year Ending January 31,
1999
First Quarter........... $21 1/4 12 1/4
Second Quarter (through
July 10, 1998)......... 22 3/8 19 3/4
</TABLE>
On June 26, 1998, the last full trading day prior to the announcement of the
Offer, the last reported sales price of the Shares on Nasdaq was $21 per
Share. On July 10, 1998, the last full trading day prior to the commencement
of the Offer, the last reported sales price of the Shares on Nasdaq was $20.81
per Share. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE
SHARES.
The payment of Common Stock dividends is restricted under the terms of an
agreement with the Company's lenders. Under such restrictions, the payment of
Common Stock dividends is not currently permitted. In addition, under the
terms of the Merger Agreement, the Company is not permitted to declare or pay
dividends on the Common Stock.
7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK LISTING; EXCHANGE
ACT REGISTRATION; MARGIN REGULATIONS.
Market for the Shares. The purchase of Shares by the Company pursuant to the
Offer is expected to reduce the number of holders of Shares and will reduce
the number of Shares that might otherwise trade publicly and, depending upon
the number of Shares so purchased, could adversely affect the liquidity and
market value of the remaining Shares held by the public.
Stock Listing. The Common Stock is quoted on Nasdaq. Depending upon the
aggregate market value and the per share price of any Shares not purchased
pursuant to the Offer, the Common Stock may no longer meet the requirements of
the National Association of Securities Dealers, Inc. (the "NASD") for
continued inclusion on Nasdaq, which requires that an issuer either (i) have
at least 750,000 publicly held shares, held by at least 400 shareholders, with
a market value of at least $5,000,000, capital and surplus (total
shareholders' equity) of at least $4 million and have a minimum bid price of
$1 or (ii) have at least 1,000,000 publicly held shares, held by at least 400
shareholders with a market value of at least $15,000,000, have a minimum bid
price of $5 and have either (A) a market capitalization of at least
$50,000,000 or (B) total assets and revenues each of at least $50,000,000. If
the Nasdaq National Market and the Nasdaq Smallcap Market were to cease to
publish quotations for the Shares, it is possible that the Shares would
continue to trade in the over-the-counter market and that price or other
quotations would be reported by other sources. The extent of the public market
for such Shares and the availability of such quotations would depend, however,
upon such factors as the number of stockholders and/or the aggregate market
value of such securities remaining at such time, the interest in maintaining a
market in the Shares on the part of securities firms, the possible termination
of registration under the Exchange Act as
47
<PAGE>
described below, and other factors. The Company cannot predict whether the
reduction in the number of Shares that might otherwise trade publicly would
have an adverse or beneficial effect on the market price for, or marketability
of, the Shares or whether it would cause future market prices to be greater or
lesser than the Per Share Amount. As of June 25, 1998, there were
approximately 243 holders of record of Shares and a total of 5,173,077 Shares
issued and outstanding.
If Nasdaq were to delist the Common Stock, the market therefor could be
adversely affected. It is possible that such Shares would continue to trade on
other securities exchanges, or in the over-the-counter market and that price
quotations would be reported by such exchanges or through other sources. The
extent of the public market for the Common Stock and the availability of such
quotations would, however, depend upon the number of stockholders and/or the
aggregate market value of such Shares remaining at such time, the interest in
maintaining a market in such Shares on the part of securities firms, the
possible termination of registration of such Shares under the Exchange Act and
other factors. If, as a result of the purchase of the Shares pursuant to the
Offer or otherwise, the Shares no longer meet the requirement of the NASD for
continued inclusion in the Nasdaq and the Shares are no longer included in
Nasdaq, the market for, and value of, the Shares could be adversely affected.
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. Registration of the Shares under the Exchange Act may be
terminated upon application of the Company to the Commission if the Shares are
neither listed on a national securities exchange nor held by 300 or more
holders of record. Termination of registration of the Shares under the
Exchange Act, assuming there are no other securities of the Company subject to
registration, would substantially reduce the information required to be
furnished by the Company to its stockholders and to the Commission and would
make certain provisions of the Exchange Act, such as the short-swing profit
recovery provisions of Section 16(b), the requirement of furnishing a proxy
statement pursuant to Section 14(a) in connection with stockholders' meetings
and the related requirement of furnishing an annual report to stockholders and
the requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions, no longer applicable to the Company. Furthermore, the
ability of "affiliates" of the Company and persons holding "restricted
securities" of the Company to dispose of such securities pursuant to Rule 144
or Rule 144A promulgated under the Securities Act may be impaired or
eliminated. If registration of the Common Stock under the Exchange Act were
terminated, such Shares would no longer be "margin securities" or be eligible
for continued listing on any stock exchange or for Nasdaq reporting. Purchaser
intends to cause the Company to apply for termination of registration of the
Shares under the Exchange Act as soon after the completion of the Offer as the
requirements for such termination are met.
Margin Regulations. The Shares presently are "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which status has the effect, among other things, of
allowing brokers to extend credit on the collateral of such securities.
Depending upon factors similar to those described above regarding listing and
market quotations, it is possible that, following the Offer, the Shares would
no longer constitute "margin securities" for the purposes of the margin
regulations of the Federal Reserve Board and therefore could no longer be used
as collateral for loans made by brokers. If registration of the Shares under
the Exchange Act were terminated, the Shares would no longer be "margin
securities."
8. CERTAIN INFORMATION CONCERNING THE COMPANY.
General. The Company is the largest independent designer and supplier of
aftermarket parts and accessories for Harley-Davidson motorcycles. The
Company's organization includes its Custom Chrome division, which supplies
aftermarket parts and accessories for Harley-Davidson motorcycles, located in
Morgan Hill, California; Chrome Specialties, Inc., an aftermarket supplier of
Harley-Davidson motorcycle parts and accessories located in Fort Worth, Texas;
Custom Chrome Far East, Ltd., a product development, engineering, tooling
management and warehouse of proprietary products for the Company, located in
Taiwan; Custom Chrome Europe GmbH, a distribution company located in Germany
that specializes in aftermarket accessories for Harley-Davidson motorcycles
and other "cruiser" motorcycles, and Custom Chrome Manufacturing, Inc.,
48
<PAGE>
d/b/a Santee Industries, a manufacturer of frames and exhaust systems and
other aftermarket components for Harley-Davidson motorcycles, located in
Sylmar, California. The Company currently distributes over 18,500 products
used for customization, repair and maintenance, and performance enhancement,
including chassis, controls, dashes, fuel tanks, seats, suspensions, tires and
wheels, transmission and other parts and accessories. The Company distributes
its products to over 4,700 customers including independent after-market
retailers, Harley-Davidson franchises, mail-order houses, motorcycle builders
and foreign distributors and retailers through six distribution centers.
The Company distributes its own products, as well as products offered by
other recognized manufacturers, such as Dunlop, Champion, Hastings, Accel,
S&S, Crane and Russell. C.C. Rider(R), Chrome Specialties(R), Custom
Chrome(R), Dallas Premium Leather(R), Dyno Power(R), Motor Factory(R),
Premium(R), RevTech(R) and Tour Ease(R) are registered trademarks of the
Company. Bullskins(TM), Highway One(TM), Jammer Cycle Products(TM),
Premium(TM), Spare Parts(TM), Texas Saddles(TM) and Global Motorsport
Group(TM) are trademarks of the Company. Harley-Davidson(R) is a registered
trademark of Harley-Davidson. All other trademarks, service marks or trade
names referred to in this Offer to Purchase are the property of their
respective owners.
Available Information. The Company is subject to the informational filing
requirements of the Exchange Act and, in accordance therewith, is obligated to
file 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, options granted to them, the principal holders of the Company's
securities and any material interests 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 of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located
at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such information should be obtainable by mail, upon payment of the
Commission's customary charges, by writing to the Commission's principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also
maintains a website at http://www.sec.gov that contains reports, proxy
statements and other information.
9. SOURCE AND AMOUNT OF FUNDS.
The total amount of funds required to consummate the Offer and Merger, if
required, and to pay all related fees and expenses is approximately $188.4
million, which will be provided through a combination of (i) the approximately
$58.0 million in proceeds from the Stock Purchase, (ii) borrowings by the
Operating Company of approximately $25.4 million under new senior secured
credit facilities with aggregate availability of $55 million (the "New Credit
Facilities"), (iii) proceeds of approximately $80.0 million from the offering
of senior notes by the Operating Company (the "Senior Notes") in a private
placement and (iv) proceeds of approximately $25.0 million from the offering
of senior discount notes by the Company (the "Discount Notes" and, together
with the Senior Notes, the "Notes") in a private placement. Prior to
consummation of the Offer, the Company will form the Operating Company to hold
all of the assets and liabilities of the Company. Accordingly, upon the
consummation of the Offer, the Company will become a holding company.
The New Credit Facilities. In connection with the Offer, Purchaser has
received a commitment from Bank of America National Trust and Savings
Association and Bankers Trust Company to provide the Operating Company with
the New Credit Facilities pursuant to a bank credit agreement (the "Credit
Agreement"). Loans under the New Credit Facilities will consist of (i) a $25
million seven-year term loan facility (the "Term Facility") and (ii) a $30
million five-year revolving credit facility (the "Revolving Facility").
Borrowings of $25 million under the Term Facility are expected to be
dividended or otherwise distributed from the Operating Company to the Company
and used to repay existing indebtedness of the Company. The Revolving Facility
is expected to be used in the future for general working capital purposes and
general corporate expenses. This information relating to the New Credit
Facilities is qualified in its entirety by reference to the complete text of
the documents to be entered into in connection therewith. The following is a
description of the general terms of the New Credit Facilities.
49
<PAGE>
Indebtedness of the Operating Company under the New Credit Facilities will
be guaranteed by the Company and each of its subsidiaries (each, in such
capacity, a "Credit Facility Guarantor") and will be secured by a first
priority security interest in all of the Operating Company's and each Credit
Facility Guarantor's respective tangible and intangible assets, including,
without limitation, intellectual property, real property and all capital stock
of the Operating Company and each of its direct and indirect subsidiaries
(limited to 65% of such capital stock in the case of foreign subsidiaries, to
the extent a pledge of a greater percentage would result in material adverse
tax consequences) and rights under the Merger Agreement and other related
documentation.
Indebtedness under the New Credit Facilities will initially bear interest at
a rate based upon (i) the Base Rate (defined as the higher of (a) the rate of
interest publicly announced by Bank of America as its "reference rate" and (b)
the federal funds effective rate from time to time plus 0.5%), plus 1.25% in
the case of loans under the Revolving Facility and 1.50% in the case of
borrowings under the Term Facility, or (ii) the Eurodollar Rate (defined as
the rate (adjusted for statutory reserve requirements for eurocurrency
liabilities) at which eurodollar deposits for one, two, three or six months
(as selected by the Issuers) are offered to Bank of America in the interbank
eurodollar market, plus 2.25% in the case of loans under the Revolving
Facility and 2.50% in the case of borrowings under the Term Facility.
Performance-based adjustments of the interest rates under the Term Facility
and the Revolving Facility are available, provided no event of default has
occurred and is continuing.
The New Credit Facilities are subject to mandatory prepayment by the
Operating Company. Subject to certain exceptions, (i) 50% of net proceeds from
a sale or issuance of equity (reducible to 0% if certain performance measures
are met) and 100% of net proceeds from the incurrence of certain indebtedness
after the Consummation of the Offer by the Operating Company or its
subsidiaries and (ii) 100% of the net proceeds from any sale or any other
disposition by the Operating Company or its subsidiaries of any assets, except
for the sale of inventory or obsolete or worn-out property in the ordinary
course of business and subject to certain other exceptions, will be applied to
prepay scheduled principal payments under the Term Loan until the Term Loan is
repaid in full, then to prepay loans under the Revolving Facility until paid
in full and then to reduce commitments under the Revolving Facility.
The Term Loan will be subject to quarterly amortization payments beginning
on December 31, 1998. The Term Loan may be prepaid by the Operating Company;
such prepayments may not be reborrowed.
A portion of the Revolving Facility will be available for standby letters of
credit. The issuance of letters of credit will reduce the amount available for
direct borrowings under the Revolving Facility. Loans under the Revolving
Facility may be repaid and reborrowed. Loans under the Revolving Facility may
be prepaid and commitments relating thereto may be reduced by the Operating
Company. The Operating Company will be required to pay a commitment fee
initially equal to 0.50% per annum on the average daily unused portion of the
Revolving Facility, payable quarterly in arrears and subject to performance-
based adjustments provided no event of default has occurred and is continuing.
The Operating Company will also be required to pay a commission on all
outstanding letters of credit issued under the Revolving Facility equal to the
applicable margin then in effect with respect to Eurodollar loans under the
Revolving Facility and to the Bank issuing a letter of credit a fronting fee
of 0.25% per annum, quarterly in arrears, in each case on the face amount of
each letter of credit outstanding.
The Credit Agreement will require the Operating Company to meet certain
financial tests, including minimum interest coverage ratios, minimum fixed
charge coverage ratios and maximum leverage ratios. The Credit Agreement will
also contain covenants which, among other things, limit indebtedness, liens,
guarantee obligations, mergers, consolidations, liquidations and dissolutions,
asset sales, leases, dividends and other payments in respect of capital stock
and payments in respect of other debt (including the Notes), capital
expenditures, investments, loans and advances, optional payments and
modifications of subordinated and other debt instruments (including the Notes
and the Indenture), transactions with affiliates, sale-leasebacks, other
matters customarily restricted in such agreements and modifications to the
holding company status of the Company.
The Credit Agreement will contain customary events of default, including
payment defaults; material inaccuracies in representations and warranties;
covenant defaults; cross-defaults to certain other indebtedness; certain
bankruptcy events; certain ERISA events; judgment defaults; invalidity of any
guaranty, security document or security interest provision and change of
control.
50
<PAGE>
The availability of the New Credit Facilities is subject to, among other
things, the satisfactory completion of the Stock Purchase and the Offer.
The Notes. Purchaser has retained BT Alex. Brown Incorporated and
BancAmerica Robertson Stephens to act as initial purchasers or placement
agents for the Notes. It is currently anticipated that the Notes would be
issued in a Rule 144A transaction pursuant to a customary purchase agreement.
The Senior Notes, to be issued by the Operating Company, would mature in 2008,
would be unsecured and would be guaranteed by the Company and certain of the
Operating Company's domestic subsidiaries. The Discount Notes, to be issued by
the Company, would mature in 2009, would be unsecured and would not be subject
to any guarantee. The interest rates applicable to the Notes will be
determined by market factors when the Notes are sold. It is also anticipated
that the indentures governing the Notes would contain provisions with respect
to redemption and affirmative and negative covenants customary for a
transaction of this nature.
The following table has been prepared by the Company and Purchaser and sets
forth the anticipated amounts of sources and uses of funds necessary to
consummate the Offer, the Merger and related Debt Financing at the scheduled
expiration date of the Offer or consummation of the Merger:
<TABLE>
<CAPTION>
$ IN THOUSANDS
--------------
<S> <C>
SOURCES OF FUNDS:
New Credit Facilities (1)..................................... $ 25,379
Senior Notes.................................................. 80,000
Discount Notes................................................ 25,000
Rolled Equity................................................. 8,815
Stock Purchase by Purchaser................................... 58,000
--------
Total Sources............................................... $197,194
========
USES OF FUNDS:
Purchases of Shares in Tender Offer and Merger................ $104,835
Net purchases of Options...................................... 8,564
Repayment of existing debt.................................... 59,240
Estimated fees and expenses................................... 15,740
Rolled Equity................................................. 8,815
--------
Total Uses.................................................. $197,194
========
</TABLE>
- --------
(1) The New Credit Facilities have total commitments of $55.0 million.
The sources and uses as of April 30, 1998 on a pro forma basis are included
in the Company's unaudited pro forma consolidated financial data (and related
notes) attached as Annex E hereto.
10. OTHER MATTERS.
Director Designation. The Merger Agreement provides that, promptly after the
purchase by the Purchaser of any Shares pursuant to the Offer, Purchaser has
the right to designate such number of directors, rounded up to the next whole
number, on the Company's Board of Directors as is equal to the product of the
total number of directors on the Company's Board of Directors (giving effect
to the directors designated by Purchaser) multiplied by the percentage that
the number of Shares beneficially owned by the Purchaser or any affiliate of
the Purchaser (including such Shares as are accepted for payment pursuant to
the Offer) bears to the total number of Shares then outstanding. See "THE
OFFER AND MERGER--Section 8. The Agreement and Plan of Merger; Stockholder
Agreement." The Merger Agreement provides that the directors of the Purchaser
and the officers of the Company at the Effective Time of the Merger will, from
and after the Effective Time, be the initial directors and officers,
respectively, of the Surviving Corporation.
51
<PAGE>
11. DIVIDENDS AND DISTRIBUTIONS.
The Merger Agreement provides that, subject to certain exceptions, including
in connection with the consummation of the financing of the transactions,
neither the Company nor any of its subsidiaries will: (i) declare, set aside
or pay any dividend or other distribution payable in cash, stock or property
with respect to its capital stock; (ii) issue, sell, pledge, dispose of or
encumber any additional shares of, or securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any
kind to acquire (or stock appreciation rights with respect to), any shares of
capital stock of any class of the Company or its Subsidiaries, other than
Shares reserved for issuance on the date hereof pursuant to the exercise of
options outstanding on the date hereof; or (iii) redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock.
12. CERTAIN CONDITIONS OF THE OFFER.
The Company's obligation to accept for payment, purchase and pay for the
Shares tendered pursuant to the Offer is subject to certain conditions,
including (i) the valid tender of at least a majority of the outstanding
Shares on a fully diluted basis, (ii) the expiration or termination of any
applicable waiting period under the HSR Act, (iii) the closing of the Stock
Purchase, and (iv) the absence of any of the following conditions:
(a) there will be threatened or pending any action, suit or proceeding or
any statute, rule, regulation, judgment, order or injunction proposed,
sought, promulgated, enacted, entered, enforced or deemed applicable to the
Offer, or any other action will have been taken, proposed or threatened, by
any state or federal government or governmental authority or by any court
of competent jurisdiction, other than the routine application to the Offer,
the Merger or other subsequent business combination of waiting periods
under the HSR Act, (1) seeking to prohibit or impose any material
limitations on Purchaser's ownership or operation (or that of any of its
subsidiaries or affiliates) of all or a material portion of its or the
Company's businesses or assets, or to compel Purchaser or its subsidiaries
and affiliates to dispose of or hold separate any material portion of the
business or assets of the Company or Purchaser and their respective
subsidiaries, in each case taken as a whole, (2) seeking to make the
acceptance for payment of, or the payment for, some or all of the Shares
illegal or otherwise prohibiting, restricting or significantly delaying
consummation of the Offer or the Merger or the performance of any of the
other transactions contemplated by the Merger Agreement, or seeking to
obtain from the Company or Purchaser any damages that are material in
relation to the Company and its subsidiaries as taken as a whole, (3)
seeking to impose material limitations on the ability of Purchaser, or
render Purchaser unable, to acquire or hold or to exercise effectively all
rights of ownership of the Shares, including, without limitation, the right
to vote any Shares purchased by Purchaser on all matters properly presented
to the stockholders of the Company, or effectively to control in any
material respect the business, assets or operations of the Company, its
subsidiaries or Purchaser or any of their respective affiliates, or (4)
seeking to impose circumstances under which the purchase or payment for
some or all of the Shares pursuant to the Offer and Merger could result in
any change or effect that is materially adverse to the business, results of
operations or condition (financial or otherwise) of Purchaser and its
subsidiaries, taken as a whole, other than any change or effect arising out
of general economic conditions unrelated to any businesses in which
Purchaser and its subsidiaries are engaged, or (5) which otherwise is
reasonably likely to have a Company Material Adverse Effect;
(b) there will have occurred any event, change in or effect on the
business of the Company or its subsidiaries, taken as a whole, that is or
can reasonably be expected to be materially adverse to (1) the business,
operations, properties (including intangible properties), condition
(financial or otherwise), assets, liabilities, or prospects of the Company
and its subsidiaries, taken as a whole, or (2) the ability of the Company
to consummate any of the Transactions or to perform its obligations under
the Merger Agreement;
(c) there will have occurred (1) any general suspension of trading in, or
limitation on prices for, securities on the New York Stock Exchange or the
Nasdaq for a period in excess of 24 hours (excluding suspensions or
limitations resulting solely from physical damage or interference with such
exchanges not related to market conditions), (2) the declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States (whether or not mandatory), (3) the commencement of a war,
armed
52
<PAGE>
hostilities or other international or national calamity directly or
indirectly involving the United States, (4) any limitation (whether or not
mandatory), by any U.S. governmental authority or agency, likely to
materially adversely affect, the extension of credit by banks or other
financial institutions, (5) a change in general financial, bank or capital
market conditions which materially and adversely affects the ability of
financial institutions in the United States to extend credit or syndicate
loans, (6) from the date of the Merger Agreement through the date of
termination or expiration of the Offer, a decline of at least 15 percent in
the Standard & Poor's 500 Index, or (7) in the case of any of the
foregoing, existing at the date of the execution of the Merger Agreement, a
material acceleration or worsening thereof;
(d) any person (which includes a "person" as such term is defined in
Section 13(d)(3) of the Exchange Act) other than Purchaser, any of its
affiliates, or any group of which any of them is a member will have
acquired beneficial ownership of more than 15 percent of the outstanding
Shares or will have entered into a definitive agreement or an agreement in
principle with the Company with respect to a tender offer or exchange offer
for any Shares or a merger, consolidation or other business combination
with or involving the Company or any of its subsidiaries;
(e) the Merger Agreement will have been terminated in accordance with its
terms;
(f) (1) the Board will have withdrawn or modified (including by amendment
of the Schedule 13E-4) in a manner adverse to Purchaser its approval or
recommendation of the Offer, the Merger Agreement or the Merger or will
have recommended another offer, or will have adopted any resolution to
effect any of the foregoing, or (2) the Company will have entered into an
agreement with respect to an Acquisition Proposal in accordance with the
Merger Agreement;
(g) all consents, permits and approvals of Governmental Authorities (as
defined therein) and certain other persons will not have been obtained with
no material adverse conditions attached and no material expense imposed on
the Company or any of its subsidiaries;
(h) the Company or the Operating Company, as the case may be, will have
failed to consummate (i) a private placement offering of debt securities
which will result in the Company receiving gross proceeds of not less than
$25 million at an interest rate not in excess of 15% (after giving effect
to the anticipated returns, as determined in the reasonable judgment of
Purchaser, with respect to any equity securities of the Company issued to
holders of such debt securities in connection therewith), (ii) a private
placement offering of debt securities in the aggregate principal amount of
$80 million (which will result in the Operating Company receiving gross
proceeds of not less than $80 million at an interest rate not in excess of
12% (after giving effect to the anticipated returns, as determined in the
reasonable judgment of Purchaser, with respect to any equity securities of
the Company issued to holders of such debt securities in connection
therewith), or (iii) the closing of a senior secured credit facility in the
aggregate amount of $55 million, of which at least $25 million is available
for immediate drawdown in connection with the Transactions;
(i) A nationally recognized accounting firm will have failed to deliver
to the Company a letter, in form and substance reasonably satisfactory to
Purchaser, to the effect that the Transactions will receive
recapitalization accounting treatment or such letter has been withdrawn or
modified.
13. CERTAIN LEGAL MATTERS.
Except as described in this Section, the Company is not aware of any license
or regulatory permit that appears to be material to the business of the
Company that might be adversely affected by the Offer or of any approval or
other action by a domestic or foreign governmental, administrative or
regulatory agency or authority that would be required in connection with the
Offer. Should any such approval or other action be required, the Company
presently contemplates that such approval or other action will be sought,
except as described below under "State Takeover Laws." While, except as
otherwise described in this Offer to Purchase, the Company does not presently
intend to delay the acceptance for payment of or payment for Shares tendered
pursuant to the Offer pending the outcome of any such matter, there can be no
assurance that any such approval or other action, if needed, would be obtained
or would be obtained without substantial conditions or that failure to obtain
any such approval or other action might not result in consequences adverse to
the Company's business or that certain
53
<PAGE>
parts of the Company's business might not have to be disposed of or other
substantial conditions complied with in the event that such approvals were not
obtained or such other actions were not taken or in order to obtain any such
approval or other action. If certain types of adverse action are taken with
respect to the matters discussed below, the Company could decline to accept
for payment or pay for any Shares tendered. See "--Section 12. Certain
Conditions of the Offer" for certain conditions to the Offer, including
conditions with respect to governmental actions.
State Takeover Laws. The Company conducts business in a number of other
states throughout the United States, some of which have enacted takeover laws
and regulations. The Company does not know whether any or all of these
takeover laws and regulations will by their terms apply to the Offer, and,
except as set forth above with respect to Section 203 of the DGCL, the Company
has not currently complied with any other state takeover statute or
regulation. The Company reserves the right to challenge the applicability or
validity of any state law purportedly applicable to the Offer and nothing in
this Offer to Purchase or any action taken in connection with the Offer is
intended as a waiver of such right. If it is asserted that any state takeover
statute is applicable to the Offer and an appropriate court does not determine
that it is inapplicable or invalid as applied to the Offer, the Company might
be required to file certain information with, or to receive approvals from,
the relevant state authorities, and the Company might be unable to accept for
payment or pay for Shares tendered pursuant to the Offer, or may be delayed in
consummating the Offer. In such case, the Company may not be obligated to
accept for payment or pay for any Shares tendered pursuant to the Offer. See
"--Section 2. Acceptance for Payment and Payment for Shares."
Antitrust. The Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice (the "Antitrust Division") frequently
scrutinize the legality under the antitrust laws of transactions such as
Purchaser's acquisition of Shares pursuant to the Merger Agreement. At any
time before or after Purchaser's acquisition of Shares, the Antitrust Division
or the FTC could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
acquisition of Shares pursuant to the Merger Agreement or otherwise seeking
divestiture of Shares acquired by Purchaser or divestiture of substantial
assets of Purchaser or any subsidiaries. Private parties, as well as state
governments, may also bring legal action under the antitrust laws under
certain circumstances. Based upon an examination of publicly available
information relating to the businesses in which Purchaser and the Company are
engaged, Purchaser and the Company believe that the acquisition of Shares by
Purchaser will not violate the antitrust laws. Nevertheless, there can be no
assurance that a challenge to the Offer or other acquisition of Shares by
Purchaser on antitrust grounds will not be made or, if such a challenge is
made, of the result. See "--Section 12. Certain Conditions of the Offer" for
certain conditions to the Offer, including conditions with respect to
litigation and certain governmental actions.
Federal Reserve Board Regulations. Regulations U and X (the "Margin
Regulations") of the Federal Reserve Board restrict the extension or
maintenance of credit for the purpose of buying or carrying margin stock,
including the Shares, if the credit is secured directly or indirectly by
margin stock. Such secured credit may not be extended or maintained in an
amount that exceeds the maximum loan value of all the direct and indirect
collateral securing the credit, including margin stock and other collateral.
All financing for the Offer will be structured so as to be in full compliance
with the Margin Regulations.
14. FEES AND EXPENSES.
The Company has retained MacKenzie Partners, Inc. to act as the Information
Agent and American Stock Transfer & Trust Company to act as the Depositary in
connection with the Offer. Such firms each will receive reasonable and
customary compensation for their services. The Company has also agreed to
reimburse each such firm for certain reasonable out-of-pocket expenses and to
indemnify each such firm against certain liabilities in connection with their
services, including certain liabilities under federal securities laws.
The Company will not pay any fees or commissions to any broker or dealer or
other person (other than the Information Agent) for making solicitations or
recommendations in connection with the Offer. Brokers, dealers,
54
<PAGE>
banks and trust companies will be reimbursed by the Company for customary
mailing and handling expenses incurred by them in forwarding material to their
customers.
Estimated costs and fees in connection with the Offer and Merger, all of
which are the obligation of the Company upon consummation of the Offer, are as
follows:
<TABLE>
<S> <C>
Financing and commitment costs.................................. $ 6,515,000
Legal, accounting and other professional fees................... 2,675,000
Financial advisory fees......................................... 1,980,000
Filing fees..................................................... 21,000
Printing and distribution costs................................. 200,000
Transaction Fee................................................. 2,380,000
Miscellaneous................................................... 1,969,000
-----------
Total......................................................... $15,740,000
===========
</TABLE>
15. CERTAIN INFORMATION CONCERNING PURCHASER
Purchaser. Purchaser is a Delaware entity, newly formed by Fremont Partners
for the purpose of effecting the Stock Purchase. It is not anticipated that
Purchaser will have any significant assets or liabilities or will engage in
any activities other than those incident to the Stock Purchase and the
financing thereof prior to the consummation of the Offer. The offices of
Purchaser are located at 50 Fremont Street, Suite 3700, San Francisco,
California 94105-1895.
Except as set forth in this Offer to Purchase, there have never been any
contacts, negotiations or transactions between Purchaser, any of its
affiliates or any of the persons listed on Schedule II and the Company or its
affiliates concerning a merger, consolidation or acquisition, tender offer or
other acquisition of securities, election of directors or a sale or other
transfer of a material amount of assets.
16. RECAPITALIZATION.
The Offer, the Merger and the other transactions contemplated by the Merger
Agreement will be accounted for as a recapitalization, consisting of Debt
Financing, equity investment by Purchaser of $58 million and the cancellation
of certain Shares in the Offer for the Per Share Amount and in the Merger in
exchange for the Merger Consideration.
17. MISCELLANEOUS.
The Offer is being made to all holders of Shares other than Purchaser and
the Management Stockholders with respect to 87,979 shares held or acquired
upon the exercise of 52,191 outstanding options by them. The Company is not
aware of any jurisdiction in which the making of the Offer or the tender of
Shares in connection therewith would not be in compliance with the laws of
such jurisdiction. If the Company becomes aware of any jurisdiction in which
the making of the Offer would not be in compliance with applicable law, the
Company will make a good faith effort to comply with any such law. If, after
such good faith effort, the Company cannot comply with any such law, the Offer
will not be made to (nor will tenders be accepted from or on behalf of) the
holders of Shares residing in such jurisdiction. 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 will be deemed to be made on behalf of the Company
by 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 to make any
representation on behalf of the Company not contained herein or in the Letter
of Transmittal and, if given or made, such information or representation must
not be relied upon as having been authorized.
55
<PAGE>
Pursuant to Section 13(e)(1), the Company has filed with the Commission the
Schedule 13E-4 under the Exchange Act furnishing certain additional
information with respect to the Offer. The Company has filed a statement on
Schedule 13E-3 with respect to the Offer and may file amendments to the
Schedule 13E-3. Such statements, including exhibits and any amendments
thereto, may be examined and copies may be obtained from the offices of the
Commission and Nasdaq in the manner set forth in "--Section 8. Certain
Information concerning the Company" (except that they will not be available at
regional offices of the Commission).
Global Motorsport Group, Inc.
July 13, 1998
56
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is information regarding the present directors and executive
officers of the Company and their respective ages and positions:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joseph F. Keenan....... 56 Chairman of the Board of Directors
Joseph Piazza, Sr...... 62 President, Chief Executive Officer and Director
James J. Kelly, Jr..... 47 Executive Vice President--Finance, Chief Financial Officer, Secretary and
Director
Lionel M. Allan........ 54 Director
R. Steven Fisk......... 47 Senior Vice President, Purchasing, Product Development and Operations
Dennis B. Navarra...... 43 Vice President, Administration and Assistant Secretary
Joseph P. Piazza, Jr... 32 Vice President, Sales
Frederick Saunders,
Jr. .................. 46 Vice President, Marketing
Frances Jimenez-Mora... 41 Vice President, Human Resources
</TABLE>
Joseph F. Keenan has served as Chairman of the Company since November 1997
and as a Director of the Company since July 1993. Mr. Keenan is currently in
private law practice in San Francisco, California. Mr. Keenan served as
President and Chief Executive Officer of Data East U.S.A. Inc., a privately
owned manufacturer of coin operated and home video electronic games, from 1989
to 1992. Since 1984, he has been a principal and director of Wilkes Bashford
Ltd., a specialty retailer of clothing and accessories in Northern California.
Mr. Keenan has also held the positions of President and Chief Executive
Officer at Pizza Time Theater, Inc. and Atari, Inc.
Joseph Piazza, Sr. has served as President and Chief Executive Officer since
November 1997 and as a Director of the Company since April 1996. From 1989
until October 1992, Mr. Piazza served as Executive Vice President of Lacy
Diversified industries, a privately-owned holding company, which owns Rocky
Cycle Company, a motorcycle parts and accessory distribution company. From
1975 to 1986, Mr. Piazza served as President and Chief Executive Officer of
Rocky Cycle Company.
James J. Kelly, Jr. has served as Executive Vice President, Finance of the
Company since November 1995, Vice President, Finance and Chief Financial
Officer of the Company since March 1992, Secretary of the Company since June
1992 and as a Director of the Company since July 1993. Prior to joining the
Company in March 1992, Mr. Kelly served as Vice President, Finance and Chief
Finance Officer of Canadian Marconi Company for eight years. Mr. Kelly is a
member of the American Institute of Certified Public Accountants, the
California Society of Certified Public Accountants and the Financial
Executives Institute.
Lionel M. Allan has served as a director of the Company since June 1994. For
more than five years, Mr. Allan has been President of Allan Advisors, Inc., a
board and legal consulting firm. Mr. Allan is a director and past Chairman of
the Board of KTEH Public Television Channel 54, in San Jose, California, a
director of Accom, Inc., a digital video systems company, and a director of
Catalyst Semiconductor, Inc., a semiconductor company.
R. Steven Fisk has served as Senior Vice President, Purchasing, Product
Development and Operations since November 1995. Mr. Fisk joined the Company as
Director of Purchasing in January 1986. In 1988, Mr. Fisk received additional
responsibilities in the area of product development. Prior to joining the
Company, Mr. Fisk spent 10 years in Taiwan managing the operations of Zodiac
Enterprises Ltd., one of the Company's significant vendors.
Dennis B. Navarra has served as Vice President, Administration since
November 1995. Before that, he served as Director of Administration since June
1991. Before that, he served in various senior management
SI-1
<PAGE>
positions since joining the Company in May 1984. Mr. Navarra has also served
as Assistant Secretary since August 1989. Prior to joining the Company, Mr.
Navarra was employed as a senior auditor with KPMG Peat Marwick LLP.
Joseph P. Piazza, Jr. has been with the Company since February 1998. Prior
to joining the Company, Mr. Piazza Jr. served as General Manager for Helmet
House in Calabasas Hills, California from 1996 to 1998 and was Regional
Sales/Branch Manager for Tucker Rocky Distributing from 1992 to 1996.
Frederick Saunders, Jr. has been with the Company since 1995. Mr. Saunders
joined the Company in 1995 as Associate Director of Marketing and Sales. Mr.
Saunders was promoted to Director of Marketing and Sales in July 1997 and to
Vice President, Marketing in February 1998. Prior to joining the Company, Mr.
Saunders was employed from 1979 to 1995 as Director, Corporate Marketing, for
Tab Products Co. in Palo Alto, California.
Frances Jimenez-Mora joined the Company in September 1997 as Director, Human
Resources and was promoted to Vice President, Human Resources in February
1998. Prior to joining the Company, Ms. Jimenez-Mora was employed as Regional
Human Resources Manager for Modine Aftermarket Holdings for five years.
Except between Joseph Piazza, Sr. and Joseph P. Piazza, Jr., who are father
and son, there are no family relationships among the executive officers and
directors of the Company.
SI-2
<PAGE>
SCHEDULE II
EXECUTIVE OFFICERS OF
FREMONT ACQUISITION COMPANY III, LLC
1. FREMONT ACQUISITION COMPANY III, LLC. Set forth below is the name and
present principal occupation or employment, and material occupations,
positions, offices or employments for the past five years, of each executive
officer of Fremont Acquisition Company III, LLC ("Purchaser"). Except for
Mr. Williamson, who is a citizen of the United Kingdom, each such person is a
citizen of the United States of America. The business address of each such
person is c/o Fremont Partners, L.P., Fifty Fremont Street, Suite 3700, San
Francisco, California 94105.
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION AT PURCHASER
---- --- -----------------------------
<S> <C> <C>
Robert Jaunich II............... 57 President and Chief Executive Officer
Mark N. Williamson.............. 35 Vice President and Treasurer
Kevin R. Baker.................. 37 Vice President and Secretary
</TABLE>
Robert Jaunich II has served as President and Chief Executive Officer of
Purchaser since May 1998, as a Managing Director of Fremont Partners, L.P. and
a member of FP Advisors, L.L.C. since 1996, and as a Managing Director and a
member of the Board of Directors and Executive Committee of The Fremont Group
since 1991. Prior to joining The Fremont Group in 1991, he was Executive Vice
President and a member of the Chief Executive Office of Swiss-based Jacobs
Suchard AG. Previously, he was President of Osborne Computer Corporation,
President of Sara Lee Corporation, and Executive Vice President of Memorex
Corporation. Among the various board positions he holds, Mr. Jaunich is
Chairman of the Board of Directors of Kinetic Concepts, Inc., a director of
Kerr Group, Inc., a director of CNF Transportation, Inc. and Chairman of the
Managing General Partner of Crown Pacific Partners, L.P. His previous board
associations include Coldwell Banker Corporation, Petro Stopping Centers,
L.P., Sara Lee Corporation, Douwe Egberts, The Wine Group, Brach Van Houten
Holding, Inc. and Nabob Foods.
Mark N. Williamson has served as Vice President and Treasurer of Purchaser
since May 1998 and as a Managing Director of Fremont Partners and a member of
FP Advisors, L.L.C. since 1996. Prior to joining Fremont Partners in May 1996,
Mr. Williamson served as a Managing Director at the Harvard Private Capital
Group, Inc. from August 1991. Prior to that time, he was an Associate at ESL
Partners, Inc., a private investment partnership pursuing value-oriented
investments in private and public equity and debt securities.
Kevin R. Baker has served as Vice President and Secretary of Purchaser since
May 1998 as General Counsel of Fremont Partners and a member of FP Advisors,
L.L.C. since February 1998. Prior to joining Fremont Partners in February
1998, Mr. Baker was an attorney for approximately nine years with O'Melveny &
Myers, LLP, where he was elected partner in 1997. Prior to that time, he was a
Certified Public Accountant with Arthur Andersen & Co.
SII-1
<PAGE>
ANNEX A
June 28, 1998
The Board of Directors
Global Motorsport Group, Inc.
16100 Jacqueline Court
Morgan Hill, CA 95037
Members of the Board:
We understand that Fremont Acquisition Company III, LLC ("Purchaser"), an
entity formed by Fremont Group, Inc. ("Fremont"); Global Acquisition Corp.
("Acquisition Sub"), a newly formed wholly owned subsidiary of Global
Motorsport Group, Inc. ("Global Motorsport" or the "Company"); and the Company
propose to enter into an Agreement and Plan of Merger (the "Merger
Agreement"). Capitalized terms used herein and not otherwise defined have the
meanings assigned such terms in the Merger Agreement. The Merger Agreement
provides that, subject to the terms and conditions set forth therein, (i) the
Company will make a cash tender offer to all of the stockholders of the
Company (the "Offer") for shares of the Company's common stock, par value
$0.001 per share, including the Common Stock Purchase Rights associated
therewith (the "Common Stock") for $21.75 per share (the "Per Share Amount"),
(ii) immediately prior to the consummation of the Offer, the Purchaser will
purchase from the Company 2,666,667 shares of Common Stock at a price per
share equal to the Per Share Amount (the "Share Purchase"), and (iii) under
certain circumstances as specified in the Merger Agreement, the Acquisition
Sub will merge with and into the Company (the "Merger"). Additionally, certain
stockholders of the Company that are officers of the Company (the "Management
Stockholders") have entered into a Stockholder Agreement with Purchaser
concurrently with the execution of the Merger Agreement pursuant to which,
among other things, the Management Stockholders will agree not to tender
certain of their shares in the Offer. The Merger Agreement provides that if
more than approximately 94% of the outstanding shares of Common Stock are
tendered pursuant to the Offer, shares will be purchased on a prorated basis
and, in addition to a portion of the Per Share Amount, stockholders will
retain an equity interest in the Company equal to the number of shares not
purchased as a result of such proration (the cash or combination of cash and
retained shares of Common Stock received pursuant to the Offer is referred to
herein as the "Tender Consideration"). If fewer than approximately 90%, but
greater than 51% of the outstanding shares of Common Stock are tendered
pursuant to the Offer, then the Merger will be consummated and the holders of
shares of Common Stock outstanding after the Offer (excluding the shares of
Common Stock issued pursuant to the Share Purchase and the shares of Common
Stock owned by the Management Stockholders) will receive pursuant to the
Merger a combination of cash and shares of Common Stock based on the Per Share
Amount (the combination of cash and retained shares of Common Stock received
pursuant to the Merger is referred to herein as the "Merger Consideration").
Any stockholder tendering their shares of Common Stock in the Offer will
receive at least approximately 92% of their Tender Consideration in cash and
no more than approximately 8% of their Tender Consideration in retained shares
of Common Stock.
You have requested our opinion as to the fairness, from a financial point of
view, to the holders (the "Stockholders") of the Common Stock (other than the
Purchaser and the Management Stockholders) of the Tender Consideration and the
Merger Consideration. In connection with this opinion, we have:
(i) Reviewed the financial terms and conditions of the Merger Agreement
as set forth in draft Merger Agreement dated June 28, 1998;
(ii) Analyzed certain historical business and financial information
relating to the Company;
(iii) Reviewed various financial forecasts and schedules and other data
provided to us by the Company;
(iv) Reviewed and discussed the business and prospects of Global
Motorsport and its subsidiaries with representatives of the Global
Motorsport's management;
A-1
<PAGE>
Global Motorsport Group, Inc.
June 28, 1998
Page 2
(v) Reviewed public information with respect to certain other companies
in lines of business we believed to be generally comparable to the business
of the Company;
(vi) Reviewed the historical prices and trading volumes of the Common
Stock;
(vii) Calculated the unleveraged after-tax discounted cash flow of the
Company;
(viii) Calculated the range of values a financial investor might be
willing to pay to acquire all or, as in the case of the Merger or other
recapitalization transactions, a controlling and substantial portion of the
Company's equity if it were interested in pursuing such a transaction;
(ix) Computed the present value of future hypothetical implied trading
values based upon earnings estimates provided by the Company;
(x) Compared the purchase price premium to be paid for the Common Stock
to premiums paid in certain other transactions in lines of business we
believe to be generally comparable to the business of the Company; and
(xi) Considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that we deemed
appropriate.
In connection with our review, we have not assumed any responsibility for or
independently verified any of the foregoing information and have relied on
such information being complete and accurate in all material respects. We have
not made an independent evaluation or appraisal of any assets or liabilities
(contingent or otherwise) of Global Motorsport or any of its subsidiaries, nor
have we been furnished with any such evaluation or appraisal that has not been
publicly disclosed. With respect to the financial plans, estimates and
analyses provided to us by Global Motorsport, we have assumed, with your
permission, that all such information was reasonably prepared on a basis
reflecting the best currently available estimates and judgments of management
of Global Motorsport as to future financial performance of the Company, based
upon the historical performance of the Company and certain estimates and
assumptions which were reasonable at the time made. We have also assumed, at
your direction, that the number of shares of Common Stock to be retained by
the Management Stockholders after the consummation of the Merger, or if the
Merger is not consummated, then after the consummation of the Offer, will not
exceed 125,000 shares of Common Stock. Finally, we have assumed that the
executed Merger Agreement will be in the same form as the draft Merger
Agreement reviewed by us, and that the Merger will be consummated on the terms
described in the Merger Agreement, without any waiver of any material term or
condition, and that obtaining any necessary regulatory or third party approval
for the Merger will not have an adverse effect on the Company. Our opinion is
based on economic, monetary and market conditions existing on the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Tender Consideration to be received by the Stockholders
pursuant to the Offer and/or the Merger Consideration to be received by the
Stockholders pursuant to the Merger (other than the Purchaser and the
Management Stockholders) is fair, from a financial point of view, to such
Stockholders.
We are acting as financial advisor to the Board of Directors of the Company
in this transaction and will receive a fee for our services, a significant
portion of which is contingent upon the approval and consummation of the
transaction. Our firm has in the past provided investment banking services to
the Company and has received fees for rendering such services. In the ordinary
course of business, we actively trade the Common Stock for our own account and
for the accounts of our customers and, accordingly, may at any time hold a
long or short position in the Common Stock. We currently make a market in the
Common Stock on the Nasdaq National Market.
A-2
<PAGE>
Global Motorsport Group, Inc.
June 28, 1998
Page 3
This opinion is for the use and benefit of the Board of Directors of Global
Motorsport and is rendered to the Board of Directors of Global Motorsport in
connection with its consideration of the Offer and the Merger and shall not be
used for any purpose or disclosed to any other party without our prior written
consent; provided, however, that this letter may be reproduced in full, and
may be described and referred to in a form reasonably acceptable to us and our
counsel, in the tender offer materials and proxy or information statement to
be filed with the Securities and Exchange Commission and provided to the
Stockholders in connection with the Offer and the Merger, respectively. We are
not making any recommendation regarding whether or not it is advisable for
Stockholders to tender their shares of Common Stock in the Offer or vote their
shares of Common Stock in favor of the Merger. We have not been requested to
opine as to, and our opinion does not in any manner address, the Company's
underlying business decision to proceed with or effect the Offer or Merger.
Very truly yours,
/s/ Cleary Gull Reiland & McDevitt Inc.
Cleary Gull Reiland & McDevitt Inc.
A-3
<PAGE>
ANNEX B
SECTION 262 OF THE
GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE
262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S)228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of
a nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or
more shares, or fractions thereof, solely of stock of a corporation, which
stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
(S)251(g) of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of
this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, 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 or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
B-1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior
to the meeting, shall notify each of its stockholders who was such on
the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsections (b) or (c)
hereof that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such notice a
copy of this section. Each stockholder electing to demand the appraisal
of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal
of his shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A
proxy or vote against the merger or consolidation shall not constitute
such a demand. A stockholder electing to take such action must do so by
a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall include in
such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to
all such holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may,
and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective
date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation
the appraisal of such holder's shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation,
either (i) each such constituent corporation shall send a second notice
before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the effective date
of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection.
An affidavit of the secretary or assistant secretary or of the transfer
agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining
the stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more
than 10 days prior to the date the notice is given; provided, that if
B-2
<PAGE>
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement
setting forth the aggregate number of shares not voted in favor of the
merger or consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the stockholders
shown on the list at the addresses therein stated. Such notice shall also
be given by 1 or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining
such fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of
the proceeding. Upon application by the surviving or resulting corporation
or by any stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder
whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
B-3
<PAGE>
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation
to the stockholders entitled thereto. Interest may be simple or compound,
as the Court may direct. Payment shall be so made to each such stockholder,
in the case of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this
State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed
within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a
written withdrawal of his demand for an appraisal and an acceptance of the
merger or consolidation, either within 60 days after the effective date of
the merger or consolidation as provided in subsection (e) of this section
or thereafter with the written approval of the corporation, then the right
of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be
dismissed as to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation. (Last
amended by Ch.120, L. '97, eff. 7-1-97.)
B-4
<PAGE>
ANNEX C
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Global Motorsport Group, Inc.
We have audited the balance sheets of Global Motorsport Group, Inc. (the
Company) and subsidiaries as of January 31, 1998 and 1997 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three year period ended January 31, 1998. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Global
Motorsport Group, Inc. and subsidiaries as of January 31, 1998, and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended January 31, 1998, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Mountain View, California
March 20, 1998
C-1
<PAGE>
GLOBAL MOTORSPORT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31,
----------------
1998 1997
-------- -------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................................... $ 1,432 $ 40
Accounts receivable, net.................................... 12,958 11,349
Merchandise inventories..................................... 66,338 49,522
Deferred income taxes....................................... 3,079 1,334
Prepaid income taxes........................................ 1,926 2,378
Deposits and prepaid expenses............................... 2,614 2,851
-------- -------
Total current assets...................................... 88,347 67,474
Property and equipment, net................................... 18,408 15,802
Other assets.................................................. 35,327 8,221
-------- -------
$142,082 $91,497
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt and capital lease
obligations................................................ $ 4,176 $ 3,293
Bank borrowings............................................. 13,741 4,878
Accounts payable............................................ 6,757 4,600
Accrued expenses and other liabilities...................... 4,775 1,912
-------- -------
Total current liabilities................................. 29,449 14,683
Long-term debt and capital lease obligations.................. 52,302 16,154
Deferred income taxes......................................... 988 817
Shareholders' equity:
Common stock, $.001 par value; 20,000,000 shares authorized;
5,358,312 and 5,082,312 shares issued and outstanding
as of January 31, 1998 and 5,290,189 issued and outstanding
as of January 31, 1997..................................... 5 5
Additional paid-in capital.................................. 28,977 31,760
Retained earnings........................................... 30,361 28,078
-------- -------
Total shareholders' equity................................ 59,343 59,843
Commitments and contingencies
-------- -------
$142,082 $91,497
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
C-2
<PAGE>
GLOBAL MOTORSPORT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Sales, net........................................... $122,725 $108,557 $93,906
Cost of sales........................................ 77,716 64,834 54,779
-------- -------- -------
Gross profit....................................... 45,009 43,723 39,127
Operating expenses:
Selling, general and administrative................ 33,114 27,039 23,522
Provision for benefits related to employment
agreement......................................... 3,127 -- --
Product development................................ 1,407 1,723 1,652
-------- -------- -------
37,648 28,762 25,174
-------- -------- -------
Operating income................................... 7,361 14,961 13,953
Interest expense..................................... 2,964 1,915 1,637
-------- -------- -------
Income before income taxes......................... 4,397 13,046 12,316
Income taxes......................................... 2,114 5,174 4,395
-------- -------- -------
Net income......................................... $ 2,283 $ 7,872 $ 7,921
======== ======== =======
Net income per share (basic)......................... $ 0.45 $ 1.49 $ 1.57
======== ======== =======
Net income per share (diluted)....................... $ 0.44 $ 1.48 $ 1.52
======== ======== =======
Shares used in per share calculation
Basic.............................................. 5,094 5,272 5,048
Diluted............................................ 5,233 5,327 5,209
</TABLE>
See accompanying notes to consolidated financial statements.
C-3
<PAGE>
GLOBAL MOTORSPORT GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance as of January 31, 1995..... 5,001 $ 5 $26,283 $12,285 $38,573
Exercise of stock options.......... 89 -- 1,478 -- 1,478
Net income......................... -- -- -- 7,921 7,921
----- --- ------- ------- -------
Balance as of January 31, 1996..... 5,090 $ 5 $27,761 $20,206 $47,972
----- --- ------- ------- -------
Exercise of stock options.......... 200 -- 3,999 -- 3,999
Net income......................... -- -- -- 7,872 7,872
----- --- ------- ------- -------
Balance as of January 31, 1997..... 5,290 $ 5 $31,760 $28,078 $59,843
----- --- ------- ------- -------
Exercise of stock options.......... 68 -- 705 -- 705
Repurchase of common stock......... (276) -- (3,488) -- (3,488)
Net income......................... -- -- -- 2,283 2,283
----- --- ------- ------- -------
Balance as of January 31, 1998..... 5,082 $ 5 $28,977 $30,361 $59,343
===== === ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
C-4
<PAGE>
GLOBAL MOTORSPORT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 2,283 $ 7,872 $ 7,921
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization................. 3,087 1,896 1,612
Deferred income taxes......................... (1,575) 1,031 (749)
Changes in items affecting operations:
Accounts receivable......................... 1,409 (1,820) (1,221)
Merchandise inventories..................... (6,572) 1,643 (26,923)
Deposits and prepaid expenses............... 932 (956) (2,021)
Accounts payable, accrued expenses and other
liabilities................................ 4,848 (143) 1,589
-------- ------- --------
Net cash provided (used) by operating
activities............................... 4,412 9,523 (19,792)
-------- ------- --------
Cash flows from investing activities:
Purchase of intangible assets in connection with
acquisition.................................... (26,889) -- --
Purchase of equipment in connection with
acquisition.................................... (770) -- --
Purchase of net assets in connection with
acquisition.................................... (13,333) -- --
Acquisition costs............................... (1,147) -- --
Additions to property and equipment............. (3,992) (3,601) (4,659)
-------- ------- --------
Net cash used by investing activities..... (46,131) (3,601) (4,659)
-------- ------- --------
Cash flows from financing activities:
Bank borrowings, net............................ 8,863 (9,888) 14,366
Issuance of long-term debt...................... 53,500 375 276
Repayment of long-term debt and capital lease
obligations.................................... (16,469) (680) (314)
Repurchase of common stock...................... (3,488) -- --
Issuance of common stock........................ 705 3,999 1,478
-------- ------- --------
Net cash provided (used) by financing
activities............................... 43,111 (6,194) 15,806
-------- ------- --------
Net change in cash and cash equivalents... 1,392 (272) (8,645)
Cash and cash equivalents at beginning of year.. 40 312 8,957
-------- ------- --------
Cash and cash equivalents at end of year........ $ 1,432 $ 40 $ 312
======== ======= ========
Supplemental disclosures:
Cash paid during the year:
Interest...................................... $ 3,009 $ 2,110 $ 1,758
======== ======= ========
Income taxes.................................. $ 3,370 $ 4,493 $ 5,148
======== ======= ========
Noncash investing and financing activities:
Equipment acquired under capital leases....... $ -- $ 375 $ --
======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
C-5
<PAGE>
GLOBAL MOTORSPORT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Global Motorsport Group, Inc., formerly Custom Chrome, Inc., (the Company)
is engaged in the development, manufacture, and wholesale distribution of
aftermarket parts and accessories for Harley-Davidson motorcycles.
The accompanying consolidated financial statements include the Company and
its wholly owned subsidiaries. All intercompany transactions have been
eliminated.
(a) Cash and cash equivalents
The Company considers all highly liquid investments with original maturities
of 3 months or less to be cash equivalents.
(b) Revenue Recognition
The Company recognizes revenue when products are shipped. Export sales
represented 17%, 19%,and 20%, of net sales for the years ended January 31,
1998, 1997 and 1996, respectively.
(c) Merchandise Inventories
Merchandise inventories are stated at the lower of first-in, first-out cost
or market. The Company continually evaluates and adjusts the overhead
components of inventory, as necessary.
(d) Advertising
The Company expenses the costs of advertising the first time the advertising
takes place except for direct response advertising which is capitalized and
amortized over periods not exceeding one year.
(e) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Assets under capital leases are stated at the present value of minimum lease
payments at the inception of the lease. Depreciation is provided over the
estimated useful lives of the respective assets, generally 5 to 30 years, on a
straight-line basis. Amortization of assets under capital leases and leasehold
improvements is calculated using the straight line method over the lesser of
the estimated useful life of the asset or the term of the respective leases.
(f) Other Assets
Other assets consist primarily of goodwill arising from the application of
purchase accounting. Goodwill is amortized on a straight-line basis over its
estimated useful lives which range from 25 to 40 years. Management assesses
the carrying value of other assets annually by reference to the operating
performance and projected future cash flows.
(g) Impairment of Long-Lived Assets
The Company periodically reviews its long-lived assets and certain
identifiable intangibles for impairment. If events or changes indicate that
the carrying amount of an asset may not be recoverable, the Company will
reduce the amount of the asset determined not to be recoverable.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
C-6
<PAGE>
(i) Per Share Data
Effective for the year ended January 31, 1998, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share (EPS).
This statement requires that presentation of both primary and diluted EPS be
shown on the face of the income statement. Basic EPS excludes dilution and is
computed by dividing net income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
EPS includes dilution and net income per share is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. Common equivalent shares include the effect of the exercise
of stock options. All prior period EPS have been restated. The adoption of
this new accounting standard did not have a material effect on the Company's
reported EPS amounts.
(j) Stock Option and Stock Purchase Plan Accounting
Prior to February 1, 1996, the Company accounted for its stock option plans
in accordance with Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, together with its related
interpretations. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded the
exercise price. On February 1, 1996 the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, which permits the Company to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 allows the Company to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma net income per share disclosures for stock option grants and stock
purchase plan purchases made in 1996 and future years as if the fair-value-
based method defined in SFAS No. 123 was applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123.
(k) Treasury Stock
Treasury stock is reported at par value and constructively retired. The
excess of fair value over par value is first charged to paid-in-capital, if
any, and then to retained earnings.
(l) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) CHROME SPECIALTIES, INC. ACQUISITION
On September 16, 1997, the Company acquired substantially all the assets and
assumed certain liabilities of Chrome Specialties, Inc. ("CSI") for $38.5
million. CSI is based in Dallas, Texas, and is engaged in the wholesale
distribution of aftermarket parts and accessories for Harley Davidson
motorcycles. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of CSI subsequent to
the acquisition date have been included in the Company's consolidated
financial statements.
The excess of the purchase price over the fair value of assets acquired is
being amortized on a straight line basis over 25 years.
C-7
<PAGE>
The following unaudited pro forma financial information presents the
combined of operations of the Company and CSI as if the acquisition had
occurred as of the beginning of 1998 and 1997, after giving effect to certain
expenses, increased interest on debt, and related income tax effects. The pro
forma financial information does not necessarily reflect the results of
operations that would have occurred had the Company and CSI constituted a
single entity during such periods.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------
1998 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Net sales......................................... $ 146,694 $ 142,378
Net income........................................ $ 2,681 $ 8,378
Net income per share, basic....................... $ 0.53 $ 1.59
Net income per share, diluted..................... $ 0.51 $ 1.57
</TABLE>
(3) ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
JANUARY 31,
---------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Trade accounts receivable................................. $13,667 $11,852
Less allowance for doubtful accounts...................... 709 503
------- -------
$12,958 $11,349
======= =======
</TABLE>
(4) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
JANUARY 31,
---------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Trade accounts receivable................................. $13,830 $11,852
Land...................................................... 1,402 1,402
Buildings and improvements................................ 10,182 9,764
Machinery and equipment................................... 15,585 11,357
Vehicles.................................................. 1,268 1,255
------- -------
28,710 23,778
Less accumulated depreciation............................. 10,302 7,976
------- -------
$18,408 $15,802
======= =======
</TABLE>
(5) OTHER ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
--------------
1998 1997
------- ------
(IN THOUSANDS)
<S> <C> <C>
Goodwill................................................... $35,923 $9,679
Other...................................................... 2,037 282
------- ------
37,960 9,961
Less accumulated amortization.............................. 2,633 1,740
------- ------
$35,327 $8,221
======= ======
</TABLE>
(6) BANK BORROWINGS
The Company has a $53.5 million term loan and a $20 million line of credit,
with its bank. The loan and line of credit are secured by the assets of the
Company and the loan expires in August 2002. Borrowings bear
C-8
<PAGE>
interest, payable monthly, at a floating rate which at present is LIBOR plus
1.75%. In addition the Company has converted a portion of the term loan into a
fixed rate debt utilizing swaps which have interest rates on the various
tranches ranging from 8.13% to 8.24%.
The credit agreement covering the working capital line contains covenants,
including the maintenance of a minimum current ratio, indebtedness to earnings
ratio, pricing leverage ratio, as well as cash flow and profitability
requirement. As of January 31, 1998, the Company was in compliance with such
covenants or had received waivers from the lender with respect to non-
compliance.
As of January 31, 1998, the Company was contingently liable for issued and
open letters of credit to foreign vendors aggregating approximately $11,000.
In order to hedge future commitments, the Company enters into contracts with
its bank to buy foreign currencies at fixed forward exchange rates. As of
January 31, 1998 there were $2,200,000 foreign currency contracts outstanding.
(7) ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
JANUARY 31,
---------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Payroll-related expenses.................................... $ 3,725 $ 1,086
Other....................................................... 1,050 826
------- -------
$ 4,775 $ 1,912
======= =======
</TABLE>
(8) LONG-TERM DEBT
<TABLE>
<CAPTION>
JANUARY 31,
---------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
7.47% to 8.24% term loan due in quarterly installments
ranging from $975,000 in the fiscal year ended January 31,
1999 to $2,050,000 in the fiscal quarter ending July 31,
2002. Final installment of $25,000,000 due August 31,
2002....................................................... $53,500 --
8.01% senior secured notes, retired in 1998................. -- $15,000
7.31% mortgage loan, payable in semi-annual installments of
$100,153 through June 2011................................. 2,704 2,904
10.625% mortgage loan, retired in 1998...................... -- 1,217
Capital lease obligations and other......................... 274 326
------- -------
Long-term debt.............................................. 56,478 19,447
Less current maturities..................................... 4,176 3,293
------- -------
Long-term debt, excluding current maturities................ $52,302 $16,154
======= =======
</TABLE>
The aggregate maturities of long-term debt for the years subsequent to
January 31, 1999 are as follows: 2000, $6,250,000; 2001, $7,050,000; 2002,
$7,950,000; 2003, $29,348,000; thereafter $1,704,000.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
Except for long term debt, the amounts recorded for financial instruments in
the Company's consolidated financial statements approximate fair value as
defined in Financial Accounting Standards Board Statement No. 107. The fair
value of long term debt is estimated by discounting the future cash flows of
each instrument at rates currently offered to the Company for debt instruments
of comparable maturities by the Company's bankers. At January 31, 1998 and
1997 the fair value of long term debt exceeded the amounts recorded in the
Company's consolidated financial statements by approximately $1,073,000 and
$390,000, respectively.
C-9
<PAGE>
(10) INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Year ended January 31, 1998
Federal.......................................... $3,074 $(1,290) $1,784
State and local.................................. 614 (284) 330
------ ------- ------
$3,688 $(1,574) $2,114
====== ======= ======
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Year ended January 31, 1997
Federal.......................................... $3,412 $ 803 $4,215
State and local.................................. 731 228 959
------ ------- ------
$4,143 $ 1,031 $5,174
====== ======= ======
Year ended January 31, 1996:
Federal.......................................... $4,631 $ (520) $4,111
State and local.................................. 513 (229) 284
------ ------- ------
$5,144 $ (749) $4,395
====== ======= ======
</TABLE>
Included in current income tax expense for the years ended January 31, 1997
and 1996, is the effect of compensation expense for tax purposes in excess of
amounts reported for financial statement purposes of $709,000, and 369,000,
respectively.
Income tax expense for the years ended January 31, 1998, 1997, and 1996,
differed from the amounts computed by applying the Federal income tax rate of
35% to pretax income as a result of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense......................... $1,539 $4,566 $4,311
Increase (reduction) in income taxes resulting from:
State and local taxes, net of federal tax benefit..... 214 636 158
Amortization of goodwill.............................. 93 104 96
Effect of graduated income tax rate................... (87) (100) (100)
Effect of foreign net operating loss carryforward..... -- (101) --
Other, net............................................ 355 69 (70)
------ ------ ------
$2,114 $5,174 $4,395
====== ====== ======
</TABLE>
C-10
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
JANUARY 31,
---------------
1998 1997
------- ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts.......................................... $ 362 $ 209
Inventories, principally due to additional costs inventoried
for tax purposes in excess of amounts for financial
reporting purposes......................................... 1,143 513
Bonuses and compensated absences, principally due to accrual
for financial reporting purposes........................... 1,441 337
State income taxes.......................................... 128 171
Accrued liabilities and other deferred assets............... 18 11
Foreign net operating loss carryforwards.................... 105 105
State enterprise zone credit carry forwards................. 37 37
------- ------
Total deferred tax assets..................................... 3,234 1,383
------- ------
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation............................................... (857) (668)
State income taxes.......................................... (198) (198)
Goodwill, principally due to differences in amortization
period..................................................... (88) --
------- ------
Total deferred tax liabilities................................ (1,143) (866)
------- ------
Net deferred tax assets....................................... $ 2,091 $ 517
======= ======
</TABLE>
Based on the Company's historical operating earnings, management believes it
is more likely than not that the Company will realize the benefit of the
deferred income tax asset recorded, and accordingly, has established no
valuation allowance. Certain factors beyond management's control can affect
future levels of taxable income, and therefore, no assurances can be given
that sufficient taxable income will be generated to fully realize recorded tax
benefits.
In March 1996 the Company received a Notice of Deficiency from the Internal
Revenue Service (IRS) arising out of an examination of its income tax returns
for the years ended January 31, 1992, 1993 and 1994. The Notice asserted that
the Company had underpaid its income taxes in those years by approximately
$4.3 million due to the IRS disallowance of deductions primarily for
compensation related issues. Based on the advice of outside tax counsel, the
Company has petitioned the U.S. Tax Court for a redetermination of these
alleged deficiencies citing numerous errors in the IRS's allegations. In
addition, the Company has asserted that it is due additional tax deductions
totaling at least $3.1 million in the tax periods which were examined. While
the outcome of this matter cannot be predicted with certainty, management
believes, based on their review and the opinion of outside experts, that any
liability resulting from this proceeding is not reasonably likely to have a
material effect on the Company's liquidity, financial condition or results of
operations. In February 1997 the Company received a Notice of Personal
Assessment related to the same compensation related issues in its tax returns
for the years ended January 31, 1995 and 1996. In March 1998, the Company was
notified by the IRS that it had revised its position with respect to the
matters contained in the Notice of Proposed Assessment and would not be
issuing an assessment for the years ended January 31, 1995 and 1996.
C-11
<PAGE>
(11) SHAREHOLDERS' EQUITY
(a) Common Stock
The Company has reserved an aggregate of 1,576,000 shares of common stock
for issuance under its 1991, 1995, and 1997 Stock Option Plans. Under these
plans, the Company may issue options to purchase shares of common stock to
eligible employees, officers, directors, independent contractors and
consultants at prices determined by the Board of Directors on the grant date.
Options can be granted for terms of up to ten years and vesting will be set by
the Board of Directors.
Details of stock option activity under these plans are as follows:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED- WEIGHTED-AVERAGE
AVERAGE AVERAGE OPTIONS FAIR VALUE OF
OPTION EXERCISE GRANT DATE EXERCISABLE OPTIONS GRANTED
OUTSTANDING PRICE FAIR VALUE* AT YEAR END DURING YEAR
----------- --------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
January 31, 1996........ 756,159 17.596 247,956 $7.692
======= ======
Granted............... 360,365 18.367 $7.312
======
Exercised............. (199,804) 16.369
Canceled or expired... (53,490) 19.625
----------
January 31, 1997........ 863,230 18.076 328,613 $7.312
======= ======
Granted............... 1,976,939 12.00 $3,427
======
Exercised............. (67,604) 11.742
Canceled or expired... (1,726,872) 15.019
----------
January 31, 1998........ 1,045,693 12.009 207,020 $3.427
========== ======= ======
Shares available for
future grant........... 110,000
==========
</TABLE>
- --------
* Fair value assumptions: BLACK-SCHOLES OPTION-PRICING MODEL
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE AVERAGE DIVIDEND
RISK FREE RATE EXPECTED LIFE VOLATILITY YIELD
---------------- ------------- ---------- -----
<S> <C> <C> <C> <C>
1996......................... 6.79% 3.00 50% 0%
1997......................... 6.31% 3.00 50% 0%
1998--Granted................ 6.97% 3.00 50% 0%
--Repriced............... 6.49% 3.00 50% 0%
</TABLE>
The following table summarizes information about the Company's stock options
outstanding at January 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
AT 1/31/98 CONTRACTUAL LIFE EXERCISE PRICE AT 1/31/98 EXERCISE PRICE
----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$10.00.................. 3,248 4.39 $10.000 3,248 $10.000
$11.75--$16.00.......... 1,024,445 9.44 11.850 194,681 11.75
$18.00--$26.00.......... 18,000 7.91 21.690 9,091 22.14
--------- ---- ------- ------- -------
$10.00--$26.00.......... 1,045,693 9.39 $12.010 207,020 $ 12.18
========= ==== ======= ======= =======
</TABLE>
C-12
<PAGE>
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the Company's shareholders
in September, 1996. A total of 150,000 shares of common stock are reserved for
issuance under the Purchase Plan. The Purchase Plan is administered by the
Board of Directors. The Purchase Plan permits eligible employees, as defined,
to purchase common stock through payroll deductions, which may not exceed 15%
of the employee's base compensation. No employee may purchase more than
$25,000 worth of stock in any calendar year. The price of shares purchased
under the Purchase Plan is 85% of the lower of the fair market value of the
common stock on (i) the first day of the offering period; or (ii) the last day
of the offering period. Employees may end their participation in the offering
at any time during the offering period, and participation ends automatically
on termination of employment with the Company. In March 1998 and 1997
employees purchased 8,015 and 8,280 shares, respectively under this plan.
The Company applies APB Opinion No. 25 in accounting for its various stock
option plans and Employee Stock Purchase Plan (the "stock plans").
Accordingly, no compensation cost has been recognized for the stock plans.
However, if the Company had determined compensation costs pursuant to SFAS No.
123 for its stock plans, the Company's net income and net income per share
would have been reduced to the pro forma amounts indicated below for the years
noted:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C> <C>
Net income............................... As reported $2,283 $7,872 $7,921
====== ====== ======
Pro forma $1,275 $7,132 $7,484
====== ====== ======
Net income per share, basic.............. As reported $ 0.45 $ 1.49 $ 1.57
====== ====== ======
Pro forma $ 0.25 $ 1.35 $ 1.48
====== ====== ======
Net income per share, diluted............ As reported $ 0.44 $ 1.48 $ 1.52
====== ====== ======
Pro forma $ 0.24 $ 1.34 $ 1.44
====== ====== ======
</TABLE>
Pro forma net income reflects only options granted in 1996 through 1998.
Therefore the full impact of calculating compensation cost for the Company's
stock option plans under SFAS No. 123 is not reflected in the pro forma net
income amounts presented above as compensation cost is reflected over a stock
options' vesting period and compensation cost for options granted prior to
February 1, 1995 is not considered.
In October 1996 the Board of Directors authorized the repurchase of up to
the 300,000 common shares of the Company in the open market. In April and May
of 1997 the Company repurchased 276,000 common shares for $3,488,000.
(b) Preferred Stock
The Company has the authority to issue up to 1,000,000 shares of preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions of the shares, including dividend rights, voting rights, terms of
redemption and liquidation preferences. There are no shares of preferred stock
outstanding.
(c) Preferred Share Purchase Rights
In November 1996 the Board of Directors declared a dividend distribution on
November 13, 1996 of one Preferred Shares Purchase Right on each outstanding
share of the Company's Common Stock. Each Right will entitle stockholders to
buy 1/1000th share of the Company's Series A Participating Preferred Stock at
an exercise price of $80.00. The Board of Directors has initially reserved
100,000 shares for issuance upon exercise of the Rights. The Rights will
become exercisable following the tenth day after a person or group announces
acquisition of 15% or more of the Company's Common Stock or announces
commencement of a tender offer the consummation of which would result in
ownership by the person or group of 15% or more of the Common Stock.
C-13
<PAGE>
The Company will be entitled to redeem the Rights at $.01 per Right at any
time on or before the tenth day following acquisition by a person or group of
15% or more of the Company's Common Stock.
If, prior to redemption of the Rights, a person or group acquires 15% or
more of the Company's Common Stock, each Right not owned by a holder of 15% or
more of the Common Stock will entitle its holder to purchase, at the Right's
then current exercise price, that number of shares of Common Stock of the
Company (or, in certain circumstances as determined by the Board, cash, other
property or other securities) having a market value at that time of twice the
Right's exercise price. If, after the tenth day following acquisition by a
person or group of 15% or more of the Company's Common Stock, the Company
sells more than 50% of its assets or earning power or is acquired in a merger
or other business combination transaction, the acquiring person must assume
the obligations under the Rights and the Rights will become exercisable to
acquire Common Stock of the acquiring person at the discounted price. At any
time after an event triggering exercisability of the Rights at a discounted
price and prior to the acquisition by the acquiring person of 50% or more of
the outstanding Common Stock, the Board of Directors of the Company may
exchange the Rights (other than those owned by the acquiring person or its
affiliates) for Common Stock of the Company at an exchange ratio of one share
of Common Stock per Right.
(12) COMMITMENTS AND CONTINGENCIES
(a) Bonus Agreements
The Company has an agreement with the past Chairman, President and Chief
Executive Officer, who was terminated as an employee on November 5, 1997,
which provides for a bonus ranging from 3 to 5% of operating income, as
adjusted. The agreement terminates when $6,093,000 has been paid or the
officer voluntarily resigns or is terminated for cause. As of January 31,
1998, $3,127,000 has been accrued under this agreement for potential future
payments.
The Company also has a bonus agreement with a consultant which provides for
annual payments based upon defined operating results up to a limit of
$2,031,000. As of January 31, 1998, $1,421,000 remains to be paid or accrued
under this agreement.
Both of these agreements provide for a lump-sum payment, less amounts
already paid, in the event that the Company sells all or substantially all of
its assets.
(b) Operating Leases
The Company leases certain facilities and equipment under noncancelable
operating leases. Certain facilities leases include renewal options and rent
escalation clauses to reflect changes in price indices, real estate taxes and
maintenance costs. Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31, (IN THOUSANDS)
----------------------- --------------
<S> <C>
1999....................................................... $1,834
2000....................................................... 1,701
2001....................................................... 1,392
2002....................................................... 1,260
2003....................................................... 416
Thereafter................................................. 2,190
</TABLE>
Rental expense under operating leases for the years ended January 31, 1998,
1997 and 1996 was $1,836,000, $1,150,000 and $1,183,000, respectively.
C-14
<PAGE>
(c) Litigation
The Company is involved in potential claims or legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
resolution of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
(13) NUMBER OF SHARES PER SHARE COMPUTATION
There was no adjustment to net income for purposes of computing net income
per share. The following table reconciles the number of shares used in the
basic net income per share computation and the number of shares used in the
diluted net income per share computation:
<TABLE>
<CAPTION>
JANUARY 31,
-----------------
1998 1997 1996
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Basic:
Weighted average common shares used in computing basic
net income per share.................................... 5,094 5,272 5,048
Diluted:
Weighted average common shares outstanding............... 5,094 5,272 5,048
Diluted options outstanding.............................. 139 55 161
----- ----- -----
Shares used in computing diluted net income per share.... 5,233 5,327 5,209
===== ===== =====
</TABLE>
Options to purchase shares of common stock were outstanding during each of
the three fiscal years ended January 31, 1998, 1997, and 1996 which were not
included in the computation of diluted net income (loss) per share because the
options' exercise price's were greater than the average market price of the
common shares. Excluded shares for each year are as follows:
<TABLE>
<CAPTION>
EXCLUDED
OPTIONS EXERCISE PRICE
-------- ---------------
<S> <C> <C>
Year ended January 31,
1998............................................ 18,000 $18.00 - $26.00
1997............................................ 133,500 $22.50 - $26.00
1996............................................ 7,500 $ - $26.00
</TABLE>
Common stock in the amount of 71,409 shares was issued in the quarter
following the fiscal year end under the Company's stock options plans.
C-15
<PAGE>
(14) UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1998
--------------------------------------
THREE MONTHS ENDED
APRIL 30 JULY 31 OCTOBER 31 JANUARY 31
-------- ------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales, net.............................. $31,707 $32,297 $30,450 $28,270
------- ------- ------- -------
Gross profit............................ 11,166 12,333 10,952 9,888
------- ------- ------- -------
Operating income/(loss)................. 4,306 4,642 962 (2,550)
------- ------- ------- -------
Net income/(loss)....................... $ 2,343 $ 2,524 $ 82 $(2,667)
------- ------- ------- -------
Basic net income (loss) per share....... $ 0.45 $ 0.50 $ 0.20 $ (0.53)
------- ------- ------- -------
Diluted net income (loss) per share..... $ 0.45 $ 0.49 $ 0.02 $ (0.52)
======= ======= ======= =======
<CAPTION>
1997
--------------------------------------
THREE MONTHS ENDED
APRIL 30 JULY 31 OCTOBER 31 JANUARY 31
-------- ------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales, net.............................. $30,627 $30,357 $26,193 $21,380
------- ------- ------- -------
Gross profit............................ 11,612 12,224 10,454 8,053
------- ------- ------- -------
Operating income........................ 5,668 5,021 3,104 1,168
------- ------- ------- -------
Net income.............................. $ 3,008 $ 2,776 $ 1,574 $ 514
------- ------- ------- -------
Basic net income per share.............. $ 0.59 $ 0.54 $ 0.30 $ 0.10
------- ------- ------- -------
Diluted net income per share............ $ 0.58 $ 0.52 $ 0.30 $ 0.10
======= ======= ======= =======
</TABLE>
(15) SUBSEQUENT EVENT
On March 23, 1998 the Company received a written proposal from Golden Cycle,
L.L.C. ("Golden") for a business combination between Golden and the Company in
which Golden Cycle proposed that the Company's shareholders would receive cash
consideration of $18.00 per share. Shortly thereafter Golden Cycle commenced a
tender offer for all the issued and outstanding shares of the Company for
$18.00 per share. In addition Golden Cycle commenced a consent solicitation to
remove the current Board of Directors and replace them with Directors selected
by Golden Cycle. Golden Cycle and a number of third parties have filed
lawsuits in connection with the abovementioned tender offer and consent
solicitation. The Company has retained investment and legal advisors to advise
it in connection with the tender offer, consent solicitation and lawsuits as
well as to explore other acquisition proposals and other alternatives.
C-16
<PAGE>
ANNEX D
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GLOBAL MOTORSPORT GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
APRIL JANUARY 31,
30, 1998 1998
-------- -----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents............................... $ 72 $ 1,432
Accounts receivable, net................................ 16,194 12,958
Merchandise inventories................................. 64,677 66,338
Deferred income taxes................................... 3,111 3,079
Prepaid income taxes.................................... 1,076 1,926
Deposits and prepaid expenses........................... 2,886 2,614
-------- --------
88,016 88,347
Property and equipment, net............................. 19,162 18,408
Other assets............................................ 35,128 35,327
-------- --------
$142,306 $142,082
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt and capital lease
obligations............................................ $ 4,160 $ 4,176
Bank borrowings......................................... 6,600 13,741
Accounts payable........................................ 9,350 6,757
Accrued expenses and other liabilities.................. 6,794 4,775
-------- --------
26,904 29,449
Long-term debt and capital lease obligations............ 51,321 52,302
Deferred income taxes................................... 1,282 988
Shareholders' equity:
Common stock, $.001 par value; 20,000,000 shares
authorized;
5,437,736 issued and 5,161,736 shares outstanding as of
April 30, 1998, and 5,298,755 issued and 5,037,755
shares
outstanding as of April 30, 1997....................... 5 5
Additional paid-in capital.............................. 29,972 28,977
Retained earnings....................................... 32,822 30,361
-------- --------
62,799 59,343
Commitments and contingencies
$142,306 $142,082
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
D-1
<PAGE>
GLOBAL MOTORSPORT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED APRIL 30,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Sales, net............................................... $ 44,796 $ 31,707
Cost of sales............................................ 28,029 19,872
---------- ----------
Gross profit........................................... 16,767 11,835
---------- ----------
Operating expenses:
Selling, general and administrative.................... 10,337 7,166
Costs associated with unsolicited tender offer......... 437 --
Product development.................................... 252 363
---------- ----------
11,026 7,529
---------- ----------
Operating income....................................... 5,741 4,306
Interest expense......................................... 1,508 457
---------- ----------
Income before income taxes............................. 4,233 3,849
Income taxes............................................. 1,772 1,506
---------- ----------
Net income............................................... $ 2,461 $ 2,343
========== ==========
Net income per share, basic.............................. $ 0.48 $ 0.45
========== ==========
Net income per share, diluted............................ $ 0.46 $ 0.45
========== ==========
Shares outstanding:
Basic.................................................. 5,111,000 5,218,000
Diluted................................................ 5,393,000 5,224,000
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
D-2
<PAGE>
GLOBAL MOTORSPORT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
APRIL 30,
--------------
1998 1997
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................... $2,461 $2,343
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization................................ 1,047 583
Deferred income tax.......................................... 262 --
Changes in items affecting operations:
Accounts receivable......................................... (3,236) (1,079)
Merchandise inventories..................................... 1,661 2,383
Deposits and prepaid expenses............................... 578 381
Accounts payable, accrued expenses and other liabilities.... 4,612 1,166
------ ------
Net cash provided by operating activities...................... 7,385 5,777
------ ------
Cash flows from investing activities:
Additions to property and equipment........................... (1,602) (991)
Cash flows from financing activities:
Bank repayment, net........................................... (7,141) (1,066)
Repayment on capital lease obligations and long-term debt..... (997) (22)
Issuance of common stock...................................... 995 106
Repurchase of common stock.................................... -- (3,199)
------ ------
Net cash used in financing activities.......................... (7,143) (4,181)
------ ------
Net change in cash and cash equivalents........................ (1,360) 605
Cash and cash equivalents at beginning of period............... 1,432 40
------ ------
Cash and cash equivalents at end of period..................... $ 72 $ 645
====== ======
Supplemental disclosures of cash paid during the period:
Interest...................................................... $1,508 $ 145
====== ======
Income taxes (refund).......................................... $ (990) $ --
====== ======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
D-3
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles, consistent with those applied in, and should be read in
conjunction with, the audited consolidated financial statements for the fiscal
year ended January 31, 1998 included in the Annual Report on Form 10-K filed
by Global Motorsport Group, Inc. (the "Company") with the Securities and
Exchange Commission.
The interim financial information is unaudited, but reflects all normal
recurring adjustments which are, in the opinion of management, necessary to
provide a fair statement of results for the interim periods presented. The
results for the interim periods are not necessarily indicative of results to
be expected for the fiscal year.
NOTE 2--EARNINGS PER SHARE CALCULATION
The Company adopted Statement of Financial Accounting Standard ("SFAS") No.
128, Earnings Per Share. In accordance with SFAS No. 128, basic net income per
share is computed using the weighted average number of common shares
outstanding during the period. Diluted net income per share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding during the period, using the treasury stock method for options and
warrants, after giving effect to contingently issuable shares under
acquisition agreements. The Company has restated net income per share for all
periods presented in accordance with SFAS No. 128.
Reconciliation of basic and diluted net income per share and pro forma net
income per shares (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
APRIL 30, 1998 APRIL 30, 1997
----------------------- -----------------------
NET INCOME SHARES EPS NET INCOME SHARES EPS
---------- ------ ----- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Basic net income............ $2,461 5,111 $0.48 $2,343 3,218 $0.45
Effect of dilutive shares... -- 282 -- -- 6 --
------ ----- ----- ------ ----- -----
Diluted net income.......... $2,461 5,393 $0.46 $2,343 5,224 $0.45
</TABLE>
D-4
<PAGE>
ANNEX E
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following pro forma consolidated financial statements of the Company
(the "Pro Forma Consolidated Financial Statements"), include the unaudited pro
forma consolidated statements of operations for the year ended January 31,
1998 and for the three months ended April 30, 1998 and 1997 (the "Pro Forma
Consolidated Statements of Operations"), and the unaudited pro forma
consolidated balance sheet as of April 30, 1998 (the "Pro Forma Consolidated
Balance Sheet").
The Pro Forma Consolidated Balance Sheet is based on the unaudited
consolidated balance sheet of the Company as of April 30, 1998 and is adjusted
to give effect to the Recapitalization as if it had occurred on April 30,
1998.
The Pro Forma Consolidated Statements of Operations are based on the audited
consolidated statement of operations of the Company for the year ended January
31, 1998, the unaudited consolidated statements of operations of the Company
for the three months ended April 30, 1998 and 1997, and are adjusted to give
effect to the Recapitalization as though it had occurred as of February 1,
1997, excluding certain one time costs of the Transactions as described in the
notes herein. In addition, the consolidated statements of operations for the
year ended January 31, 1998 and the three months ended April 30, 1997 are
adjusted to give effect to the Company's acquisition of Chrome Specialities,
Inc. ("CSI") on September 15, 1997 (which transaction was accounted for by the
Company as a purchase), as if it had occurred as of February 1, 1997.
The Pro Forma Consolidated Financial Statements and the accompanying notes
should be read in conjunction with the Company's historical financial
statements and related notes thereto included elsewhere in this Offer to
Purchase.
The Pro Forma Consolidated Financial Statements do not purport to represent
what the Company's financial condition or the results of operations would
actually have been had the acquisition of CSI and Recapitalization in fact
occurred on the assumed dates, nor do they project the Company's financial
condition or results of operations for any future period or date.
E-1
<PAGE>
GLOBAL MOTORSPORT GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF APRIL 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents................. $ 72 $ -- (a) $ 72
Accounts Receivable, net.................. 16,194 -- 16,194
Inventories............................... 64,677 -- 64,677
Deferred Income Taxes..................... 3,111 4,000 (b) 7,111
Income Taxes Receivable................... 1,076 -- 1,076
Prepaid Expenses.......................... 2,886 -- 2,886
-------- -------- --------
Total Current Assets.................... 88,016 4,000 92,016
Property and Equipment, net................. 19,162 -- 19,162
Deferred Financing Costs.................... 964 5,636 (c) 6,600
Other Assets, net........................... 34,164 -- 34,164
-------- -------- --------
Total Assets............................ $142,306 $ 9,636 $151,942
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Maturities of Long-Term Debt and
Capital Lease Obligations................ $ 4,160 $ (4,160)(d) $ --
Bank Borrowings........................... 6,600 (6,600)(d) --
Accounts Payable.......................... 9,350 -- 9,350
Accrued Expenses.......................... 6,794 -- 6,794
-------- -------- --------
Total Current Liabilities............... 26,904 (10,760) 16,144
Long-Term Debt and Capital Lease
Obligations................................ 51,321 (51,321)(d) --
Revolving Facility.......................... -- 3,220 (e) 3,220
Term Facility............................... -- 25,000 (e) 25,000
Senior Notes................................ -- 80,000 (e) 80,000
Senior Discount Notes....................... -- 25,000 (e) 25,000
Deferred Income Taxes....................... 1,282 -- 1,282
Shareholders' Equity:
Common Stock.............................. 5 (5)(f) 3
3 (g)
Additional Paid-In Capital................ 29,972 (27,926)(f) 61,178
57,997 (g)
1,135 (h)
Retained Earnings......................... 32,822 (76,904)(f) (59,885)
(15,803)(i)
-------- -------- --------
Total Shareholders' Equity.............. 62,799 (61,503) 1,296
-------- -------- --------
Total Liabilities and Shareholders'
Equity................................. $142,306 $ 9,636 $151,942
======== ======== ========
</TABLE>
See notes to unaudited pro forma consolidated balance sheet.
E-2
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) Sources and uses of cash for the Recapitalization are anticipated to be as
follows (in thousands):
<TABLE>
<S> <C>
Sources of cash:
Revolving facility............................................... $ 3,220
Term facility.................................................... 25,000
Senior notes..................................................... 80,000
Senior discount notes............................................ 25,000
Equity investment by the Purchaser............................... 58,000
--------
$191,220
========
Uses of cash:
Repurchase of shares............................................. $104,835
Repayment of existing long-term obligations...................... 62,081
Net consideration payable upon cancellation of options........... 8,564
Estimated fees and expenses...................................... 15,740
--------
$191,220
========
</TABLE>
(b) Reflects the tax benefit to be realized in connection with (i) a non-cash
compensation expense of approximately $1,135,000 related to management's
"cashless" exercise of certain stock options, (ii) a cash compensation
expense of $8,564,000 to be recognized in connection with the repurchase
of the remaining stock options, and (iii) the write-off of the unamortized
portion of deferred financing costs described in note (c). Management
believes it is more likely, than not, that the Company will realize such
benefits based on anticipated future earnings.
(c) Reflects estimated deferred financing costs of approximately $6,600,000
associated with the Debt Financing, net of the unamortized portion of
deferred financing costs of $964,000 associated with the Company's
existing debt obligations that will be written off in connection with the
Recapitalization.
(d) Reflects the elimination of debt obligations to be repaid in connection
with the Recapitalization.
(e) Reflects the proceeds from the Debt Financing, consisting of (i)
borrowings under a new credit facility consisting of $25,000,000 under the
term facility and $3,220,000 under the revolving facility, (ii) proceeds
of $80,000,000 from the sale of senior notes, and (iii) proceeds of
$25,000,000 from the sale of senior discount notes.
(f) Reflects the redemption of 4,820,000 shares for $104,835,000 at $21.75 per
share.
(g) Reflects the proceeds from the sale of 2,666,667 newly-issued shares to
the Purchaser for $58,000,000 at $21.75 per share.
(h) Reflects the issuance of 52,191 new shares in connection with the
"cashless" exercise of certain stock options held by management.
(i) Reflects deductions for (i) estimated transaction fees and expenses of
approximately $9,140,000, (ii) a non-cash compensation expense of
approximately $1,135,000, related to management's "cashless" exercise of
certain stock options, (iii) a cash compensation expense of $8,564,000, to
be recognized in connection with the repurchase of the remaining stock
options, and (iv) the write-off of deferred financing costs of $964,000
associated with the Company's existing debt obligations. Such amounts are
net of deferred tax benefits of approximately $4,000,000 related to (ii),
(iii) and (iv) which management believes are more likely, than not, to be
realized based on anticipated future earnings.
E-3
<PAGE>
UNAUDITED PRO FORMA GLOBAL MOTORSPORT GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
RECAPITALIZATION
HISTORICAL ADJUSTMENTS(A) PRO FORMA
---------- ---------------- ---------
<S> <C> <C> <C>
Net Sales................................ $44,796 $ -- $44,796
Cost of Sales.......................... 28,029 -- 28,029
------- ------- -------
Gross Profit............................. 16,767 -- 16,767
Selling, General and Administrative
Expenses.............................. 10,337 -- 10,337
Costs Associated with Unsolicited
Tender Offer.......................... 437 -- 437
Product Development.................... 252 -- 252
------- ------- -------
Operating Income......................... 5,741 -- 5,741
Interest Expense....................... 1,508 (1,508)(b) 3,556
3,556 (c)
------- ------- -------
Income Before Income Taxes............... 4,233 (2,048) 2,185
Income Tax Provision (Benefit)......... 1,772 (898)(d) 874
------- ------- -------
Net Income............................... $ 2,461 $(1,150) $ 1,311
======= ======= =======
Per Share Data
Net income
Basic................................ $ 0.48 $ 0.43
Diluted.............................. $ 0.46 $ 0.43
Shares used in per share calculation
Basic................................ 5,127 3,072
Diluted.............................. 5,350 3,072
Other Data
Depreciation and Amortization.......... $ 1,047 $ 1,047
EBITDA(e).............................. $ 7,303 $ 7,303
EBITDA Margin(f)....................... 16.3% 16.3%
</TABLE>
See notes to unaudited pro forma consolidated statements of operations.
E-4
<PAGE>
UNAUDITED PRO FORMA GLOBAL MOTORSPORT GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUISITION OF CSI(G)
----------------------
CSI RECAPITALIZATION
HISTORICAL HISTORICAL ADJUSTMENTS AS ADJUSTED ADJUSTMENTS(A) PRO FORMA
---------- ---------- ----------- ----------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Sales............... $122,725 $23,969 $ -- $146,694 $ -- $146,694
Cost of Sales......... 77,716 15,053 -- 92,769 -- 92,769
-------- ------- ------- -------- ------- --------
Gross Profit............ 45,009 8,916 -- 53,925 -- 53,925
Selling, General and
Administrative
Expenses............. 33,114 6,216 478 (h) 39,808 -- 39,808
Provision for Benefits
Related to Employment
Agreement............ 3,127 -- -- 3,127 -- 3,127
Product Development... 1,407 -- -- 1,407 -- 1,407
-------- ------- ------- -------- ------- --------
Operating Income........ 7,361 2,700 (478) 9,583 -- 9,583
Interest Expense...... 2,964 511 1,048 (i) 4,523 (4,523)(b) 14,226
14,226 (c)
-------- ------- ------- -------- ------- --------
Income (Loss) Before
Income Taxes........... 4,397 2,189 (1,526) 5,060 (9,703) (4,643)
Income Tax Provision
(Benefit)............ 2,114 -- 265 (j) 2,379 (4,236)(d) (1,857)
-------- ------- ------- -------- ------- --------
Net Income (Loss)....... $ 2,283 $ 2,189 $(1,791) $ 2,681 $(5,467) $ (2,786)
======== ======= ======= ======== ======= ========
Per Share Data
Net income
Basic............... $ 0.45 $ (0.91)
Diluted............. $ 0.44 $ (0.91)
Shares used in per
share calculation
Basic............... 5,094 3,072
Diluted............. 5,233 3,072
Other Data
Depreciation and
Amortization......... $ 3,088 $ 199 $ 833 $ 4,120 $ -- $ 4,120
EBITDA(e)............. $ 15,697 $ 18,951
EBITDA Margin(f)...... 12.8% 12.9%
</TABLE>
See notes to unaudited pro forma consolidated statements of operations.
E-5
<PAGE>
UNAUDITED PRO FORMA GLOBAL MOTORSPORT GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUISITION OF CSI(G)
----------------------
CSI RECAPITALIZATION
HISTORICAL HISTORICAL ADJUSTMENTS AS ADJUSTED ADJUSTMENTS(A) PRO FORMA
---------- ---------- ----------- ----------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Sales............... $31,707 $9,868 $ -- $41,575 $ -- $41,575
Cost of Sales......... 19,872 6,134 -- 26,006 -- 26,006
------- ------ ----- ------- ------- -------
Gross Profit............ 11,835 3,734 -- 15,569 -- 15,569
Selling, General and
Administrative
Expenses............. 7,166 2,475 139 (h) 9,780 -- 9,780
Product Development... 363 -- -- 363 -- 363
------- ------ ----- ------- ------- -------
Operating Income........ 4,306 1,259 (139) 5,426 -- 5,426
Interest Expense...... 457 208 419 (i) 1,084 (1,084)(b) 3,556
3,556 (c)
------- ------ ----- ------- ------- -------
Income (Loss) Before
Income Taxes........... 3,849 1,051 (558) 4,342 (2,472) 1,870
Income Tax Provision
(Benefit)............ 1,506 -- 321 (j) 1,737 (989)(d) 748
------- ------ ----- ------- ------- -------
Net Income (Loss)....... $ 2,343 $1,051 $(879) $ 2,605 $(1,483) $ 1,122
======= ====== ===== ======= ======= =======
Per Share Data
Net income
Basic............... $ 0.45 $ 0.37
Diluted............. $ 0.45 $ 0.37
Shares used in per
share calculation
Basic............... 5,207 3,072
Diluted............. 5,207 3,072
Other Data
Depreciation and
Amortization......... $ 583 $ 69 $ 334 $ 986 $ -- $ 986
EBITDA(e)............. $ 5,205 $ 6,729
EBITDA Margin(f)...... 16.4% 16.2%
</TABLE>
See notes to unaudited pro forma consolidated statements of operations.
E-6
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(a) The pro forma adjustments do not reflect (i) estimated transaction fees
and expenses of approximately $9,140,000, (ii) a non-cash compensation
expense of approximately $1,135,000 related to management's "cashless"
exercise of certain stock options, (iii) a cash compensation expense of
$8,564,000 to be recognized in connection with the repurchase of the
remaining stock options, (iv) the write-off of deferred financing costs of
$964,000 associated with the Company's existing debt obligations and (v)
deferred tax benefits of approximately $4,000,000 related to (ii), (iii)
and (iv), which management believes are more likely, than not, to be
realized based upon anticipated future earnings, all of which are expected
to be incurred in connection with the Recapitalization. Such amounts
described in Note (i) to the Unaudited Pro Forma Consolidated Balance
Sheet represent items which the Company anticipates will be recorded in
the consolidated statement of operations for the period in which the
Recapitalization occurs.
(b) Reflects the elimination of interest expense associated with the debt
obligations repaid in connection with the Recapitalization.
(c)Reflects interest expense associated with the financing for the
Recapitalization as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED THREE MONTHS
ENDED APRIL 30, JANUARY 31, ENDED APRIL 30,
1998 1998 1997
--------------- ----------- ---------------
<S> <C> <C> <C>
Interest expense related to the
following:
Revolving credit facility at
an assumed interest rate of
8.20%....................... $ 65 $ 264 $ 65
Senior Secured Term Loan at
an assumed interest rate of
8.20%....................... 513 2,050 513
Senior Notes at an assumed
interest rate of 10.00%..... 2,000 8,000 2,000
Senior Discount Notes at an
assumed interest
rate of 12.75%............. 797 3,188 797
Amortization of deferred
financing costs related to
the above................... 181 724 181
------ ------- ------
$3,556 $14,226 $3,556
====== ======= ======
</TABLE>
A 0.5% increase or decrease in the assumed weighted average interest rate
on the Debt Financing would change pro forma interest expense by $265,000
for the year ended January 31, 1998, and by $66,000 for each of the three
months ended April 30, 1998 and 1997.
(d) Reflects the adjustment necessary to state the pro forma income tax
provision (benefit) associated with the pro forma adjustments at an
assumed effective tax rate of 40%.
(e) EBITDA represents earnings before (i) interest expense, (ii) income taxes,
(iii) depreciation and amortization, (iv) the provision for the remaining
benefits to be paid under an employment agreement with the Company's past
Chairman, President and Chief Executive Officer who left the Company on
November 5, 1997 which provided for a bonus ranging from 3% to 5% of
operating earnings before non-recurring charges; similar benefits are not
being provided to any of the Company's current employees or members of the
Board of Directors (the "Employment Agreement Provision") (v) operating
cash losses recognized in the Company's historical financial statements
related to its investment in Bikers Discount Supply ("BDS") which the
Company intends to sell or shut-down (the "BDS Losses"), (vi) the
provision for the closure of the Custom Chrome, Inc. Dallas-Fort Worth
distribution facility (the "Dallas Warehouse
E-7
<PAGE>
Closure Costs"), (vii) the provision for the settlement of $307,000 with
the State of Kentucky for personal property taxes related to the Company's
operation of its Louisville, Kentucky facility, net of expenses of $30,000
and $7,500 for the year ended January 31, 1998 and for the three months
ended April 30, 1997, respectively, which adjusts historical property tax
expense to normalized amounts for the respective periods. (the "PPT
Settlement Expense"), and (viii) costs associated with the Golden Cycle
Offer.
EBITDA data is included because management understands that such
information is considered by certain investors as an additional basis on
which to evaluate the Company's ability to pay interest, repay debt and
make capital expenditures. Items excluded from EBITDA could significantly
affect the Company's results of operations and liquidity and should be
considered in evaluating the Company's financial performance. EBITDA is not
intended to represent and should not be considered more meaningful than, or
an alternative to, measures of operating performance as determined in
accordance with generally accepted accounting principles.
EBITDA was derived as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED THREE MONTHS ENDED
APRIL 30, JANUARY 31, APRIL 30,
--------------------- ----------------- ----------------------
PRO FORMA PRO FORMA PRO FORMA
1998 1998 1998 1998 1997 1997
--------- ----------- ------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income (Loss) Before
Income Taxes........... $ 4,233 $ 2,185 $ 4,397 $(4,643) $ 3,849 $ 1,870
Interest expense........ 1,508 3,556 2,964 14,226 457 3,556
Depreciation and
amortization........... 1,047 1,047 3,088 4,120 583 986
Employment Agreement
Provision.............. -- -- 3,127 3,127 -- --
BDS Losses.............. 78 78 1,225 1,225 324 324
Dallas Warehouse Closure
Costs.................. -- -- 619 619 -- --
Property Tax Settlement
Expense................ -- -- 277 277 (8) (8)
Costs Associated With
The Golden Cycle
Offer.................. 437 437 -- -- -- --
--------- --------- ------- ------- --------- ---------
EBITDA................ $ 7,303 $ 7,303 $15,697 $18,951 $ 5,205 $ 6,729
========= ========= ======= ======= ========= =========
</TABLE>
(f) Represents EBITDA as a percentage of net sales.
(g) Reflects the historical results of CSI and the related pro forma
adjustments associated with the Company's acquisition of CSI, which was
accounted for by the Company as a purchase. Results of CSI after September
15, 1997, the date of acquisition are included in the Company's historical
financial statements.
(h) The net adjustment to selling, general and administrative expenses
consists of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED THREE MONTHS
ENDED APRIL 30, JANUARY 31, ENDED APRIL 30,
1998 1998 1997
--------------- ----------- ---------------
<S> <C> <C> <C>
Goodwill amortization for the
periods prior to the
CSI Acquisition not included
in the historical
financial statements.......... $-- $ 833 $ 334
Salaries, bonuses and benefits
provided to former owners no
longer being paid............. -- (355) (195)
---- ----- -----
Net reduction in selling,
general and administrative
expenses...................... $-- $ 478 $ 139
==== ===== =====
</TABLE>
(i) Reflects interest expense incurred for net borrowings associated with the
acquisition of CSI.
(j) Reflects the adjustment necessary to state the pro forma income tax
expense at the Company's effective tax rate during the respective periods.
E-8
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
signed, 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 by such stockholder's broker, dealer, commercial
bank, trust company or other nominee to the Depositary, at the address set
forth below:
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
BY MAIL OR OVERNIGHT DELIVERY: BY FACSIMILE TRANSMISSION
(FOR ELIGIBLE INSTITUTIONS ONLY)
40 Wall Street, 46th Floor (718) 234-5001
New York, New York 10005
CONFIRM RECEIPT OF FACSIMILE BY
TELEPHONE:
(718) 921-8200
Questions and requests for assistance or additional copies of this Offer to
Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and the
Guidelines for Certification of Taxpayer Identification on Substitute Form W-9
may be directed to the Information Agent at the location and telephone numbers
set forth below. Stockholders may also contact their broker, dealer,
commercial bank or trust company for assistance concerning the Offer.
The Information Agent for the Offer is:
[MacKenzie Partners, Inc. Logo Appears Here]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
or
CALL TOLL-FREE (800) 322-2885
<PAGE>
EXHIBIT (a)(2)
LETTER OF TRANSMITTAL
To Tender Shares of Common Stock
(Including the Associated Rights)
of
Global Motorsport Group, Inc.
Pursuant to the Offer to Purchase
Dated July 13, 1998
by
Global Motorsport Group, Inc.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON WEDNESDAY, AUGUST 12, 1998, UNLESS THE OFFER IS
EXTENDED.
The Depositary for the Offer is:
American Stock Transfer & Trust Company
By Mail, Hand or Overnight Delivery: By Facsimile Transmission:
(For Eligible Institutions Only)
40 Wall Street
46th Floor (718) 234-5001
New York, New York 10005
Confirm Receipt of Facsimile
by Telephone:
(718) 921-8200
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN
THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE PROVIDED
THEREFOR AND COMPLETE THE SUBSTITUTE FORM W-9 PROVIDED BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
DESCRIPTION OF SHARES TENDERED
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON SHARE CERTIFICATE(S) AND SHARES TENDERED
SHARE CERTIFICATE(S)) (ATTACH ADDITIONAL LIST, IF NECESSARY)
- --------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER OF
SHARE CERTIFICATE SHARES EVIDENCED BY NUMBER OF SHARES
NUMBER(S)* SHARE CERTIFICATE(S)* TENDERED**
<S> <C> <C> <C>
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
TOTAL SHARES:
</TABLE>
- -------------------------------------------------------------------------------
* Need not be completed by stockholders delivering Shares by Book-Entry
Transfer.
** Unless otherwise indicated, it will be assumed that all Shares evidenced
by each Share Certificate delivered to the Depositary are being tendered
hereby. See Instruction 4.
<PAGE>
This Letter of Transmittal is to be used either if certificates are to be
forwarded herewith or if delivery of Shares (as defined below) is to be made
by book-entry transfer to an account maintained by the Depositary at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in "THE TENDER OFFER--Section 3. Procedure for Tendering
Shares" of the Offer to Purchase (as defined below). Delivery of documents to
the Book-Entry Transfer Facility does not constitute delivery to the
Depositary. Stockholders who deliver Shares by book-entry transfer are
referred to herein as "Book-Entry Stockholders" and other stockholders are
referred to herein as "Certificate Stockholders."
Stockholders whose certificates evidencing Shares ("Share Certificates") are
not immediately available or who cannot deliver their Share Certificates and
all other documents required hereby to the Depositary or complete the
procedures for book-entry transfer prior to the Expiration Date (as defined in
"THE TENDER OFFER--Section 1. Terms of the Offer" of the Offer to Purchase)
must tender their Shares according to the guaranteed delivery procedure set
forth in "THE TENDER OFFER--Section 3. Procedure for Tendering Shares" of the
Offer to Purchase. See Instruction 2.
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY AT THE BOOK-ENTRY TRANSFER
FACILITY, AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY
TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution: ________________________________________________
Account Number: _______________________________________________________________
Transaction Code Number: ______________________________________________________
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s): ______________________________________________
Window Ticket No. (if any): ___________________________________________________
Date of Execution of Notice of Guaranteed Delivery: ___________________________
Name of Institution which Guaranteed Delivery: ________________________________
Account Number (if delivered by Book-Entry Transfer): _________________________
Transaction Code Number: ______________________________________________________
[_]CHECK HERE IF YOU CANNOT LOCATE YOUR CERTIFICATE(S) AND REQUIRE ASSISTANCE
IN REPLACING THEM. UPON RECEIPT OF NOTIFICATION BY THIS LETTER OF
TRANSMITTAL, THE COMPANY'S STOCK TRANSFER AGENT WILL CONTACT YOU DIRECTLY
WITH REPLACEMENT INSTRUCTIONS.
BOXES ABOVE FOR USE BY ELIGIBLE INSTITUTIONS ONLY
2
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to Global Motorsport Group, Inc., a Delaware
corporation (the "Company"), the above-described shares of common stock, par
value $.001 per share (the "Common Stock"), including the associated rights to
purchase shares of Common Stock issued pursuant to the Rights Agreement
between the Company and American Stock Transfer and Trust Company, dated as of
November 13, 1996 (the "Rights" and, together with the Common Stock, the
"Shares"), pursuant to the Company's offer to purchase 4,820,000 Shares at a
price of $21.75 per share, net to the seller in cash, upon the terms and
subject to the conditions set forth in the Company's Offer to Purchase, dated
July 13, 1998 (the "Offer to Purchase"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which, together with the
Offer to Purchase and any amendments or supplements hereto or thereto,
constitute the "Offer"). The undersigned understands that the Company reserves
the right to transfer or assign, in whole or in part from time to time, to any
affiliate of the Company the right to purchase Shares tendered pursuant to the
Offer.
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), effective upon acceptance for payment of and payment for the
Shares tendered herewith, 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 any and all other Shares or
other securities issued or issuable in respect thereof (collectively,
"Distributions")) 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 power of substitution (such power
of attorney being deemed to be an irrevocable power coupled with an interest),
to (a) deliver certificates for 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 any such 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 (adjusted, if appropriate, as provided in the Offer to
Purchase), (b) present such Shares and all Distributions for cancellation and
transfer on the Company's books and (c) 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 represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the tendered Shares
and all Distributions and that, when the same are accepted for payment by the
Company, the Company will acquire good, marketable and unencumbered title
thereto, free and clear of all liens, restrictions, claims, charges and
encumbrances, and the same will not be subject to any adverse claims. The
undersigned shall, upon request, execute any signature guarantees or
additional documents deemed by the Depositary or the Company to be necessary
or desirable to complete the sale, assignment and transfer of the tendered
Shares and all Distributions. In addition, the undersigned shall promptly
remit and transfer to the Depositary for the account of the Company any such
Distributions issued to the undersigned, in respect of the tendered Shares,
accompanied by documentation of transfer, and pending such remittance or
appropriate assurance thereof, the Company shall be entitled to all rights and
privileges as owner of any such Distributions and, subject to the terms of the
Amended and Restated Merger Agreement, dated as of June 28, 1998, between the
Company, Fremont Acquisition Company, LLC and GMS Acquisition Corp., may
withhold the entire purchase price or deduct from the purchase price the
amount or value thereof, as determined by the Company, in its sole discretion.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned.
Except as stated in the Offer to Purchase, this tender is irrevocable.
The undersigned hereby irrevocably appoints Mark N. Williamson or Kevin R.
Baker, and each of them, and any other designees of the Company, the attorneys
and proxies of the undersigned, each with full power of substitution, to vote
at any annual, special or adjourned meeting of the Company's stockholders or
otherwise act (including pursuant to written consent) in such manner as each
such attorney and proxy or his or her substitute will in his or her sole
discretion deem proper, to execute any written consent concerning any matter
as each such attorney and proxy or his or her substitute will in his or her
sole discretion deem proper with respect to, and to otherwise act with respect
to, all the Shares tendered hereby that have
3
<PAGE>
been accepted for payment by the Company prior to the time any such vote or
action is taken (and any and all Distributions issued or issuable in respect
thereof) and with respect to which the undersigned is entitled to vote. This
appointment is effective when, and only to the extent that, the Company
accepts for payment such Shares as provided in the Offer to Purchase. This
power of attorney and proxy is coupled with an interest in the tendered
Shares, is irrevocable and is granted in consideration of the acceptance for
payment of such Shares in accordance with the terms of the Offer. Such
acceptance for payment shall revoke all prior powers of attorney and proxies
given by the undersigned at any time with respect to such Shares, and no
subsequent powers of attorney or proxies may be given by the undersigned (and,
if given, shall not be deemed effective). The Company reserves the right to
require that, in order for Shares to be deemed validly tendered, immediately
upon the Company's acceptance for payment of such Shares, the Company must be
able to exercise full voting and other rights with respect to such Shares,
including voting at any stockholders meeting then scheduled.
The undersigned understands that the valid tender of Shares to the Company
pursuant to any one of the procedures described in "THE TENDER OFFER--Section
3. Procedure for Tendering Shares" of the Offer to Purchase 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 recognizes that under certain circumstances set
forth in the Offer to Purchase, the Company may not be required to accept for
payment any of the tendered Shares. The Company's acceptance for payment of
Shares pursuant to the Offer 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 under "Special Payment Instructions,"
please issue the check for the purchase price of any Shares purchased, and/or
return any certificates for Shares not tendered or accepted for payment, in
the name(s) of the registered holder(s) appearing under "Description of Shares
Tendered." Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail the check for the purchase price of any Shares
purchased, and/or any certificates for Shares not tendered or accepted for
payment (and accompanying documents, as appropriate) to the address(es) of the
registered holder(s) appearing under "Description of Shares Tendered." In the
event that both the Special Delivery Instructions and the Special Payment
Instructions are completed, please issue the check for the purchase price of
any Shares purchased, and/or return any certificates for Shares not tendered
or accepted for payment in the name(s) of, and mail said check and/or any
certificates to, the person or persons so indicated. In the case of a book-
entry delivery of Shares, please credit the account maintained at the Book-
Entry Transfer Facility with any Shares not accepted for payment. 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 if the Company does not accept for payment any of
the Shares so tendered.
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5, 6 and 7)
(See Instructions 1, 5, 6 and 7)
To be completed ONLY if the check
To be completed ONLY if the check for the purchase of Shares
for the purchase price of Shares purchased or Share Certificates
purchased or Share Certificates evidencing Shares not tendered or
evidencing Shares not tendered or not purchased are to be mailed to
not purchased are to be issued in someone other than the undersigned,
the name of someone other than the or to the undersigned at an address
undersigned. other than that shown under
"Description of Shares Tendered."
Issue check and/or certificate(s)
to: Mail check and/or certificate(s) to:
Name: ______________________________ Name: ______________________________
Please Print Please Print
Address: ___________________________
Address: ___________________________
------------------------------------
Include Zip Code ------------------------------------
Include Zip Code
------------------------------------
Taxpayer Identification or Social ------------------------------------
Security Number
(See Substitute Form W-9 on reverse
side)
4
<PAGE>
IMPORTANT:
STOCKHOLDER(S) SIGN HERE
(Please Complete Substitute Form W-9 on Reverse)
----------------------------------------
----------------------------------------
Signature(s) of Holder(s)
Dated: ________________________________________________________________ , 1998
(Must be signed by registered holder(s) exactly as name(s) appear(s) on Share
Certificates or on a security position listing or by a 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 provide the following
information. See Instruction 5.)
Name(s): _____________________________________________________________________
------------------------------------------------------------------------------
Please Print
Capacity: ____________________________________________________________________
Please Provide Full Title
Address: _____________________________________________________________________
Include Zip Code
Telephone No.: _______________________________________________________________
Include Area Code
Taxpayer Identification or
Social Security Number: ______________________________________________________
See Substitute Form W-9 on Reverse Side
GUARANTEE OF SIGNATURE(S)
(If Required--See Instructions 1 and 5)
SPACE BELOW IS FOR USE BY FINANCIAL INSTITUTIONS ONLY. FINANCIAL
INSTITUTIONS: PLACE MEDALLION GUARANTEE IN SPACE PROVIDED BELOW.
5
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a financial
institution (including most commercial banks, savings and loan associations
and brokerage houses) that is a participant in the Security Transfer Agent's
Medallion Program, the New York Stock Exchange Medallion Signature Guarantee
Program or the Stock Exchange Medallion Program (each an "Eligible
Institution," and collectively, "Eligible Institutions"). No signature
guarantee is required on this Letter of Transmittal (i) if this Letter of
Transmittal is signed by the registered holder(s) (which term, for purposes of
this document, shall include any participant in the Book-Entry Transfer
Facility whose name appears on a security position listing as the owner of
Shares) of Shares tendered herewith, unless such holder(s) has completed
either the box entitled "Special Delivery Instructions" or the box entitled
"Special Payment Instructions" in this Letter of Transmittal or (ii) if such
Shares are tendered for the account of an Eligible Institution. See
Instruction 5.
2. Delivery of Letter of Transmittal and Certificates; Guaranteed Delivery
Procedures. This Letter of Transmittal is to be completed by stockholders
either if Share Certificates are to be forwarded herewith or if a tender of
Shares is to be made pursuant to the procedures for delivery by book-entry
transfer set forth in "THE TENDER OFFER--Section 3. Procedure for Tendering
Shares" of the Offer to Purchase. For Shares to be validly tendered pursuant
to the Offer, either (i) a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), together with any required signature
guarantees, or in the case of a book-entry transfer, an Agent's Message (as
defined in "THE TENDER OFFER--Section 3. Procedure for Tendering Shares" of
the Offer to Purchase), and any other required documents, must be received by
the Depositary at the Depositary's address set forth above prior to the
Expiration Date (as defined in the "THE TENDER OFFER--Section 1. Terms of the
Offer" of the Offer to Purchase) and either certificates for tendered Shares
must be received by the Depositary at such address or such Shares must be
delivered pursuant to the procedures for book-entry transfer (and a Book Entry
Confirmation received by the Depositary), in each case, prior to the
Expiration Date, or (ii) the tendering stockholder must comply with the
guaranteed delivery procedure set forth below.
Stockholders whose Share Certificates are not immediately available or who
cannot complete the procedures for book-entry transfer on a timely basis or
time will not permit all required documents to reach the Depositary prior to
the Expiration Date, may tender their Shares pursuant to the guaranteed
delivery procedure set forth in "THE TENDER OFFER--Section 3. Procedure for
Tendering Shares" of the Offer to Purchase. Pursuant to such procedures, (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 provided by the Company (or facsimile thereof), must
be received by the Depositary prior to the Expiration Date and (iii) the
certificates for (or a Book-Entry Confirmation with respect to) such Shares,
together with this properly completed and duly executed Letter of Transmittal
(or facsimile thereof), with any required signature guarantees, or, in the
case of a book-entry transfer, an Agent's Message, and any other required
documents are received by the Depositary within three Nasdaq trading days
after the date of execution of such Notice of Guaranteed Delivery, all as
provided in "THE TENDER OFFER--Section 3. Procedure for Tendering Shares" of
the Offer to Purchase. The Notice of Guaranteed Delivery may be delivered by
hand to the Depositary or transmitted by telegram, facsimile transmission or
mail to the Depositary and must include a guarantee by an Eligible Institution
in the form set forth in such Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THIS LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY
TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER.
SHARE CERTIFICATES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE
DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY
CONFIRMATION). 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. All
tendering stockholders, by execution of this Letter of Transmittal (or
facsimile thereof), waive any right to receive any notice of the acceptance of
their Shares for payment.
3. Inadequate Space. If the space provided herein under "Description of
Shares Tendered" is inadequate, the Share Certificate numbers and/or the
number of Shares evidenced by such Share Certificates and the number of Shares
tendered should be listed on a separate schedule attached hereto.
6
<PAGE>
4. Partial Tenders. If fewer than all the Shares evidenced by any Share
Certificate delivered to the Depositary herewith are to be tendered, fill in
the number of Shares which are to be tendered in the column captioned "Number
of Shares Tendered" in the box entitled "Description of Shares Tendered." In
such case, new Share Certificate(s) for the remainder of the Shares that were
evidenced by the Share Certificate(s) 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 represented 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 Certificate(s) evidencing such shares without any
change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in different names on
several certificates, 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 or any certificates or stock powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and proper evidence satisfactory
to the Company of their authority so to act must be submitted.
If this Letter of Transmittal is signed by the registered owner(s) of the
Shares listed and tendered hereby, no endorsements of Share Certificates or
separate stock powers are required unless payment or Share Certificates
evidencing Shares not tendered or not accepted for payment 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) or stock powers must be guaranteed by
an Eligible Institution. See Instruction 1.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the shares tendered hereby, the certificates
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 Certificates. Signatures on such
Share Certificate(s) or stock powers must be guaranteed by an Eligible
Institution. See Instruction 1.
6. Stock Transfer Taxes. Except as set forth in this Instruction 6, the
Company will pay, or cause to be paid, any stock transfer taxes with respect
to the transfer and sale of Shares to it or its assignee pursuant to the
Offer. If, however, payment of the purchase price of any Shares is to be made
to, or if Share Certificates evidencing Shares not tendered or accepted for
payment are to be issued in the name of, a person other than the registered
holder(s), or if tendered Shares Certificates are registered in the name of a
person other than the person(s) signing this Letter of Transmittal, the amount
of any stock transfer taxes (whether imposed on the registered holder(s) or
such person or otherwise) payable on the 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. Special Payment and Delivery Instructions. If a check is to be issued in
the name of and/or Share Certificates not accepted for payment are to be
returned to a person other than the signer of this Letter of Transmittal or if
a check is to be sent and/or such Share Certificates are to be returned to a
person other than the signer of this Letter of Transmittal or to an address
other than that shown in the box entitled "Description of Shares Tendered" on
the reverse hereof, the appropriate boxes on the reverse side of this Letter
of Transmittal should be completed. Any stockholder tendering Shares by book-
entry transfer will have any Shares not accepted for payment returned by
crediting the account maintained by such stockholder at the Book-Entry
Transfer Facility.
7
<PAGE>
8. Waiver of Conditions. Except as otherwise provided in the Offer to
Purchase and subject to the consent of Purchaser, the Company reserves the
absolute right, in its sole discretion, to waive any of the conditions 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.
9. Substitute Form W-9. The tendering stockholder (or other payee) is
required, unless an exemption applies, to provide the Depositary with a
correct Taxpayer Identification Number ("TIN"), generally the stockholder's
social security or U.S. federal employer identification number, and with
certain other information, on 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 the stockholder (or other payee) is not
subject to backup withholding. If a tendering stockholder is subject to backup
withholding, he or she must cross out item (2) of the Certification Box on
Substitute Form W-9 before signing such Form. Failure to furnish the correct
TIN on the Substitute Form W-9 may subject the tendering stockholder (or other
payee) to a $50 penalty imposed by the Internal Revenue Service and payments
of cash to the tendering stockholder (or other payee) pursuant to the Offer
may be subject to backup withholding tax at a rate of 31%. 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, he or she should write "Applied For"
in the space provided for the TIN in Part I, sign and date the Substitute Form
W-9 and sign and date the Certificate of Awaiting Taxpayer Identification
Number set forth below such form. If "Applied For" is written in Part I and
the Depositary is not provided with a TIN by the time of payment, the
Depositary will withhold 31% of all such payments payable to such stockholder
until a TIN is provided to the Depositary.
10. Lost or Destroyed Certificates. If any Share Certificate(s) has (have)
been lost or destroyed, the stockholder should check the appropriate box on
the reverse side of the Letter of Transmittal. The Company's stock transfer
agent will then instruct such stockholder as to the procedure to be followed
in order to replace the Share Certificate(s). The stockholder will have to
post a surety bond of approximately 2% of the current market value of the
stock. This Letter of Transmittal and related documents cannot be processed
until procedures for replacing lost or destroyed Share Certificates have been
followed.
11. Requests for Assistance or Additional Copies. Questions and requests for
assistance or additional copies of the Offer to Purchase, the Letter of
Transmittal, the Notice of Guaranteed Delivery and the Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 may be
directed to the Information Agent at the location and telephone numbers set
forth below.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY THEREOF),
TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES, OR IN THE CASE OF A BOOK-
ENTRY TRANSFER, AN AGENT'S MESSAGE, AND SHARE CERTIFICATES, OR A BOOK-ENTRY
CONFIRMATION FOR SHARES AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY
THE DEPOSITARY, OR THE NOTICE OF GUARANTEED DELIVERY (OR A FACSIMILE COPY
THEREOF) MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE EXPIRATION
DATE.
IMPORTANT TAX INFORMATION
Under U.S. federal income tax law, a stockholder surrendering Shares must,
unless an exemption applies, provide the Depositary (as payer) with his or her
correct TIN on Substitute Form W-9 included in this Letter of Transmittal. If
the stockholder is an individual, his or her TIN is such stockholder's social
security number. If the correct TIN is not provided, the stockholder may be
subject to a $50 penalty imposed by the Internal Revenue Service and payments
of cash to the tendering stockholder (or other payee) pursuant to the Offer
may be subject to backup withholding tax at a rate of 31% of all payments of
the purchase price.
Certain stockholders (including, among others, all corporations and certain
foreign individuals and entities) are not subject to backup withholding. In
order for an exempt foreign stockholder to avoid backup withholding, such
person should complete, sign and submit a Form W-8, Certificate of Foreign
Status, signed under penalties of perjury, attesting to his exempt status. A
Form W-8 can be obtained from the Depositary. Exempt stockholders, other than
foreign stockholders, should furnish their TIN, write "Exempt" on the face of
the Substitute Form W-9 and sign, date and return the Substitute Form W-9 to
the Depositary. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
8
<PAGE>
If backup withholding applies, the Depositary is required to withhold 31% of
any payment made to payee. Backup withholding is not an additional tax.
Rather, the U.S. federal income tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If backup
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 his or her correct TIN (or the TIN of any
other payee) by completing the Substitute Form W-9 included in this Letter of
Transmittal certifying (1) that the TIN provided on the Substitute Form W-9 is
correct (or that such stockholder is awaiting a TIN) and (2) that the
stockholder is not subject to backup withholding because (i) the stockholder
has not been notified by the Internal Revenue Service that the stockholder is
subject to backup withholding as a result of a failure to report all interest
and dividends or (ii) the Internal Revenue Service has notified the
stockholder that the stockholder is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the TIN, generally 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, he or she should write "Applied For" in the space
provided for the TIN in Part I, sign and date the Substitute Form W-9 and sign
and date the Certificate of Awaiting Taxpayer Identification Number, which
appears in a separate box below the Substitute Form W-9. If "Applied For" is
written in Part I and the Depositary is not provided with a TIN by the time of
payment, the Depositary will withhold 31% of all payments of the purchase
price payable to such stockholder until a TIN is provided to the Depositary.
9
<PAGE>
PAYER'S NAME: AMERICAN STOCK TRANSFER AND TRUST COMPANY
- -------------------------------------------------------------------------------
PART I--Taxpayer Social Security Number
SUBSTITUTE Identification Number--For OR
FORM W-9 all accounts, enter your ________________________
TIN in the box at right. Employer Identification
(For most individuals, this Number
Department of is your social security
the Treasury number. If you do not have
Internal a TIN, see Obtaining a (If awaiting TIN write
Revenue Number in the enclosed "Applied For")
Service Guidelines.) Certify by
signing and dating below.
Note: If the account is in
PAYER'S REQUEST more than one name, see the
FOR TAXPAYER chart in the enclosed
IDENTIFICATION Guidelines to determine
NUMBER (TIN) which number to give the
payer.
---------------------------------------------------------
PART II--For Payees Exempt from backup Withholding,
see the enclosed Guidelines and complete as instructed
therein.
- -------------------------------------------------------------------------------
CERTIFICATION--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because (a) I am exempt
from backup withholding, (b) I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as a
result of failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding.
CERTIFICATE INSTRUCTIONS--You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting 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 from the IRS that you are no longer subject to
backup withholding, do not cross out item (2). (Also see instructions in the
enclosed Guidelines.)
- -------------------------------------------------------------------------------
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION
OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
SIGNATURE ________________________________________________________ DATE , 1998
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND IN BACKUP WITHHOLDING OF 31%
OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE 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
WROTE "APPLIED FOR" IN PART I OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I CERTIFY UNDER THE 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 IF I DO NOT PROVIDE A TAXPAYER IDENTIFICATION NUMBER WITHIN
60 DAYS, 31% OF ALL REPORTABLE PAYMENTS MADE TO ME THEREAFTER WILL BE
WITHHELD UNTIL I PROVIDE A NUMBER.
SIGNATURE: _______________________________________ DATE: __________________
10
<PAGE>
Questions and requests for assistance or additional copies of the Offer to
Purchase, Letter of Transmittal and other tender offer materials may be
directed to the Information Agent at the location and telephone numbers set
forth below:
The Information Agent for the Offer is:
LOGO
156 FIFTH AVENUE
NEW YORK, NEW YORK 10010
(212) 929-5500 (CALL COLLECT)
OR
CALL TOLL-FREE (800) 322-2885
11
<PAGE>
EXHIBIT (a)(3)
Offer to Purchase for Cash
Up to 4,820,000 Outstanding Shares of Common Stock
(Including the Associated Rights)
of
GLOBAL MOTORSPORT GROUP, INC.
at
$21.75 Net per Share
by
Global Motorsport Group, Inc.
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON WEDNESDAY, AUGUST 12, 1998, UNLESS THE
OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
</TABLE>
To Our Clients:
Enclosed for your consideration are an Offer to Purchase, dated July 13,
1998 (the "Offer to Purchase"), and a related Letter of Transmittal (which, as
amended or supplemented from time to time, together constitute the "Offer")
relating to the offer by Global Motorsport Group, Inc., a Delaware corporation
(the "Company"), to purchase 4,820,000 outstanding shares of common stock, par
value $.001 per share (the "Common Stock"), including the associated rights to
purchase shares of Common Stock issued pursuant to the Rights Agreement between
the Company and American Stock Transfer and Trust Company, dated as of November
13, 1996 (the "Rights" and, together with the Common Stock, the "Shares"), of
the Company at a price of $21.75 per Share net to the seller in cash, without
interest, upon the terms and subject to the conditions set forth in the Offer.
The Offer is being made in connection with the Amended and Restated Agreement
and Plan of Merger (the "Merger Agreement"), dated as of June 28, 1998, by and
among the Company, Fremont Acquisition Company III, LLC, a Delaware limited
liability company, and GMS Acquisition Corp., a Delaware corporation. Also
enclosed is an Issuer Tender Offer Statement on Schedule 13E-4.
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 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.
Accordingly, we request instructions as to whether you wish to have us
tender on your behalf any or all of the Shares held by us (or our nominee) for
your account, upon the terms and subject to the condition set forth in the
Offer.
<PAGE>
Your attention is invited to the following:
1. The tender price is $21.75 per Share net to the seller in cash,
without interest.
2. The Offer is being made for 4,820,000 Shares.
3. The Board of Directors of the Company has unanimously approved the
Merger Agreement and the transactions contemplated thereby, has determined
that each of the Merger Agreement and the transactions contemplated thereby
are fair to, and in the best interests of, the Company and the holders of
the Common Stock and recommends that the Company's holders tender their
Shares in the Offer.
4. The Offer and withdrawal rights will expire at 5:00 p.m., New York
City time, on Wednesday, August 12, 1998, unless the Offer is extended.
5. Tendering stockholders will not be obligated to pay brokerage fees
or commissions or, except as otherwise provided in the Letter of
Transmittal, stock transfer taxes with respect to the purchase of Shares by
the Company pursuant to the Offer.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing, detaching and returning to us the instruction form
contained in this letter. An envelope in which to return your instructions 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
INSTRUCTIONS 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.
The Offer is made solely by the Offer to Purchase and the related Letter of
Transmittal and any supplements or amendments thereto and is being made to all
holders of Shares. The Offer is not being made to (nor will tenders be accepted
from or on behalf of) holders of Shares in any jurisdiction in which the making
of the Offer or the acceptance thereof would not be in compliance with the laws
of such jurisdiction. In any jurisdiction where securities, blue sky or other
laws require the Offer to be made by a licensed broker or dealer, the Offer will
be deemed to be made on behalf of the Company by one or more registered brokers
or dealers licensed under the laws of such jurisdiction.
2
<PAGE>
Instructions with respect to the Offer to Purchase for Cash
Up to 4,820,000 Shares of Common Stock (Including the Associated Rights)
of
Global Motorsport Group, Inc.
by
Global Motorsport Group, Inc.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated July 13, 1998, and the related Letter of Transmittal
(which, as amended or supplemented from time to time, together constitute the
"Offer") in connection with the offer by Global Motorsport Group, Inc., a
Delaware corporation (the "Company"), to purchase up to 4,820,000 outstanding
shares of common stock, par value $.001 per share (including the associated
rights to purchase common stock, the "Shares"), of the Company.
This will instruct you to tender the number of Shares indicated below (or,
if no number is indicated below, all Shares) that are held by you for the
account of the undersigned, upon the terms and subject to the conditions set
forth in the Offer.
<TABLE>
<CAPTION>
<S> <C>
Dated: ______________________, 199___ SIGN HERE
----------------------------------------------
----------------------------------------------
Signature(s) of Holder(s)
Number of Shares to be Tendered:
Name(s) of Holder(s)
______________________ Shares*
----------------------------------------------
----------------------------------------------
Please Type or Print
----------------------------------------------
Address
----------------------------------------------
Zip Code
----------------------------------------------
Area Code and Telephone Number
----------------------------------------------
Taxpayer Identification or Social Security Number
_______________
* Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered.
</TABLE>
3
<PAGE>
EXHIBIT (a)(4)
Offer to Purchase for Cash
Up to 4,820,000 Outstanding Shares of Common Stock
(Including the Associated Rights)
of
GLOBAL MOTORSPORT GROUP, INC.
at
$21.75 Net per Share
by
Global Motorsport Group, Inc.
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON WEDNESDAY, AUGUST 12, 1998, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
</TABLE>
July 13, 1998
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by Global Motorsport Group, Inc., a Delaware
corporation (the "Company"), to act as Information Agent in connection with the
Company's offer to purchase up to 4,820,000 outstanding shares of common stock,
par value $.001 per share (the "Common Stock"), including the associated rights
to purchase shares of Common Stock issued pursuant to the Rights Agreement
between the Company and American Stock Transfer and Trust Company, dated as of
November 13, 1996 (the "Rights" and, together with the Common Stock, the
"Shares"), of the Company at a price of $21.75 per Share, net to the seller in
cash, without interest, upon the terms and subject to the conditions set forth
in the Company's Offer to Purchase, dated July 13, 1998 (the "Offer to
Purchase"), and the related Letter of Transmittal (which, as amended or
supplemented from time to time, together constitute the "Offer") enclosed
herewith. The Offer is being made in connection with the Amended and Restated
Agreement and Plan of Merger, dated as of June 28, 1998, by and among Fremont
Acquisition Company III, LLC, a Delaware limited liability company
("Purchaser"), the Company and GMS Acquisition Corp., a Delaware corporation
("Acquisition Sub"). 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.
<PAGE>
For your information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee we are enclosing
copies of the following documents:
1. Offer to Purchase;
2. Letter of Transmittal to tender Shares for your use and for the
information of your clients;
3. Notice of Guaranteed Delivery to be used to accept the Offer if
certificates for Shares are not immediately available or time will not
permit all required documents to reach the Depositary by the Expiration
Date (as defined in the Offer to Purchase) or if the procedure for book-
entry transfer cannot be completed on a timely basis;
4. An Issuer Tender Offer Statement on Schedule 13E-4 filed with the
Securities and Exchange Commission by the Company;
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;
6. Guidelines of the Internal Revenue Service 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 5:00 P.M., NEW YORK CITY TIME, ON
WEDNESDAY, AUGUST 12, 1998, UNLESS THE OFFER IS EXTENDED.
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 or timely confirmation of a book-entry
transfer of such Shares into the Depositary's account at the Book-Entry
Transfer Facility (as defined in the Offer to Purchase), (ii) a Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, or an Agent's Message (as defined in the
Offer to Purchase) in connection with a book-entry delivery, and (iii) any other
documents required by the Letter of Transmittal.
If holders of Shares wish to tender Shares, but cannot deliver such
holders' certificates or other required documents, or cannot comply with the
procedure for book-entry transfer, prior to the expiration of the Offer, a
tender may be effected by following the guaranteed delivery procedure described
in "THE TENDER OFFER--Section 3. Procedure for Tendering Shares" of the Offer
to Purchase.
2
<PAGE>
Neither the Company nor Purchaser will pay any fees or commissions to any
broker, dealer or other person (other than the Information Agent) for soliciting
tenders of Shares pursuant to the Offer. However, upon request, 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 the Letter of
Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to
MacKenzie Partners, Inc., the Information Agent, at the address 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
Information Agent at the address and telephone number set forth on the back
cover page of the Offer to Purchase.
Very truly yours,
MacKenzie Partners, Inc.
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL
AUTHORIZE YOU OR ANY OTHER PERSON TO ACT ON BEHALF OF OR AS THE
AGENT OF PURCHASER, ACQUISITION SUB, THE COMPANY, 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 DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
- --------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
EXHIBIT (a)(5)
NOTICE OF GUARANTEED DELIVERY
for
Tender of Shares of Common Stock
(Including the Associated Rights)
of
GLOBAL MOTORSPORT GROUP, INC.
at
$21.75 Net per Share
by
Global Motorsport Group, Inc.
(Not to be Used for Signature Guarantees)
This Notice of Guaranteed Delivery, or one substantially in the form
hereof, must be used to accept the Offer (as defined below) if certificates
evidencing shares of common stock, par value $.001 per share (the "Common
Stock"), including the associated rights to purchase shares of Common Stock
issued pursuant to the Rights Agreement between Global Motorsport Group, Inc., a
Delaware corporation (the "Company"), and American Stock Transfer and Trust
Company, dated as of November 13, 1996 (the "Rights" and, together with the
Common Stock, the "Shares"), of the Company are not immediately available or
time will not permit all required documents to reach American Stock Transfer &
Trust Company as Depositary (the "Depositary"), prior to the Expiration Date (as
defined in "THE TENDER OFFER--Section 1. Terms of the Offer" of the Offer to
Purchase (as defined below)) or the procedure for delivery by book-entry
transfer cannot be completed on a timely basis. This Notice of Guaranteed
Delivery may be delivered by hand or transmitted by telegram, facsimile
transmission or mail to the Depositary. See "THE TENDER OFFER--Section 3.
Procedure for Tendering Shares" of the Offer to Purchase.
The Depositary for the Offer is:
American Stock Transfer & Trust Company
<TABLE>
<CAPTION>
<S> <C>
By Mail, Hand or Overnight Delivery: By Facsimile Transmission:
40 Wall Street (For Eligible Institutions Only)
46th Floor (718) 234-5001
New York, New York 10005
Confirm Receipt of Facsimile
by Telephone:
(718) 921-8200
</TABLE>
NEITHER DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER
THAN AS SET FORTH ABOVE NOR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE
TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL CONSTITUTE A VALID
DELIVERY.
<PAGE>
This form is not to be used to guarantee signatures. If a signature on a
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.
2
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Global Motorsport Group, Inc., a Delaware
corporation, upon the terms and subject to the conditions set forth in the Offer
to Purchase, dated July 13, 1998 (the "Offer to Purchase"), and the related
Letter of Transmittal (which, as amended or supplemented from time to time,
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 in "THE TENDER OFFER--Section 3. Procedure for
Tendering Shares" of the Offer to Purchase.
Series and Certificate Nos. of Shares (if available):
<TABLE>
<CAPTION>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 Name(s) of Record Holder(s)
Certificate Nos.
--------------------------- ------------------------------------------------
Number of Shares Tendered
---------------- ------------------------------------------------
PLEASE TYPE OR PRINT
------------------------------------------------
Address(es):
-----------------------------------
------------------------------------------------
ZIP CODE
Tel. No.: ( )
---------------------------------------
(Area Code)
Signature(s):
-----------------------------------
Dated:
-----------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Check box if Shares will be delivered by
book-entry transfer: [ ]
Account No.:
--------------------------
3
<PAGE>
GUARANTEE
(NOT TO BE USED FOR THE SIGNATURE GUARANTEE)
The undersigned, an Eligible Institution (as defined in the Offer to
Purchase), hereby guarantees delivery to the Depositary, at its address set
forth above, certificates ("Share Certificates") evidencing the Shares
tendered hereby, in proper form for transfer, or confirmation of book-entry
transfer of such Shares into the Depositary's account at The Depositary Trust
Company, in each case with delivery of a Letter of Transmittal (or facsimile
thereof) properly completed and duly executed, or an Agent's Message (as
defined in the Offer to Purchase) in the case of a book-entry delivery, and any
other required documents, all within three NASDAQ National Market System
trading days.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and Share
Certificates to the Depositary within the time period shown herein. Failure to
do so could result in a financial loss to such Eligible Institution.
<TABLE>
<CAPTION>
<S> <C>
- ----------------------------------- -----------------------------------
Name of Firm Authorized Signature
Title:
- ----------------------------------- ---------------------------
Address
Name:
- ----------------------------------- ----------------------------
Zip Code Please Type or Print
Dated: , 199
- ----------------------------------- ---------------------- -
Telephone No. (including Area Code)
</TABLE>
DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE. SHARE CERTIFICATES SHOULD BE
SENT WITH YOUR LETTER OF TRANSMITTAL.
4
<PAGE>
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, e.g., 000-00-
0000. Employer identification numbers have nine digits separated by only one
hyphen, e.g., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
GIVE THE GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF-- NUMBER OF--
- ------------------------------------------------------------------ --------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 8. Sole proprietorship The owner(4)
account
2. Two or more individuals The actual owner of the 9. A valid trust, estate, The legal entity (do not
(joint account) account or, if combined or pension trust furnish the identifying
funds, the first individual on number of the personal
the account(1) representative or trustee
unless the legal entity itself
is not designated in the
account title)(5)
3. Husband wife (joint The actual owner of the 10. Corporate account The corporation
account) account or, if joint funds,
either person(1)
4. Custodian account of a mi- The minor(2) 11. Religious, charitable, The organization
nor (Uniform Gift to Minors or educational organi-
Act) zation account
5. Adult and minor (joint ac- The adult or, if the minor is 12. Partnership account The partnership
count) the only contributor, the held in the name of the
minor(1) business
6. Account in the name of The ward, minor, or incom- 13. Association, club, or The organization
guardian or committee for a petent person(3) other tax-exempt orga-
designated ward, minor, or nization
incompetent person
7. a. A revocable savings The grantor-trustee(1) 14. A broker or registered The broker or nominee
trust account (in which nominee
grantor is also trustee)
b. Any "trust" account The actual owner(1) 15. Account with the De- The public entity
that is not a legal or partment of Agricul-
valid trust under State ture in the name of a
law public entity (such as a
State or local govern-
ment, 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. If the owner does not have an employer
identification number, furnish the owner's social security number.
(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>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain form SS-5, Application for a Social Security Number Card (for
resident individuals), Form SS-4, Application for Employer Identification Number
(for businesses and all other entitites), or Form W-7 for International
Taxpayer Identification Number (for alien individuals required to file U.S. tax
returns), at an office of the Social Security Administration or the Internal
Revenue Service.
To complete Substitute Form W-9, if you do not have a taxpayer identification
number, write "Applied For" in the space for the taxpayer identification number
in Part I, sign and date the Form, and give it to the requester. Generally, you
will then have 60 days to obtain a taxpayer identification number and furnish it
to the requester. If the requester does not receive your taxpayer
identification number within 60 days, backup withholding, if applicable, will
begin and will continue until you furnish your taxpayer identification number to
the requester.
PAYEES EXEMPT FROM BACKUP WITHHOLDING PENALTIES
Payees specifically exempted from backup withholding on ALL payments include the
following:*
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under section 403(b)(7).
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or any
political subdivision or instrumentality thereof.
. A foreign government or a political subdivision, agency or instrumentality
thereof.
_______________
* Unless otherwise noted herein, all references to section numbers or to
regulations are references to the Internal Revenue Code and the regulations
promulgated thereunder.
. An international organization or any agency or instrumentality thereof.
. A registered dealer in securities or commodities registered in the United
States or a possession of the United States.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An entity registered at all times during the tax year 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.
. Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident 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 (i) this interest is $600 or more, (ii) the
interest is paid in the course of the payer's trade or business and (iii) you
have not provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
<PAGE>
EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE A SUBSTITUTE FORM W-9 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,
SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
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 the regulations under sections 6041, 6041A(a), 6045, and 6050A.
PRIVACY ACT NOTICES. Section 6109 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 identifi cation 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 STATEMENTS 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.-- If you falsify certifications
or affirmations, you are subject to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
EXHIBIT (a) (7)
Copyright 1998 Business Wire, Inc.
Business Wire
JUNE 29, 1998, Monday
----
DISTRIBUTION: Business Editors
LENGTH: 832 words
HEADLINE: GLOBAL MOTORSPORT Group Enters Into Definitive Merger Agreement With
-----------------
Fremont; $21.75 Self Tender Offer for approximately 94% of Common Shares to
Begin by July 13
DATELINE: MORGAN HILL, CA
BODY:
June 29, 1998--GLOBAL MOTORSPORT Group, Inc. (formerly Custom Chrome,
-----------------
Inc.)(NASDAQ:CSTM) announced today that it has entered into a definitive merger
agreement whereby Global will be acquired by an entity controlled by Fremont
Partners.
The transaction will take the form of a self tender offer by Global for
approximately 94% of its publicly held shares at $21.75 in cash net per share
and a simultaneous purchase of 2,666,667 newly issued Global shares by Fremont
at a price of $21.75 per share. In the event that more than approximately 94% of
the publicly held shares are tendered, shares will be purchased on a prorated
basis and stockholders will retain an equity interest in Global equal to the
number of shares not purchased as a result of such proration. The tender offer
is being made for approximately 94% of the publicly held shares in order to
obtain the desired accounting treatment. If fewer than approximately 90%, but
greater than 51% of the publicly held shares are tendered, the offer will be
followed by a merger in which the remaining shares will receive a combination of
cash and stock (based on a purchase price of $21.75 per share) adjusted so that
following the completion of the offer and the merger the company's existing
stockholders will continue to own approximately 6% of the shares currently
outstanding. The tender offer is subject to customary terms and conditions,
including at least 51% of the shares being tendered and the obtaining of
sufficient financing by Fremont.
The company intends to commence the tender offer within 10 business days.
Certain members of Global's management and Board have agreed to retain and
not tender a portion of the shares of stock personally owned by them or
acquirable upon exercise of outstanding options. These shares represent approxi
mately 1.6% of the shares outstanding. All other shares owned by management and
the Board will be tendered in the offer.
Global's Board has unanimously recommended that stockholders accept the offer
and tender their shares and has received a fairness opinion from Global's
financial advisor, Cleary Gull Reiland & McDevitt, Inc.
Mark Williamson of Fremont stated, "We are satisfied with the completion of
our due diligence and are happy we were able to reach an agreement at $21.75 per
share. We look forward to working with management of the company to close
successfully the transaction."
<PAGE>
Joseph F. Keenan, Chairman of the Board, stated, "I am very pleased with this
agreement, which I believe is in the best interest of all of our stockholders.
Our association with Fremont Partners will also allow the company to expand on
its position as the number one supplier of Harley-Davidson aftermarket parts."
Fremont Partners L.P. and certain affiliated entities (collectively
"Fremont"), is a private equity fund headquartered in San Francisco with
committed capital of $605 million. Fremont is part of the Fremont Group, a
private investment company with over $9 billion of assets under management.
Among the companies where Fremont and its affiliates have had significant roles
are: Crown Pacific Partners, L.P. (timber and forest products; NYSE:CRO);
Coldwell Banker Corporation (residential real estate services); Kerr Group, Inc.
(specialty plastic closures); Kinetic Concepts, Inc. (international healthcare
services and medical devices); and Sun Coast Industries, Inc. (specialty plastic
closures).
GLOBAL MOTORSPORT Group was founded in 1970 and it is the parent organization
-----------------
for an international group of motorcycle aftermarket providers that focus their
business on Harley-Davidson motorcycles sold worldwide. Global's organization
includes Custom Chrome, the leading aftermarket supplier of Harley-Davidson
motorcycle parts and accessories; Chrome Specialties, an aftermarket supplier of
Harley-Davidson motorcycle parts and accessories located in Fort Worth, Texas;
Custom Chrome Far East, a product development, engineering, tooling management
and warehouse of proprietary products for Global, located in Taiwan; Custom
Chrome Europe, a distribution company located in Germany that specializes in
aftermarket accessories for Harley-Davidson motorcycles and other "cruiser"
motorcycles; and Santee Industries, a manufacturer of frames and exhaust systems
and other aftermarket components for Harley-Davidson motorcycles, located in
California.
emb/ny* csm
CONTACT: James J. Kelly
(408) 778-2271
or
Daniel Burch or Grace Protos
MacKenzie Partners, Inc.
(212) 929-5748 / (212) 929-5802
Today's News On The Net - Business Wire's full file on the Internet
with Hyperlinks to your home page.
URL: http://www.businesswire.com
LANGUAGE: ENGLISH
LOAD-DATE: June 30, 1998
2
<PAGE>
EXHIBIT (a) (8)
THIS ANNOUNCEMENT IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION OF AN OFFER
TO SELL SHARES (AS DEFINED BELOW). THE OFFER (AS DEFINED BELOW) IS MADE SOLELY
BY THE OFFER TO PURCHASE DATED JULY 13, 1998 (THE "OFFER TO PURCHASE") AND THE
RELATED LETTER OF TRANSMITTAL AND IS BEING MADE TO ALL HOLDERS OF SHARES. 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 WITH SUCH STATE STATUTE. 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 SECURITIES, BLUE SKY OR OTHER
LAWS REQUIRE THE OFFER TO BE MADE BY A LICENSED BROKER OR DEALER, THE OFFER WILL
BE DEEMED TO BE MADE ON BEHALF OF THE COMPANY (AS DEFINED BELOW) BY ONE OR MORE
REGISTERED BROKERS OR DEALERS LICENSED UNDER THE LAWS OF SUCH JURISDICTION.
Notice of Offer to Purchase for Cash
by Global Motorsport Group Inc.
Up to 4,820,000 Shares of its Common Stock
(Including the Associated Rights)
at
$21.75 Net per Share
Global Motorsport Group Inc., a Delaware corporation formerly known as
Custom Chrome, Inc. (the "Company"), is offering to acquire up to 4,820,000
shares of common stock, par value $0.001 per Share ("Common Stock"), of the
Company, including the associated rights to purchase shares of Common Stock (the
"Rights" and, together with the Common Stock, the "Shares")issued pursuant to
the Rights Agreement, dated as of November 13, 1996, by and between the Company
and American Stock Transfer and Trust Company, as Rights Agent, for $21.75 per
Share, net to the seller in cash (such price, or any such higher price per Share
as may be paid in the Offer, the "Per Share
<PAGE>
Amount") upon the terms and subject to the conditions set forth in the Offer to
Purchase and in the related Letter of Transmittal (which, together with the
Offer to Purchase and any amendments or supplements to the Offer to Purchase
and the related Letter of Transmittal, collectively constitute the "Offer").
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON WEDNESDAY, AUGUST 12,1998, UNLESS THE OFFER IS EXTENDED.
The Offer is being made pursuant to the Amended and Restated Agreement and
Plan of Merger, dated as of June 28, 1998 (the "Merger Agreement"), by and
between Fremont Acquisition Company III, LLC, a Delaware limited liability
company ("Purchaser"), GMS Acquisition Corp., a newly formed Delaware
corporation and a wholly owned subsidiary of the Company ("Acquisition Sub"),
and the Company. The Merger Agreement provides that, among other things, the
Company will accept for payment, purchase and pay for not more than 4,820,000
Shares (the "Tender Offer Number") so that the holders of all Shares in excess
of such number will remain stockholders of the Company after the Offer. In the
event that a number of Shares greater than the Tender Offer Number is tendered,
the Company will purchase Shares on a pro rata basis, and each tendering
stockholder will thus retain an equity interest in the Company. See "SPECIAL
FACTORS--Section 4. Proration" of the Offer to Purchase. Under this scenario,
the Merger (as defined below) will not be effected. If the number of Shares
tendered and not withdrawn prior to the expiration of the Offer is equal to or
greater than the Minimum Condition (as defined below) but less than the Tender
Offer Number, as soon as practicable after consummation of the Offer and
satisfaction or waiver, if permissible, of all conditions to the Merger,
Acquisition Sub will be merged with and into the Company and the separate
corporate existence of Acquisition Sub will thereupon cease. The Merger, as
effected pursuant to the immediately preceding sentence, is referred to herein
as the "Merger" and the Company, as the surviving corporation in the Merger, is
sometimes referred to as the "Surviving Corporation." At the effective time of
the Merger (the "Effective Time"), each share of Common Stock outstanding (other
than Shares held by Purchaser or its affiliates, 87,979 Shares held by the
Management Stockholders (as defined
2
<PAGE>
below) and Shares held by stockholders who perfect their appraisal rights under
Delaware law) will be cancelled and extinguished and converted into the right to
receive consideration consisting of cash and stock of the Surviving Corporation
(at a price of $21.75 per Share), prorated such that the Company's existing
stockholders will retain an equity interest of approximately 6% in the Company
(based on the number of shares presently outstanding). Each Share held by
Purchaser or any affiliate of Purchaser, and 87,979 Share held by the
Management Stockholders, will remain outstanding. See "SPECIAL FACTORS--Section
4. Proration" and "THE OFFER AND MERGER--Section 12. The Agreement and Plan of
Merger; Stockholder Agreement" of the Offer to Purchase.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY (THE "TRANSACTIONS"),
INCLUDING THE OFFER AND THE MERGER, ARE FAIR TO, AND IN THE BEST INTERESTS OF,
THE STOCKHOLDERS OF THE COMPANY, HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS, INCLUDING THE OFFER AND THE MERGER AND RECOMMENDS THAT THE
STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER, THAT NUMBER OF
SHARES THAT REPRESENTS AT LEAST A MAJORITY OF THE SHARES OUTSTANDING OF COMMON
STOCK ON A FULLY DILUTED BASIS (THE "MINIMUM CONDITION"), AND (II) THE COMPANY
OBTAINING DEBT FINANCING (AS DEFINED IN THE OFFER TO PURCHASE). As used herein
"fully diluted basis" takes into account the conversion or exercise of all
outstanding options and other rights and securities exercisable or convertible
into Common Stock.
Pursuant to the Merger Agreement, the Company has agreed to sell to
Purchaser, and Purchaser has agreed to purchase from the Company, upon the terms
and subject to the conditions set forth in the Merger Agreement, 2,666,667
Shares (the "Purchaser Shares") for an aggregate amount equal to the number of
Purchaser Shares multiplied by the Per Share Amount.
3
<PAGE>
The Board of Directors of the Company has received a written opinion, dated
June 28, 1998, of Cleary Gull Reiland & McDevitt, Inc. to the effect that, as of
that date, and based upon the assumptions contained therein, the consideration
to be received by the Company's stockholders pursuant to the Offer and/or the
consideration to be received by the Company's stockholders pursuant to the
Merger (other than Purchaser and the Management Stockholders) is fair from a
financial point of view to such stockholders.
As a condition and inducement to Purchaser entering into the Merger
Agreement, concurrently with the execution of the Merger Agreement, certain
management stockholders of the Company (the "Management Stockholders") entered
into a stockholder agreement, dated as of June 28, 1998, pursuant to which, the
Management Stockholders agreed not to tender 87,979 Shares held by them or
Shares acquirable by them upon exercise of outstanding stock options. Each of
the Management Stockholders who is an employee of the Company and Purchaser have
agreed to use their good faith to negotiate and enter into agreements pursuant
to which, under certain circumstances following consummation of the Offer, the
Company will have the right to buy from such Management Stockholder, and such
Management Stockholder will have the right to sell to the Company, Shares held
by such Management Stockholder.
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, with Purchaser's prior written consent,
gives oral or written notice to American Stock Transfer & Trust Company (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. 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) certificates evidencing
4
<PAGE>
such Shares ("Share Certificates") or a timely confirmation of a book-entry
transfer of such Shares into the Depositary's account at the Book-Entry Transfer
Facility (as defined in "THE TENDER OFFER--Section 3. Procedure for Tendering
Shares" of the Offer to Purchase) pursuant to the procedure set forth in "THE
TENDER OFFER--Section 3. Procedure for Tendering Shares" of the Offer to
Purchase, (ii) the Letter of Transmittal relating to the Offer (or 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 in "THE TENDER OFFER--Section 3. Procedure for Tendering Shares" of the
Offer to Purchase) and (iii) any other documents required by the Letter of
Transmittal relating to the Offer. The Per Share Amount paid to any holder of
Common Stock pursuant to the Offer will be the highest per share consideration
paid to any other holder of such shares pursuant to the Offer. UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE TO BE PAID BY THE
COMPANY FOR THE SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN
MAKING SUCH PAYMENT.
The Company will, if directed by Purchaser (subject to the terms and
conditions of the Merger Agreement), extend for any reason the time period
during which the Offer is open, including the occurrence of any condition
specified in "THE TENDER OFFER--Section 12. Certain Conditions of the Offer" of
the Offer to Purchase, by giving oral or written notice of such extension to the
Depositary. Any such extension will be followed as promptly as practicable by
public announcement thereof, such announcement to be made no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date (as defined below) of the Offer. 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 his
Shares.
The term "Expiration Date" means 5:00 p.m., New York City time, on
Wednesday, August 12, 1998, unless and until the Company, at the direction of
Purchaser (but subject to the terms and conditions of the Merger Agreement),
extends the period of time during which the Offer is open, in which event the
term "Expiration Date" will
5
<PAGE>
mean the latest time and date at which the Offer, as so extended by the Company,
will expire.
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 September 10, 1998. For the
withdrawal to be effective, a written notice of withdrawal must be timely
received by the Depositary at its address set forth on the back cover page of
the 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 (as defined in "THE TENDER OFFER--Section 3.
Procedure for Tendering Shares" of the Offer to Purchase), 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 TENDER OFFER--Section3. Procedure for Tendering Shares" of the Offer to
Purchase, any notice of withdrawal must specify the name and number of the
account at the Book-Entry Transfer Facility and otherwise comply with the Book-
Entry Transfer Facility's procedures.
All questions as to the form and validity (including the time of receipt)
of any notice of withdrawal will be determined by the Company, in its sole
discretion, which determination will be final and binding. None of the Company,
Purchaser, the Depositary, 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.
The information required to be disclosed by Rule 13e-4(d)(1) under the
Securities Exchange Act of 1934, as
6
<PAGE>
amended, is contained in the Offer to Purchase and is incorporated herein by
reference.
The Offer to Purchase, the related Letter of Transmittal and other
relevant documents will be mailed by the Company to record holders of Shares
whose names appear on the Company's stockholder list, and will be furnished 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, for subsequent transmittal to beneficial owners of Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION AND SHOULD BE READ IN THEIR ENTIRETY BEFORE ANY DECISION
IS MADE WITH RESPECT TO THE OFFER.
Questions and requests for assistance or for additional copies of the
Offer to Purchase and the related Letter of Transmittal and other tender offer
materials may be directed to the Information Agent, at the address and telephone
numbers set forth below, and copies will be furnished at the Company's expense.
The Company will not pay any fees or commissions to any broker or dealer or
other person (other than the Information Agent) for soliciting tenders of Shares
pursuant to the Offer.
The Information Agent for the Offer is:
[Graphic - MacKenzie Partners, Inc.]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
July 13, 1998
7
<PAGE>
EXHIBIT (a)(10)
GLOBAL MOTORSPORT GROUP, INC.
July 13, 1998
Dear Stockholder:
On behalf of the Board of Directors of Global Motorsport Group, Inc. (the
"Company"), I am pleased to inform you that the Company has entered into an
Amended and Restated Agreement and Plan of Merger, dated as of June 28, 1998,
as amended July 10, 1998 (the "Merger Agreement"), with Fremont Acquisition
Company III, LLC and GMS Acquisition Corp., pursuant to which the Company has
commenced a tender offer (the "Offer") to purchase for cash up to 4,820,000
(the "Tender Offer Number") outstanding shares of its Common Stock, $0.001 per
value per share ("Shares"), at $21.75 per Share, net to seller in cash.
The Merger Agreement provides that if the number of Shares tendered and not
withdrawn prior to the expiration of the Offer is greater than the Tender
Offer Number, then each Share so tendered will receive as consideration a
combination of cash and stock on a pro rata basis. The Merger Agreement also
provides that if the number of Shares tendered and not withdrawn prior to
expiration of the Offer is equal to or greater than a majority of the
outstanding Shares on a fully diluted basis but less than or equal to the
Tender Offer Number, then the Company will pay for all such Shares and the
Company and GMS Acquisition may effect the Merger as described in the enclosed
Offer to Purchase.
The Board of Directors of the Company has unanimously determined that the
Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger, are fair to, and in the best interests of, the
stockholders. The Board has also unanimously approved the Offer, the Merger
and the Merger Agreement and recommends that stockholders accept the Offer and
tender their Shares to the Company pursuant to the Offer.
In arriving at its decision, the Board gave careful consideration to a
number of factors described in the enclosed Offer to Purchase, which is an
exhibit to the Company's Tender Offer Statement on Schedule 13E-4 being filed
today with the Securities and Exchange Commission. The enclosed Offer to
Purchase describes the Board's decisions and contains other important
information relating to such decisions.
Also accompanying this letter is a Letter of Transmittal to be used for
tendering your Shares. The Offer to Purchase and Letter of Transmittal set
forth the terms and conditions of the Offer and provide instructions as to how
to tender your Shares. We urge you to read the enclosed materials carefully
and consider all factors set forth therein before making your decision with
respect to the Offer.
On behalf of the Board of Directors, management and employees of Global
Motorsport Group, Inc., I thank you for the support you have given the
Company.
Very truly yours,
/s/ Joseph F. Keenan
Joseph F. Keenan
Chairman of the Board
<PAGE>
EXHIBIT (b)(1)
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
231 South LaSalle Street
Chicago, Illinois 60697
BANKERS TRUST COMPANY
One Bankers Trust Plaza
New York, New York 10006
BANCAMERICA ROBERTSON STEPHENS
231 South LaSalle Street
Chicago, Illinois 60697
June 28, 1998
$55,000,000 Senior Credit Facilities
Commitment Letter
-----------------
Fremont Acquisition Company III, LLC
50 Fremont Street, Suite 3700
San Francisco, California 94105
Attn: Mark Williamson, Managing Director
Ladies and Gentlemen:
You have advised BancAmerica Robertson Stephens ("BARS"), Bank of
America National Trust and Savings Association ("Bank of America") and Bankers
Trust Company ("BT") that Fremont Acquisition Company III, LLC or a wholly owned
or controlled affiliate thereof approved by us ("Fremont") and other potential
investors ("Investors" and, together with Fremont, the "Buyers") intend to
invest in a leveraged recapitalization transaction (the "Recapitalization")
involving Global Motorsport Group, Inc. ("Target") pursuant to an Agreement and
Plan of Merger (the "Acquisition Agreement"). We understand that the
Recapitalization will be accomplished through the repurchase by Target pursuant
to a self tender offer (the "Tender Offer") of shares of its common stock
(including options) (collectively, the "Shares"), other than shares of common
stock (the "Rollover Shares") which will continue to be held by certain
shareholders and by an existing group of managers and executives of the Target
(collectively, the "Rollover Shareholders"),
1
<PAGE>
for a maximum aggregate repurchase price not exceeding $106,000,000, provided
that if more than 50% but less than approximately 92% of Target's outstanding
common stock is acquired in connection with such repurchase, the remaining
shares of common stock of Target (other than the Rollover Shares) may be
converted, in a merger following such repurchase, into the right to receive a
portion of the purchase price for such shares and common stock in Target. As
part of the Recapitalization, Target will contribute all of its assets to a
newly formed wholly-owned subsidiary (the "Borrower"), and Target will remain
the direct parent of the Borrower. On the Acquisition Closing Date (as
hereinafter defined), Fremont will own or control, directly or indirectly, at
least 51% on a fully diluted basis of the outstanding Shares (not including for
purposes of this calculation the Rollover Shares) of Target and Target will own
100% of the capital stock of the Borrower (in such capacity Target is sometimes
referred to herein as "HoldCo"). The majority of the remaining shares of
Target's common stock not owned by Fremont may be owned by the Rollover
Shareholders. References herein to the "Acquisition" shall include the
financings and all transactions related to the Recapitalization.
You have also advised us that you propose to finance the
Recapitalization (including the refinancing of existing indebtedness) and the
related premiums, fees and expenses from the following sources: (a) HoldCo will
receive a total of at least $67,600,000 of equity contributions consisting of at
least $58,000,000 in new equity contributions and $9,600,000 of rolled over or
continuing equity, all on terms to be agreed upon by you and us prior to the
consummation of the Recapitalization, (b) Borrower will, concurrently with the
consummation of the Recapitalization, require senior secured credit facilities
(such credit facilities, the "Senior Credit Facilities" and each of which may be
referred to as a "Senior Credit Facility") comprised of a $30,000,000 revolving
credit facility (the "Revolving Credit Facility"), which will be available for
ongoing working capital requirements and other corporate purposes (including
permitted acquisitions) of the Borrower and its subsidiaries and a $25,000,000
term loan facility (the "Term Loan B Credit Facility"), (c) Borrower will
require at least $80,000,000 in cash proceeds from the issuance of senior
unsecured notes (the "Senior Notes") in a public offering or Rule 144A private
placement and (d) HoldCo will require $25,000,000 in cash proceeds from the
issuance of senior discount notes (the "HoldCo Senior Discount Notes") in a
public offering or Rule 144A private placement.
BARS is pleased to advise you that it is willing to act as exclusive
arranger for the Senior Credit Facilities. Bank of America is pleased to advise
you of its commitment to provide 80% of the entire amount of the Senior Credit
Facilities and BT is pleased to advise you of its commitment to provide the
remaining 20% of the entire amount of the Senior Credit Facilities. These
commitments are several and not joint. The Statement of Terms and Conditions
attached hereto as Exhibit A (the "Senior Credit Facilities Term Sheet"), sets
forth the principal terms and conditions on and subject to which Bank of America
and BT are willing to make the Senior Credit Facilities available.
It is agreed that Bank of America will act as the sole and exclusive
administrative agent in respect of the Senior Credit Facilities, that BT will
act as sole and exclusive documentation agent in respect of the Senior Credit
Facilities and that BARS will act as the sole and exclusive arranger in respect
of the Senior Credit Facilities, and Bank of America, BT and BARS will, in such
capacities, perform the duties and exercise the authority customarily performed
and exercised by them in such roles. You agree that no other agents, co-agents
or arrangers will be appointed, no other titles will be awarded and no
compensation (other than that expressly contemplated by the Senior Credit
Facilities Term Sheet, and the Fee Letter referred to below) will be paid in
connection with the Senior Credit Facilities unless you and we shall so agree.
2
<PAGE>
BARS intends to syndicate the Senior Credit Facilities to a group of
financial institutions identified by Bank of America in consultation with you
(the financial institutions participating in any such syndication or
syndications are, together with Bank of America and BT, sometimes collectively
referred to herein as the "Lenders"). BARS intends to commence syndication
efforts relating to the Senior Credit Facilities promptly, and you agree
actively to assist BARS in completing any syndication efforts in a manner
satisfactory to it. Such assistance shall include (a) your using reasonable
efforts to ensure that the syndication efforts benefit materially from the
existing banking relationships of the Buyers, the Target and their respective
affiliates, (b) direct contact between senior management and advisors of the
Buyers and the Target and the proposed Lenders, (c) assistance in the
preparation of a confidential information memorandum and other marketing
materials to be used in connection with any syndication and (d) the hosting,
with BARS, of one or more meetings of prospective Lenders.
BARS, in consultation with you and BT, will manage all aspects of any
syndication, including decisions as to the selection of institutions to be
approached and when they will be approached, when their commitments will be
accepted, which institutions will participate, the allocations of the
commitments among the Lenders and the amount and distribution of fees among the
Lenders. To assist BARS in its syndication efforts, you agree promptly to
prepare and provide to BARS, Bank of America and BT all information with respect
to Borrower, the Target and their respective subsidiaries, the Acquisition and
the other transactions contemplated hereby, including all financial information
and projections (the "Projections"), as we may reasonably request in connection
with the arrangement and syndication of the Senior Credit Facilities. You
hereby represent and covenant that (a) all information other than the
Projections (the "Information") that has been or will be made available to Bank
of America, BT or BARS by you or any of your representatives (in each case, with
respect to Information furnished to Bank of America, BT or BARS prior to the
date of commencement of the syndication of the Senior Credit Facilities, as
supplemented promptly from time to time) is or will be, to the best of your
knowledge, complete and correct in all material respects and does not or will
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements contained therein not materially
misleading in light of the circumstances under which such statements are made
and (b) the Projections that have been or will be made available to Bank of
America, BT or BARS by you or any of your representatives have been or will be
prepared in good faith based upon assumptions you believe to be reasonable (it
being understood that the Projections are subject to significant uncertainties
and contingencies, many of which are beyond your control, and that no assurance
can be given that such Projections will be realized). You understand that in
arranging and syndicating the Senior Credit Facilities we may use and rely on
the Information and Projections without independent verification thereof.
As consideration for Bank of America's and BT's commitments hereunder
and BARS's agreement to perform the services described herein, you agree to pay,
or to cause the Borrower to pay, to Bank of America and BT the nonrefundable
fees set forth in the Senior Credit Facilities Term Sheet and in the fee letter
dated the date hereof and delivered herewith (the "Fee Letter").
Bank of America, BT and BARS shall be entitled with your consent,
which shall not be unreasonably withheld, to change the structure or amount of,
or to eliminate, any of the Senior Credit Facilities if Bank of America, BT and
BARS determine that such changes are advisable in order to ensure a successful
syndication or an optimal credit structure and if the aggregate amount of the
Senior Credit Facilities shall remain unchanged.
3
<PAGE>
Bank of America's and BT's commitments hereunder and BARS's agreement
to perform the services described herein are subject to (a) our completion of
and satisfaction in all respects with a due diligence investigation of Borrower,
the Target and their respective subsidiaries (including meetings with the
management of the Target), (b) there not occurring or becoming known to us any
change, occurrence or development that would reasonably be expected to have a
material adverse effect on the business, assets, liabilities, condition
(financial or otherwise), future prospects or results of operations of Borrower,
the Target and their respective subsidiaries, taken as a whole, (c) our not
becoming aware after the date hereof of any material negative information or
other matter affecting Borrower, the Target and their respective subsidiaries
taken as a whole or the transactions contemplated hereby which is inconsistent
in a material and adverse manner with any such information or other matter
disclosed to us prior to the date hereof, (d) there not having occurred and
being continuing a material disruption of or material adverse change in the
financial, banking or capital markets generally affecting credit facilities
similar to the Senior Credit Facilities which, in our reasonable judgment, could
reasonably be expected to materially impair the syndication of the Senior Credit
Facilities, (e) our satisfaction that prior to and during the syndication of the
Senior Credit Facilities there shall be no competing offering, placement or
arrangement of any debt securities (other than the Senior Notes and the HoldCo
Senior Discount Notes) or bank financing by or on behalf of Borrower, HoldCo,
the Target or any of their respective affiliates, (f) the negotiation, execution
and delivery on or before September 30, 1998 of customary definitive
documentation with respect to the Senior Credit Facilities satisfactory to Bank
of America, BT, BARS and their respective counsel, and (g) the other conditions
set forth or referred to in the Senior Credit Facilities Term Sheet.
You agree (a) to indemnify and hold harmless Bank of America, BT,
BARS, their affiliates and their respective officers, directors, employees,
advisors, and agents (each, an "indemnified person") from and against any and
all losses, claims, damages and liabilities to which any such indemnified person
may become subject arising out of or in connection with this Commitment Letter,
the Senior Credit Facilities, the use of the proceeds thereof, the Acquisition
or any related transaction or any claim, litigation, investigation or proceeding
relating to any of the foregoing, regardless of whether any indemnified person
is a party thereto, and to reimburse each indemnified person upon demand for any
customary legal or other expenses incurred in connection with investigating or
defending any of the foregoing, provided that the foregoing indemnity will not,
--------
as to any indemnified person, apply to losses, claims, damages, liabilities or
related expenses to the extent they are determined by a final judgment of a
court of competent jurisdiction to arise from the willful misconduct or gross
negligence of such indemnified person, and (b) to reimburse Bank of America, BT,
BARS and their affiliates on demand for all customary out-of-pocket expenses
(including due diligence expenses, syndication expenses, consultant's fees and
expenses, travel expenses, and reasonable fees, charges and disbursements of
counsel (including, without duplication of effort, allocated costs of internal
counsel)) incurred in connection with the Senior Credit Facilities and any
related documentation (including this Commitment Letter, the Senior Credit
Facilities Term Sheet, the Fee Letter and the definitive financing
documentation) or the administration, amendment, modification or waiver thereof.
No indemnified person shall be liable for any indirect or consequential damages
in connection with its activities related to the Facilities.
This Commitment Letter shall not be assignable by you (except to the
Borrower or to an affiliate of Fremont Acquisition Company III, LLC acceptable
to us) without the prior written consent of Bank of America, BT and BARS (and
any purported assignment without such consent shall be null and void), is
intended to be solely for the benefit of the parties hereto and is not intended
to confer any benefits upon, or create any rights in favor of, any person other
than the parties hereto and the Borrower. This Commitment Letter may not be
amended or waived except by an instrument in writing signed by each of you, Bank
of
4
<PAGE>
America, BT and BARS. This Commitment Letter may be executed in any number of
counterparts, each of which shall be an original, and all of which, when taken
together, shall constitute one agreement. Delivery of an executed signature page
of this Commitment Letter by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof. This Commitment Letter,
together with the Exhibits hereto and the Fee Letter are the only agreements
that have been entered into among us with respect to the Senior Credit
Facilities and set forth the entire understanding of the parties with respect
thereto. This Commitment Letter shall be governed by, and construed in
accordance with, the laws of the State of New York. All of your obligations
under this Commitment Letter and the Fee Letter shall be joint and several
obligations.
This Commitment Letter is delivered to you on the understanding that
neither this Commitment Letter, the Senior Credit Facilities Term Sheet or the
Fee Letter nor any of their terms or substance shall be disclosed, directly or
indirectly, absent our advance written consent to any other person prior to your
acceptance hereof except (a) to the officers, directors, agents and advisors of
the Buyers and, on a confidential basis, the Target who are directly involved in
the consideration of this matter or (b) as may be compelled in a judicial or
administrative proceeding or as otherwise required by law (in which case you
agree to inform us promptly thereof). In addition, you agree not to disclose
any portion of the contents of the Fee Letter at any time without our prior
written consent, except as may be required by applicable law.
The compensation, reimbursement, indemnification and confidentiality
provisions contained herein and in the Fee Letter shall remain in full force and
effect regardless of whether definitive financing documentation shall be
executed and delivered and notwithstanding the termination of this Commitment
Letter or Bank of America's or BT's commitments hereunder; provided, that your
--------
obligations under this Commitment Letter, other than those arising under the
fourth and twelfth paragraphs hereof, shall automatically terminate and be
superseded by the provisions of the definitive documentation relating to the
Senior Credit Facilities upon the initial funding thereunder, and you shall
automatically be released from all liability in connection therewith at such
time.
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof and of the Senior Credit Facilities Term
Sheet and the Fee Letter by returning to us executed counterparts hereof and of
the Fee Letter, not later than 5:00 p.m., Chicago time, on June 30, 1998. Bank
of America's and BT's commitments and BARS' agreements herein will expire at
such time in the event Bank of America has not received such executed
counterparts in accordance with the immediately preceding sentence.
5
<PAGE>
Bank of America, BT and BARS are pleased to have been given the
opportunity to assist you in connection with this important financing.
Very truly yours,
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:_____________________________
Name:______________________
Title:_____________________
BANKERS TRUST COMPANY
By:_____________________________
Name:______________________
Title:_____________________
BANCAMERICA ROBERTSON STEPHENS
By:_____________________________
Name:______________________
Title:_____________________
Accepted and agreed to as of
the date first written above:
FREMONT ACQUISITION COMPANY III, LLC
By:_____________________________
Name:______________________
Title:_____________________
6
<PAGE>
EXHIBIT A
---------
SENIOR CREDIT FACILITIES
Statement of Terms and Conditions
$55,000,000
Fremont Acquisition Company III, LLC or a wholly owned or controlled
affiliate thereof approved by us ("Fremont") and other potential investors
("Investors" and, together with Fremont, the "Buyers") intend, to invest in a
leveraged recapitalization transaction (the "Recapitalization") involving Global
Motorsport Group, Inc. ("Target") pursuant to an Agreement and Plan of Merger
(the "Acquisition Agreement"). We understand that the Recapitalization will be
accomplished through the repurchase by Target pursuant to a self tender offer
(the "Tender Offer") of shares of its common stock (including options)
(collectively, the "Shares"), other than shares of common stock (the "Rollover
Shares"), which will continue to be held by certain existing shareholders and an
existing group of managers and executives of the Target (collectively, the
"Rollover Shareholders"), for a maximum aggregate repurchase price not exceeding
$106,000,000, provided that if more than 50% but less than approximately 92% of
Target's outstanding common stock is acquired in connection with such
repurchase, the remaining shares of common stock of Target (other than the
Rollover Shares held by certain members of Target's management) will be
converted, in a merger following such repurchase, into the right to receive a
portion of the purchase price for such shares and common stock in Target. As
part of the Recapitalization, Target will contribute all of its assets to a
newly formed wholly-owned subsidiary (the "Borrower"), and Target will remain
the direct parent of the Borrower. On the Acquisition Closing Date (as
hereinafter defined), Fremont will own or control, directly or indirectly, at
least 51% on a fully diluted basis of the outstanding Shares (not including for
purposes of this calculation the Rollover Shares) of the Target and Target will
own 100% of the capital stock of the Borrower (in such capacity Target is
sometimes referred to herein as "HoldCo"). The majority of the remaining shares
of Target's common stock not owned by Fremont will be owned by the Rollover
Shareholders. Set forth below is a statement of the terms and conditions for
the Senior Credit Facilities:
I. Parties
-------
Borrower: A wholly owned subsidiary of the Target (the "Borrower").
Guarantors: HoldCo and each of the Borrower's direct and indirect
subsidiaries (other than foreign subsidiaries to the
extent guarantees by such subsidiaries would result in
material adverse tax consequences) (collectively, the
"Guarantors").
Arranger: BancAmerica Robertson Stephens (in such capacity, the
"Arranger").
7
<PAGE>
Administrative Agent: Bank of America National Trust and Savings Association
("Bank of America" and, in such capacity, the
"Administrative Agent").
Documentation Agent: Bankers Trust Company ("BT")
Lenders: A syndicate of banks, financial institutions and other
entities, including Bank of America or one of its
affiliates and BT or one of its affiliates, arranged by
the Arranger in consultation with you (collectively, the
"Lenders").
II. Types and Amounts of
--------------------
Senior Credit Facilities
------------------------
A. Term Loan Facility
------------------
Type and Amount of
Facility: Term loan facility ("Term Loan B Credit Facility") in the
amount of $25,000,000 (the loan thereunder, the "Term
Loan B") consisting of a seven year term loan facility.
Term Loan B shall be repayable in quarterly installments
payable at the end of March, June, September and December
of each year, commencing December 31, 1998, with the
aggregate amount payable in each year equal to the amount
set forth below opposite such year (and the installments
in each year being equal except in 2005 when the first
two (2) installments shall each equal $62,500 and the
final installment shall equal $23,312,500);
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1998 $62,500
1999 $250,000
2000 $250,000
2001 $250,000
2002 $250,000
2003 $250,000
2004 $250,000
2005 $23,437,500
</TABLE>
Availability: Term Loan B shall be made in a single drawing on the
Acquisition Closing Date and shall be due and payable in
full on the earlier of the seventh anniversary of the
Acquisition Closing Date and September 30, 2005 (the
"Term Loan B Termination Date").
Purpose: The proceeds of Term Loan B shall be borrowed by Borrower
and either (a) used to finance a portion of the
Acquisition and to pay
8
<PAGE>
related fees and expenses or (b) distributed as a
dividend or other advance or distribution to HoldCo
concurrently with the satisfaction of the other
conditions precedent to the disbursement of the Loans,
provided the proceeds of the dividend or such other
advance or distribution are used to repay indebtedness of
HoldCo existing as of the date hereof.
B. Revolving Credit Facility
-------------------------
Type and Amount of
Facility: Five year revolving credit facility ("Revolving Credit
Facility") in the amount of $30,000,000 (the loans
thereunder, variously referred to as the "Revolving
Credit Loans"; the Revolving Credit Loans and the Term
Loan B are collectively referred to as the "Loans" and
each one of them is referred to as a "Loan").
Availability: The Revolving Credit Facility shall be available on a
revolving basis during the period commencing on the
Acquisition Closing Date and ending on the earlier of the
fifth anniversary of the Acquisition Closing Date and
September 30, 2003 (the "Revolving Credit Termination
Date").
Letters of Credit: A portion of the Revolving Credit Facility not in excess
of an amount to be agreed upon shall be available for the
issuance of letters of credit (the "Letters of Credit")
by one of the Lenders or one of their affiliates (in such
capacity, the "Issuing Lender"). No Letter of Credit
shall have an expiration date after the earlier of (a)
one year after the date of issuance thereof and (b)
thirty days prior to the Revolving Credit Termination
Date, provided that any Letter of Credit with a one-year
--------
tenor may provide for the renewal thereof for additional
one-year periods (which shall in no event extend beyond
the date referred to in clause (b) above).
Drawings under any Letter of Credit shall be reimbursed
by the Borrower (whether with its own funds or with the
proceeds of Revolving Credit Loans) on the same business
day. To the extent that the Borrower does not so
reimburse the Issuing Lender, the Lenders under the
Revolving Credit Facility shall be irrevocably and
unconditionally obligated to reimburse the Issuing Lender
on a pro rata basis.
--- ----
Maturity: The Revolving Credit Termination Date.
Purpose: The proceeds of the Revolving Credit Loans shall be used
to finance (a) a portion of the Acquisition and (b) the
working capital needs and general corporate purposes of
the Borrower and its subsidiaries in the
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<PAGE>
ordinary course of business, including to finance
Permitted Acquisitions (as defined below).
III. Certain Payment Provisions
--------------------------
Fees and Interest
Rates: As set forth on Annex I.
Optional Prepayments
and Commitment
Reductions: The Term Loan B may be prepaid by Borrower and optional
prepayments shall be applied ratably against scheduled
principal payments. Term Loan B prepayments may not be
reborrowed. Revolving Credit Loans may be prepaid and
commitments relating to Revolving Credit Loans may be
reduced by the Borrower in minimum amounts to be agreed
upon.
Mandatory Repayments
and Commitment
Reductions: The following amounts shall be applied ratably to prepay
scheduled principal payments under Term Loan B until Term
Loan B is prepaid in full, then to repayment of the
Revolving Credit Loans (and reductions in the commitments
to make Revolving Loans in the amount of such repayments)
until the Revolving Credit Loans are paid in full and
then to reduce the commitments under the Revolving Credit
Facility:
(a) subject to exceptions to be agreed upon, 50% of the
net proceeds of the sale or issuance of equity (to be
reduced to 0.0% based upon a measure of performance to be
determined) and 100% of the net proceeds of the
incurrence of certain indebtedness after the Acquisition
Closing Date by the Borrower or any of its subsidiaries;
and
(b) subject to exceptions to be agreed upon, 100% of the
net proceeds of any sale or other disposition (including
as a result of casualty or condemnation) by the Borrower
or any of its subsidiaries of any assets, except for the
sale of inventory or obsolete or worn-out property in the
ordinary course of business and subject to certain other
customary exceptions (including a basket and capacity for
reinvestment) to be agreed upon.
IV. Collateral The obligations of each of the Borrower and each
---------- Guarantor (collectively, the "Credit Parties") in respect
of the Senior Credit Facilities and any interest rate or
foreign currency protection agreements in respect thereof
provided by any Lender (or any affiliate of a Lender)
shall be secured by a perfected first priority security
interest in all of their respective tangible and
intangible assets (including, without limitation,
intellectual property, real property and
10
<PAGE>
all of the capital stock of the Borrower and each of its
direct and indirect subsidiaries (limited to 65% of such
capital stock in the case of foreign subsidiaries, to the
extent a pledge of a greater percentage would result in
material adverse tax consequences) and rights under the
Acquisition Documentation (as defined in Exhibit B)),
except for those assets as to which the Administrative
Agent and the Arranger shall determine in their sole
discretion that the costs of obtaining such a security
interest are excessive in relation to the value of the
security to be afforded thereby.
V. Certain Conditions
------------------
Initial Conditions: The availability of the Senior Credit Facilities shall be
conditioned upon the completion and/or satisfaction on or
before September 30, 1998, of the applicable conditions
set forth in Exhibit B and other customary corporate and
document delivery requirements (the date upon which all
such conditions precedent shall be satisfied, the
"Acquisition Closing Date").
On-Going Conditions: The making of each extension of credit shall be
conditioned upon (a) the accuracy of all representations
and warranties in the documentation (the "Senior Credit
Documentation") with respect to the Senior Credit
Facilities (including, without limitation, the material
adverse change and litigation representations) and (b)
there being no default or event of default in existence
at the time of, or after giving effect to the making of,
such extension of credit. As used herein and in the
Senior Credit Documentation a "material adverse change"
shall mean any event, development or circumstance that
has had or would be reasonably likely to have a material
adverse effect on (a) the Acquisition, (b) the business,
assets, property, condition (financial or otherwise) or
prospects of Borrower, HoldCo, the Target and their
respective subsidiaries taken as a whole, or (c) the
validity or enforceability of any of the Senior Credit
Documentation or the rights and remedies of the
Administrative Agent and the Lenders thereunder.
VI. Certain Documentation Matters
-----------------------------
The Senior Credit Documentation shall contain
representations, warranties, covenants and events of
default customary for financings of this type and other
terms deemed appropriate by the Lenders, including,
without limitation:
Representations and
Warranties: Financial statements (including pro forma financial
statements); absence of undisclosed liabilities; no
material adverse change; corporate existence; compliance
with law; corporate power and authority; enforceability
of Senior Credit Documentation; no conflict
11
<PAGE>
with law or contractual obligations; no material
litigation; no default; ownership of property; liens;
intellectual property; no burdensome restrictions; taxes;
Federal Reserve regulations; ERISA; Investment Company
Act; subsidiaries; environmental matters; solvency; labor
matters; accuracy of disclosure; Acquisition
Documentation; and creation and perfection of security
interests.
Affirmative Covenants: Delivery of financial statements, reports, accountants'
letters, projections, officers' certificates and other
information requested by the Lenders; payment of other
obligations; continuation of business and maintenance of
existence and material rights and privileges; compliance
with laws and material contractual obligations;
maintenance of property and insurance; maintenance of
books and records; right of the Lenders to inspect
property and books and records; notices of defaults,
litigation and other material events; compliance with
environmental laws; programs to address year 2000 issues;
and further assurances (including, without limitation,
with respect to security interests in after-acquired
property).
Financial Covenants: To include minimum interest coverage ratio, minimum fixed
charge coverage ratio and maximum leverage ratio.
Negative Covenants: Limitations on: indebtedness; liens; guarantee
obligations; mergers, consolidations, liquidations and
dissolutions; sales of assets; leases; dividends and
other payments in respect of capital stock and payments
in respect of subordinated debt; capital expenditures;
investments, loans and advances; optional payments and
modifications of subordinated and other debt instruments;
transactions with affiliates; sale-leasebacks; changes in
fiscal year; negative pledge clauses and clauses
restricting subsidiary distributions; changes in lines of
business; annual management fees and corporate
allocations (not to exceed specified amounts); and
changes in the passive holding company status of HoldCo.
Acquisitions will be permitted subject to the following
conditions:
(a) The Borrower satisfies, and will continue to satisfy,
after giving effect (on a pro forma basis) to the
relevant acquisition and any debt incurred in
connection therewith, all financial covenants, and
such acquisition is consummated on a "friendly"
basis;
(b) No default or event of default has then occurred and
is continuing or would result therefrom;
(c) The purchase price (including assumed indebtedness
and the fair market value of any non-cash
consideration) of the
12
<PAGE>
relevant acquisition does not exceed $15,000,000
individually and the purchase price of all such
acquisitions since the Acquisition Closing Date does
not exceed $50,000,000 in the aggregate; and
(d) An amount at least equal to $10,000,000 is available
to be borrowed under the Revolving Credit Facility
after giving effect to the relevant acquisition.
Any acquisition which satisfies the foregoing conditions
is referred to herein as a "Permitted Acquisition".
Events of Default: Nonpayment of principal when due; nonpayment of interest,
fees or other amounts after a grace period to be agreed
upon; material inaccuracy of representations and
warranties; violation of covenants (subject, in the case
of certain affirmative covenants, to a grace period to be
agreed upon); cross-default; bankruptcy events; certain
ERISA events; material judgments; actual or asserted
invalidity of any guarantee, security document, security
interest or subordination provision; and a change of
control (the definition of which is to be agreed).
Voting: Each amendment and waiver relating to the Senior Credit
Facilities shall require the approval of Lenders holding
in the aggregate not less than 51% of the amount of the
respective Senior Credit Facility affected by such
amendment or waiver, except that (a) the consent of each
Lender directly affected thereby shall be required with
respect to (i) reductions in the amount of any Loan or
extensions of the final date of amortization or maturity
of any Loan, (ii) reductions in the rate of interest or
any fee or extensions of any due date thereof and (iii)
increases in the amount or extensions of the expiry date
of any Lender's commitment, (b) the consent of 100% of
the Lenders shall be required with respect to (i)
modifications to any of the voting percentages and (ii)
releases of Guarantors or all or substantially all of the
collateral, and (c) subject to clause (a)(i) above, the
consent of Lenders holding 66-2/3% of Term Loan B shall
be required to change the scheduled amortization of Term
Loan B.
Assignments
and Participations: The Lenders shall be permitted to assign and sell
participations in their Revolving Credit Loans and
commitments, subject, in the case of assignments (other
than to another Lender or to an affiliate of a Lender),
to the consent of the Administrative Agent and (so long
as no event of default has occurred and is continuing)
the Borrower (which consent in each case shall not be
unreasonably withheld). Non-pro rata assignments shall be
permitted. Assignments of 100% of a Lender's interest
shall be permitted without regard to a minimum
13
<PAGE>
assignment amount. Partial assignments (other than to
another Lender or to an affiliate of a Lender) shall be
subject to minimum assignment amounts to be determined.
Participants shall have the same benefits as the Lenders
with respect to yield protection and increased cost
provisions. Voting rights of participants shall be
limited to those matters set forth in clause (a) above
with respect to which the affirmative vote of the Lender
from which it purchased its participation would be
required as described under "Voting" above and those
matters set forth in clause (b) (ii) above. Pledges of
Loans in accordance with applicable law shall be
permitted without restriction.
Yield Protection: The Senior Credit Documentation shall contain customary
provisions (a) protecting the Lenders against increased
costs or loss of yield resulting from changes in reserve,
tax, capital adequacy and other requirements of law and
from the imposition of or changes in withholding or other
taxes and (b) indemnifying the Lenders for "breakage
costs" incurred in connection with, among other things,
any prepayment of a Eurodollar Loan (as defined in Annex
I) on a day other than the last day of an interest period
with respect thereto.
Expenses and
Indemnification: The Borrower shall pay (a) all reasonable out-of-pocket
expenses of the Administrative Agent, Documentation Agent
and the Arranger associated with the syndication of the
Senior Credit Facilities and the preparation, execution,
delivery and administration of the Senior Credit
Documentation and any amendment or waiver with respect
thereto (including the reasonable fees, disbursements and
other charges of counsel (including the allocated costs
of internal counsel)) and (b) all out-of-pocket expenses
of the Administrative Agent, Documentation Agent and the
Lenders (including the reasonable fees, disbursements and
other charges of counsel (including the allocated costs
of internal counsel)) in connection with the enforcement
of the Senior Credit Documentation.
The Administrative Agent, Documentation Agent, the
Arranger and the Lenders (and their affiliates and their
respective officers, directors, employees, advisors and
agents) will have no liability for, and will be
indemnified and held harmless against, any loss,
liability, cost or expense incurred in respect of the
financing contemplated hereby or the use or the proposed
use of proceeds thereof (except to the extent resulting
from the gross negligence or willful misconduct of the
indemnified party).
14
<PAGE>
Governing Law and Forum: State of New York.
Counsel to the
Administrative Agent
and the Arranger: Katten Muchin & Zavis.
15
<PAGE>
Annex I
to Exhibit A
------------
Interest and Certain Fees
-------------------------
Interest Rate Options: The Borrower may elect that the Loans comprising each
borrowing bear interest at a rate per annum equal to:
the Base Rate plus the Applicable Margin; or
the Eurodollar Rate plus the Applicable Margin.
As used herein:
"Base Rate" means the highest of (i) the rate of interest
publicly announced by Bank of America as its "reference
rate" (the "Reference Rate"), and (ii) the federal funds
effective rate from time to time plus 0.5%.
----
"Applicable Margin" means:
(a) in the case of the Revolving Loans, (i) 1.25%, in the
case of Base Rate Loans (as defined below) and (ii)
2.25%, in the case of Eurodollar Loans (as defined
below); and
(b) in the case of Term Loan B, (i) 1.50% in the case of
Base Rate Loans and (ii) 2.50% in the case of Eurodollar
Loans.
The foregoing margins applicable to Revolving Credit
Loans and Term Loan B shall be subject to change after
the end of the second full fiscal quarter after the
Acquisition Closing Date by amounts to be agreed upon
based on the achievement of performance targets to be
determined and provided that no event of default has
occurred and is continuing.
"Eurodollar Rate" means the rate (adjusted for statutory
reserve requirements for eurocurrency liabilities) at
which eurodollar deposits for one, two, three or six
months (as selected by the Borrower) are offered to Bank
of America in the interbank eurodollar market.
Interest Payment
Dates: In the case of Loans bearing interest based upon the Base
Rate ("Base Rate Loans"), quarterly in arrears.
In the case of Loans bearing interest based upon the
Eurodollar Rate ("Eurodollar Loans"), on the last day of
each relevant interest period
16
<PAGE>
and, in the case of any interest period longer than three
months, on each successive date three months after the
first day of such interest period.
Commitment Fees: The Borrower shall pay a commitment fee calculated at the
rate of 0.50% per annum on the average daily unused
portion of each of the Revolving Credit Facility, payable
quarterly in arrears.
The foregoing commitment fee shall be subject to change
after the end of the second full fiscal quarter after the
Acquisition Closing Date by amounts to be agreed upon
based on the achievement of performance targets to be
determined and provided that no event of default has
occurred and is continuing.
Letter of Credit Fees: The Borrower shall pay a commission on all outstanding
Letters of Credit at a per annum rate equal to the
Applicable Margin then in effect with respect to
Eurodollar Loans that are Revolving Credit Loans on the
face amount of each such Letter of Credit. Such
commission shall be shared ratably among the Lenders
participating in the Revolving Credit Facility and shall
be payable quarterly in arrears.
A fronting fee equal to 0.25% per annum on the face
amount of each Letter of Credit shall be payable
quarterly in arrears to the Issuing Lender for its own
account. In addition, customary administrative, issuance,
amendment, payment and negotiation charges shall be
payable to the Issuing Lender for its own account.
Default Rate: At any time when the Borrower is in default in the
payment of any amount due under the Senior Credit
Facilities, all Loans shall bear interest at 2% above the
rate otherwise applicable thereto. Overdue interest, fees
and other amounts shall bear interest at 2% above the
rate applicable to the relevant Base Rate Loans.
Rate and Fee Basis: All per annum rates shall be calculated on the basis of a
year consisting of 360 (or 365/366 days, in the case of
Base Rate Loans the interest rate payable on which is
based on the Reference Rate) days for actual days
elapsed.
17
<PAGE>
EXHIBIT B
---------
The availability of the Credit Facilities, in addition to the conditions
set forth in Exhibit A, shall be subject to the satisfaction of the following
conditions. Capitalized terms used but not defined herein have the meanings
given in said Exhibits.
(a) Each Credit Party shall have executed and delivered satisfactory
definitive Credit Documentation and all conditions to the initial
borrowings thereunder shall have been satisfied.
(b) As a condition to the funding of the Senior Credit Facilities, HoldCo
shall have received a total of at least $67,600,000 of equity
contributions consisting of at least $58,000,000 from the proceeds of new
common equity issued to the Buyers and their respective affiliates and
investors and $9,600,000 of rolled over or continuing equity and at least
$25,000,000 in gross proceeds from the issuance of the HoldCo Senior
Discount Notes and Borrower shall have received at least $80,000,000 in
gross proceeds from the issuance of the Senior Notes, in each case on
satisfactory terms and conditions.
(c) The Tender Offer shall have been initiated in accordance with
applicable law and on satisfactory terms and the initial period for Shares
to be tendered shall have expired. Fremont shall own or control (or have
the right to control upon acceptance of the tendered Shares and payment of
the price offered for the tendered Shares) without regard to the Rollover
Shares at least 51% of the capital stock of HoldCo. The conditions
governing any merger necessitated by the number of Shares tendered as a
result of the terms of the Tender Offer and the Acquisition Agreement
shall be satisfactory in all respects to the Lenders. The Acquisition
Agreement and other related documentation (collectively, the "Acquisition
Documentation") relating to the Acquisition shall have satisfactory terms
and conditions, and no provision of such documentation shall have been
waived, amended, supplemented or otherwise modified in any material
respect. Substantially all of the existing indebtedness of the Target and
its subsidiaries shall have been repaid on satisfactory terms. The
capitalization and structure of each Credit Party after the Acquisition
shall be reasonably satisfactory in all respects.
(d) The Lenders shall have received evidence satisfactory to them that
(i) the aggregate purchase price for all of the issued and outstanding
Shares purchased shall not exceed $106,000,000, (ii) the cost of retiring
in the money options relating to the Shares shall not exceed $9,000,000,
(iii) the aggregate fees and expenses with respect to the Acquisition
shall not exceed $16,200,000, and (iv) all of HoldCo's and
18
<PAGE>
Borrower's secured and unsecured indebtedness existing immediately prior
to the Acquisition Closing Date in the estimated amount of $59,300,000
shall have been paid in full.
(e) The Lenders, the Administrative Agent, the Documentation Agent and
the Arranger shall have received all fees required to be paid in
connection with the Senior Credit Facilities, and all expenses for which
invoices have been presented, on or before the Closing Date.
(f) All governmental and third party approvals necessary in connection
with the Acquisition, the financing contemplated hereby and the continuing
operations of the Borrower and its subsidiaries shall have been obtained
on terms reasonably satisfactory to the Administrative Agent and shall be
in full force and effect, and all applicable waiting periods shall have
expired without any action being taken or threatened by any competent
authority which would restrain, prevent or otherwise impose adverse
conditions on the Acquisition or the financing thereof, except for such
governmental and third party approvals the failure to obtain which could
not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the condition (financial or otherwise),
business, assets, liabilities, properties, results of operations or
prospects of Borrower, the Target and their respective subsidiaries, taken
as a whole.
(g) The Lenders shall have received (i) audited financial statements of
the Target for the fiscal years ending in 1996, 1997 and 1998 and (ii)
unaudited interim consolidated financial statements of the Target for each
fiscal month and quarterly period ended after the latest fiscal year
referred to in clause (i) above as to which such financial statements are
available and such financial statements shall not, in the reasonable
judgment of the Lenders, reflect any material adverse change in the
consolidated financial condition of the Target and its subsidiaries, from
what was reflected in the financial statements or projections previously
furnished to the Lenders.
(h) The Lenders shall have received a pro forma consolidated balance
--- -----
sheet of the Target and its subsidiaries as at the date of the most recent
consolidated balance sheet delivered pursuant to the preceding paragraph,
adjusted to give effect to the consummation of the Acquisition and the
financings contemplated hereby as if such transactions had occurred on
such date prepared in accordance with Regulation S-X under the Securities
Act and consistent in all material respects with the sources and uses of
cash for the Acquisition as previously described to the Lenders and the
forecasts previously provided to the Lenders.
19
<PAGE>
(i) The Lenders shall be satisfied that the pro forma EBITDA as prepared
in accordance with Regulation S-X under the Securities Act of the Borrower
for the latest twelve month period for which the relevant financial
information is available shall equal at least $19,500,000.
(j) The Lenders shall have received the results of a recent lien search
in each relevant jurisdiction with respect to Borrower, the Target and
their respective subsidiaries, and such search shall reveal no liens on
any of the assets of Borrower, HoldCo, the Target and their respective
subsidiaries except for liens permitted by the Senior Credit
Documentation.
(k) All documents and instruments required to perfect the Administrative
Agent's security interest in the collateral under the Senior Credit
Facilities shall have been executed and be in proper form for filing, and,
in connection with the real estate collateral, the Administrative Agent
shall have received title insurance policies, surveys, permits,
certificates of occupancy and other customary documentation to the extent
reasonably determined to be required by the Administrative Agent.
(l) The Administrative Agent shall be reasonably satisfied with the
insurance program to be maintained by the Borrower and its subsidiaries
after the Acquisition.
(m) The Lenders shall have received a satisfactory solvency certificate
from the chief financial officer of the Borrower which shall document the
solvency of the Borrower and its subsidiaries after giving effect to the
Acquisition and the other transactions contemplated hereby.
(n) The Lenders shall have received a reasonably satisfactory
environmental audit with respect to certain real property owned or leased
by the Target and its subsidiaries.
(o) No default or event of default shall exist under the documentation
relating to the Acquisition or the financing thereof.
(p) None of the Borrower, the Target, HoldCo nor any of their respective
affiliates and subsidiaries shall be subject to material contractual or
other material restrictions that would be violated by the Acquisition
other than indebtedness to be repaid on the date of the initial
distribution of the Loans.
(q) The Lenders shall have received such legal opinions (including
opinions (i) from counsel to HoldCo, the Borrower and its subsidiaries,
20
<PAGE>
(ii) if reasonably available, delivered pursuant to the Acquisition
Documentation, accompanied by reliance letters in favor of the Lenders and
(iii) from such special and local counsel as may be required by the
Administrative Agent), documents and other instruments as are customary
for transactions of this type or as they may reasonably request.
(r) The Senior Notes and the HoldCo Senior Discount Notes shall have been
issued on terms and conditions and in form and substance reasonably
satisfactory to the Administrative Agent.
21
<PAGE>
EXHIBIT (b)(2)
June 27, 1998
Fremont Acquisition Company III, LLC
50 Fremont Street, Suite 3700
San Francisco, CA 94105
Attention: Mr. Mark N. Williamson
Re: Global Motorsport Group, Inc. - Engagement Letter
-------------------------------------------------
Ladies and Gentlemen:
You have advised BT Alex. Brown Incorporated ("BT Alex. Brown") and BancAmerica
Robertson Stephens ("BancAmerica Robertson Stephens") that Fremont Acquisition
Company III, LLC and certain of its affiliates (collectively, "Fremont"),
together with certain other investors satisfactory to us (Fremont and such other
investors being herein collectively referred to as the "New Investor Group"),
intend to invest in a leveraged recapitalization transaction (the
"Recapitalization") involving Global Motorsport Group, Inc. ("GMG"). We
understand that the Recapitalization will be accomplished through the repurchase
by GMG, pursuant to a self tender offer (the "Tender Offer"), of all of its
shares of common stock (including options), other than approximately 8% of its
outstanding shares of common stock (the "Rollover Shares") to be retained by
existing stockholders of GMG (the "Rollover Shareholders"), for a maximum
aggregate repurchase price of $106.0 million; provided that if less than 92% of
--------
GMG's outstanding common stock is acquired in connection with such repurchase,
the remaining shares of common stock of GMG (other than Rollover Shares held by
certain members of GMG's management) may be converted, in a merger ("the
Merger") following such repurchase, into the right to receive cash and common
stock of GMG (the "Merger Consideration"). The Recapitalization will be
accomplished pursuant to an Agreement and Plan of Merger dated as of June 28,
1998, by and among Fremont Acquisition Company, III, LLC, Global Acquisition
Corp., and GMG (the "Recapitalization Agreement"). In connection with the
Recapitalization, GMG will contribute all of its assets to a newly formed
wholly-owned subsidiary (the "Borrower"), and GMG will remain the direct parent
of the Borrower (in such capacity sometimes referred to herein as "Holdings").
Upon consummation of the Tender Offer, Fremont will own, directly or indirectly,
not less than 51% of the common stock of Holdings and, in any event, sufficient
common stock to cause the Merger to occur, and Holdings will own 100% of the
capital stock of the Borrower. Upon consummation of the Merger, Fremont will
own, directly or indirectly, not less than 85% of the common stock of Holdings.
<PAGE>
The remaining shares of Holdings' common stock will be owned by the Rollover
Shareholders.
You have also advised us that, in connection with the Recapitalization:
(a) Fremont will invest $58.0 million in cash in GMG, resulting in Fremont
owning all the common equity of GMG, other than the Rollover Shares (the
"Common Equity Securities"). The Rollover Shareholders will retain the
Rollover Shares valued at $9.6 million.
(b) Upon the purchase of shares pursuant to the Tender Offer, GMG will
contribute all of its assets to the Borrower.
(c) GMG will issue zero coupon discount notes (the "Holdings Securities")
in an aggregate principal amount which would result in gross proceeds of
not less than $25.0 million on the date of issuance.
(d) The Borrower will obtain new senior secured credit facilities in an
aggregate principal amount of up to $55.0 million (the "Credit Facility")
pursuant to the definitive documents evidencing the Credit Facility and all
related collateral and guarantees (collectively, the "Bank Documents") and
will distribute $25.0 million of the proceeds of the Credit Facility to
GMG.
(e) The Borrower will issue $80.0 million of new senior unsecured debt
securities (the "Borrower Securities") and will distribute the proceeds of
the Borrower Securities to GMG.
(f) GMG will apply the equity investment made in it by Fremont, the gross
proceeds of the Holdings Securities, $25.0 million of the proceeds of the
Credit Facility and the proceeds of the Borrower Securities for the
purposes set forth in clauses (g) and (h) below and to repurchase all of
GMG's shares of common stock (including options, net of option proceeds),
other than the Rollover Shares, and pay Merger Consideration, at a purchase
price per share not to exceed $21.75, and in an aggregate amount that,
together with the cash Merger Consideration, will not exceed $106.00
million.
(g) GMG will also refinance approximately $59.3 million of indebtedness
under its existing credit agreement and existing mortgage and other
indebtedness.
(h) Fees and expenses incurred in connection with the Transactions (as
defined below) will be paid in an approximate aggregate amount of $16.2
million.
2
<PAGE>
The foregoing transactions, collectively with the Recapitalization, are referred
to herein as the "Transactions". Upon consummation of the Transactions, none of
the existing indebtedness of GMG and its subsidiaries will remain outstanding.
You have further advised us that the Credit Facility will consist of a $25.0
million term loan facility to be used in connection with the Transactions and a
$30.0 million revolving credit facility to be used in connection with the
Transactions and to provide for the working capital requirements, letters of
credit and other corporate purposes of the Borrower and its subsidiaries upon
consummation of the Recapitalization.
You have asked BT Alex. Brown and BancAmerica Robertson Stephens to assist you,
GMG and the Borrower, as exclusive placement agents, in raising a portion of the
funds required to consummate the Recapitalization through the sale or placement
of the Borrower Securities and the Holdings Securities.
The purpose of this engagement letter (this "Engagement Letter") is to confirm
the engagement by you of BT Alex. Brown and BancAmerica Robertson Stephens as
exclusive placement agents in connection with the issuance or sale (whether
pursuant to a public offering or a private placement) of the Borrower Securities
and the Holdings Securities for cash in connection with the Recapitalization.
1. Retention. You hereby retain BT Alex. Brown and BancAmerica Robertson
---------
Stephens on an exclusive basis, and BT Alex. Brown and BancAmerica Robertson
Stephens agree to act, as exclusive placement agents in connection with the
issuance or sale of $80.0 million Borrower Securities and Holdings Securities in
an aggregate principal amount which would result in gross proceeds of not less
than $25.0 million on the date of issuance, in each case for cash in connection
with the financing of the Recapitalization. Consistent with such appointments
and subject to the last sentence of this Section 1, BT Alex. Brown and
BancAmerica Robertson Stephens will act as the exclusive placement agents of
GMG, the Borrower and their respective subsidiaries and affiliates with regard
to each such proposed issuance pursuant to the terms of a placement agreement
and related transaction documents to be entered into with respect to the
issuance of each of the Borrower Securities and the Holdings Securities (each, a
"Purchase Agreement"). BT Alex. Brown shall be the sole lead manager with
respect to this engagement. BancAmerica Robertson Stephens shall be the sole
co-manager with respect to this engagement. Each Purchase Agreement shall set
forth the terms and conditions, including the discounts, commissions and fees,
applicable to the respective transaction (and shall not be inconsistent with the
terms of this Engagement Letter). Neither you nor GMG nor the Borrower nor any
of your or their subsidiaries or affiliates shall, directly or indirectly
(except through BT Alex. Brown and BancAmerica Robertson Stephens or as
otherwise approved by BT Alex. Brown and BancAmerica Robertson Stephens), sell
or offer to sell any equity or debt security for cash or property in connection
with the financing of the Recapitalization or any related refinancings (other
than (a) loans incurred under and pursuant to the Credit Facility and (b)
additional equity capital provided by the New Investor Group
3
<PAGE>
(the foregoing, collectively, the "Permitted Dispositions")) during the term of
this Engagement Letter. Any such offer, sale or other disposition of any equity
or debt security for cash or property (other than a Permitted Disposition)
during the term of this Engagement Letter will be treated for purposes of
Section 2 as if such sale or disposition were undertaken by BT Alex. Brown and
BancAmerica Robertson Stephens directly. Notwithstanding anything to the
contrary contained herein or any oral representations or assurances previously
or subsequently made by the parties, this Engagement Letter is not intended to
be and does not constitute a commitment or obligation by BT Alex. Brown or
BancAmerica Robertson Stephens to act as an underwriter or purchaser in
connection with any offering or sale of securities; and no liability or
obligation on the part of BT Alex. Brown or BancAmerica Robertson Stephens to
proceed with or participate in an offering of securities by GMG or the Borrower
shall be created or exist unless or until BT Alex. Brown and BancAmerica
Robertson Stephens have executed and delivered Purchase Agreements relating to
the Borrower Securities and the Holdings Securities and then only in accordance
with the terms and conditions set forth therein.
2. Fees. As compensation for the services of BT Alex. Brown and BancAmerica
----
Robertson Stephens hereunder, you shall pay to BT Alex. Brown and BancAmerica
Robertson Stephens the following non-refundable fees:
(a) a placement fee of 3.0% of the gross proceeds from the issuance of
the Borrower Securities and any securities related to the Borrower
Securities included within the engagement described in Section 1, payable
at the closing of such issuance;
(b) a placement fee of 3.5% of the gross proceeds from the issuance of
the Holdings Securities and any securities related to the Holdings
Securities included within the engagement described in Section 1, payable
at the closing of such issuance; and
(c) whether or not the sales of either Borrower Securities or the
Holdings Securities are consummated, all out-of-pocket expenses (other
than legal expenses and travel expenses) incurred by BT Alex. Brown and
BancAmerica Robertson Stephens in connection with the contemplated
transactions and, in the event the sale of either the Borrower Securities
or the Holdings Securities is not consummated (other than solely by reason
of the default by BT Alex. Brown or BancAmerica Robertson Stephens of their
respective obligations hereunder), all reasonable legal expenses (including
allocated internal legal expenses) incurred by BT Alex. Brown and
BancAmerica Robertson Stephens in connection with the contemplated
transactions. BT Alex Brown and BancAmerica Robertson Stephens shall
reimburse you for 50% of any plane rental expense incurred by you in
connection with the contemplated transactions.
4
<PAGE>
The fees set forth in clauses (a) and (b) of this Section 2 shall be paid by you
to BT Alex. Brown for the benefit of BT Alex. Brown and BancAmerica Robertson
Stephens. BT Alex. Brown shall retain 65% of such fees, net of expenses, for its
own account and distribute 35% of such fees, net of expenses, to BancAmerica
Robertson Stephens.
To the extent BT Alex. Brown and/or BancAmerica Robertson Stephens performs
services other than the services specified in Section 1, you shall pay, or cause
to be paid, to BT Alex. Brown and/or BancAmerica Robertson Stephens, as the case
may be, additional fees and/or commissions customary under the circumstances, to
be agreed upon in writing by you and BT Alex. Brown and BancAmerica Robertson
Stephens in advance of the performance thereof.
3. Other Agreements.
----------------
a. Term. The engagement of BT Alex. Brown and BancAmerica Robertson
----
Stephens hereunder may be terminated (i) by BT Alex. Brown and BancAmerica
Robertson Stephens at any time, or (ii) by you after the earliest to occur
of (1) the termination of the Recapitalization Agreement in accordance with
its terms, (2) issuance and sale of the Borrower Securities and the
Holdings Securities contemplated by this Engagement Letter or (3) the 18
month anniversary after the consummation of the Recapitalization, by prior
written notice thereof to BT Alex. Brown and BancAmerica Robertson
Stephens; provided, however, that the provisions of Sections 2 (with
-------- -------
respect to any fees earned prior to the date of such termination) and 3
(other than clause (b)) shall survive such termination.
b. Information. During the course of the term of this Engagement
-----------
Letter, you shall furnish BT Alex. Brown and BancAmerica Robertson Stephens
with such information about GMG and the Borrower as BT Alex. Brown or
BancAmerica Robertson Stephens reasonably request to be included in private
placement memoranda, offering circulars or other disclosure documents ("GMG
Information"). You represent and warrant to BT Alex. Brown and BancAmerica
Robertson Stephens that all GMG Information included in the private
placement memoranda will be complete and correct in all material respects
and will not contain any untrue statements of a material fact or omit to
state a material fact necessary to make the statements contained therein,
in light of the circumstances under which such statements are made, not
materially misleading, in each case as of the date of such memoranda. You
agree to advise BT Alex. Brown and BancAmerica Robertson Stephens during
the period of the engagement of all developments known to you materially
affecting GMG or the Borrower or their respective subsidiaries or the
accuracy of GMG Information previously furnished to BT Alex. Brown and
5
<PAGE>
BancAmerica Robertson Stephens or prospective purchasers of Borrower
Securities or the Holdings Securities. The Purchase Agreements will contain
customary representations, warranties and indemnifications by the Borrower
to purchasers of the Borrower Securities and by GMG to the purchasers of
the Holdings Securities and will require the delivery of customary opinions
by or on behalf of the Borrower and GMG to the purchasers of any Borrower
Securities or the Holdings Securities, including BT Alex. Brown and
BancAmerica Robertson Stephens. You acknowledge that BT Alex. Brown,
BancAmerica Robertson Stephens and their respective affiliates may share
with each other, any information related to you, GMG or your respective
affiliates (including information relating to creditworthiness), or the
Recapitalization or the financing therefor, provided that BT Alex. Brown
and BancAmerica Robertson Stephens and such affiliates agree to hold any
non public information confidential in accordance with their respective
customary policies and to use such information solely in connection with
the Recapitalization and in the transactions and financings contemplated
thereby.
c. Indemnification. You, on behalf of yourself, GMG and the Borrower,
---------------
jointly and severally agree to indemnify BT Alex. Brown and BancAmerica
Robertson Stephens and their respective affiliates and each person in
control of BT Alex. Brown or BancAmerica Robertson Stephens and their
respective affiliates and their respective officers, directors, employees,
agents and representatives and their respective affiliates and control
persons, in accordance with the Indemnity Letter dated the date hereof and
attached hereto.
d. Other Services. You acknowledge and agree that BT Alex. Brown and
--------------
BancAmerica Robertson Stephens and/or their respective affiliates may be
requested to provide additional services with respect to you and/or GMG
and/or the Borrower, the Recapitalization or other matters contemplated
hereby. Any such services will be set out in and governed by separate
agreements (containing terms relating, without limitation, to services,
fees and indemnification) in form and substance satisfactory to you and BT
Alex. Brown and BancAmerica Robertson Stephens (or any such affiliate).
Nothing in this Engagement Letter is intended to obligate or commit BT
Alex. Brown or BancAmerica Robertson Stephens or any of their respective
affiliates to provide any services or financing other than as set out
herein.
e. No Shareholder Rights. You acknowledge and agree that BT Alex. Brown
---------------------
and BancAmerica Robertson Stephens have been retained only by you and that
your engagement of BT Alex. Brown and BancAmerica Robertson Stephens is not
deemed to be on behalf of
6
<PAGE>
and is not intended to confer rights upon any shareholder, owner or partner
of you or any other person not a party hereto (other than GMG and the
Borrower) as against BT Alex. Brown or BancAmerica Robertson Stephens or
any of their respective affiliates or the respective directors, officers,
employees, agents and representatives of BT Alex. Brown or BancAmerica
Robertson Stephens and their respective affiliates. Unless otherwise
expressly agreed, no person or entity other than you, GMG and the Borrower
is authorized to rely upon your engagement of BT Alex. Brown and
BancAmerica Robertson Stephens or any statements, advice, opinions, or
conduct by BT Alex. Brown or BancAmerica Robertson Stephens.
f. Tombstone, Etc. Upon consummation of any of transactions contemplated
--------------
hereby, BT Alex. Brown and BancAmerica Robertson Stephens may place
customary "tombstone" advertisements in publications of their choice at
their own expense. You confirm that you, GMG and the Borrower will rely on
your respective counsel, accountants and other similar expert advisors for
legal, accounting, tax and other similar expert advice.
g. Miscellaneous. This Engagement Letter may be executed in two or more
-------------
counterparts, all of which together shall be considered a single
instrument. The term "affiliate" as used herein shall have the meaning
ascribed to such term in the rules and regulations promulgated under the
Securities Exchange Act of 1934, as amended. This Engagement Letter
constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, between the parties hereto with
respect to the subject matter hereof and cannot be amended or otherwise
modified except in writing executed by the parties hereto.
h. Successors and Assigns. The provisions of this Engagement Letter
----------------------
shall inure to the benefit of and be binding upon the successors and
assignees of Fremont, Borrower, GMG, BT Alex. Brown and BancAmerica
Robertson Stephens. BT Alex. Brown and BancAmerica Robertson Stephens may
each transfer or assign, in whole or from time to time in part, to one or
more of its affiliates, its rights and obligations hereunder, but no such
transfer or assignment will relieve BT Alex. Brown or BancAmerica Robertson
Stephens of its obligations hereunder without your prior written consent.
By your acceptance hereof, you agree to undertake the obligations described
herein on your own behalf and on behalf of GMG and the Borrower, all such
obligations to be joint and several, except that following the consummation
of the Tender Offer and each of the transactions set
7
<PAGE>
forth in clauses (a) - (d) in the definition of "Transactions," all
obligations of Fremont shall be solely the joint and several obligations of
GMG and the Borrower, and Fremont shall be released from all such
obligations.
i. GOVERNING LAW. THIS ENGAGEMENT LETTER SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF. ANY RIGHT TO TRIAL BY
JURY WITH RESPECT TO ANY CLAIM OR ACTION ARISING OUT OF THIS ENGAGEMENT
LETTER OR CONDUCT IN CONNECTION WITH THIS ENGAGEMENT IS HEREBY WAIVED. YOU
HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK
STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE
RELATED TO THIS ENGAGEMENT LETTER OR ANY OF THE MATTERS CONTEMPLATED
HEREBY.
8
<PAGE>
We are delighted to accept this engagement and look forward to working with you
on this assignment. Please confirm that the foregoing is in accordance with
your understanding by signing and returning to us the enclosed duplicate of this
letter.
Very truly yours,
BT ALEX. BROWN INCORPORATED
By: ________________________
Name: __________________
Title: _________________
BANCAMERICA ROBERTSON STEPHENS
By: ________________________
Name: __________________
9
<PAGE>
Title: _______________
10
<PAGE>
AGREED AND ACCEPTED this
___ day of June, 1998:
FREMONT ACQUISITION COMPANY III, LLC
By: ____________________________
Name: ______________________
Title: _____________________
11
<PAGE>
EXHIBITS (c)(1)
EXECUTION COPY
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 28, 1998
BY AND AMONG
FREMONT ACQUISITION COMPANY III, LLC
GMS ACQUISITION CORP.
AND
GLOBAL MOTORSPORT GROUP, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I
THE OFFER
<S> <C> <C>
Section 1.1 The Offer............................................... 2
---------
Section 1.2 Company Action.......................................... 4
--------------
ARTICLE II
STOCK PURCHASE AND SALE
Section 2.1 Purchase and Sale of Shares............................. 5
---------------------------
Section 2.2 Purchase Price.......................................... 5
--------------
Section 2.3 Closing................................................. 5
-------
Section 2.4 Closing Deliveries by the Company....................... 6
---------------------------------
Section 2.5 Closing Deliveries by Purchaser......................... 6
-------------------------------
Section 2.6 Appointment of Directors................................ 6
------------------------
ARTICLE III
EFFECTS OF TENDER OFFER ON THE MERGER
Section 3.1 Tender.................................................. 8
------
Section 3.2 Tender of Shares in Excess of Tender Offer Number....... 8
-------------------------------------------------
Section 3.3 Tender of Shares Less Than Tender Offer Number.......... 9
----------------------------------------------
ARTICLE IV
THE MERGER
Section 4.1 The Merger.............................................. 9
----------
Section 4.2 Effective Time.......................................... 10
--------------
Section 4.3 Effects of the Merger................................... 10
---------------------
Section 4.4 Certificate of Incorporation and By-Laws................ 10
----------------------------------------
Section 4.5 Directors............................................... 11
---------
Section 4.6 Officers................................................ 11
--------
Section 4.7 Subsequent Actions...................................... 11
------------------
Section 4.8 Conversion of Shares.................................... 11
--------------------
Section 4.9 Listing of Stock Options; Cancellation of Stock Options. 13
-------------------------------------------------------
Section 4.10 Stockholders' Meeting................................... 14
---------------------
ARTICLE V
DISSENTING SHARES; EXCHANGE OF SHARES
Section 5.1 Dissenting Shares....................................... 16
---------- ------
Section 5.2 Payment for Shares...................................... 16
------------------
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
<S> <C>...................................................... <C>
Section 6.1 Organization and Qualification; Subsidiaries............. 19
--------------------------------------------
Section 6.2 Capitalization of the Company and its Subsidiaries....... 20
--------------------------------------------------
Section 6.3 Authority Relative to this Agreement;
Consents and Approvals................................... 22
-------------------------------------
Section 6.4 SEC Reports; Financial Statements........................ 23
---------------------------------
Section 6.5 Proxy Statement; Schedule 13E-3; Schedule 13E-4.......... 24
-----------------------------------------------
Section 6.6 Consents and Approvals; No Violations.................... 24
-------------------------------------
Section 6.7 No Default............................................... 25
----------
Section 6.8 No Undisclosed Liabilities; Absence of Changes........... 26
----------------------------------------------
Section 6.9 Litigation............................................... 26
----------
Section 6.10 Compliance with Applicable Law........................... 26
------------------------------
Section 6.11 Employee Benefit Matters................................. 27
------------------------
Section 6.12 Environmental Laws and Regulations....................... 29
----------------------------------
Section 6.13 Rights Agreement......................................... 30
----------------
Section 6.14 Brokers.................................................. 31
-------
Section 6.15 Absence of Certain Changes............................... 31
--------------------------
Section 6.16 Taxes.................................................... 31
-----
Section 6.17 Intellectual Property.................................... 32
---------------------
Section 6.18 Labor Matters............................................ 33
-------------
Section 6.19 Opinions of Financial Advisors........................... 34
------------------------------
Section 6.20 Real Property and Lease.................................. 35
-----------------------
Section 6.21 Material Contracts....................................... 36
------------------
Section 6.22 Certain Business Practices............................... 38
--------------------------
Section 6.23 Product Liability........................................ 38
-----------------
Section 6.24 Suppliers and Customers.................................. 39
-----------------------
Section 6.25 Accounts Receivable; Inventory........................... 39
------------------------------
Section 6.26 Insurance................................................ 40
---------
Section 6.27 Title and Condition of Properties........................ 40
---------------------------------
Section 6.28 Information in Financing Documents....................... 40
----------------------------------
Section 6.29 Section 2115............................................. 40
------------
Section 6.30 Full Disclosure.......................................... 41
---------------
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF PURCHASER............................ 41
Section 7.1 Organization............................................. 41
------------
Section 7.2 Authority Relative to this Agreement..................... 41
------------------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>..................................................... <C>
Section 7.3 Consents and Approvals; No Violations................... 42
-------------------------------------
Section 7.4 Proxy Statement; Offer Documents........................ 42
--------------------------------
Section 7.5 Financing............................................... 42
---------
Section 7.6 Brokers................................................. 43
-------
ARTICLE VIII
COVENANTS
Section 8.1 Conduct of Business of the Company...................... 43
----------------------------------
Section 8.2 Acquisition Proposals................................... 46
----------------------
Section 8.3 Access to Information................................... 47
----------------------
Section 8.4 Additional Agreements; Reasonable Efforts............... 48
-----------------------------------------
Section 8.5 Consents................................................ 49
--------
Section 8.6 Public Announcements.................................... 50
--------------------
Section 8.7 Indemnification......................................... 50
---------------
Section 8.8 Recapitalization........................................ 51
----------------
Section 8.9 Financial Statements.................................... 51
--------------------
ARTICLE IX
CONDITIONS TO CONSUMMATION OF THE STOCK PURCHASE
AND THE MERGER
Section 9.1 Conditions to the Stock Purchase........................ 52
--------------------------------
Section 9.2 Conditions to Each Party's Obligations to Effect the
Merger.................................................. 53
----------------------------------------------------------
ARTICLE X
TERMINATION; AMENDMENT; WAIVER
Section 10.1 Termination............................................. 56
-----------
Section 10.2 Effect of Termination................................... 58
---------------------
Section 10.3 Fees and Expenses....................................... 58
-----------------
Section 10.4 Amendment............................................... 59
---------
Section 10.5 Waiver.................................................. 59
------
ARTICLE XI
MISCELLANEOUS
Section 11.1 Nonsurvival of Representations and Warranties........... 60
---------------------------------------------
Section 11.2 Entire Agreement; Assignment............................ 60
----------------------------
Section 11.3 Validity................................................ 60
--------
Section 11.4 Notices................................................. 60
-------
Section 11.5 Governing Law........................................... 61
-------------
Section 11.6 Descriptive Headings.................................... 61
--------------------
Section 11.7 Parties in Interest..................................... 61
-------------------
Section 11.8 Counterparts............................................ 62
------------
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ANNEX A................................................................. 63
EXHIBIT A
COMPANY DISCLOSURE SCHEDULE SECTION:
6.1(a) Subsidiaries
6.1(c) Equity Interests
6.2(e) Indebtedness
6.6 Consents and Approvals
6.8 Undisclosed Liabilities
6.9 Litigation
6.10 Compliance with Applicable Law
6.11 Company Benefit Plans
6.11(a) Company Benefit Plan Compliance
6.11(b) Company benefit Plan No Acceleration
6.11(c) Company Benefit Plan Contribution
6.11(d) Company Benefit Plan Liabilities
6.11(e) Foreign Benefit Plan
6.12(a)(i) Environmental Compliance
6.12(a)(ii) Environmental Compliance
6.12(b) Environmental Claims
6.15 Absence of Certain Changes
6.16(c) Tax Audit
6.17(a) Intellectual Property
6.17(b) Licenses
6.17(c) Royalties
6.17(e) Intellectual Property Proceedings
6.18(a) Personnel Policies
6.18(b) WARN Act
6.20(a) Real Property
6.21(a) Material Contracts
6.23(a) Product Liability
6.23(c) Recalls
6.26 Insurance
6.27 Personal Property
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
TABLE OF DEFINED TERMS
CROSS REFERENCE
TERM IN AGREEMENT
<S> <C>
Acquisition Proposal..................................... Section 8.2
Acquisition Sub.......................................... Preamble
Acquisition Sub Common Stock............................. Section 4.1(b)
Board.................................................... Recitals
Cash Merger Consideration................................ Section 4.8(a)
Cash-Out Options......................................... Section 4.9
Certificates............................................. Section 5.2(b)
Code..................................................... Section 6.11(a)
Common Stock............................................. Recitals
Company.................................................. Preamble
Company Balance Sheet.................................... Section 6.26(a)
Company Benefit Plans.................................... Section 6.11(a)
Company Disclosure Schedule.............................. Article VI
Company Material Adverse Effect.......................... Section 6.1(a)
Company Permits.......................................... Section 6.10
Company SEC Documents.................................... Section 6.4(a)
Company Securities....................................... Section 6.2(a)
Company Stock Plans...................................... Section 4.9
DGCL..................................................... Recitals
Dissenting Shares........................................ Section 5.1(a)
Effective Time........................................... Section 4.2
Employee Stock Purchase Plan............................. Section 4.9
Environmental Claim...................................... Section 6.12(a)
Environmental Laws....................................... Section 6.12(a)
ERISA.................................................... Section 6.11(a)
Exchange Act............................................. Section 2.6(a)
Financial Advisor........................................ Section 1.2(a)
Financial Statements..................................... Section 6.4(a)
Financing Documents...................................... Section 6.29
Foreign Benefit Plan..................................... Section 6.11(e)
GAAP..................................................... Section 6.4(a)
GMSI Operating Corp...................................... Section 8.10
Governmental Entity...................................... Section 6.6
HMO...................................................... Section 6.11(d)
HSR Act.................................................. Section 6.6
Indebtedness............................................. Section 6.2(e)
Independent Directors.................................... Section 2.6(c)
Intellectual Property.................................... Section 6.17(a)
IRS...................................................... Section 6.11(a)
Lien..................................................... Section 6.2(b)
Management Exercised Options............................. Section 4.9(b)
Management Option Shares................................. Section 4.9(b)
Material Contracts....................................... Section 6.21(a)
Merger................................................... Section 4.1(a)
Merger Closing Date...................................... Section 4.2
Merger Consideration..................................... Section 4.8(a)
Minimum Condition........................................ Section 1.1(a)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Offer................................................... Recitals
Offer Documents......................................... Section 1.1(c)
Offer to Purchase....................................... Section 1.1(c)
Option Cancellation Time................................ Section 4.9(b)
Options................................................. Section 4.9(a)
Paying Agent............................................ Section 5.2(a)
Per Share Amount........................................ Recitals
Person.................................................. Section 8.2
Post-Exercise Outstanding............................... Section 1.1(d)
Preferred Stock......................................... Section 6.2(a)
Premium Amount.......................................... Section 8.7(b)
Proxy Statement......................................... Section 4.10(a)(iii)
Public Rollover Shares.................................. Section 1.1(d)
Purchase Plan Options................................... Section 4.9
Purchase Price.......................................... Section 2.2
Purchaser............................................... Preamble
Purchaser Indemnified Parties........................... Section 8.7
Purchaser Material Adverse Effect....................... Section 7.1
Purchaser Shares........................................ Section 2.1(a)
Real Property........................................... Section 6.20(a)
Rights.................................................. Recitals
Rights Agreement........................................ Recitals
Schedule 13E-3.......................................... Section 1.1(c)
Schedule 13E-4.......................................... Section 1.1(c)
Securities Act.......................................... Section 6.4(a)
SEC..................................................... Section 1.1(b)
Shares.................................................. Recitals
Stockholders' Meeting................................... Section 4.10(a)(i)
Stock Merger Consideration.............................. Section 4.8(a)
Stock Option List....................................... Section 4.9
Stock Options........................................... Section 4.9(a)
Stock Purchase.......................................... Recitals
Stock Purchase Closing.................................. Section 2.3
Stock Purchase Closing Date............................. Section 2.3
Stock Tender Offer Consideration........................ Section 3.2(b)
Stockholder Agreement................................... Recitals
Subsidiary.............................................. Section 6.1(a)
Surviving Corporation................................... Section 4.1(a)
Surviving Corporation Common Stock...................... Section 4.1(b)
Tender Offer Number..................................... Section 1.1(d)
Termination Fee......................................... Section 10.3(a)
Transactions............................................ Section 1.1(c)
Transmittal Documents................................... Section 5.2(b)
WARN Act................................................ Section 6.18(b)
1998 Financial Statements............................... Section 6.4(b)
</TABLE>
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of
June 28, 1998, by and among Fremont Acquisition Company III, LLC, a Delaware
limited liability company ("Purchaser"), GMS Acquisition Corp., a newly formed
---------
Delaware corporation and a wholly owned subsidiary of Global Motorsport Group,
Inc. ("Acquisition Sub"), and Global Motorsport Group, Inc., a Delaware
corporation, formerly known as Custom Chrome, Inc. (the "Company").
-------
WHEREAS, the parties to this Agreement entered into an agreement and
plan of merger dated as of June 28, 1998 and now wish to restate this Agreement
in its entirety this 10/th/ day of July 1998 (it being understood that all
references to "the date hereof" and phrases of similar import contained herein
shall continue to refer to June 28, 1998);
WHEREAS, the Board of Managers of Purchaser and the Board of Directors
of each of Acquisition Sub and the Company has approved, and deems it advisable
and in the best interests of its respective members and stockholders, as the
case may be, to consummate, the acquisition of the Company by Purchaser upon the
terms and subject to the conditions set forth herein; and
WHEREAS, in furtherance thereof, it is proposed that the Company make
a cash tender offer (the "Offer") to acquire up to the number of shares (the
-----
"Shares") of common stock, par value $0.001 per share (the "Common Stock"), of
- ------- ------------
the Company, including the associated common stock purchase rights (the
"Rights") issued pursuant to that certain Rights Agreement, dated as of November
------
13, 1996 (the "Rights Agreement"), by and between the Company and American Stock
----------------
Transfer and Trust Company, as Rights Agent, equal to the Tender Offer Number,
for $21.75 per Share, net to the seller in cash (such price, or any such higher
price per Share as may be paid in the Offer, being referred to herein as the
"Per Share Amount"); and
- -----------------
WHEREAS, as a condition and inducement to Purchaser's entering into
this Agreement and incurring the obligations set forth herein, each of Joseph
Piazza, Sr., James J. Kelly, Jr., Lionel M. Allan, Joseph F. Keenan, R. Steven
Fisk, Joseph P. Piazza, Jr., David Clark, Lee Katsuda, Frances Mora, Dennis
Nevarra, Andy Sisk, Nate Stewart and Rick Saunders (collectively, together with
such other individuals acceptable to Purchaser who have executed and delivered
the Stockholder Agreement (as defined below) to Purchaser prior to July 10,
1998, the "Management Stockholders"), concurrently herewith are entering into a
-----------------------
Stock-
1
<PAGE>
holder Agreement, dated as of the date hereof, with Purchaser, in the
form attached hereto as Exhibit A (the "Stockholder Agreement"), pursuant to
---------------------
which the Management Stockholders have (or will have) agreed, among other
things, not to tender certain of their Shares in the Offer; and
WHEREAS, the parties hereto intend that the acquisition be treated as
a recapitalization for financial accounting purposes; and
WHEREAS, also in furtherance of such acquisition, each of the Board of
Managers of Purchaser and the Board of Directors of each of Acquisition Sub and
the Company has approved the Merger (as defined below) following the Offer in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL") and upon the terms and subject to the conditions set forth herein; and
----
WHEREAS, also in furtherance of such acquisition, the Board of
Managers of Purchaser and Board of Directors of the Company has approved the
purchase by Purchaser and the sale by the Company (the "Stock Purchase") of
--------------
2,666,667 shares of Common Stock for the Per Share Amount immediately prior to
the consummation of the Offer; and
WHEREAS, the Board of Directors of the Company (the "Board") has, in
-----
light of and subject to the terms and conditions set forth herein, (i)
determined that the consideration to be paid for each Share in the Offer and the
Merger (as defined below) is fair to the holders of such Shares and in the best
interests of such stockholders, (ii) approved and adopted this Agreement and the
transactions contemplated hereby, and (iii) resolved to recommend that the
holders of such Shares accept the Offer and approve this Agreement, the Merger
and each of the transactions contemplated hereby upon the terms and subject to
the conditions set forth herein; and
WHEREAS, Purchaser, Acquisition Sub and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the Offer and Merger.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, Purchaser, Acquisition Sub and the Company
hereby agree as follows:
ARTICLE I
THE OFFER
Section 1.1 The Offer.
---------
2
<PAGE>
(a) Provided that this Agreement shall not have been terminated in
accordance with Section 10.1 and none of the events set forth in Annex A shall
have occurred or be existing, the Company shall commence the Offer within two
(2) business days of Purchaser's request, but in no event later than ten (10)
business days, from the date hereof. Subject to Article III and the conditions
set forth in Annex A, the Company shall accept for payment Shares which have
been validly tendered and not withdrawn pursuant to the Offer at the earliest
time following expiration of the Offer that all conditions to the Offer shall
have been satisfied or waived by the Company. The obligation of the Company to
accept for payment, purchase and pay for Shares tendered pursuant to the Offer
shall be subject only to Article III and the conditions set forth in Annex A
hereto and to the further condition that a number of Shares representing not
less than a majority of the Shares then outstanding on a fully diluted basis
shall have been validly tendered and not withdrawn prior to the expiration date
of the Offer (the "Minimum Condition"). At Purchaser's request, the Company
-----------------
shall increase the price per Share payable in the Offer and make such other
changes to the Offer as Purchaser may request, provided, however, that the
-------- -------
Company will not be required to make any changes which decrease the price per
Share payable in the Offer, which change the form of consideration to be paid in
the Offer, or which reduce the maximum number of Shares to be purchased in the
Offer, which impose conditions to the Offer in addition to those set forth in
Article III and Annex A hereto or which broadens the scope of such conditions.
The Company shall make no other changes to the Offer or waive any conditions to
the Offer or take any other action, including, without limitation, notice of
acceptance of tendered Shares to the depositary, with respect to the Offer
without Purchaser's prior written consent. The Per Share Amount shall be paid
net to the seller in cash, less any required withholding of taxes, upon the
terms and subject to such condition tions of the Offer. Subject to the terms
of the Offer (includ ing, without limitation, the Minimum Condition, Article
III and Annex A), the Company shall pay, as promptly as practicable after
expiration of the Offer, for all Shares validly tendered and not withdrawn.
The Company agrees that no Shares held by the Company or any of its
Subsidiaries (as hereinafter defined) will be tendered in the Offer.
(b) Notwithstanding any other provision contained herein, but subject
to Section 10.1, the Company shall, at the direction of Purchaser, extend the
Offer from time to time.
(c) As soon as reasonably practicable on the date the Offer is
commenced, the Company shall file with the Securities and Exchange Commission
(the "SEC") an Issuer Tender Offer Statement on Schedule 13E-4 (together with
---
all amendments and supplements thereto, the "Schedule 13E-4") with respect to
--------------
the Offer; and the Company, Purchaser and Acquisition Sub shall file
3
<PAGE>
with the SEC a Rule 13E-3 Transaction Statement on Schedule 13E-3 (together
with all amendments and supplements thereto, the "Schedule 13E-3") with
--------------
respect to the Offer, the Stock Purchase, the Merger and the other
transactions contemplated by this Agreement (collectively, the
"Transactions"). The Schedule 13E-4 and Schedule 13E-3 shall contain or shall
------------
incorporate by reference an offer to purchase (the "Offer to Purchase") and
-----------------
forms of the related letter of transmittal and any other documents related to
the Offer (the Schedule 13E-4, together with the Schedule 13E-3, the Offer to
Purchase and such other documents, together with any supplements or amendments
thereto, are collectively referred to herein as the "Offer Documents"). The
---------------
Offer Documents will comply in all material respects with the provisions of
applicable state and federal securities laws. The information provided and to
be provided by the Company, Purchaser and Acquisition Sub for use in the Offer
Documents shall not, on the date filed with the SEC and on the date first
published or sent or given to the Company's stockholders, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Each of Purchaser, Acquisition Sub and the Company agrees
promptly to correct any information provided by it for use in the Offer
Documents if and to the extent that it shall have become false or misleading
in any material respect, and the Company further agrees to take all steps
necessary to cause the Offer Documents as so corrected to be filed with the
SEC and to be disseminated to holders of Shares, in each case as and to the
extent required by applicable state and federal securities laws. In addition,
the Company will provide Purchaser and its counsel with any comments or other
communications, whether written or oral, that the Company may receive from
time to time from the SEC or its staff with respect to the Offer Documents
promptly after the receipt of such comments or other communications.
(d) For purposes of this Agreement, the "Tender Offer Number"
-------------------
shall be 4,820,000.
Section 1.2 Company Action.
--------------
(a) The Company hereby approves of and agrees to undertake the
Offer and represents and warrants that the Board, at a meeting duly called and
held, has, subject to the terms and conditions set forth herein, (i)
determined that this Agreement and the Transactions, including the Offer and
the Merger, are fair to, and in the best interests of, the stockholders of the
Company, (ii) approved this Agreement and the Transactions, including the
Offer and the Merger, in all respects and that such approval constitutes
approval of the Offer, this Agreement and the Merger for purposes of Sections
203 and 251 of the DGCL and similar provisions of any other similar state
statutes that might
4
<PAGE>
be deemed applicable to the Transactions, (iii) has taken all action under the
Rights Agreement to make the representations and warranties contained in
Section 6.13 true and correct in all respects, and (iv) resolved to recommend
that the stockholders of the Company accept the Offer, and approve and adopt
this Agreement and the Merger; provided, however, that such recommendation
-------- -------
may be withdrawn, modified or amended to the extent that the Board by a
majority vote determines in its good faith judgment, based as to legal matters
on the advice of legal counsel, that the Board is required to do so in the
exercise of its fiduciary duties. The Company shall include a statement of
such recommendation and approval in the Offer Documents. The Company further
represents that Cleary Gull Reiland & McDevitt, Inc. (the "Financial
---------
Advisor") has delivered to the Board its written opinion that the
- -------
consideration to be received in the Offer and the Merger by the holders of
Shares (other than Purchaser and its affiliates) is fair from a financial
point of view to such holders. The Company agrees to, and has been authorized
by the Financial Advisor to permit, subject to the prior review and consent by
the Financial Advisor (such consent not to be unreasonably withheld), the
inclusion of the fairness opinion (or a reference thereto) in the Offer
Documents.
(b) The Company shall take all action as may be necessary to
effect the Offer as contemplated by this Agreement, including, without
limitation, promptly mailing the Offer Documents to the record holders and
beneficial owners of the Shares.
ARTICLE II
STOCK PURCHASE AND SALE
Section 2.1 Purchase and Sale of Shares.
---------------------------
(a) Upon the terms and subject to the conditions of this
Agreement, the Company shall sell to Purchaser and Purchaser shall purchase
from the Company, 2,666,667 shares of Common Stock (the "Purchaser Shares").
----------------
(b) The Purchaser Shares will be validly issued, fully paid and
nonasessable, and will be issued free of preemptive rights or any Liens (as
described in Section 6.2(b)).
Section 2.2 Purchase Price. The aggregate purchase price for the
--------------
Purchaser Shares shall be the number of Purchaser Shares multiplied by the Per
Share Amount (the "Purchase Price").
--------------
Section 2.3 Closing. Upon the terms and subject to the conditions
-------
of this Agreement, the sale and purchase of the Purchaser Shares contemplated by
this Agreement shall take place at a closing (the "Stock Purchase Closing") to
----------------------
be held at the
5
<PAGE>
offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Embarcadero Center,
Suite 3800, San Francisco, California 94111, at 6:00 a.m. San Francisco time,
on the day after the Offer is scheduled to expire, or at such other place or
at such other time or on such other date as the Company and Purchaser may
mutually agree upon in writing (the day on which the Closing takes place being
the "Stock Purchase Closing Date").
---------------------------
Section 2.4 Closing Deliveries by the Company. At the Stock Purchase
---------------------------------
Closing, the Company shall deliver or cause to be delivered to Purchaser:
(a) stock certificates evidencing the Purchaser Shares;
(b) a receipt for the Purchase Price; and
(c) the certificates and other documents required to be delivered
pursuant to Section 9.1(c)(iii).
Section 2.5 Closing Deliveries by Purchaser. At the Closing,
-------------------------------
Purchaser shall deliver to the Company:
(a) the Purchase Price by wire transfer of immediately
available funds to an account at a United States bank designated in writing by
the Company, which designation shall be received by Purchaser at least three
(3) business days prior to the Closing; and
(b) the certificates and other documents required to be delivered
pursuant to Section 9.1(b)(iii).
Section 2.6 Appointment of Directors.
------------------------
(a) Promptly upon consummation of the Stock Purchase and the
purchase of and payment for no more than that number of Shares equal to the
Tender Offer Number by the Company pursuant to the Offer, the Minimum
Condition having been satisfied, and from time to time thereafter as Shares
are acquired by the Company, Purchaser shall be entitled to designate such
number of directors, subject to compliance with Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), rounded up
to the next whole number, on the Board as is equal to the product of the total
number of directors on such Board (giving effect to the directors designated
by Purchaser pursuant to this sentence) multiplied by the percentage that the
number of Shares which Purchaser or any affiliate of Purchaser owns benefi-
cially bears to the total number of Shares then outstanding. In furtherance
thereof, the Company shall, upon the request of Purchaser, promptly either
increase the size of its Board of Directors or use its best efforts to secure
the resignations of such directors as requested by Purchaser in writing, or
both as
6
<PAGE>
is necessary to enable Purchaser's designees to be elected to the Board in
accordance with this Section 2.6 and shall cause Purchaser's designees to be
so elected. At such time, the Company shall, if requested by Purchaser, also
cause persons designated by Purchaser to constitute at least the same
percentage (rounded up to the next whole number) as is on the Board of (i)
each committee of the Board, (ii) each board of directors (or similar body) of
each Subsidiary (as hereinafter defined) of the Company and (iii) each
committee (or similar body) of each such board.
(b) Subject to applicable law, the Company shall promptly take all
actions required pursuant to Section 14(f) of the Exchange Act and Rule 14f-l
promulgated thereunder in order to fulfill its obligations under Section 2.6(a)
hereof, and shall include in the Schedule 13E-4 mailed to stockholders promptly
after the commencement of the Offer (or an amendment thereof or an information
statement pursuant to Rule 14f-1 if Purchaser has not theretofore designated
directors) such information with respect to the Company and its officers and
directors as is required under Section 14(f) and Rule 14f-1 in order to fulfill
its obligations under Section 2.6(a). Purchaser shall supply the Company
information with respect to it and its nominees, officers, directors and
affiliates required by such Section 14(f) and Rule 14f-1. The provisions of
this Section 2.6(b) are in addition to and shall not limit any rights which
Purchaser or any of their affiliates may have as a holder or beneficial owner of
Shares as a matter of law with respect to the election of directors or
otherwise.
(c) In the event that the Merger contemplated by Article IV is
effected and Purchaser's designees are elected to the Board subject to the other
terms of this Agreement and until the Effective Time, the Board shall have at
least one director who is a director on the date hereof and who may be Joseph
Keenan, or otherwise is neither an officer of the Company nor a designee,
stockholder, affiliate or associate (within the meaning of the Federal
securities laws) of Purchaser (one or more of such directors, the "Independent
-----------
Directors"), provided that, in such event, if the number of Independent
- --------- -------- ----
Directors shall be reduced below two for any reason whatsoever, any remaining
Independent Director shall be entitled to, or, if no Independent Director then
remains, the other directors shall designate one person to fill one of the
vacancies who shall not be a stockholder, affiliate or associate of Purchaser
and such person shall be deemed to be an Independent Director for purposes of
this Agreement. Notwithstanding anything in this Agreement to the contrary, in
the event that Purchaser's designees are elected to the Board, after the
acceptance for payment of Shares pursuant to the Offer and prior to the
Effective Time (as hereinafter defined), the affirmative vote of a majority of
the Independent Directors shall be required to (a) amend or terminate this
Agreement on behalf of the Company, (b) exercise or waive any of the Company's
rights,
7
<PAGE>
benefits or remedies hereunder, (c) extend the time for performance of
Purchaser's obligations hereunder or (d) take any other action by the Board
under or in connection with this Agreement; provided, however, that if there
-------- -------
shall be no such directors, such actions may be effected by unanimous vote of
the entire Company Board of Directors.
ARTICLE III
EFFECTS OF TENDER OFFER ON THE MERGER
Section 3.1 Tender of Shares Equal to Tender Offer Number. Subject
---------------------------------------------
to Annex A and Article III, in the event that the number of Shares representing
not less nor more than the number of Shares equal to the Tender Offer Number
have been validly tendered and not withdrawn prior to the expiration of the
Offer, then the Company shall accept for payment, purchase and pay for all such
Shares as provided in the Offer Documents. All such Shares so accepted for
payment, purchased and paid for shall then be canceled, retired and cease to
exist. Shares held by Purchaser or any of its affiliates, Management
Stockholders and any stockholders of the Company who did not tender their Shares
pursuant to the Offer shall remain outstanding, and the Merger contemplated by
Article IV shall not be effected.
Section 3.2 Tender of Shares in Excess of Tender Offer Number.
-------------------------------------------------
Subject to Annex A and Article III and notwithstanding anything in this
Agreement to the contrary, the number of Shares that the Company shall accept
for payment, purchase and pay for shall be equal to not more than the number of
Shares equal to the Tender Offer Number. In the event that the number of Shares
representing more than the number of Shares equal to the Tender Offer Number
shall have been validly tendered and not withdrawn prior to the expiration of
the Offer, then each Share so tendered shall receive the following consideration
in accordance with the terms of this Section 3.2 in the following manner, and
the Merger contemplated by Article IV shall not be effected.
(a) (i) A cash proration factor (the "Cash Proration Factor") shall be
---------------------
a fraction whose numerator is the Tender Offer Number and whose denominator is
the total number of Shares tendered pursuant to the Offer, and (ii) a stock
proration factor (the "Stock Proration Factor") shall be a fraction whose
----------------------
numerator is the amount equal to the difference between the number of Shares
tendered pursuant to the Offer and the Tender Offer Number, and whose
denominator is the number of Shares tendered pursuant to the Offer. All
fractions shall be carried out to four decimal places.
(b) Each tendering stockholder shall be entitled to (A) receive an
amount in cash equal to the product obtained by multiplying (i) the number of
Shares tendered by such stock-
8
<PAGE>
holder, (ii) the Per Share Amount and (iii) the Cash Proration Factor, and (B)
retain that number of shares of Common Stock of the Company (the "Stock Tender
------------
Offer Consideration") rounded down to the nearest whole share equal to the
- -------------------
product obtained by multiplying (i) the number of Shares tendered by such
stockholder, and (ii) the Stock Proration Factor. No fraction of a share of
Stock Tender Offer Consideration will be issued in exchange for Shares subject
to the Stock Proration Factor, no dividend or distribution of the Company
shall relate to such fractional share interests and such fractional share
interests will not entitle the owner thereof to vote or to any rights of a
Stockholder of the Company. In lieu of fractional shares of Stock Tender Offer
Consideration, each holder who would otherwise be entitled to receive a
fraction of a share of Stock Tender Offer Consideration (after aggregating all
fractional shares of Stock Tender Offer Consideration to be received by such
holder) shall receive from the Company an amount of cash (rounded down to the
nearest whole cent) equal to the product of (x) such fraction, multiplied by
(y) the Per Share Amount.
Section 3.3 Tender of Shares Less Than Tender Offer Number. In the
----------------------------------------------
event that the number of Shares validly tendered and not withdrawn prior to the
expiration of the Offer is equal to the Minimum Condition or greater but less
than the number of Shares equal to the Tender Offer Number, then the Company
shall accept for payment, purchase and pay for all such Shares as provided in
the Offer Documents. All such Shares so accepted for payment, purchased and
paid for shall then be canceled, retired and cease to exist. Shares held by
Purchaser or any of its affiliates, Management Stockholders and any stockholders
of the Company who did not tender their Shares pursuant to the Offer shall
remain outstanding. Subject to the terms and conditions of this Agreement,
following the consummation of the Offer, Acquisition Sub and the Company shall
effect the Merger as set forth in Article IV hereof.
ARTICLE IV
THE MERGER
Section 4.1 The Merger.
----------
(a) In the event that the number of Shares validly tendered and not
withdrawn prior to the expiration of the Offer is equal to the Minimum Condition
or greater but less than the number of Shares equal to the Tender Offer Number,
then at the Effective Time (as hereinafter defined) and upon the terms and
subject to the conditions of this Agreement and in accordance with the DGCL, the
Company and Acquisition Sub shall consummate a merger (the "Merger") pursuant to
------
which (a) Acquisition Sub shall merge with and into the Company and the separate
corporate existence of Acquisition Sub shall thereupon cease, (b) the
9
<PAGE>
Company shall be the successor or the surviving corporation in the
Merger(sometimes hereinafter referred to as the "Surviving Corporation") and
---------------------
shall continue to be governed by the laws of the State of Delaware, and (c)
the corporate existence of the Company with all of its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger.
Purchaser may, upon notice to the Company, modify the structure of the Merger if
Purchaser determines it advisable to do so because of tax or other
considerations, and the Company shall promptly enter into any amendment to
this Agreement necessary or desirable to accomplish such structure
modification, provided that no such amendment shall reduce the Merger
Consideration.
(b) As of the Effective Time, by virtue of the Merger and without any
action on the part of the holders of any Shares or holders of common stock, par
value $0.01 per share, of Acquisition Sub ("Acquisition Sub Common Stock"), each
----------------------------
issued and outstanding share of Acquisition Sub Common Stock shall be canceled,
retired and shall cease to exist.
Section 4.2 Effective Time. As soon as practicable after the
--------------
satisfaction or waiver of the conditions set forth in Article IX, the parties
hereto shall cause (i) a Certificate of Merger to be executed and filed on the
Merger Closing Date (as hereinafter defined) (or on such other date as Purchaser
and the Company may agree) with the Secretary of State of the State of Delaware
in such form as required by, and executed in accordance with the relevant
provisions of the DGCL, and (ii) all other filings or recordings required by the
DGCL in connection with the Merger. Prior to the filing referred to in this
Section 4.2, a closing (the "Merger Closing Date") will be held at the offices
-------------------
of Skadden, Arps, Slate, Meagher & Flom LLP, Four Embarcadero Center, Suite
3800, San Francisco, California 94111, at 10:00 a.m. San Francisco time (or
such other place as the parties may agree). The Merger shall become effective
at such time as such Certificate of Merger is duly filed with the Secretary of
State of the State of Delaware, or at such later time specified in such
Certificate of Merger (the time the Merger becomes effective being referred to
herein as the "Effective Time").
--------------
Section 4.3 Effects of the Merger. At the Effective Time, the
---------------------
Merger shall have the effects as set forth in the applicable provisions of the
DGCL. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, all the properties, rights, privileges, powers and
franchises of the Company and Acquisition Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and
Acquisition Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 4.4 Certificate of Incorporation and By-Laws.
----------------------------------------
10
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(a) The Certificate of Incorporation of the Company in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until amended in accordance with
applicable law.
(b) The By-laws of the Company in effect at the Effective Time shall
be the By-laws of the Surviving Corporation until amended in accordance with
applicable law.
Section 4.5 Directors. The directors of the Company at the
---------
Effective Time shall be the initial directors of the Surviving Corporation, each
to hold office in accordance with the Certificate of Incorporation and By-laws
of the Surviving Corporation until such director's successor is duly elected
or appointed and qualified.
Section 4.6 Officers. The officers of the Company at the
----------- --------
Effective Time shall be the initial officers of the Surviving Corporation, each
to hold office in accordance with the certificate of incorporation and by-laws
of the Surviving Corporation until such officer's successor is duly elected or
appointed and qualified.
Section 4.7 Subsequent Actions. If at any time after the Effective
------------------
Time the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of either of the Company or Acquisition Sub
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with the Merger or otherwise to carry out this Agreement, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of either the Company or
Acquisition Sub, all such deeds, bills of sale, assignments and assurances and
to take and do, in the name and on behalf of each of such corporations or
otherwise, all such other actions and things as may be necessary or desirable to
vest, perfect or confirm any and all rights, title and interest in, to and under
such rights, properties or assets in the Surviving Corporation or otherwise to
carry out this Agreement.
Section 4.8 Conversion of Shares. At the Effective Time, by virtue
--------------------
of the Merger and without any action on the part of any of Purchaser,
Acquisition Sub or the Company:
(a) Shares issued and outstanding immediately prior to the Effective
Time (other than (i) any Shares to be canceled pursuant to Section 4.8(b), (ii)
any Shares to remain outstanding pursuant to Section 4.8(c), and (iii) any
Dissenting Shares (as defined in Section 5.1)),together with the Associated
11
<PAGE>
Rights, held by each stockholder of the Company will be converted into the right
to receive (i) an amount in cash (the "Cash Merger Consideration" equal to the
-------------------------
product of (A) the number of such Shares owned by such stockholder, (B) the Per
Share Amount and (C) a factor equal to one (1) minus the Merger Proration Factor
(as defined below) and (ii) a number of shares of common stock of the Company as
the Surviving Corporation (the "Stock Merger Consideration" and, together with
--------------------------
the Cash Merger Consideration, the "Merger Consideration")equal to the product
--------------------
of (A) the number of such Shares owned by such stockholder and (B) the Merger
Proration Factor. The Merger Proration Factor shall be a fraction, the
numerator of which is equal to the Public Rollover Shares, and the denominator
of which is equal to the number of Shares issued and outstanding as of
immediately following the acceptance and payment for all Shares validly tendered
pursuant to the Offer less (i) the number of Shares held by Purchaser, (ii) the
number of Dissenting Shares (as defined in Section 5.1(a)), if any, as of the
Effective Time and (iii) 87,979. For purposes of the foregoing, "Public
------
Rollover Shares" shall mean the difference between the number of Shares issued
- ---------------
and outstanding as of immediately prior to the consummation of the Offer and
Share Purchase less 4,907,979. The Cash Merger Consideration shall be payable
----
to the holder of Shares, without interest thereon, upon the surrender of the
certificate or certificates formerly representing such Shares in the manner
provided in Section 5.2 hereof and less any required withholding of taxes. No
fraction of a share of Stock Merger Consideration will be issued in exchange for
Shares subject to the Merger Proration Factor, no dividend or distribution of
the Surviving Corporation shall relate to such fractional share interests and
such frac tional share interests will not entitle the owner thereof to vote or
to any rights of a stockholder of the Surviving Corporation. In lieu of
fractional shares of Common Stock of the Company, each holder of Shares subject
to the Merger Proration Factor, who would otherwise be entitled to a fraction of
a share of Common Stock (after aggregating all fractional shares of Surviving
Corporation Common Stock to be received by such holder) shall receive from the
Surviving Corporation in the Merger an amount of cash (rounded down to the
nearest whole cent) equal to the product of (x) such fraction, multiplied by (y)
the Per Share Amount. From and after the Effective Time, all such Shares shall
no longer be outstanding and shall be deemed to be canceled and retired and
shall cease to exist, and each holder of a certificate or certificates
representing any such Shares shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration therefor upon the
surrender of such certificate or certificates in accordance with Section 5.2
hereof, or the right, if any, to receive payment from the Surviving
Corporation of the "fair value" of such Shares as determined in accordance with
Section 262 of the DGCL.
(b) Each Share held in the treasury of the
12
<PAGE>
Company and each Share owned by any Subsidiary of the Company immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of Acquisition Sub, the Company or the holder thereof, be
canceled, retired and cease to exist and no payment or distribution shall be
made with respect thereto. In no event shall Shares purchased or to be
purchased by Purchaser be deemed to be Shares held in the treasury of the
Company.
(c) Each Share held by Purchaser or any affiliate thereof, and 87,979
Shares held by the Management Stockholders identified in the Stockholder
Agreement, shall not be canceled as provided above but shall remain outstanding.
Section 4.9 Listing of Stock Options; Cancellation of Stock Options.
-------------------------------------------------------
(a) The Company has heretofore provided Purchaser a true and complete
list (the "Stock Option List") of each option to purchase Shares and the
-----------------
exercise price ("Stock Options") granted under each employee and director stock
-------------
option plan or arrangement (the "Company Stock Plans") outstanding as of the
-------------------
date hereof, other than options outstanding under the Company's 1996 Employee
Stock Purchase Plan (the "Employee Stock Purchase Plan"), which are referred to
----------------------------
herein as "Purchase Plan Options." Stock Options and Purchase Plan Options are
---------------------
sometimes together referred to herein as "Options." The Company represents and
-------
warrants that as of the date hereof, other than as previously disclosed in the
Stock Option List, no outstanding Stock Options are held by any Management
Stockholder.
(b) The Stockholder Agreement sets forth the net number of Shares to
be issued to each Management Stockholder (the "Management Option Shares")
------------------------
pursuant to exercise, prior to consummation of the Offer, of certain Stock
Options held by such Management Stockholder (such Stock Options referred to
herein as the "Management Exercised Options"). Pursuant to the Stockholder
----------------------------
Agreement and this Section 4.9(b), no later than immediately prior to
consummation of the Offer, each Management Exercised Option shall be deemed
exercised and surrendered to the Company, and the Company shall take all actions
necessary to provide that such Management Exercised Option shall thereupon be
canceled. In consideration of such exercise, surrender and cancellation, the
Company shall thereupon issue to the holder of such Management Exercised Option
the corresponding number of Management Option Shares.
(c) The term "Option Cancellation Time" shall mean (i) if, by reason
------------------------
of Section 3.1 or 3.2 hereof, the Merger contemplated by Article IV shall not be
effected, the time that is immediately prior to the consummation of the Offer,
and (ii) if, by reason of Section 3.3 hereof, the Merger contemplated by
13
<PAGE>
Article IV is to be effected, the time that is immediately prior to the
Effective Time.
(d) The Company shall take all actions necessary to provide that, at
the Option Cancellation Time, each then outstanding Stock Option shall be
canceled. In consideration of such cancellation, except with respect to
Management Exercised Options as set forth in Section 4.9(b), the holder shall
receive, subject to any applicable withholding tax, an amount in cash equal to
the product of (x) the excess, if any, of the Per Share Amount over the per
Share exercise price of such Stock Option and (y) the number of Shares subject
to such Stock Option.
(e) The Company shall take all actions necessary to provide that,
immediately prior to the Option Cancellation Time, each then outstanding
Purchase Plan Option shall be canceled. In consideration of such cancellation
and in lieu of the issuance of Certificates, the holder shall receive, subject
to any applicable withholding tax, an amount in cash equal to the product of (x)
the number of Shares otherwise issuable upon the exercise of such Purchase Plan
Option and (y) the Per Share Amount. The Company (i) shall not permit the
commencement of any new Offering Period or Purchase Period (each as defined in
the Employee Stock Purchase Plan) from and after the date hereof and (ii) shall
not permit any holder of a Purchase Plan Option to increase his or her rate of
contributions under the Employee Stock Purchase Plan from and after the date
hereof.
(f) The Company shall take all actions necessary to provide that,
effective as of the Option Cancellation Time, (i) each of the Company Stock
Plans shall be terminated, (ii) the provisions in any other plan, program or
arrangement providing for the issuance or grant of any other interest in respect
of the capital stock of the Company or any of its Subsidiaries shall be deleted,
and (iii) except as provided in Section 4.9(b) with respect to the Management
Exercised Options, no holder of Options will have any right to receive any
shares of capital stock of the Company or, if applicable, the Surviving
Corporation, upon exercise of any Option.
(g) Except with respect to those actions to be taken pursuant to
Section 4.9(b) that are authorized under the Stockholder Agreement, the Company
has the power and authority under the terms of each of the applicable Company
Stock Plans to accomplish each of the matters set forth in this Section 4.9
without the consent of any Option holder.
Section 4.1 Stockholders' Meeting.
---------------------
(a) If required by applicable law in order to consummate the Merger,
the Company, acting through the Board, shall, in accordance with applicable law:
14
<PAGE>
(i) duly call, give notice of, convene and hold an annual or
special meeting of its stockholders (the "Stockholders' Meeting"), to be
---------------------
held as soon as practicable following the acceptance for payment and
purchase of Shares pursuant to the Offer for the purpose of considering and
taking action upon the approval of the Merger and the adoption of this
Agreement;
(ii) include in the Proxy Statement (as hereinafter defined) (i)
the recommendation of the Board that stockholders of the Company vote in
favor of the approval of the Merger and the approval and adoption of this
Agreement and (ii) the written opinion of the Financial Advisor that the
consideration to be received by the stockholders of the Company pursuant to
the Merger is fair to such stockholders from a financial point of view;
and
(iii) prepare and file with the SEC a preliminary proxy or
information statement relating to the Merger and this Agreement and use its
best efforts (A) to obtain and furnish the information required to be
included by it in the Proxy Statement (as hereinafter defined) and, after
consultation with Purchaser, respond promptly to any comments made by the
SEC with respect to the preliminary proxy or information statement, and
cause a definitive proxy or information statement, including any
amendment or supplement thereto (the "Proxy Statement") to be mailed to its
---------------
stockholders at the earliest practicable time following the expiration or
termination of the Offer provided, however, that no amendment or supplement
-------- -------
to the Proxy Statement will be made by the Company without consultation
with Purchaser and its counsel, and (B) subject to its fiduciary duties as
unanimously determined in good faith by the Board, based as to legal
matters on the written advice of legal counsel, to obtain the necessary
approvals by its stockholders of the Merger, this Agreement and the
Transactions. At such meeting, Purchaser and its affiliates shall vote, or
cause to be voted, all Shares owned by them in favor of approval and
adoption of the Merger and this Agreement and the Transactions.
(iv) Purchaser will provide the Company with the information
concerning Purchaser required to be included in the Proxy Statement.
ARTICLE V
15
<PAGE>
DISSENTING SHARES; EXCHANGE OF SHARES
Section 5.1 Dissenting Shares.
---------- ------
(a) Notwithstanding anything in this Agreement to the contrary, any
Shares held by a holder who has demanded and perfected his demand for appraisal
of his Shares in accordance with the DGCL (including but not limited to Section
262 thereof) and as of the Effective Time has neither withdrawn nor lost his
right to such appraisal ("Dissenting Shares") shall not be converted into or
-----------------
represent a right to receive the Merger Consideration pursuant to Section 4.8,
but the holder thereof shall be entitled to only such rights as are granted by
the DGCL.
(b) Notwithstanding the provisions of Section 5.1(a), if any holder of
Shares who demands appraisal of his Shares under the DGCL effectively withdraws
or loses (through failure to perfect or otherwise) his right to appraisal, then
as of the Effective Time or the occurrence of such event, whichever later
occurs, such holder's Shares shall automatically be converted into and
represent only the right to receive the Merger Consideration as provided in
Section 5.1(a), without interest thereon, upon surrender of the certificate or
certificates representing such Shares pursuant to Section 5.2 hereof.
(c) The Company shall give Purchaser, (i) prompt notice of any demands
for appraisal or payment of the fair value of any Shares, withdrawals of such
demands, and any other instruments served pursuant to the DGCL received by the
Company and (ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under the DGCL. The Company shall not
voluntarily make any payment with respect to any demands for appraisal and shall
not, except with the prior written consent of Purchaser, settle or offer to
settle any such demands.
Section 5.2 Payment for Shares.
------------------
(a) Prior to the Effective Time, Purchaser shall designate a bank or
trust company reasonably acceptable to the Company to act as paying agent in
connection with the Merger (the "Paying Agent") pursuant to a paying agent
------------
agreement providing for the matters set forth in this Section 5.2 and otherwise
reasonably satisfactory to the Company. At the Effective Time, Purchaser shall
deposit, or cause to be deposited, in trust with the Paying Agent for the
benefit of holders of Shares the aggregate consideration to which such holders
shall be entitled at the Effective Time pursuant to Section 4.8. Such funds
shall be invested as directed by Purchaser or the Surviving Corporation pending
payment thereof by the Paying Agent to holders of the Shares. Earnings from
such investments shall be the sole and exclusive property of the Purchaser and
the Surviving Corporation
16
<PAGE>
and no part thereof shall accrue to the benefit of the holders of the Shares.
(b) As soon as reasonably practicable after the Effective Time, the
Paying Agent shall mail to each record holder, as of the Effective Time, of an
outstanding certificate or certificates which immediately prior to the Effective
Time represented outstanding Shares (the "Certificates"), whose Shares were
------------
converted pursuant to Section 4.8 into the right to receive the Merger
Consideration (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Paying Agent and shall be
in such form and have such other provisions not inconsistent with this Agree-
ment as Purchaser may specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for payment of the Merger
Consideration (together, the "Transmittal Documents"). Upon surrender of a
---------------------
Certificate or Certificates for cancellation to the Paying Agent or to such
other agent or agents as may be appointed by Purchaser, together with such
letter of transmittal, duly executed, the holder of such Certificate or
Certificates shall be entitled to receive in exchange therefor (as promptly as
practicable) the Merger Consideration in respect of all Shares formerly
represented by such Certificate or Certificates, without any interest thereon
with respect to Cash Merger Consideration, and cash in lieu of fractional shares
of Common Stock with respect to Stock Merger Consideration, in each case
pursuant to Section 4.8. The Certificate(s) so surrendered shall forthwith be
canceled. If payment of the Merger Consideration is to be made to a person
other than the person in whose name the surrendered Certificate or Certificates
are registered, it shall be a condition of payment that the Certificate(s) so
surrendered shall be properly endorsed or shall otherwise be in proper form for
transfer, that the signatures on the Certificate(s) or any related stock power
shall be properly guaranteed and that the person requesting such payment shall
have paid any transfer and other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of the
Certificate(s) surrendered or shall have established to the satisfaction of the
Surviving Corporation that such tax either has been paid or is not applicable.
Until surrendered in accordance with the provisions of and as contemplated by
this Section 5.2, any Certificate (other than Certificates representing Shares
subject to Sections 4.8(b) and (c) and other than Dissenting Shares) shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration in cash as contemplated by this Section 5.2.
Upon the surrender of Certificates in accordance with the terms and instructions
contained in the Transmittal Documents, Purchaser shall cause the Paying Agent
to pay the holder of such certificates in exchange therefor cash in an amount
equal to the Merger Consideration (other than Certificates representing
Dissenting Shares and
17
<PAGE>
Certificates representing Shares held by Purchaser, Management Stockholders or
in the treasury of the Company).
(c) At the Effective Time, the stock transfer books of the Company
shall be closed and there shall not be any further registration of transfers of
any shares of capital stock thereafter on the records of the Company. If, after
the Effective Time, Certificates are presented to the Surviving Corporation,
they shall be canceled and exchanged for the consideration provided for, and in
accordance with the procedures set forth, in this Article V. No interest shall
accrue or be paid on any cash payable upon the surrender of a Certificate or
Certificates which immediately before the Effective Time represented outstanding
Shares.
(d) From and after the Effective Time, the holders of Certificates
evidencing ownership of Shares outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such Shares except as
otherwise provided herein or by applicable law.
(e) If any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such Certificate
to be lost, stolen or destroyed, the Surviving Corporation shall pay or cause to
be paid in exchange for such lost, stolen or destroyed Certificate the relevant
portion of the Merger Consideration, in accordance with Section 4.8 for Shares
represented thereby. When authorizing such payment of any portion of the Merger
Consideration in exchange therefor, the board of directors of the Surviving
Corporation may, in its discretion and as a condition precedent to the payment
thereof, require the owner of such lost, stolen or destroyed Certificate to give
the Surviving Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Surviving Corporation with
respect to the Certificate alleged to have been lost, stolen or destroyed.
(f) Promptly following the date which is six months after the
Effective Time, the Surviving Corporation shall be entitled to require the
Paying Agent to deliver to it any cash (including any interest received with
respect thereto), Certificates and other documents in its possession relating
to the Transactions, which had been made available to the Paying Agent and which
have not been disbursed to holders of Certificates, and thereafter such holders
shall be entitled to look to the Surviving Corporation (subject to abandoned
property, escheat or similar laws) only as general creditors thereof with
respect to any portion of the Merger Consideration payable upon due surrender
of their Certificates, without any interest thereon.
(g) Subject to Article III, (i) the Cash Merger Consideration paid in
the Merger shall be net to the holder
18
<PAGE>
of Shares in cash, subject to reduction only for any applicable Federal
withholding taxes or, as set forth in Section 5.2(b) stock transfer taxes
payable by such holder, and (ii) fractional shares of Stock Merger
Consideration shall be converted into cash as provided in Section 4.8(a).
(h) Notwithstanding anything to the contrary in this Section 5.2, none
of the Paying Agent, Purchaser or the Surviving Corporation shall be liable to
any holder of a Certificate formerly representing Shares for any amount
properly delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If Certificates are not surrendered prior to
two years after the Effective Time, unclaimed funds payable with respect to
such Certificates shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the schedule delivered to Purchaser prior to
the execution of this Agreement setting forth specific exceptions to the
Company's and its Subsidiaries' representations and warranties set forth herein
(the "Company Disclosure Schedule"), the Company hereby represents and warrants
---------------------------
to Purchaser as follows:
Section 6.1 Organization and Qualification; Subsidiaries.
--------------------------------------------
(a) Each of the Company and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate or other
power, authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its businesses as now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power, authority and governmental approvals, would not, individually
or in the aggregate, have a Company Material Adverse Effect (as defined below).
The Company has heretofore delivered to Purchaser accurate and complete copies
of the Certificate of Incorporation and By-laws, as currently in effect, of the
Company and promptly will deliver to Purchaser accurate and complete copies of
the certificate or articles of incorporation and by-laws, as currently in
effect, of each of its Subsidiaries. As used in this Agreement, the term
"Subsidiary" shall mean, with respect to any party, any corporation or other
----------
organization, whether incorporated or unincorporated or domestic or foreign to
the United States of which (i)
19
<PAGE>
such party or any other Subsidiary of such party is a general partner
(excluding such partnerships where such party or any Subsidiary of such party
do not have a majority of the voting interest in such partnership) or (ii) at
least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the board of directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries. The term "Company Material Adverse Effect" means any event,
-------------------------------
change in or effect on the business of the Company or its Subsidiaries, taken
as a whole, that is or can reasonably be expected to be materially adverse to
(a) the business, operations, properties (including intangible properties),
condition (financial or otherwise), assets, liabilities, or prospects of the
Company and its Subsidiaries, taken as a whole, or (b) the ability of the
Company to consummate any of the Transactions or to perform its obligations
under this Agreement. The Company Disclosure Schedule sets forth in Section
6.1(a) a complete list of the Company's Subsidiaries.
(b) Each of the Company and its Subsidiaries is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in
good standing would not, individually or in aggregate, have a Company Material
Adverse Effect.
(c) Except as set forth in Section 6.1(c) of the Company Disclosure
Schedule, the Company does not own (i) any equity interest in any corporation or
other entity, or (ii) marketable securities where the Company's equity interest
in any entity exceeds five percent of the outstanding equity of such entity on
the date hereof.
Section 6.2 Capitalization of the Company and its Subsidiaries.
--------------------------------------------------
(a) The authorized capital stock of the Company consists of:
20,000,000 shares of Common Stock and 1,000,000 shares of preferred stock, par
value $.001 per share (the "Preferred Stock"). As of June 25, 1998, 5,173,077
---------------
Shares of Common Stock are issued and outstanding, no shares of the Preferred
Stock are outstanding. All of the Shares have been validly issued, and are
fully paid, nonassessable and free of preemptive rights. As of June 25, 1998, a
total of 1,016,129 Shares are reserved for issuance pursuant to outstanding
Stock Options under the Company Stock Plans, of which (A) 65,321 Shares are
reserved for issuance pursuant to outstanding Stock Options under the Company's
1991 Stock Option Plan, (B) 476,004 Shares are reserved for issuance pursuant to
outstanding Stock Options under the
20
<PAGE>
Company's 1995 Stock Option Plan, (C) 469,804 Shares are reserved for issuance
pursuant to outstanding Stock Options under the Company's 1997 Stock Option
Plan, (D) 5,000 Shares are reserved for issuance pursuant to outstanding Stock
Options under the Company's 1997 Director Plan, and (E) assuming that the
Option Cancellation Time were to occur on or about June 16, 1998,
approximately 6,500 Shares would have been issuable upon the exercise of
Purchase Plan Options under the Company's 1996 Employee Stock Purchase Plan at
a price of $13.60 per Share. Since June 25, 1998, no shares of the Company's
capital stock have been issued other than pursuant to stock options already in
existence on such date, and since June 25, 1998, no stock options have been
granted. Except as set forth above and except for the Rights to, among other
things, purchase Series A Participating Preferred Stock issued pursuant to the
Rights Agreement, there are outstanding (i) no shares of capital stock or
other voting securities of the Company, (ii) no securities of the Company or
any of its Subsidiaries convertible into or exchangeable for shares of capital
stock or voting securities of the Company, (iii) no options or other rights to
acquire from the Company or any of its Subsidiaries, and no obligations of the
Company or any of its Subsidiaries to issue, any capital stock, voting securi-
ties or securities convertible into or exchangeable for capital stock or
voting securities of the Company, and (iv) no equity equivalents, interests in
the ownership or earnings of the Company or any of its Subsidiaries or other
similar rights (collectively, "Company Securities"). There are no outstanding
------------------
obligations of the Company or any of its Subsidiaries to repurchase, redeem
or otherwise acquire any Company Securities.
(b) All of the outstanding capital stock of, or other ownership
interests in, each Subsidiary of the Company, is owned by the Company, directly
or indirectly, free and clear of any Lien (as hereinafter defined) or any other
limitation or restriction (including any restriction on the right to vote or
sell the same, except as may be provided as a matter of law). All such shares
have been validly issued, fully paid and nonasessable, and have been issued free
of preemptive rights. There are no securities of the Company or any of its
Subsidiaries convertible into or exchangeable for, no options or other rights to
acquire from the Company or any of its Subsidiaries, and no other contract,
understanding, arrangement or obligation (whether or not contingent) providing
for the issuance or sale, directly or indirectly, of any capital stock or other
ownership interests in, or any other securities of, any Subsidiary of the
Company. There are no outstanding contractual obligations of the Company or any
of its Subsidiaries to repurchase, redeem or otherwise acquire any outstanding
shares of capital stock or other ownership interests in any Subsidiary of the
Company. For purposes of this Agreement, "Lien" means, with respect to any
----
asset (includ-
21
<PAGE>
ing, without limitation, any security) any option, claim, mortgage, lien,
pledge, charge, security interest or encumbrance or restrictions of any kind
in respect of such asset.
(c) The Shares and the Rights constitute the only class of equity
securities of the Company or any of its Subsidiaries registered or required to
be registered under the Exchange Act.
(d) There are no voting trusts or other agreements or understandings
to which the Company or any of its Subsidiaries is a party with respect to the
voting of the capital stock of the Company or any of the Subsidiaries.
(e) Other than as set forth on Section 6.2(e) of the Company
Disclosure Schedule, there is no outstanding material Indebtedness (as
hereinafter defined) of the Company or any of its Subsidiaries. Except as
identified in Section 6.2(e) of the Company Disclosure Schedule, no such
Indebtedness of the Company or its Subsidiaries contains any restriction upon
(i) the prepayment of such Indebtedness, (ii) the incurrence of Indebtedness
by the Company or its Subsidiaries, respectively, or (iii) the ability of the
Company or its Subsidiaries to grant any liens on its properties or assets. For
purposes of this Agreement, "Indebtedness" shall include (i) all indebtedness
------------
for borrowed money or for the deferred purchase price of property or services
(other than current trade liabilities incurred in the ordinary course of
business and payable in accordance with customary practices, but excluding
operating leases), (ii) any other indebtedness which is evidenced by a note,
bond, debenture or similar instrument, (iii) all obligations under financing
leases, (iv) all obligations in respect of acceptances issued or created, (v)
all liabilities secured by any lien on any property, and (vi) all guarantee
obligations.
(f) Except for obligations incurred in connection with its
incorporation or organization, or the negotiation and consummation of this
Agreement and the Transactions, Acquisition Sub has not incurred any obligation
or liability or engaged in any business or activity of any type or kind
whatsoever or entered into any agreement or arrangement with any person or
entity.
Section 6.3 Authority Relative to this Agreement; Consents and
--------------------------------------------------
Approvals.
- ---------
(a) Each of the Company and Acquisition Sub has all the necessary
corporate power and authority to execute and deliver this Agreement and to
consummate the Transactions in accordance with the terms hereof (subject to
obtaining the necessary approval and adoption of this Agreement and the Merger
by the stockholders of the Company. The execution, delivery and
22
<PAGE>
performance of this Agreement by each of the Company and Acquisition Sub and
the consummation by them of the Transactions have been duly and validly
authorized by their respective Boards and, except for obtaining the approval
of the Company's stockholders as contemplated by Section 4.10 hereof, no other
corporate action or corporate proceedings on the part of the Company or
Acquisition Sub are necessary to authorize the execution and delivery by the
Company or Acquisition Sub of this Agreement and the consummation by them of
the Transactions. This Agreement has been duly and validly executed and
delivered by each of the Company and Acquisition Sub and, assuming due and
valid authorization, execution and delivery by Purchaser, constitutes a valid,
legal and binding agreement of the Company, enforceable against the Company
and Acquisition Sub in accordance with its terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency or other
similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought.
(b) The Board of Directors of each of the Company and Acquisition Sub
has duly and validly approved, and taken all corporate actions required to be
taken by each Board for the consummation of, the Transactions, including but not
limited to all actions required to satisfy the provisions of Section 203(a)(1)
of the DGCL regarding business combinations with "interested stockholders."
Section 6.4 SEC Reports; Financial Statements.
---------------------------------
(a) Since January 1, 1995 the Company has filed with the SEC all
forms, reports, schedules, statements and other documents required to be filed
by it with the SEC pursuant to the Securities Act of 1933, as amended (the
"Securities Act") and the SEC's rules and regulations promulgated thereunder and
- ---------------
the Exchange Act and the SEC's rules and regulations promulgated thereunder (any
such documents filed prior to the date hereof being collectively, the "Company
-------
SEC Documents"). The Company SEC Documents, including, without limitation, any
- -------------
financial statements or schedules included therein, at the time filed, or in the
case of registration statements on their respective effective dates, (i)
complied in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be, and the rules and
regulations promulgated thereunder and (ii) did not at the time filed (or, in
the case of registration statements, at the time of effectiveness), contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. No
23
<PAGE>
Subsidiary of the Company is required to file any form, report or other document
with the SEC. The financial statements included in the Company SEC Documents
(the "Financial Statements") (i) have been prepared from, and are in accordance
--------------------
with, the books and records of the Company and its Subsidiaries, (ii) complied
in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, (iii) have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved
----
(except as may be indicated in the notes thereto) and (iv) fairly present the
consolidated financial position and the consolidated results of operations and
cash flows (and changes in financial position, if any) of the Company and its
Subsidiaries as of the times and for the periods referred to therein, except
that any such Financial Statements that are unaudited, interim financial
statements were or are subject to normal and recurring year end adjustments.
(b) The Company has heretofore delivered to Purchaser, in the form
filed with the SEC (including any amendments thereto), (i) its Annual Reports
on Form 10-K for each of the three fiscal years ended January 31, 1996, 1997 and
1998, (ii) all definitive proxy statements relating to the Company's meetings of
stockholders (whether annual or special) held since January 1, 1995 and (iii)
all other reports (other than Quarterly Reports on Form 10-Q) or registration
statements filed by the Company with the SEC since January 1, 1995.
(c) The Company has heretofore furnished Purchaser a complete and
correct copy of any amendments or modifications, which have not yet been filed
by the Company with the SEC, to all agreements, documents or other instruments
which previously had been filed by the Company and are currently in effect.
Section 6.5 Proxy Statement; Schedule 13E-3; Schedule 13E-4. The
------------------------------------------------
Proxy Statement to be sent to the stockholders of the Company in connection with
the Stockholders' Meeting, as of the date first mailed to the stockholders of
the Company and at the time of the Stockholders' Meeting, the Schedule 13E-3 and
the Schedule 13E-4 at the time filed with the SEC will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Proxy
Statement, the Schedule 13E-3 and the Schedule 13E-4 will, when filed by the
Company with the SEC, comply as to form in all material respects with the
applicable provisions of the Exchange Act and the SEC rules and regulations
promulgated thereunder. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to the statements made in any of the
foregoing documents based on written information supplied by or on behalf of
Purchaser or any of its affiliates specifically for inclusion
24
<PAGE>
therein.
Section 6.6 Consents and Approvals; No Violations. No filing with
-------------------------------------
or notice to, and no permit, authorization, consent or approval of, any court or
tribunal or administrative, governmental or regulatory body, agency or authority
(a "Governmental Entity") is required on the part of the Company or any of its
-------------------
Subsidiaries for the execution, delivery and performance by the Company of this
Agreement or the consummation by the Company of the Transactions, except (i) in
connection with the applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (ii) pursuant to the
-------
applicable requirements of the Exchange Act and the SEC's rules and regulations
promulgated thereunder (iii) the filing and if applicable, recordation of the
Certificate of Merger pursuant to the DGCL, or (iv) where the failure to obtain
such permits, authorizations, consents or approvals or to make such filings or
give such notice would not have a Company Material Adverse Effect. Neither the
execution, delivery and performance of this Agreement by the Company nor the
consummation by the Company of the Transactions will (A) conflict with or result
in any breach of any provision of the respective Certificate of Incorporation or
By-laws (or similar governing documents) of the Company or of any its
Subsidiaries, (B) except as set forth in Section 6.6 of the Company Disclosure
Schedule, result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which the Company or
any of its Subsidiaries is a party or by which any of them or any of their
respective properties or assets may be bound, other than breaches or defaults
under loan agreements resulting from the existence of Indebtedness on the part
of the Purchaser, or (C) violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to the Company or any of its Subsidiaries
or any of their respective properties or assets, except in the case of (B) or
(C) for violations, breaches or defaults which would not, individually or in the
aggregate, have a Company Material Adverse Effect.
Section 6.7 No Default. None of the Company or any of its
----------
Subsidiaries is in default or violation (and no event has occurred which with
notice or the lapse of time or both would constitute a default or violation) of
any term, condition or provision of (i) its Certificate of Incorporation or By-
laws (or similar governing documents), (ii) any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
the Company or any of its Subsidiaries is now a party or by which any of them
or any of their respective properties or assets may be bound or (iii) any order,
writ, injunction, decree, law, statute, rule or regulation
25
<PAGE>
applicable to the Company, any of its Subsidiaries or any of their respective
properties or assets, except in the case of (ii) or (iii) for violations,
breaches or defaults that would not, individually or in the aggregate, have a
Company Material Adverse Effect.
Section 6.8 No Undisclosed Liabilities; Absence of Changes. Except
----------------------------------------------
(i) for liabilities incurred pursuant to the terms of the Agreement, or (ii) as
set forth in the Company SEC Documents, since January 31, 1998, neither the
Company nor any of its Subsidiaries has incurred any liabilities or obligations
of any nature, whether or not accrued, contingent or otherwise, that have, or
would reasonably be expected to have, a Company Material Adverse Effect or that
would be required by GAAP to be reflected or reserved against on a consolidated
balance sheet, or in the notes thereto, of the Company and its Subsidiaries
prepared in accordance with GAAP consistent with past practices, other than in
the ordinary course of business and consistent with past practices. Section 6.8
of the Company Disclosure Schedule sets forth the amount of principal and unpaid
interest outstanding under each instrument evidencing indebtedness of the
Company and its Subsidiaries which will accelerate or become due or result in a
right of redemption or repurchase on the part of the holder of such indebtedness
(with or without due notice or lapse of time) as a result of this Agreement, the
Merger or the other transactions contemplated hereby or thereby.
Section 6.9 Litigation. Except as disclosed in the Company SEC
----------
Documents or in Section 6.9 of the Company Disclosure Schedule, there is no
suit, claim, action, proceeding or investigation pending or, to the knowledge
of the Company, threatened against, affecting or involving the Company or any of
its Subsidiaries or any of their respective properties or assets before any
Governmental Entity. Except as disclosed in the Company SEC Documents or in
Section 6.9 of the Company Disclosure Schedule, neither the Company nor any of
its Subsidiaries is subject to any outstanding order, writ, injunction or
decree. Reserves reflected on the Financial Statements are adequate for all
litigation disclosed in the Company SEC Documents or in Section 6.9 of the
Company Disclosure Schedule.
Section 6.10 Compliance with Applicable Law. Except as set forth in
------------------------------
Section 6.10 of the Company Disclosure Schedule, the Company and its
Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "Company Permits"), except for failures to hold such
---------------
permits, licenses, variances, exemptions, orders and approvals which would
not, individually or in the aggregate, have a Company Material Adverse Effect.
Except as set forth in Section 6.10 of the Company Disclosure Schedule, the
Company and its Subsidiaries are in compliance with the terms of the Company
26
<PAGE>
Permits, except where the failure so to comply would not have a Company Material
Adverse Effect. Except as set forth in Section 6.10 of the Company Disclosure
Schedule, the businesses of the Company and its Subsidiaries are not being, and
have not been, conducted in violation of any law, ordinance or regulation of any
Governmental Entity except that no representation or warranty is made in this
Section 6.10 with respect to Environmental Laws (as defined in Section 6.12,
below) and except for violations or possible violations which individually or in
the aggregate will not have a Company Material Adverse Effect. Except as set
forth in Section 6.10 of the Company Disclosure Schedule, no investigation or
review by any Governmental Entity with respect to the Company or any of its
Subsidiaries is pending or, to the best knowledge of the Company, threatened
nor, to the best knowledge of the Company, has any Governmental Entity indicated
an intention to conduct the same.
Section 6.1 Employee Benefit Matters.
------------------------
(a) All employee benefit plans and other incentive, compensation or
benefit arrangements covering any current or former employee or director of the
Company or any Subsidiary are listed in Section 6.11 of the Company Disclosure
Schedule (the "Company Benefit Plans"). True and complete copies of the Company
---------------------
Benefit Plans have been provided to the Purchaser. Except as set forth in
Section 6.11(a) of the Company Disclosure Schedule, each Company Benefit Plan
has been maintained and administered in all material respects in compliance with
its terms and with all applicable laws including, but not limited to, the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
-----
Internal Revenue Code of 1986, as amended (the "Code"), to the extent applicable
----
thereto. Each Company Benefit Plan intended to be qualified under Section
401(a) of the Code has been determined by the Internal Revenue Service (the
"IRS") to be so qualified, and to the knowledge of the Company no event has
---
occurred that could reasonably be expected to adversely affect the qualified
status of such Company Benefit Plan. Except as set forth in Section 6.11(a) of
the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries has incurred any liability or penalty under Section 4975 of the
Code or Section 502(i) of ERISA. Except as set forth in Section 6.11(a) of the
Company Disclosure Schedule, to the knowledge of the Company, there are no
pending, nor has the Company or any of its Subsidiaries received notice of any
threatened, claims against or otherwise involving any of the Company Benefit
Plans. No Company Benefit Plan is under audit or investigation by the IRS, the
Department of Labor or the Pension Benefit Guaranty Corporation, and to the
knowledge of the Company, no such audit or investigation is pending or
threatened. All material contributions or other payments required to be made as
of the date of this Agreement to or pursuant to the Company Benefit Plans have
been made or accrued for in the Company's Financial Statements. Neither
27
<PAGE>
the Company nor any entity under "common control" with the Company within the
meaning of Section 4001 of ERISA has at any time contributed to, or been
required to contribute to, any "pension plan" (as defined in Section 3(2) of
ERISA) that is subject to Title IV of ERISA or Section 412 of the Code,
including without limitation, any "multi-employer plan" (as defined in Sections
3(37) and 4001(a)(3) of ERISA).
(b) Except as set forth in Section 6.11(b) of the Company Disclosure
Schedule, the consummation of the Transactions will not (either alone or upon
the occurrence of any additional or subsequent events) (i) constitute an event
under any Company Benefit Plan, trust, or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any current or former employee, officer or director of
the Company or any Subsidiary, or (ii) result in the triggering or imposition of
any restrictions or limitations on the right of the Company or the Purchaser to
amend or terminate any Company Benefit Plan and receive the full amount of any
excess assets remaining or resulting from such amendment or termination,
subject to applicable taxes. No payment or benefit which will or may be made by
the Company, any of its Subsidiaries, the Purchaser or any of their respective
affiliates with respect to any employee, officer or director of the Company or
its Subsidiaries will be characterized as an "excess parachute payment," within
the meaning of Section 280G(b)(1) of the Code, and no amount of any such payment
or benefit will fail to be deductible by the Company by reason of Section 162(m)
of the Code.
(c) Except as set forth in Section 6.11(c) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries (i) maintains or
contributes to any Company Benefit Plan which provides, or has any liability to
provide, life insurance, medical, severance or other employee welfare benefits
to any employee upon his retirement or termination of employment, except as may
be required by Section 4980B of the Code; or (ii) has ever represented, promised
or contracted (whether in oral or written form) to any employee (either
individually or to employees as a group) that such employee(s) would be
provided with life insurance, medical, severance or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by Section 4980B of the Code. All amounts of deferred
compensation benefits under any Company Benefit Plan have been properly accrued
on the financial statements of the Company and its Subsidiaries.
(d) With respect to each Company Benefit Plan which is an "employee
welfare benefit plan" within the meaning of Section 3(1) of ERISA, all material
claims incurred (including claims incurred but not reported) by employees
thereunder for
28
<PAGE>
which the Company is, or will become, liable are (i) insured pursuant to a
contract of insurance whereby the insurance company bears any risk of loss
with respect to such claims; (ii) covered under a contract with a health
maintenance organization (an "HMO") pursuant to which the HMO bears the
---
liability for such claims, or (iii) reflected as a liability or accrued for in
Section 6.11(d) of the Company Disclosure Schedule.
(e) Except as set forth in Section 6.11(e) of the Company Disclosure
Schedule or except as would not have a Company Material Adverse Effect, with
respect to each Company Benefit Plan that is not subject to United States Law
("Foreign Benefit Plan"): (i) all employer and employee contributions to each
- ----------------------
Foreign Benefit Plan required by law or by the terms of such Foreign Benefit
Plan have been made or, if applicable, accrued in accordance with normal
accounting practices; (ii) the fair market value of the assets of each funded
Foreign Benefit Plan, the liability of each insurer for any Foreign Benefit
Plan, funded through insurance or the book reserve established for any Foreign
Benefit Plan, together with any accrued contributions, is sufficient to
procure or provide for the accrued benefit obligations, as of the date hereof,
with respect to all current and former participants in such plan according to
the actuarial assumptions and valuations most recently used to determine
employer contributions to such Foreign Benefit Plan and no transaction contem-
plated by this Agreement shall cause such assets or insurance obligations to be
less than such benefit obligations; and (iii) each Foreign Benefit Plan required
to be registered has been registered and has been maintained in good standing
with the appropriate regulatory authorities.
Section 6.1 Environmental Laws and Regulations.
----------------------------------
(a) Except as set forth in the Company SEC Documents or Section
6.12(a)(i) of the Company Disclosure Schedule, (i) the Company and each of its
Subsidiaries is in compliance with all applicable federal, state, local and
foreign laws and regulations relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or emissions, discharges,
releases, disposal, or handling of any pollutants or toxic or hazardous
substances, wastes or materials (including, without limitation, petroleum, and
petroleum products, asbestos or asbestos containing materials, polychlorinated
biphenyls, radon or lead or lead-based paints or materials (collectively,
"Environmental Laws"), except for non-compliance that individually or in the
- -------------------
aggregate would not have a Material Adverse Effect on the Company, which
compliance includes, but is not limited to, the possession by the Company and
its Subsidiaries of all permits and other governmental authorizations required
under applicable Environmental Laws, and compliance with the terms and
conditions thereof; (ii) neither the
29
<PAGE>
Company nor any of its Subsidiaries has received notice of, or, is the subject
of, any action, cause of action, claim, investigation, demand or notice by
any person or entity alleging liability under or non-compliance with any
Environmental Law (an "Environmental Claim") including, without limitation,
-------------------
relating to any subcontractor of the Company or for the business, or relating
in any way to any prior facilities, locations, or business of the Company or
any of its Subsidiaries; and (iii) to the best knowledge of the Company,
there are no circumstances that are reasonably likely to result in any
liability under any Environmental Law, prevent or interfere with any such
compliance thereunder in the future including, without limitation, relating to
any subcontractor of the Company or for the business, or relating in any way
to any prior facilities, locations, or business of the Company or any of its
Subsidiaries. There are no permits or other governmental authorizations held
by the Company or required for the Company's business that are required to be
transferred or reissued, or that are otherwise prohibited from being
transferred or reissued, pursuant to any Environmental Laws as a result of the
transactions contemplated by this Agreement. The Company has provided to
Purchaser all environmental assessments, reports, data, results of
investigations, or compliance or other environmental audits conducted by or
for the Company, or otherwise relating to the Company's or any Subsidiary's
business or properties (owned, leased or operated). There are no matters
identified in any such materials which individually or in the aggregate would
have a Company Material Adverse Effect.
(b) Except as set forth in the Company SEC Documents or Section
6.12(b) of the Company Disclosure Schedule, there are no Environmental Claims
which individually or in the aggregate would have a Company Material Adverse
Effect that are pending or, to the best knowledge of the Company, threatened
against the Company or any of its Subsidiaries or, to the best knowledge of the
Company, against any person or entity whose liability for any Environmental
Claim the Company or any of its Subsidiaries has or may have retained or assumed
either contractually or by operation of law including, without limitation,
relating to any subcontractor of the Company or for the business, or relating in
any way to any prior facilities, locations, or business of the Company or any of
its Subsidiaries.
Section 6.13 Rights Agreement. The Company has taken all necessary
----------------
action so that none of the execution of this Agreement, the making of the Offer,
the acquisition of Shares pursuant to the Offer or the consummation of the
Merger will (i) cause the Rights issued pursuant to the Rights Agreement to
become exercisable, (ii) cause Purchaser or any of its affiliates to become an
Acquiring Person (as such term is defined in the Rights Agreement) or (iii) give
rise to a Distribution Date or a Triggering Event (as each such term is defined
in the Rights Agreement). The Company has furnished to Purchaser true and
30
<PAGE>
complete copies of all amendments to the Rights Agreement that fulfill the
requirements of this Section 6.13 and such amendments are in full force and
effect.
Section 6.14 Brokers. No broker, finder or investment banker
-------
(other than the Financial Advisor, a true and correct copy of whose engagement
agreement has been provided to Purchaser) is entitled to any brokerage,
finder's or other fee or commission in connection with the Transactions based
upon arrangements made by or on behalf of the Company. The fees to which the
Financial Advisor shall be entitled to in connection with the Transactions shall
be $2,230,000, of which $350,000 has already been paid to the Financial Advisor
prior to the date hereof.
Section 6.15 Absence of Certain Changes. Except as set forth in
--------------------------
Section 6.15 of the Company Disclosure Schedule or disclosed in the Company SEC
Documents filed prior to the date hereof, since January 31, 1998, the Company
and each of its Subsidiaries have conducted its businesses only in the ordinary
course of business and consistent with past practice and (a) there has not been
any Company Material Adverse Effect and (b) the Company has not taken any of the
actions set forth in paragraphs (a) through (m) of Section 8.1.
Section 6.16 Taxes.
-----
(a) Each of the Company and its Subsidiaries have timely filed (or
have had timely filed on their behalf) or will timely file or cause to be timely
filed, all Tax Returns required by applicable law to be filed by any of them
prior to or as of the Effective Time. All such Tax Returns and amendments
thereto are or will be true, complete and correct in all respects. The most
recent financial statements contained in the Company SEC documents provide an
adequate accrual for the payment of Taxes for the periods covered by such
reports.
(b) Each of the Company and its Subsidiaries have paid (or have had
paid on their behalf), or where payment is not yet due, have established (or
have had established on their behalf and for their sole benefit and recourse),
or will establish or cause to be established on or before the consummation of
the Offer, an adequate accrual on the books and records of the Company and its
Subsidiaries for the payment of all Taxes due with respect to any period ending
prior to or as of the consummation of the Offer.
(c) Except as set forth in Section 6.16(c) of the Company Disclosure
Schedule, no Audit by a Tax Authority is pending or threatened with respect to
any Tax Returns filed by, or Taxes due from, the Company or its Subsidiaries.
No issue has been raised by a Tax Authority in any Audit of the Company or any
31
<PAGE>
of its Subsidiaries that if raised with respect to any other period not so
audited could be expected to result in a proposed deficiency for any period not
so audited. No deficiency or adjustment for any Taxes has been threatened,
proposed, asserted or assessed against the Company or its Subsidiaries. There
are no liens for Taxes upon the assets of the Company or its Subsidiaries,
except liens for current Taxes not yet due for which adequate reserves have been
established in accordance with GAAP.
(d) Neither the Company nor any of its Subsidiaries has given or been
requested to give any waiver of statutes of limitations relating to the payment
of any Taxes or have executed powers of attorney with respect to any Tax
matters, which will be outstanding as of the Effective Time.
(e) Neither the Company nor any of its Subsidiaries is a party to, or
is bound by, any Tax sharing, Tax indemnity, cost sharing, or similar
agreement or policy relating to Taxes.
Section 6.17 Intellectual Property.
---------------------
(a) The Company owns or has the right to use all intellectual property
rights used in the conduct of its business, including without limitation all
patents and patent applications, trademarks, trademark registrations and
applications, copyrights and copyright registrations and applications, computer
programs, technology, know-how, trade secrets, proprietary processes and
formulae (collectively, the "Intellectual Property"), free and clear of all
---------------------
liens or encumbrances. The Company or one of its Subsidiaries is listed in the
records of the appropriate United States, state or foreign agency as the sole
owner of record for all applications, registrations or patents included in the
Intellectual Property, and all of the foregoing are listed on Section 6.17(a)
of the Disclosure Schedule and are validly subsisting.
(b) Section 6.17(b) of the Disclosure Schedule sets forth a list of
all license agreements under which the Company or any of its Subsidiaries has
granted or received the right to use any Intellectual Property, and the Company
is not in default under any such license.
(c) Except as set forth in Section 6.17(c) of the Disclosure Schedule,
no person has a right to receive a royalty or similar payment in respect of any
item of Intellectual Property pursuant to any contractual arrangements entered
into by the Company or otherwise. No former or present employees, officers or
directors of the Company hold any right, title or interest, directly or
indirectly, in whole or in part, in or to any Intellectual Property.
(d) No trade secret, know-how or any other confi-
32
<PAGE>
dential information relating to the Company has been disclosed or authorized
to be disclosed to any third party, other than pursuant to a non-disclosure
agreement that fully protects the Company's proprietary interest in and to
such confidential information.
(e) The Company has taken or caused to be taken all reasonable steps
to obtain and retain valid and enforceable rights in all Intellectual Property
owned thereby, including but not limited to the submission of all necessary
filings in accordance with the legal and administrative requirements of the
appropriate jurisdictions. The conduct of the business of the Company does not
violate or infringe upon any intellectual property right of any third party,
and except as set forth in Section 6.17(e) of the Company Disclosure Schedule,
there is no pending or threatened opposition, interference, re-examination,
cancellation, claim of invalidity or other legal or governmental proceeding
in any jurisdiction involving any of the Intellectual Property. There are no
claims or suits pending or, to the best knowledge of the Company, threatened,
and the Company has received no notice of any claim or suit (i) alleging that
the conduct of the Company's business infringes upon or constitutes the
unauthorized use of the proprietary rights of any third party or (ii)
challenging the ownership, use, validity or enforceability of the Intellectual
Property. To the best knowledge of the Company, no Intellectual Property of the
Company is being violated or infringed upon by any third party. Except as set
forth in Section 6.17(e) of the Disclosure Schedule, there are no settlements,
consents, judgments, orders or other agreements which restrict the Company's
rights to use any Intellectual Property.
Section 6.18 Labor Matters.
-------------
(a) (i) There is no labor strike, dispute, slowdown, stoppage or
lockout actually pending, or to the knowledge of the Company, threatened
against or affecting the Company and during the past five years from the date of
this Agreement there has not been any such action, (ii) the Company is not a
party to or bound by any collective bargaining or similar agreement with any
labor organization, or work rules or practices agreed to with any labor
organization or employee association applicable to employees of the Company,
(iii) none of the employees of the Company is represented by any labor
organization and the Company does not have any knowledge of any union organizing
activities among the employees of the Company within the past five years, (iv)
there are no written personnel policies, rules or procedures applicable to
employees of the Company, other than those set forth on Section 6.18(a) of the
Company Disclosure Schedule, true and correct copies of which have heretofore
been delivered to Purchaser, (v) the Company is, and has at all times been, in
compliance, in all material respects, with all applica-
33
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ble laws respecting employment and employment practices, terms and conditions
of employment, wages, hours of work and occupational safety and health, and
is not engaged in any unfair labor practices as defined in the National Labor
Relations Act or other applicable laws, except for such non-compliance which
has not had and would not reasonably be expected to have a Company Material
Adverse Effect, (vi) there is no unfair labor practice charge or complaint
against the Company pending or, to the knowledge of the Company, threatened
before the National Labor Relations Board or any similar state or foreign
agency, (vii) there is no material pending grievance arising out of any
collective bargaining agreement or other grievance procedure, (viii) to the
knowledge of the Company, no charges with respect to or relating to the
Company are pending before the Equal Employment Opportunity Commission or any
other agency responsible for the prevention of unlawful employment practices,
(ix) the Company has not received notice of the intent of any federal, state,
local or foreign agency responsible for the enforcement of labor or employment
laws to conduct an investigation with respect to or relating to the Company
and no such investigation is in progress, and (x) there are no complaints,
lawsuits or other proceedings pending or, to the knowledge of the Company,
threatened in any forum by or on behalf of any present or former employee of
the Company, any applicant for employment or classes of the foregoing alleging
breach by the Company or its Subsidiaries of any express or implied contract
or employment, any laws governing employment or the termination thereof or
other discriminatory, wrongful or tortious conduct in connection with the
employment relationship, which, if determined adversely to the Company could
reasonably be expected to have a Company Material Adverse Effect.
(b) Except as set forth in Section 6.18(b) of the Company Disclosure
Schedule, since the enactment of the Worker Adjustment and Retraining
Notification Act (the "WARN Act"), (i) the Company has not effectuated a
--------
"plant closing," (as defined in the WARN Act) affecting any site of employment
or one or more facilities or operating units within any site of employment or
facility of the Company, (ii) there has not occurred a "mass layoff" (as defined
in the WARN Act) affecting any site of employment or facility of the Company;
nor has the Company been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state, local or foreign law or regulation, and (iii) none of the
Company's employees has suffered an "employment loss" (as defined in the WARN
Act) during the six month period prior to the date of this Agreement.
Section 6.19 Opinions of Financial Advisors. Cleary Gull Reiland &
------------------------------
McDevitt, Inc. has delivered its written opinion, dated the date of this
Agreement, to the Board to the effect that, as of such date, the consideration
to be received in the Offer and the Merger by the holders of Shares (other than
Pur-
34
<PAGE>
chaser and its affiliates) is fair from a financial point of view to such
holders and such opinion has not been withdrawn or modified in any material
respect prior to consummation of the Offer, or prior to the Effective Time, a
copy of which opinion has been delivered to Purchaser.
Section 6.20 Real Property and Lease.
------------- --- -----
(a) Section 6.20(a) of the Company Disclosure Schedule sets forth a
complete list of all real property owned by the Company or its Subsidiaries (the
"Real Property"). Except as set forth in Section 6.20(a) of the Company
-------------
Disclosure Schedule, the Company or its Subsidiaries has good and marketable
title to the Real Property, free and clear of all Liens. Copies of (i) all
deeds, title insurance policies and surveys of the Real Property and (ii) all
documents evidencing all material Liens upon the Real Property have been
furnished to Purchaser. Except for the matters disclosed in the Company SEC
Documents, there are no proceedings, claims, disputes or to the Company's
knowledge, conditions affecting any Real Property that might curtail or
interfere with the use of such property, nor is an action of eminent domain
pending or to the knowledge of the Company threat ened for all or any portion
of the Real Property. Except as disclosed in Section 6.20(a) of the Company
Disclosure Schedule, the Company is not a party to any lease, assignment or
similar arrangement under which the Company is a lessor, assignor or otherwise
makes available for use by any third party any portion of the Real Property.
(b) The Company has not during the preceding twelve (12) months
received any notice of or other writing referring to any requirements or
recommendations by any insurance company that has issued a policy covering any
part of the Real Property or by any board of fire underwriters or other body
exercising similar functions, requiring or recommending any repairs or work to
be done on any part of the Real Property. The plumbing, electrical, heating,
air conditioning, ventilating and all other structural or material mechanical
systems in the buildings upon the Real Property are in good working order and
working condition, so as to be adequate for the operation of the business of the
Company as heretofore conducted, and the roof, basement and foundation walls of
all buildings on the Real Property are free of leaks and other material defects,
except for any matter otherwise covered by this sentence which does not have,
individually or in the aggregate, a Company Material Adverse Effect.
(c) Each of the Company and its Subsidiaries has obtained all
appropriate licenses, permits, easements and rights of way, including proofs of
dedication, required to use and operate the Real Property in the manner in which
the Real Property is currently being used and operated, except for such
35
<PAGE>
licenses, permits or rights of way the failure of which to have obtained does
not have, individually or in the aggregate, a Company Material Adverse Effect.
(d) The Company has not received notification that the Company or any
of its Subsidiaries is in violation in any material respect of any applicable
building, zoning, anti-pollution, health or other law, ordinance or regulation
in respect of the Real Property or structures or their operations thereon and to
the Company's knowledge, no such violation exists.
Section 6.21 Material Contracts.
------------------
(a) Except for contracts filed as exhibits to the Company's Annual
Report on Form 10-K for the year ended January 31, 1998, Section 6.21(a) of the
Company Disclosure Schedule lists each of the following contracts and agreements
(including, without limitation, oral arrangements to the extent legally binding)
of the Company and each of its Subsidiaries (such contracts and agreements,
together with all contracts and agreements disclosed in Section 6.17(b) of the
Company Disclosure Schedule, being "Material Contracts"):
------------------
(i) each contract, agreement and other arrangement for the
purchase of inventory, spare parts, other materials or personal property
with any supplier or for the furnishing of services to the Company and each
of its Subsidiaries or otherwise related to the businesses of the Company
and each of its Subsidiaries under the terms of which the Company or any of
its Subsidiaries: (A) are likely to pay or otherwise give consideration of
more than $50,000 in the aggregate during the calendar year ended December
31, 1997 or (B) are likely to pay or otherwise give consideration of more
than $100,000 in the aggregate over the remaining term of such contract;
(ii) each contract, agreement and other arrangement for the
sale of inventory or other personal property or for the furnishing of
services by the Company or any of its Subsidiaries which: (A) is likely
to involve consideration of more than $50,000 in the aggregate during the
calendar year ended December 31, 1997 or (B) is likely to involve
consideration of more than $100,000 in the aggregate over the remaining
term of the contract;
(iii) all material broker, distributor, dealer, manufacturer's
representative, franchise, agency, sales promotion, market research,
marketing, consulting and advertising contracts and agreements to which the
Company or any of its Subsidiaries
36
<PAGE>
is a party;
(iv) all management contracts and contracts with independent
contractors or consultants (or similar arrangements) to which the Company
or any of its Subsidiaries is a party and which are not cancellable
without penalty or further payment in excess of $50,000 and without more
than 30 days' notice;
(v) all contracts and agreements relating to Indebtedness of
the Company or any of its Subsidiaries or to any direct or indirect
guaranty by the Company or any of its Subsidiaries of Indebtedness of any
other Person;
(vi) all contracts, agreements, commitments, written
understandings or other arrangements with any Governmental Entity, to
which the Company or any of its Subsidiaries is a party (other than
arrangements entered into in the ordinary course of business with hospitals
or other medical facilities owned or operated by any such Governmental
Entity);
(vii) all contracts and agreements that limit or purport to
limit the ability of the Company or any of its Subsidiaries to compete in
any line of business or with any Person or in any geographic area or
during any period of time; and
(viii) all other contracts and agreements, whether or not made in
the ordinary course of business, which are material to the Company and its
Subsidiaries, taken as a whole, or the conduct of the business of the
Company and its Subsidiaries, taken as a whole, or the absence of which
would, in the aggregate, have a Company Material Adverse Effect.
(b) Each Material Contract: (i) is legal, valid and binding on the
Company or its respective Subsidiary party thereto and, to the knowledge of the
Company, the other parties thereto, and is in full force and effect and (ii)
upon consummation of the Transactions, except to the extent that any consents
set forth in Section 6.6 of the Company Disclosure Schedule are not obtained,
shall continue in full force and effect without penalty or other adverse
consequence. Neither the Company nor any of its Subsidiaries is in breach of,
or default under, any Material Contract.
(c) No other party to any Material Contract is, to the knowledge of
the Company, in material breach thereof or default thereunder.
37
<PAGE>
(d) There is no contract, agreement or other arrangement granting any
Person any preferential right to purchase any of the properties or assets of
the Company or any of its Subsidiaries.
Section 6.22 Certain Business Practices. Neither the Company nor
--------------------------
any of its Subsidiaries nor any of their respective directors, officers, agents,
representatives or employees (in their capacity as directors, officers, agents,
representatives or employees) has: (a) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity; (b) directly or indirectly, paid or delivered any fee,
commission or other sum of money or item of property, however characterized, to
any finder, agent, or other party acting on behalf of or under the auspices of a
governmental official or party acting on behalf of or under the auspices of a
governmental official or Governmental Entity, in the United States or any other
country, which is in any manner related to the business or operations of the
Company or any of its Subsidiaries, that was illegal under any federal, state
or local laws of the United States or any other country having jurisdiction; or
(c) made any payment to any customer or supplier of the Company or any of its
Subsidiaries or any officer, director, partner, employee or agent of any such
customer or supplier for the unlawful sharing of fees or to any such customer or
supplier or any such officer, director, partner, employee or agent for the
unlawful rebating of charges, or engaged in any other unlawful reciprocal
practice, or made any other unlawful payment or given any other unlawful
consideration to any such customer or supplier or any such officer, director,
partner, employee or agent, in respect of the business of the Company and its
Subsidiaries.
Section 6.23 Product Liability.
-----------------
(a) There are not presently pending, or to the knowledge of the
Company, threatened, any civil, criminal or administrative actions, suits,
demands, claims, hearings, notices of violation, investigations, proceedings or
demand letters relating to any alleged hazard or alleged defect in design,
manufacture, materials or workmanship, including any failure to warn or alleged
breach of express or implied warranty or representation, relating to any
product manufactured, distributed or sold by or on behalf of the Company and its
Subsidiaries. Within the last five years, none of the Company or its insurers
has made any payment to or settlement with any third party relating, or with
respect to, any of the foregoing in excess of $300,000.
(b) All products are sold or licensed by the Company and its
Subsidiaries pursuant to their respective disclaimer of warranties, express or
implied of merchantability and fitness for a particular purpose.
38
<PAGE>
(c) Section 6.23(c) of the Company Disclosure Schedule contains a true
and complete list of (i) all products manufactured, marketed or sold by the
Company or any of its Subsidiaries that have been recalled or withdrawn (whether
voluntarily or otherwise) at any time during the past four years and (ii) all
proceedings (whether completed or pending) at any time during the past three
years seeking the recall, withdrawal, suspension or seizure of any product sold
by the Company or any of its Subsidiaries.
Section 6.24 Suppliers and Customers. Since January 1, 1998, no
-----------------------
material licensor, vendor, supplier, licensee or customer of the Company or any
of its Subsidiaries has canceled or otherwise modified (in a manner materially
adverse to the Company) its relationship with the Company or its Subsidiaries
and, to the Company's knowledge, (i) no such person has notified the Company of
its intention to do so, and (ii) the consummation of the Transactions will not
adversely affect any of such relationships.
Section 6.25 Accounts Receivable; Inventory.
------------------------------
(a) Subject to any reserves set forth in the consolidated balance
sheet of the Company included in the Company's Annual Report on Form 10-K for
the year ended January 31, 1998 as filed with the SEC prior to the date of this
Agreement (the "Company Balance Sheet"), the accounts receivable shown in the
---------------------
Company Balance Sheet arose in the ordinary course of business, were not, as
of the date of the Company Balance Sheet, subject to any material discount,
contingency, claim of offset or recoupment or counterclaim, and represented, as
of the date of the Company Balance Sheet, bona fide claims against debtors for
sales, leases, licenses and other charges. All accounts receivable of the
Company and its Subsidiaries arising after the date of the Company Balance Sheet
through the date of this Agreement arose in the ordinary course of business and,
as of the date of this Agreement, are not subject to any material discount,
contingency, claim of offset or recoupment or counterclaim, except for normal
reserves consistent with past practice. The amount carried for doubtful
accounts and allowances disclosed in the Company Balance Sheet is believed by
the Company as of the date of this Agreement to be sufficient to provide for any
losses which may be sustained or realization of the accounts receivable shown in
the Company Balance Sheet.
(b) As of the date of the Company Balance Sheet, the inventories shown
on the Company Balance Sheet consisted in all material respects of items of a
quantity and quality usable or saleable in the ordinary course of business. All
of such inventories were acquired in the ordinary course of business and, as of
the date of this Agreement, have been replenished in all material respects in
the ordinary course of business consistent
39
<PAGE>
with past practices. All such inventories are valued on the Company Balance
Sheet in accordance with GAAP, applied on a basis consistent with the
Company's past practices, and provision has been made or reserves have been
established on the Company Balance Sheet, in each case in an amount believed
by the Company as of the date of this Agreement to be adequate, for all slow-
moving, obsolete or unusable inventories.
Section 6.26 Insurance. Section 6.26 of the Company Disclosure
---------
Schedule lists the Company's material insurance policies. There is not material
claim pending under any of the Company's or any of its Subsidiary's policies or
bonds as to which coverage has been questioned, denied, or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and the Company and its Subsidiaries are
otherwise in compliance in all material respects with the terms of such policies
and bonds. The Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any such policies.
Section 6.27 Title and Condition of Properties. The Company and its
---------------------------------
subsidiaries own good and marketable title, free and clear of all Liens, to all
of the personal property and assets shown on the Company Balance Sheet or
acquired after January 31, 1998, except for (A) assets which have been disposed
of to nonaffiliated third parties since January 31, 1998 in the ordinary course
of business, (B) Liens reflected in the Company Balance Sheet, (C) Liens or
imperfections of title which are not, individually or in the aggregate, material
in character, amount or extent and which do not materially detract from the
value or materially interfere with the present or presently contemplated use of
the assets subject thereto or affected thereby, and (D) Liens for current Taxes
not yet due and payable. All of the machinery, equipment and other tangible
personal property and assets owned or used by the Company or its Subsidiaries
are in good condition and repair, except for ordinary wear and tear not caused
by neglect, and are usable in the ordinary course of business, except for any
matter otherwise covered by this sentence which does not have, individually or
in the aggregate, a Company Material Adverse Effect.
Section 6.28 Information in Financing Documents. None of the
----------------------------------
information supplied or to be supplied by the Company for the purpose of
inclusion or incorporation by reference in any syndication and other materials
to be delivered to potential financing sources in connection with the
Transactions (the "Financing Documents") will, at the date delivered, contain
-------------------
any untrue statement of material fact required to be stated therein or necessary
in order to make the statements therein in the light of the circumstances under
which they were made, not misleading.
Section 6.29 Section 2115. The Company is not
------------
40
<PAGE>
subject to the provisions of Section 2115 of the General Corporation Law of
the State of California, as amended.
Section 6.30 Full Disclosure. No representation or warranty by the
---------------
Company in this Agreement and no statement by the Company in any document
referred to herein (including the Schedules and Exhibits hereto), contains as
of the date hereof or will contain as of the date given or delivered, any untrue
statements of a material fact or omits to state any material fact necessary, in
order to make the statement made herein or therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Company as follows:
Section 7.1 Organization. Purchaser is a limited liability company
------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power and authority would not in the aggregate have a
Purchaser Material Adverse Effect (as defined below) on Purchaser. When used in
connection with Purchaser, the term "Purchaser Material Adverse Effect" means
---------------------------------
any change or effect that is materially adverse to the business, results of
operations or condition (financial or otherwise) of Purchaser and its
Subsidiaries, taken as a whole, other than any change or effect arising out of
general economic conditions unrelated to any businesses in which Purchaser and
its Subsidiar ies are engaged.
Section 7.2 Authority Relative to this Agreement. Purchaser has all
------------------------------------
necessary corporate power and authority to execute and deliver this Agreement
and to consummate the Transactions. The execution and delivery of this
Agreement and the consummation of the Transactions have been duly and validly
authorized by the Board of Managers of Purchaser, and no other corporate
proceedings on the part of Purchaser are necessary to authorize this Agreement
or to consummate the Transactions. This Agreement has been duly and validly
executed and delivered by Purchaser and, assuming due and valid authorization,
execution and delivery by the Company and Acquisition Sub, constitutes a valid,
legal and binding agreement of Purchaser, enforceable against Purchaser in
accordance with its terms, except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency or other similar laws, now or hereafter in
effect, affecting creditors' rights generally, and (ii) the remedy of specific
41
<PAGE>
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
Section 7.3 Consents and Approvals; No Violations. Except for
-------------------------------------
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Securities Act, the Exchange
Act, state securities or blue sky laws, the HSR Act, and the filing and
recordation of a certificate of merger as required by the DGCL, no filing with
or notice to, and no permit, authorization, consent or approval of, any
Governmental Entity is necessary for the execution and delivery by Purchaser of
this Agreement or the consummation by Purchaser of the Transactions, except
where the failure to obtain such permits, authorizations, consents or approvals
or to make such filings or give such notice would not have a material adverse
effect on the ability of Purchaser to consummate the Offer or the Merger.
Neither the execution, delivery and performance of this Agreement by Purchaser
nor the consummation by Purchaser of the Transactions will (i) conflict with or
result in any breach of any provision of the respective certificate of
incorporation or by-laws (or similar governing documents) of Purchaser or any of
Purchaser's Subsidiaries, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
Purchaser or any of Purchaser's Subsidiaries is a party or by which any of them
or any of their respective properties or assets may be bound or (iii) violate
any order, writ, injunction, decree, law, statute, rule or regulation applicable
to Purchaser or any of Purchaser's Subsidiaries or any of their respective
properties or assets, except in the case of (ii) or (iii) for violations,
breaches or defaults which would not, individually or in the aggregate, have a
material adverse effect on the ability of Purchaser to consummate the Offer or
the Merger.
Section 7.4 Proxy Statement; Offer Documents. None of the
--------------------------------
information supplied by Purchaser in writing for inclusion in the Proxy
Statement, Schedule 13E-3 or Schedule 13E-4 will, at the respective times filed
with the SEC and are first published or sent or given to holders of Shares, and
in the case of the Proxy Statement, at the time that it or any amendment or
supplement thereto is mailed to the Company's stockholders, at the time of the
Stockholders' Meeting or at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
42
<PAGE>
Section 7.5 Financing. Purchaser has or will have sufficient funds
---------
available to purchase all of the Purchaser Shares. Purchaser has delivered to
the Company true and correct copies of highly confident letters, which letters
have not been modified or withdrawn.
Section 7.6 Brokers. Other than a fee to be paid to New Canaan
-------
investments, Inc., no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
Transactions based upon ar rangements made by and on behalf of Purchaser.
ARTICLE VIII
COVENANTS
Section 8.1 Conduct of Business of the Company. Except (i) as
----------------------------------
expressly contemplated by this Agreement, (ii) as agreed in writing by
Purchaser, or (iii) for the consummation of the financing of the Transactions
pursuant to and in accordance with the terms of the Financing Documents, during
the period from the date hereof to the time persons designated or elected by
Purchaser or any of its respective affiliates shall constitute a majority of the
Board, the Board will not permit the Company or any of its Subsidiaries to
conduct its operations otherwise than in the ordinary course of business
consistent with past practice. Without limiting the generality of the foregoing,
and except as otherwise expressly provided in this Agreement, prior to the time
persons designated or elected by Purchaser or any of the respec tive affiliates
shall constitute a majority of the Board, the Board will not, without the prior
written consent of Purchaser, permit the Company or any of its Subsidiaries to:
(a) amend or propose to amend its certificate of incorporation or
by-laws;
(b) authorize for issuance, issue, sell, deliver, or agree or commit
to issue, sell or deliver, dispose of, encum ber or pledge (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any stock of any class or any securities, except as
required by agreements with the Company's employees under the benefit plans as
in effect as of the date hereof or pursuant to the Rights Agreement, or amend
any of the terms of any such securities or agreements outstanding as of the date
hereof, except as specifically contemplated by this Agreement;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
or redeem or otherwise acquire any of its securities or any securities of
43
<PAGE>
its Subsidiaries;
(d) (i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings under existing lines of credit in the
ordinary course of business and in amounts not material to the Company and its
Subsidiaries taken as a whole; (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person except in the ordinary course of business
consistent with past practice and in amounts not material to the Company and its
Subsidiaries, taken as a whole, and except for obligations of wholly owned
Subsidiaries of the Company to the Company or to other wholly owned
Subsidiaries of the Company; (iii) make any loans, advances or capital
contributions to, or investments in, any other person (other than to wholly
owned Subsidiaries of the Company or customary loans or advances to employees in
the ordinary course of business consistent with past practice and in amounts not
material to the maker of such loan or advance) or make any change in its
existing borrowing or lending arrangements for or on behalf of any such person,
whether pursuant to an employee benefit plan or otherwise; (iv) pledge or
otherwise encumber shares of capital stock of the Company or any of its
Subsidiaries; or (v) mortgage or pledge any of its material assets, tangible
or intangible, or create or suffer to exist any material Lien thereupon;
(e) adopt a plan of complete or partial liquidation or adopt
resolutions providing for the complete or partial liquidation, dissolution,
consolidation, merger, restructuring or recapitalization of the Company or any
of its Subsidiaries;
(f) (i) except as may be required by law or as contemplated by this
Agreement, enter into, adopt or pay, agree to pay, grant, issue, accelerate or
accrue salary or other payments or benefits pursuant to, or amend or terminate
any bonus, profit sharing, compensation, severance, termination, stock option,
stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance, welfare, insurance or other employee
benefit agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any director, officer or employee in any manner; or (ii) (except for
normal increases in the ordinary course of business consistent with past
practice that, in the aggregate, do not result in a material increase in
benefits or compensation expense to the Company, and as required under existing
agreements or in the ordinary course of business consistent with past practice)
increase in any manner the compensation or fringe benefits of any director,
officer or employee or pay any benefit not required by any plan and arrangement
as in effect as of the date hereof (including, without limitation, the granting
of stock apprecia-
44
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tion rights or performance units);
(g) acquire, sell, transfer, lease, encumber or dispose of any assets
outside the ordinary course of business or any assets which in the aggregate are
material to the Company and its Subsidiaries taken as a whole, or enter into any
commitment or transaction outside the ordinary course of business consistent
with past practice which would be material to the Company and its Subsidiaries
taken as a whole;
(h) except as may be required as a result of a change in law or in
GAAP, change any of the accounting principles or practices used by it;
(i) revalue in any material respect any of its assets, including,
without limitation, writing down the value of inventory or writing-off notes or
accounts receivable other than in the ordinary course of business;
(j) (A) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or any equity interest therein; (B) enter into any contract or agreement
other than in the ordinary course of business consistent with past practice
which would be material to the Company and its Subsidiaries taken as a whole;
(C) authorize any new capital expenditure or expenditures which, individually,
is in excess of $50,000 or, in the aggregate, are in excess of $100,000; or (D)
enter into or amend any contract, agreement, commitment or arrangement providing
for the taking of any action that would be prohibited hereunder;
(k) make any Tax election (unless required by law) or settle or
compromise any income tax liability of the Company or any of its Subsidiaries,
except if such action is taken in the ordinary course of business, and, in any
event, the Company shall consult with Purchaser before filing or causing to be
filed any Tax Return of the Company or before executing or causing to be
executed any agreement or waiver extending the period for assessment or
collection of any Taxes of the Company;
(l) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in, or contemplated by, the consol-
idated financial statements (or the notes thereto) of the Company and its
Subsidiaries or incurred in the ordinary course of business consistent with past
practice;
(m) permit any insurance policy naming it as a beneficiary or a loss
payable payee to be canceled or terminated
45
<PAGE>
without notice to Purchaser except in the ordinary course of business and
consistent with past practice unless the Company shall have obtained a
comparable replacement policy;
(n) settle or compromise any pending or threatened suit, action
or claim relating to the Transactions; or
(o) take, or agree in writing or otherwise to take, any of the actions
described in Sections 8.1(a) through 8.1(n) or any action which would make any
of the representations or warranties of the Company contained in this Agreement
untrue or incorrect as of the date when made or would result in any of the
conditions set forth in Annex A not being satisfied.
Section 8.2 Acquisition Proposals. Neither the Company nor any of
---------------------
its Subsidiaries shall, directly or indirectly, through any officer, director,
employee, agent or otherwise, solicit, initiate or encourage the submission of
any proposal or offer from any Person (as hereinafter defined) relating to any
acquisition or purchase of all or (other than in the ordinary course of
business) any portion of the assets of, or any equity interest in, the Company
or any of its Subsidiaries or any recapitalization, business combination or
similar transaction with the Company or any of its Subsidiaries (any
communication with respect to the foregoing being an "Acquisition Proposal") or
--------------------
participate in any negotiations regarding, or furnish to any other Person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage any effort or attempt by any other
Person to do or seek any of the foregoing; provided, however, that, at any time
-------- -------
prior to the purchase of Shares by the Company pursuant to the Offer, the
Company may furnish information to, and negotiate or otherwise engage in
discussions with, any party who delivers a written Acquisition Proposal which
was not solicited or encouraged after the date of this Agreement if the Board
by majority vote determines in good faith (i) after consultation with and
receipt of advice from its outside legal counsel, that failing to take such
action is reasonably determined to constitute a breach of the fiduciary duties
of the Board under applicable law, (ii) after consultation with and receipt of
written advice from the Financial Advisor or another nationally recognized
investment banking firm, that such proposal is more favorable to the Company's
stockholders from a financial point of view than the Transactions (including any
adjustment to the terms and conditions proposed by Purchaser in response to
such Acquisition Proposal), (iii) that sufficient commitments have been obtained
with respect to such Acquisition Proposal that the Board reasonably expects a
transaction pursuant to such Acquisition Proposal could be consummated and (iv)
that such Acquisition Proposal is not subject to any regulatory approvals that
could reasonably be expected to prevent consummation. In connection with any
party's Acquisition Proposal, the Company will enter into a confidential-
46
<PAGE>
ity agreement with such party, which confidentiality agreement shall have
terms and conditions that will be no less favorable to the Company than the
terms and provisions contained in that certain Confidentiality Agreement by
and between the Company and Purchaser or its affiliate. From and after the
execution of this Agreement, the Company shall promptly advise Purchaser of
the receipt, directly or indirectly, of any inquiries, discussions,
negotiations, or proposals relating to an Acquisition Proposal (including the
material terms thereof and the identity of the other party or parties
involved) and furnish to Purchaser within 48 hours of such receipt an accurate
description of all material terms (including any changes or adjustments to
such terms as a result of negotiations or otherwise) of any such written
proposal. The Company shall promptly provide to Purchaser any material non-
public information regarding the Company provided to any other party, which
information was not previously provided to Purchaser. In addition, the Company
shall promptly advise Purchaser, in writing, if the Board shall make any
determination as to any Acquisition Proposal as contemplated by the proviso to
the first sentence of this Section 8.2. The Company agrees that it shall keep
Purchaser informed, on a current basis, of the status of any Acquisition
Proposal. Notwithstanding the foregoing, the Company shall be permitted to
take such actions as may be required to comply with Rule 14e-2 of the Exchange
Act. "Person" means a natural person, partnership, corporation, limited
------
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Entity or other entity or
organization.
Section 8.3 Access to Information.
---------------------
(a) Between the date hereof and the consummation of the Offer and/or
Effective Time, as the case may be, the Company will give Purchaser and its
authorized representatives and Persons providing or committed to provide
Purchaser with financing for the Transactions and their representatives,
reasonable access to all employees, plants, offices, warehouses and other
facilities and properties and to all books and records of the Company and its
Subsidiaries, will permit Purchaser to make such inspections (including any
physical inspections or soil or groundwater investigations) as they may
reasonably request and will cause the Company's officers and those of its
Subsidiaries to furnish Purchaser with such financial and operating data and
other information with respect to the business and properties of the Company and
any of its Subsidiaries as Purchaser may from time to time reasonably request.
(b) Purchaser will hold and will cause its consultants and advisors to
hold in confidence, unless compelled to disclose by judicial or administrative
process or, in the opinion of its legal counsel, by other requirements of law,
all documents and information concerning the Company and its Subsid-
47
<PAGE>
iaries furnished to Purchaser in connection with the Transactions (except to
the extent that such information can be shown to have been (i) previously
known by Purchaser from sources other than the Company, or its directors,
officers, representatives or affiliates, (ii) in the public domain through no
fault of Purchaser or (iii) later lawfully acquired by Purchaser on a non-
confidential basis from other sources who are not known by Purchaser to be
bound by a confidentiality agreement or otherwise prohibited from transmitting
the information to Purchaser by a contractual, legal or fiduciary obligation)
and will not release or disclose such information to any other person, except
its auditors, attorneys, financial advisors and other consultants and advisors
(including financing sources) in connection with this Agreement who need to
know such information. If the Transactions are not consummated, such
confidence shall be maintained and, if requested by or on behalf of the
Company, Purchaser will, and will use all reasonable efforts to cause their
auditors, attorneys, financial advisors and other consultants, agents and
representatives to, return to the Company or destroy all copies of written
information furnished by the Company to Purchaser or its agents,
representatives or advisors. It is understood that Purchaser shall be deemed
to have satisfied their obligation to hold such information confidential if
they exercise the same care as they take to preserve confidentiality for their
own similar information.
(c) Prior to the consummation of the Offer, the Company and its
accountants, counsel, agents and other representatives shall cooperate with
Purchaser by providing information about the Company which is necessary for
Purchaser and its accountants, agents, counsel and other representatives to
prepare the Financing Documents and such other documents and other reasonable
requests with respect to such documents. Notwithstanding anything in this
Agreement to the contrary, Purchaser may disclose, or cause its representatives
to disclose, and at the request of Purchaser, the Company shall disclose
information concerning the Company and its Subsidiaries, and their respective
businesses, assets and properties, and the Transactions in the Financing
Documents and to prospective financing sources in connection with the
Transactions.
Section 8.4 Additional Agreements; Reasonable Efforts.
-----------------------------------------
(a) Prior to the consummation of the last to occur of any of the
Transactions, upon the terms and subject to the conditions of this Agreement,
Purchaser and the Company, agree to use its reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under any applicable Laws to consummate and
make effective the Transactions as promptly as practicable including, but not
limited to (i) the preparation and
48
<PAGE>
filing of all forms, registrations and notices required to be filed to
consummate the Transactions and the taking of such actions as are necessary to
obtain any requisite approvals, consents, orders, exemptions or waivers by
any third party or Governmental Entity, (ii) the preparation of any Financing
Documents requested by Purchaser and (iii) the satisfaction of the other
parties' conditions to the consummation of the Offer, the Stock Purchase
Closing or the Merger Closing. In addition, no party hereto shall take any
action after the date hereof that would reasonably be expected to materially
delay the obtaining of, or result in not obtaining, any permission, approval
or consent from any Governmental Entity necessary to be obtained prior to the
consummation of the Offer, the Stock Purchase Closing or the Merger Closing.
(b) Prior to the consummation of the Offer, the Stock Purchase
Closing, or the Merger Closing, each party shall promptly consult with the
other parties hereto with respect to, provide any necessary information with
respect to and provide the other (or its counsel) copies of, all filings made by
such party with any Governmental Entity or any other information supplied by
such party to a Governmental Entity in connection with this Agreement and the
Transactions. Each party hereto shall promptly inform the other of any
communication from any Governmental Entity - regarding any of the Transactions.
If any party hereto or affiliate thereof receives a request for additional
information or documentary material from any such Governmental Entity with
respect to the Transactions, then such party will endeavor in good faith to
make, or cause to be made, as soon as reasonably practicable and after
consultation with the other party, an appropriate response in compliance with
such request. To the extent that transfers of Company Permits are required as a
result of execution of this Agreement or consummation of the Transactions, the
Company shall use its best efforts to effect such transfers.
(c) Notwithstanding the foregoing, nothing in this Agreement shall be
deemed to require Purchaser to (i) enter into any agreement with any
Governmental Entity or to consent to any order, decree or judgment requiring
Purchaser to hold separate or divest, or to restrict the dominion or control of
Purchaser or any of its affiliates over, any of the assets, properties of
businesses of Purchaser, its affiliates or the Company, in each case as in
existence on the date hereof, or (ii) defend against any litigation brought by
any Governmental Entity seeking to prevent the consummation of the Transactions.
(d) The Company agrees to use its reasonable best efforts to assist
Purchaser in connection with structuring or obtaining any financing in
connection with consummation of the Transactions, and Purchaser shall use its
reasonable best efforts to obtain such financing.
49
<PAGE>
Section 8.5 Consents. Purchaser and the Company each will use all
--------
reasonable efforts to obtain consents of all third parties and governmental
authorities necessary, proper or advisable for the consummation of the
Transactions.
Section 8.6 Public Announcements. Purchaser and the Company, as
--------------------
the case may be, will consult with one another before issuing any press release
or otherwise making any public statements with respect to the Transactions,
including, without limitation, the Offer and the Merger, and shall not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by applicable law or by obligations pursuant to any
listing agreement with any national securities exchange or the Nasdaq Stock
Market, as determined by Purchaser or the Company, as the case may be.
Section 8.7 Indemnification.
---------------
(a) Purchaser agrees that all rights to indemnification or
exculpation now existing in favor of the directors, officers, employees and
agents of the Company and its Subsidiaries as provided in their respective
charters or by-laws or otherwise in effect as of the date hereof with respect to
matters occurring prior to the consummation of the last to occur of any of the
Transactions shall survive such consummation and shall continue in full force
and effect. To the maximum extent permitted by the DGCL, such indemnification
shall be mandatory rather than permissive and the Company or the Surviving
Corporation, as the case may be, shall advance expenses in connection with such
indemnification.
(b) Purchaser shall cause the Company or the Surviving Corporation, as
the case may be, to maintain in effect for not less than six (6) years from the
consummation of the last to occur of any of the Transactions, the policies of
the directors' and officers' liability and fiduciary insurance most recently
maintained by the Company (provided that the Surviving Corporation may
substitute therefor policies of at least the same coverage containing terms and
conditions which are no less advantageous to the beneficiaries thereof so long
as such substitution does not result in gaps or lapses in coverage) with
respect to matters occurring prior to the consummation of the last to occur of
any of the Transactions to the extent available, provided that in no event shall
the Company or the Surviving Corporation, as the case may be, be required to
expend more than an amount per year equal to 150% of the current annual premiums
paid by the Company (the "Premium Amount") to maintain or procure insurance
--------------
coverage pursuant hereto and further provided that if the Surviving Corporation
is unable to obtain the insurance called for by this Section 8.7(b), the
Surviving Corporation will obtain as much comparable insurance as is available
for the Premium Amount per year.
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<PAGE>
(c) The Company agrees to indemnify and hold harmless Purchaser and
its affiliates (as that term is defined in the Securities Act), successors,
assigns, and the agents (including, without limitation, financing sources and
their affiliates) and employees of any of them (collectively, the "Purchaser
---------
Indemnified Parties"), from and against any and all costs, expenses, losses,
- -------------------
damages and liabilities (including, without limitation, reasonably attorneys'
fees and expenses) suffered by any of the Purchaser Indemnified Parties (other
than with respect to (i) a claim arising directly from the gross negligence or
willful misconduct of a Purchaser Indemnified Party or (ii) a claim of breach by
Purchaser of this Agreement or any confidentiality with the Company to which
Purchaser is a party) to the extent resulting from, arising out of, or
incurred with respect to, any litigation, legal action, arbitration proceeding,
material demand, material claim or investigation against any of the Purchaser
Indemnified Parties in connection with Purchaser's proposal to acquire shares of
Common Stock of the Company as set forth in this Agreement, or in connection
with any Acquisition Proposal relating to Purchaser or any circumstances related
thereto.
Section 8.8 Recapitalization. The Company shall cooperate with any
----------------
reasonable requests of Purchaser or the SEC related to the reporting of the
Transactions as a recapitaliza tion for financial reporting purposes including,
without limitation, to assist Purchaser and its affiliates with any presenta-
tion to the SEC with regard to such reporting and to include appropriate
disclosure with regard to such reporting in all filings with the SEC and mailing
to the stockholders of the Company made in connection with the Offer or the
Merger. In furtherance of the foregoing, the Company shall provide to Purchaser
for the prior review of Purchaser's advisors any description of Transactions
which is meant to be disseminated.
Section 8.9 Financial Statements. The Company shall promptly
--------------------
prepare at the end of each month and promptly deliver to Purchaser upon
completion the balance sheet, income statement and statement of cash flows
prepared in accordance with GAAP of the Company for each month ended between the
date of this Agreement and the consummation of the Offer or the Merger Closing
Date, as the case may be. The Company shall promptly prepare all reasonably
requested financial statements required to be included in the Financing
Documents.
Section 8.10 Asset Transfer. At the request of Purchaser,
--------------
immediately prior to the Stock Purchase Closing, the Company shall transfer any
and all of its assets to a newly formed, wholly owned subsidiary ("GMSI
----
Operating Corp.).
- --------------
ARTICLE IX
51
<PAGE>
CONDITIONS TO CONSUMMATION OF THE
STOCK PURCHASE AND THE MERGER
Section 9.1 Conditions to the Stock Purchase.
--------------------------------
(a) The respective obligations of each party to effect the Stock
Purchase shall be subject to the satisfaction (or waiver) at or prior to the
Stock Purchase Closing Date of the following condition:
(i) No Order. No United States or state governmental authority
--------
or other agency or commission or United States or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any law, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is then in
effect and has the effect of making the acquisition of Shares by the
Purchaser or any of its affiliates illegal or otherwise restricting,
preventing or prohibiting consummation of the Transactions.
(b) The obligation of the Company to effect the Stock Purchase is also
subject to the satisfaction (or waiver) at or prior to the Stock Purchase
Closing Date of each of the following additional conditions:
(i) Accuracy of Representations and Warranties. All
------------------------------------------
representations and warranties made by Purchaser herein shall be true and
correct in all material respects (except for representations qualified by
materiality or Purchaser Material Adverse Effect which shall be correct in
all respects) on the Closing Date, with the same force and effect as though
such representations and warranties had been made on and as of the Closing
Date, except for representations and warranties that are made as of a
specified date or time, which shall be true and correct in all material
respects (except for representations qualified by materiality or Purchaser
Material Adverse Effect which shall be correct in all respects) only as of
such specific date or time.
(ii) Compliance with Covenants. Purchaser shall have performed in
-------------------------
all material respect all obligations and agreements, and complied in all
material respects with covenants, contained in this Agreement to be
performed or complied with by it prior to or on the Stock Purchase Closing
Date.
52
<PAGE>
(iii) Officer's Certificates. The Company shall have received
----------------------
certificates of Purchaser, dated as of the Stock Purchase Closing Date,
signed by an executive officer of Purchaser to evidence satisfaction of
the conditions set forth in Section 9.1(b)(i) and (ii).
(c) The obligation of Purchaser to effect the Stock Purchase is also
subject to the satisfaction (or waiver) at or prior to the Stock Purchase
Closing Date of each of the following additional conditions:
(i) Accuracy of Representations and Warranties. All
------------------------------------------
representations and warranties made by the Company herein shall be true and
correct in all material respects, (except for representations qualified by
materiality or Company Material Adverse Effect which shall be correct in
all respects) on the Stock Purchase Closing Date, with the same force and
effect as though such representations and warranties had been made on and
as of the Closing Date, except for representations and warranties that are
made as of a specified date or time, which shall be true and correct in all
material respects (except for representations qualified by materiality or
Company Material Adverse Effect which shall be correct in all respects)
only as of such specific date or time.
(ii) Compliance with Covenants. The Company shall have
-------------------------
performed in all material respects all obligations and agreements, and
complied in all material respects with covenants, contained in this
Agreement to be performed or complied with by it prior to or on the Stock
Purchase Closing Date.
(iii) Officer's Certificate. Purchaser shall have received a
---------------------
certificate of the Company, dated as of the Stock Purchase Closing Date,
signed by an executive officer of the Company to evidence satisfaction of
the conditions set forth in Section 9.1(c)(i) and (ii).
(iv) Offer. The conditions to the Offer set forth in Annex A
-----
shall have been satisfied and the Company shall, simultaneously with the
Stock Purchase Closing, but subject to Article III, purchase all Shares
validly tendered and not withdrawn pursuant to the Offer.
Section 9.2 Conditions to Each Party's Obligations to Effect the
----------------------------------------------------
Merger.
- ------
55
<PAGE>
(a) The respective obligations of each party hereto to effect the
Merger is subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any and all of which may be waived in whole
or in part by Purchaser or the Company, as the case may be, to the extent
permitted by applicable law:
(i) Stockholder Approval. The Merger and this Agreement shall
--------------------
have been approved and adopted by the affirmative vote of the stockholders
of the Company by the requisite vote;
(ii) Statutes; Court Orders. No statute, rule, regulation,
----------------------
executive order, decree, ruling or injunction shall have been enacted,
entered, promulgated or enforced by any court or governmental authority of
competent jurisdiction which prohibits, restrains, enjoins or restricts the
consummation of the Merger; and there shall be no order or injunction of a
court of competent jurisdiction in effect precluding consummation of the
Merger;
(iii) HSR Approval. Any waiting period applicable to the Merger
------------
under the HSR Act shall have terminated or expired; and
(iv) Purchaser Shares. Purchaser shall have purchased the
----------------
Purchaser Shares.
(v) The Company shall have received from a nationally
recognized accounting firm a letter in form and substance reasonably
satisfactory to Purchaser to the effect that the Transactions will receive
recapitalization accounting treatment and such letter has not been
withdrawn or modified.
(b) The obligation of the Company and Acquisition Sub to effect the
Merger is also subject to the satisfaction (or waiver) at or prior to the Merger
Closing Date of each of the following additional conditions:
(i) Accuracy of Representations and Warranties. All
------------------------------------------
representations and warranties made by Purchaser herein shall be true and
correct in all material respects (except for representations qualified by
materiality or Purchaser Material Adverse Effect which shall be correct in
all respects) at the Effective Time, with the same force and effect as
though such representations and warranties had been made on and as of the
Effective Time, except for representations and warranties that are made
as of a speci-
54
<PAGE>
fied date or time, which shall be true and correct in all material
respects (except for representations qualified by materiality or
Purchaser Material Adverse Effect which shall be correct in all respects)
only as of such specific date or time.
(ii) Compliance with Covenants. Purchaser shall have
-------------------------
performed in all material respects all obligations and agreements, and
complied in all material respects with covenants, contained in this
Agreement to be performed or complied with by it prior to or as of the
Effective Time.
(iii) Officer's Certificate. The Company shall have received
---------------------
certificates of Purchaser dated as of the Effective Time, signed by an
executive officer of Purchaser to evidence satisfaction of the conditions
set forth in Section 9.2(b)(i) and (ii).
(c) The obligation of Purchaser to effect the Merger is also subject
to the satisfaction (or waiver) at or prior to the Merger Closing Date of each
of the following additional conditions:
(i) Accuracy of Representations and Warranties. All
------------------------------------------
representations and warranties made by the Company herein shall be true and
correct in all material respects (except for representations qualified by
materiality or Company Material Adverse Effect which shall be correct in
all respects) as of the Effective Time, with the same force and effect as
though such representations and warranties had been made on and as of the
Effective Time, except for representations and warranties that are made
as of a specified date or time, which shall be true and correct in all
material respects (except for representations qualified by materiality or
Company Material Adverse Effect which shall be correct in all respects)
only as of such specific date or time.
(ii) Compliance with Covenants. The Company shall have
-------------------------
performed in all material respects all obligations and agreements and
complied in all material respects with covenants, contained in this
Agreement to be performed or complied with by it prior to or as of the
Effective Time.
(iii) Officer's Certificate. Purchaser shall have received
---------------------
certificates of the Company, dated as of the Effective Time, signed by an
executive officer of the Company to evidence satisfaction of the
conditions set forth in Section 9.2(c)(i)
55
<PAGE>
and (ii).
(iv) Purchase of Shares by the Company. The Company shall have
---------------------------------
purchased no more than 4,656,400 Shares pursuant to the Offer.
ARTICLE X
TERMINATION; AMENDMENT; WAIVER
Section 10.1 Termination. This Agreement may be terminated and the
-----------
Transactions may be abandoned at any time prior to the Effective Time
notwithstanding any requisite approval and adoption of this Agreement and the
Transactions by the stockholders of the Company:
(a) by mutual written consent duly authorized by the Board of Managers
of Purchaser and the Directors of each of Acquisition Sub and the Company;
(b) by Purchaser or the Company if (i) any court or other governmental
body of competent jurisdiction shall have issued a final order, decree or ruling
(which order decree or ruling the parties hereto shall use their best efforts to
lift) or taken any other final action restraining, enjoining or otherwise
prohibiting the Offer or the Merger and such order, decree, ruling or other
action is or shall have become final and nonappealable or (ii) the Effective
Time shall not have occurred on or before December 31, 1998; provided, however,
-------- -------
that the right to terminate this Agreement under this Section 10.1(b) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date;
(c) by Purchaser if due to an occurrence or circumstance which would
result in a failure to satisfy any of the conditions set forth in Annex A
hereto, the Company shall have (A) failed to commence the Offer within the time
period prescribed in Section 1.1(a), (B) terminated the Offer without having
accepted any Shares for payment thereunder, or (C) failed to pay for Shares
pursuant to the Offer by October 31, 1998, unless, in each case, such failure to
commence the Offer or pay for Shares (whether before or after termination of the
Offer) shall have been caused by or resulted from a material breach of any of
Purchaser's representations, warranties or covenants, which breach cannot be or
has not been cured within thirty (30) days following receipt of written notice
of such breach;
(d) by the Company if (i) due to an occurrence or circumstance which
would result in a failure to satisfy any of the conditions set forth in Annex A
hereto, the Company shall have (A) failed to commence the Offer within the time
period
56
<PAGE>
prescribed in Section 1.1(a), (B) terminated the Offer without having accepted
any Shares for payment or (C) failed to pay for Shares pursuant to the Offer
by October 31, 1998, unless, in each case, such failure to commence the Offer
or pay for Shares (whether before or after termination of the Offer) shall
have been caused by or resulted from a material breach of any of the Company's
representations, warranties or covenants, or (ii) prior to the purchase of
Shares pursuant to the Offer, a corporation, partnership, person or other
entity or group shall have made a bona fide offer that the Board by majority
vote in good faith determines (A) after consultation with and receipt of
advice from its outside legal counsel, that failing to take such action is
reasonably determined to constitute a breach of the fiduciary duties of the
Board under applicable law, and (B) after consultation with and receipt of
written advice from the Financial Advisor or another nationally recognized
investment banking firm, that such proposal is more favorable to the Company's
stockholders from a financial point of view than the Offer and the Merger
(including any adjustment to the terms and conditions proposed by Purchaser in
response to such bona fide offer), provided that such termination under this
clause (ii) shall not be effective until payment of the fee required by
Section 10.3(a) hereof;
(e) by Purchaser prior to the purchase of Shares pursuant to the
Offer, if (i) there shall have been a material breach of any of the Company's
representations, warranties or covenants which breach (A) would give rise to the
failure of a condition set forth in Annex A hereto and (B) cannot be or has not
been cured within thirty (30) days following receipt of written notice of such
breach, (ii) the Company Board of Directors shall withdraw, modify, or change
(including by amendment of the Schedule 13E-4) its recommendation or approval in
respect of this Agreement or the Offer in a manner adverse to Purchaser, or
shall have adopted any resolution to effect any of the foregoing, (iii) the
Board shall have recommended any proposal other than the Purchaser in respect of
an Acquisition Proposal, (iv) the Company shall have exercised a right with
respect to an Acquisition Proposal referenced in Section 8.2 and shall,
directly or through its representatives, continue discussions with any third
party concerning an Acquisition Proposal for more than ten (10) business days
after the date of receipt of such Acquisition Proposal, (v) an Acquisition
Proposal that is publicly disclosed shall have been commenced, publicly proposed
or communicated to the Company which contains a proposal as to price (without
regard to whether such proposal specifies a specific price or a range of
potential prices) and the Company shall not have rejected such proposal within
ten (10) business days of the earlier to occur of (A) the Company's receipt of
such Acquisition Proposal and (B) the date such Acquisition Proposal first
becomes publicly disclosed, (vi) any Person or group (as defined in Section
13(d)(3) of the Exchange Act) other than Purchaser or any of their respective
subsidiaries or affiliates shall have become the beneficial
57
<PAGE>
owner of more than 15% of the outstanding Shares (either on a primary or a
fully diluted basis); provided, however, that this provision shall not apply
-------- -------
to any Person that owns more than 15% of the outstanding Shares on the date
hereof; provided, further, that such Person does not increase its beneficial
-------- -------
ownership beyond the number of Shares such Person beneficially owns on the
date hereof, or (vii) the Minimum Condition shall not have been satisfied by
the expiration date of the Offer and on or prior to such date an entity or
group (other than Purchaser) shall have made and not withdrawn a proposal with
respect to an Acquisition Proposal; or
(f) by the Company if there shall have been a material breach of any
of Purchaser's representations, warranties or covenants which breach cannot be
or has not been cured within thirty (30) days of the receipt of written notice
thereof.
(g) by Purchaser if (i) Purchaser shall have failed to receive a true,
correct and complete listing of Material Contracts to be provided pursuant to
Section 6.21(a) to the Company Disclosure Schedule within ten (10) days of the
date hereof or (ii) within three (3) business days after the receipt of the
Material Contracts on such list, in the event that one or more of the Material
Contracts set forth on such list had not been previously disclosed to Purchaser
and Purchaser reasonably determines that such Material Contract or Contracts,
individually or in the aggregate, could reasonably be expected to have a Company
Material Adverse Effect.
Section 10.2 Effect of Termination. In the event of the termination
---------------------
and abandonment of this Agreement pursuant to Section 10.1, written notice
thereof shall forthwith be given to the other party or parties specifying the
provision hereof pursuant to which such termination is made, and this Agreement
shall forthwith become void and have no effect, without any liability on the
part of any party hereto or its affiliates, directors, officers or stockholders,
other than the provision of this Section 10.2 and Sections 8.3(b) and 10.3
hereof. Nothing contained in this Section 10.2 shall relieve any party from
liability for any breach of this Agreement.
Section 10.3 Fees and Expenses.
-----------------
(a) In the event that (i) Purchaser shall have terminated this
Agreement pursuant to Section 10.1(e) or 10.1(g) and within twelve (12) months
following the date of any such termination the Company shall have entered into
an Acquisition Proposal with a third party or an Acquisition Proposal with
respect to the Company shall have been consummated; or (ii) the Company shall
have terminated this Agreement pursuant to 10.1(d)(ii) hereof, then the Company
shall pay to Purchaser, within one (1) business day following the execution and
delivery
58
<PAGE>
of such agreement or such occurrence, as the case may be, or simultaneously
with such termination pursuant to Section 10.1(d)(ii), a termination fee (the
"Termination Fee"), in cash, of $3,500,000, provided, however, that the
--------------- -------- -------
Company in no event shall be obligated to pay more than one such Termination
Fee with respect to all such agreements and occurrences and such termination.
(b) Upon the termination of this Agreement for any reason prior to the
purchase of Shares by the Company pursuant to the Offer (other than
termination by the Company pursuant to Section 10.1(f) hereof) the Company shall
reimburse Purchaser and its affiliates (not later than one (1) business day
after submission of statements therefore) for all actual documented out-of-
pocket fees and expenses, not to exceed $1,000,000, actually and reasonably
incurred by any of them or on their behalf in connection with the Offer and the
Merger and the consummation of all transactions contemplated by this Agreement
(including, without limitation, fees payable to financing sources, investment
bankers, counsel to any of the foregoing, and accountants). Purchaser has
provided the Company with an estimate of the amount of such fees and expenses
and, if Purchaser shall have submitted a request for reimbursement hereunder,
will provide the Company in due course with invoices or other reasonable
evidence of such expenses upon request. The Company shall in any event pay the
amount requested (not to exceed $1,000,000) within one (1) business day of such
request, subject to the Company's right to demand a return of any portion as to
which invoices are not received in due course.
(c) Upon the consummation of the Offer, all costs and expenses
incurred by each party hereto in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, fees and
disbursements of counsel, financial advisors and accountants) and a transaction
fee of $2,380,000 to Purchaser (or such lesser amount as Purchaser shall consent
to in writing) shall be paid by the Company or the Company shall promptly
reimburse such party, as the case may be.
(d) Except as specifically provided in this Section 10.3 each party
shall bear its own expenses in connection with this Agreement and the
Transactions.
Section 10.4 Amendment. Subject to applicable law, this Agreement
---------
may be amended by action taken by the Company, Purchaser at any time before or
after approval of the Merger by the stockholders of the Company (if required by
applicable law) but, after any such approval, no amendment shall be made which
requires the approval of such stockholders under applicable law without such
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of the parties hereto.
59
<PAGE>
Section 10.5 Waiver. At any time prior to the Effective Time, any
------
party hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document, certificate or writing delivered pursuant hereto, or (iii) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of either party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Nonsurvival of Representations and Warranties. The
---------------------------------------------
representations and warranties made herein shall not survive beyond the
consummation of the last to occur of any of the Transactions.
Section 11.2 Entire Agreement; Assignment. This Agreement (a)
----------------------------
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof, and (b) shall not be assigned by operation of law or
otherwise; provided, however, that Purchaser may assign any or all of its rights
-------- -------
and obligations under this Agreement to any Subsidiary or affiliate of
Purchaser, but no such assignment shall relieve Purchaser of its obligations
hereunder if such assignee does not perform such obligations.
Section 11.3 Validity. If any provision of this Agreement, or the
--------
application thereof to any person or circumstance, is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby, and
to such end, the provisions of this Agreement are agreed to be severable.
Section 11.4 Notices. All notices, requests, claims, demands and
-------
other communications hereunder shall be in writing (including by facsimile with
written confirmation thereof) and unless otherwise expressly provided herein,
shall be delivered during normal business hours by hand, by Federal Express,
United Parcel Service or other nationally recognized overnight commercial
delivery service, or by facsimile notice, confirmation of receipt received,
addressed as follows, or to such other address as may be hereafter notified by
the respective parties hereto:
60
<PAGE>
(a) If to Purchaser:
Fremont Acquisition Company, LLC
c/o Fremont Partners, L.P.
50 Fremont Street, Suite 3700
San Francisco, California 94105
Attention: Mark N. Williamson and Kevin Baker
Facsimile Number: 415-284-8191
With a copy, which will not constitute notice, to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Embarcadero Center, Suite 3800
San Francisco, California 94111
Attention: Kenton J. King, Esq.
Facsimile Number: 415-984-2698
(b) If to the Company:
Global Motorsport Group, Inc.
16100 Jacqueline Court
Morgan Hill, CA 95037
Attention: James J. Kelly, Jr.
Facsimile Number: (408) 778-7001
With a copy to:
Gibson, Dunn & Crutcher LLP
4 Park Plaza
Irvine, CA 92614
Attention: Thomas D. Magill, Esq.
Facsimile Number: (949) 475-4648
Section 11.5 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of law thereof. The parties hereto hereby agree
and consent to be subject to the exclusive jurisdiction of the United States
District Court for the District of Delaware in any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the Transactions. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by law, (i) any objection
that it may now or hereafter have to laying venue of any suit, action or
proceeding brought in such courts, and (ii) any claim that any suit, action or
proceeding brought in such courts has been brought in an inconvenient forum.
Section 11.6 Descriptive Headings. The descriptive headings herein
--------------------
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or
61
<PAGE>
interpretation of this Agreement.
Section 11.7 Parties in Interest. This Agreement shall be binding
-------------------
upon and inure solely to the benefit of each party hereto and its successors and
permitted assigns, and except as provided in Sections 8.7 and 10.2, nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement.
Section 11.8 Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
62
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the day and year first above
written.
FREMONT ACQUISITION COMPANY III, LLC
By: _________________________
Name:____________________
Title:___________________
GMS ACQUISITION CORP.
By: _________________________
Name:____________________
Title:___________________
GLOBAL MOTORSPORT GROUP, INC.
By: _________________________
Name:____________________
Title:___________________
<PAGE>
ANNEX A
-------
CONDITIONS TO THE OFFER
THE CAPITALIZED TERMS USED HEREIN HAVE THE MEANINGS SET FORTH IN THE AGREEMENT
AND PLAN OF MERGER (THE "MERGER AGREEMENT") TO WHICH THIS ANNEX A IS ATTACHED
Notwithstanding any other provisions of the Offer, the Company shall
not be required to accept for payment or pay for, and may delay the acceptance
for payment of, or the payment for, any Shares, and may terminate the Offer and
not accept for payment or pay for any Shares tendered pursuant to the Offer, if
(i) immediately prior to the expiration of the Offer (as it may be extended in
accordance with the Offer), the Minimum Condition shall not have been satisfied,
(ii) any applicable waiting period under the HSR Act shall not have expired or
been terminated prior to the expiration of the Offer, (iii) the Stock Purchase
Closing shall not have occurred or (iv) at any time on or after the date of
the Merger Agreement and prior to the acceptance for payment of Shares, any of
the following conditions exist:
(a) there shall be threatened or pending any action, suit or
proceeding or any statute, rule, regulation, judgment, order or injunction
proposed, sought, promulgated, enacted, entered, enforced or deemed applicable
to the Offer, or any other action shall have been taken, proposed or threat-
ened, by any state or federal government or governmental authority or by any
court of competent jurisdiction, other than the routine application to the
Offer, the Merger or other subsequent business combination of waiting periods
under the HSR Act, (i) seeking to prohibit or impose any material limitations
on Purchaser's ownership or operation (or that of any of their respective
Subsidiaries or affiliates) of all or a material portion of their or the
Company's businesses or assets, or to compel Purchaser or their respective
Subsidiaries and affiliates to dispose of or hold separate any material
portion of the business or assets of the Company or Purchaser and their
respective Subsidiaries, in each case taken as a whole, (ii) seeking to make the
acceptance for payment of, or the payment for, some or all of the Shares illegal
or otherwise prohibiting, restricting or significantly delaying consummation
of the Offer or the Merger or the performance of any of the other transactions
contemplated by the Merger Agreement, or seeking to obtain from the Company or
Purchaser any damages that are material in relation to the Company and its
Subsidiaries as taken as a whole, (iii) seeking to impose material limitations
on the ability of Purchaser, or render Purchaser unable, to acquire or hold or
to exercise effectively all rights of ownership of the Shares, including,
64
<PAGE>
without limitation, the right to vote any Shares purchased by Purchaser on all
matters properly presented to the stockhold ers of the Company, or effectively
to control in any material respect the business, assets or operations of the
Company, its Subsidiaries or Purchaser or any of their respective affiliates,
or (iv) seeking to impose circumstances under which the purchase or payment for
some or all of the Shares pursuant to the Offer and Merger could have a
Purchaser Material Adverse Effect, or (v) which otherwise is reasonably likely
to have a Company Material Adverse Effect; or
(b) there shall have occurred any change that constitutes a Company
Material Adverse Effect; or
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securi ties on the New York Stock Exchange or
the NASDAQ Stock Market for a period in excess of 24 hours (excluding
suspensions or limitations resulting solely from physical damage or interfer
ence with such exchanges not related to market conditions), (ii) the declaration
of a banking moratorium or any suspension of payments in respect of banks in the
United States (whether or not mandatory), (iii) the commencement of a war, armed
hostilities or other international or national calamity di rectly or indirectly
involving the United States, (iv) any limitation (whether or not mandatory), by
any U.S. governmen tal authority or agency, likely to materially adversely af
fect, the extension of credit by banks or other financial institutions, (v) a
change in general financial, bank or capital market conditions which materially
and adversely affects the ability of financial institutions in the United States
to extend credit or syndicate loans, (vi) from the date of the Merger Agreement
through the date of termination or expiration of the Offer, a decline of at
least 15% in the Standard & Poor's 500 Index, or (vii) in the case of any of the
foregoing, existing at the date of the execution of the Merger Agreement, a
material acceleration or worsening thereof; or
(d) any person (which includes a "person" as such term is defined in
Section 13(d)(3) of the Exchange Act) other than Purchaser, any of its
affiliates, or any group of which any of them is a member shall have acquired
beneficial owner ship of more than 15% of the outstanding Shares or shall have
entered into a definitive agreement or an agreement in princi ple with the
Company with respect to a tender offer or ex change offer for any Shares or a
merger, consolidation or other business combination with or involving the
Company or any of its Subsidiaries; or
(e) the Merger Agreement shall have been terminated in accordance
with its terms; or
65
<PAGE>
(f) (i) the Board shall have withdrawn or modified (including by
amendment of the Schedule 13E-4) in a manner adverse to Purchaser its approval
or recommendation of the Offer, the Merger Agreement or the Merger or shall have
recommended another offer, or shall have adopted any resolution to effect any
of the foregoing, or (ii) the Company shall have entered into an agreement with
respect to an Acquisition Proposal in accordance with Section 8.2 of this
Agreement; or
(g) all consents, permits and approvals of Governmental Authorities
and other persons listed in Section 6.6 of the Company Disclosure Schedule and
identified with an asterisk shall not have been obtained with no material
adverse conditions attached and no material expense imposed on the Company or
any of its Subsidiaries; or
(h) the Company or GMSI Operating Corp., as the case may be, shall
have failed to consummate (i) a private placement offering of debt securities
which will result in the Company receiving gross proceeds of not less than $25
million at an interest rate not in excess of 15% (after giving effect to the
anticipated returns, as determined in the reasonable judgment of Purchaser, with
respect to any equity securities of the Company issued to holders of such debt
securities in connection therewith), (ii) a private placement offering of debt
securities in the aggregate principal amount of $80 million (which will result
in GMSI Operating Corp. receiving gross proceeds of not less than $80 million at
an interest rate not in excess of 12% (after giving effect to the anticipated
returns, as determined in the reasonable judgment of Purchaser, with respect to
any equity securities of the Company issued to holders of such debt securities
in connection therewith), or (iii) the closing of a senior secured credit
facility in the aggregate amount of $55 million, of which at least $25 million
is available for immediate drawdown in connection with the Transactions;
(i) A nationally recognized accounting firm shall have failed to
deliver to the Company a letter, in form and substance reasonably satisfactory
to Purchaser, to the effect that the Transactions will receive recapitalization
accounting treatment or such letter has been withdrawn or modified.
The parties acknowledge that the Conditions to the Offer set forth
above in this Annex A are for the sole benefit of Purchaser, that the Company
shall not assert failure of, or waive, any such condition without the prior
written consent of Purchaser and that if Purchaser elects to waive any such
condition to the Offer, the Company shall cooperate and comply with such
election.
66
<PAGE>
EXHIBIT (c)(2)
STOCKHOLDER AGREEMENT
Stockholder Agreement (together with Annex I attached hereto, this
"Agreement"), dated as of June 28, 1998 by and among Fremont Acquisition Company
---------
III, LLC, a Delaware limited liability company ("Purchaser") and each individual
---------
whose name appears on the signatures pages to this Agreement (each in his
individual capacity, the "Management Stockholder", and collectively, the
----------------------
"Management Stockholders"). Capitalized terms used and not otherwise defined
- -----------------------
in this Agreement shall have the respective meanings assigned to such terms in
an Agreement and Plan of Merger (the "Merger Agreement") dated as of the date
----------------
hereof, among Purchaser, Global Motorsport Group, Inc., a Delaware corporation,
formerly known as Custom Chrome, Inc. (the "Company") and GMS Acquisition Corp.,
-------
a Delaware corporation and a wholly owned subsidiary of the Company
("Acquisition Sub").
---------------
WHEREAS, each of the Management Stockholders is, as of the date
hereof, the record and beneficial owner of the number of shares (the "Shares")
------
of common stock, par value $0.001 per Share (the "Common Stock"), of the
------------
Company, as set forth opposite his name in column A on Annex I hereto, and the
holder of Stock Options (as such term is defined in the Merger Agreement), as
set forth opposite his name in column B on Annex I hereto; and
WHEREAS, Purchaser, the Company and Acquisition Sub concurrently
herewith are entering into the Merger Agreement, which provides, among other
things, (i) for a recapitalization of the Company involving Purchaser, (ii) for
a cash tender offer (the "Offer") to be made by the Company for up to the number
-----
of Shares equal to the Tender Offer Number, including the associated preferred
stock purchase rights, for the Per Share Amount (as such terms are defined in
the Merger Agreement) and (iii) for the merger, if necessary (the "Merger") of
------
Acquisition Sub with and into the Company following consummation of the Offer
and upon the terms and subject to the conditions set forth in the Merger
Agreement; and
<PAGE>
WHEREAS, the parties to the Merger Agreement intend that the
acquisition be treated as a recapitalization for financial accounting purposes;
and
WHEREAS, as a condition to the willingness of Purchaser to enter into
the Merger Agreement, and in order to induce Purchaser to enter into the Merger
Agreement, the Management Stockholders have agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the execution and delivery by
Purchaser of the Merger Agreement and the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein and
therein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Representations and Warranties of the Management
------------------------------------------------
Stockholders. Each of the Management Stockholders hereby represents and
- ------------
warrants, to Purchaser as follows:
(a) Such Management Stockholder is the record and beneficial
owner of the number of Shares of Common Stock set forth opposite his name in
column A on Annex I hereto, and the holder of Stock Options as set forth
opposite his name in Column B on Annex I hereto (in each case, as may be
adjusted from time to time pursuant to Section 5 hereof).
(b) Such Management Stockholder has the legal capacity to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby.
(c) This Agreement has been validly executed and delivered by
such Management Stockholder and constitutes the legal, valid and binding
obligation of such Management Stockholder, enforceable against such Management
Stockholder in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, and (ii) the
availability of the remedy of specific performance or injunctive or other forms
of equitable relief may be subject to equitable defenses and
2
<PAGE>
would be subject to the discretion of the court before which any proceeding
therefor may be brought.
(d) Neither the execution and delivery of this Agreement nor
the consummation by such Management Stockholder of the transactions contemplated
hereby will violate any other agreement to which such Management Stockholder is
a party.
(e) The Shares (including the Management Option Shares as
defined in Section 3 below) and the certificates representing such Shares are
now (or upon issuance will be) and at all subsequent times during the term
hereof will be held by such Management Stockholder, or by a nominee or custodian
for the benefit of such Management Stockholder, free and clear of all Liens,
proxies, voting trusts or agreements, understandings or arrangements or any
other encumbrances whatsoever, except for any such encumbrances or proxies
arising hereunder.
SECTION 2. Representations and Warranties of Purchaser. Purchaser
-------------------------------------------
hereby represents and warrants to the Management Stockholders as follows:
(a) Purchaser is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware,
has all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby, and has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Agreement.
(b) This Agreement has been duly authorized, executed and
delivered by Purchaser and constitutes the legal, valid and binding obligation
of Purchaser, enforceable against Purchaser in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally and (ii) the availability of the remedy of specific
performance or injunctive or other forms of equitable relief may be subject to
equitable defenses and would be subject to the discretion of the court before
which any proceeding therefor may be brought.
3
<PAGE>
(c) Neither the execution and delivery of this Agreement nor
the consummation by Purchaser of the transactions contemplated hereby will
result in a violation of, or a default under, or conflict with, any contract,
trust, commitment, agreement, understanding, arrangement or restriction of any
kind to which Purchaser is a party or bound. The consummation by Purchaser of
the transactions contemplated hereby will not violate, or require any consent,
approval, or notice under, any provision of any judgment, order, decree,
statute, law, rule or regulation applicable to Purchaser, except for any
necessary filing under the HSR Act or state takeover laws.
SECTION 3. Exercise of Stock Options; Tender of Shares. Each of the
-------------------------------------------
Management Stockholders hereby agrees as follows:
(a) Not later than immediately prior to consummation of the
Offer, each Management Stockholder shall exercise (or shall be deemed to have
exercised) his Stock Options as set forth on Annex I hereto pursuant to a
cashless exercise procedure whereby that number of Shares set forth in Column C
of Annex I hereto shall be issued by the Company to such Management Stockholder
(individually and collectively, the "Management Option Shares"). The number of
------------------------
Shares so issuable shall be determined by (i) multiplying (x) the number of
Shares subject to each Stock Option so exercised by (y) the excess, if any, of
the Per Share Amount over the per Share exercise price of such Stock Option,
(ii) dividing such product by the Per Share Amount, and (iii) rounding down to
the nearest whole Share. With respect to any Stock Option not so exercised,
each Management Stockholder agrees and consents to the cancellation of such
Stock Option in exchange for certain consideration as set forth in Section 4.9
of the Merger Agreement.
(b) Each Management Stockholder shall not tender into the Offer the
number of Shares set forth opposite his name in Column D of Annex I hereto.
(c) Each Management Stockholder shall tender into the Offer all
remaining Shares set forth on Annex I as being owned by or issuable to such
Management Stockholder, including all of his Management Option Shares (the
result of the foregoing being that the number
4
<PAGE>
of Shares so tendered shall be equal to the amount in Column A plus the amount
in Column C, less the amount in Column D).
SECTION 4. Transfer of the Shares. Prior to the termination of this
----------------------
Agreement, except as otherwise provided herein, none of the Management
Stockholders shall: (i) transfer (which term shall include, without limitation,
for the purposes of this Agreement, any sale, gift, pledge or other
disposition), or consent to any transfer of, any or all of the Shares; (ii)
enter into any contract, option or other agreement or understanding with respect
to any transfer of any or all of the Shares or any interest therein; (iii) grant
any proxy, power-of-attorney or other authorization or consent in or with
respect to the Shares; (iv) deposit the Shares into a voting trust or enter into
a voting agreement or arrangement with respect to the Shares or (v) take any
other action that would in any way restrict, limit or interfere with the
performance of such Management Stockholder's obligations hereunder or the
transactions contemplated hereby.
SECTION 5. Certain Events. In the event of any stock split, stock
--------------
dividend, merger, reorganization, recapitalization or other change in the
capital structure of the Company affecting the Common Stock or the acquisition
of additional shares of Common Stock or other securities or rights of the
Company by any of the Management Stockholders, the number of Shares shall be
adjusted appropriately, and this Agreement and the obligations hereunder shall
attach to any additional shares of Common Stock or other securities or rights of
the Company issued to or acquired by such Management Stockholder.
SECTION 6. Certain Other Agreements.
------------------------
(a) Each of the Management Stockholders hereby agrees to
comply with and be bound by the provisions of Section 8.2 of the Merger
Agreement as an officer, director, employee or agent of the Company, as the case
may be.
(b) Prior to consummation of the Offer, each of the Management
Stockholders and Purchaser agrees to use their good faith to negotiate and enter
into arrangements with respect to the Shares that will be
5
<PAGE>
retained by such Management Stockholders following the consummation of the
Transactions, substantially in accordance with the terms and conditions set
forth in Exhibit A hereto.
SECTION 7. Further Assurances; Management Stockholder Capacity.
---------------------------------------------------
Each of the Management Stockholders shall, upon request of Purchaser, execute
and deliver any additional documents and take such further actions as may
reasonably be deemed by Purchaser to be necessary or desirable to carry out the
provisions hereof.
SECTION 8. Termination. This Agreement, and all rights and
-----------
obligations of the parties hereunder, shall terminate immediately upon the
earlier of (a) the date (the "Termination Date") that is six months following
----------------
the date upon which the Merger Agreement is terminated in accordance with its
terms or (b) the consummation of the last to occur of any of the Transactions
(as such term is defined in the Merger Agreement); provided, however, that (i)
-------- -------
Section 7 and Section 9 shall survive any termination of this Agreement.
SECTION 9. Expenses. All fees and expenses incurred by any one
--------
party hereto shall be borne by the party incurring such fees and expenses.
SECTION 10. Public Announcements. Each of Purchaser and the
--------------------
Management Stockholders agrees that it will not issue any press release or
otherwise make any public statement with respect to this Agreement or the
transactions contemplated hereby without the prior consent of the other
parties, which consent shall not be unreasonably withheld or delayed; provided,
--------
however, that such disclosure can be made without obtaining such prior consent
- -------
if (i) the disclosure is required by law or by obligations imposed pursuant to
any listing agreement with the Nasdaq National Market and (ii) the party making
such disclosure has first used its best efforts to consult with the other
parties about the form and substance of such disclosure.
6
<PAGE>
SECTION 11. Miscellaneous.
-------------
(a) All notices and other communications hereunder shall be in
writing and shall be deemed given upon (i) transmitter's confirmation of a
receipt of a facsimile transmission, (ii) confirmed delivery by a standard
overnight carrier or when delivered by hand or (iii) the expiration of five (5)
business days after the day when mailed in the United States by certified or
registered mail, postage prepaid, addressed at the following addresses (or at
such other address for a party as shall be specified by like notice):
(i) if to the Purchaser or Acquisition Sub, to:
Fremont Acquisition Company, LLC
c/o Fremont Partners, L.P.
50 Fremont Street, Suite 3700
San Francisco, California 94105
Attention: Mark N. Williamson and
Kevin R. Baker
Facsimile: (415) 284-8191
With a copy to:
Skadden,Arps,Slate,Meagher & Flom LLP
Four Embarcadero Center, Suite 3800
San Francisco, California 94111
Attention: Kenton J. King, Esq.
Facsimile: (415) 984-2698
and
(ii) if to any of Management Stockholders, to the address set
forth on signature pages hereto,
With a copy to:
7
<PAGE>
Gibson, Dunn & Crutcher, LLP
4 Park Plaza
Irvine, CA 92614
Attention: Thomas D. Magill, Esq.
Facsimile Number: (949) 475-4648
(b) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(c) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall be considered one
and the same agreement.
(d) This Agreement (including the Merger Agreement and any other
documents and instruments referred to herein) constitutes the entire
agreement, and supersedes all prior agreements and understandings, whether
written and oral, among the parties hereto with respect to the subject matter
hereof.
(e) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware without giving effect to the principles
of conflicts of laws thereof.
(f) Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by, the parties and their
respective successors and assigns, and the provisions of this Agreement are
not intended to confer any rights or remedies hereunder upon any person other
than the parties hereto and their respective successors and assigns.
(g) If any term, provision, covenant or restriction herein is held by
a court of competent jurisdiction or other authority to be invalid, void or
unenforceable or against its regulatory policy, the remainder of the terms,
provisions, covenants and restrictions of
8
<PAGE>
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
(h) Each of the parties hereto acknowledges and agrees that in the
event of any breach of this Agreement, each non-breaching party would be
irreparably and immediately harmed and could not be made whole by monetary
damages. It is accordingly agreed that the parties hereto (i) will waive, in any
action for specific performance, the defense of adequacy of a remedy at law and
(ii) shall be entitled, in addition to any other remedy to which they may be
entitled at law or in equity, to compel specific performance of this Agreement
in any action instituted in any state or federal court sitting in Wilmington,
Delaware.
(i) No amendment, modification or waiver in respect of this Agreement
shall be effective against any party unless it shall be in writing and signed by
such party.
(j) The obligations of each of the Management Stockholders pursuant
to this Agreement shall be several, not joint.
9
<PAGE>
IN WITNESS WHEREOF, Purchaser and each of the Management Stockholders
has caused this Agreement to be duly executed and delivered as of the date first
written above.
FREMONT ACQUISITION COMPANY III, LLC
By
---------------------------------
Name:
Title:
-----------------------------------
Joseph Piazza
Address:
-----------------------------------
-----------------------------------
-----------------------------------
James J. Kelly, Jr.
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Lionel M. Allan
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Joseph F. Keenan
Address:
-----------------------------------
-----------------------------------
<PAGE>
-----------------------------------
R. Steven Fisk
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Joseph P. Piazza, Jr.
Address:
-----------------------------------
-----------------------------------
-----------------------------------
David Clark
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Lee Katsuda
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Frances Mora
Address:
-----------------------------------
-----------------------------------
<PAGE>
-----------------------------------
Dennis Navarra
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Rick Saunders
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Audy Sisk
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Nate Stewart
Address:
-----------------------------------
-----------------------------------
<PAGE>
ANNEX I.
Ownership of Company Common Stock
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
A B C D
(1) Number
of Shares
Subject to
Outstanding
Stock
Number of Options,
Shares Owned and (2)
(Excluding Exercise Net Number of
Shares Price (List Shares to Be
Issuable upon each option Issued upon Number of
the Exercise grant on Cashless Shares Not to
of Stock separate Exercise of Be Tendered in
Options) line) Stock Options the Offer
----------------
(1) (2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Joseph Piazza 0 * * 13,000 13,000
- -------------------------------------------------------------------------------------------------------------
2. James J. Kelly, Jr. 3,897 * * 16,103 20,000
- -------------------------------------------------------------------------------------------------------------
3. Lionel M. Allan 6,500 0 6,500
- -------------------------------------------------------------------------------------------------------------
4. Joseph F. Keenan 2,500 * * 7,500 10,000
- -------------------------------------------------------------------------------------------------------------
5. R. Steven Fisk 14,694 * * 5,306 20,000
- -------------------------------------------------------------------------------------------------------------
6. Joseph P. Piazza, Jr. 0 * * 1,579 1,579
- -------------------------------------------------------------------------------------------------------------
7. David Clark 7,500 * * 7,500
- -------------------------------------------------------------------------------------------------------------
8. Lee Katsuda 0 * * 600 600
- -------------------------------------------------------------------------------------------------------------
9. Frances Mora 13 * * 487 500
- -------------------------------------------------------------------------------------------------------------
10. Dennis Navarra 684 * * 5,316 6,000
- -------------------------------------------------------------------------------------------------------------
11. Audy Sisk 0 * * 1,000 1,000
- -------------------------------------------------------------------------------------------------------------
12. Nate Stewart 0 * * 300 300
- -------------------------------------------------------------------------------------------------------------
13. Rick Saunders 0 * * 1,000 1,000
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* See attached
<PAGE>
EXHIBIT A
PUT/CALL
ARRANGEMENTS
As a means to provide liquidity to management upon any separation from
the Company, the Company will enter into agreements with management providing
for the following:
<TABLE>
<S> <C>
Put/Call Rights In the event of a termination of the
executive's service for any reason
prior to an initial public offering
of the Company's common stock, all
shares and options owned by the
executive will be subject to a put
right exercisable by the executive
and a call right exercisable by the
Company in each case within 90 days
of the relevant termination date.
Purchase Price
a. On or Prior to the First If a termination of an executive's
Anniversary service occurs on or prior to the
first anniversary of the closing of
the acquisition (the "Closing"), then
the price per share paid upon the
exercise of a put right or a call
right will be $21.75 (less the
exercise price in the case of a put
or a call of an option).
b. After the First If a termination of an executive's
Anniversary but Prior to the service occurs after the first
Third Anniversary Other than anniversary of the Closing but prior
as a Consequence of An to the third anniversary and was a
Involuntary Termination result of executive's resignation or
executive's termination for cause by
the Company, then the price per share
paid upon exercise of a put right or
call right will be the lesser of (x)
$21.75 plus 7% compounded annually
from the Closing or (y) fair market
value as determined in good faith by
the Board based upon the enterprise
value of the Company divided by its
fully diluted shares outstanding
("Fair Market Value") (less the
exercise price in the case of a put
or call of an option).
c. On or After the Third If a termination of an executive's
Anniversary or as a service occurs after the first
Consequence of an anniversary of the Closing and was a
Involuntary Termination consequence of death, permanent
</TABLE>
<PAGE>
<TABLE>
<S> <C>
After the First disability or a termination
Anniversary by the Company other than for cause
or occurs for any reason on or after
the third anniversary of the
Closing, then the price per share
paid upon the exercise of a put
right or call right will be Fair
Market Value (less the exercise
price in the case of a put or call
of an option).
</TABLE>
<PAGE>
EXHIBIT (c)(3)
April 8, 1998
PRIVATE AND CONFIDENTIAL
- ------------------------
Mr. Mark Williamson
Fremont Partners
Fifty Fremont Street, Suite 3700
San Francisco, CA 94105-1895
Attn: Mark
THIS MUTUAL CONFIDENTIALITY AGREEMENT is by and between Global Motorsport
Group, Inc., a Delaware corporation ("Global") and Fremont Partners (the
"Company"). References herein to Global or the Company shall refer to Global
and the Company and their respective subsidiaries or affiliates controlled by
Global or the Company.
WHEREAS, Global and the Company desire to disclose to each other certain
confidential and proprietary information relating to their respective businesses
for the purpose of facilitating discussion of a potential business transaction;
and
WHEREAS, both parties acknowledge the need to protect the confidentiality
of such information.
NOW, THEREFORE, in consideration of the foregoing, the parties hereby agree
as follows:
1. As used herein the term "Confidential Information" shall mean any
and all data and information relating to the business of the disclosing
party that is disclosed to the other party pursuant to this Agreement.
Confidential Information shall not include information that: (a) is now,
or hereafter becomes, through no act or failure to act on the part of
the receiving party, generally known or available to the public; (b) is
rightfully known by the receiving party at the time of receiving such
information; (c) is furnished to others by the disclosing party without
restriction on disclosure; (d) is hereafter rightfully furnished to the
receiving party by a third party without any breach of any
confidentiality obligation to the other party; (e) is independently
developed by the receiving party without any breach of this Agreement;
or (f) is required to be disclosed by the receiving party by judicial
action after all reasonably available legal remedies (pursued at the
expense of the disclosing party) to maintain the confidentiality of such
information have been exhausted. Subject to the second sentence of this
paragraph, Confidential Information may include information disclosed to
Global or the Company by a third party, including Global's financial
advisor, and information disclosed to the receiving party that is
confidential information of an affiliate of the disclosing party.
Subject to the second sentence of this paragraph, Confidential
Information also includes the fact that discussions are or negotiations
are taking place concerning a potential transaction and any of the
terms, conditions or other facts with respect to any such potential
transaction.
Both Global and the Company further acknowledge that certain of the Confidential
Information may be "Insider Information" with respect to one or more of the
involved parties. Both Global and the Company are therefore subject to Rule
10b-5 under the Securities Exchange Act of 1934 with respect to such
information. Disclosing certain non-public information to any other person or
trading in the stock of any company described
<PAGE>
Fremont Partners
April 8, 1998
Page 2
in the Confidential Information while this information remains non-public may be
a violation of the Rule and could subject Global or the Company to the penalties
provided under the Act.
2. Each party hereto may use the other party's Confidential Information
only for purposes of analyzing and discussing the proposed transaction.
Each party further agrees that the Confidential Information will not be
used to enhance, better, develop, perfect or improve any products now
produced by the receiving party or to be produced by the receiving
party in the future, whether or not such products are competitive with
those products produced by the disclosing party as of the date hereof.
Each party further agrees not to engage in any reverse engineering of
the Confidential Information. Each party shall use the same care and
discretion, but in no event less than reasonable care and discretion,
to prevent disclosure, publication, or dissemination of the other
party's Confidential Information as it employs with similar information
of its own. Disclosure by each party hereto of the Confidential
Information of the other party may be made only to employees, agents or
independent contractors of the receiving party who are directly
involved in consideration of the proposed transaction that is the
subject of this Agreement, and who have a specific need to know such
information, and have obligated themselves to hold such Confidential
Information in trust and confidence or otherwise to comply with the
terms of this Agreement. Global and the Company agree upon request by
the other party hereto, to promptly furnish to the requesting party a
certified list of the receiving party's employees, agents and
independent contractors having had access to such Confidential
Information.
3. Within ten (10) days following the receipt of a written request
referencing this Agreement from either party hereto, the other party will
deliver to the requesting party all materials relating to the Confidential
Information received from the requesting party. At the same time, the other
party also agrees to destroy its work product which relates to the Confidential
Information; provided, however, such party may retain one copy of any derivative
materials to the extent necessary for corporate record keeping purposes, but
such derivative materials shall remain subject to the terms of this Agreement.
4. The Company agrees that for a period of two years from the date of this
letter agreement, neither the Company nor any of its affiliates will, unless
invited (on an unsolicited basis) by the Board of Directors of Global in
writing: (i) acquire, offer or propose to acquire, or agree or seek to acquire,
directly or indirectly, by purchase or otherwise, any securities or direct or
indirect rights or options to acquire any securities of Global or any subsidiary
thereof, or of any successor to or person in control of Global, or any assets of
Global or any subsidiary or division thereof or of any such successor or
controlling person; (ii) enter into or agree, offer, propose or seek to enter
into, or otherwise be involved in or part of, directly or indirectly, any
acquisition transaction or other business combination relating to all or part of
Global or its subsidiaries or any acquisition transaction for all or part of the
assets of Global or any subsidiary of Global or any of its respective
businesses; (iii) make, or in any way participate in, directly or indirectly,
any "solicitation" of "proxies" (as such terms are used in the rules of the
Securities and Exchange Commission) to vote, or seek to advise or influence any
person or entity with respect to the voting of, any voting securities of Global;
(iv) form, join or in any way participate in a "group" (within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934) with respect to any
voting securities of Global or any of its subsidiaries; (v) seek or propose,
alone or in concert with others, to influence or control Global's management or
policies; (vi) directly or indirectly enter into any discussions, negotiations,
arrangements or understandings with any other person with respect to any of the
foregoing
<PAGE>
Fremont Partners
April 8, 1998
Page 3
activities or propose any of such activities to any other person; (vii) advise,
assist, encourage, act as a financing source for or otherwise invest in any
other person in connection with any of the foregoing activities; or (viii)
disclose any intention, plan or arrangement inconsistent with any of the
foregoing. The Company also agrees that, during the two-year period referred to
in the preceding sentence, neither the Company nor any of its affiliates will:
(i) request Global or its advisors, directly or indirectly, to (1) amend or
waive any provision of this paragraph (including this sentence) or (2) otherwise
consent to any action inconsistent with any provision of this paragraph
(including this sentence); or (ii) without the consent of Global take any
initiative with respect to Global or any of its subsidiaries which could require
Global to make a public announcement regarding (1) such initiative, (2) any of
the activities referred to in the preceding sentence, (3) the possibility of a
transaction or (4) the possibility of the Company or any other person acquiring
control of Global, whether by means of a business combination or otherwise.
Notwithstanding anything to the contrary contained in this Agreement, the above
restrictions shall not apply to (i) the securities of Global held or purchased
by Fremont Investment Advisors, Inc. or Fremont Mutual Funds, Inc.; provided,
however, that the Company has not disclosed any Confidential Information to such
parties; and/or (ii) ordinary brokerage or trading transactions by a securities
dealer or a transaction entered into on the Company's behalf by a third person
or entity without the Company's specific consent (e.g., by investment advisors
with investment discretion).
5. Each party hereby acknowledges and agrees that in the event of any
breach of this Agreement by the other party, including, without
limitation, the actual or threatened disclosure of a disclosing party's
Confidential Information in violation of this Agreement without the
express prior written consent of the disclosing party, the disclosing
party will suffer irreparable harm and injury and no remedy at law will
afford it adequate protection against, or appropriate compensation for,
such injury. Accordingly, each party hereby agrees that in any such
event the other party shall be entitled to specific performance of a
receiving party's obligations under this Agreement, as well as such
further injunctive relief or other remedies available at law or in
equity as may be granted by a court competent jurisdiction. A receiving
party agrees to reimburse a disclosing party for all reasonable costs
and expenses (including attorneys' fees) incurred by the disclosing
party in successfully enforcing the receiving party's obligations under
this Agreement.
6. This Agreement will continue in full force and effect for so long as
the parties continue to exchange Confidential Information and for a period of
two years thereafter and obligations with respect to legally protectable trade
secrets and other similar confidential information which shall survive
indefinitely. Both Global and the Company agree that as long as the parties
continue to exchange Confidential Information and for a period of two years
thereafter neither party will, without the prior written consent of the other
party, directly or indirectly, solicit to hire (or seek to cause to leave the
employ of the other party): (i) any officer employed by the other party; or
(ii) any other employee employed by the other party with whom the "hiring" party
has contact with or who (or whose performance) became known to that party in
connection with the process contemplated by this Agreement.
7. Both parties understand and acknowledge that neither party to this
Agreement nor any officers, directors, employees, representatives or agents of
either party is making any representation or warranty, express or implied, as to
the accuracy or completeness of the Confidential Information and neither party
to this Agreement nor any officers, directors, employees, representatives or
agents of either party will have any liability to the other party or any other
person resulting from either party use of the Confidential Information. Only
those representations or warranties that are made in a definitive agreement
regarding a transaction (a
<PAGE>
Fremont Partners
April 8, 1998
Page 4
"Definitive Agreement") when, as, and if executed, and subject to such
limitations and restrictions as may be specified in such Definitive Agreement,
will have any legal effect. The term "Definitive Agreement" does not include an
executed letter of intent or any other preliminary written agreement, nor does
it include any written or oral acceptance of any offer or bid on either parties
part.
8. Each party hereby acknowledges that the other party may now market or
have under development products or services that are competitive with
products or services now offered or that may in the future be offered
by the other party, and the parties' communications hereunder will not
serve to impair the right of either party to independently develop,
make, use, procure, or market products or services now or in the future
that may be competitive with those offered by the other, nor require
either party to disclose any planning or other information to the
other, so long as such actions are not in breach of this Agreement.
9. This Agreement and the rights and obligations of the parties under this
Agreement may be assigned only upon the prior written approval of the
parties hereto. The rights and obligations of the parties hereto will
inure to the benefit of, will be binding upon, and will be enforceable
by the parties hereto and their respective stockholders and permitted
successors and assigns.
10. No modifications of this Agreement or waiver of any of its terms will
be effective unless set forth in writing signed by the party against
whom it is sought to be enforced. This Agreement shall terminate two
years after the date hereof.
11. This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
Very truly yours,
GLOBAL MOTORSPORT GROUP, INC.
BY: CLEARY GULL REILAND & MCDEVITT INC., ITS AGENT
By: ______________________________
David P. Prokupek
Chief Executive Officer
Accepted and agreed as of the
date first above written.
By:
--------------------------
Name:
------------------------
<PAGE>
Fremont Partners
April 8, 1998
Page 5
Title:
------------------------
<PAGE>
EXHIBIT (c)(4)
CUSTOM CHROME, INC.
AND
AMERICAN STOCK TRANSFER AND TRUST COMPANY
RIGHTS AGENT
PREFERRED SHARES RIGHTS AGREEMENT
DATED AS OF NOVEMBER 13, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 1. Certain Definitions................................................................ 1
Section 2. Appointment of Rights Agent........................................................ 7
Section 3. Issuance of Rights Certificates.................................................... 7
Section 4. Form of Rights Certificates........................................................ 9
Section 5. Countersignature and Registration.................................................. 10
Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates........................... 10
Section 7. Exercise of Rights; Exercise Price; Expiration Date of Rights...................... 11
Section 8. Cancellation and Destruction of Rights Certificates................................ 13
Section 9. Reservation and Availability of Preferred Shares................................... 13
Section 10. Preferred Shares Record Date....................................................... 14
Section 11. Adjustment of Exercise Price, Number of Shares or Number of Rights................. 15
Section 12. Certificate of Adjusted Exercise Price or Number of Shares......................... 21
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power............... 21
Section 14. Fractional Rights and Fractional Shares............................................ 25
Section 15. Rights of Action................................................................... 26
Section 16. Agreement of Rights Holders........................................................ 26
Section 17. Rights Certificate Holder Not Deemed a Stockholder................................. 27
Section 18. Concerning the Rights Agent........................................................ 27
Section 19. Merger or Consolidation or Change of Name of Rights Agent.......................... 28
Section 20. Duties of Rights Agent............................................................. 28
Section 21. Change of Rights Agent............................................................. 30
Section 22. Issuance of New Rights Certificates................................................ 31
</TABLE>
-i-
<PAGE>
TABLE of CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 23. Redemption............................................................. 31
Section 24. Exchange............................................................... 32
Section 25. Notice of Certain Events............................................... 34
Section 26. Notices................................................................ 34
Section 27. Supplements and Amendments............................................. 35
Section 28. Successors............................................................. 35
Section 29. Determinations and Actions by the Board of Directors, etc.............. 35
Section 30. Benefits of this Agreement............................................. 36
Section 31. Severability........................................................... 36
Section 32. Governing Law.......................................................... 36
Section 33. Counterparts........................................................... 36
Section 34. Descriptive Headings................................................... 36
EXHIBITS
Exhibit A Form of Certificate of Designation
Exhibit B Form of Rights Certificate
Exhibit C Summary of Rights
</TABLE>
3
<PAGE>
RIGHTS AGREEMENT
Agreement, dated as of November 13, 1996, between Custom Chrome, Inc., a
Delaware corporation (the "COMPANY"), and American Stock Transfer and Trust
-------
Company.
On November 13, 1996 (the "RIGHTS DIVIDEND DECLARATION DATE"), the Board of
--------------------------------
Directors of the Company authorized and declared a dividend of one Preferred
Share Purchase Right (a "RIGHT") for each Common Share (as hereinafter defined)
of the Company outstanding as of the Close of Business (as hereinafter defined)
on December 13, 1996 (the "RECORD DATE"), each Right representing the right to
-----------
purchase one one-thousandth of a share of Series A Participating Preferred Stock
(as such number may be adjusted pursuant to the provisions of this Agreement),
having the rights, preferences and privileges set forth in the form of
Certificate of Designations of Rights, Preferences and Privileges of Series A
Participating Preferred Stock attached hereto as Exhibit A, upon the terms and
subject to the conditions herein set forth, and further authorized and directed
the issuance of one Right (as such number may be adjusted pursuant to the
provisions of this Agreement) with respect to each Common Share that shall
become outstanding between the Record Date and the earlier of the Distribution
Date and the Expiration Date (as such terms are hereinafter defined), and in
certain circumstances after the Distribution Date.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
-------------------
following terms have the meanings indicated:
(a) "ACQUIRING PERSON" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial Owner
of 15% or more of the Common Shares then outstanding, but shall not include the
Company, any Subsidiary of the Company or any employee benefit plan of the
Company or of any Subsidiary of the Company, or any entity holding Common Shares
for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no
Person shall be deemed to be an Acquiring Person as the result of an acquisition
of Common Shares by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares beneficially owned by
such Person to 15% or more of the Common Shares of the Company then outstanding;
provided, however, that if a Person shall become the Beneficial Owner of 15% or
more of the Common Shares of the Company then outstanding by reason of share
purchases by the Company and shall, after such share purchases by the Company,
become the Beneficial Owner of any additional Common Shares of the Company
(other than pursuant to a dividend or distribution paid or made by the Company
on the outstanding Common Shares in Common Shares or pursuant to a split or
subdivision of the outstanding Common Shares), then such Person shall be deemed
to be an Acquiring Person unless upon becoming the Beneficial Owner of such
additional Common Shares of the Company such Person does not beneficially own
15% or more of the Common Shares of the Company then out standing.
Notwithstanding the foregoing, (i) if a majority of the Continuing Directors
then in office determines in good faith that a Person who would otherwise be an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
paragraph (a), has become such inadvertently (including, without limitation,
4
<PAGE>
because (A) such Person was unaware that it beneficially owned a percentage of
the Common Shares that would otherwise cause such Person to be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph (a),
or (B) such Person was aware of the extent of the Common Shares it beneficially
owned but had no actual knowledge of the consequences of such beneficial
ownership under this Agreement) and without any intention of changing or
influencing control of the Company, and if such Person divested or divests as
promptly as practicable a sufficient number of Common Shares so that such Person
would no longer be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this paragraph (a), then such Person shall not be deemed to be or
to have become an "Acquiring Person" for any purposes of this Agreement; and
(ii) if, as of the date hereof, any Person is the Beneficial Owner of 15% or
more of the Common Shares outstanding, such Person shall not be or become an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
paragraph (a), unless and until such time as such Person shall become the
Beneficial Owner of additional Common Shares (other than pursuant to a dividend
or distribution paid or made by the Company on the outstanding Common Shares in
Common Shares or pursuant to a split or subdivision of the outstanding Common
Shares), unless, upon becoming the Beneficial Owner of such additional Common
Shares, such Person is not then the Beneficial Owner of 15% or more of the
Common Shares then outstanding.
(b) "ADJUSTMENT FRACTION" shall have the meaning set forth in
-------------------
Section 11(a)(i) hereof.
(c) "AFFILIATE" and "ASSOCIATE" shall have the respective meanings
--------- ---------
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on the date of this Agreement.
(d) A Person shall be deemed the "BENEFICIAL OWNER" of and shall be
----------------
deemed to "BENEFICIALLY OWN" any securities:
----------------
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, for purposes of Section
13(d) of the Exchange Act and Rule 13d-3 thereunder (or any comparable or
successor law or regulation);
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and
between underwriters and selling group members with respect to a bona fide
public offering of securities), or upon the exercise of conversion rights,
exchange rights, rights (other than the Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed pursuant to
-------- -------
this Section 1(e)(ii)(A) to be the Beneficial Owner of, or to beneficially
own, (1) securities tendered pursuant to a tender or exchange offer made by
or on behalf of such Person or any of such Person's Affiliates or Associates
until such tendered securities are accepted for purchase or exchange, or (2)
securities which a Person or any of such Person's Affiliates or Associates
may be deemed to have the right to acquire pursuant to any merger or other
acquisition agreement between the Company and such Person (or one or more of
its Affiliates or Associates) if such agreement has been approved by the
Board of Directors of the Company prior to there being an Acquiring Person;
or (B) the right to vote pursuant to any
5
<PAGE>
agreement, arrangement or understanding; provided, however, that a Person
-------- -------
shall not be deemed the Beneficial Owner of, or to beneficially own, any
security under this Section 1(e)(ii)(B) if the agreement, arrangement or
understanding to vote such security (1) arises solely from a revocable proxy
or consent given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules
and regulations of the Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor report);
or
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which such
Person or any of such Person's Affiliates or Associates has any agreement,
arrangement or understanding, whether or not in writing (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities) for the purpose of
acquiring, holding, voting (except to the extent contemplated by the provison
to Section 1(e)(ii)(B)) or disposing of any securities of the Company;
provided, however, that in no case shall an officer or director of the
-------- -------
Company be deemed (x) the Beneficial Owner of any securities beneficially
owned by another officer or director of the Company solely by reason of
actions undertaken by such persons in their capacity as officers or directors
of the Company or (y) the Beneficial Owner of securities held of record by
the trustee of any employee benefit plan of the Company or any Subsidiary of
the Company for the benefit of any employee of the Company or any Subsidiary
of the Company, other than the officer or director, by reason of any
influence that such officer or director may have over the voting of the
securities held in the plan.
(e) "BUSINESS DAY" shall mean any day other than a Saturday, Sunday
------------
or a day on which banking institutions in New York are authorized or obligated
by law or executive order to close.
(f) "CLOSE OF BUSINESS" on any given date shall mean 5:00 P.M., New
-----------------
York time, on such date; provided, however, that if such date is not a Business
-------- -------
Day it shall mean 5:00 P.M., New York time, on the next succeeding Business Day.
(g) "COMMON SHARES" when used with reference to the Company shall
-------------
mean the shares of Common Stock of the Company, $.001 par value. Common Shares
when used with reference to any Person other than the Company shall mean the
capital stock (or equity interest) with the greatest voting power of such other
Person or, if such other Person is a Subsidiary of another Person, the Person
or Persons which ultimately control such first-mentioned Person.
(h) "COMMON STOCK EQUIVALENTS" shall have the meaning set forth in
------------------------
Section 11(a)(iii) hereof.
(i) "COMPANY" shall mean Custom Chrome, Inc., a Delaware
-------
corporation, subject to the terms of Section 13(a)(iii)(C) hereof.
(j) "CONTINUING DIRECTOR" shall mean (i) any member of the Board of
-------------------
6
<PAGE>
Directors of the Company who, while a member of the Board, is not an Acquiring
Person, or an Affiliate or Associate
7
<PAGE>
of an Acquiring Person, or a representative of an Acquiring Person or of any
such Affiliate or Associate, and who was a member of the Board prior to there
being an Acquiring Person, and (ii) any Person who subsequently becomes a member
of the Board and who, while a member of the Board, is not an Acquiring Person,
or an Affiliate or Associate of an Acquiring Person, or a representative of an
Acquiring Person or of any such Affiliate or Associate, if such Person's
nomination for election or election to the Board is recommended or approved by a
majority of the Continuing Directors.
(k) "CURRENT PER SHARE MARKET PRICE" on any security (a "Security"
------------------------------
for purposes of this definition), for all computations other than those made
pursuant to Section 11(a)(iii) hereof, shall mean the average of the daily
closing prices per share of such Security for the thirty (30) consecutive
Trading Days immediately prior to such date, and for purposes of computations
made pursuant to Section 11(a)(iii) hereof, the Current Per Share Market Price
of any Security on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the ten (10) consecutive Trading
Days immediately prior to such date; provided, however, that in the event that
-------- -------
the Current Per Share Market Price of the Security is determined during a period
following the announcement by the issuer of such Security of (i) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares or (ii) any subdivision, combination or
reclassification of such Security, and prior to the expiration of the applicable
thirty (30) Trading Day or ten (10) Trading Day period, after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the Current Per
Share Market Price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last sale price or, if such last sale price is not reported, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by Nasdaq or such other system then in use, or, if on any such date the
Security is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Security selected by the Board of Directors of the Company. If on any such
date no market maker is making a market in the Security, the fair value of such
shares on such date as determined in good faith by the Board of Directors of the
Company shall be used. If the Preferred Shares are not publicly traded, the
Current Per Share Market Price of the Preferred Shares shall be conclusively
deemed to be the Current Per Share Market Price of the Common Shares as
determined pursuant to this Section 1(k), as appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after the date
hereof, multiplied by 1000. If the Security is not publicly held or so listed or
traded, Current Per Share Market Price shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.
(l) "CURRENT VALUE" shall have the meaning set forth in Section
-------------
11(a)(iii) hereof.
8
<PAGE>
(m) "DISTRIBUTION DATE" shall mean the earlier of (i) the Close of
-----------------
Business on the tenth day (or such later date as may be determined by action of
a majority of Continuing Directors then in office) after the Shares Acquisition
Date (or, if the tenth day after the Shares Acquisition Date occurs before the
Record Date, the Close of Business on the Record Date) or (ii) the Close of
Business on the tenth Business Day (or such later date as may be determined by
action of a majority of Continuing Directors then in office) after the date that
a tender or exchange offer by any Person (other than the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, or any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan) is first published or
sent or given within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act, if, assuming the successful consummation
thereof, such Person would be an Acquiring Person.
(n) "EQUIVALENT SHARES" shall mean Preferred Shares and any other
-----------------
class or series of capital stock of the Company which is entitled to the same
rights, privileges and preferences as the Preferred Shares.
(o) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
------------
as amended.
(p) "EXCHANGE RATIO" shall have the meaning set forth in Section
--------------
24 hereof.
(q) "EXERCISE PRICE" shall have the meaning set forth in Section 4
--------------
hereof.
(r) "EXPIRATION DATE" shall mean the earliest of (i) the Close of
---------------
Business on the Final Expiration Date, (ii) the Redemption Date, (iii)
consummation of any transaction contemplated by Section 13(f) hereof, or (iv)
the time at which the Board of Directors orders the exchange of the Rights as
provided in Section 24 hereof.
(s) "FINAL EXPIRATION DATE" shall mean November 13, 2006.
---------------------
(t) "NASDAQ" shall mean the National Association of Securities
------
Dealers, Inc. Automated Quotations System.
(u) "PERMITTED OFFER" shall mean a tender offer for all outstanding
---------------
Common Shares made in the manner prescribed by Section 14(d) of the Exchange Act
and the rules and regulations promulgated thereunder; provided, however, that
-------- -------
such tender offer occurs at a time when Continuing Directors are in office and a
majority of the Continuing Directors then in office has determined that the
offer is both fair and otherwise in the best interests of the Company and its
stockholders (taking into account all factors that such Continuing Directors
deem relevant).
(v) "PERSON" shall mean any individual, firm, corporation or other
------
9
<PAGE>
entity, and shall include any successor (by merger or otherwise) of such entity.
(w) "POST-EVENT TRANSFEREE" shall have the meaning set forth in
---------------------
Section 7(d) hereof.
10
<PAGE>
(x) "PREFERRED SHARES" shall mean shares of Series A Participating
----------------
Preferred Stock, $0.001 per share par value, of the Company.
(y) "PRE-EVENT TRANSFEREE" shall have the meaning set forth in
--------------------
Section 7(e) hereof.
(z) "PRINCIPAL PARTY" shall have the meaning set forth in Section
---------------
13(b) hereof.
(aa) "RECORD DATE" shall have the meaning set forth in the recitals
-----------
at the beginning of this Agreement.
(bb) "REDEMPTION DATE" shall have the meaning set forth in Section
---------------
23(a) hereof.
(cc) "REDEMPTION PRICE" shall have the meaning set forth in Section
----------------
23(a) hereof.
(dd) "RIGHTS AGENT" shall mean American Stock Transfer and Trust
------------
Company or its successor or replacement as provided in Sections 19 and 21
hereof.
(ee) "RIGHTS CERTIFICATE" shall mean a certificate substantially in
------------------
the form attached hereto as Exhibit B.
(ff) "RIGHTS DIVIDEND DECLARATION DATE" shall have the meaning set
--------------------------------
forth in the recitals at the beginning of this Agreement.
(gg) "SECTION 11(a)(ii) TRIGGER DATE" shall have the meaning set
------------------------------
forth in Section 11(a)(iii) hereof.
(hh) "SECTION 13(a) EVENT" shall mean any event described in clause
-------------------
(i), (ii) or (iii) of Section 13(a) hereof.
(ii) "SECURITIES ACT" shall mean the Securities Act of 1933, as
--------------
amended.
(jj) "SHARES ACQUISITION DATE" shall mean the first date of public
-----------------------
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by
the Company or an Acquiring Person that an Acquiring Person has become such;
provided that, if such Person is determined not to have become an Acquiring
- -------------
Person pursuant to Section 1(a) hereof, then no Shares Acquisition Date shall be
deemed to have occurred.
(kk) "SPREAD" shall have the meaning set forth in Section 11(a)(iii)
------
11
<PAGE>
hereof.
(ll) "SUBSIDIARY" of any Person shall mean any corporation or other
----------
entity of which an amount of voting securities sufficient to elect a majority of
the directors or Persons having similar authority of such corporation or other
entity is beneficially owned, directly or indirectly, by such Person, or any
corporation or other entity otherwise controlled by such Person.
12
<PAGE>
(mm) "SUBSTITUTION PERIOD" shall have the meaning set forth in
-------------------
Section 11(a)(iii) hereof.
(nn) "SUMMARY OF RIGHTS" shall mean a summary of this Agreement
-----------------
substantially in the form attached hereto as Exhibit C.
(oo) "TOTAL EXERCISE PRICE" shall have the meaning set forth in
--------------------
Section 4(a) hereof.
(pp) "TRADING DAY" shall mean a day on which the principal national
-----------
securities exchange on which a referenced security is listed or admitted to
trading is open for the transaction of business or, if a referenced security is
not listed or admitted to trading on any national securities exchange, a
Business Day.
(qq) A "TRIGGERING EVENT" shall be deemed to have occurred upon any
----------------
Person becoming an Acquiring Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
---------------------------
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Shares) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.
Section 3. Issuance of Rights Certificates.
-------------------------------
(a) Until the Distribution Date, (i) the Rights will be evidenced
(subject to the provisions of Sections 3(b), 3(c) and 3(d) hereof) by the
certificates for Common Shares registered in the names of the holders thereof
(which certificates shall also be deemed to be Rights Certificates) and not by
separate Rights Certificates and (ii) the right to receive Rights Certificates
will be transferable only in connection with the transfer of Common Shares.
Until the earlier of the Distribution Date or the Expiration Date, the surrender
for transfer of such certificates for Common Shares shall also constitute the
surrender for transfer of the Rights associated with the Common Shares
represented thereby. As soon as practicable after the Distribution Date, the
Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if requested,
send) by first-class, postage-prepaid mail, to each record holder of Common
Shares as of the Close of Business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Rights Certificate evidencing
one Right for each Common Share so held, subject to adjustment as provided
herein. In the event that an adjustment in the number of Rights per Common
Share has been made pursuant to Section 11 hereof, then at the time of
distribution of the Rights Certificates, the Company shall make the necessary
and appropriate rounding adjustments (in accordance with Section 14(a) hereof)
so that Rights Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights. As of the
Distribution Date, the Rights will be evidenced solely by such Rights
Certificates and may be transferred by the transfer of the Rights Certificates
as permitted hereby, separately and apart from any transfer of Common Shares,
and the holders of such Rights Certificates as listed in the records of the
Company or any transfer agent or registrar for the Rights shall be the record
holders thereof.
13
<PAGE>
(b) On the Record Date or as soon as practicable thereafter, the
Company will send a copy of the Summary of Rights by first-class, postage-
prepaid mail, to each record holder of Common Shares as of the Close of Business
on the Record Date, at the address of such holder shown on the records of the
Company's transfer agent and registrar. With respect to certificates for
Common Shares outstanding as of the Record Date, until the Distribution Date,
the Rights will be evidenced by such certificates registered in the names of the
holders thereof together with the Summary of Rights. Until the Distribution Date
(or, if earlier, the Expiration Date), the surrender for transfer of any
certificate for Common Shares outstanding on the Record Date, with or without a
copy of the Summary of Rights, shall also constitute the transfer of the Rights
associated with the Common Shares represented thereby.
(c) Unless the Board of Directors by resolution adopted at or before
the time of the issuance of any Common Shares specifies to the contrary, Rights
shall be issued in respect of all Common Shares that are issued after the Record
Date but prior to the earlier of the Distribution Date or the Expiration Date
or, in certain circumstances provided in Section 22 hereof, after the
Distribution Date. Certificates representing such Common Shares shall also be
deemed to be certificates for Rights, and shall bear the following legend:
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF
TO CERTAIN RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN
CUSTOM CHROME, INC. AND AMERICAN STOCK TRANSFER AND TRUST COMPANY
AS THE RIGHTS AGENT, DATED AS OF NOVEMBER 13, 1996 (THE "RIGHTS
AGREEMENT"), THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY
REFERENCE AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE
OFFICES OF CUSTOM CHROME, INC. UNDER CERTAIN CIRCUMSTANCES, AS SET
FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY
SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS
CERTIFICATE. CUSTOM CHROME, INC. WILL MAIL TO THE HOLDER OF THIS
CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER
RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES
SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY,
ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR ANY
AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH
PERSON OR BY ANY SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Shares represented by such certificates shall be
evidenced by such certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights associated with the
Common Shares represented thereby.
14
<PAGE>
(d) In the event that the Company purchases or acquires any Common
Shares after the Record Date but prior to the Distribution Date, any Rights
associated with such Common Shares shall be deemed canceled and retired so that
the Company shall not be entitled to exercise any Rights associated with the
Common Shares which are no longer outstanding.
Section 4. Form of Rights Certificates.
---------------------------
(a) The Rights Certificates (and the forms of election to purchase
Common Shares and of assignment to be printed on the reverse thereof) shall be
substantially in the form of Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or a national market system, on which
the Rights may from time to time be listed or included, or to conform to usage.
Subject to the provisions of Section 11 and Section 22 hereof, the Rights
Certificates, whenever distributed, shall be dated as of the Record Date (or in
the case of Rights issued with respect to Common Shares issued by the Company
after the Record Date, as of the date of issuance of such Common Shares) and on
their face shall entitle the holders thereof to purchase such number of one-
thousandths of a Preferred Share as shall be set forth therein at the price set
forth therein (such exercise price per one one-thousandth of a Preferred Share
being hereinafter referred to as the "EXERCISE PRICE" and the aggregate Exercise
--------------
Price of all Preferred Shares issuable upon exercise of one Right being
hereinafter referred to as the "TOTAL EXERCISE PRICE"), but the number and type
--------------------
of securities purchasable upon the exercise of each Right and the Exercise Price
shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or Section
22 hereof that represents Rights beneficially owned by: (i) an Acquiring Person
or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consider ation) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which a majority of the Continuing Directors then in
office has determined is part of a plan, arrangement or understanding which has
as a primary purpose or effect avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:
THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY,
THIS RIGHTS CERTIFICATE AND THE RIGHTS
15
<PAGE>
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES
SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT.
Section 5. Countersignature and Registration.
---------------------------------
(a) The Rights Certificates shall be executed on behalf of the Company
by its Chairman of the Board, its Chief Executive Officer, its Chief Financial
Officer, its President or any Vice President, either manually or by facsimile
signature, and by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature, and shall have affixed thereto the Company's
seal (if any) or a facsimile thereof. The Rights Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose unless
counter signed. In case any officer of the Company who shall have signed any of
the Rights Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights
Agent and issued and delivered by the Company with the same force and effect as
though the person who signed such Rights Certificates on behalf of the Company
had not ceased to be such officer of the Company; and any Rights Certificate may
be signed on behalf of the Company by any person who, at the actual date of the
execution of such Rights Certificate, shall be a proper officer of the Company
to sign such Rights Certificate, although at the date of the execution of this
Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its office designated for such purposes, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the
Rights Certificates, the number of Rights evidenced on its face by each of the
Rights Certificates and the date of each of the Rights Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
------------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
- ----------------------------------------------------------------------
(a) Subject to the provisions of Sections 7(e), 14 and 24 hereof, at
any time after the Close of Business on the Distribution Date, and at or prior
to the Close of Business on the Expiration Date, any Rights Certificate or
Rights Certificates may be transferred, split up, combined or exchanged for
another Rights Certificate or Rights Certificates, entitling the registered
holder to purchase a like number of one-thousandths of a Preferred Share (or,
following a Triggering Event, other securities, cash or other assets, as the
case may be) as the Rights Certificate or Rights Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Rights Certificate or Rights Certificates
shall make such request in writing delivered to the Rights Agent, and shall
surrender the Rights Certificate or Rights Certificates to be transferred,
split up, combined or exchanged at the office of the Rights Agent designated for
such purpose. Neither the Rights Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any such surrendered
Rights Certificate until the registered holder shall have completed and signed
the certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the
16
<PAGE>
Rights Agent shall, subject to Sections 7(e), 14 and 24 hereof, countersign
and deliver to the person entitled thereto a Rights Certificate or Rights
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Rights Certificate if mutilated, the Company will make and deliver a new
Rights Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Rights Certificate so lost, stolen, destroyed
or mutilated.
Section 7. Exercise of Rights; Exercise Price; Expiration Date of Rights.
-------------------------------------------------------------
(a) Subject to Sections 7(e), 23(b) and 24(b) hereof, the registered
holder of any Rights Certificate may exercise the Rights evidenced thereby
(except as otherwise provided herein) in whole or in part at any time after the
Distribution Date and prior to the Close of Business on the Expiration Date by
surrender of the Rights Certificate, with the form of election to purchase on
the reverse side thereof duly executed, to the Rights Agent at the office of the
Rights Agent designated for such purpose, together with payment of the
Exercise Price for each one-thousandth of a Preferred Share (or, following a
Triggering Event, other securities, cash or other assets as the case may be) as
to which the Rights are exercised.
(b) The Exercise Price for each one-thousandth of a Preferred Share
issuable pursuant to the exercise of a Right shall initially be Eighty Dollars
($80.00), shall be subject to adjustment from time to time as provided in
Sections 11 and 13 hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Exercise Price for the number of one-thousandths of a Preferred
Share (or, following a Triggering Event, other securities, cash or other assets
as the case may be) to be purchased and an amount equal to any applicable
transfer tax required to be paid by the holder of such Rights Certificate in
accordance with Section 9(e) hereof, the Rights Agent shall, subject to Section
20(k) hereof, thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Shares (or make available, if the Rights Agent is the transfer
agent for the Preferred Shares) a certificate or certificates for the number of
one-thousandths of a Preferred Share (or, following a Triggering Event, other
securities, cash or other assets as the case may be) to be purchased and the
Company hereby irrevocably authorizes its transfer agent to comply with all such
requests or (B) if the Company shall have elected to deposit the total number of
one-thousandths of a Preferred Share (or, following a Triggering Event, other
securities, cash or other assets as the case may be) issuable upon exercise of
the Rights hereunder with a depositary agent, requisition from the depositary
agent depositary receipts representing such number of one-thousandths of a
Preferred Share (or, following a Triggering Event, other securities, cash or
other assets as the case may be) as are to be purchased (in which case
17
<PAGE>
certificates for the Preferred Shares (or, following a Triggering Event, other
securities, cash or other assets as the case may be) represented by such
receipts shall be deposited by the transfer agent with the depositary agent) and
the Company hereby directs the depositary agent to comply with such request,
(ii) when appropriate, requisition from the Company the amount of cash to be
paid in lieu of issuance of fractional shares in accordance with Section 14
hereof, (iii) after receipt of such certificates or depositary receipts, cause
the same to be delivered to or upon the order of the registered holder of such
Rights Certificate, registered in such name or names as may be designated by
such holder and (iv) when appropriate, after receipt thereof, deliver such cash
to or upon the order of the registered holder of such Rights Certificate. The
payment of the Exercise Price (as such amount may be reduced (including to zero)
pursuant to Section 11(a)(iii) hereof) and an amount equal to any applicable
transfer tax required to be paid by the holder of such Rights Certificate in
accordance with Section 9(e) hereof, may be made in cash or by certified bank
check, cashier's check or bank draft payable to the order of the Company. In the
event that the Company is obligated to issue securities of the Company other
than Preferred Shares, pay cash and/or distribute other property pursuant to
Section 11(a) hereof, the Company will make all arrangements necessary so that
such other securities, cash and/or other property are available for distribution
by the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Rights Certificate or to
his or her duly authorized assigns, subject to the provisions of Section 14
hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Triggering Event, any Rights beneficially
owned by (i) an Acquiring Person or an Associate or Affiliate of an Acquiring
Person, (ii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person becomes such (a
"POST-EVENT TRANSFEREE"), (iii) a transferee of an Acquiring Person (or of any
---------------------
such Associate or Affiliate) who becomes a transferee prior to or concurrently
with the Acquiring Person becoming such and receives such Rights pursuant to
either (A) a transfer (whether or not for consideration) from the Acquiring
Person to holders of equity interests in such Acquiring Person or to any Person
with whom the Acquiring Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which a
majority of the Continuing Directors then in office has determined is part of a
plan, arrangement or understanding which has as a primary purpose or effect the
avoidance of this Section 7(e) (a "PRE-EVENT TRANSFEREE") or (iv) any
--------- ----------
subsequent transferee receiving transferred Rights from a Post-Event Transferee
or a Pre-Event Transferee, either directly or through one or more intermediate
transferees, shall become null and void without any further action and no holder
of such Rights shall have any rights whatsoever with respect to such Rights,
whether under any provision of this Agreement or otherwise. The Company shall
use all reasonable efforts to ensure that the provisions of this Section 7(e)
and Section 4(b) hereof are complied with, but shall have no liability to any
holder of Rights Certificates or to any other Person as a result of its failure
to make any determinations with respect to an Acquiring Person or any of such
Acquiring Person's Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder
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upon the occurrence of any purported exercise as set forth in this Section 7
unless such registered holder shall, in addition to having complied with the
requirements of Section 7(a) above, have (i) completed and signed the
certificate contained in the form of election to purchase set forth on the
reverse side of the Rights Certificate surrendered for such exercise and (ii)
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All Rights
---------------------------------------------------
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel
and retire, any Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Rights Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Rights Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Preferred Shares.
------------------------------------------------
(a) The Company covenants and agrees that it will use its best efforts
to cause to be reserved and kept available out of its authorized and unissued
Preferred Shares not reserved for another purpose (and, following the occurrence
of a Triggering Event, out of its authorized and unissued Common Shares and/or
other securities), the number of Preferred Shares (and, following the occurrence
of the Triggering Event, Common Shares and/or other securities) that will be
sufficient to permit the exercise in full of all outstanding Rights.
(b) If the Company shall hereafter list any of its Preferred Shares
on a national securities exchange, then so long as the Preferred Shares (and,
following the occurrence of a Triggering Event, Common Shares and/or other
securities) issuable and deliverable upon exercise of the Rights may be listed
on such exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable (but only to the extent that it
is reasonably likely that the Rights will be exercised), all shares reserved for
such issuance to be listed on such exchange upon official notice of issuance
upon such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a
Triggering Event in which the consideration to be delivered by the Company upon
exercise of the Rights is described in Section 11(a)(ii) or Section 11(a)(iii)
hereof, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Securities Act with respect to
the securities purchasable upon exercise of the Rights on an appropriate form,
(ii) cause such registration statement to become effective as soon as
practicable after such filing and (iii) cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the earlier of (A) the date as of which the Rights are no
longer exercisable for such securities and (B) the date of expiration of the
Rights. The
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<PAGE>
Company may temporarily suspend, for a period not to exceed ninety (90) days
after the date set forth in clause (i) of the first sentence of this Section
9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating, and notify
the Rights Agent, that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement and notification to the Rights Agent
at such time as the suspension is no longer in effect. The Company will also
take such action as may be appropriate under, or to ensure compliance with, the
securities or "blue sky" laws of the various states in connection with the
exercisability of the Rights. Notwithstanding any provision of this Agreement to
the contrary, the Rights shall not be exercisable in any jurisdiction, unless
the requisite qualification in such jurisdiction shall have been obtained, or an
exemption therefrom shall be available, and until a registration statement has
been declared effective.
(d) The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all Preferred Shares (or other securities of
the Company) delivered upon exercise of Rights shall, at the time of delivery of
the certificates for such securities (subject to payment of the Exercise Price),
be duly and validly authorized and issued and fully paid and nonassessable
shares.
(e) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which may
be payable in respect of the original issuance or delivery of the Rights
Certificates or of any Preferred Shares (or other securities of the Company)
upon the exercise of Rights. The Company shall not, however, be required to pay
any transfer tax which may be payable in respect of any transfer or delivery of
Rights Certificates to a person other than, or the issuance or delivery of
certificates or depositary receipts for the Preferred Shares (or other
securities of the Company) in a name other than that of, the registered holder
of the Rights Certificate evidencing Rights surrendered for exercise or to issue
or to deliver any certificates or depositary receipts for Preferred Shares (or
other securities of the Company) upon the exercise of any Rights until any such
tax shall have been paid (any such tax being payable by the holder of such
Rights Certificate at the time of surrender) or until it has been established
to the Company's satisfaction that no such tax is due.
Section 10. Record Date. Each Person in whose name any certificate for a
-----------
number of one-thousandths of a Preferred Share (or other securities of the
Company) is issued upon the exercise of Rights shall for all purposes be deemed
to have become the holder of record of Preferred Shares (or other securities of
the Company) represented thereby on, and such certificate shall be dated, the
date upon which the Rights Certificate evidencing such Rights was duly
surrendered and payment of the Total Exercise Price with respect to which the
Rights have been exercised (and any applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a
- -------- -------
date upon which the transfer books of the Company are closed, such Person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Rights Certificate shall not be entitled to
any rights of a holder of Preferred Shares (or other securities of the Company)
for which the Rights shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
20
<PAGE>
Section 11. Adjustment of Exercise Price, Number of Shares or Number of
-----------------------------------------------------------
Rights. The Exercise Price, the number and kind of shares or other property
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a) (i) Anything in this Agreement to the contrary notwithstanding,
in the event the Company shall at any time after the date of this Agreement (A)
declare a dividend on the Preferred Shares payable in Preferred Shares, (B)
subdivide the outstanding Preferred Shares, (C) combine the outstanding
Preferred Shares (by reverse stock split or otherwise) into a smaller number of
Preferred Shares, or (D) issue any shares of its capital stock in a
reclassification of the Preferred Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), then, in each such event, except as otherwise
provided in this Section 11 and Section 7(e) hereof: (1) the Exercise Price in
effect at the time of the record date for such dividend or of the effective date
of such subdivision, combination or reclassification shall be adjusted so that
the Exercise Price thereafter shall equal the result obtained by dividing the
Exercise Price in effect immediately prior to such time by a fraction (the
"ADJUSTMENT FRACTION"), the numerator of which shall be the total number of
-------------------
Preferred Shares (or shares of capital stock issued in such reclassification of
the Preferred Shares) outstanding immediately following such time and the
denominator of which shall be the total number of Preferred Shares outstanding
immediately prior to such time; provided, however, that in no event shall the
-------- -------
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of such Right; and (2) the number of one-thousandths of a Preferred
Share (or share of such other capital stock) issuable upon the exercise of each
Right shall equal the number of one-thousandths of a Preferred Share (or share
of such other capital stock) as was issuable upon exercise of a Right
immediately prior to the occurrence of the event described in clauses (A)-(D) of
this Section 11(a)(i), multiplied by the Adjustment Fraction; provided, however,
that, no such adjustment shall be made pursuant to this Section 11(a)(i) to the
extent that there shall have simultaneously occurred an event described in
clause (A), (B), (C) or (D) of Section 11(n) with a proportionate adjustment
being made thereunder. Each Common Share that shall become outstanding after an
adjustment has been made pursuant to this Section 11(a)(i) shall have associated
with the number of Rights, exercisable at the Exercise Price and for the number
of one-thousandths of a Preferred Share (or shares of such other capital stock)
as one Common Share has associated with it immediately following the adjustment
made pursuant to this Section 11(a)(i).
(ii) Subject to Section 24 of this Agreement, in the event a
Triggering Event shall have occurred, then promptly following such Triggering
Event each holder of a Right, except as provided in Section 7(e) hereof, shall
thereafter have the right to receive for each Right, upon exercise thereof in
accordance with the terms of this Agreement and payment of the Total Exercise
Price in effect immediately prior to the occurrence of the Triggering Event, in
lieu of a number of one-thousandths of a Preferred Share, such number of Common
Shares of the Company as shall equal the result obtained by multiplying the
Exercise Price in effect immediately prior to the occurrence of the Triggering
Event by the number of one-thousandths of a Preferred Share for which a Right
was exercisable (or would have been exercisable if the Distribution Date had
occurred) immediately prior to the first occurrence of a Triggering Event, and
dividing that product by 50% of the Current Per Share Market Price for Common
Shares on the date of occurrence of the Triggering Event; provided, however,
that the Exercise Price and the number of Common Shares of the Company so
receivable upon exercise of a Right shall be subject
21
<PAGE>
to further adjustment as appropriate in accordance with Section 11(e) hereof to
reflect any events occurring in respect of the Common Shares of the Company
after the occurrence of the Triggering Event. Notwithstanding the foregoing
provisions of this Section 11(a)(ii), the right to buy Common Shares of the
Company pursuant to Section 11(a)(ii) hereof shall not arise as a result of any
Person becoming an Acquiring Person through an acquisition of Common Shares
pursuant to a Permitted Offer.
(iii) In lieu of issuing Common Shares in accordance with Section
11(a)(ii) hereof, the Company may, if a majority of the Continuing Directors
then in office determines that such action is necessary or appropriate and not
contrary to the interest of holders of Rights (and, in the event that the number
of Common Shares which are authorized by the Company's Certificate of
Incorporation but not outstanding or reserved for issuance for purposes other
than upon exercise of the Rights are not sufficient to permit the exercise in
full of the Rights, or if any necessary regulatory approval for such issuance
has not been obtained by the Company, the Company shall): (A) determine the
excess of (1) the value of the Common Shares issuable upon the exercise of a
Right (the "CURRENT VALUE") over (2) the Exercise Price (such excess, the
-------------
"SPREAD") and (B) with respect to each Right, make adequate provision to
------
substitute for such Common Shares, upon exercise of the Rights, (1) cash, (2) a
reduction in the Exercise Price, (3) other equity securities of the Company
(including, without limitation, shares or units of shares of any series of
preferred stock which a majority of the Continuing Directors then in office has
deemed to have the same value as Common Shares (such shares or units of shares
of preferred stock are herein called "COMMON STOCK EQUIVALENTS")), except to the
------------------------
extent that the Company has not obtained any necessary stockholder or
regulatory approval for such issuance, (4) debt securities of the Company,
except to the extent that the Company has not obtained any necessary
stockholder or regulatory approval for such issuance, (5) other assets or (6)
any combination of the foregoing, having an aggregate value equal to the
Current Value, where such aggregate value has been determined by a majority of
the Continuing Directors then in office based upon the advice of a nationally
recognized investment banking firm selected by a majority of the Continuing
Directors then in office; provided, however, if the Company shall not have
-------- -------
made adequate provision to deliver value pursuant to clause (B) above within
thirty (30) days following the later of (x) the first occurrence of a Triggering
Event and (y) the date on which the Company's right of redemption pursuant to
Section 23(a) expires (the later of (x) and (y) being referred to herein as the
"SECTION 11(a)(ii) TRIGGER DATE"), then the Company shall be obligated to
- ---------------------------------
deliver, upon the surrender for exercise of a Right and without requiring
payment of the Exercise Price, Common Shares (to the extent available), except
to the extent that the Company has not obtained any necessary stockholder or
regulatory approval for such issuance, and then, if necessary, cash, which
shares and/or cash have an aggregate value equal to the Spread. If a majority of
the Continuing Directors then in office shall determine in good faith that it is
likely that sufficient additional Common Shares could be authorized for issuance
upon exercise in full of the Rights or that any necessary regulatory approval
for such issuance will be obtained, the thirty (30) day period set forth above
may be extended to the extent necessary, but not more than ninety (90) days
after the Section 11(a)(ii) Trigger Date, in order that the Company may seek
stockholder approval for the authorization of such additional shares or take
action to obtain such regulatory approval (such period, as it may be extended,
the "SUBSTITUTION PERIOD"). To the extent that the Company determines that
-------------------
some action need be taken pursuant to the first and/or second sentences of this
Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e)
hereof, that such action shall apply uniformly to all outstanding Rights and (y)
may
22
<PAGE>
suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares, to
take
23
<PAGE>
any action to obtain any required regulatory approval and/or to decide the
appropriate form of distribution to be made pursuant to such first sentence and
to determine the value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at such time as
the suspension is no longer in effect. For purposes of this Section 11(a)(iii),
the value of the Common Shares shall be the Current Per Share Market Price of
the Common Shares on the Section 11(a)(ii) Trigger Date and the value of any
Common Stock Equivalent shall be deemed to have the same value as the Common
Shares on such date.
(b) In case the Company shall, at any time after the date of this
Agreement, fix a record date for the issuance of rights, options or warrants to
all holders of Preferred Shares entitling such holders (for a period expiring
within forty-five (45) calendar days after such record date) to subscribe for or
purchase Preferred Shares or Equivalent Shares or securities convertible into
Preferred Shares or Equivalent Shares at a price per share (or having a
conversion price per share, if a security convertible into Preferred Shares or
Equivalent Shares) less than the then Current Per Share Market Price of the
Preferred Shares or Equivalent Shares on such record date, then, in each such
case, the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the number of
Preferred Shares and Equivalent Shares (if any) outstanding on such record
date, plus the number of Preferred Shares or Equivalent Shares, as the case
may be, which the aggregate offering price of the total number of Preferred
Shares or Equivalent Shares, as the case may be, to be offered or issued
(and/or the aggregate initial conversion price of the convertible securities
to be offered or issued) would purchase at such current market price, and the
denominator of which shall be the number of Preferred Shares and Equivalent
Shares (if any) outstanding on such record date, plus the number of additional
Preferred Shares or Equivalent Shares, as the case may be, to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
-------- -------
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by a majority of the
Continuing Directors then in office, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights. Preferred Shares and Equivalent Shares owned by
or held for the account of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed, and in the event that such rights, options
or warrants are not so issued, the Exercise Price shall be adjusted to be the
Exercise Price which would then be in effect if such record date had not been
fixed.
(c) In case the Company shall, at any time after the date of this
Agreement, fix a record date for the making of a distribution to all holders
of the Preferred Shares or of any class or series of Equivalent Shares
(including any such distribution made in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation) of
evidences of indebtedness or assets (other than a regular quarterly cash
dividend, if any, or a dividend payable in Preferred Shares) or subscription
rights, options or warrants (excluding those referred to in Section 11(b)),
then, in each such case, the Exercise Price to be in effect after such record
date shall be determined by multiplying the
24
<PAGE>
Exercise Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the Current Per Share Market Price of a
Preferred Share or an Equivalent Share on such record date, less the fair market
value per Preferred Share or Equivalent Share (as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent) of the portion of the cash, assets or
evidences of indebtedness so to be distributed or of such subscription rights or
warrants applicable to a Preferred Share or Equivalent Share, as the case may
be, and the denominator of which shall be such Current Per Share Market Price of
a Preferred Share or Equivalent Share on such record date; provided, however,
-------- -------
that in no event shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par value of the shares of capital stock of the
Company issuable upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed, and in the event that such
distribution is not so made, the Exercise Price shall be adjusted to be the
Exercise Price which would have been in effect if such record date had not been
fixed.
(d) Anything herein to the contrary notwithstanding, no adjustment in
the Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Exercise Price; provided, however,
-------- -------
that any adjustments which by reason of this Section 11(d) are not required to
be made shall be carried forward and taken into account in any subsequent adjust
ment. All calculations under this Section 11 shall be made to the nearest cent
or to the nearest ten-thousandth of a Common Share or other share or one
hundred-thousandth of a Preferred Share, as the case may be. Notwithstanding the
first sentence of this Section 11(d), any adjustment required by this Section 11
shall be made no later than the earlier of (i) three (3) years from the date of
the transaction which requires such adjustment or (ii) the Expiration Date.
(e) If as a result of an adjustment made pursuant to Section 11(a) or
13(a) hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock other than Preferred Shares, thereafter
the number of such other shares so receivable upon exercise of any Right and, if
required, the Exercise Price thereof, shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Shares contained in Sections 11(a),
11(b), 11(c), 11(d), 11(g), 11(h), 11(i), 11(j), 11(k) and 11(l), and the
provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(f) All Rights originally issued by the Company subsequent to any
adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(g) Unless the Company shall have exercised its election as provided
in Section 11(h), upon each adjustment of the Exercise Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of Preferred Shares
(calculated to the nearest one hundred-thousandth of a share) obtained by (i)
multiplying (x) the number of Preferred Shares covered by a Right immediately
prior to this adjustment by (y) the Exercise Price in effect immediately
25
<PAGE>
prior to such adjustment of the Exercise Price, and (ii) dividing the product so
obtained by the Exercise Price in effect immediately after such adjustment of
the Exercise Price.
(h) The Company may elect on or after the date of any adjustment of
the Exercise Price as a result of the calculations made in Section 11(b) or (c)
to adjust the number of Rights, in substitution for any adjustment in the number
of Preferred Shares purchasable upon the exercise of a Right. Each of the Rights
outstanding after such adjustment of the number of Rights shall be exercisable
for the number of one-thousandths of a Preferred Share for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest one hundred-thousandth) obtained by dividing
the Exercise Price in effect immediately prior to adjustment of the Exercise
Price by the Exercise Price in effect immediately after adjustment of the
Exercise Price. The Company shall make a public announcement of its election to
adjust the number of Rights, indicating the record date for the adjustment, and,
if known at the time, the amount of the adjustment to be made. This record date
may be the date on which the Exercise Price is adjusted or any day thereafter,
but, if the Rights Certificates have been issued, shall be at least ten (10)
days later than the date of the public announcement. If Rights Certificates have
been issued, upon each adjustment of the number of Rights pursuant to this
Section 11(h), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Rights Certificates on such record date
Rights Certificates evidencing, subject to Section 14 hereof, the additional
Rights to which such holders shall be entitled as a result of such adjustment,
or, at the option of the Company, shall cause to be distributed to such holders
of record in substitution and replacement for the Rights Certificates held by
such holders prior to the date of adjustment, and upon surrender thereof, if
required by the Company, new Rights Certificates evidencing all the Rights to
which such holders shall be entitled after such adjustment. Rights Certificates
so to be distributed shall be issued, executed and countersigned in the manner
provided for herein (and may bear, at the option of the Company, the adjusted
Exercise Price) and shall be registered in the names of the holders of record of
Rights Certificates on the record date specified in the public announcement.
(i) Irrespective of any adjustment or change in the Exercise Price or
the number of Preferred Shares issuable upon the exercise of the Rights, the
Rights Certificates theretofore and thereafter issued may continue to express
the Exercise Price per one one-thousandth of a Preferred Share and the number of
one-thousandths of a Preferred Share which were expressed in the initial Rights
Certificates issued hereunder.
(j) Before taking any action that would cause an adjustment reducing
the Exercise Price below the par or stated value, if any, of the number of one-
thousandths of a Preferred Share issuable upon exercise of the Rights, the
Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue as
fully paid and nonassessable shares such number of one-thousandths of a
Preferred Share at such adjusted Exercise Price.
(k) In any case in which this Section 11 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date
of
26
<PAGE>
the number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Exercise Price in effect prior to such adjustment; provided, however, that
-------- -------
the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares
(fractional or otherwise) upon the occurrence of the event requiring such
adjustment.
(l) Anything in this Section 11 to the contrary notwithstanding,
prior to the Distribution Date, the Company shall be entitled to make such
reductions in the Exercise Price, in addition to those adjustments expressly
required by this Section 11, as and to the extent that it in its sole discretion
shall determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred or Common Shares, (ii) issuance wholly for cash of
any Preferred or Common Shares at less than the current market price, (iii)
issuance wholly for cash of Preferred or Common Shares or securities which by
their terms are convertible into or exchangeable for Preferred or Common Shares,
(iv) stock dividends or (v) issuance of rights, options or warrants referred to
in this Section 11, hereafter made by the Company to holders of its Preferred or
Common Shares shall not be taxable to such stockholders.
(m) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Sections 23, 24 or 27 hereof, take (or
permit to be taken) any action if at the time such action is taken it is
reasonably foreseeable that such action will diminish substantially or otherwise
eliminate the benefits intended to be afforded by the Rights.
(n) In the event the Company shall at any time after the date of this
Agreement (A) declare a dividend on the Common Shares payable in Common Shares,
(B) subdivide the outstanding Common Shares, (C) combine the outstanding Common
Shares (by reverse stock split or otherwise) into a smaller number of Common
Shares, or (D) issue any shares of its capital stock in a reclassification of
the Common Shares (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), then, in each such event, except as otherwise provided in this
Section 11(a) and Section 7(e) hereof: (1) each Common Share (or shares of
capital stock issued in such reclassification of the Common Shares) outstanding
immediately following such time shall have associated with it the number of
Rights as were associated with one Common Share immediately prior to the
occurrence of the event described in clauses (A)-(D) above; (2) the Exercise
Price in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification shall be
adjusted so that the Exercise Price thereafter shall equal the result obtained
by multiplying the Exercise Price in effect immediately prior to such time by a
fraction, the numerator of which shall be the total number of Common Shares
outstanding immediately prior to the event described in clauses (A)-(D) above,
and the denominator of which shall be the total number of Common Shares
outstanding immediately after such event; provided, however, that in no event
-------- -------
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon exercise of such Right; and (3) the number of one-thousandths of a
Preferred Share (or shares of such other capital stock) issuable upon the
exercise of each Right outstanding after such event shall equal the number of
one-thousandths of a Preferred Share (or shares of such other capital stock) as
were issuable with respect to one Right immediately prior to such event. Each
Common Share that shall become outstanding after an adjustment has been made
pursuant
27
<PAGE>
to this Section 11(n) shall have associated with it the number of Rights,
exercisable at the Exercise Price and for the number of one-thousandths of a
Preferred Share (or shares of such other capital stock) as one Common Share has
associated with it immediately following the adjustment made pursuant to this
Section 11(n). If an event occurs which would require an adjustment under both
this Section 11(n) and Section 11(a)(ii) hereof, the adjustment provided for in
this Section 11(n) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) hereof.
Section 12. Certificate of Adjusted Exercise Price or Number of Shares.
----------------------------------------------------------
Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Preferred Shares a copy of
such certificate and (c) mail a brief summary thereof to each holder of a Rights
Certificate in accordance with Section 26 hereof. Notwithstanding the foregoing
sentence, the failure of the Company to make such certification or give such
notice shall not affect the validity of such adjustment or the force or effect
of the requirement for such adjustment. The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment contained
therein and shall not be deemed to have knowledge of such adjustment unless and
until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
--------------------------------------------------------------
Power.
- -----
(a) In the event that, following a Triggering Event, directly or
indirectly:
(i) the Company shall consolidate with, or merge with and
into, any other Person (other than a wholly-owned Subsidiary of the Company
in a transaction the principal purpose of which is to change the state of
incorporation of the Company and which complies with Section 11(m) hereof);
(ii) any Person shall consolidate with the Company, or merge
with and into the Company and the Company shall be the continuing or
surviving corporation of such consolidation or merger, all or part of the
Common Shares shall be changed into or exchanged for stock or other
securities of any other person (or of the Company); or
(iii) the Company shall sell or otherwise transfer (or one or more
of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person or Persons (other than the Company or one or more of its wholly-
owned Subsidiaries in one or more transactions, each of which individually
(and together) complies with Section 11(m) hereof), then, concurrent with and
in each such case,
(A) each holder of a Right (except as provided in Section
7(e) hereof) shall thereafter have the right to receive, upon the exercise
thereof at a price equal to the Total Exercise Price applicable immediately
prior to the occurrence of the Section 13
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<PAGE>
Event in accordance with the terms of this Agreement, such number of
validly authorized and issued, fully paid, nonassessable and freely
tradeable Common Shares of the Principal Party (as hereinafter defined),
free of any liens, encumbrances, rights of first refusal or other adverse
claims, as shall be equal to the result obtained by dividing such Total
Exercise Price by 50% of the Current Per Share Market Price of the Common
Shares of such Principal Party on the date of consummation of such Section
13 Event, provided, however, that the Exercise Price and the number of
-------- -------
Common Shares of such Principal Party so receivable upon exercise of a
Right shall be subject to further adjustment as appropriate in accordance
with Section 11(e) hereof;
(B) such Principal Party shall thereafter be liable for,
and shall assume, by virtue of such Section 13 Event, all the obligations
and duties of the Company pursuant to this Agreement;
(C) the term "Company" shall thereafter be deemed to
refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event;
(D) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of
its Common Shares) in connection with the consummation of any such
transaction as may be necessary to ensure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to
its Common Shares thereafter deliverable upon the exercise of the Rights;
and
(E) upon the subsequent occurrence of any consolidation,
merger, sale or transfer of assets or other extraordinary transaction in
respect of such Principal Party, each holder of a Right shall thereupon be
entitled to receive, upon exercise of a Right and payment of the Total
Exercise Price as provided in this Section 13(a), such cash, shares,
rights, warrants and other property which such holder would have been
entitled to receive had such holder, at the time of such transaction, owned
the Common Shares of the Principal Party receivable upon the exercise of
such Right pursuant to this Section 13(a), and such Principal Party shall
take such steps (including, but not limited to, reservation of shares of
stock) as may be necessary to permit the subsequent exercise of the Rights
in accordance with the terms hereof for such cash, shares, rights, warrants
and other property.
(F) For purposes hereof, the "earning power" of the
Company and its Subsidiaries shall be determined in good faith by the
Company's Board of Directors on the basis of the operating earnings of each
business operated by the Company and its Subsidiaries during the three
fiscal years preceding the date of such determination (or, in the case of
any business not operated by the Company or any Subsidiary during three
full fiscal years preceding such date, during the period such business was
operated by the Company or any Subsidiary).
29
<PAGE>
(b) For purposes of this Agreement, the term "PRINCIPAL PARTY" shall
mean:
(i) in the case of any transaction described in clause (i) or
(ii) of Section 13(a) hereof: (A) the Person that is the issuer of the
securities into which the Common Shares are converted in such merger or
consolidation, or, if there is more than one such issuer, the issuer the
Common Shares of which have the greatest aggregate market value of shares
outstanding, or (B) if no securities are so issued, (x) the Person that is
the other party to the merger, if such Person survives said merger, or, if
there is more than one such Person, the Person the Common Shares of which
have the greatest aggregate market value of shares outstanding or (y) if the
Person that is the other party to the merger does not survive the merger, the
Person that does survive the merger (including the Company if it survives) or
(z) the Person resulting from the consolidation; and
(ii) in the case of any transaction described in clause (iii)
of Section 13(a) hereof, the Person that is the party receiving the greatest
portion of the assets or earning power transferred pursuant to such
transaction or transactions, or, if more than one Person that is a party to
such transaction or transactions receives the same portion of the assets or
earning power so transferred and each such portion would, were it not for the
other equal portions, constitute the greatest portion of the assets or
earning power so transferred, or if the Person receiving the greatest portion
of the assets or earning power cannot be determined, whichever of such
Persons is the issuer of Common Shares having the greatest aggregate market
value of shares outstanding;
provided, however, that in any such case described in the foregoing clause
- -------- -------
(b)(i) or (b)(ii), if the Common Shares of such Person are not at such time or
have not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which are and have been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Shares of which are and have been so registered, the term "Principal
Party" shall refer to whichever of such Persons is the issuer of Common Shares
having the greatest aggregate market value of shares outstanding, or (3) if such
Person is owned, directly or indirectly, by a joint venture formed by two or
more Persons that are not owned, directly or indirectly by the same Person, the
rules set forth in clauses (1) and (2) above shall apply to each of the owners
having an interest in the venture as if the Person owned by the joint venture
was a Subsidiary of both or all of such joint venturers, and the Principal Party
in each such case shall bear the obligations set forth in this Section 13 in the
same ration as its interest in such Person bears to the total of such interests.
(c) The Company shall not consummate any Section 13 Event unless the
Principal Party shall have a sufficient number of authorized Common Shares that
have not been issued or reserved for issuance to permit the exercise in full of
the Rights in accordance with this Section 13 and unless prior thereto the
Company and such issuer shall have executed and delivered to the Rights Agent a
supplemental agreement confirming that such Principal Party shall, upon
consummation of such Section 13 Event, assume this Agreement in accordance with
Sections 13(a) and 13(b) hereof, that all rights of first refusal or preemptive
rights in respect of the issuance of Common Shares of such Principal Party upon
exercise of outstanding Rights have been waived, that there are no rights,
warrants,
30
<PAGE>
instruments or securities outstanding or any agreements or arrangements which,
as a result of the consummation of such transaction, would eliminate or
substantially diminish the benefits intended to be afforded by the Rights and
that such transaction shall not result in a default by such Principal Party
under this Agreement, and further providing that, as soon as practicable after
the date of such Section 13 Event, such Principal Party will:
(i) prepare and file a registration statement under the
Securities Act with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, use its best efforts to cause
such registration statement to become effective as soon as practicable after
such filing and use its best efforts to cause such registration statement to
remain effective (with a prospectus at all times meeting the require ments of
the Securities Act) until the Expiration Date, and similarly comply with
applicable state securities laws;
(ii) use its best efforts to list (or continue the listing of)
the Rights and the securities purchasable upon exercise of the Rights on a
national securities exchange or to meet the eligibility requirements for
quotation on Nasdaq and list (or continue the listing of) the Rights and the
securities purchasable upon exercise of the Rights on Nasdaq; and
(iii) deliver to holders of the Rights historical financial
statements for such Principal Party which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act.
In the event that at any time after the occurrence of a Triggering Event some
or all of the Rights shall not have been exercised at the time of a transaction
described in this Section 13, the Rights which have not theretofore been
exercised shall thereafter be exercisable in the manner described in Section
13(a) (without taking into account any prior adjustment required by Section
11(a)(ii)).
(d) In case the "Principal Party" for purposes of Section 13(b) hereof
has provision in any of its authorized securities or in its certificate of
incorporation or by-laws or other instrument governing its corporate affairs,
which provision would have the effect of (i) causing such Principal Party to
issue (other than to holders of Rights pursuant to Section 13 hereof), in
connection with, or as a consequence of, the consummation of a Section 13 Event,
Common Shares or Equivalent Shares of such Principal Party at less than the then
Current Per Share Market Price thereof or securities exercisable for, or
convertible into, Common Shares or Equivalent Shares of such Principal Party at
less than such then Current Per Share Market Price, or (ii) providing for any
special payment, tax or similar provision in connection with the issuance of the
Common Shares of such Principal Party pursuant to the provisions of Section 13
hereof, then, in such event, the Company hereby agrees with each holder of
Rights that it shall not consummate any such transaction unless prior thereto
the Company and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing that the provision in question
of such Principal Party shall have been canceled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with or as a consequence of, the consummation of
the proposed transaction.
31
<PAGE>
(e) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, effect or permit to occur any Section 13 Event, if
(i) at the time or immediately after such Section 13 Event there are any rights,
warrants or other instruments or securities outstanding or agreements in
effect which would substantially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights, (ii) prior to, simultaneously with or
immediately after such Section 13(b) Event, the stockholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(b) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates or Associates or (iii) the form or nature
of organization of the Principal Party would preclude or limit the
exercisability of the Rights.
(f) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in clauses (i) and
(ii) of Section 13(a) if: (i) such transaction is consummated with a Person or
Persons who acquired Common Shares pursuant to a Permitted Offer (or a wholly-
owned Subsidiary of any such Person or Persons); (ii) the price per share of
Common Shares offered in such transaction is not less than the price per share
of Common Shares paid to all holders of Common Shares whose shares were
purchased pursuant to such Permitted Offer; and (iii) the form of consideration
being offered to the remaining holders of Common Shares pursuant to such
transaction is the same form as the form of consideration paid pursuant to such
Permitted Offer. Upon consummation of any such transaction contemplated by this
Section 13(f), all Rights hereunder shall expire.
(g) The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
(a) The Company shall not be required to issue fractions of Rights or
to distribute Rights Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Rights Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable, as determined pursuant to the second sentence of
Section 1(k) hereof.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions that are integral multiples of one one-thousandth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions that are
integral multiples of one one-thousandth of a Preferred Share). Interests in
fractions of Preferred Shares in integral multiples of one one-thousandth of a
Preferred Share may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it; provided, that such agreement shall provide that the
--------
holders of such depositary receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the Preferred
Shares represented by such depositary receipts. In lieu of fractional Preferred
Shares that are not integral multiples of one one-thousandth of a Preferred
Share, the Company
32
<PAGE>
shall pay to the registered holders of Rights Certificates at the time such
Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of a Preferred Share. For purposes of this
Section 14(b), the current market value of a Preferred Share shall be one
thousand times the closing price of a Common Share (as determined pursuant to
the second sentence of Section 1(k) hereof) for the Trading Day immediately
prior to the date of such exercise.
(c) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares
upon the exercise or exchange of Rights. In lieu of such fractional Common
Shares, the Company shall pay to the registered holders of Rights Certificates
at the time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of a Common Share. For purposes
of this Section 14(c), the current market value of a Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 1(k) hereof) for the Trading Day immediately prior to the date of
such exercise.
(d) The holder of a Right by the acceptance of the Right expressly
waives his or her right to receive any fractional Rights or any fractional
shares (other than fractions that are integral multiples of one one-thousandth
of a Preferred Share) upon exercise of a Right.
Section 15. Rights of Action. All rights of action in respect of this
----------------
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Rights Certificate (or, prior
to the Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights evidenced by such Rights Certificate in
the manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of, the obligations of any Person subject to this
Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right, by
---------------------------
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed; and
33
<PAGE>
(c) subject to Sections 6(a) and 7(f) hereof, the Company and the
Rights Agent may deem and treat the person in whose name the Rights Certificate
(or, prior to the Distribution Date, the associated Common Shares certificate)
is registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Rights
Certificates or the associated Common Shares certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent shall be affected by any notice to the
contrary.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No holder,
--------------------------------------------------
as such, of any Rights Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose to be the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Rights Certificate be construed to confer upon the holder of any
Rights Certificate, as such, any of the rights of a stockholder of the Company
or any right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent.
---------------------------
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability in the premises. In no event will the Rights Agent be liable for
special, indirect, incidental or consequential loss or damage of any kind
whatsoever, even if the Rights Agent has been advised of the possibility of such
loss or damage.
(b) The Rights Agent shall be protected and shall incur no liability
for, or in respect of any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Rights
Certificate or certificate for the Preferred Shares or Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement or other paper or document reasonably believed by it to
be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons, or otherwise upon the advice of
counsel as set forth in Section 20 hereof.
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<PAGE>
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
---------------------------------------------------------
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto; provided, however, that such corporation would be eligible for
-------- -------
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Rights Certificates shall have been countersigned
but not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates shall not have been countersigned, the
Rights Agent may countersign such Rights Certificates either in its prior name
or in its changed name; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties
----------------------
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person and the
determination of Current Per Share Market Price) be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed by
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Chief Financial Officer, the Secretary or any
Assistant Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action taken
or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
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<PAGE>
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Rights
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Rights Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor shall it
be responsible for any change in the exercisability of the Rights or any
adjustment in the terms of the Rights (including the manner, method or amount
thereof) provided for in Sections 3, 11, 13, 23 or 24, or the ascertaining of
the existence of facts that would require any such change or adjustment (except
with respect to the exercise of Rights evidenced by Rights Certificates after
receipt by the Rights Agent of a certificate furnished pursuant to Section 12
describing such change or adjustment); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any Preferred Shares to be issued pursuant to this Agreement or
any Rights Certificate or as to whether any Preferred Shares will, when issued,
be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Chief Financial Officer, the Secretary or any Assistant
Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions. Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this Rights
Agreement and the date on and/or after which such action shall be taken or such
omission shall be effective. The Rights Agent shall not be liable for any action
taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five (5) Business Days after the
date any officer of the Company actually receives such application, unless any
such officer shall have consented in writing to an earlier date) unless, prior
to taking any such action (or the effective date in the case of an omission),
the Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
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<PAGE>
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction
in which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
----------------------
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company and to each
transfer agent of the Preferred Shares and the Common Shares by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Preferred
Shares and the Common Shares by registered or certified mail, and to the holders
of the Rights Certificates by first-class mail. If the Rights Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his or her Rights
Certificate for inspection by the Company), then the registered holder of any
Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a corporation organized and doing
business under the laws of the United States or of any state of the United
States, in good standing, which is authorized under such laws to exercise
corporate trust or stockholder services powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50
million. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and
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<PAGE>
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary
for the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Preferred Shares and the Common Shares, and mail
a notice thereof in writing to the registered holders of the Rights
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any of the
-----------------------------------
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Rights Certificates evidencing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change in
the Exercise Price and the number or kind or class of shares or other securities
or property purchasable under the Rights Certificates made in accordance with
the provisions of this Agreement. In addition, in connection with the issuance
or sale of Common Shares following the Distribution Date and prior to the
redemption or expiration of the Rights, the Company (a) shall, with respect to
Common Shares so issued or sold pursuant to the exercise of stock options or
under any employee plan or arrangement or upon the exercise, conversion or
exchange of other securities of the Company outstanding at the date hereof or
upon the exercise, conversion or exchange of securities hereinafter issued by
the Company and (b) may, in any other case, if deemed necessary or appropriate
by the Board of Directors of the Company, issue Rights Certificates representing
the appropriate number of Rights in connection with such issuance or sale;
provided, however, that (i) no such Rights Certificate shall be issued and this
- -------- -------
sentence shall be null and void ab initio if, and to the extent that, such
---------
issuance or this sentence would create a significant risk of or result in
material adverse tax consequences to the Company or the Person to whom such
Rights Certificate would be issued or would create a significant risk of or
result in such options' or employee plans' or arrangements' failing to qualify
for otherwise available special tax treatment and (ii) no such Rights
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption.
----------
(a) The Company may, at its option and with the approval of the Board
of Directors, at any time prior to the Close of Business on the earlier of (i)
the tenth day following the Shares Acquisition Date (or such later date as may
be determined by action of a majority of Continuing Directors then in office and
publicly announced by the Company) and (ii) the Final Expiration Date, redeem
all but not less than all the then outstanding Rights at a redemption price of
$0.01 per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such redemption
price being herein referred to as the "REDEMPTION PRICE") and the Company may,
----------------
at its option, pay the Redemption Price either in Common Shares (based on the
Current Per Share Market Price thereof at the time of redemption) or cash. Such
redemption of the Rights by the Company may be made effective at such time, on
such basis and with such conditions as the Board of Directors in its sole
discretion may establish; provided, however, if the Board of Directors
-------- -------
of the Company authorizes redemption of the Rights on or after the time a Person
becomes an Acquiring Person, then there must be
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<PAGE>
Continuing Directors then in office and such authorization shall require the
concurrence of a majority of such Continuing Directors. The date on which the
Board of Directors elects to make the redemption effective shall be referred to
as the "REDEMPTION DATE."
---------------
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have been
filed with the Rights Agent, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
The Company shall promptly give public notice of any such redemption; provided,
--------
however, that the failure to give or any defect in, any such notice shall not
- -------
affect the validity of such redemption. Within ten (10) days after the action of
the Board of Directors ordering the redemption of the Rights, the Company shall
give notice of such redemption to the Rights Agent and the holders of the then
outstanding Rights by mailing such notice to all such holders at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made. Neither the Company nor any of its Affiliates or Associates may
redeem, acquire or purchase for value any Rights at any time in any manner other
than that specifically set forth in this Section 23 or in Section 24 hereof, and
other than in connection with the purchase of Common Shares prior to the
Distribution Date.
Section 24. Exchange.
--------
(a) Subject to applicable laws, rules and regulations, and subject to
subsection 24(c) below, the Company may, at its option, by majority vote of the
Board of Directors and a majority vote of the Continuing Directors, at any time
after the occurrence of a Triggering Event, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that have
become void pursuant to the provisions of Section 7(e) hereof) for Common Shares
at an exchange ratio of one Common Share per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such exchange ratio being hereinafter referred to as the
"EXCHANGE RATIO"). Notwithstanding the foregoing, the Board of Directors shall
--------------
not be empowered to effect such exchange at any time after any Person (other
than the Company, any Subsidiary of the Company, any employee benefit plan of
the Company or any such Subsidiary, or any entity holding Common Shares for or
pursuant to the terms of any such plan), together with all Affiliates and
Associates of such Person, becomes the Beneficial Owner of 50% or more of the
Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors ordering the
exchange of any Rights pursuant to subsection 24(a) of this Section 24 and
without any further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of Common Shares equal to the number of such
Rights held by such holder multiplied by the Exchange Ratio. The Company shall
give public notice of any such exchange; provided, however, that the failure to
-------- -------
give, or any defect in, such notice shall not affect the validity of such
exchange. The Company shall mail a notice of any such exchange to all of the
holders of such Rights at their last addresses as they appear upon the registry
books of the Rights Agent. Any
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<PAGE>
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the Common Shares for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 7(e) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with Section 24(a), the Company shall
either take such action as may be necessary to authorize additional Common
Shares for issuance upon exchange of the Rights or alternatively, at the option
of a majority of the Board of Directors, with respect to each Right (i) pay cash
in an amount equal to the Current Value (as hereinafter defined), in lieu of
issuing Common Shares in exchange therefor, or (ii) issue debt or equity
securities or a combination thereof, having a value equal to the Current Value,
in lieu of issuing Common Shares in exchange for each such Right, where the
value of such securities shall be determined by a nationally recognized
investment banking firm selected by majority vote of the Board of Directors, or
(iii) deliver any combination of cash, property, Common Shares and/or other
securities having a value equal to the Current Value in exchange for each Right.
For purposes of this Section 24(c) only, the Current Value shall mean the
product of the Current Per Share Market Price of Common Shares on the date of
the occurrence of the event described above in subparagraph (a), multiplied by
the number of Common Shares for which the Right otherwise would be exchangeable
if there were sufficient shares available. To the extent that the Company
determines that some action need be taken pursuant to clauses (i), (ii) or (iii)
of this Section 24(c), the Board of Directors may temporarily suspend the
exercisability of the Rights for a period of up to sixty (60) days following the
date on which the event described in Section 24(a) shall have occurred, in order
to seek any authorization of additional Common Shares and/or to decide the
appropriate form of distribution to be made pursuant to the above provision and
to determine the value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended.
(d) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares. In
lieu of such fractional Common Shares, there shall be paid to the registered
holders of the Rights Certificates with regard to which such fractional Common
Shares would otherwise be issuable, an amount in cash equal to the same fraction
of the current market value of a whole Common Share (as determined pursuant to
the second sentence of Section 11(k) hereof).
(e) The Company may, at its option, by majority vote of the Board of
Directors, at any time before any Person has become an Acquiring Person,
exchange all or part of the then outstanding Rights for rights of substantially
equivalent value, as determined reasonably and with good faith by the Board of
Directors, based upon the advice of one or more nationally recognized investment
banking firms.
(f) Immediately upon the action of the Board of Directors ordering the
exchange of any Rights pursuant to subsection 24(e) of this Section 24 and
without any further action and without
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<PAGE>
any notice, the right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive that number of rights
in exchange therefor as has been determined by the Board of Directors in
accordance with subsection 24(e) above. The Company shall give public notice of
any such exchange; provided, however, that the failure to give, or any defect
-------- -------
in, such notice shall not affect the validity of such exchange. The Company
shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the transfer
agent for the Common Shares of the Company. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of exchange will state the method by which the
exchange of the Rights will be effected.
Section 25. Notice of Certain Events.
------------------------
(a) In case the Company shall propose to effect or permit to occur any
Triggering Event or Section 13 Event, the Company shall give notice thereof to
each holder of Rights in accordance with Section 26 hereof at least twenty (20)
days prior to occurrence of such Triggering Event or such Section 13 Event.
(b) In case any Triggering Event or Section 13 Event shall occur,
then, in any such case, the Company shall as soon as practicable thereafter give
to each holder of a Rights Certificate, in accordance with Section 26 hereof, a
notice of the occurrence of such event, which shall specify the event and the
consequences of the event to holders of Rights under Sections 11(a)(ii) and 13
hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to be
-------
given or made by the Rights Agent or by the holder of any Rights Certificate to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
CUSTOM CHROME, INC.
16100 Jacqueline Court
Morgan Hill, California 9037
Attention: Chief Executive Officer
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Kenneth M. Siegel
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Rights Certificate to or on the
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<PAGE>
Rights Agent shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing with the
Company) as follows:
American Stock Transfer and Trust Company
40 Wall Street
New York, NY 10005
Attention: Executive Vice President
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. Prior to the occurrence of a
--------------------------
Distribution Date, the Company may supplement or amend this Agreement in any
respect without the approval of any holders of Rights and the Rights Agent
shall, if the Company so directs, execute such supplement or amendment. From and
after the occurrence of a Distribution Date, the Company and the Rights Agent
may from time to time supplement or amend this Agreement without the approval of
any holders of Rights in order to (i) cure any ambiguity, (ii) correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, (iii) shorten or lengthen any time period
hereunder (which shortening or lengthening shall be effective only if there are
Continuing Directors and shall require the concurrence of a majority of such
Continuing Directors) or (iv) to change or supplement the provisions hereunder
in any manner that the Company may deem necessary or desirable and that shall
not adversely affect the interests of the holders of Rights (other than an
Acquiring Person or an Affiliate or Associate of an Acquiring Person); provided,
--------
this Agreement may not be supplemented or amended to lengthen, pursuant to
clause (iii) of this sentence, (A) a time period relating to when the Rights may
be redeemed at such time as the Rights are not then redeemable or (B) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the rights of, and/or the benefits to, the holders of Rights
(other than an Acquiring Person or an Affiliate or Associate of an Acquiring
Person). Upon the delivery of a certificate from an appropriate officer of the
Company that states that the proposed supplement or amendment is in compliance
with the terms of this Section 27, the Rights Agent shall execute such
supplement or amendment. Prior to the Distribution Date, the interests of the
holders of Rights shall be deemed coincident with the interests of the holders
of Common Shares.
Section 28. Successors. All the covenants and provisions of this Agreement
----------
by or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors, etc. For
----------------------------------------------------------
all purposes of this Agreement, any calculation of the number of Common Shares
outstanding at any particular time, including for purposes of determining the
particular percentage of such outstanding Common Shares of which any Person is
the Beneficial Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. The
Board of Directors of the Company (or, where specifically provided for herein,
the Continuing Directors) shall have the
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<PAGE>
exclusive power and authority to administer this Agreement and to exercise all
rights and powers specifically granted to the Board, or the Company (or, where
specifically provided for herein, the Continuing Directors), or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
(or, where specifically provided for herein, by the Continuing Directors) in
good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights Certificates and all other parties and
(y) not subject the Board or the Continuing Directors to any liability to the
holders of the Rights.
Section 30. Benefits of this Agreement. Nothing in this Agreement shall be
--------------------------
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, the Common Shares) any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Rights
Certificates (and, prior to the Distribution Date, the Common Shares).
Section 31. Severability. If any term, provision, covenant or restriction
------------
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
- -------- -------
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the Close of Business on the
tenth day following the date of such determination by the Board of Directors.
Section 32. Governing Law. This Agreement and each Right and each Rights
-------------
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
--------------------
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
"COMPANY" CUSTOM CHROME, INC.
By: /s/ Ignatuis J. Panzica
________________________________________
Name: Ignatius J. Panzica
Title: Chief Executive Officer and President
"RIGHTS AGENT" AMERICAN STOCK TRANSFER AND TRUST COMPANY
By: /s/ Herbert J. Lemmer
________________________________________
Name: Herbert J. Lemmer
_____________________________________
Title: Vice President
____________________________________
44
<PAGE>
EXHIBIT A
---------
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK
OF CUSTOM CHROME, INC.
The undersigned, Ignatius J. Panzica and James J. Kelly, Jr. do hereby
certify:
1. That they are the duly elected and acting Chief Executive Officer and
Secretary, respectively, of Custom Chrome, Inc., a Delaware corporation (the
"CORPORATION").
-----------
2. That pursuant to the authority conferred upon the Board of Directors by
the Restated Certificate of Incorporation of the said Corporation, the said
Board of Directors on November 13, 1996 adopted the following resolution
creating a series of 50,000 shares of Preferred Stock designated as Series A
Participating Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of Directors of
the corporation by the Restated Certificate of Incorporation, the Board of
Directors does hereby provide for the issue of a series of Preferred Stock of
the Corporation and does hereby fix and herein state and express the
designations, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of such series of Preferred Stock
as follows:
Section 1 Designation and Amount. The shares of such series shall be
----------------------
designated as "SERIES A PARTICIPATING PREFERRED STOCK." The Series A
--------------------------------------
Participating Preferred Stock shall have a par value of $0.001 per share, and
the number of shares constituting such series shall be 50,000.
Section 2 Proportional Adjustment. In the event the Corporation shall at
-----------------------
any time after the issuance of any share or shares of Series A Participating
Preferred Stock (i) declare any dividend on Common Stock of the Corporation
("COMMON STOCK") payable in shares of Common Stock, (ii) subdivide the
------------
outstanding Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Corporation shall
simultaneously effect a proportional adjustment to the number of outstanding
shares of Series A Participating Preferred Stock.
Section 3 Dividends and Distributions.
---------------------------
(a) Subject to the prior and superior right of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Participating Preferred Stock with respect to dividends, the holders
of shares of Series A Participating Preferred Stock shall be entitled to receive
when, as and if declared by the Board of Directors out of funds legally
available for that purpose, quarterly dividends payable in cash on the last day
of January, April, July and October in each year (each such date being referred
to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the first
-------------------------------
45
<PAGE>
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Participating Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other (except
as provided in Section 2 hereof) than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Participating Preferred Stock.
(b) The Corporation shall declare a dividend or distribution on the
Series A Participating Preferred Stock as provided in paragraph (a) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(c) Dividends shall begin to accrue on outstanding shares of Series A
Participating Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Participating Preferred
Stock, unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series A Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Participating Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of holders of
shares of Series A Participating Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
Section 4 Voting Rights. The holders of shares of Series A Participating
-------------
Preferred Stock shall have the following voting rights:
(a) Each share of Series A Participating Preferred Stock shall entitle
the holder thereof to 1,000 votes on all matters submitted to a vote of the
stockholders of the Corporation.
(b) Except as otherwise provided herein or by law, the holders of
shares of Series A Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation.
(c) Except as required by law, holders of Series A Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
46
<PAGE>
Section 5 Certain Restrictions.
--------------------
(a) The Corporation shall not declare any dividend on, make any
distribution on, or redeem or purchase or otherwise acquire for consideration
any shares of Common Stock after the first issuance of a share or fraction of a
share of Series A Participating Preferred Stock unless concurrently therewith it
shall declare a dividend on the Series A Participating Preferred Stock as
required by Section 3 hereof.
(b) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Participating Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Participating
Preferred Stock outstanding shall have been paid in full, the Corporation shall
not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Participating Preferred Stock;
(ii) declare or pay dividends on, make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with Series A Participating Preferred Stock, except
dividends paid ratably on the Series A Participating Preferred Stock and all
such parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Participating Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Participating Preferred Stock;
(iv) purchase or otherwise acquire for consideration any shares of
Series A Participating Preferred Stock, or any shares of stock ranking on a
parity with the Series A Participating Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(c) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (a) of this Section 5,
purchase or otherwise acquire such shares at such time and in such manner.
47
<PAGE>
Section 6 Reacquired Shares. Any shares of Series A Participating
-----------------
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein and, in the Restated Certificate of Incorporation, as then amended.
Section 7 Liquidation, Dissolution or Winding Up. Upon any liquidation,
--------------------------------------
dissolution or winding up of the Corporation, the holders of shares of Series A
Participating Preferred Stock shall be entitled to receive an aggregate amount
per share equal to 1000 times the aggregate amount to be distributed per share
to holders of shares of Common Stock plus an amount equal to any accrued and
unpaid dividends on such shares of Series A Participating Preferred Stock.
Section 8 Consolidation, Merger, etc. In case the Corporation shall enter
--------------------------
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share equal to 1,000 times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged.
Section 9 No Redemption. The shares of Series A Participating Preferred
-------------
Stock shall not be redeemable.
Section 10 Ranking. The Series A Participating Preferred Stock shall rank
-------
junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
Section 11 Amendment. The Restated Certificate of Incorporation of the
---------
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preference or special rights of the Series A
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority of the outstanding shares of
Series A Participating Preferred Stock, voting separately as a class.
Section 12 Fractional Shares. Series A Participating Preferred Stock may
-----------------
be issued in fractions of a share which shall entitle the holder, in proportion
to such holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series A Participating Preferred Stock.
RESOLVED FURTHER, that the President or any Vice President and the Secretary
or any Assistant Secretary of this corporation be, and they hereby are,
authorized and directed to prepare and file a Certificate of Designation of
Rights, Preferences and Privileges in accordance with the foregoing
48
<PAGE>
resolution and the provisions of Delaware law and to take such actions as they
may deem necessary or appropriate to carry out the intent of the foregoing
resolution."
We further declare under penalty of perjury that the matters set forth in the
foregoing Certificate of Designation are true and correct of our own knowledge.
Executed at Morgan Hill, California on November ____, 1996.
________________________________________________
Ignatius J. Panzica, Chief Executive Officer
________________________________________________
James J. Kelly, Jr., Secretary
49
<PAGE>
EXHIBIT B
---------
FORM OF RIGHTS CERTIFICATE
Certificate No. R- _________ Rights
NOT EXERCISABLE AFTER THE EARLIER OF (i) NOVEMBER 13, 2006,
(ii) THE DATE TERMINATED BY THE COMPANY OR (iii) THE DATE
THE COMPANY EXCHANGES THE RIGHTS PURSUANT TO THE RIGHTS
AGREEMENT. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE
OPTION OF THE COMPANY, AT $0.01 PER RIGHT ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES,
RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS
ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER
OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED
BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A
PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN
THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND
THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE
CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH RIGHTS AGREEMENT.]*
RIGHTS CERTIFICATE
CUSTOM CHROME, INC.
This certifies that ______________________________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement dated as of November 13, 1996 (the "RIGHTS AGREEMENT"),
----------------
between Custom Chrome, Inc., a Delaware corporation (the "COMPANY"), and
-------
American Stock Transfer and Trust Company ( the "RIGHTS AGENT"), to purchase
------------
from the Company at any time after the Distribution Date (as such term is
defined in the Rights Agreement) and prior to 5:00 P.M., New York time, on
November 13, 2006 at the office of the Rights Agent designated for such purpose,
or at the office of its successor as Rights Agent, one one-thousandth (1/1,000)
of a fully paid non-assessable share of Series A Participating Preferred Stock,
no par value, (the "PREFERRED SHARES"), of the Company,
----------------
_______________
* The portion of the legend in bracket shall be inserted only if applicable and
shall replace the preceding sentence.
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at an Exercise Price of Eighty Dollars ($80) per one-thousandth of a Preferred
Share (the "EXERCISE PRICE"), upon presentation and surrender of this Rights
--------------
Certificate with the Form of Election to Purchase and related Certificate duly
executed. The number of Rights evidenced by this Rights Certificate (and the
number of one-thousandths of a Preferred Share which may be purchased upon
exercise hereof) set forth above are the number and Exercise Price as of
December 13, 1996, based on the Preferred Shares as constituted at such date.
As provided in the Rights Agreement, the Exercise Price and the number and kind
of Preferred Shares or other securities which may be purchased upon the exercise
of the Rights evidenced by this Rights Certificate are subject to modification
and adjustment upon the happening of certain events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company and the above-mentioned office of the Rights Agent.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Rights Certificate (i) may be redeemed by the Company, at its option, at
a redemption price of $0.01 per Right or (ii) may be exchanged by the Company in
whole or in part for Common Shares, substantially equivalent rights or other
consideration as determined by the Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the office of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing Rights entitling the holder to purchase a like
aggregate amount of securities as the Rights evidenced by the Rights Certificate
or Rights Certificates surrendered shall have entitled such holder to purchase.
If this Rights Certificate shall be exercised in part, the holder shall be
entitled to receive upon surrender hereof another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
No fractional portion of less than one one-thousandth of a Preferred
Share will be issued upon the exercise of any Right or Rights evidenced hereby
but in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Rights Certificate, as such, shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights
51
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Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Rights Certificate shall have been
exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and its
corporate seal. Dated as of _______________, 19____.
ATTEST: CUSTOM CHROME, INC.
_________________________________ By: ______________________________________
James J. Kelly, Jr., Secretary Ignatius J. Panzica, President and
Chief Executive Officer
Countersigned:
AMERICAN STOCK TRANSFER AND TRUST COMPANY
as Rights Agent
By: _________________________
Its: ________________________
52
<PAGE>
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate)
FOR VALUE RECEIVED ____________________________________ hereby sells,
assigns and transfers unto
______________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________this
Rights Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint __________________________
Attorney, to transfer the within Rights Certificate on the books of the within-
named Company, with full power of substitution.
Dated: _______________, 19____
________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
53
<PAGE>
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [_] is [_] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person, or an
Affiliate or Associate of any such Person (as such terms are defined in the
Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[_] did [_] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of any such Person.
Dated: _______________, 19____
_______________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
54
<PAGE>
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to
exercise the Rights Certificate)
To: ___________________________
The undersigned hereby irrevocably elects to exercise _______________
Rights represented by this Rights Certificate to purchase the number of one-
thousandths of a Preferred Share issuable upon the exercise of such Rights and
requests that certificates for such number of one-thousandths of a Preferred
Share issued in the name of:
Please insert social security
or other identifying number
______________________________________________________________________________
(Please print name and address)
______________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
______________________________________________________________________________
(Please print name and address)
______________________________________________________________________________
Dated: ___________________ , 19____
_______________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
55
<PAGE>
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [_] are [_] are not being
exercised by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Person (as such terms are defined in the
Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [_]
did [_] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or subsequently became an Acquiring Person or an Affiliate or
Associate of any such Person.
Dated: _______________, 19____
_______________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
56
<PAGE>
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED
NOTICE
------
The signature in the foregoing Forms of Assignment and Election must
conform to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
57
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EXHIBIT C
---------
STOCKHOLDER RIGHTS PLAN
CUSTOM CHROME, INC.
Summary of Rights
-----------------
Distribution; Transfer The Board of Directors has declared a dividend of one
- ---------------------- Right for each share of Custom Chrome, Inc. Common
of Rights; and Stock outstanding. Prior to the Distribution Date
- -------------- referred to below, the Rights will be evidenced by
Rights Certificate: trade with the certificates for the Common Stock.
- ------------------ After the Distribution Date, Custom Chrome, Inc. (the
"COMPANY") will mail Rights certificates to the
-------
Company's stockholders and the Rights will become
transferable apart from the Common Stock.
Distribution Date: Rights will separate from the Common Stock and become
- ----------------- exercisable following (a) the tenth day (or such later
date as may be determined by a majority of the
Directors not affiliated with the acquiring person or
group (the "CONTINUING DIRECTORS")) after a person or
--------------------
group acquires beneficial ownership of 15% or more of
the Company's Common Stock or (b) the tenth business
day (or such later date as may be determined by a
majority of the Continuing Directors) after a person or
group announces a tender or exchange offer, the
consummation of which would result in ownership by a
person or group of 15% or more of the Company's Common
Stock.
Preferred Stock After the Distribution Date, each Right will entitle
- --------------- the holder to purchase for $80.00, a fraction of a
Purchasable Upon share of the Company's Preferred Stock with economic
- ---------------- terms similar to that of one share of the Company's
Exercise of Rights: Common Stock.
- ------------------
Flip-In: If an acquiror (an "ACQUIRING PERSON") obtains 15% or
- ------- ----------------
more of the Company's Common Stock (other than pursuant
to a tender offer deemed adequate and in the best
interests of the Company and its stockholders by the
Continuing Directors (a "PERMITTED OFFER")), then each
--------------- ----
Right (other than Rights owned by an Acquiring Person
or its affiliates) will entitle the holder thereof to
purchase, for the Exercise Price, a number of shares of
the Company's Common Stock having a then current market
value of twice the Exercise Price.
Flip-Over: If, after an Acquiring Person obtains 15% or more of
- --------- the Company's Common Stock, (a) the Company merges into
another entity, (b) an acquiring entity merges into the
Company or (c) the Company sells more than 50% of the
Company's assets or earning power, then each Right
----
58
<PAGE>
(other than Rights owned by an Acquiring Person or its
affiliates) will entitle the holder thereof to
purchase, for the Exercise Price, a number of shares of
Common Stock of the Person engaging in the transaction
having a then current market
59
<PAGE>
value of twice the Exercise Price (unless the
transaction satisfies certain conditions and is
consummated with a Person who acquired shares pursuant
to a Permitted Offer, in which case the Rights will
expire).
Exchange Provision: At any time after the date an Acquiring Person obtains
- ------------------ 15% or more of the Company's Common Stock and prior to
the acquisition by the Acquiring Person of 50% of the
outstanding Common Stock, a majority of the Board of
Directors and a majority of the Continuing Directors of
the Company may exchange the Rights (other than Rights
owned by the Acquiring Person or its affiliates), in
whole or in part, for shares of Common Stock of the
Company at an exchange ratio of one share of Common
Stock per Right (subject to adjustment).
Redemption of Rights will be redeemable at the Company's option for
- ------------- $0.01 per Right at any time on or prior to the tenth
the Rights: day (or such later date as may be determined by a
- ---------- majority of the Continuing Directors) after public
announcement that a Person has acquired beneficial
ownership of 15% or more of the Company's Common Stock
(the "SHARES ACQUISITION DATE").
-----------------------
Expiration of The Rights expire on the earliest of (a) November 13,
- ------------- 2006, (b) exchange or redemption of the Rights as the
Rights: described above, or (c) consummation of a merger or
- ------- consolidation resulting in expiration of the Rights as
described above.
Amendment of The terms of the Rights and the Rights Agreement may
- ------------ be amended in any respect without the consent of the
Terms of Rights: Rights holders on or prior to Distribution Date;
- --------------- thereafter, the terms of the Rights and the Rights
Agreement may be amended without the consent of the
Rights holders in order to cure any ambiguities or to
make changes which do not adversely affect the
interests of Rights holders (other than the Acquiring
Person).
Voting Rights: Rights will not have any voting rights.
- -------------
Anti-Dilution Rights will have the benefit of certain customary anti-
- ------------- dilution provisions.
Provisions:
- ----------
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Taxes: The Rights distribution should not be taxable for
- ----- federal income tax purposes. However, following an
event which renders the Rights exercisable or upon
redemption of the Rights, stockholders may recognize
taxable income.
The foregoing is a summary of certain principal terms of the Stockholder Rights
Plan only and is qualified in its entirety by reference to the detailed terms of
the Rights Agreement dated as of November 13, 1996, between the Company and the
Rights Agent.
61
