UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D/A
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
(Amendment No. 4)
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GLOBAL MOTORSPORT GROUP, INC.
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(Name of Issuer)
Common Stock, par value $0.001 per share
----------------------------------------
(Title of Class of Securities)
378937106
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(CUSIP Number)
Wolf, Block, Schorr and Solis-Cohen LLP
111 South 15th Street
Philadelphia, PA 19102
Attention: Herbert Henryson II, Esquire
(215) 977-2556
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
October 27, 1998
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of ss.ss.240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box [ ].
<PAGE>
Golden Cycle, LLC hereby amends its Schedule 13D (the "Schedule 13D")
relating to the Common Stock, par value $0.001 per share, of Global Motorsport
Group, Inc. to add the following information. All capitalized terms used and not
otherwise defined herein have the meanings ascribed to them in the Schedule 13D.
Item 4. Purpose of Transaction.
Item 4 is hereby amended to add the following:
On April 13, 1998, the Reporting Person filed revised preliminary proxy
materials with the Securities and Exchange Commission in connection with its
proposed solicitation of written consents to replace the current Board of
Directors of the Company with its own nominees committed to selling the Company
for the highest price reasonably available. Such revised preliminary proxy
material is hereby incorporated herein by reference.
On April 14, 1998, the Reporting Person sent a letter to Mr. Joseph F.
Keenan, Chairman of the Board of the Company, regarding the Reporting Person's
reasons for wanting to purchase the Company. A copy of the letter was attached
as an exhibit to Amendment No. 2 to the Reporting Person's Schedule 14D-1, which
amendment was filed with the Securities and Exchange Commission on April 15,
1998, and is hereby incorporated herein by reference.
On April 15, 1998, the Reporting Person filed definitive proxy
materials with the Securities and Exchange Commission in connection with its
solicitation of written consents (the "Solicitation") to replace the current
Board of Directors of the Company with its own nominees committed to selling the
Company for the highest price reasonably available. Such definitive proxy
material is hereby incorporated herein by reference.
On April 16, 1998, the Reporting Person issued a press release regarding
the Reporting Person's intent to deliver, on April 20, 1998, its consent in
connection with the Solicitation. The Reporting Person stated in that press
release its belief that such delivery would establish the record date for the
Solicitation as April 20, 1998. Pursuant to the Delaware General Corporation Law
(the "DGCL"), consents must be delivered within 60 days of the record date in
order to be effective.
The April 16 press release also stated that the Company purported to
have established the record date for the Solicitation as March 30, 1998. Such
press release was attached as an exhibit to Amendment No. 3 to the Reporting
Person's Schedule 14D-1, which amendment was filed with the Securities and
Exchange Commission on April 17, 1998, and is hereby incorporated herein by
reference.
On May 4, 1998, the Reporting Person issued a press release extending
the expiration date of its tender offer to purchase all the outstanding shares
of Common Stock, together with the Rights (the "Tender Offer") until 12:00
midnight, New York City time, on Friday, May 29, 1998. Such press release was
attached as an exhibit to Amendment No. 4 to the
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Reporting Person's Schedule 14D-1, which amendment was filed with the Securities
and Exchange Commission on May 5, 1998, and is hereby incorporated herein by
reference.
On May 20, 1998, Vice Chancellor Lamb of the Court of Chancery of the
State of Delaware issued an opinion denying the Reporting Person's request for a
preliminary injunction barring application to the Solicitation of the March 30,
1998 record date purportedly established by the Board of Directors of the
Company, requiring the Board of Directors of the Company to redeem the Rights
or, in the alternative, to exempt the Tender Offer from the effects of the
Rights, and to exempt it from the provisions of Section 203 of the DGCL,
requiring the Company to provide the Purchaser access to the same information
being provided to other actual or potential bidders and requiring the Company to
make curative disclosures in its Schedule 14D-9 filed with the Securities and
Exchange Commission. The Court found that the relief requested was unwarranted
and unnecessary at that time.
On May 27, 1998, the Reporting Person issued a press release expressing
the Reporting Person's disappointment in the Company's proposed recapitalization
transaction with Fremont Partners. Such press release also extended the
expiration date of the Tender Offer until 12:00 midnight, New York City time, on
Tuesday, June 30, 1998. Such press release was attached as an exhibit to
Amendment No. 5 to the Reporting Person's Schedule 14D-1, which amendment was
filed with the Securities and Exchange Commission on May 27, 1998, and is hereby
incorporated herein by reference.
On June 30, 1998, the Reporting Person issued a press release expressing
the Reporting Person's disappointment in the Company's refusal to negotiate with
the Reporting Person before entering into an acquisition agreement with Fremont
Partners. Such press release also extended the expiration date of the Tender
Offer until 12:00 midnight, New York City time, on Friday, July 24, 1998. Such
press release was attached as an exhibit to Amendment No. 6 to the Reporting
Person's Schedule 14D-1, which amendment was filed with the Securities and
Exchange Commission on July 1, 1998, and is hereby incorporated herein by
reference.
On July 24, 1998, the Reporting Person issued a press release extending
the expiration date of the Tender Offer until 12:00 midnight, New York City
time, on Friday, August 14, 1998. Such press release was attached as an exhibit
to Amendment No. 7 to the Reporting Person's Schedule 14D-1, which amendment was
filed with the Securities and Exchange Commission on July 24, 1998, and is
hereby incorporated herein by reference.
On August 14, 1998, the Reporting Person issued a press release
extending the expiration date of the Tender Offer until 12:00 midnight, New York
City time, on Wednesday, September 30, 1998. Such press release was attached as
an exhibit to Amendment No. 8 to the Reporting Person's Schedule 14D-1, which
amendment was filed with the Securities and Exchange Commission on August 14,
1998, and is hereby incorporated herein by reference.
On September 25, 1998, the Reporting Person tendered all of its shares
of the Common Stock, together with the Rights, in accordance with the terms of
the Company's offer to purchase up to 4,820,000 shares of the Common Stock at a
price of $21.75 per share in cash
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(the "Fremont Offer"). The Reporting Person tendered its shares because of the
risk that in the unlikely event that the Company had accepted shares for
purchase pursuant to the Fremont Offer, any shares which were not purchased
would, according to the Company's offer to purchase, have a value of $0.84 to
$1.34. On September 28, 1998, the Company announced that the Fremont Offer had
been terminated by agreement of the Company and Fremont Partners, and no shares
were purchased pursuant to the Fremont Offer. The Company paid Fremont Partners
$1,000,000 for expenses incurred by Fremont Partners in connection with the
Fremont Offer.
On September 30, 1998, the Reporting Person issued a press release
extending the expiration date of the Tender Offer until 12:00 midnight, New York
City time, on Friday, October 30, 1998. Such press release was attached as an
exhibit to Amendment No. 9 to the Reporting Person's Schedule 14D-1, which
amendment was filed with the Securities and Exchange Commission on October 2,
1998, and is hereby incorporated herein by reference.
Following the September 28, 1998 announcement by the Company that the
Fremont Offer had been terminated, Mr. Keenan, Chairman of the Company, stated
during a conference call with analysts that the Company was prepared to execute
a confidentiality agreement with the Reporting Person containing no standstill
provisions. Despite Mr. Keenan's assurances, the confidentiality agreement
presented to the Reporting Person by representatives of the Company continued to
include such provisions. After representatives of the Reporting Person advised
representatives of the Company that the Reporting Person would not agree to any
standstill restrictions, the Company dropped its demand for a standstill, but
continued to impose restrictions and limitations on the Reporting Person's
access to information regarding the Company. Specifically, the Company informed
the Reporting Person that it would not permit access to the Company's data room,
or interviews with the Company's management, unless the Reporting Person first
made a bid for the Company that the Company, in its sole discretion, considered
sufficient. The Reporting Person concluded that such limited due diligence would
not provide the Reporting Person with meaningful access to information which
would permit the Reporting Person to determine if there was greater value in the
Company than that reflected in public documents.
On October 27, 1998, the Reporting Person issued a press release
announcing that it intended to solicit consents to replace the Company's Board
of Directors with nominees committed to facilitate an acquisition of the Company
by the Reporting Person. Under the Reporting Person's proposal, the Company
would launch a self tender offer to purchase approximately 4,600,000 shares of
Common Stock, together with the Rights, representing approximately 99% of the
outstanding shares not owned by the Reporting Person, for a cash price of $19
per share. Following the transaction, the Reporting Person would hold
approximately 92% of the outstanding shares and the public shareholders would
retain approximately 8%. The Reporting Person announced that it had entered into
a binding commitment letter with NationsBank, N.A. to provide an $80 million
senior bank facility the proceeds of which would be used to purchase the shares
in the tender offer, pay existing indebtedness of the Company, pay fees and
expenses associated with the transaction and provide working capital to the
Company. The Reporting Person announced that the tender offer would
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not be subject to a financing condition. The October 27, 1998 press release
further stated that in order to facilitate the above-described agreement with
the Company and the self tender offer, the Reporting Person intends to allow its
current tender offer for the shares of Common Stock to expire on its scheduled
expiration date of Friday, October 30, 1998 without the purchase of any shares
thereunder. On October 27, 1998, the Reporting Person filed preliminary proxy
material with the Security and Exchange Commission relating to the consent
solicitation. Copies of the October 27 press release and the preliminary proxy
materials are set forth in Exhibits 10 and 11 attached hereto and are hereby
incorporated herein by reference.
Item 7. Material to Be Filed as Exhibits.
Item 7 is hereby amended to add the following:
10. Press release issued by the Reporting Person on October 27, 1998.
11. Preliminary Proxy Materials of the Reporting Person, filed
with the Securities and Exchange Commission on October 27, 1998.
12. Commitment Letter, dated October 19, 1998, from NationsBank,
N.A., to the Reporting Person.
Page 5
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief,
the undersigned certifies that the information set forth in this Statement is
true, complete and correct.
Dated: October 27, 1998
GOLDEN CYCLE, LLC
By: /s/ Roger Grass
-------------------------------
Roger Grass
Vice President and Treasurer
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<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10 Press release issued by the Reporting Person on October 27,
1998.
11 Preliminary Proxy Materials of the Reporting Person, filed
with the Securities and Exchange Commission on October 27,
1998.
12 Commitment Letter, dated October 19, 1998, from NationsBank,
N.A., to the Reporting Person.
Page 7
EXHIBIT 10
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FOR IMMEDIATE RELEASE
- ---------------------
For further information, call:
Alan Miller
Innisfree M & A Incorporated
(212) 750-5831
GOLDEN CYCLE PROPOSES THE ACQUISITION
OF UP TO APPROXIMATELY 4,600,000 SHARES OF
GLOBAL MOTORSPORT GROUP FOR $19 PER SHARE IN CASH-
SEEKS CONSENTS TO REPLACE BOARD OF DIRECTORS
WYNNEWOOD, PA, October 27, 1998 - Golden Cycle, LLC announced today it
will solicit consents from stockholders of Global Motorsport Group, Inc.
(NASDAQ: CSTM) to replace Global's Board of Directors with nominees committed to
facilitate an acquisition of the company by Golden Cycle. Under the acquisition
proposal, Global Motorsport would commence a self tender offer to purchase up to
approximately 4,600,000 shares of its common stock for $19 per share in cash.
Based upon information in Global's SEC filings, this number of shares represents
approximately 99% of the outstanding shares of Global not owned by Golden Cycle.
The self tender will not be subject to any financing conditions. Golden
Cycle has entered into a commitment letter with NationsBank, N.A. pursuant to
which NationsBank will provide an $80 million senior credit facility for the
purpose of acquiring shares in the tender offer, refinancing existing
indebtedness of Global, paying fees and expenses of the transaction and
providing for working capital needs. Alex and Roger Grass have committed to fund
an additional $30 million in subordinated debt and $60 million in equity to
finance the transaction. Mr. Alex Grass, President of Golden Cycle, said that
"Despite Global's refusal to negotiate with us and permit us to conduct
meaningful due diligence and despite the difficult debt markets, we have
obtained an $80 million senior credit facility and demonstrated our commitment
to acquire Global and provide shareholders with value now. If shareholders will
elect our nominees to the Board of Global, we are prepared to enter into an
agreement which is not conditioned on financing and will not contain any
provisions that would preclude or restrict Global from considering other offers
for its shares. Golden Cycle's nominees for the Global Board are committed to
conducting good faith negotiations with any person who makes a bona fide, fully
financed offer to purchase substantially all of the outstanding shares of Global
Motorsport for more than $19 per share."
In a related matter, in order to best facilitate the above-described
agreement with Global Motorsport and the self tender offer, Golden Cycle
announced that it intends to allow its current tender offer for the shares of
Global Motorsport to expire without the purchase of any shares thereunder on the
scheduled expiration date of 12:00 midnight, New York City time, on Friday,
October 30, 1998.
<PAGE>
CERTAIN INFORMATION CONCERNING PARTICIPANTS
Golden Cycle, LLC ("Golden Cycle") and certain other persons named
below may solicit the consent of shareholders (a) to remove the current members
of the Board of Directors of Global Motorsport Group, Inc. ("Global") and elect
five nominees (the "Nominees") as directors of Global pursuant to a shareholder
action by written consent (the "Consent Solicitation") and (b) in favor of three
proposals to amend the By-laws of Global. The participants in this solicitation
may include the officers of Golden Cycle (Alex Grass and Roger Grass), each of
whom is a Nominee.
As of the date of this communication, Golden Cycle is the beneficial
owner of 528,100 shares of Common Stock, par value $0.001 per share, of Global.
Other than as set forth herein, as of the date of this communication, neither
Golden Cycle nor any of its members or other representatives or employees, any
Nominees or other persons known to Golden Cycle who may solicit proxies has any
security holdings in Global.
Golden Cycle has retained Jefferies & Company, Inc. ("Jefferies &
Company") to act as its financial advisor in connection with Golden Cycle's
offer to acquire Global and the Consent Solicitation, for which Jefferies &
Company will receive customary fees, as well as reimbursement of reasonable
out-of-pocket expenses. In addition, Golden Cycle has agreed to indemnify
Jefferies & Company and certain related persons against certain liabilities,
including certain liabilities under the federal securities laws, arising out of
their engagement. Jefferies & Company does not admit that it or any of its
shareholders, directors, officers, employees or affiliates is a "participant" as
defined in Schedule 14A promulgated under the Securities Exchange Act of 1934 by
the Securities and Exchange Commission, or that Schedule 14A requires the
disclosure of certain information concerning Jefferies & Company. Andrew
Whittaker (an executive vice president) and Louis Fienberg (a senior vice
president) of Jefferies & Company may assist Golden Cycle in the solicitation of
consents of shareholders. Jefferies & Company engages in a full range of
investment banking, securities trading, market-making and brokerage services for
institutional and individual clients. In the normal course of its business
Jefferies & Company may trade securities of Global for its own account and the
accounts of its customers, and accordingly, may at any time hold a long or short
position in such securities. Jefferies & Company has informed Golden Cycle that
as of October 26, 1998, Jefferies & Company held no shares of Global Common
Stock for its own account.
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PRELIMINARY COPY
SUBJECT TO COMPLETION
GOLDEN CYCLE, LLC
Harrisburg, Pennsylvania
October __, 1998
Dear Global Motorsport Group Stockholders:
On October 27, 1998, Golden Cycle, LLC presented you with an opportunity to
sell up to approximately 99% of your stock for $19.00 per share in cash through
our fully financed proposal. We continue to believe that we offer the
stockholders of Global Motorsport Group the greatest certainty of receiving
value for their shares. For that reason, we are seeking your consents to replace
Global's Board with our nominees and approve certain other proposals
(collectively, the "Proposals") which are described in the Consent Statement
attached to this letter. All stockholders of Global Motorsport Group are being
asked to express their consent to the Proposals by MARKING, SIGNING and DATING
the enclosed WHITE consent card and returning it to Innisfree M&A Incorporated
in accordance with the instructions set forth in the Consent Statement.
As you know, at the end of March we proposed to Global Motorsport Group
management that we acquire the company at a cash price of $18 per share. At that
time, we stated our willingness to negotiate all terms of our offer, including
the price, and requested that the company provide us with access to information
which would permit us to determine the values inherent in the company. Global's
Board rejected our offer and has refused to sit down with us to negotiate a
transaction.
On May 22, 1998, Global Motorsport announced that it had entered into a
letter of intent with an entity controlled by Fremont Partners for the
acquisition of the outstanding shares of Global for $23 per share in cash. The
letter of intent provided that Global would not solicit, negotiate or provide
information to any other potential buyers until the end of June, and also
provided for a cash payment of $5 million to Fremont if the transaction were not
consummated and Global entered into an alternative sale transaction at a higher
price.
On June 29, 1998, Global Motorsport announced that it had entered into a
definitive merger agreement whereby Global would be acquired by an entity
controlled by Fremont Partners. The terms of the transaction were materially
different from those announced on May 22. In particular, the agreement provided
that 94% of the publicly held shares of the company would be acquired, in a
self-tender offer by Global, for a cash price of $21.75. Based on the valuation
of the stub interest performed by Cleary Gull Reiland & McDevitt, Inc., Global's
investment banker, as reported in Global's SEC filings, the blended price of the
Fremont offer was approximately $20.50 per share. In addition, Global agreed to
pay Fremont $1 million in expenses if the merger agreement were terminated for
any reason and an additional $3.5 million breakup fee under certain conditions.
Despite the fact that Fremont had backed away from its agreement to pay $23 in
cash for all shares, Global never contacted us to discuss what price Golden
Cycle might be willing to pay to acquire the company.
On August 11, 1998, one day before Global's tender offer was scheduled to
close, the company issued a press release announcing that it was extending its
offer until the end of September "to provide additional time to satisfy the
financing condition to the tender offer in view of current market conditions in
the high yield debt securities market."
On September 28, 1998, Global announced that it had agreed with Fremont to
terminate its offer due to the failure to satisfy the financing condition to the
tender offer. Global also paid to Fremont $1 million in expenses. Mr. Keenan,
chairman of Global, stated during a conference call with analysts on September
28 that Golden Cycle would be permitted to conduct due diligence on executing a
confidentiality agreement containing no standstill provisions. Despite Mr.
Keenan's assurances, Global continued to insist upon a standstill from us until
it became clear that we would not enter into such an agreement. At that point,
Global dropped its demand for a standstill, but continued to impose restrictions
and limitations that we found unacceptable. Specifically, Global informed us
that it could not
<PAGE>
permit access to the data room or to management, unless we first made a bid that
Global, in its sole discretion, considered sufficient.
Although Global's Board refuses to negotiate a transaction with us, we are
prepared to enter into an agreement with the company which would provide
stockholders with $19 in cash for substantially all of their shares. In
particular, if Global's stockholders approve our Proposals to remove all current
members of the company's Board of Directors, amend the By-laws to set the number
of directors on the Board at five and permit the company's stockholders to fill
vacancies on the Board and elect our nominees to the Board, then subject to the
fulfillment of their fiduciary duties as directors of the company, our nominees
intend to enter into an agreement between Golden Cycle and Global providing for
a transaction, structured as a tender offer by Global, in which holders of
shares of Global's common stock would receive $19 in cash for approximately
4,600,000 shares, representing approximately 99% of the presently outstanding
shares which are not owned by Golden Cycle. Following the closing, public
stockholders would continue to own approximately 8% of the outstanding common
equity of Global. In order to ensure that any sale of the Company results in
maximum value to all stockholders, we have agreed that any acquisition agreement
between Golden Cycle and Global will not contain any provisions that would
preclude or restrict the Board from considering other offers for its shares
We estimate the total amount of funds required to purchase 4,600,000
shares, refinance certain indebtedness of the company, pay costs and expenses
and provide the company with sufficient working capital to be approximately $160
million. We have received a firm commitment from NationsBank, N.A. to provide
$80 million in senior bank debt financing. In addition, we will raise $30
million in subordinated debt and $60 million in equity from Alex and Roger Grass
or their affiliates. As a consequence, despite the difficult market conditions
which gave Fremont the opportunity to terminate its agreement and walk away with
$1 million, our offer is not subject to a financing condition. For that reason,
we believe that there is far greater certainty that our transaction can be
successfully completed. However, that can only happen if stockholders give their
consents to our Proposals.
You now have an opportunity to maximize the value of your investment. We
urge you to read the enclosed materials, which describe our Proposals in greater
detail. Then, please sign, date and return the enclosed WHITE consent card today
in the envelope provided. This is your chance to tell the existing Global
Motorsport directors and management that you want to realize value for your
Global shares now.
Sincerely,
1. If your shares of Global Common Stock are held in your own name, please
sign, date and return the enclosed WHITE consent card today in the envelope
provided.
2. If your shares of Global Common Stock are held in the name of a
brokerage firm, bank nominee or other institution, only that entity can execute
a consent with respect to your shares and only upon receipt of your specific
instructions. Accordingly, you should contact the person responsible for your
account and instruct him or her to vote a WHITE consent card on your behalf
today. Golden Cycle urges you to confirm in writing your instructions to the
person responsible for your account and provide a copy of those instructions to
Golden Cycle in care of Innisfree M&A Incorporated so that Golden Cycle will be
aware of all instructions given and can attempt to ensure that these
instructions are followed.
If you have any questions or require any assistance in executing or
delivering your consent, please call:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, New York 10022
Toll Free: (888) 750-5834
Banks and Brokers call collect: (212) 750-5833
2
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PRELIMINARY COPY
SUBJECT TO COMPLETION
CONSENT STATEMENT OF GOLDEN CYCLE, LLC
This Consent Solicitation Statement (the "Consent Statement") and the
accompanying form of written consent are furnished by Golden Cycle, LLC
("Cycle") in connection with its solicitation of written consents from the
holders of common stock, $0.001 par value per share (the "Common Stock"), of
Global Motorsport Group, Inc. (the "Company") to take the following action
without a meeting of the Company's stockholders, as permitted by Delaware law:
1. Remove all current members of the Company's Board of Directors (the
"Board of Directors") and any other person or persons (other than the
persons elected pursuant to this consent) elected or appointed to the Board
of Directors prior to the effective date of this stockholder action in
addition to or in lieu of any of such current members to fill any newly
created directorship or vacancy on the Board of Directors, or otherwise
(the "Director Removal Proposal");
2. Amend Article III, Section 1 of the Bylaws of the Company (the "Bylaws")
to set the number of directors on the Board of Directors at five (the
"Board Size Proposal");
3. Amend Article III, Section 2 of the Bylaws to permit the Company's
stockholders to fill vacancies on the Board of Directors (the "Director
Vacancy Proposal");
4. Elect Aaron H. Brenner, Alexander Grass, Roger Grass, H. Irwin Levy and
George Lindemann (collectively, the "Cycle Nominees" or the "Nominees") as
directors of the Company to fill the newly created vacancies on the Board
of Directors and to serve until their respective successors are duly
elected and qualified (the "Director Election Proposal"); and
5. Repeal any Bylaws adopted by the Board of Directors since May 7, 1998
and prior to the effective date of this stockholder action other than the
Bylaws adopted by this consent (the "Bylaw Proposal" and, collectively with
the Director Removal Proposal, the Board Size Proposal, the Director
Vacancy Proposal and the Director Election Proposal, the "Proposals").
Stockholders of the Company are being asked to express their consent to the
Proposals by MARKING, SIGNING and DATING the enclosed WHITE consent card
and returning it to Innisfree M&A Incorporated in accordance with the
instructions set forth below.
GOLDEN CYCLE, LLC RECOMMENDS THAT YOU CONSENT
TO EACH OF THE PROPOSALS
This Consent Statement and the enclosed WHITE consent card are first being
furnished to the Company's stockholders on or about October __, 1998.
SUMMARY OF CONSENT PROCEDURE
Cycle believes that the Proposals will become effective on the date when the
written consents of holders of a majority of the shares of the Common Stock
outstanding on the record date as determined in accordance with Delaware law
(the "Record Date") are delivered to the Company, so long as each of such
consents is obtained within 60 days of the earliest dated consent delivered to
the Company. Section 213(b) of the Delaware General Corporation Law (the "DGCL")
provides that the record date for a consent solicitation shall be as established
by the board of directors of the corporation (i.e., the Company) or, if no
record date is established, shall be the first date on which a signed written
consent is delivered to the corporation. Cycle delivered a signed written
consent to the Company on ____, 1998. Accordingly, Cycle believes that the
Record Date is _____, 1998.
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CYCLE RECOMMENDS THAT YOU CONSENT TO EACH OF THE PROPOSALS. YOUR CONSENT IS
IMPORTANT. PLEASE MARK, SIGN AND DATE THE ENCLOSED WHITE CONSENT CARD AND RETURN
IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE PROMPTLY. FAILURE TO RETURN YOUR
CONSENT WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE PROPOSALS.
Cycle has retained Innisfree M&A Incorporated ("Innisfree") to assist in the
solicitation. If your shares are held in your name, please mark, sign, date and
mail the enclosed WHITE consent card to Innisfree in the postage-paid envelope
provided. If your shares are held in the name of a brokerage firm, bank nominee
or other institution, you should contact the person responsible for your account
and given instructions for the WHITE consent card representing your shares to be
marked, dated, signed and mailed. Only that institution can execute a WHITE
consent card with respect to your shares and only upon receipt of specific
instructions from you. Cycle urges you to confirm in writing your instructions
to the person responsible for your account and to provide a copy of those
instructions to Cycle in care of Innisfree at the address set forth below so
that Cycle will be aware of all instructions given and can attempt to ensure
that such instructions are followed.
If you have any questions about executing your consent or require assistance,
please contact:
INNISFREE M&A INCORPORATED
501 Madison Avenue, 20th Floor
New York, NY 10022
Toll Free: (888) 750-5834
Banks and Brokers call collect: (212) 750-5833
CYCLE
Cycle is a Pennsylvania limited liability company in which Alexander Grass
("Alexander Grass") and Roger L. Grass ("Roger Grass") are each 50% members.
Alexander Grass serves as President and Secretary of Cycle, and Roger Grass is
its Vice-President and Treasurer. As of the date of this Consent Statement,
Cycle owns an aggregate of 528,100 shares of the Common Stock, representing
approximately 10.2% of the 5,173,077 shares of the Common Stock currently
outstanding, based on publicly available information filed by the Company with
the Securities and Exchange Commission. The business address and the address of
the principal executive offices of Cycle is 4025 Crooked Hill Road, Harrisburg,
Pennsylvania 17110.
Additional information about Cycle, its nominees and members is set forth under
the heading "Certain Other Information Regarding Cycle and the Cycle Nominees"
and in Exhibit A attached to this Consent Statement.
BACKGROUND OF AND REASONS FOR THE CONSENT SOLICITATION
On March 23, 1998, Alexander Grass telephoned Mr. Joseph Piazza, President and
Chief Executive Officer of the Company, to discuss with him Cycle's interest in
acquiring the Company and to request a meeting with him. Mr. Piazza did not take
the call. On the same day, Cycle sent a letter to Mr. Piazza stating that Cycle
was prepared to acquire the Company at a cash price of $18 per share. The letter
stated that the terms of the offer, including the price, were subject to
negotiation if greater value could be demonstrated. The letter requested that
the Company provide Cycle with information about the Company for the purpose of
completing a due diligence review of the Company to determine whether there is
greater value in the Company. The letter further stated that if the Board of
Directors did not wish to proceed with negotiations or to provide Cycle with an
opportunity to conduct due diligence, Cycle would consider attempting to seek
control of the Company through a consent solicitation to replace the Board of
Directors and to elect directors committed to selling the Company for the
highest price reasonably available. On March 24, Cycle filed preliminary consent
solicitation materials with the Securities and Exchange
4
<PAGE>
Commission ("Commission"). Those materials cleared the Commission on April 14,
1998.
On March 27, 1998, Alexander Grass sent another letter to Mr. Piazza reiterating
Cycle's interest in having an opportunity to negotiate all aspects of its offer
and expressing disappointment that the Company refused to meet with Cycle to
negotiate the terms of the transaction. On March 31, 1998, Joseph F. Keenan,
Chairman of the Board of Directors, sent Cycle a letter acknowledging receipt of
Cycle's March 23 and 27 letters and stating that before responding to the offer
the Board of Directors needed to gather information. The letter further stated
that the Company had retained an investment banking firm as well as a law firm
in order adequately to evaluate Cycle's offer. On April 2, 1998, Alexander Grass
sent a letter to Mr. Keenan confirming that Cycle was encouraged by Mr. Keenan's
letter to the extent that it suggested recognition of the fact that serious
discussions with Cycle are in the best interests of the Company's stockholders
and that Cycle would be given equal access with all potential bidders to
information regarding the Company.
On April 7, 1998, Cycle commenced a tender offer to purchase all outstanding
shares of the Common Stock at a cash price of $18 per share (and associated
preferred share purchase right). The tender offer was conditioned upon, among
other things, (i) there being validly tendered and not withdrawn prior to the
expiration date of the tender offer that number of shares that would, together
with the shares beneficially owned by Cycle, represent a majority of the
outstanding shares of the Company on a fully diluted basis, (ii) the Company's
preferred share purchase rights (the "Rights") having been redeemed by the Board
of Directors or Cycle being satisfied, in its sole discretion, that such Rights
have been invalidated or are otherwise inapplicable to the tender offer and the
proposed merger and (iii) the acquisition of shares pursuant to the tender offer
and the proposed merger having been approved pursuant to Section 203 of the DGCL
or Cycle being satisfied, in its sole discretion, that the provisions of Section
203 are otherwise inapplicable to the acquisition of shares pursuant to the
tender offer and the proposed merger. The tender offer was also conditioned upon
Cycle's having obtained sufficient financing to purchase all shares outstanding
on a fully diluted basis, to refinance certain indebtedness of the Company and
to pay related costs and expenses. The Board of Directors took no action to
redeem the Rights, or to render the Rights Plan inapplicable to Cycle's offer.
Further, the Board of Directors has taken no action to exempt Cycle's offer from
the operation of Section 203 of the DGCL.
On April 13, 1998, the Company announced that the Board of Directors had
rejected Cycle's $18 offer as inadequate and that the Board of Directors had
authorized its management and advisors to explore alternatives to maximize
stockholder value "including entering into discussions with other parties who
have expressed an interest in acquiring the Company at a more attractive price"
than $18 per share.
On May 22, 1998, the Company announced that it had entered into a letter of
intent with an entity controlled by Fremont Partners for the acquisition of the
outstanding shares of the Company for $23 per share in cash. The letter of
intent provided that the Company would not solicit, negotiate or provide
information to any other potential buyers until the end of June 1998, and also
provided for a cash payment of $5 million to Fremont if the transaction were not
consummated and the Company entered into an alternative sale transaction at a
higher price.
On June 29, 1998, the Company announced that it had entered into a definitive
merger agreement whereby the Company would be acquired by an entity controlled
by Fremont Partners. The terms of the transaction were materially different from
those announced on May 22. In particular, the agreement provided that 94% of the
publicly held shares of the Company would be acquired, in a self tender offer by
Global, for a cash price of $21.75. In addition, the Company agreed to pay
Fremont $1 million in expenses if the merger agreement were terminated for any
reason and an additional $3.5 million breakup fee under certain conditions.
Despite the fact that Fremont had backed away from its agreement to pay $23 in
cash for all shares, the Company never contacted Cycle to discuss what price
Cycle might be willing to pay to acquire the Company. Materials distributed by
the Company to stockholders in connection with the Fremont transaction stated
that Cleary Gull Reiland & McDevitt, Inc. ("Cleary Gull") had been engaged by
the Company to act as its investment banker with respect to the Fremont offer
and that Cleary Gull had rendered an opinion that the consideration to be
received by the Company's stockholders in the transaction was fair from a
financial point of view to such stockholders. The Company's tender offer
materials stated that in connection with its opinion, Cleary Gull had derived an
equity value range for the Company of $16.00 to $24 per fully diluted
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<PAGE>
share based upon a comparable public company trading analysis, $15.00 to $22 per
share based upon a selected transactions analysis, $23.73 to $30.15 per share
based upon a discounted cash flow analysis, and $23.52 to $23.93 per share based
upon hypothetical implied trading values based upon earnings. Based on the
valuation of the stub interest performed by Cleary Gull, as reported in the
Company's Commission filings, the blended price of the Fremont offer was
approximately $20.50 per share. Between September 29, 1998, the day after the
Company announced that the Fremont agreement had been terminated, and October
26, 1998, the last trading date before Cycle announced that it would provide
stockholders with $19.00 per share in cash for substantially all of their
shares, the reported closing bid price of the Company's Common Stock on NASDAQ
was in the range of $12.50 to $15.25.
On August 11, 1998, one day before the Company's tender offer was scheduled to
close, the Company issued a press release announcing that it was extending its
offer until the end of September "to provide additional time to satisfy the
financing condition to the tender offer in view of current market conditions in
the high yield debt securities market."
On September 25, 1998, Cycle tendered all of its shares of Company Common Stock
in accordance with the terms of the Company's offer to purchase up to 4,820,000
shares at a price of $21.75 per share in cash. Cycle tendered its shares because
of the risk that in the unlikely event that the Company accepted shares for
purchase pursuant to its offer, any shares which were not purchased would,
according to the Company's offer to purchase, have an estimated value of $0.84
to $1.34.
On September 28, 1998, the Company announced that it had agreed with Fremont to
terminate its offer due to the failure to satisfy the financing condition to the
tender offer. The Company also paid to Fremont $1 million in expenses. Mr.
Keenan stated during a conference call with analysts on September 28 that Cycle
would be permitted to conduct due diligence upon executing a confidentiality
agreement containing no standstill provisions. Despite Mr. Keenan's assurances,
representatives of the Company continued to insist upon a standstill from Cycle
until it became clear that Cycle would not enter into such an agreement. At that
point, the Company dropped its demand for a standstill, but continued to impose
restrictions and limitations that Cycle found unacceptable. Specifically, the
Company informed Cycle that it could not permit access to the data room or to
management unless Cycle first made a bid that the Board of Directors of the
Company, in its sole discretion, considered sufficient.
On October 27, 1998, Cycle announced that it was prepared to enter into an
agreement with the Company which would provide stockholders with $19 in cash for
up to approximately 4,600,000 shares of the Common Stock, representing
approximately 99% of the Common Stock not owned by Cycle. Cycle's announcement
stated that if the Company's stockholders approve the Proposals, then subject to
the fulfillment of their fiduciary duties as directors of the Company, the
Nominees intend to enter into an agreement between Cycle and the Company
providing for a transaction, structured as a tender offer by the Company, in
which holders of shares of the Company's Common Stock would receive $19 in cash
for approximately 4,600,000 shares. Following the closing, public stockholders
would continue to own approximately 8% of the outstanding common equity of the
Company.
On October 27, 1998, Cycle also announced that it had entered into a binding
commitment letter with NationsBank, N.A. pursuant to which NationsBank agreed to
provide an $80 million senior credit facility the proceeds of which would be
used to acquire shares of Common Stock in the self tender offer as well as to
refinance existing indebtedness, pay fees and expenses in connection with the
transaction and provide working capital of the Company. The funds necessary to
consummate the transaction proposed by Cycle include the senior credit facility,
together with $30 million in subordinated debt and $60 million in equity from
Cycle and its affiliates. As a consequence of the commitment letter from
NationsBank, the transaction proposed by Cycle is not subject to a financing
condition.
Cycle's tender offer expired at 12:00 Midnight, New York City time, on Friday,
October 30, 1998 without the purchase of any shares thereunder.
Litigation
On March 25, 1998, pursuant to Section 220 of the DGCL, Cycle requested Cede &
Co., the record owner of shares of the Common Stock beneficially owned by Cycle,
to demand the right to inspect certain books and records of the Company,
including the stockholder lists. The Company refused that demand. On April 2,
1998, Cycle commenced litigation against the Company in the Court of Chancery of
the State of Delaware seeking an order compelling the Company to produce all
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<PAGE>
documents requested by Cycle. An amended demand was sent to the Company on April
6, 1998. A hearing on the request to produce the stockholder lists was held on
April 14, 1998 and the Court ordered the Company to produce such stockholder
lists. A hearing on the request to inspect certain other books and records of
the Company was held on May 22, 1998. On June 18, 1998, the Court issued its
opinion denying Cycle's request for books and records and ordered the case
dismissed.
On April 2, 1998, the Company filed suit in the United States District Court for
the Northern District of California against Cycle, Alexander Grass and Roger
Grass alleging, among other things, false and misleading proxy materials and
Schedule 13D filings with the Commission. The complaint sought, among other
things, to enjoin the solicitation of written consents pursuant to Cycle's
solicitation materials. On August 21, 1998, the suit was dismissed without
prejudice pursuant to a stipulation of dismissal by the parties.
On April 6, 1998, Cycle filed suit in the United States District Court for the
District of Delaware, alleging that the Company and its directors were in
violation of the federal securities laws in opposing Cycle's proposed
acquisition of the Company. On August 31, 1998, the District Court ordered the
case dismissed without prejudice pursuant to a stipulation of dismissal by the
parties.
On April 7, 1998, Cycle commenced litigation against the Company in the Court of
Chancery of the State of Delaware seeking, among other things, an order
compelling the Board of Directors to redeem the Rights or to amend the Rights
Agreement dated as of November 13, 1996 between the Company and American Stock
Transfer and Trust Company, as Rights Agent (the "Poison Pill"), to make the
Rights inapplicable to Cycle's tender offer and to approve the tender offer for
purposes of Section 203 of the DGCL on the grounds that a failure to do so would
constitute a breach of fiduciary duty to the Company's stockholders. On May 20,
1998 the Court denied Cycle's request for injunctive relief stating that such
relief is unwarranted and unnecessary at that time. The Chancery Court's order
was not a final judgment on Cycle's claims, and the action is ongoing.
Prior History
In December 1995, Roger Grass proposed that the Company and an investment
vehicle formed by Alexander Grass and Roger Grass engage in a joint retail
marketing venture. The Company indicated an interest in a 50/50 "partnership" in
which Messrs. Alexander Grass and Roger Grass would be responsible for the
entire financial commitment. Roger Grass advised the Company that such a
proposal was not acceptable.
In the Fall of 1996, Roger Grass contacted the Company to express an interest in
a strategic transaction with the Company. Shortly thereafter the Company adopted
the Poison Pill. In response to Mr. Grass' inquiry, Mr. James Kelly, Executive
Vice President and Chief Financial Officer of the Company, contacted Mr. John
Foster, President of Biker's Depot, Inc. ("Biker's Depot") to set up a meeting
for February 4, 1997 at the offices of Biker's Depot. The meeting was not held
because representatives of the Company failed to arrive.
Cycle's Proposals
Cycle seeks to replace the current Board of Directors with its own Nominees.
Cycle's primary purpose in seeking to elect the Nominees to the Company's Board
is to facilitate the acquisition of the Company by Cycle. However, if elected,
the Nominees would be responsible for managing the business and affairs of the
Company. The Nominees understand that, as directors of the Company, each of them
has an obligation under Delaware law to the most scrupulous observance of his
duty of care and duty of loyalty, which requires an undivided and unselfish
loyalty to the Company and demands that there be no conflict between duty and
self interest. Each Nominee has undertaken personally, if elected, to be bound
by and discharge his duty of care and duty of loyalty to the Company and has
agreed to perform his duties in good faith, in a manner that he reasonably
believes to be in the best interests of the Company and all of its stockholders.
Circumstances may arise (which circumstances include the proposed agreement with
Cycle, as well as any proposal a third party might make to acquire or combine
with the Company) in which the interests of Cycle and its affiliates, on the one
hand, and the interests of other stockholders of the Company, on the other hand,
may differ. In these circumstances, while the Nominees currently do not have
plans with respect
7
<PAGE>
to actions they would take, they intend to discharge their obligations owing to
the Company and its stockholders under Delaware law and in light of then
prevailing circumstances, taking into account the effects of any actions taken
on the Company and its stockholders.
In this regard, Section 144 of the DGCL expressly provides that a contract or
transaction between interested parties is not void or voidable solely for this
reason if one of three tests, set forth in Section 144, is satisfied. These
tests are: (i) disclosure of the material facts concerning the conflict to the
company's board of directors and approval of the contract or transaction by a
majority of the disinterested directors; (ii) disclosure of the material facts
concerning the conflict to the company's stockholders and approval in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair to the
company. The Nominees, if elected, intend to comply with Section 144 in all
applicable circumstances.
In addition, in order to ensure that any sale of the Company results in maximum
value to all stockholders, Cycle has proposed that any acquisition agreement
between Cycle and the Company will not contain any provisions that would
preclude or restrict the Board of Directors from considering other offers for
its shares. If they are elected to the Board of Directors, the Nominees will,
since Alexander Grass and Roger Grass have a financial interest in Cycle, which
is seeking to acquire the Company, appoint the three disinterested Nominees,
Messrs. Brenner, Levy and Lindemann, as a Special Committee of the Board of
Directors. The members of such Special Committee will have authority to take all
actions, consistent with their fiduciary duties as directors of the Company,
necessary or desirable to maximize value to all stockholders of the Company
through the sale of the Company. The specific actions to be taken by the Special
Committee in connection with the sale of the Company, and the timing thereof,
will depend on the facts and circumstances at the time, including, without
limitation, whether or not any other parties indicate an interest in acquiring
the Company.
The disinterested Nominees, if elected, intend to conduct good faith
negotiations with any person who makes a bona fide, fully financed offer to
purchase substantially all of the outstanding shares of the Company for a price
of more than $19 per share. The disinterested Nominees, if elected, also intend
to redeem the Poison Pill following such negotiations, which they anticipate
will take no longer than 30 days. Cycle is fully prepared to acquire the Company
through a negotiated acquisition agreement at a cash price of $19 per share for
substantially all outstanding shares. Because the Nominees are committed to
selling the Company on the terms most advantageous to the stockholders and only
for a price that reflects the Company's underlying value, they will negotiate in
good faith with any person who makes a bona fide, fully financed offer to
purchase substantially all of the outstanding shares of the Company for more
than $19 per share. The Nominees, if elected, do not intend to establish a
bidding process because seven months have elapsed since Cycle first announced
its interest in acquiring the Company and, to the knowledge of Cycle, there are
no bidders who are currently interested in pursuing such an acquisition. Rather,
the Nominees, if elected, will depend upon the fact that any agreement with
Cycle would not preclude other persons from bidding for the Company. The
Nominees believe that a sale of the Company for cash is the structure most
likely to maximize stockholder value. However, the Nominees would consider bids
involving any combination of cash and securities if it can be clearly
demonstrated that such a combination would provide greater value to the
Company's stockholders.
Cycle believes that when a substantial offer is made to acquire the Company, the
stockholders rather than the Board of Directors should have the final word on
whether the offer is accepted. Today, the Poison Pill enables the Board of
Directors to block a proposal to acquire control of the Company even if the
acquiror is prepared to implement that proposal through a tender or exchange
offer to the Company's stockholders, without making the Company a party to the
transaction. A description of the Poison Pill, set forth as Item 1 of the
Company's Registration Statement on Form 8-A, dated December 9, 1996, is
attached hereto as Exhibit B. As a result of the Poison Pill, potential buyers
do not have the option of dealing directly with stockholders if the Board of
Directors opposes their acquisition proposals. If the Proposals are approved,
the Cycle Nominees would constitute the entire Board of Directors and would
thereby have the power to redeem the Poison Pill. The Nominees have committed to
redeem the Poison Pill on the conditions described above promptly after their
election to the Board of Directors, consistent with their fiduciary duties as
directors of the Company.
In the absence of any other antitakeover protections, the redemption of the
Poison Pill could result in the Company being subject to coercive takeover
tactics. Cycle believes that the redemption of the Poison Pill will not result
in the Company's being subject to coercive takeover tactics since the Company
continues to be subject to Section 203 of the DGCL (the "Business
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Combination Statute"). The Business Combination Statute provides, in effect,
that if any person acquires beneficial ownership of 15% or more of the Company's
outstanding shares (thereby becoming an "Interested Stockholder"), the
Interested Stockholder may not engage in a business combination with the Company
for three years thereafter, subject to certain exceptions. Among the exceptions
are (i) the Board of Directors' prior approval of such acquisition, (ii) the
acquisition of at least 85% of the Company's shares (subject to certain
exclusions) in the transaction in which such person becomes an Interested
Stockholder and (iii) the approval of such business combination by 66 2/3% of
the outstanding shares not owned by the Interested Stockholder.
THE FOREGOING IS A SUMMARY OF THE BUSINESS COMBINATION STATUTE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE THERETO.
Cycle seeks the amendment of the Bylaws to set the number of directors on the
Board of Directors at five and to provide that the Company's stockholders may
fill vacancies on the Board of Directors. The Bylaws currently authorize between
three and five directors. The number may be changed from time to time within
these limits by resolution of the Board of Directors. The Company has announced
that the current number of directors is four. Cycle's Board Size Proposal and
Director Vacancy Proposal will set the size of the Board at five directors,
which vacancies will be filled by the Cycle Nominees pursuant to the Director
Election Proposal.
The purpose of the proposals being made by Cycle in this Consent Statement is to
advance the interests of all of the Company's stockholders. Therefore, Cycle
believes that its expenses in connection with the consent solicitation
(including any litigation expenses) should be reimbursed by the Company. The
cost of the solicitation of consents to the Proposals will be borne by Cycle.
Cycle intends to seek reimbursement of its expenses from the Company if the
Cycle Nominees are elected to the Board of Directors. Costs related to the
solicitation of consents to the Proposals include expenditures for attorneys,
accountants, investment bankers, consent solicitors, printing, postage,
litigation and related expenses and filing fees and are expected to aggregate
approximately $750,000 of which approximately $500,000 has been spent to date.
The portion of such costs allocable solely to the solicitation of consents to
the Proposals is not readily determinable.
Cycle also seeks the repeal of any Bylaws adopted by the Board of Directors
since May 7, 1998 (the date of the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1998, which incorporates by reference the form of
the Company's Bylaws) through the date that the Bylaw Proposal is adopted so
that the Board of Directors cannot use new Bylaws or Bylaws which have not
heretofore been disclosed to the Company's stockholders to prevent the
stockholders from accomplishing the objectives described in this Consent
Statement.
Cycle is not aware of any Bylaws that would be repealed by the approval of the
Bylaw Proposal. The approval of the Bylaw Proposal could result in the repeal of
Bylaws which may be in the best interests of the Company's stockholders,
although Cycle believes such a possibility to be unlikely in view of the failure
of the Board of Directors to disclose any such Bylaws. If the Company
subsequently amends the Bylaws and discloses such amendment, Cycle may forward
additional solicitation materials to the Company's stockholders regarding such
actions.
Section 109 of the DGCL provides that "the power to adopt, amend or repeal
bylaws shall be in the stockholders entitled to vote. . . ; provided, however,
any corporation may, in its certificate of incorporation, confer the power to
adopt, amend or repeal bylaws upon the directors. . . . The fact that such power
has been so conferred upon the directors. . . shall not divest the stockholders
or members of the power, nor limit their power to adopt, amend or repeal
bylaws." Cycle believes that such an unequivocal statement makes it clear that
the stockholders of the Company have the power under Delaware law to repeal
Bylaws as provided by the Bylaw Proposal, whether or not the Bylaws so amended
or repealed are known to the stockholders. To the knowledge of Cycle, the
Delaware courts have not addressed the validity of a proposal of the form of the
Bylaw Proposal. The Company's certificate of incorporation confers the power to
adopt, amend or repeal the Bylaws on the Board of Directors, and the Bylaws
provide for such amendment or repeal by the Board of Directors without a vote of
the Company's stockholders.
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Cycle believes that passage of the Director Removal Proposal, the Board Size
Proposal, the Director Election Proposal, the Director Vacancy Proposal and the
Bylaw Proposal will facilitate the sale of the Company for a price that fully
reflects its underlying value. If elected, the Cycle Nominees for the Board of
Directors intend to facilitate the sale of the Company to Cycle. The Cycle
Nominees have pledged that, if elected, any agreement between the Company and
Cycle will not contain any provisions that would preclude or restrict the
Company from considering other offers for its shares. The Cycle Nominees have
further pledged to conduct good faith negotiations with any person who makes a
bona fide, fully financed offer to purchase substantially all of the outstanding
shares of the Company for more than $19 per share. Cycle believes that a sale of
the Company (to Cycle or to another potential bidder for a higher price than the
$19 per share offered by Cycle) will deliver to stockholders the highest price
reasonably available for their shares. Accordingly, Cycle urges you to vote FOR
these Proposals.
THE PROPOSALS
This solicitation statement and the accompanying form of written consent are
first being furnished by Cycle on or about October __, 1998, in connection with
the solicitation by Cycle from the holders of shares of Common Stock of written
consents to take the following actions without a stockholders meeting, as
permitted by Delaware law:
1. Remove the existing directors on the Board of Directors:
"RESOLVED, that each current member of the Board of Directors of the
Company, and any other person or persons (other than the persons elected
pursuant to this consent) elected or appointed to the Board of Directors of
the Company prior to the effective date of this resolution in addition to
or in lieu of any of such current members to fill any newly created
directorship or vacancy on the Board of Directors of the Company, or
otherwise, is hereby removed and the office of each member of the Board of
Directors is hereby declared vacant.";
2. Amend the Bylaws to set the number of directors at five:
"RESOLVED, that the stockholders hereby amend Article III of the Bylaws by
deleting Section 1(1) and by replacing it with a new Section 11, which
shall read as follows:
'The authorized number of directors of this corporation shall be five (5).
Except as provided in Section 2 of this Article, the directors shall be
elected at the annual meeting of the stockholders, in accordance with the
certificate of incorporation, and each director elected shall hold office
until his or her successor is elected and qualified, unless he or she shall
resign, become disqualified, disabled or otherwise removed. Directors need
not be stockholders.'";
3. Amend the Bylaws to permit stockholders to fill vacancies on the Board
of Directors:
- --------
(1) Cycle believes that Section 1 of Article III of the Company's Bylaws
presently reads as follows: "The authorized number of directors of this
corporation shall be not less than three (3) nor more than five (5), the exact
number of directors to be fixed from time to time within such limit by a duly
adopted resolution of the Board of Directors or stockholders. The exact number
of directors presently authorized shall be five (5) until changed within the
limits specified above by a duly adopted resolution of the Board of Directors or
stockholders. Except as provided in Section 2 of this Article, the Directors
shall be elected at the annual meeting of the stockholders, in accordance with
the certificate of incorporation, and each Director elected shall hold office
until his successor is elected and qualified, unless he shall resign, become
disqualified, disabled or otherwise removed. Directors need not be
stockholders."
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"RESOLVED, that the stockholders hereby amend Article III of the Bylaws by
deleting the first sentence of Section 2(2) and by replacing it with a new
first sentence, which shall read as follows:
'Vacancies may be filled by a majority of the directors then in office,
though less than a quorum, by a sole remaining director, or by a vote of
the stockholders at an annual or special meeting of the stockholders or by
written consent in lieu of a meeting of stockholders, and the directors so
chosen shall hold office until the next annual election and until their
successors are duly elected and shall qualify, unless sooner displaced.'";
4. Elect the five persons listed below to fill the newly vacant
directorships:
"RESOLVED, that the following persons are hereby elected as directors of
the Company to fill the newly created vacancies on the Board of Directors,
and to serve until their respective successors are duly elected and
qualified: Aaron H. Brenner, Alexander Grass, Roger Grass, H. Irwin Levy
and George Lindemann.";
5. Repeal any Bylaws adopted by the Board of Directors since May 7, 1998:
"RESOLVED, that any amendments to the Bylaws adopted by the Board of
Directors of the Company on or after May 7, 1998 and prior to the effective
date of this resolution (other than the Bylaws adopted pursuant to this
consent), are hereby rescinded and shall have no further force or effect."
See Exhibit A and the next section for more information about the Cycle
Nominees. Cycle proposes that the nominees named above, once elected, serve
until the next annual meeting of the stockholders and until their
successors have been duly elected and qualified. Each of the Cycle Nominees
has consented to serve as a director of the Company if elected.
The effectiveness of each Proposal is subject to, and conditional upon, the
adoption of all other Proposals by the holders of record, as of the close of
business on the Record Date, of a majority of the shares of Common Stock then
outstanding. However, if the Bylaw Proposal is not adopted, Cycle reserves the
right to waive, but only with respect to the Bylaw Proposal, this condition.
CERTAIN OTHER INFORMATION REGARDING CYCLE AND
THE CYCLE NOMINEES
The following sets forth information about the Cycle Nominees:
<TABLE>
<CAPTION>
NAME & ADDRESS PRINCIPAL OCCUPATION AND FIVE-YEAR EMPLOYMENT HISTORY
- -------------- -----------------------------------------------------
<S> <C>
Alexander Grass Alexander Grass' principal occupation has been as a
c/o Biker's Depot, Inc. director, and Chairman of the Executive Committee of the
One Wynnewood Road Board of Directors of Rite Aid Corporation since March 4, 1995.
Wynnewood, PA 19096 Prior to that time, he served as Rite Aid's Board
Chairman and Chief Executive Officer, as well as a
founder of Rite Aid. Mr. Grass served as President of
</TABLE>
- --------
(2) Cycle believes that the first sentence of Section 2 of Article III of
the Company's Bylaws presently reads as follows: "Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen shall hold
office until the next annual election and until their successors are duly
elected and shall qualify, unless sooner displaced."
11
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<TABLE>
<CAPTION>
<S> <C>
Super Rite Foods, Inc. from 1965 to 1969 and
as Chairman of the Board and Chief Executive
Officer of Super Rite from 1969 to 1995.
Alexander Grass is also a director of Hasbro,
Inc. and the father of Roger Grass. His age is
71.
Roger Grass Roger Grass' principal occupation since 1996 has been as
c/o Biker's Depot, Inc. Chairman of the Board of Directors of Biker's Depot,
One Wynnewood Road a company engaged in the sale of aftermarket parts and
Wynnewood, PA 19096 accessories for Harley-Davidson motorcycles. From 1989
through 1993 he was the President and Chief Executive
Officer of Reliable Drug Stores, Inc. His age is 43.
George Lindemann During the last five years, George Lindemann has served
c/o Southern Union Co. as Chairman of the Board of Directors of Southern Union
504 Lavaca Street Company, a gas utility company whose stock is listed on
Austin, TX 78701 the New York Stock Exchange. His age is 62.
H. Irwin Levy H. Irwin Levy presently serves as President and Chairman
100 Century Blvd. of the Board of Directors of Hilcoast Development Corp.,
W. Palm Beach, FL 33417 a real estate developer, which position he has held
since August 1992. Mr. Levy also serves on the Board of
Directors of CV Reit, Inc. and nStor Technologies, Inc.
His age is 71.
Aaron H. Brenner At present, Aaron H. Brenner is a private investor. From
1609 Appletree Road April, 1993 to the present, Mr. Brenner has served as
Harrisburg, PA 17110 managing partner of ABH Partners, a real estate joint
venture. Prior to April, 1993, Mr. Brenner served as
President of M. Brenner & Sons, Inc., a wholesale drug,
candy and tobacco distributor. His age is 66.
</TABLE>
Of the five Nominees, except as set forth in this Consent Statement or in the
Exhibits hereto, to the best knowledge of Cycle, none is employed by or
affiliated with Cycle or Alexander Grass or Roger Grass. All of the Nominees are
citizens of the United States.
Roger Grass is Chairman of the Board of Directors of Biker's Depot, a retail
seller of aftermarket parts and accessories for Harley-Davidson motorcycles. The
Company is a major wholesale supplier of parts and accessories to Biker's Depot.
Biker's Depot has stores in Daytona Beach, Florida and Fort Lauderdale, Florida
and Lake Worth, Florida (expected to open in early December). All indebtedness
of Biker's Depot to the Company since the beginning of the Company's last fiscal
year is ordinary course of business purchase order indebtedness. During the
period from February 1997 through January 1998 (which period corresponds to the
Company's last fiscal year), Biker's Depot made purchases from the Company in
the amount of $222,712.
Except as set forth in this Consent Statement or in the Exhibits hereto, to the
best knowledge of Cycle, none of Cycle, any of the persons participating in this
solicitation on behalf of Cycle, the Cycle Nominees, and any associate or
immediate family member of the foregoing persons (i) owns beneficially, directly
or indirectly, or has the right to acquire, any securities of the Company or any
parent or subsidiary of the Company, (ii) owns any securities of the Company of
record but not beneficially, (iii) has purchased or sold any securities of the
Company within the past two years, (iv) has incurred indebtedness for the
purpose of acquiring or holding securities of the Company, (v) is or has been a
party to any contract, arrangement or understanding with respect to any
securities of the Company within the past year, (vi) has been indebted to the
Company or any of its subsidiaries since the beginning of the Company's last
fiscal year or (vii) has any arrangement or understanding with
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<PAGE>
respect to future employment by the Company or with respect to any future
transactions to which the Company or any of its affiliates will or may be a
party. In addition, except as set forth in this Consent Statement or in the
Exhibits hereto, to the best knowledge of Cycle, none of Cycle, any of the
persons participating in this solicitation on behalf of Cycle, the Cycle
Nominees, and any associate or immediate family member of any of the foregoing
persons has had or is to have a direct or indirect material interest in any
transaction with the Company since the beginning of the Company's last fiscal
year, or any proposed transaction, to which the Company or any of its affiliates
was or is a party.
Except as set forth in this Consent Statement or in the Exhibits hereto, to the
best knowledge of Cycle, none of the Nominees, since the beginning of the
Company's last fiscal year, has been affiliated with (i) any entity that made or
received, or during the Company's current fiscal year proposes to make or
receive, payments to or from the Company or its subsidiaries for property or
services in excess of five percent of either the Company's or such entity's
consolidated gross revenues for its last full fiscal year, or (ii) any entity to
which the Company or its subsidiaries was indebted at the end of the Company's
last full fiscal year in an aggregate amount exceeding five percent of the
Company's total consolidated assets at the end of such year. None of the
Nominees is or during the Company's last fiscal year has been affiliated with
any law or investment banking firm that has performed or proposes to perform
services for the Company.
None of the corporations or organizations in which the Cycle Nominees have
conducted their principal occupation or employment was a parent, subsidiary or
other affiliate of the Company, and the Nominees do not hold any position or
office with the Company or have any family relationship with any executive
officer or director of the Company or have been involved in any proceedings,
legal or otherwise, of the type required to be disclosed by the rules governing
this solicitation.
Cycle has agreed to indemnify each of the Nominees against all liabilities,
including liabilities under the federal securities laws, in connection with this
consent solicitation and such person's involvement in the operation of the
Company and to reimburse such Nominee for his out-of-pocket expenses.
Part of the purchase price paid by Cycle in connection with its acquisition of
Common Stock was financed by borrowings from Dauphin Deposit Bank and Trust
Company (the "Bank") under an unsecured loan note bearing interest at the
Federal Funds Target Rate plus 90 basis points. As of October 25, 1998, Cycle
was indebted to the Bank in the amount of approximately $8.1 million.
The accompanying WHITE consent card will be voted in accordance with the
stockholder's instruction on such WHITE consent card. As to the Proposals set
forth herein, stockholders may consent to an entire Proposal or may withhold
their consent by marking the proper box in the WHITE consent card. If the
enclosed WHITE consent card is signed and returned and no direction is given, it
will be voted in favor of all of the Proposals.
CERTAIN OTHER INFORMATION REGARDING THE CONSENT SOLICITATION
Cycle seeks the consent of an absolute majority of the Company's issued and
outstanding Common Stock in order to act on the Proposals set forth in this
Consent Statement.
BROKER NON-VOTES, ABSTENTIONS AND FAILURE TO RETURN A SIGNED CONSENT WILL HAVE
THE SAME EFFECT AS WITHHOLDING CONSENT TO THE PROPOSAL.
Change of Control
Pursuant to the Company's various stock option plans, the Director Removal and
Director Election Proposals, if adopted by the stockholders of the Company,
would cause certain options to purchase Common Stock, which options were granted
by the Company to its officers, directors, employees and consultants, to become
immediately exercisable. According to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1998 (the "Company 1998 Annual Report"),
as of January 31, 1998, the Company had outstanding options to purchase
1,045,693 shares at a weighted exercise price of $12.009 per share. The
Company's Schedule 14D-9, filed with the Commission on April 13, 1998, states
that additional vested
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options to purchase an aggregate of 60,000 shares of the Common Stock at $12.25
per share were granted to each of the directors of the Company, other than Mr.
Kelley, on February 2, 1998, and options to purchase 25,000 shares at $12.50 per
share, were granted on February 27, 1998 to Joseph Piazza, Jr., Vice President,
Sales, and the son of Joseph Piazza, Sr., the President, Chief Executive Officer
and a director of the Company. The Company 1998 Annual Report states that as of
January 31, 1997, there were outstanding options to purchase 863,230 shares at a
weighted exercise price of $18.076 per share and that during the fiscal year
options to purchase 1,726,872 shares were canceled or expired and new options to
purchase 1,976,939 shares were issued. According to the Company's Schedule 13E-4
filed with the Commission on July 13, 1998 (the "Schedule 13E-4"), as of June
25, 1998, there were 1,016,129 shares of Common Stock reserved under the
Company's employee and director stock incentive plans in respect of outstanding
awards. According to the Schedule 13E-4, the four current directors of the
Company hold options to purchase at least 257,119 shares (or 25.3% of the
outstanding awards under the Company's stock incentive plans) as of June 25,
1998.
Pursuant to the Company's 1997 Stock Option Plan, options and stock purchase
rights may be granted to employees, directors and consultants of the Company. In
the event of a change of control of the Company, for a period of 15 days
following the optionee's notification by the administrator of the plan, the
optionee may exercise his or her options as to all of the optioned stock.
Because the 1997 Stock Option Plan is not publicly available as of the date of
this consent solicitation, the information herein is based on the plan summary
contained in the Company's Proxy Statement for the Annual Meeting of
Stockholders held on November 4, 1997 (the "Company 1997 Proxy Statement") and
is qualified in its entirety by reference thereto.
Pursuant to the Company's 1995 Stock Option Plan, options granted under the plan
that are held by non-employee directors will be "accelerated," or become
immediately exercisable, for all the option shares in the event of a change in
control of the Company, whether through a successful tender offer for more than
50% of the outstanding Common Stock or a change in the majority of the Board of
Directors by one or more proxy contests. The plan administrator has
discretionary authority, exercisable in advance of any actually-anticipated
change in control or at the time of such change in control, to provide for the
automatic acceleration of one or more options held by key employees, consultants
and independent contractors (and the termination of one or more of the Company's
outstanding repurchase rights with respect to Common Stock acquired through the
exercise of such options) upon the occurrence of the change in control.
Additionally, in the case of an optionee whose service with the Company is
terminated, the administrator may permit exercise of the optionee's options,
within a limited time period, with respect to subsequent installments of
purchasable shares for which the options would otherwise have become exercisable
had such cessation of service not occurred. The 1995 Stock Option Plan is
attached as an exhibit to the Company's Registration Statement on Form S-8,
filed with the Commission on December 6, 1995, and this description is qualified
in its entirety by reference thereto.
The material provisions of the Company's 1991 Stock Option Plan, as restated on
March 2, 1992, are substantially identical to those in the 1995 Stock Option
Plan. The 1991 Stock Option Plan is attached as an exhibit to the Company's
Registration Statement on Form S-8, filed with the Commission on April 16, 1992,
and this description is qualified in its entirety by reference thereto.
Additionally, the Company, in connection with its 1997 acquisition of the assets
of Chrome Specialties, entered into a $73.5 million credit agreement with Bank
of America National Trust and Savings Association ("Bank of America"). The
credit agreement provides that the removal and replacement of a majority of the
Board of Directors as contemplated by the Director Removal Proposal and the
Director Election Proposal would constitute an event of default under the credit
agreement permitting Bank of America to cancel its obligations to make loans to
the Company and to declare the outstanding principal amount of, and the interest
accrued on, the existing loans due and payable.
Consents Required
The written consent of an absolute majority of the outstanding Common Stock is
required to adopt and approve each of the Proposals. To the knowledge of Cycle,
there were 5,173,077 shares of Common Stock outstanding at September 8, 1998,
based on the Company's Quarterly Report on Form 10-Q for the quarterly period
ended July 31, 1998. Each share of Common Stock entitles the Record Date holder
to one vote on each of the Proposals. Accordingly, based on the information
known to Cycle,
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<PAGE>
written consents by holders representing 2,586,539 shares of Common Stock will
be required to adopt and approve each of the Proposals. Cycle intends to vote
the 528,100 shares of Common Stock it owns in favor of the Proposals.
Accordingly, based on the information known to Cycle, written consents by
holders representing an additional 2,058,439 shares of Common Stock, or 44% of
the shares not owned by Cycle, will be required to adopt and approve each of the
Proposals. Each abstention and broker non-vote with respect to any of the
Proposals will have the same effect as withholding consent to the adoption of
such Proposal.
Consent Card Special Instructions
If you were a record holder as of the close of business on the Record Date, you
may elect to consent to, withhold consent or abstain with respect to each
Proposal by marking the "CONSENT," "CONSENT WITHHELD" or "ABSTAIN" box, as
applicable, underneath each such Proposal on the accompanying WHITE consent card
and signing, dating and returning it promptly in the enclosed postage-paid
envelope.
IF THE STOCKHOLDER WHO HAS EXECUTED AND RETURNED THE CONSENT CARD HAS FAILED TO
CHECK A BOX MARKED "CONSENT," "CONSENT WITHHELD" OR "ABSTAIN" FOR ANY OR ALL OF
THE PROPOSALS, SUCH STOCKHOLDER CONSENT CARD WILL BE VOTED IN FAVOR OF SUCH
PROPOSAL OR PROPOSALS.
CYCLE RECOMMENDS THAT YOU CONSENT TO EACH OF THE PROPOSALS. YOUR CONSENT IS
IMPORTANT. PLEASE MARK, SIGN AND DATE THE ENCLOSED WHITE CONSENT CARD AND RETURN
IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE PROMPTLY. FAILURE TO RETURN YOUR
CONSENT WILL HAVE THE SAME EFFECT AS WITHHOLDING CONSENT TO THE PROPOSALS.
If your shares are held in the name of a brokerage firm, bank nominee or other
institution, you should contact the person responsible for your account and give
instructions for the WHITE consent card representing your shares to be marked,
dated, signed and mailed. Only that institution can execute a WHITE consent card
with respect to your shares and only upon receipt of specific instructions from
you. Cycle urges you to confirm in writing your instructions to the person
responsible for your account and to provide a copy of those instructions to
Cycle in care of Innisfree at the address set forth on page 4 of this Consent
Statement so that Cycle will be aware of all instructions given and can attempt
to ensure that such instructions are followed.
THE CONSENT PROCEDURE
Section 228 of the DGCL states that, unless otherwise provided in the
certificate of incorporation, any action that may be taken at any annual or
special meeting of stockholders may be taken without a meeting, without prior
notice and without a vote, if consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted, and those consents were delivered to the corporation by delivery to
its registered office in Delaware, its principal place of business or an officer
or agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. In the case of this Consent Solicitation,
written, unrevoked consents of the holders of a majority of the outstanding
shares of Common Stock as of the Record Date must be delivered to the Company as
described above to effect the actions as to which consents are being solicited
hereunder. Section 228 of the DGCL further provides that no written consent
shall be effective to take the corporate action referred to therein unless,
within 60 days of the earliest dated consent delivered in the manner required by
Section 228, written consents signed by a sufficient number of holders to take
such action are delivered to the corporation in the manner required by
Section 228.
IT IS CURRENTLY THE INTENTION OF CYCLE TO CEASE THE SOLICITATION OF CONSENTS
ONCE THE SOLICITOR HAS DETERMINED THAT VALID AND UNREVOKED CONSENTS REPRESENTING
A MAJORITY OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK AS OF THE RECORD
DATE HAVE BEEN OBTAINED AND TO DELIVER SUCH CONSENTS TO THE COMPANY IN THE
MANNER REQUIRED BY
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SECTION 228 OF THE DGCL AS SOON AS PRACTICABLE THEREAFTER. WHEN CONSENTS FOR A
MAJORITY OF THE COMMON STOCK HAVE BEEN OBTAINED AND DELIVERED TO THE COMPANY, A
STOCKHOLDER WILL BE UNABLE TO REVOKE HIS OR HER CONSENT.
If the actions described herein are taken, the Company will promptly notify the
stockholders who have not consented to the actions taken as required by the
DGCL.
Consents may only be executed by stockholders of record at the close of business
on the Record Date. As of September 8, 1998, the Company had outstanding
5,173,077 shares of Common Stock. The number of votes necessary to effect the
Proposals is 2,586,539 (an absolute majority of 5,173,077).
Based on its review of publicly available information, Cycle is not aware of any
material change since September 8, 1998 in the number of outstanding shares of
Common Stock. Each share of Common Stock entitles the record holder thereof to
cast one vote. The Company's Certificate of Incorporation and Bylaws do not
provide for cumulative voting.
Since Cycle must receive consents from a majority of the Company's outstanding
shares in order for the Proposals to be adopted, a broker non-vote or direction
to withhold authority to vote on the WHITE consent card will have the same
effect as a "no" vote with respect to Cycle's solicitation.
BROKER NON-VOTES, ABSTENTIONS OR FAILURE TO RETURN A SIGNED CONSENT WILL HAVE
THE SAME EFFECT AS WITHHOLDING CONSENT TO THE PROPOSALS. CYCLE URGES EACH
STOCKHOLDER TO ENSURE THAT THE RECORD HOLDER OF HIS OR HER SHARES MARKS, SIGNS,
DATES AND RETURNS THE ENCLOSED CONSENT AS SOON AS POSSIBLE.
CERTAIN OTHER INFORMATION REGARDING THE COMPANY;
STOCKHOLDER PROPOSALS
Stockholders are referred to the Company 1998 Annual Report and the Company 1997
Proxy Statement with respect to the compensation and remuneration paid and
payable and other information related to the Company's officers and directors
and to the beneficial ownership of the Company's securities. Certain information
regarding beneficial ownership of the Common Stock is set forth in Exhibit C
attached hereto. The Company 1997 Proxy Statement states that the deadline for
stockholders to submit proposals to be considered for inclusion in the Company's
Proxy Statement for the next year's Annual Meeting of Stockholders is expected
to be July 8, 1998.
VOTING; COSTS OF CONSENT SOLICITATION
Written consents may be solicited by mail, advertisement, telephone, facsimile
or in person. Solicitations may be made by officers of Cycle; however, no such
person shall receive additional compensation for such solicitation other than
Innisfree. Cycle has retained Innisfree to act as an advisor in the submission
of this consent solicitation. Approximately 20 employees of Innisfree will
engage in the solicitation. Cycle has agreed to pay Innisfree a fee estimated
not to exceed $25,000 plus reasonable out-of pocket expenses. In addition,
Jefferies & Company, Inc. ("Jefferies") has been engaged to act as financial
advisor to Cycle and its Members in connection with a possible acquisition of
the Company, including any financing or investment activities which may be
undertaken in connection therewith (the "Engagement Agreement"). The Engagement
Agreement provides, among other things, that in payment for services to be
rendered by Jefferies, if within twelve months from the date of the Engagement
Agreement any shares of Common Stock owned by Cycle or any of its affiliates are
sold to any person, Jefferies will be paid a fee equal to 15% of the profit in
respect of such sale.
Costs related to the solicitation of consents to the Proposals include
expenditures for attorneys, accountants, investment bankers, consent solicitors,
printing, postage, litigation and related expenses and filing fees and are
expected to aggregate approximately $750,000, of which approximately $500,000
has been spent to date. The portion of such costs allocable solely to the
solicitation of consents to the Proposals is not readily determinable. Actual
expenditures may vary materially from the estimate,
16
<PAGE>
however, as many expenditures cannot be readily predicted. The entire expense of
preparing, assembling, printing and mailing this Consent Statement and any other
consent soliciting materials and the cost of soliciting consents will initially
be borne by Cycle. If the Cycle Nominees are elected, Cycle intends to request
reimbursement from the Company for these expenses. This request will not be
submitted to a stockholder vote. Banks, brokerage houses and other custodians,
nominees and fiduciaries may be requested to forward Cycle's solicitation
materials to the beneficial owners of the shares they hold of record, and Cycle
will reimburse them for their reasonable out-of-pocket expenses.
If your shares are registered in your own name, you may mail or fax your consent
to Cycle at the address or fax number listed below.
If your shares are held in "street name" (held by your brokerage firm or bank),
immediately instruct your broker or bank representative to sign Cycle's WHITE
consent card and mail it to Cycle, who will promptly deliver it. Please be
certain to include the name of your brokerage firm or bank. If you have
additional questions, please call:
INNISFREE M&A INCORPORATED
501 Madison Avenue, 20th Floor
New York, NY 10022
Call Toll-Free: (888) 750-5834
Banks and Brokers call collect: (212) 750-5833
A consent executed by a stockholder may be revoked at any time before its
exercise by submitting (i) a written, dated revocation of such consent or (ii) a
later dated consent covering the same shares. A revocation may be in any written
form validly signed by the record holder as long as it clearly states that the
consent previously given is no longer effective and must be executed and
delivered prior to the time that the action authorized by the executed consent
is taken. The revocation may be delivered to Golden Cycle, LLC, c/o Innisfree
M&A Incorporated, 501 Madison Avenue, 20th Floor, New York, NY 10022, Attn.:
Alan M. Miller. Although a revocation or later dated consent delivered only to
the Company will be effective to revoke a previously executed consent, Cycle
requests that if a revocation or later dated consent is delivered to the
Company, a photocopy of the revocation or later dated consent also be delivered
to Cycle, at the address set forth above, so that Cycle will be aware of such
revocation.
YOUR CONSENT IS IMPORTANT. NO MATTER HOW MANY OR HOW FEW SHARES YOU OWN, PLEASE
CONSENT TO THE REMOVAL OF THE CURRENT BOARD OF DIRECTORS, THE AMENDMENT OF THE
BYLAWS TO SET THE NUMBER OF DIRECTORS AND PERMIT THE COMPANY'S STOCKHOLDERS TO
FILL VACANCIES ON THE BOARD, THE ELECTION OF THE CYCLE NOMINEES, THE
REIMBURSEMENT OF CYCLE'S EXPENSES INCURRED IN CONNECTION WITH THIS CONSENT
SOLICITATION AND THE REPEAL OF ANY BYLAWS ADOPTED SINCE MAY 7, 1998 BY MARKING,
SIGNING, DATING AND MAILING THE ENCLOSED WHITE CONSENT CARD PROMPTLY. ONLY YOUR
LATEST DATED CONSENT COUNTS.
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EXHIBIT A
Golden Cycle, LLC is the beneficial owner of 528,100 shares of the Common Stock.
None of the other participants in this consent solicitation or their respective
associates, including the Cycle Nominees, is the beneficial owner of any shares
of the Common Stock. No shares are held of record but not beneficially by the
participants or their associates.
The following table sets forth information with respect to all purchases of
Common Stock of the Company by Cycle during the past two years. (Except as set
forth below, no participant in this solicitation has purchased or sold
securities of the Company within the past two years.)
SHARES PURCHASED BY GOLDEN CYCLE, LLC
NUMBER OF
DATE SHARES PURCHASED PRICE
------- ---------------- --------
1/20/98 24,000 $283,200
1/20/98 1,000 11,675
1/21/98 5,000 61,500
1/21/98 7,000 84,350
1/21/98 2,000 23,600
1/22/98 3,000 36,525
1/27/98 50,000 615,000
1/28/98 25,000 307,500
1/29/98 5,000 62,125
2/02/98 3,000 37,275
2/03/98 10,000 126,750
2/03/98 5,000 62,750
2/04/98 2,500 31,375
2/09/98 20,000 273,500
2/10/98 2,000 27,100
2/13/98 20,000 276,000
2/13/98 20,000 273,500
2/19/98 20,000 276,000
2/20/98 10,600 146,280
2/20/98 10,000 136,750
3/12/98 50,000 677,500
3/13/98 50,000 690,000
3/17/98 125,000 1,718,750
3/19/98 58,000 870,000
A-1
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EXHIBIT B
PREFERRED SHARE PURCHASE RIGHTS
On November 13, 1996, pursuant to a Preferred Shares Rights Agreement (the
"Rights Agreement") between Custom Chrome, Inc. (the "Company") and American
Stock Transfer and Trust Company, as Rights Agent (the "Rights Agent"), the
Company's Board of Directors declared a dividend of one right (a "Right") to
purchase one one-thousandth of a share of the Company's Series A Participating
Preferred Stock, $0.001 par value ("Series A Preferred") for each outstanding
share of Common Stock, $0.001 par value ("Common Shares"), of the Company. The
dividend is payable on December 13, 1996 (the "Record Date") to stockholders of
record as of the close of business on that date. Each Right entitles the
registered holder to purchase from the Company one one-thousandth of a share of
Series A Preferred at an exercise price of $80.00 (the "Purchase Price"),
subject to adjustment as provided for in the Rights Agreement.
The following summary of the principal terms of the Rights Agreement is a
general description only and is subject to the more detailed terms and
conditions of the Rights Agreement. A copy of the Rights Agreement is attached
as Exhibit 4 to [the] Registration Statement and is incorporated [therein] by
reference.
RIGHTS EVIDENCED BY COMMON SHARE CERTIFICATES
The Rights will not be exercisable until the Distribution Date (hereinafter
defined). Certificates for the Rights ("Rights Certificates") will not be sent
to stockholders and the Rights will attach to and trade only together with the
Common Shares. Accordingly, Common Share certificates outstanding on the Record
Date will evidence the Rights related thereto, and Common Share certificates
issued after the Record Date will contain a legend incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender or transfer of any certificates for
Common Shares, outstanding as of the Record Date, even without notation or a
copy of the Summary of Rights being attached thereto, will also constitute the
transfer of the Rights associated with the Common Shares represented by such
certificate. The Rights will be transferable only in connection with the
transfer of Common Shares prior to the Distribution Date.
DISTRIBUTION DATE
The Rights will separate from the Common Shares, Rights Certificates will be
issued and the Rights will become exercisable upon the date (the "Distribution
Date") that is the earlier of: (i) 10 days (or such later date as may be
determined by a majority of the Board of Directors, excluding directors
affiliated with the Acquiring Person, as defined below (the "Continuing
Directors")) following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired beneficial
ownership of 15% or more of the outstanding Common Shares, including Common
Shares held by affiliates or associates of the Acquiring Person, or (ii) 10
business days (or such later date as may be determined by a majority of the
Continuing Directors then in office) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of the outstanding Common Shares.
ISSUANCE OF RIGHTS CERTIFICATES; EXPIRATION OF RIGHTS
As soon as practicable following the Distribution Date, separate Rights
Certificates will be mailed to holders of record of the Common Shares as of the
close of business on the Distribution Date and such separate Rights Certificates
alone will evidence the Rights from and after the Distribution Date. All Common
Shares issued prior to the Distribution Date will be issued with Rights. As of
the Distribution Date, the Rights will be evidenced solely by the Rights
Certificates and may be transferred separately and apart from any transfer of
one or more Common Shares. In general, Rights will be issued in respect of all
Common Shares issued after the Record Date but prior to the earlier of the
Distribution Date or Final Expiration Date (as hereinafter defined), unless the
Board of Directors specifies to the contrary at or before the time of the
issuance of the Common Shares (including issuances of Common Shares pursuant to
the exercise of rights under the Company's benefit plans). The
B-1
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Rights will expire on the earliest of (i) November 13, 2006 (the "Final
Expiration Date") or (ii) redemption or exchange of the Rights as described
below.
INITIAL EXERCISE OF THE RIGHTS
Following the Distribution Date, and until one of the further events described
below, holders of the Rights will be entitled to receive, upon exercise and the
payment of $80.00 per Right, one one-thousandth share of the Series A Preferred.
RIGHT TO BUY COMPANY COMMON SHARES
Unless the Rights are earlier redeemed, in the event that an Acquiring Person
becomes the beneficial owner of 15% or more of the Company's Common Shares then
outstanding, then proper provision will be made so that each holder of a Right
which has not theretofore been exercised (other than Rights beneficially owned
by the Acquiring Person, which will thereafter be void) will thereafter have the
right to receive, upon exercise, Common Shares having a value equal to two times
the Purchase Price. In the event that the Company does not have sufficient
Common Shares available for all Rights to be exercised, or the Board decides
that such action is necessary or appropriate and not contrary to the interests
of Rights holders, the Company may instead reduce the Purchase Price or
substitute cash, assets or other securities having an aggregate value equivalent
to the excess of (i) the value of the Common Shares issuable upon exercise of
the Rights over (ii) the Purchase Price to be paid upon exercise of the Rights.
Rights are not exercisable following the occurrence of an event as described
above until such time as the Rights are no longer redeemable by the Company as
set forth below.
RIGHT TO BUY ACQUIRING COMPANY STOCK
Similarly, unless the Rights are earlier redeemed, in the event that, after an
Acquiring Person becomes the beneficial owner of 15% or more of the Company's
Common Shares then outstanding, (i) the Company is acquired in a merger or other
business combination transaction (whether or not the Company is the surviving
entity), or (ii) 50% or more of the Company's consolidated assets or earning
power are sold, proper provision must be made so that each holder of a Right
which has not theretofore been exercised (other than Rights beneficially owned
by the Acquiring Person, which will thereafter be void) will thereafter have the
right to receive, upon exercise, shares of common stock (free of any
restrictions) of the acquiring company having a value equal to two times the
Purchase Price.
EXCHANGE PROVISION
At any time after the acquisition by an Acquiring Person of 15% or more of the
Company's outstanding Common Shares and prior to the acquisition by such
Acquiring Person of 50% or more of the Company's outstanding Common Shares, the
Board of Directors of the Company may exchange the Rights (other than Rights
owned by the Acquiring Person), in whole or in part, at an exchange ratio of one
Common Share per Right.
REDEMPTION
At any time on or prior to the close of business on the earlier of (i) the 10th
day following the first public announcement by the Company or Acquiring Person
that the Acquiring Person has become such (the "Share Acquisition Date") or such
later date as may be determined by a majority of the Continuing Directors and
publicly announced by the Company, or (ii) the Final Expiration Date of the
Rights, the Company may redeem the Rights in whole, but not in part, at a price
of $0.01 per Right (the "Redemption Price"). The Company may, at its option, pay
the Redemption Price either in Common Shares or cash. If the Board of Directors
authorizes the redemption of the Rights after a person becomes an Acquiring
Person, then a majority of the Continuing Directors are required to authorize
the redemption of the Rights. Immediately upon action by the Board of Directors
redeeming the Rights as described above, the Rights will terminate and the only
right thereafter of the holders of Rights is to receive the Redemption Price.
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ADJUSTMENTS TO PREVENT DILUTION
The Purchase Price payable, the number of Rights, and the number of Series A
Preferred or Common Shares or other securities or property issuable upon
exercise of the Rights are subject to adjustment from time to time in connection
with dilutive issuances by the Company as set forth in the Rights Agreement.
With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1% in such
Purchase Price.
CASH PAID INSTEAD OF ISSUING FRACTIONAL SHARES
No fractional portion less than integral multiples of one Common Share will be
issued upon exercise of a Right and in lieu thereof, an adjustment in cash will
be made based on the market price of the Common Shares on the last trading date
prior to the date of exercise.
NO STOCKHOLDERS' RIGHTS PRIOR TO EXERCISE
Until a Right is exercised, the holder thereof, as such, will have no rights as
a stockholder of the Company (other than any rights resulting from such
stockholder's ownership of Common Shares), including, without limitation, the
right to vote or to receive dividends.
AMENDMENT OF RIGHTS AGREEMENT
The provisions of the Rights Agreement may be supplemented or amended by the
Board of Directors in any manner without the approval of the Rights holders
prior to the date on which the Rights are distributed separate from the Common
Shares. After such date, the provisions of the Rights Agreement may be amended
by the Board in order to cure any ambiguity, defect or inconsistency, to make
changes which do not adversely affect the interests of holders of Rights
(excluding the interests of any Acquiring Person), or to shorten or lengthen any
time period under the Rights Agreement; provided, however, that no amendment to
adjust the time period governing redemption shall be made at such time as the
Rights are not redeemable.
RIGHTS AND PREFERENCES OF THE SERIES A PREFERRED
Series A Preferred purchasable upon exercise of the Rights will not be
redeemable. Each share of Series A Preferred will be entitled to an aggregate
dividend of 1,000 times the aggregate per share amount of all dividends declared
(including noncash dividends and other distributions) per Common Share. In the
event of liquidation, the holders of each share of Series A Preferred will be
entitled to receive 1,000 times the per share consideration being distributed
with respect to each Common Share plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment. Each share of Series A Preferred will have 1,000 votes, voting
together with the Common Shares. These rights are protected by certain
anti-dilution provisions, including a proportional adjustment to the number of
outstanding shares of Series A Preferred in the event the Company (i) declares a
dividend on Common Shares payable in Common Shares, (ii) subdivides the
outstanding Common Shares, or (iii) combines the outstanding Common Shares into
a smaller number of shares.
Because of the nature of the dividend, liquidation and voting rights of the
shares of Series A Preferred, the value of the one one-thousandth interest in a
share of Series A Preferred purchasable upon exercise of each Right should
approximate the value of one Common Share.
CERTAIN ANTI-TAKEOVER EFFECTS
The Rights approved by the Board are designed to protect and maximize the value
of the outstanding equity interests in the Company in the event of an
unsolicited attempt by an acquiror to take over the Company, in a manner or on
terms not approved by the Board of Directors. Takeover attempts frequently
include coercive tactics to deprive the Company's Board of Directors and its
stockholders of any real opportunity to determine the destiny of the Company.
The Rights have been declared by the Board in order to deter such tactics,
including a gradual accumulation of shares in the open market of a 15% or
greater position
B-3
<PAGE>
to be followed by a merger or a partial or two-tier tender offer that does not
treat all stockholders equally. These tactics unfairly pressure stockholders
into making ill-advised investment decisions, squeeze them out of their
investment without giving them any real choice and deprive them of the full
value of their equity interest.
The Rights are not intended to prevent a takeover of the Company and will not do
so. The Rights may be redeemed by the Company at $0.01 per Right within ten days
(or such later date as may be determined by a majority of the Continuing
Directors) after the public announcement that 15% or more of the Company's
shares have been acquired by a single acquiror or group. Accordingly, the Rights
should not interfere with any merger or business combination approved by the
Board of Directors.
Issuance of the Rights does not in any way weaken the financial strength of the
Company or interfere with its business plans. The issuance of the Rights
themselves has no dilutive effect, will not affect reported earnings per share,
should not be taxable to the Company or to its stockholders, and will not change
the way in which the Company's shares are presently traded. The Company's Board
of Directors believes that the Rights represent a sound and reasonable means of
addressing the complex issues of corporate policy created by the current
takeover environment.
However, the Rights may have the effect of rendering more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board of
Directors. The Rights may cause substantial dilution to a person or group that
attempts to acquire the Company on terms or in a manner not approved by the
Company's Board of Directors, except pursuant to an offer conditioned upon the
negation, purchase or redemption of the Rights.
B-4
<PAGE>
EXHIBIT C
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock by (a) all persons who are
beneficial owners of five percent or more of the Company's Common Stock, (b)
directors and certain executive officers of the Company and (c) all directors
and executive officers as a group. Except as otherwise set forth in the Consent
Statement, no shares of Common Stock are beneficially owned by the Cycle
Nominees.
Except for the aggregate number of shares beneficially owned by Cycle, all of
the information in the table below is based on public filings with the
Securities and Exchange Commission (as more fully described in the footnotes),
and such information is qualified in its entirety by reference thereto. Cycle
makes no representations as to the accuracy of such information. Moreover,
because changes in beneficial ownership may have occurred since the effective
dates of the filings cited below, such information, even if accurate as of the
time of filing, may no longer be valid.
<TABLE>
<CAPTION>
PERCENT OF
SHARES OUTSTANDING
BENEFICIALLY OWNED SHARES(1)
------------------ -----------
<S> <C> <C>
Golden Cycle, LLC................................ 528,100 10.21%
4025 Crooked Hill Road
Harrisburg, PA 17110
FMR Corp.(2)..................................... 526,100 10.17%
82 Devonshire Street
Boston, MA 02109
State of Wisconsin Investment Board(3)........... 470,300 9.09%
121 E. Wilson Street
Madison, WI 53702
Heartland Advisors, Inc.(4)...................... 452,000 8.74%
790 North Milwaukee Street
Milwaukee, WI 53202
Dimensional Fund Advisors Inc.(5)................ 302,600 5.85%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Investment Counselors of Maryland, Inc.(6)....... 257,900 4.98%
803 Cathedral Street
Baltimore, MD 21201-5297
R. Steven Fisk(7)................................ 77,628 1.48%
James J. Kelly, Jr.(8)........................... 88,073 1.67%
Lionel M. Allan(9)............................... 41,373 *
Joseph F. Keenan(10)............................. 31,415 *
Joseph Piazza(11)................................ 102,655 1.95%
All directors and executive officers as a
group (9 persons)(12)............................ 387,520 7.00%
</TABLE>
C-1
<PAGE>
- ----------
* Less than one percent (1%)
(1) Assumes 5,173,077 shares of Common Stock outstanding, as described in the
Consent Statement.
(2) Based on a Schedule 13G/A, dated February 14, 1998, filed by FMR Corp. with
the Commission. 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 a Schedule 13G, dated January 20, 1998, filed by the State of
Wisconsin Investment Board with the Commission.
(4) Based on a Schedule 13G, dated January 23, 1998, filed by Heartland
Advisors, Inc. with the Commission.
(5) Based on a Schedule 13G, dated February 6, 1998, filed by Dimensional Fund
Advisors Inc. with the Commission.
(6) Based on a Schedule 13G, dated March 19, 1998, filed by Investment
Counselors of Maryland, Inc. with the Commission.
(7) Based on the Schedule 13E-4 and includes 62,933 shares issuable upon the
exercise of options which were exercisable or become exercisable within 60 days
after June 28, 1998.
(8) Based on the Schedule 13E-4 and includes 84,176 shares issuable upon the
exercise of options which were exercisable or which become exercisable within 60
days after June 28, 1998.
(9) Based on the Schedule 13E-4 and includes 41,373 shares issuable upon the
exercise of options which were exercisable or which become exercisable within 60
days after June 28, 1998.
(10) Based on the Schedule 13E-4 and includes 28,915 shares issuable upon the
exercise of options which were exercisable or which become exercisable within 60
days after June 28, 1998.
(11) Based on the Schedule 13E-4 and includes 102,655 shares issuable upon the
exercise of options which were exercisable or which become exercisable within 60
days after June 28, 1998.
(12) Based on the Schedule 13E-4 and includes 365,732 shares issuable upon the
exercise of options which were exercisable or which become exercisable within 60
days after June 28, 1998.
C-2
<PAGE>
YOUR VOTE IS EXTREMELY IMPORTANT
1. Please SIGN, MARK, DATE and MAIL your WHITE consent card in the enclosed
postage-paid envelope as soon as possible. If you wish to consent to the
removal of the current Board of Directors, the amendment of the Bylaws to
set the number of directors and permit stockholders to fill vacancies on
the Board, the election of the Cycle Nominees and the repeal of any Bylaws
adopted since May 7, 1998, you must submit the enclosed WHITE consent card,
even if you have already submitted a consent card to any other person or
entity (including the Company).
2. If your shares are held for you by a bank or brokerage firm, only your
bank or broker can vote your shares and only after receiving instructions
from you. Please call your bank or broker and instruct your representative
to consent to the removal of the current Board of Directors, the amendment
of the Bylaws to set the number of directors and permit stockholders to
fill vacancies on the Board, the election of the Cycle Nominees and the
repeal of any Bylaws adopted since May 7, 1998 on the WHITE consent card.
3. Time is short. PLEASE VOTE TODAY!
If you have questions or need assistance in voting your shares or in
changing your vote, please contact Cycle at the number listed below:
c/o Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, NY 10022
Call Toll-Free: (888) 750-5834
Banks and Brokers call collect: (212) 750-5833
C-3
<PAGE>
APPENDIX
GLOBAL MOTORSPORT GROUP, INC.
CONSENT OF STOCKHOLDERS TO ACTION WITHOUT A MEETING:
THIS CONSENT IS SOLICITED BY GOLDEN CYCLE, LLC ("CYCLE")
The undersigned, a stockholder of record of GLOBAL MOTORSPORT GROUP, INC.
(the "Company"), hereby consents pursuant to Section 228 of the Delaware General
Corporation Law, with respect to the number of shares of Common Stock, par value
$0.001 per share, of the Company held by the undersigned, to each of the
following actions without a prior notice and without a vote as more fully
described in Cycle's consent statement (the "Consent Statement"), receipt of
which is hereby acknowledged.
CYCLE STRONGLY RECOMMENDS THAT STOCKHOLDERS CONSENT TO THE FOLLOWING
PROPOSALS:
1. Director Removal Proposal: Remove the current members of the Board of
Directors of the Company other than the directors elected by this
consent, pursuant to the resolution set forth in the Consent
Statement.
/ / CONSENT / / CONSENT WITHHELD / / ABSTAIN
If no box is marked with respect to the Director Removal Proposal,
this Consent will be voted in favor of the removal of the directors of
the Company as set forth above.
2. Board Size Proposal: Amend the Bylaws to set the number of directors
on the Board of Directors of the Company at five, pursuant to the
resolution set forth in the Consent Statement.
/ / CONSENT / / CONSENT WITHHELD / / ABSTAIN
If no box is marked with respect to the Board Size Proposal, this
Consent will be voted in favor of the amendment of the Bylaws as set
forth above.
3. Director Vacancy Proposal: Amend the Bylaws to provide that the
Company's stockholders may fill vacancies on the Board of Directors of
the Company, pursuant to the resolution set forth in the Consent
Statement.
/ / CONSENT / / CONSENT WITHHELD / / ABSTAIN
If no box is marked with respect to the Director Vacancy Proposal,
this Consent will be voted in favor of the amendment of the Bylaws as
set forth above.
4. Director Election Proposal: Elect the following five persons listed
below (the "Nominees") to fill the newly vacant directorships,
pursuant to the resolution set forth in the Consent Statement: Aaron
H. Brenner, Alexander Grass, Roger Grass, H. Irwin Levy, George
Lindemann
/ / CONSENT / / CONSENT WITHHELD / / ABSTAIN
(continued on reverse side)
C-4
<PAGE>
(continued from previous side)
To withhold consent to a proposed Nominee, specify the Nominee in the
following space:
----------------------------------------------
If no box is marked above with respect to the Director Election
Proposal, this Consent will be voted in favor of the election of all
five Nominees.
5. Bylaw Proposal: Repeal any Bylaws adopted by the Board of Directors of
the Company since May 7, 1998 (other than the Bylaws adopted by this
consent), pursuant to the resolution set forth in the Consent
Statement.
/ / CONSENT / / CONSENT WITHHELD / / ABSTAIN
If no box is marked with respect to the Bylaw Proposal, this Consent
will be voted in favor of the repeal of any Bylaws adopted since
May 7, 1998 as set forth above.
PLEASE ACT PROMPTLY.
IMPORTANT: THIS CONSENT MUST BE SIGNED
AND DATED TO BE VALID.
Dated: ____________________________ , 1998
Signature: _______________________________
Signature
(if held jointly): _______________________
Title or authority
(if applicable): _________________________
Please sign exactly as name appears hereon. If shares are
registered in more than one name, the signature of all such
persons should be provided. A corporation should sign in its full
corporate name by a duly authorized officer, stating his or her
title. Trustees, guardians, executors and administrators should
sign in their official capacity, giving their full title as such.
If a partnership, please sign in the partnership name by
authorized persons. The consent card votes all shares in all
capacities.
PLEASE MARK, SIGN AND DATE THIS CONSENT
BEFORE MAILING THE CONSENT IN THE ENCLOSED ENVELOPE.
C-5
October 19, 1998
Golden Cycle, LLC
4025 Crooked Hill Road
Harrisburg, PA 17110
Attn: Messrs. Alex Grass & Roger Grass
RE: Acquisition Financing
Dear Sirs:
We understand that
(i) Golden Cycle, LLC (the "Sponsor Company") has acquired approximately
ten percent (10%) of the voting common stock of Global Motor Sports
Group, Inc. (the "Subject Company");
(ii) The Sponsor Company has announced its interest in acquiring the
Subject Company, but the current board and management have refused to
discuss or otherwise entertain the matter;
(iii) The Sponsor Company has made an unsolicited tender offer for all of
the voting common stock of the Subject Company;
(iv) The Sponsor Company has begun a consent solicitation from the
shareholders of the Subject Company to replace a majority of the
members of the board of directors of the Subject Company with
directors nominated by the Sponsor Company for the purpose of
considering, among other things, a self-tender of the shares by the
Subject Company; and
(v) The costs of the proposed self-tender and acquisition transaction
(including existing indebtedness, working capital and fees and
expenses relating to the subject transaction) would be approximately
$160 million which is proposed to be financed along the lines of (A)
approximately $80 million in senior bank debt financing, (B) $30
million in subordinated debt from you or your affiliates or other
persons reasonably acceptable to you and NationsBank and (C) $60
million in equity.
NationsBank, N.A. (including affiliates, "NationsBank" or the "Agent") is
pleased to offer its commitment to provide the entire $80 million principal
amount of the Senior Credit Facility (consisting of $40 million in revolving
credit commitments and a $40 million term loan, the "Senior Credit Facility")
described in the term sheet attached hereto as Annex I (the "Term Sheet"), to
form a syndicate of financial institutions (the "Lenders") reasonably acceptable
to you for the Senior Credit Facility. All capitalized terms used and not
otherwise defined herein shall have the meanings set forth in the Term Sheet.
<PAGE>
October 19, 1998
Page 2
The commitments of NationsBank hereunder are subject to the satisfaction of each
of the following conditions precedent in a manner acceptable to NationsBank in
its sole discretion:
(a) each of the terms and conditions set forth herein;
(b) each of the terms and conditions set forth in the Term Sheet;
(c) execution of a fee letter among the Sponsor Company and NationsBank
prior to or concurrently with the acceptance by the Sponsor Company of
this letter;
(d) the negotiation, execution and delivery of definitive documentation
with respect to the Senior Credit Facility consistent with the Term
Sheet and otherwise satisfactory to NationsBank; and
(e) from the date hereof there not having occurred and being continuing a
material adverse change in the market for a syndicated bank facility
of the type contemplated or a material disruption of, or a material
adverse change in, financial, banking or capital market conditions, in
each case as determined by NationsBank in its sole reasonable
discretion.
NationsBank, or an affiliate, will act as Agent, Lead Arranger and Syndication
Agent for the Senior Credit Facility. No additional agents will be appointed
without the prior approval of NationsBank and the Sponsor Company.
Furthermore, the commitments of NationsBank hereunder are based upon the
financial and other information regarding the Sponsor Company, the Subject
Company and their respective subsidiaries previously provided to NationsBank and
are subject to the condition, among others, that there shall not have occurred
after the date of such information, in the reasonable opinion of NationsBank,
any material adverse change in the business, assets, liabilities (actual or
contingent), operations, condition (financial or otherwise) or prospects of the
Sponsor Company, the Subject Company and their subsidiaries taken as a whole. If
the continuing review by NationsBank of the Sponsor Company or Subject Company
discloses information relating to conditions or events not previously disclosed
to NationsBank or relating to new information or additional developments
concerning conditions or events previously disclosed to NationsBank which
NationsBank in its sole reasonable discretion believe may have a material
adverse effect on the condition (financial or otherwise), assets, properties,
business, operations or prospects of the Sponsor Company or Subject Company and
NationsBank may, in its sole reasonable discretion, suggest alternative
financing amounts or structures that ensure adequate protection for the Lenders
or decline to participate in the proposed financing.
In addition to the forgoing conditions, as you know, neither we nor you know at
this time the precise terms of the Subordinated Debt. Our commitment to provide
the Senior Credit Facility is subject to the requirement that the amount,
interest rates, maturities, amortization schedules, covenants, defaults,
remedies, subordination provisions and other terms of the Subordinated Debt be
satisfactory to the Agent and the Lenders. We understand that the covenants and
defaults contained in the documentation pursuant to which the Subordinated Debt
is issued would on the whole be typical and customary and covenants would be
less restrictive than those contained in the definitive loan documents for the
Senior Credit Facility and cross defaults to other indebtedness contained in the
documentation for the Subordinated Debt will be limited to the acceleration of
such other indebtedness rather than a default (monetary or otherwise) in respect
of such indebtedness.
You agree to actively assist NationsBank in achieving a syndication of the
Senior Credit Facility that is satisfactory to NationsBank and you. In the event
that such syndication cannot be achieved in a manner satisfactory to NationsBank
and you under the structure outlined in the Term Sheet you agree
<PAGE>
October 19, 1998
Page 3
to cooperate with NationsBank in developing an alternative structure that will
permit a satisfactory syndication of the Senior Credit Facilities. It is
specifically understood and agreed that the terms of the Senior Credit
Facilities may require modification (including pricing, fees, and capital
structure) at the request of NationsBank to allow for a satisfactory syndication
and that if the Borrower is not willing to accept modifications requested by
NationsBank the commitments of NationsBank hereunder shall terminate.
Syndication of the Senior Credit Facility will be accomplished by a variety of
means, including direct contact during the syndication between senior management
and advisors of the Sponsor Company and the Subject Company, and the proposed
Lenders. To assist NationsBank in the syndication efforts, you hereby agree to
(a) provide and cause your advisors to provide NationsBank and the other Lenders
upon request with all information reasonably deemed necessary by NationsBank to
complete syndication, including but not limited to information and evaluations
prepared by the Sponsor Company and the Subject Company and their advisors, or
on their behalf, relating to the Acquisition, (b) assist NationsBank upon its
reasonable request in the preparation of an Information Memorandum to be used in
connection with the syndication of the Senior Credit Facility and (c) otherwise
assist NationsBank in its syndication efforts, including by making available
officers and advisors of the Sponsor Company and the Subject Company and their
subsidiaries from time to time to attend and make presentations regarding the
business and prospects of the Sponsor Company and the Subject Company and their
subsidiaries, as appropriate, at a meeting or meetings of prospective Lenders.
You further agree to refrain from engaging in any additional financings for the
Subject Company (except as described in this letter and except for the
Subordinated Debt issue described in the Term Sheet) during such syndication
process unless otherwise agreed to by NationsBank.
It is understood and agreed that NationsBank, after consultation with you, will
manage and control all aspects of the syndication, including decisions as to the
selection of proposed Lenders reasonably acceptable to you and any titles
offered to proposed Lenders, when commitments will be accepted and the final
allocations of the commitments among the Lenders. It is understood that no
Lender participating in the Senior Credit Facility will receive compensation
from you outside the terms contained herein and in the Term Sheet in order to
obtain its commitment. It is also understood and agreed that the amount and
distribution of the fees among the Lenders will be at the sole discretion of
NationsBank and that any syndication prior to execution of definitive
documentation will reduce the commitment of NationsBank.
You hereby represent, warrant and covenant that (i) all information, other than
Projections (as defined below), which has been or is hereafter made available to
NationsBank or the Lenders by you or any of your representatives in connection
with the transactions contemplated hereby ("Information") is and will be
complete and correct in all material respects and does not and will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained therein not misleading and (ii) all
financial projections concerning the Sponsor Company and the Subject Company
that have been or are hereafter made available to NationsBank or the Lenders by
you or any of your representatives (the "Projections") have been or will be
prepared in good faith based upon reasonable assumptions. You agree to furnish
us with such Information and Projections as we may reasonably request and to
supplement the Information and the Projections from time to time until the
closing date for the Senior Credit Facility so that the representation and
warranty in the preceding sentence is correct on the such date. In arranging and
syndicating the Senior Credit Facility, NationsBank will be using and relying on
the Information and the Projections without independent verification thereof.
By executing this letter agreement, you agree to reimburse NationsBank from time
to time for all reasonable out-of-pocket fees and expenses (including, but not
limited to, the reasonable fees, disbursements and other charges of Moore & Van
Allen, PLLC, as counsel to NationsBank and the other Lenders) incurred in
connection with the Senior Credit Facility and the preparation of the definitive
documentation for the Senior Credit Facility and the other transactions
contemplated hereby.
<PAGE>
October 19, 1998
Page 4
In the event that NationsBank becomes involved in any capacity in any action,
proceeding or investigation in connection with any matter contemplated by this
letter, the Sponsor Company will reimburse NationsBank for its legal and other
expenses (including the cost of any investigation and preparation) as they are
incurred by NationsBank. The Sponsor Company also agrees to indemnify and hold
harmless NationsBank and its affiliates and its respective directors, officers,
employees and agents (the "Indemnified Parties") from and against any and all
losses, claims, damages and liabilities, joint or several, related to or arising
out of any matters contemplated by this letter, unless and only to the extent
that it shall be finally judicially determined that such losses, claims, damages
or liabilities resulted primarily from the gross negligence or willful
misconduct of NationsBank.
The provisions of the immediately preceding two paragraphs shall remain in full
force and effect regardless of whether definitive financing documentation shall
be executed and delivered and notwithstanding the termination of this letter
agreement or the commitment of NationsBank hereunder, provided, however, that
the Sponsor Company shall be deemed released of its obligations under the
immediately preceding two paragraphs upon the execution of definitive financing
documentation.
As described herein and in the Term Sheet, NationsBank or an affiliate will act
as Lead Arranger and Syndication Agent for the Senior Credit Facility.
NationsBank reserves the right to allocate, in whole or in part, to any
affiliate certain fees payable to NationsBank in such manner in its sole
discretion. You acknowledge and agree that NationsBank may, subject to the
confidentiality provisions hereafter provided, share with any of its affiliates
any information relating to the Senior Credit Facility, the Subject Company, the
Sponsor Company and their subsidiaries and affiliates.
This letter agreement may not be assigned by the Sponsor Company (except to the
Subject Company after satisfaction of the conditions in clauses (i) and (ii) of
the Conditions Precedent in the Term Sheet) without the prior written consent of
NationsBank.
If you are in agreement with the foregoing, please execute and return the
enclosed copy of this letter agreement no later than the close of business on
October 31, 1998. This letter agreement will become effective upon your delivery
to us of executed counterparts of this letter agreement and the fee letter of
even date herewith (the "Fee Letter") and, without limiting the more specific
terms hereof and of the Term Sheet, you agree upon acceptance of this commitment
to pay the fees set forth in the Term Sheet and in the Fee Letter unless the
loan is not closed because of a material breach by NationsBank. This commitment
shall terminate if not so accepted by you prior to that time. Following
acceptance by you, this commitment will terminate on December 31, 1998, unless
the Facilities are closed by such time.
Except as required by applicable law, court order or connection with any
enforcement hereof, this letter and the Fee Letter and the contents hereof and
thereof shall not be disclosed by you to any third party (including the Subject
Company) without the prior consent of NationsBank, other than to your attorneys,
financial advisors and accountants, in each case to the extent necessary in your
reasonable judgment; provided, however, it is understood and agreed that, after
acceptance of this letter by you by execution in the space provided below and
execution by you of the Fee Letter, you may disclose the terms of this letter to
the Subject Company in connection with the Offer. Without limiting the
foregoing, in the event that you disclose the contents of this letter in
contravention of the preceding sentence, you shall be deemed to have accepted
the terms of this letter and the Fee Letter.
<PAGE>
October 19, 1998
Page 5
This letter may be executed in counterparts which, taken together, shall
constitute an original. This letter, together with the Term Sheet and the Fee
Letter, embodies the entire agreement and understanding among NationsBank and
the Sponsor Company with respect to the specific matters set forth herein and
supersedes all prior agreements and understandings relating to the subject
matter hereof. No party has been authorized by NationsBank to make any oral or
written statements inconsistent with this letter. THIS LETTER SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA,
WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW.
Very truly yours,
NATIONSBANK, N.A.
By:
------------------------------------
Title:
NATIONSBANC MONTGOMERY SECURITIES LLC
By:
------------------------------------
Title:
ACCEPTED AND AGREED TO:
Golden Cycle, LLC
By:
-------------------------
Title:
Date:
<PAGE>
ANNEX I
SUMMARY OF TERMS & CONDITIONS
October 1998
================================================================================
BORROWER: Global Motorsports Group, Inc. (the "Borrower" or
"Subject Company") which will engage in a
self-tender for shares of its common voting stock
(collectively, the "Acquisition").
GUARANTORS: The Senior Credit Facility shall be guaranteed by
Golden Cycle, LLC (the "Parent" or "Sponsor
Company") and all existing and hereafter acquired
domestic subsidiaries of the Borrower and the
Parent (the "Guarantors") upon consummation of the
Acquisition. All guarantees shall be guarantees of
payment and not of collection.
AGENT: NationsBank, N.A. (the "Agent" or "NationsBank")
will act as sole and exclusive administrative and
collateral agent. As such, NationsBank will
negotiate with the Borrower, act as the primary
contact for the Borrower and perform all other
duties associated with the role of exclusive
administrative agent. No other agents or co-agents
may be appointed without the prior written consent
of NationsBank.
LEAD ARRANGER: NationsBanc Montgomery Securities LLC
LENDERS: A syndicate of financial institutions (including
NationsBank), which institutions shall be
acceptable to the Borrower and the Agent
(collectively, the "Lenders").
SENIOR
CREDIT FACILITY: An aggregate principal amount of up to $80 million
will be available under the conditions hereinafter
set forth:
Revolving Credit Facility: Up to $40 million
revolving credit facility ("Revolving Credit
Facility").
Term Loan Facility: $40 million term loan facility
(the "Term Loan") to refinance existing
indebtedness, to finance the purchase of stock
pursuant to a self tender of shares and the
subsequent merger, and to pay fees and expenses in
connection with the Acquisition; provided,
however, advances under the Term Loan shall be
made only after application of the proceeds of
additional subordinated debt and equity required
in connection herewith for the purchase of shares
of the Borrower.
PURPOSE: The proceeds of the Senior Credit Facility shall
be used: (i) to refinance the outstanding
principal balance of existing indebtedness of the
Subject Company (ii) finance a self tender of
common voting stock of the Subject Company
(iii) to pay fees and expenses incurred in
connection with the Acquisition and (iv) to
provide for working capital and general corporate
purposes of the Borrower.
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INTEREST RATES: The Senior Credit Facility shall bear interest as
set forth on Addendum I hereto.
AVAILABILITY/SCHEDULED
AMORTIZATION: Revolving Credit Facility: Loans under the
Revolving Credit Facility (including Swingline
Loans) may be made, and Letters of Credit may be
issued, in each case subject to availability.
Availability shall be determined by a Borrowing
Base equal to the sum of (i) 85% of eligible
receivables of the Borrower and its subsidiaries
and (ii) 50% of eligible inventory of the Borrower
and its subsidiaries valued at the lesser of cost
or fair market value. The Revolving Credit
Facility shall terminate and all amounts
outstanding thereunder shall be due and payable in
full 5 years from Closing.
Term Loan Facility: Loans made under the Term
Facility will be available in a single borrowing
at Closing. The Term Loan Facility will be subject
to quarterly amortization of principal, based upon
the annual amounts set forth below (the "Scheduled
Amortization").
Loan Year 1 $ 5 million
Loan Year 2 $ 5 million
Loan Year 3 $10 million
Loan Year 4 $10 million
Loan Year 5 $10 million
SECURITY: Concurrently with the Acquisition, the Agent (on
behalf of the Lenders) shall receive a first
priority perfected security interest in all of the
capital stock of the Borrower owned by the Sponsor
Company and each of the domestic subsidiaries
(direct or indirect) of the Borrower and 65% of
the capital stock of each foreign subsidiary
(direct or indirect) of the Borrower, which
capital stock shall not be subject to any other
lien or encumbrance. The Agent (on behalf of the
Lenders) shall also receive a first priority
perfected security interest (subject to permitted
liens to be determined) in all other present and
future assets and properties of the Borrower and
its subsidiaries (including, without limitation,
accounts receivable, inventory, real property
(except real property subject to mortgages which
will not be satisfied at closing to be
determined), machinery, equipment, contracts,
trademarks, copyrights, patents, license
agreements, and general intangibles except for
rights under agreements which are not material and
which may not be assigned without the consent of
the other party thereto).
The foregoing security shall ratably secure the
Senior Credit Facility and any interest rate
swap/foreign currency swap or similar agreements
with a Lender under the Senior Credit Facility.
MANDATORY PREPAYMENTS
AND COMMITMENT
REDUCTIONS: In addition to the amortization set forth above,
the Senior Credit Facility will be prepaid, and
the commitments shall be permanently reduced, by
an amount equal to (a) 100% of the net cash
proceeds of all asset sales
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by the Parent, the Borrower or any subsidiary of
the Borrower (including stock of subsidiaries),
subject to de minimus baskets and reinvestment
provisions to be agreed upon and net of selling
expenses and taxes to the extent such taxes are
paid or payable; (b) 75% of Excess Cash Flow (to
be defined) pursuant to an annual cash sweep
arrangement; (c) 100% of the net cash proceeds
from the issuance of any debt (excluding certain
permitted debt) by the Parent, the Borrower or any
subsidiary; and (d) 100% of the net cash proceeds
from the issuance of equity by the Parent, the
Borrower or any subsidiary.
OPTIONAL PREPAYMENTS
AND COMMITMENT
REDUCTIONS: The Borrower may prepay the Senior Credit Facility
in whole or in part at any time without penalty,
subject to reimbursement of the Lenders' breakage
and redeployment costs in the case of prepayment
of LIBOR borrowings. The commitments under the
Revolving Credit Facility may permanently reduced
at any time after the Closing Date in such minimum
as may be mutually agreed.
CONDITIONS PRECEDENT
TO CLOSING: The initial funding of the Senior Credit Facility
will be subject to satisfaction of the following
conditions precedent:
(i) Successful completion by the Sponsor
Company of the consent solicitation and
replacement of a majority of the board
members of the Subject Company with
nominees of the Sponsor Company.
(ii) Acquisition through a self-tender of shares
of common voting stock of the Subject
Company for a price of up to $19 per share
(assuming total shares outstanding on a
fully diluted basis do not exceed 6,189,206
shares) so that the Sponsor Company obtains
ownership of at least 51% of such common
voting stock (including shares currently
owned by the Sponsor Company). The terms of
such self-tender shall be acceptable to
NationsBank and the Board of Directors of
the Subject Company.
(iii) The negotiation, execution and delivery of
definitive documentation with respect to
the Senior Credit Facility satisfactory to
the Agent and the Lenders.
(iv) Formulation of capital structure (and
allocation of financing sources between
senior bank debt and subordinated debt, or
other capital arrangements) acceptable to
the Agent in its reasonable discretion,
which shall include approximately $30
million in subordinated debt from the
Sponsor Company and its affiliates or other
persons reasonably acceptable to the
Sponsor Company and NationsBank and $60
million in equity. The subordinated debt
shall pay interest in kind ("PIK") until
the latter to occur of (a) twelve (12)
months and (b) total debt to EBITDA is less
than 4.0:1.0.
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(v) The corporate capital and ownership
structure (including articles of
incorporation and by-laws), shareholders
agreements and management of the Sponsor
Company, the Borrower and its subsidiaries
(after giving effect to the Acquisition)
shall be satisfactory to the Agent.
(vi) There shall not have occurred a material
adverse change since January 31, 1998 in
the business, assets, operations, condition
(financial or otherwise) or prospects of
the Sponsor Company and its subsidiaries or
the Subject Company and its subsidiaries or
in the facts and information regarding such
entities as represented to date.
(vii) The information in SEC required disclosures
have been made and the information therein
is accurate and true and correct in all
material respects.
(viii) The Agent shall have received (a)
satisfactory opinions of counsel to the
Borrower and Guarantors (which shall cover,
among other things, authority, legality,
validity, binding effect and enforceability
of the documents for the Senior Credit
Facility and compliance with applicable
laws, including securities laws and Reg U)
and such corporate resolutions,
certificates and other documents as the
Agent shall reasonably require and (b)
satisfactory evidence that the Agent (on
behalf of the Lenders) holds a perfected,
first priority lien in all collateral for
the Senior Credit Facility, subject to no
other liens except for permitted liens to
be determined.
(ix) Receipt of all governmental, shareholder
and third party consents (including
Hart-Scott Rodino clearance) and approvals
necessary or, in the opinion of the Agent,
desirable in connection with Acquisition
and the related financings and other
transactions contemplated hereby and
expiration of all applicable waiting
periods without any action being taken by
any authority that could restrain, prevent
or impose any material adverse conditions
on the Acquisition or such other
transactions or that could seek or threaten
any of the foregoing, and no law or
regulation shall be applicable which in the
reasonable judgment of the Agent could have
such effect.
(x) The absence of any action, suit,
investigation or proceeding pending or
threatened in any court or before any
arbitrator or governmental authority that
purports to affect the Borrower or its
subsidiaries or any transaction
contemplated hereby, or that could have a
material adverse effect on the Borrower or
its subsidiaries or any transaction
contemplated hereby or on the ability of
the Borrower and its subsidiaries to
perform its obligations under the documents
to be executed in connection with the
Senior Credit Facility.
(xi) After giving effect to the Acquisition and
there shall be no less than $10 million of
availability under the Revolving Credit
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Facility at Closing after giving effect to
the Acquisition and all borrowings under
the Revolving Credit Facility on such date.
REPRESENTATIONS &
WARRANTIES:
Usual and customary for transactions of this type,
to include without limitation: (i) corporate
status; (ii) corporate power and
authority/enforceability; (iii) no violation of
law or contracts or organizational documents; (iv)
no material litigation; (v) correctness of
specified financial statements and no material
adverse change; (vi) no required governmental or
third party approvals; (vii) use of
proceeds/compliance with margin regulations;
(viii) status under Investment Company Act; (ix)
ERISA; (x) environmental matters; (xi) perfected
liens and security interests; (xiii) payment of
taxes, (xiv) consummation of the Acquisition, and
(xv) Y2K compliance.
COVENANTS: Usual and customary for transactions of this type,
to include without limitation: (i) delivery of
financial statements and other reports; (ii)
delivery of compliance and borrowing base
certificates: (iii) notices of default, material
litigation and material governmental and
environmental proceedings; (iv) compliance with
laws; (v) payment of taxes; (vi) maintenance of
insurance; (vii) limitation on liens; (viii)
limitations on mergers, consolidations and sales
of assets; (ix) limitations on incurrence of debt;
(x) limitations on dividends and stock redemptions
and the redemption and/or prepayment of other
debt; (xi) limitations on investments; (xii)
ERISA; (xiii) limitation on transactions with
affiliates; (xiv) limitation on capital
expenditures; (xv) Y2K compliance; (xvi) within 30
days following completion of the self-tender, if
necessary to reduce the holdings of non-affiliated
stockholders to 10% or less of the outstanding
equity of the Sponsor Company, the Borrower will
consummate a merger with the Sponsor Company or a
special purpose subsidiary formed for such purpose
on terms and conditions reasonably acceptable to
NationsBank; and (xvii) financial covenants, with
initial levels TBD, with step ups and step downs
as appropriate, as set forth below:
o EBITDA - Capex/Interest + CMLTD + Dividends;
o EBITDA/Interest;
o MTNW;
o Total Debt/EBITDA;
o Sr. Debt/EBITDA.
The Sponsor Company shall have agreed that it will
not engage in any business, activity or operations
other than owning and holding the capital stock of
the Borrower and other subsidiaries and activities
directly related thereto. The Sponsor Company
shall not be permitted to merge with or into any
of its subsidiaries either now owned or hereafter
created.
The loan documents shall provide for a requirement
to enter into interest protection agreements
managed by and acceptable to the Agent.
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EVENTS OF DEFAULT: Usual and customary in transactions of this
nature, (including reasonable grace periods) and
to include, without limitation, (i) nonpayment of
principal, interest, fees or other amounts, (ii)
violation of covenants, (iii) inaccuracy of
representations and warranties in any material
respect, (iii) cross-default to other material
agreements and indebtedness, (iv) bankruptcy, (v)
material judgments, (vi) ERISA, (vii) actual or
asserted invalidity of any loan documents or
security interests, (viii) Parent engaging in any
business or activity other than owning and holding
common stock of Borrower and other subsidiaries,
or (ix) Change in Control of the Borrower after
the Acquisition, which shall occur if (a) a person
or any group, and any affiliate of any such person
other than the Sponsor Company shall beneficially
own, directly or indirectly, an amount of the
outstanding capital stock of the Subject Company
entitled to 30% or more of the voting power of all
the outstanding capital stock of the Subject
Company or (b) the Sponsor Company shall own
beneficially, directly or indirectly, an amount of
the outstanding capital stock of the Subject
Company entitled to less than 51% of the voting
power of all the outstanding capital stock of the
Subject Company.
ASSIGNMENTS/
PARTICIPATIONS: Each Lender will be permitted to make assignments
to other financial institutions approved by the
Borrower and the Agent, which approval shall not
be unreasonably withheld. Lenders will be
permitted to sell participations with voting
rights limited to significant matters such as
changes in amount, rate, and maturity date. An
assignment fee of $3,500 is payable by the Lender
to the Agent upon any such assignment occurring
(including, but not limited to an assignment by a
Lender to another Lender).
WAIVERS &
AMENDMENTS: Amendments and waivers of the provisions of the
loan agreement and other definitive credit
documentation will require the approval of Lenders
holding loans and commitments representing more
than 66.67% of the aggregate amount of loans and
commitments under the Senior Credit Facility,
except that (a) the consent of all the Lenders
affected thereby shall be required with respect to
(i) increases in commitment amounts, (ii)
reductions of principal, interest, or fees, (iii)
extensions of scheduled maturities or times for
payment, (iv) releases of all or substantially all
collateral and (v) releases of all or
substantially all guarantors.
INDEMNIFICATION: The Borrower shall indemnify the Lenders from and
against all losses, liabilities, claims, damages
or expenses not covered by insurance relating to
their loans, the Borrower's use of loan proceeds
or the commitments, including but not limited to
reasonable attorneys' fees and settlements costs.
This indemnification shall survive and continue
for the benefit of the Lenders at all times after
the Borrower's acceptance of the Lenders'
commitment for the Senior Credit Facility,
notwithstanding any failure of the Senior Credit
Facility to close.
CLOSING: On or before December 31, 1998.
GOVERNING LAW: North Carolina.
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FEES/EXPENSES: As outlined in ADDENDUM I.
OTHER: This term sheet is intended as an outline only and
does not purport to summarize all the conditions,
covenants, representations, warranties and other
provisions which would be contained in definitive
legal documentation for the Senior Credit Facility
contemplated hereby. The Borrower shall waive its
right to a trial by jury.
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ADDENDUM I
FEES AND EXPENSES
================================================================================
COMMITMENT FEE: A 50 basis points per annum (calculated on the
basis of actual number of days elapsed in a year
of 360 days) Commitment Fee calculated on the
unused portion of the Senior Credit Facility. The
Borrower shall have the option to reduce the size
of the Revolving Credit Facility at any time after
the Closing Date.
INTEREST RATES: The Facilities shall initially bear interest at a
rate equal to LIBOR plus 300 bps or the Alternate
Base Rate (defined as the higher of (i) the
NationsBank prime rate and (ii) the Federal Funds
rate plus 1/2%) plus 200 bps; provided, that if
during the 90 day period following the Closing,
any breakage costs, charges or fees are incurred
with respect to LIBOR loans on account of the
syndication of the Senior Credit Facility, the
Borrower shall immediately reimburse the Agent for
any such costs, charges or fees. Such right of
reimbursement to be in addition to and not in
limitation of customary cost and yield protection.
The Borrower may select interest periods of 1, 2,
3 or 6 months for LIBOR loans, subject to
availability.
A penalty rate shall apply on all loans in the
event of default at a rate per annum of 2% above
the applicable interest rate.
PERFORMANCE PRICING: The LIBOR and Alternate Base Rate margins for the
Senior Credit Facility will be subject to
performance pricing step-downs commencing twelve
months from closing, based upon the Borrowers
Funded Debt to EBITDA, as set forth in the table
below:
Funded Debt to Applicable Margin Applicable Margin
EBITDA Ratio for LIBOR Loans for Base Rate Loans
- -------------- ----------------- -------------------
Less than or equal to 200 bps 100 bps
3.0:1.0
Less than or equal to 250 bps 150 bps
3.5:1.0
Less than or equal to 300 bps 200 bps
4.0:1.0
Greater than 4.0:1.0 350 bps 250 bps
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COST AND YIELD
PROTECTION: The usual for transactions and facilities of this
type, including, without limitation, in respect of
prepayments, changes in capital adequacy and
capital requirements or their interpretation,
illegality, unavailability, reserves without
proration or offset.
LETTER OF
CREDIT FEES: Letter of credit fees are due quarterly in arrears
to be shared proportionately by the Lenders. Fees
will be equal to the interest rate spread on LIBOR
loans on a per annum basis plus a fronting fee of
1/8% per annum to be paid to Fronting Bank for its
own account. Fees will be calculated on the
aggregate stated amount for each letter of credit
for the stated duration thereof.
EXPENSES: Borrower will pay all reasonable costs and
expenses associated with the preparation, due
diligence, administration, syndication and
enforcement of all documents executed in
connection with the Senior Credit Facility,
including without limitation, the legal fees of
the Agent's counsel regardless of whether or not
the Senior Credit Facility are closed.
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