SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant ___
Filed by a Party other than the Registrant _X_
Check the appropriate box:
___ Preliminary Proxy Statement
___ Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
_X_ Definitive Proxy Statement
___ Definitive Additional Materials
___ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Global Motorsport Group, Inc.
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(Name of Registrant as Specified in Its Charter)
Golden Cycle, LLC
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
_X_ No fee required
___ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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___ Fee paid previously with preliminary materials.
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___ Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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GOLDEN CYCLE, LLC
Harrisburg, Pennsylvania
November 17, 1998
Dear Global Motorsport Group Stockholders:
Golden Cycle, LLC is presenting you, through the attached Consent
Statement, with an opportunity to elect a Board committed to support of our
fully financed proposal which would allow you to sell up to approximately 99% of
your stock for $20.00 per share in cash. 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.
On October 27, 1998, Golden Cycle announced a proposal which would permit
stockholders to sell up to approximately 99% of their shares for $19.00 per
share in cash. On November 12, 1998, Golden Cycle increased the price to $20.00
per share.
On November 9, 1998, Global announced that it had entered into a definitive
merger agreement whereby Global will be acquired by Stonington Partners for
$19.50 per share in cash. Like the Fremont agreement, the Stonington Partners'
transaction remains contingent on obtaining sufficient financing.
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 $20 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 $20 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 $165
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 $65 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,
/s/ ALEX GRASS
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
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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 November 17, 1998.
SUMMARY OF CONSENT PROCEDURE
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), which date shall not be more
than ten days after the date upon which the resolution fixing the record date is
adopted by the board, or, if no record date is established, shall be the first
date on which a signed written consent is delivered to the corporation. On
October 29, 1998, the Company announced that the Board of Directors had
established November 10, 1998 as the Record Date. Cycle believes such action by
the Board of Directors is not valid since the purported record date is more than
ten days after the date on which the Board of Directors took such action. Cycle
delivered a signed written consent to the Company on November 6, 1998.
Accordingly, Cycle believes that the Record Date is November 6, 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 "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 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 Commission.
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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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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 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, 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 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.
On November 9, 1998, the Company announced that it had entered into a definitive
merger agreement with Stonington Partners whereby the Company would be acquired
by an entity controlled by Stonington Partners for $19.50 in cash per share. The
transaction is subject to a financing contingency. The Company did not contact
Cycle prior to entering into the agreement with Stonington Partners to determine
what price Cycle was prepared to pay to acquire the Company in a negotiated
transaction. The merger agreement with Stonington provides for a $4 million
break-up fee and expense reimbursement.
On November 12, 1998, Cycle announced an increase in the price of its proposal
to $20 per share in cash. Cycle also announced that it will move in the Court of
Chancery of the State of Delaware to enjoin payment of the $4 million fee the
Company agreed to pay to Stonington Partners.
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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
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.
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THE PROPOSALS
This solicitation statement and the accompanying form of written consent are
first being furnished by Cycle on or about November 17, 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:
The Director Removal Proposal. 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.";
Delaware law provides that directors of the Company may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors. This Proposal would remove all of the current
directors so that the Nominees, if elected, would constitute the entire Board of
Directors.
The Board Size Proposal. 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 1, 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.'";
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 Director Vacancy Proposal. 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 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."
8
<PAGE>
"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.'";
This Proposal would amend Section 2 of Article III of the Bylaws to provide that
vacancies on the Board of Directors created as a result of the removal of the
current directors may be filled by stockholders of the Company. The Bylaws
currently provide that vacancies on the Board of Directors may be filled by the
directors then in office. No provision is currently made for the filling of
vacancies by stockholders. The proposed Bylaw amendment would grant to
stockholders the right to elect the Nominees to fill the five vacancies on the
Board of Directors created by adoption of the Director Removal Proposal.
The Director Election Proposal. 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.";
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 Board of
Directors 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 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.
- --------
(2) Cycle believes that the first sentence of Section 2 of Article III of
the 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."
9
<PAGE>
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 $20 or more 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 $20 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 $20 or
more 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, all bidders
who are currently interested in pursuing such an acquisition have been
identified. 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 would consider bids involving all cash or 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 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.
The Bylaw Proposal. 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."
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.
10
<PAGE>
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.
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.
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 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 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 $20 per share. Cycle believes that a sale of the Company (to Cycle or
to another potential bidder for a higher price than the $20 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.
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>
11
<PAGE>
<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 within
the past year been a party to any contract, arrangement or understanding with
respect to any securities of the Company, (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
12
<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 individual 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 PROPOSALS.
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
13
<PAGE>
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,
14
<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
15
<PAGE>
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 of
$30,000 plus reasonable out-of-pocket expenses. In connection with its retention
by Cycle, Innisfree agreed to provide consulting and analytic services and act
as proxy solicitor with respect to banks, brokers, institutional investors and
individual stockholders. 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. Cycle has
agreed to indemnify Innisfree and Jefferies against damages incurred by either
of them in connection with their respective services to Cycle.
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.
17
<PAGE>
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
<PAGE>
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
<PAGE>
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.
B-2
<PAGE>
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
