<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1998
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Confidential, for Use of
the Commission Only
[_] Preliminary Proxy Statement
(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
BELL SPORTS CORP.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] 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:
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3)Filing Party:
(4) Date Filed:
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<PAGE>
LOGO
JULY 1, 1998
To: The Stockholders of Bell Sports Corp:
On behalf of the Board of Directors (the "Board") and management of Bell
Sports Corp., a Delaware corporation (the "Company"), I cordially invite you
to attend a Special Meeting of Stockholders of the Company (the "Special
Meeting") to be held at 9:00 a.m., local time, on Tuesday, August 11, 1998 at
The Radisson Resort Scottsdale, 7171 N. Scottsdale Road, Scottsdale, Arizona
85253.
At the Special Meeting, you will be asked to consider and vote upon a
proposal (the "Merger Proposal") to approve and adopt the Agreement and Plan
of Recapitalization and Merger, dated as of February 17, 1998, as amended to
date, between HB Acquisition Corporation, a Delaware corporation ("HB
Acquisition"), and the Company (as amended, the "Merger Agreement"), and the
transactions contemplated thereby, including the Merger (as hereinafter
defined).
The Merger Agreement provides for the merger (the "Merger") of HB
Acquisition with and into the Company, with the Company surviving. Subject to
the terms and conditions of the Merger Agreement, each outstanding share of
common stock, $.01 par value, of the Company ("Common Stock") together with
the associated Preferred Stock Purchase Right (other than (i) shares of Common
Stock held by HB Acquisition or shares of Common Stock held directly or
indirectly by the Company, which shares will be cancelled and (ii) shares of
Common Stock held by the individuals perfecting appraisal rights) will be
converted into the right to receive $10.25 in cash (the "Merger
Consideration").
The Board and a Special Committee of its independent directors have each
carefully reviewed and considered the terms and conditions of the Merger
Agreement and the Merger. The Special Committee has received an opinion of
NationsBanc Montgomery Securities LLC, its financial advisor, that as of April
8, 1998, and based on and subject to certain limitations and other matters
stated therein, the consideration to be received by the stockholders of the
Company pursuant to the Merger was fair to such stockholders from a financial
point of view. A copy of the opinion is attached to the accompanying Proxy
Statement as Annex B. The Board, based upon the recommendation of the Special
Committee, has approved the Merger Agreement and determined that the Merger is
advisable and in the best interests of the Company and its stockholders. THE
BOARD RECOMMENDS THAT YOU VOTE "FOR" THE MERGER PROPOSAL.
You are urged to read carefully the accompanying Proxy Statement, which
includes a description of the terms of the proposed Merger. A copy of the
Merger Agreement is attached to the Proxy Statement as Annex A.
As is more fully explained in the Proxy Statement, any stockholder who does
not wish to accept the Merger Consideration has the right to dissent from the
Merger and to seek an appraisal of, and to be paid the fair cash value
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) for, his or her shares of Common Stock, provided
that the stockholder fully complies with the provisions of Section 262 of the
General Corporation Law of the State of Delaware.
Whether or not you plan to attend the Special Meeting, you are requested to
specify your voting preferences by completing, dating and signing the enclosed
proxy card and returning it in the enclosed postage-paid envelope. If you do
attend and wish to vote in person, you may revoke your proxy at that time.
Please do not send in your stock certificates at this time. If the Merger is
consummated, you will be sent a letter of transmittal for that purpose as soon
as reasonably practicable thereafter.
Sincerely,
LOGO
Terry G. Lee
Chairman of the Board and
Chief Executive Officer
<PAGE>
BELL SPORTS CORP.
6350 SAN IGNACIO AVENUE
SAN JOSE, CALIFORNIA 95119
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 11, 1998
A Special Meeting of Stockholders (the "Special Meeting") of Bell Sports
Corp., a Delaware corporation (the "Company"), will be held at 9:00 a.m.,
local time, on Tuesday, August 11, 1998 at The Radisson Resort Scottsdale,
7171 N. Scottsdale Road, Scottsdale, Arizona 85253, to consider and vote upon
a proposal (the "Merger Proposal") to approve and adopt the Agreement and Plan
of Recapitalization and Merger, dated as of February 17, 1998, as amended to
date, between HB Acquisition Corporation, a Delaware corporation ("HB
Acquisition"), and the Company (as amended, the "Merger Agreement"), and the
transactions contemplated thereby, including the Merger (as hereinafter
defined). Stockholders will also consider such other matters as may properly
come before the Special Meeting or any adjournment or postponement thereof.
Only stockholders of record at the close of business on June 30, 1998 are
entitled to receive notice of and to vote at the Special Meeting and any
adjournment or postponement thereof. In accordance with the General
Corporation Law of the State of Delaware (the "DGCL"), a complete list of the
holders of Common Stock entitled to vote at the Special Meeting will be
available at the Special Meeting and will be open to examination, during
ordinary business hours, at the Company's offices located at 15170 North
Hayden Road, Suite One, Scottsdale, Arizona 85260, for 10 days preceding the
Special Meeting, by any holder of Common Stock for any purpose germane to the
Special Meeting.
The Merger Agreement provides for the merger (the "Merger") of HB
Acquisition with and into the Company. Following the Merger, the separate
corporate existence of HB Acquisition will cease and the Company will continue
as the surviving corporation. Pursuant to the Merger Agreement, each share of
Common Stock, $.01 par value, of the Company ("Common Stock"), together with
the associated Preferred Stock Purchase Right of the Company, outstanding
immediately prior to the Effective Time (as defined in the Merger Agreement)
of the Merger (other than (i) shares of Common Stock held by HB Acquisition or
shares of Common Stock held directly or indirectly by the Company, which
shares will be cancelled, and (ii) shares of Common Stock held by the
individuals perfecting appraisal rights) will be converted into the right to
receive $10.25 in cash (the "Merger Consideration").
The Board of Directors of the Company (the "Board"), based upon the
recommendation of a Special Committee of its independent directors, has
approved the Merger Agreement and determined that the Merger is advisable and
in the best interests of the Company and its stockholders. THE BOARD
RECOMMENDS THAT YOU VOTE "FOR" THE MERGER PROPOSAL.
The accompanying Proxy Statement includes a description of the terms of the
proposed Merger. A copy of the Merger Agreement is attached to the Proxy
Statement as Annex A.
As is more fully explained in the Proxy Statement, any stockholder who does
not wish to accept the Merger Consideration has the right to dissent from the
Merger and to seek an appraisal of, and to be paid the fair cash value
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) for, his or her shares of Common Stock, provided
that the stockholder fully complies with the provisions of Section 262 of the
DGCL. A copy of Section 262 of the DGCL is attached to the Proxy Statement as
Annex C.
Whether or not you plan to attend the Special Meeting, you are requested to
specify your voting preferences by completing, dating and signing the enclosed
proxy card and returning it in the enclosed postage-paid envelope. If you do
attend and wish to vote in person, you may revoke your proxy at that time.
By order of the Board of Directors,
LOGO
Linda K. Bounds
Senior Vice President, Chief
Financial Officer,
Secretary and Treasurer
<PAGE>
BELL SPORTS CORP.
6350 SAN IGNACIO AVENUE
SAN JOSE, CALIFORNIA 95119
PROXY STATEMENT
This Proxy Statement (the "Proxy Statement") is being furnished to the
holders of common stock, $.01 par value ("Common Stock"), of HB Acquisition
Corp., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company (the "Board")
for use at a Special Meeting of Stockholders (the "Special Meeting") of the
Company to be held at 9:00 a.m., local time, on Tuesday, August 11, 1998 at
The Radisson Resort Scottsdale, 7171 N. Scottsdale Road, Scottsdale, Arizona
85253, and at any adjournment or postponement thereof. This Proxy Statement
and the accompanying form of proxy are first being mailed to stockholders of
the Company on or about July 2, 1998.
This Proxy Statement relates to the Agreement and Plan of Recapitalization
and Merger, dated as of February 17, 1998, as amended to date, between HB
Acquisition Corporation, a Delaware corporation ("HB Acquisition"), and the
Company (as amended, the "Merger Agreement"), and the transactions
contemplated thereby, including the Merger (as hereinafter defined). A copy of
the Merger Agreement is attached hereto as Annex A.
The Merger Agreement provides for the merger (the "Merger") of HB
Acquisition with and into the Company. Following the Merger, the separate
corporate existence of HB Acquisition will cease and the Company will continue
as the surviving corporation (in such capacity, the "Surviving Corporation").
Pursuant to the Merger Agreement, each share of Common Stock, together with
the associated right to purchase one one- hundredth of a share of Series A
Junior Participating Preferred Stock, $.01 par value, of the Company (a
"Right"), outstanding immediately prior to the Effective Time (as hereinafter
defined) of the Merger (other than (i) shares of Common Stock held by HB
Acquisition or shares of Common Stock held directly or indirectly by the
Company, which shares will be cancelled, and (ii) shares of Common Stock held
by individuals perfecting Appraisal Rights (as hereinafter defined)) will be
converted into the right to receive $10.25 in cash (the "Merger
Consideration"). See "The Merger Agreement--Conversion of Securities."
The Board, based upon the recommendation of a Special Committee of its
independent directors (the "Special Committee"), has approved the Merger
Agreement and determined that the Merger is advisable and in the best
interests of the Company and its stockholders. THE BOARD RECOMMENDS THAT YOU
VOTE "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER (THE "MERGER
PROPOSAL").
The Common Stock is listed on The Nasdaq National Market ("Nasdaq") under
the symbol "BSPT." On February 13, 1998, the last trading day prior to public
announcement of the execution of the Merger Agreement, the last reported sale
price of Common Stock, as reported by Nasdaq was $9.00 per share. On April 8,
1998, the last trading day prior to public announcement of the execution of
the first amendment to the Merger Agreement, the last reported sale price of
Common Stock, as reported by Nasdaq was $8.25 per share. On June 30, 1998, the
last trading day prior to the date of this Proxy Statement, the last reported
sale price of Common Stock, as reported by Nasdaq was $9.594 per share.
STOCKHOLDERS OF THE COMPANY ARE URGED TO READ THIS PROXY STATEMENT AND THE
ANNEXES HERETO IN THEIR ENTIRETY.
THE TRANSACTIONS DESCRIBED HEREIN HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTIONS OR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED HEREIN. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The date of this Proxy Statement is July 1, 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports, proxy statements and other
documents and information with the SEC. Such reports, proxy statements and
other documents and information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
SEC located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of
the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates and from the SEC's Web Site located at
http://www.sec.gov. The Common Stock is listed on Nasdaq under the symbol
"BSPT." Such reports, proxy statements and other documents and information
concerning the Company are also available for inspection at the offices of
Nasdaq, 1735 K Street, N.W. Washington, D.C. 20006.
FORWARD-LOOKING STATEMENTS
The Company cautions readers that, in addition to the historical information
included herein, this Proxy Statement includes certain "forward-looking
statements" that are based on management's beliefs as well as on assumptions
made by and information currently available to management. When used herein,
the words "expect," "anticipate," "intend," "plan," "believe," "seek,"
"estimate," and similar expressions are intended to identify such forward-
looking statements. However, this Proxy Statement also contains other forward-
looking statements. Such forward-looking statements involve known and unknown
risks, including, but not limited to, economic and market conditions,
competitive activities or other business conditions, dependence on key
customers, fluctuations in sales or working capital, weather conditions,
consumer spending levels and results of pending litigation, including product
liability claims. Although the Company believes that its expectations with
respect to the forward-looking statements are based upon reasonable
assumptions within the bounds of its knowledge of its business and operations,
there can be no assurance that actual results, performance or achievements of
the Company will not differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Readers
are cautioned not to put undue reliance on forward-looking statements. For a
discussion of the risks associated with investment in the Company's Common
Stock, please read carefully the description of the Company's business under
Item 1 "Business" in the Company's Annual Report on Form 10-K for the fiscal
year ended June 28, 1997.
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company under the Exchange
Act with the SEC (File No.: 0-19873) are incorporated herein by reference: (i)
the Company's Annual Report on Form 10-K for the year ended June 28, 1997;
(ii) the Company's Quarterly Reports on Form 10-Q for the quarters ended
September 27, 1997, December 27, 1997 and March 28, 1998; and (iii) the
Company's Current Reports on Form 8-K filed with the SEC on February 23, 1998
and April 9, 1998. All documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Proxy Statement shall be deemed to be incorporated by reference herein and to
be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement.
The Company will provide without charge to each person to whom a copy of
this Proxy Statement has been delivered, upon written or oral request, a copy
of any and all of the documents referred to above that have been or may be
incorporated by reference herein other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference herein). Requests for
such copies should be directed to: Ms. Sondra L. Lehman, Assistant Secretary,
6350 San Ignacio Avenue, San Jose, California 95119.
----------------
As used herein, unless the context otherwise clearly requires: "Company"
refers to Bell Sports Corp., a Delaware corporation, and its consolidated
subsidiaries. Capitalized terms not defined herein have the respective
meanings specified in the Merger Agreement.
----------------
Information contained herein concerning HB Acquisition has been supplied by
HB Acquisition and has not been independently verified by the Company. Except
as otherwise indicated, all other information contained herein has been
supplied by the Company.
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED HEREIN IN CONNECTION WITH THE
SOLICITATION OF PROXIES HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, HB ACQUISITION OR ANY OTHER PERSON. THE DELIVERY OF THIS PROXY
STATEMENT SHALL NOT IMPLY THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION....................................................... ii
FORWARD-LOOKING STATEMENTS.................................................. ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. iii
TABLE OF CONTENTS........................................................... iv
SUMMARY..................................................................... 1
The Special Meeting....................................................... 1
Parties to the Merger Agreement........................................... 1
The Merger................................................................ 2
The Merger Agreement...................................................... 2
The Stock Subscription Agreements......................................... 4
Appraisal Rights of Dissenting Stockholders............................... 4
Sources of Funds.......................................................... 4
Interests of Certain Persons in the Merger................................ 5
Market Price of Common Stock.............................................. 5
Security Ownership of Certain Beneficial Owners and Management............ 6
Effect on Convertible Debentures.......................................... 6
Selected Historical Consolidated Financial Data........................... 6
THE SPECIAL MEETING......................................................... 7
Date, Place and Time...................................................... 7
Purpose................................................................... 7
Record Date; Voting Rights................................................ 7
Quorum.................................................................... 7
Proxies................................................................... 7
Solicitation of Proxies................................................... 8
Required Vote............................................................. 8
Appraisal Rights of Dissenting Stockholders............................... 8
PARTIES TO THE MERGER AGREEMENT............................................. 8
The Company............................................................... 8
HB Acquisition............................................................ 8
THE MERGER.................................................................. 9
Background of the Merger.................................................. 9
Reasons for the Merger; Recommendation of the Board....................... 14
Opinion of Financial Advisor.............................................. 17
Interests of Certain Persons in the Merger................................ 20
Plans for the Company After the Merger.................................... 22
Certain Stockholder Litigation............................................ 23
Anticipated Accounting Treatment.......................................... 23
Certain Federal Income Tax Considerations................................. 23
Delisting and Deregistration of Common Stock.............................. 24
Effect on Convertible Debentures.......................................... 24
THE MERGER AGREEMENT........................................................ 25
Effective Time............................................................ 25
The Merger................................................................ 25
Conversion of Securities.................................................. 25
</TABLE>
iv
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<TABLE>
<S> <C>
Payment of Merger Consideration........................................... 26
Stock Options, Restricted Stock, Phantom Stock Units...................... 27
Representations and Warranties............................................ 27
Conduct of Business Pending the Merger.................................... 28
No Solicitation........................................................... 30
Employee Benefit Plans, Severance and Other Employment Matters............ 31
Other Agreements.......................................................... 32
Conditions Precedent to the Merger........................................ 33
Termination............................................................... 34
Fees and Expenses......................................................... 35
Indemnification and D&O Insurance......................................... 36
Amendment; Waiver......................................................... 36
THE STOCK SUBSCRIPTION AGREEMENTS........................................... 36
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS................................. 37
SOURCES OF FUNDS............................................................ 39
MARKET PRICE OF COMMON STOCK................................................ 40
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............. 41
Security Ownership of Certain Beneficial Owners........................... 41
Security Ownership of Management.......................................... 42
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............................. 43
INDEPENDENT ACCOUNTANTS..................................................... 44
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING........................... 45
OTHER MATTERS............................................................... 45
ANNEX A--AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER
ANNEX B--OPINION OF FINANCIAL ADVISOR
ANNEX C--SECTION 262 OF THE DGCL
</TABLE>
v
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SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement, including the Annexes hereto. The summary does not contain a
complete statement of all material information relating to the Merger Agreement
or the Merger and is subject to, and qualified in its entirety by, the more
detailed information included or incorporated by reference in this Proxy
Statement.
THE SPECIAL MEETING
Date, Place and Time. The Special Meeting will be held at 9:00 a.m., local
time, on Tuesday, August 11, 1998 at The Radisson Resort Scottsdale, 7171 N.
Scottsdale Road, Scottsdale, Arizona 85253. See "The Special Meeting--Date,
Place and Time."
Purpose. At the Special Meeting, stockholders of the Company will consider
and vote upon the Merger Proposal. Stockholders will also consider such other
matters as may properly come before the Special Meeting or any adjournment or
postponement thereof. See "The Special Meeting--Purpose."
Record Date; Voting Rights. Only stockholders of record at the close of
business on June 30, 1998 (the "Record Date"), are entitled to receive notice
of and to vote at the Special Meeting and any adjournment or postponement
thereof. At the close of business on the Record Date, there were 13,915,436
shares of Common Stock outstanding, each of which entitles the registered
holder thereof to one vote on each matter voted upon at the Special Meeting.
See "The Special Meeting--Record Date; Voting Rights."
Quorum. The holders of a majority of the shares of Common Stock outstanding
and entitled to vote must be present in person or represented by proxy at the
Special Meeting in order to constitute a quorum for the transaction of
business. See "The Special Meeting--Quorum."
Proxies. Shares of Common Stock represented by properly executed proxies
which are received in time for the Special Meeting and have not been revoked
will be voted in accordance with the instructions indicated in such proxies. If
no instructions are indicated, such shares will be voted FOR the Merger
Proposal. Any proxy in the enclosed form may be revoked by the stockholder
executing it at any time prior to its exercise by giving written notice thereof
to the Secretary of the Company, by signing and returning a later dated proxy
or by voting in person at the Special Meeting. Attendance at the Special
Meeting will not in and of itself constitute the revocation of a proxy. See
"The Special Meeting--Proxies."
Required Vote. Approval of the Merger Proposal will require the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock
entitled to vote thereon. At the close of business on the Record Date, the
directors and executive officers of the Company owned 3,737,837 shares of
Common Stock (approximately 26% of the shares of Common Stock then outstanding)
and the Company expects that such shares will be voted in favor of the Merger
Proposal. See "The Special Meeting--Required Vote" and "Security Ownership of
Certain Beneficial Owners and Management."
PARTIES TO THE MERGER AGREEMENT
The Company. Bell Sports Corp. is the leading manufacturer and marketer of
bicycle helmets worldwide and a leading supplier of a broad line of bicycle
accessories in North America. The Company is also a leading supplier of auto
racing helmets and a supplier of bicycle accessories worldwide. Recently, the
Company began marketing in-line skating, snowboard, snow skiing and water sport
helmets. The Company markets its helmets under the widely recognized BELL(R)
and GIRO(R) brand names, and its accessories under such leading brands as
BELL(R), BLACKBURN(R), RHODE GEAR(R), VISTALITE(R), COPPER CANYON CYCLING(R)
and SPOKE-HEDZ(R). Bell Sports Corp. is a leading supplier of bicycle helmets
and accessories to mass merchants, independent bike dealers and mail order
catalog businesses, and markets products across all price points. The
1
<PAGE>
principal executive offices of the Company are located at 6350 San Ignacio
Avenue, San Jose, California 95119 and its telephone number is (408) 574-3400.
See "Parties to the Merger Agreement--The Company."
HB Acquisition. HB Acquisition is a corporation formed solely for the purpose
of engaging in the transactions contemplated by the Merger Agreement, has
engaged in no other business activities and has conducted its operations only
as contemplated by the Merger Agreement. The principal executive offices of HB
Acquisition are located at 600 Atlantic Avenue, 26th Floor, Boston,
Massachusetts 02210-2203 and its telephone number is (617) 619-5400. See
"Parties to the Merger Agreement--HB Acquisition."
THE MERGER
HB Acquisition will be merged with and into the Company at the Effective Time
in accordance with the terms of the Merger Agreement. Following the Merger, the
separate corporate existence of HB Acquisition will cease and the Company will
continue as the Surviving Corporation. Pursuant to the Merger Agreement, each
share of Common Stock, together with the associated Right, outstanding
immediately prior to the Effective Time (other than (i) shares of Common Stock
held by HB Acquisition or shares of Common Stock held directly or indirectly by
the Company, which shares will be cancelled, and (ii) shares of Common Stock
held by individuals perfecting Appraisal Rights) will be converted into the
right to receive the Merger Consideration.
Recommendation of the Board. The Board, based upon the recommendation of the
Special Committee, has approved the Merger Agreement and determined that the
Merger is advisable and in the best interests of the Company and its
stockholders. THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE MERGER PROPOSAL. See
"The Merger--Reasons for the Merger; Recommendation of the Board."
Opinion of Financial Advisor. NationsBanc Montgomery Securities LLC
("NationsBanc Montgomery") has acted as financial advisor to the Special
Committee in connection with the Merger and has delivered its written opinion
dated April 8, 1998 to the Special Committee that, as of April 8, 1998, the
consideration to be received by the stockholders of the Company (other than CB
Capital Investors, L.P. ("CBCI") and Ms. Mary J. George) pursuant to the Merger
was fair to such stockholders from a financial point of view. The full text of
such written opinion of NationsBanc Montgomery, which sets forth the
assumptions made, procedures followed, matters considered and limitations on
the scope of review undertaken, is attached hereto as Annex B and should be
read carefully in its entirety. See "The Merger--Opinion of Financial Advisor."
Certain Federal Income Tax Considerations. In general, each holder of Common
Stock will recognize gain or loss for federal income tax purposes equal to the
difference, if any, between the cash received pursuant to the Merger or
pursuant to the exercise of Appraisal Rights and such holder's adjusted tax
basis in its Common Stock. Such gain or loss generally will be treated as a
capital gain or capital loss for federal income tax purposes provided the
Common Stock was a capital asset in the hands of such holder. All stockholders
are urged to consult their own tax advisers. See "The Merger--Certain Federal
Income Tax Considerations."
Anticipated Accounting Treatment. It is expected that the Merger and the
transactions contemplated by the Merger Agreement will be accounted for as a
recapitalization under generally accepted accounting principles for financial
reporting purposes, which would result in the assets and liabilities of the
Company being accounted for on a historical cost basis and not being impacted
by the Merger. See "The Merger--Anticipated Accounting Treatment."
THE MERGER AGREEMENT
Conversion of Securities. At the Effective Time of the Merger each issued and
outstanding share of Common Stock, together with the associated Right (other
than (i) shares of Common Stock held by HB Acquisition or shares of Common
Stock held, directly or indirectly, by the Company, which shares will be
2
<PAGE>
cancelled, and (ii) shares of Common Stock held by individuals perfecting
Appraisal Rights) will be converted into the right to receive the Merger
Consideration. See "The Merger Agreement--Conversion of Securities."
Payment of Merger Consideration. As soon as reasonably practical after the
Effective Time, the Paying Agent designated under the Merger Agreement will
mail to each holder of record of shares of Common Stock a letter of transmittal
and related instructions to effect the surrender of certificates representing
such shares in exchange for the Merger Consideration in accordance with the
Merger Agreement. See "The Merger Agreement--Payment of Merger Consideration."
Stock Options, Restricted Stock, Phantom Stock Units. Each option to purchase
Common Stock previously issued by the Company that is outstanding immediately
prior to the Effective Time other than certain options to purchase Common Stock
held by Ms. George, will become fully vested and exercisable immediately prior
to the Effective Time in accordance with its terms. The holder of any such
option will be entitled to receive, for each share of Common Stock subject
thereto, a cash payment in an amount equal to the excess, if any, of the Merger
Consideration over the applicable per share exercise price. Each award of
Restricted Stock previously made by the Company that is outstanding immediately
prior to the Effective Time and not then vested will become fully vested and
the holder thereof will be entitled to receive, in respect of each share of
Common Stock subject thereto, the Merger Consideration. Each award of a Phantom
Stock Unit previously made by the Company that is outstanding immediately prior
to the Effective Time will become fully vested and exercisable and the holder
thereof will be entitled to receive a cash payment in an amount determined in
accordance with the terms thereof. See "The Merger Agreement--Stock Options,
Restricted Stock, Phantom Stock Units."
No Solicitation. The Merger Agreement required the Company to cease any
discussions or negotiations with any parties that were ongoing with respect to
a Takeover Proposal (as hereinafter defined). The Merger Agreement provides
that the Company will not (i) solicit or initiate any inquiries or the making
of any proposal which constitutes, or may reasonably be expected to lead to,
any Takeover Proposal or (ii) participate in or enter into any discussions or
negotiations regarding any Takeover Proposal; provided, however, that under
specified circumstances, if, at any time prior to adoption of the Merger
Agreement by the Company's stockholders, the Board receives a Takeover
Proposal, the Company may, in response thereto, furnish information with
respect to the Company pursuant to a confidentiality agreement and participate
in or enter into discussions, investigations or negotiations regarding such
Takeover Proposal. Under specified circumstances, prior to the adoption of the
Merger Agreement by the Company's stockholders, the Board may withdraw or
modify its approval or recommendation of the Merger and the Merger Agreement,
approve or recommend a Superior Proposal (as hereinafter defined) or terminate
the Merger Agreement. See "The Merger Agreement--No Solicitation."
Conditions Precedent to the Merger. The obligation of each of the Company and
HB Acquisition to effect the Merger is subject to the fulfillment of certain
conditions, including but not limited to, approval of the Merger Agreement and
the transactions contemplated thereby by the requisite vote of the Company's
Stockholders, the absence of certain injunctions or other legal restraints
preventing the consummation of the Merger and the expiration or termination of
the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act").
The obligation of HB Acquisition to effect the Merger is also subject to the
fulfillment of certain additional conditions, including the absence of certain
materially adverse events relating to the Company (excluding the Wandel Verdict
discussed elsewhere herein) and the receipt pursuant to a financing commitment
letter dated as of February 12, 1998 from Societe Generale Investment Banking
("SG") by the Company and HB Acquisition of sufficient funds to pay the Merger
Consideration and otherwise enable HB Acquisition to consummate the
transactions contemplated by the Merger Agreement and to meet the working
capital requirements of the Surviving Corporation. See "The Merger Agreement--
Conditions Precedent to the Merger."
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time: (i) by mutual written consent of HB Acquisition and the
Company; (ii) by HB Acquisition or the Company if, the
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Merger has not been consummated on or prior to August 31, 1998 or such other
date agreed upon by HB Acquisition and the Company, or the Merger is
permanently enjoined, prohibited by, or otherwise made illegal by any
governmental entity; (iii) by the Company, if the Merger Proposal is not
approved at the Special Meeting, or in accordance with the provisions of the
Merger Agreement relating to a Superior Proposal described under "The Merger
Agreement--No Solicitation;" (iv) by either party to the Merger Agreement, in
the event of certain breaches of the representations, warranties, covenants or
agreements by the other party; or (v) by HB Acquisition if, (a) the Merger
Proposal is not approved at the Special Meeting; (b) the Board withdraws or
changes its recommendation of the Merger Agreement or the Merger in a manner
adverse to HB Acquisition; or (c) the Board recommends any Takeover Proposal or
a tender offer or exchange offer is made for 20% or more of the voting stock of
the Company and, subject to certain conditions set forth in the Merger
Agreement, the Board does not recommend that stockholders of the Company not
tender their shares into such tender or exchange offer. See "The Merger
Agreement--Termination."
Fees and Expenses. Except as provided in the Merger Agreement, all fees and
expenses incurred in connection with the Merger will be paid by the party
incurring such fees and expenses. The Merger Agreement provides for the payment
by the Company to HB Acquisition of a $500,000 expense reimbursement and a
$2,500,000 termination fee under certain circumstances. HB Acquisition's remedy
for claims sustained or incurred by it as a result of the Merger Agreement or
the transactions contemplated thereby is limited to an aggregate amount of
$3,000,000 (including any required expense reimbursement and termination fees).
Subject to certain conditions, the Company's exclusive remedy for any claims
resulting from the Merger Agreement or the transactions contemplated thereby
will be against HB Acquisition. See "The Merger Agreement--Fees and Expenses."
THE STOCK SUBSCRIPTION AGREEMENTS
HB Acquisition has entered into a separate Stock Subscription Agreement
("Stock Subscription Agreement") with each of Harvard Private Capital Holdings,
Inc. ("Harvard Private Capital") and Brentwood Associates Buyout Fund II, L.P.
("Brentwood" and together with Harvard Private Capital, the "Investors"). Each
Stock Subscription Agreement provides that the Investor party thereto will,
under certain specified circumstances, purchase from HB Acquisition one share
of its common stock and, in consideration thereof, pay to HB Acquisition
$1,500,000. The Stock Subscription Agreements may not be amended without the
prior written consent of the Company, other than amendments that are not
adverse to the Company. The Company is intended to be a third-party beneficiary
of the Stock Subscription Agreements and will be entitled to enforce them on
behalf of HB Acquisition. See "The Stock Subscription Agreements."
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Any stockholder who does not wish to accept the Merger Consideration has the
right to dissent from the Merger and to seek an appraisal of, and to be paid
the fair cash value (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) for, his or her shares of Common
Stock, provided that the stockholder fully complies with the provisions of
Section 262 of the General Corporation Law of the State of Delaware (the
"DGCL"). See "Appraisal Rights of Dissenting Stockholders" and Annex C hereto.
SOURCES OF FUNDS
The total amount of funds required by the Company and HB Acquisition to
complete the Merger, including fees and expenses incurred in connection
therewith, is expected to be approximately $155 million. The Company and HB
Acquisition expect to obtain such funds from (i) bank financing, (ii) available
cash and (iii) equity contributions to the Company from Brentwood and Harvard
Private Capital. See "Sources of Funds."
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In connection with the Merger Agreement, Mr. Terry G. Lee, the Chairman of
the Board and Chief Executive Officer of the Company, entered into an amended
and restated employment agreement with the Company (the "Lee Employment
Agreement") which will become effective at the Effective Time and which will
replace his current employment, severance and noncompetition agreements with
the Company. In addition, and also in connection with the Merger Agreement, Ms.
George, the President and Chief Operating Officer of the Company, entered into
an amended and restated employment agreement with the Company (the "George
Employment Agreement") which will become effective at the Effective Time and
which will replace her current employment agreement with the Company. Ms.
George has also entered into a letter agreement with HB Acquisition (the
"George Equity Agreement") pursuant to which she will exchange a portion of her
options to purchase Common Stock for options to purchase capital stock of the
Surviving Corporation. See "The Merger--Interests of Certain Persons in the
Merger."
It is anticipated that immediately prior to the Effective Time CBCI will
exchange with HB Acquisition $5 million worth of shares of Common Stock (valued
at the Merger Consideration) and receive, in consideration thereof, shares of
HB Acquisition Common Stock, $.01 par value, per share ("HB Acquisition Common
Stock"), and shares of HB Acquisition Series A Preferred Stock ("HB Acquisition
Preferred Stock"). See "The Merger--Interests of Certain Persons in the
Merger." At the close of business on the Record Date, CBCI was the record and
beneficial owner of 2,281,080 shares of Common Stock. See "Security Ownership
of Certain Beneficial Owners and Management--Security Ownership of Certain
Beneficial Owners." At the Effective Time, the shares of capital stock of HB
Acquisition received by CBCI will be converted into shares of capital stock of
the Surviving Corporation in accordance with the terms of the Merger Agreement.
The shares of Common Stock retained by CBCI will be converted into the right to
receive the Merger Consideration in accordance with the terms of the Merger
Agreement. See "The Merger Agreement--Conversion of Securities." Mr. Michael R.
Hannon and Mr. Arnold L. Chavkin are members of the Board of Directors of the
Company and each of them is a General Partner of Chase Capital Partners, an
affiliate of CBCI. See "Security Ownership of Certain Beneficial Owners and
Management--Security Ownership of Management."
HB Acquisition has indicated that it expects to implement an equity-based
management incentive program in order to attract and retain, as well as provide
incentives to, the management team of the Surviving Corporation. It is expected
that this program will afford management the ability to invest in the equity of
the Surviving Corporation on terms and conditions that have not yet been
determined. Some of these investments may be made at the Effective Time. It is
also expected that the incentive program will include the grant of restricted
stock and options to purchase equity of the Surviving Corporation.
Additionally, directors and executive officers have interests in the Merger
which relate to the receipt of cash in exchange for options to purchase Common
Stock; the acceleration of vesting of Restricted Stock Awards and Phantom Stock
Unit Awards; the settlement, in cash, of Phantom Stock Unit Awards; and the
provision of indemnification and directors' and officers' liability insurance
after the Merger. See "The Merger--Interests of Certain Persons in the Merger,"
"The Merger Agreement--Stock Options, Restricted Stock, Phantom Stock Units"
and "--Indemnification and D&O Insurance."
MARKET PRICE OF COMMON STOCK
The Common Stock is listed on Nasdaq under the symbol "BSPT." On February 13,
1998, the last trading day prior to public announcement of the execution of the
Merger Agreement, the last reported sale price of Common Stock, as reported by
Nasdaq was $9.00 per share. On April 8, 1998, the last trading day prior to
public announcement of the execution of the first amendment to the Merger
Agreement, the last reported sale price of Common Stock, as reported by Nasdaq
was $8.25 per share. On June 30, 1998, the last trading day prior to the date
of this Proxy Statement, the last reported sale price of Common Stock, as
reported by Nasdaq was $9.594 per share. For additional information concerning
historical market prices of the Common Stock, see "Market Price of Common
Stock."
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information with respect to persons who beneficially owned more than 5%
of the outstanding shares of Common Stock at the close of business on the
Record Date as well as information with respect to the beneficial ownership of
Common Stock by the Company's management see "Security Ownership of Certain
Beneficial Owners and Management."
EFFECT ON CONVERTIBLE DEBENTURES
The Company has commenced a tender offer (the "Debenture Tender Offer") for
up to $62.5 million aggregate principal amount of its outstanding 4 1/4%
Convertible Subordinated Debentures due 2000 (the "Convertible Debentures").
The Company's obligation to purchase Convertible Debentures validly tendered
pursuant to the Debenture Tender Offer is conditioned upon, among other things,
the consummation of the Merger and the completion of the Subsidiary Note
Offering (as hereinafter defined). There can be no assurance that the
transactions contemplated by the Debenture Tender Offer or the Subsidiary Note
Offering will be consummated. CONSUMMATION OF THE MERGER IS NOT CONDITIONED
UPON THE CONSUMMATION OF THE DEBENTURE TENDER OFFER OR THE SUBSIDIARY NOTE
OFFERING. See "The Merger--Effect on Convertible Debentures."
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
For certain selected financial data concerning the Company as of and for each
of the five years ended June 28, 1997 and for the nine months ended March 28,
1998 and March 29, 1997 see "Selected Historical Consolidated Financial Data."
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THE SPECIAL MEETING
DATE, PLACE AND TIME
The Special Meeting will be held at 9:00 a.m., local time, on Tuesday,
August 11, 1998 at The Radisson Resort Scottsdale, 7171 N. Scottsdale Road,
Scottsdale, Arizona 85253.
PURPOSE
At the Special Meeting, stockholders of the Company will consider and vote
upon the Merger Proposal. Stockholders will also consider such other matters
as may properly come before the Special Meeting or any adjournment or
postponement thereof.
THE BOARD, BASED UPON THE RECOMMENDATION OF THE SPECIAL COMMITTEE, HAS
APPROVED THE MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS ADVISABLE AND
IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. THE BOARD
RECOMMENDS THAT YOU VOTE "FOR" THE MERGER PROPOSAL. SEE "SPECIAL FACTORS--
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD."
RECORD DATE; VOTING RIGHTS
Only stockholders of record at the close of business on the Record Date,
June 30, 1998, are entitled to receive notice of and to vote at the Special
Meeting and any adjournment or postponement thereof. At the close of business
on the Record Date, there were 13,915,436 shares of Common Stock outstanding,
each of which entitles the registered holder thereof to one vote on each
matter to be voted upon at the Special Meeting.
QUORUM
The holders of a majority of the shares of Common Stock outstanding and
entitled to vote must be present in person or represented by proxy at the
Special Meeting in order to constitute a quorum for the transaction of
business. Abstentions and broker non-votes are counted for purposes of
determining the presence or absence of a quorum for the transaction of
business.
In the absence of a quorum at the Special Meeting, the holders of a majority
of the shares of Common Stock present in person or represented by proxy at the
Special Meeting may adjourn the Special Meeting for the purpose of allowing
additional time for soliciting and obtaining additional proxies or votes. At
any such adjourned meeting at which a quorum may be present, all proxies will
be voted in the same manner as such proxies would have been voted at the
meeting at which the adjournment is taken, except for any proxies which have
theretofore effectively been revoked or withdrawn. At such time as a quorum is
present, the Special Meeting will be reconvened without notice to
stockholders, other than an announcement at the meeting at which the
adjournment is taken, unless the adjournment is for more than thirty days or a
new record date has been set.
PROXIES
Shares of Common Stock represented by properly executed proxies which are
received in time for the Special Meeting and have not been revoked will be
voted in accordance with the instructions indicated in such proxies. If no
instructions are indicated, such shares will be voted FOR the Merger Proposal.
In addition, the persons designated in such proxies will have discretion to
vote upon such other matters as may properly come before the Special Meeting,
including, without limitation, the right to vote for any adjournment thereof
proposed by the Board to solicit additional proxies.
Any proxy in the enclosed form may be revoked by the stockholder executing
it at any time prior to its exercise by giving written notice thereof to the
Secretary of the Company, by signing and returning a later dated proxy or by
voting in person at the Special Meeting. Attendance at the Special Meeting
will not in and of itself constitute the revocation of a proxy.
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SOLICITATION OF PROXIES
Proxies are being solicited hereby on behalf of the Board. The entire cost
of proxy solicitation for the Special Meeting, including the reasonable
expenses of brokers, fiduciaries and other nominees in forwarding solicitation
material to beneficial owners, will be borne by the Company. In addition to
the use of the mail, solicitation may be made by telephone or otherwise by
directors, officers and employees of the Company. Such directors, officers and
employees will not be additionally compensated for such solicitation, but may
be reimbursed for out-of-pocket expenses incurred in connection therewith. If
undertaken, the expense of such solicitation would be nominal. The Company has
retained Georgeson & Company Inc. to aid in the solicitation of proxies. The
fees and expenses of Georgeson & Company Inc. are estimated to be $7,500 plus
reimbursement of out-of-pocket expenses.
REQUIRED VOTE
Approval of the Merger Proposal will require the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock entitled to
vote thereon. Abstentions and broker non-votes with respect to the Merger
Proposal will have the effect of votes cast against the Merger Proposal. At
the close of business on the Record Date, the directors and executive officers
of the Company owned 3,737,837 shares of Common Stock (approximately 26% of
the shares of Common Stock then outstanding) and the Company expects that such
shares will be voted in favor of the Merger Proposal. See "Security Ownership
of Certain Beneficial Owners and Management."
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Any stockholder who does not wish to accept the Merger Consideration has the
right to dissent from the Merger and to seek an appraisal of, and to be paid
the fair cash value (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) for, his or her shares of Common
Stock, provided that the stockholder fully complies with the provisions of
Section 262 of the DGCL. See "Appraisal Rights of Dissenting Stockholders" and
Annex C hereto.
PARTIES TO THE MERGER AGREEMENT
THE COMPANY
Bell Sports Corp. is the leading manufacturer and marketer of bicycle
helmets worldwide and a leading supplier of a broad line of bicycle
accessories in North America. The Company is also a leading supplier of auto
racing helmets and a supplier of bicycle accessories worldwide. Recently, the
Company began marketing in-line skating, snowboard, snow skiing and water
sport helmets. The Company markets its helmets under the widely recognized
BELL(R) and GIRO(R) brand names, and its accessories under such leading brands
as BELL(R), BLACKBURN(R), RHODE GEAR(R), VISTALITE(R), COPPER CANYON
CYCLING(R) and SPOKE-HEDZ(R). Bell Sports Corp. is a leading supplier of
bicycle helmets and accessories to mass merchants, independent bike dealers
and mail order catalog businesses, and markets products across all price
points. The principal executive offices of the Company are located at 6350 San
Ignacio Avenue, San Jose, California 95119 and its telephone number is (408)
574-3400.
HB ACQUISITION
HB Acquisition is a corporation formed solely for the purpose of engaging in
the transactions contemplated by the Merger Agreement, has engaged in no other
business activities and has conducted its operations only as contemplated by
the Merger Agreement. The principal executive offices of HB Acquisition are
located at 600 Atlantic Avenue, 26th Floor, Boston, Massachusetts 02210-2203
and its telephone number is (617) 619-5400.
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THE MERGER
BACKGROUND OF THE MERGER
During the past few years, the Company has engaged in a number of
restructuring and acquisition/divestiture-related transactions designed to
enhance stockholder value. In 1996, the Company acquired Giro Sport Design, a
leading marketer of premium bicycle helmets in the independent bicycle dealer
channel of distribution. The addition of the Giro product line enabled the
Company to extend its widely-recognized Bell brand of bicycle helmets to the
mass merchant channel of distribution, while continuing to offer independent
bicycle dealers a dedicated premium brand helmet. The Company also
restructured certain of its operations in order to reduce operating costs and
enhance profitability. As part of its restructuring efforts, the Company
closed its Commack, New York facility in 1996 and consolidated various of its
corporate and administrative operations into its San Jose facility. In
addition, the Company sold its Service Cycle/Mongoose business in April 1997
and its SportRack business in July 1997.
In late Summer of 1997, the Board of Directors commenced discussions with
NationsBanc Montgomery regarding its concern that, notwithstanding the
Company's efforts to enhance stockholder value, the trading price of the
Common Stock had remained relatively flat and did not reflect the full value
of the Company. In September, 1997 the Board and NationsBanc Montgomery
discussed strategic alternatives that might be available to the Company to
maximize stockholder value. The discussion focused on four principal
scenarios: a sale of the Company scenario; an internal recapitalization
scenario in which the Company would repurchase a substantial portion of its
outstanding shares; a debt repurchase scenario in which the Company would
repurchase the Convertible Debentures; and a status quo scenario in which the
Company would continue its current operations under its existing capital
structure. NationsBanc Montgomery's financial analysis indicated that, of the
strategic alternatives discussed, a possible sale of the Company, particularly
if conducted through an auction process, would likely result in the greatest
value to stockholders. In summarizing its financial analysis, NationsBanc
Montgomery noted that recent acquisitions involving branded products companies
demonstrated that significant interest, particularly among financial buyers,
exists for such companies with strong market positions. It was noted further
that an auction process would likely result in the Company reaching the
broadest group of potentially interested parties and would also create the
potential for a competitive bidding process that could yield the highest value
to stockholders. The Board of Directors discussed these alternatives and
decided to initiate the process of exploring such alternatives further.
On September 10, 1997, the Company issued a press release announcing that
its Board of Directors had retained NationsBanc Montgomery to explore
strategic alternatives available to the Company to maximize stockholder value.
In the press release, the Company indicated that such alternatives included a
possible sale of the Company. During the weeks immediately following this
public announcement, the Company and, at the Board's direction, NationsBanc
Montgomery began to contact potentially interested parties to determine
whether such parties had an interest in receiving detailed financial and other
information relating to the Company. Sixty parties either contacted or were
contacted during this stage of the process. The 60 parties included 12 parties
deemed to be "strategic" parties because they were already engaged in a
bicycle-related or other sporting goods business and 48 "financial" parties
consisting primarily of private equity/ buy-out funds or similar investment
groups. Of such 60 parties, 36 parties requested and received information
regarding the Company. Each of the parties receiving information was asked to
submit to NationsBanc Montgomery, on or before November 5, 1997, written
preliminary indications of interest for a transaction involving the Company.
As of November 6, 1997, NationsBanc Montgomery had received four written
preliminary indications of interest, consisting of indications of interest
from Harvard Private Capital, Brentwood and two other financial parties. The
indications of interest contemplated preliminary transaction prices ranging in
estimated value from $8.50 to $12.00 per share with the highest preliminary
value being proposed by Harvard Private Capital. Two strategic parties
declined to submit written preliminary indications of interest, but indicated
orally preliminary interest in a transaction with the Company at a price not
exceeding $10.00 per share.
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Following review of such indications of interest, the Board of Directors
authorized the Company to permit interested parties to begin extensive due
diligence review of the Company and to meet with the Company's management.
During November and December of 1997, all parties expressing some level of
interest in the Company were offered an opportunity to conduct due diligence.
The two strategic parties and one of the financial parties declined to proceed
with the due diligence process. Harvard Private Capital, Brentwood and the
other remaining financial party (the "Third Interested Party") proceeded to
conduct due diligence. During the due diligence stage, the Third Interested
Party advised NationsBanc Montgomery that it was lowering its proposed price
range to between $9.50 and $10.00 per share. During this period, Harvard
Private Capital and Brentwood also indicated that they would be submitting a
single proposal.
In December 1997, NationsBanc Montgomery furnished Harvard Private Capital,
Brentwood and the Third Interested Party a letter requesting that definitive
proposals for a business combination involving the Company be submitted to
NationsBanc Montgomery by January 12, 1998 and setting forth certain
procedures applicable to the submission of proposals. This letter was
accompanied by a draft merger agreement that each of the interested parties
was invited to mark-up to reflect its comments and to submit with its
proposal.
On December 19, 1997, Harvard Private Capital and Brentwood, together,
submitted to the Company a single preliminary proposal at $10.00 per share
(the "Preliminary Proposal") for a recapitalization transaction involving the
acquisition by HB Acquisition of 94% of the Company's outstanding shares. The
proposal was subject to various conditions, including that (i) certain
principal stockholders participate in the recapitalization by "rolling over"
to HB Acquisition a portion of their equity in the Company and (ii) HB
Acquisition be permitted on an exclusive basis, to complete its due diligence
and arrange its debt financing for the transaction. The Preliminary Proposal
indicated that it would expire on December 30, 1997 if not accepted by the
Company.
During the period December 19, 1997 to December 21, 1997, the Company's
directors, management and financial and legal advisors held numerous
discussions to review the Preliminary Proposal. While, based on discussions
with the initially interested parties, it appeared unlikely that the Third
Interested Party or any of the previously interested parties would submit a
proposal at a price higher than HB Acquisition's $10.00 per share proposal, it
was determined to be in the interest of the Company to continue to negotiate
with Harvard Private Capital and Brentwood regarding HB Acquisition's
willingness to pay a higher price. Accordingly, the Company's Board of
Directors determined to reject the Preliminary Proposal and to advise Harvard
Private Capital and Brentwood that a higher price would be required to
commence negotiations with the Company. In connection with such rejection, the
Company also advised Harvard Private Capital and Brentwood that any proposal
submitted should provide for the acquisition of all of the Company's
outstanding shares.
On December 22, 1997, Harvard Private Capital and Brentwood, together,
submitted a revised preliminary proposal to the Company providing for a
similar recapitalization transaction in which 94% of the Company's outstanding
shares would be acquired by HB Acquisition at a price of $10.50 per share (the
"Revised Preliminary Proposal"). The Revised Preliminary Proposal continued to
be subject to various conditions, including that (i) certain principal
stockholders rollover equity into HB Acquisition, (ii) HB Acquisition be
provided an exclusive due diligence period to complete its review of the
Company and arrange the debt financing for the transaction and (iii) the
Company pay HB Acquisition a 3% of transaction value break-up fee in the event
that the Company declined to proceed with the HB Acquisition transaction. The
Revised Preliminary Proposal contained an expiration date of December 30,
1997.
Following receipt of the Revised Preliminary Proposal, the Company and, at
the Board's direction, NationsBanc Montgomery, engaged in various discussions
with Harvard Private Capital and Brentwood as the representatives of HB
Acquisition to determine whether HB Acquisition would be willing to submit a
higher offer. These discussions failed to result in a higher proposal from HB
Acquisition. The discussions with Harvard Private Capital and Brentwood also
focused on the "rollover" aspect of the transaction and led to the conclusion
that some level of equity rollover was an essential condition to HB
Acquisition's willingness to proceed with the transaction. At the same time as
these discussions were occurring with Harvard Private Capital and Brentwood,
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the Company and, at the Board's direction, NationsBanc Montgomery, contacted
each of the other parties, both financial and strategic, that had previously
submitted an indication of interest involving the Company to determine if an
offer higher in value than the Revised Preliminary Proposal could be obtained.
Each of the interested parties contacted indicated that it would not be
interested above the $10.00 per share level. However, one strategic party
indicated a preliminary interest in investing in a management-led buyout
transaction at a price not exceeding $10.50 per share.
On December 29, 1997, certain members of the Company's Board of Directors
participated in a telephone conference with the Company's management and its
financial and legal advisors to discuss the Revised Preliminary Proposal.
Following the conference, the Company advised Harvard Private Capital and
Brentwood that it was unwilling to grant HB Acquisition the exclusive dealing
rights or the break-up fee requested, but that the remaining terms of the
proposal would be reviewed by the Company's Board of Directors at its
regularly scheduled meeting to be held on January 5, 1998. Harvard Private
Capital and Brentwood indicated that the Board, in reviewing this matter,
should be advised that Harvard Private Capital and Brentwood would be willing
to complete the due diligence necessary to submit a definitive proposal only
if the Company would agree that, in the event the Company elected not to
proceed with that proposal, the Company would reimburse HB Acquisition for
certain expenses incurred.
At the January 5, 1998 meeting, the Company's Board of Directors reviewed
the Revised Preliminary Proposal with the Company's management and financial
and legal advisors. It was noted at the meeting that the Revised Preliminary
Proposal represented the only acquisition proposal received that had a value
in excess of $10.00 per share and that, of the alternatives to the Revised
Preliminary Proposal considered by the Board, only the internal
recapitalization scenario indicated a range of value that, in the best case,
would approximate the value provided by the Revised Preliminary Proposal. It
was noted, however, that the internal reorganization scenario involved
operating, execution and market risk and that given the Company's historical
performance, the competitive marketplace for its products and the effects of
possible changing economic and market conditions, the internal reorganization
scenario could result in a value for stockholders of less than $10.50 per
share. The Board concluded that the Revised Preliminary Proposal represented
the best value reasonably achievable in the circumstances and that it was in
the best interests of the Company and its stockholders that HB Acquisition be
provided an opportunity to complete its due diligence and submit a definitive
offer. In order to induce HB Acquisition to complete such due diligence and
submit such offer, the Board authorized the Company to reimburse HB
Acquisition for up to $500,000 of expenses incurred in such process if HB
Acquisition submitted a definitive offer on or before January 30, 1998 at a
price of not less than $10.50 per share and the Company elected not to proceed
with such offer. Subsequent to the Board meeting, a letter to this effect was
delivered to Harvard Private Capital and Brentwood as the representatives of
HB Acquisition and HB Acquisition commenced such additional due diligence.
During the month of January 1998, HB Acquisition engaged in an extensive due
diligence review of the Company and held discussions with Mr. Lee and Ms.
George regarding HB Acquisition's requirements with respect to the proposed
rollover. During this same period, the Company and, at the Board's direction,
NationsBanc Montgomery, continued to analyze possible alternatives to the
Revised Preliminary Proposal, including a possible internal recapitalization
of the Company.
On January 30, 1998, Harvard Private Capital and Brentwood, together,
submitted to the Company a proposal pursuant to which HB Acquisition would
acquire up to 94% of the outstanding shares of Common Stock in a
recapitalization transaction at a cash purchase price of $10.50 per share (the
"January 30 Proposal"). The January 30 Proposal was accompanied by a draft of
a proposed agreement of plan of recapitalization and merger and a financing
commitment letter from SG. The proposed obligations of HB Acquisition under
the January 30 Proposal were subject to various conditions, including
stockholder approval on the part of the Company, the receipt of adequate
financing pursuant to such commitment letter, the absence of a material
adverse change affecting the Company, the absence of litigation, the ability
to qualify for recapitalization accounting treatment and the entry by HB
Acquisition of (i) satisfactory employment agreements with Mr. Lee and Ms.
George and (ii) stockholder agreements with Mr. Lee, Ms. George and CBCI. The
January 30 Proposal also contemplated a termination fee of $2.5 million
payable by the Company in various events.
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On the evening of January 30, 1998, the Board of Directors of the Company
held a telephone conference with the Company's management and legal and
financial advisors to receive an update on the January 30 Proposal. Mr. Lee
and Ms. George advised the Board that, due to HB Acquisition's continuing
requirement that they invest in the surviving corporation for recapitalization
accounting and other business purposes, Mr. Lee and Ms. George were prepared
to rollover a portion of their equity in the Company to facilitate a
transaction at the $10.50 per share level. In addition, Arnold L. Chavkin and
Michael R. Hannon, directors of the Company and general partners of Chase
Capital Partners, an affiliate of CBCI, advised the Board that Harvard Private
Capital and Brentwood had made inquiries of CBCI regarding its interest in
rolling over a portion of the shares held by CBCI, although no understanding
on this subject had been reached. In light of the possible continuing
involvement by Mr. Lee and CBCI in the Surviving Corporation, and based on the
advice of counsel, the Board determined it advisable that a special committee
of disinterested directors be appointed to review the January 30 Proposal and
oversee and direct future negotiations with HB Acquisition. Accordingly, the
Special Committee was appointed for such purpose and authorized to retain its
own advisors and, thereafter, retained separate legal counsel. The Special
Committee consists of the following members of the Board: Messrs. Matthews
(Chairman), Kiely, Manko, Winter and Wright.
On February 5, 1998, the Special Committee held a meeting to review the
January 30 Proposal. At the meeting, the Special Committee determined that it
was not desirable to retain a separate investment advisor in light of the
detailed work performed by NationsBanc Montgomery and the Special Committee's
confidence in NationsBanc Montgomery's competence, independence and diligence.
Thereafter, NationsBanc Montgomery reviewed with the Special Committee the
process that had resulted in the receipt of the January 30 Proposal, the
economic and other terms of the January 30 Proposal and some of the strategic
alternatives available to the Company. Similar to previous discussions with
the Board, the NationsBanc Montgomery presentation on February 5 focused on
valuing the Company under four strategic alternative scenarios basing its
analysis on forecasts provided by the Company, as adjusted by NationsBanc
Montgomery. The first scenario (the "Sale of the Company Scenario") assumed
the sale of all of the Company's outstanding shares in exchange for cash or
securities. A second scenario (the "Internal Recapitalization Scenario")
assumed that the Company would pursue a partial recapitalization of the
Company through the repurchase of $70 million of its outstanding shares using
available cash and bank borrowings. The third scenario (the "Debt Repurchase
Scenario") assumed that the Company would apply its available cash to
repurchase approximately $30 million to $40 million of its outstanding
Convertible Debentures. The final scenario (the "Status Quo Scenario") assumed
that the Company would continue its current business plan, operations and
management.
With respect to the Sale of the Company Scenario, it was noted that the
Company had publicly announced its intention to explore strategic
alternatives, including a possible sale of the Company, and had conducted a
broad auction process that resulted in 60 parties either contacting or being
contacted by the Company or, at the Board's direction, NationsBanc Montgomery.
Of these 60 parties, only Harvard Private Capital and Brentwood, together, had
submitted a single definitive offer for the Company and Harvard Private
Capital and Brentwood had raised their joint offer from $10.00 per share to
$10.50 per share following negotiations with the Company. It was also noted
that other parties initially expressing interest in the Company had confirmed
that they had no interest at the $10.50 per share level. It was noted that the
Sale of the Company Scenario would enable the Company's stockholders to gain
greater liquidity at a premium to market value as compared to other
alternatives and current public market valuations and would eliminate risk
associated with operations and future industry and market conditions although
the Company would lose the ability to use public equity as consideration for
further acquisitions.
The financial analysis based on Company forecasts as adjusted by NationsBanc
Montgomery regarding the Internal Recapitalization Scenario under a best case
analysis suggested an implied value of $10.91 per share, but the high
operating risk over the period involved reduced the chance of reaching the
higher end of the value range. It was further noted that the Company has a
recent history of weak operating performance and that future liquidity could
be limited by changes in the future capital markets and the limited float in
its shares remaining outstanding.
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The Debt Repurchase Scenario indicated an implied present value per share of
between $9.06 and $9.20. It was further noted that, even at the high end of
this value range, this scenario delivered the lowest value to stockholders
compared to other alternatives reviewed and left the Company in the position
of borrowing at higher interest rates to finance future growth.
The Status Quo Scenario indicated an implied present value of $9.19 per
share, the Company's then current trading price. It was noted that the
financial markets' perception of the Company was being impacted by the lack of
stock research analyst coverage, the Company's small base of institutional
stockholders, the Company's weak performance in past periods and the recent
struggles of bicycle and sporting goods companies having the effect of
depressing price/earnings ratios and reducing investor interest in the
sporting goods sector. Factors also cited as affecting the Company's stock
price were the Company's limited upside potential domestically due to the
Company's existing strong domestic market penetration, the execution risk from
the Company's attempt to enter new, highly competitive markets and the
softening outlook for bicycle sales.
As part of its presentation, NationsBanc Montgomery also reviewed with the
Special Committee the valuation methodologies it would be likely to apply in
evaluating the fairness, from a financial point of view, of the consideration
offered to the Company's stockholders by the January 30 Proposal.
The presentation concluded with a recommendation by NationsBanc Montgomery
based on its financial analysis and Company forecasts as adjusted by
NationsBanc Montgomery that the Company continue to pursue a sale of the
Company for the following reasons: (i) compared to other alternatives, and
based on the detailed sales process conducted by the Company, and at the
Board's direction, NationsBanc Montgomery, a sale offered stockholders the
greatest risk-adjusted value, (ii) the January 30 Proposal's $10.50 per share
price appeared to be the best value reasonably available to the stockholders
of the Company in light of the detailed sales process conducted by the
Company, and at the Board's direction, by NationsBanc Montgomery, the trading
comparables, comparable transactions and the trading price of the shares,
(iii) the financial markets have exhibited a lack of interest in the Company
and the sporting goods sector and (iv) the January 30 Proposal was derived
from a broad, publicly announced auction process.
Following the NationsBanc Montgomery presentation and related discussion at
the February 5 meeting, the Special Committee authorized the Company to enter
into negotiations with HB Acquisition with respect to the January 30 Proposal.
These negotiations continued through the early morning on February 17, 1998.
During this period, the Special Committee held various telephone conference
calls to review the status of the negotiations. The Special Committee held a
meeting on the evening of February 16, 1998 to receive an update of
NationsBanc Montgomery's financial analysis on the proposed transaction
(including its fairness opinion presentation) and a review of the then current
draft of the proposed Merger Agreement and remaining open issues. On the
morning of February 17, 1998, the negotiations culminated in an agreement as
to the final terms of the Merger Agreement. The Special Committee met
thereafter with its counsel and NationsBanc Montgomery. At such meeting,
NationsBanc Montgomery delivered to the Special Committee its fairness opinion
as to the transaction and the Special Committee determined to recommend the
Merger Agreement to the Board of Directors for approval. Immediately following
the meeting of the Special Committee, the Board of Directors of the Company
met and, based upon the recommendation of the Special Committee, approved the
Merger Agreement. The Board of Directors also approved the Merger Agreement
for purposes of Article ELEVENTH of the Company's Certificate of Incorporation
and Article 14 of the Indenture dated as of November 15, 1993 between the
Company and Harris Trust and Savings Bank, Trustee (the "Indenture") relating
to the Convertible Debentures, and approved an amendment to the Company's
Stockholders Rights Agreement dated as of September 22, 1994, as amended by
First Amendment to Stockholders Rights Agreement dated as of February 15, 1995
(collectively, the "Rights Agreement") to provide that, among other things,
(i) the Rights would not separate or otherwise become exercisable and HB
Acquisition would not become an Acquiring Person (as defined in the Rights
Agreement) as a result of the execution or delivery of the Merger Agreement by
the Company, the public announcement of such execution and delivery or the
performance or agreement by the Company to effect the Merger in accordance
with the terms of the Merger Agreement or the performance of its obligations
thereunder and (ii) the Rights would cease to be exercisable at or after the
Effective Time. Such amendment to the Rights Agreement was then
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executed. The Merger Agreement was then executed and a press release was
issued by the Company announcing the execution of the Merger Agreement.
On February 19, 1998, the Company advised HB Acquisition that a purported
class action lawsuit had been filed against the Company, its directors and HB
Acquisition in Delaware state court relating to the transactions contemplated
by the Merger Agreement. On February 20, 1998, the Company further advised HB
Acquisition that an uninsured verdict of $6.8 million had been rendered that
day against the Company in a product liability action involving a motorcycle
helmet manufactured by the Company (the "Wandel Verdict"). A press release
regarding these events was thereafter issued by the Company.
The Wandel Verdict led HB Acquisition to request further information
regarding the status of the Company's pending and threatened product liability
actions, its manufacturing process, its quality control procedures and its
insurance coverage. During the period from February 21, 1998 through April 8,
1998, the Company met several times with representatives of HB Acquisition and
furnished various information to HB Acquisition relating to product liability
matters. During the later stage of this period, HB Acquisition began to
suggest that the Wandel Verdict had a material adverse affect on the value of
the Company and that HB Acquisition might be unwilling to proceed with the
proposed transaction absent a purchase price adjustment. These suggestions led
to negotiations regarding HB Acquisition's rights to terminate the Merger
Agreement and the price at which it was willing to proceed. During these
negotiations, HB Acquisition requested a reduction of $.90 per share in the
proposed merger consideration, which request was rejected by the Special
Committee. Ultimately, these negotiations led to a proposed amendment to the
Merger Agreement that reduced the merger consideration to $10.25 per share (a
$.25 per share reduction) and provided that the Wandel Verdict would not
constitute or be deemed or alleged to constitute a Material Adverse Change (as
hereinafter defined) or Material Adverse Effect (as hereinafter defined) with
respect to the Company. During the negotiations, HB Acquisition also consented
to a request by Mr. Lee to be released from any obligation to rollover equity
in the Company into the Surviving Corporation.
On April 8, 1998, the Special Committee met to review the proposed amendment
to the Merger Agreement. At such meeting, NationsBanc Montgomery made a
presentation and delivered a new fairness opinion to the Special Committee
regarding the financial fairness of the $10.25 per share merger consideration.
As part of such presentation, NationsBanc Montgomery noted that trading prices
for the sporting goods sector had decreased since the time of its February 17,
1998 fairness opinion and that the benefits to the Company's stockholders of
the $10.25 per share price had improved relative to trading comparables. It
was further noted that the Wandel Verdict, the possibility that a related
judgment would be entered against the Company and the costs associated
therewith, and softness in the Company's Spring 1998 sales could also be
expected to adversely affect the value of strategic alternatives and the value
that any other interested party might be willing to pay. NationsBanc
Montgomery noted that based on these factors, and the factors previously
reviewed with the Special Committee, the $10.25 per share price appeared to be
the best value reasonably available to the stockholders of the Company.
Following the NationsBanc Montgomery presentation, the Special Committee
determined to recommend that the Company's Board of Directors approve the
Merger Agreement, as amended. Immediately thereafter, the Board of Directors
of the Company approved the Merger Agreement, as amended. The amendment to the
Merger Agreement was then executed by the Company and HB Acquisition and a
press release announcing the same was issued by the Company.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD
(a) The Board of Directors, at a meeting held on April 8, 1998, determined,
based upon the recommendation of the Special Committee and the Board's
consideration of all of the factors considered by the Special Committee as
described below, that the Merger is advisable and in the best interests of the
Company and its stockholders. At such meeting, the Board of Directors, based
upon the recommendations of the Special Committee and the Board's
consideration of such factors, approved the Merger Agreement and the Merger.
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(b) The members of the Board believe that the factors considered by the
Special Committee operate both individually and in combination to support
their determination that the Merger is advisable and in the best interests of
the Company and its stockholders. In determining to recommend to the Board of
Directors that it approve the Merger Agreement, and in determining the
fairness of the terms of the Merger, the Special Committee considered the
factors set forth below, each of which, in the Special Committee's view,
supported the Special Committee's determination to recommend the Merger.
(1) The current and historical financial condition and results of
operations of the Company.
(2) The projected financial condition, results of operations, prospects
and strategic objectives of the Company, as well as the risks involved in
achieving those prospects and objectives in the sporting goods industry
under current, as well as expected future, economic and market conditions.
(3) The presentation of NationsBanc Montgomery's financial analysis as to
the strategic alternatives available to the Company to maximize stockholder
value, and NationsBanc Montgomery's recommendation that the Merger offers
stockholders of the Company the greatest risk-adjusted value of any of such
alternatives.
(4) The discussions between NationsBanc Montgomery and the Board of
Directors at its meeting on January 5, 1998 and the presentations of
NationsBanc Montgomery to the Special Committee at its meetings on February
5, 1998 and February 16, 1998 and confirmed by NationsBanc Montgomery to
the Special Committee at its meeting on February 17, 1998, as to various
financial matters deemed relevant to the Board's or Special Committee's
consideration, including, among other things, (a) an analysis of certain
historical business and financial information relating to the Company, (b)
a review of public information with respect to certain other companies
believed to be relevant to the business of the Company, (c) a review of
various financial forecasts and other data provided to NationsBanc
Montgomery by the Company related to its business, (d) a review of the
historical stock prices and trading volumes of shares of the Company's
Common Stock, (e) a review of comparable transactions and premiums paid in
such transactions and (f) a discounted cash flow valuation of the Company.
(5) The fact that the $10.25 per share to be received by the Company's
stockholders in the Merger represents an approximately 11% premium over the
closing market price of $9.25 per share on September 10, 1997 (the last
trading day prior to the Company's public announcement that it had retained
NationsBanc Montgomery to study strategic alternatives for the Company) and
an approximately 14% premium over the closing market price of $9.00 per
share on February 13, 1998 (the last trading day prior to public
announcement of the execution of the Merger Agreement).
(6) The relationship of the Merger Consideration to the respective
historical market prices of the Company's shares and to the Company's book
value per share.
(7) Discussions (described above under "--Background of the Merger")
with, and the terms of any expressions of interest received from, other
parties as to possible transactions as a result of contacts initiated by or
made to the Company or NationsBanc Montgomery.
(8) The fact that the offer from HB Acquisition was the only definitive
offer received following the Company's public announcement of its intent to
explore strategic alternatives, including a possible sale of the Company
and the history of negotiations with Harvard Private Capital and Brentwood
that, among other things, led to an increase in HB Acquisition's
preliminary proposal from $10.00 per share to $10.50 per share and the
belief by the Board of Directors and the Special Committee that the $10.50
per share (as subsequently revised to $10.25 per share) was the highest
price that HB Acquisition would agree to pay.
(9) The fact that the Company and, at the Board's direction, NationsBanc
Montgomery, conducted a broad auction process with respect to seeking
offers for the Company.
(10) The Board's and the Special Committee's view, after consultation
with management, counsel to the Company, counsel for the Special Committee
and NationsBanc Montgomery, regarding the likelihood of the existence of
other viable offers on terms as favorable as those provided by the Merger.
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(11) The written opinion, dated April 8, 1998, of NationsBanc Montgomery
to the Special Committee that, based upon and subject to various
considerations and assumptions set forth therein, from a financial point of
view the proposed consideration to be received by the stockholders in
connection with the Merger is fair to the stockholders as of April 8, 1998.
A copy of the opinion rendered by NationsBanc Montgomery to the Special
Committee, setting forth the procedures followed the matters considered,
the scope of the review undertaken and the assumptions made by NationsBanc
Montgomery in arriving at its opinion, is attached to this Proxy Statement
as Annex B and incorporated herein by reference.
(12) The terms and conditions of the Merger Agreement and the course of
the negotiations resulting in the amendment and execution thereof,
including the terms of the Merger Agreement that permit the Board of
Directors, in the exercise of its fiduciary duties, (a) to furnish
information to or participate in negotiations with any third party that
requests such information or initiates such discussions or negotiations,
pursuant to appropriate confidentiality agreements, in connection with any
proposal, offer or inquiry or relating to any merger, consolidation, share
exchange, recapitalization, business combination or other similar
transaction involving the Company or any of its subsidiaries, any sale,
lease, exchange, mortgage, pledge, transfer or other disposition of 20% or
more of the assets of the Company and its subsidiaries, taken as a whole,
any material debt or equity investment in the Company or any
recapitalization transaction or any tender offer or exchange offer for 20%
or more of outstanding shares of the Company or any of its subsidiaries
(although the Company is not permitted by the Merger Agreement to solicit
or initiate any such third party inquiry, proposal or offer or negotiations
regarding the same), and (b) to terminate the Merger Agreement in certain
circumstances. The Board of Directors noted that the Merger Agreement
provides that, in certain circumstances, the Company would be obligated to
pay HB Acquisition a termination fee of $2,500,000 and expenses of up to an
aggregate of $500,000 and that such payment would be HB Acquisition's
exclusive remedy for any breach relating to such termination.
(13) The fact that the Merger cannot be consummated unless the approval
of the holders of at least a majority of the outstanding shares of Common
Stock is obtained.
(14) The likelihood that the proposed acquisition would be consummated,
including the likelihood of satisfaction of the conditions to the Merger
contained in the Merger Agreement, the experience, reputation and financial
condition of Harvard Private Capital and Brentwood and the risks to the
Company if the Merger was not consummated.
The Special Committee and the Board did not assign relative weights to the
above factors or determine that any factor was of significant importance.
Rather, the Special Committee and the Board viewed their position and
recommendations as being based on the totality of the information presented to
and considered by them, except that particular consideration was placed on (i)
the opinion of NationsBanc Montgomery that, as of the date of the opinion, the
$10.25 per share merger consideration to be received by the Company's
stockholders (other than CBCI and Ms. George) in the Merger was fair to such
stockholders from a financial point of view and (ii) the active arm's length
bargaining that had occurred between the Company, under the supervision and
direction of the Special Committee, on the one hand, and HB Acquisition and
its affiliates on the other hand, that resulted in the $10.25 per share merger
consideration, which the members of the Special Committee believed was the
highest price that HB Acquisition would agree to pay. While the Special
Committee and the Board noted that certain of the individual analyses
contained in the NationsBanc Montgomery presentation and opinion were, in the
judgment of the Special Committee and the Board of Directors, more supportive
of their decision to approve the Merger than others, and that the premiums
paid analysis contained in the NationsBanc Montgomery presentation and opinion
appeared to be less supportive of their decision to approve the Merger, both
the Special Committee and the Board considered the totality of the
presentation and the opinion in determining whether the Merger was fair from a
financial point of view.
The Special Committee and the Board recognized that, as a result of the
proposed Merger, stockholders of the Company (other than CBCI and Ms. George)
would cease to have an interest in an ongoing corporation with potential for
future growth, and the Special Committee and the Board therefore gave
consideration to the Company's results of operations and current forecasts of
future revenues and earnings in reaching its determination to approve the
Merger Agreement. The Special Committee and the Board also recognized that
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CBCI and Ms. George would have an opportunity, subject to the risks of the
Surviving Corporation's business and in consideration of their ongoing service
to the Surviving Corporation, to benefit from any increases in the value of
the Surviving Corporation following the Merger. The Special Committee and the
Board recognized that this represented a potential conflict between the
interests of CBCI and Ms. George and the Company's other stockholders.
However, the Special Committee and the Board recognized that the proposed
structure for the Merger was a requirement imposed by HB Acquisition and that
HB Acquisition was willing to enter into the Merger Agreement only if
satisfactory arrangements for the retention of, and equity reinvestment by,
management and certain principal stockholders could be put in place. See "--
Interests of Certain Persons."
OPINION OF FINANCIAL ADVISOR
Pursuant to an engagement letter dated January 30, 1997, as amended (the
"Engagement Letter"), the Special Committee of the Company retained
NationsBanc Montgomery to act as its financial advisor in connection with the
transactions contemplated by the Merger Agreement. NationsBanc Montgomery is a
nationally recognized investment banking firm and, as part of its activities,
is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. The
Special Committee selected NationsBanc Montgomery as its financial advisor on
the basis of NationsBanc Montgomery's experience and expertise in transactions
similar to the Merger, its expertise in the sporting goods industry, its
reputation in the investment community and its historical investment banking
relationship with the Company. The Special Committee was aware of the
involvement of NationsBanc Montgomery in the process prior to the January 30
Proposal and determined that it was not desirable to retain a separate
investment advisor in light of the detailed work on the transaction performed
by NationsBanc Montgomery and the Special Committee's confidence in
NationsBanc Montgomery's competence, independence and diligence.
On February 17, 1998, NationsBanc Montgomery delivered to the Special
Committee its oral opinion, subsequently confirmed in writing as of the same
date, that the consideration to be received by the holders of Common Stock
pursuant to the Merger Agreement (in the form executed on February 17, 1998
and prior to the April 8, 1998 amendment thereto) was fair to such holders,
other than CBCI, Inc., Mr. Lee and Ms. George, from a financial point of view,
as of that date. On April 8, 1998, NationsBanc Montgomery delivered to the
Special Committee a second oral opinion, subsequently confirmed in writing as
of that date (the "Opinion"), that the consideration to be received by the
holders of Common Stock pursuant to the Merger Agreement was fair to such
holders, other than CBCI and Ms. George, from a financial point of view, as of
that date. In both cases, the amount of such consideration was determined
pursuant to negotiations between the Company and HB Acquisition and not
pursuant to recommendations from NationsBanc Montgomery. No limitations were
imposed by the Special Committee on NationsBanc Montgomery with respect to the
investigations made or procedures followed in rendering its Opinion.
THE FULL TEXT OF NATIONSBANC MONTGOMERY'S OPINION TO THE SPECIAL COMMITTEE
IS ATTACHED HERETO AS ANNEX B AND IS INCORPORATED HEREIN BY REFERENCE AND
SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT. THE FOLLOWING SUMMARY OF THE OPINION IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF THE OPINION. THE OPINION IS DIRECTED TO THE
SPECIAL COMMITTEE AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER
AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER. THE OPINION
ADDRESSES ONLY THE FINANCIAL FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY
THE HOLDERS OF COMMON STOCK PURSUANT TO THE MERGER AGREEMENT AND DOES NOT
ADDRESS THE RELATIVE MERITS OF THE MERGER OR ANY ALTERNATIVES TO THE MERGER,
THE UNDERLYING DECISION OF THE SPECIAL COMMITTEE TO PROCEED WITH OR EFFECT THE
MERGER OR ANY OTHER ASPECT OF THE MERGER.
In connection with the Opinion, NationsBanc Montgomery, among other things:
(i) reviewed publicly available financial and other data with respect to the
Company, including the consolidated financial statements for recent years and
interim periods to December 27, 1997 and certain other relevant financial and
operating data relating to the Company made available to NationsBanc
Montgomery from published sources and from the
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internal records of the Company; (ii) reviewed the financial terms and
conditions of the Merger Agreement; (iii) reviewed certain publicly available
information concerning the trading of, and the trading market for, the Common
Stock; (iv) compared the Company from a financial point of view with certain
other companies in the sporting goods industry which NationsBanc Montgomery
deemed to be relevant; (v) considered the financial terms, to the extent
publicly available, of selected recent business combinations of companies in
the sporting goods industry which NationsBanc Montgomery deemed to be
comparable, in whole or in part, to the Merger; (vi) reviewed and discussed
with representatives of the management of the Company certain information of a
business and financial nature regarding the Company, furnished to NationsBanc
Montgomery by them, including financial forecasts and related assumptions of
the Company; (vii) made inquiries regarding and discussed the Merger and the
Merger Agreement and other matters related thereto with the Company's counsel
and counsel for the Special Committee; and (viii) performed such other
analyses and examinations as NationsBanc Montgomery deemed appropriate.
NationsBanc Montgomery also assumed that HB Acquisition will be provided with
the funds necessary to consummate the Merger.
In connection with its review, NationsBanc Montgomery did not assume any
obligation independently to verify the foregoing information and relied on its
being accurate and complete in all material respects. With respect to the
financial forecasts for the Company provided to NationsBanc Montgomery by its
management, upon their advice and with the consent of the Special Committee,
NationsBanc Montgomery assumed for purposes of the Opinion that, subject to
the following sentence, the forecasts were reasonably prepared on bases
reflecting the best available estimates and judgment of the Company's
management at the time of preparation as to the future financial performance
of the Company and that they provided a reasonable basis upon which
NationsBanc Montgomery could form its Opinion. With respect to the forecasts
for the Company provided to NationsBanc Montgomery by its management, for
purposes of its analyses NationsBanc Montgomery adjusted such forecasts to
reflect more conservative assumptions than those made by management of the
Company regarding new market opportunities including overseas market expansion
and new product development, benefits from restructuring and improvement of
general industry conditions. NationsBanc Montgomery discussed the adjusted
forecasts with management of the Company and the Company acknowledged
NationsBanc Montgomery's use of such adjusted forecasts in arriving at its
Opinion. NationsBanc Montgomery also assumed that there were no material
changes in the Company's assets, financial condition, results of operations,
business or prospects since the date of its last financial statements made
available to NationsBanc Montgomery. NationsBanc Montgomery relied on advice
of counsel to the Special Committee, and counsel to the Company as to all
legal matters with respect to the Company, the Merger and the Merger
Agreement, including the legal status of litigation involving the Company and
independent accountants to the Company as to financial reporting matters with
respect to the Company. NationsBanc Montgomery assumed that the Merger will be
consummated in a manner that complies in all respects with the applicable
provisions of the Exchange Act and all other applicable federal and state
statutes, rules and regulations. In addition, NationsBanc Montgomery did not
assume responsibility for making an independent evaluation, appraisal or
physical inspection of any of the assets or liabilities (contingent or
otherwise) of the Company, nor was NationsBanc Montgomery furnished with any
such appraisals. Finally, NationsBanc Montgomery's Opinion was based on
economic, monetary and market and other conditions as in effect on, and the
information made available to NationsBanc Montgomery as of, the date of the
Opinion. Accordingly, although subsequent developments may affect the Opinion,
NationsBanc Montgomery has not assumed any obligation to update, revise or
reaffirm the Opinion.
Set forth below is a brief summary of the report presented by NationsBanc
Montgomery to the Special Committee on April 8, 1998 in connection with its
Opinion.
Comparable Company Analysis. Based on public and other available
information, NationsBanc Montgomery calculated the multiples of aggregate
value (defined as equity value plus debt less cash and cash equivalents) to
last twelve months ("LTM") revenues, earnings before interest and taxes
("EBIT") and earnings before interest, taxes, depreciation and amortization
("EBITDA"), for 5 companies engaged in the manufacture of bicycles and bicycle
accessories. Such analysis indicated the following median multiples: a range
of 0.4x to
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1.3x LTM revenues, with a median of 0.8x; a range of 4.9x to 13.6x LTM EBIT,
with a median of 7.8x; and a range of 3.8x to 9.1x LTM EBITDA, with a median
of 7.1x. NationsBanc Montgomery noted that the consideration to be received by
holders of the Company's common stock in connection with the Merger implied
multiples of 1.05x LTM revenues, 14.8x LTM EBIT, and 9.6x LTM EBITDA for the
Company. This analysis indicated a per share value range of $3.23 to $7.88.
Comparable Transactions Analysis. Based on public and other available
information NationsBanc Montgomery calculated the multiples, where available,
of aggregate value to LTM revenues and LTM EBIT for the target company implied
in 63 acquisitions of comparable sporting goods companies that have been
announced since January 29, 1990. Such analysis yielded the following median
and mean multiples, respectively: a range of 0.2x to 3.7x LTM revenues, with a
mean of 1.3x and a median of 1.0x; a range of 5.1x to 16.0x LTM EBIT, with a
mean of 11.6x and a median of 12.5x. NationsBanc Montgomery noted that the
aggregate value of the Company implied by the Merger yielded multiples of
1.05x LTM revenues and 14.8x LTM EBIT. This analysis equated to a range of per
share value of $7.10 to $7.96.
No other company or transaction used in the comparable company or comparable
transactions analysis as a comparison is identical to the Company, HB
Acquisition or the Merger. Accordingly, an analysis of the results of the
foregoing is not mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies to which the Company and the Merger are being compared.
Discounted Cash Flow Analysis. NationsBanc Montgomery applied a discounted
cash flow analysis to the financial cash flow forecasts for the Company for
fiscal years 1998 through 2002, as estimated by the Company management. In
conducting this analysis, NationsBanc Montgomery first calculated the present
values of the forecasted cash flows. Second, NationsBanc Montgomery estimated
the present value of the aggregate value of the Company at the end of 2002 by
applying multiples to the Company's estimated EBITDA, which multiples ranged
from 5.0x to 7.0x. Such cash flows and aggregate values were discounted to
present values using discount rates ranging from 20% to 30%, chosen to reflect
a return that would be expected for a company with a similar risk profile.
NationsBanc Montgomery noted that the aggregate value of the Company implied
by the Merger yielded a multiple of 9.6x LTM EBITDA. On a per share basis,
this analysis implied a value between $4.52 per share and $9.57 per share.
Premiums Paid Analysis. NationsBanc Montgomery reviewed the consideration
paid in 99 comparable U.S. acquisitions involving aggregate value greater than
$100 million announced between January 1, 1997 and January 23, 1998.
NationsBanc Montgomery calculated the premiums paid or offered in these
transactions over the applicable stock price of the target company one day,
one week and four weeks prior to the announcement of the acquisition offer,
and then calculated the median and mean of those premiums. These calculations
yielded median and mean premiums paid of 21.2% and 26.8% one day prior to
announcement, 29.9% and 32.5% one week prior to announcement, and 34.7% and
38.3% four weeks prior to announcement. As a result of the protracted nature
of the process leading up to the Merger, NationsBanc Montgomery determined
that such calculations did not provide an accurate comparison to the premium
to be paid in the Merger above the Company's stock price one day, one week and
four weeks prior to announcement. Rather, NationsBanc Montgomery believed that
comparing the consideration to be paid in the Merger to the one-year average
price for the Company provided a more accurate comparison. NationsBanc
Montgomery noted that the premium paid above the one-year average price for
the Company is 24.4%. This valuation methodology implied a per share range of
$9.98 and $10.64.
While the foregoing summary describes all analyses and examinations that
NationsBanc Montgomery deems material to its Opinion, it is not a
comprehensive description of all analyses and examinations actually conducted
by NationsBanc Montgomery. The preparation of a fairness opinion necessarily
is not susceptible to partial analysis or summary description. NationsBanc
Montgomery believes that its analyses and the summary set forth above must be
considered as a whole and that selecting portions of its analyses and of the
factors considered, without considering all analyses and factors, would create
an incomplete view of the process underlying the analyses set forth in its
presentation to the Special Committee. In addition, NationsBanc
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Montgomery may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions. The fact that any specific analysis has been referred to in
the summary above is not meant to indicate that such analysis was given
greater weight than any other analysis. Accordingly, the ranges of valuations
resulting from any particular analysis described above should not be taken to
be NationsBanc Montgomery's view of the actual value of the Company.
In performing its analyses, NationsBanc Montgomery made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of the Company. The
analyses performed by NationsBanc Montgomery are not necessarily indicative of
actual values or actual future results, which may be significantly more or
less favorable than those suggested by such analyses. Such analyses were
prepared solely as part of NationsBanc Montgomery's analysis of the financial
fairness of the consideration to be received by the holders of Common Stock
pursuant to the Merger and were provided to the Special Committee in
connection with the delivery of NationsBanc Montgomery's Opinion. The analyses
do not purport to be appraisals or to reflect the prices at which a company
might actually be sold or the prices at which any securities may trade at any
time in the future.
As described above, NationsBanc Montgomery's Opinion and presentation to the
Special Committee were among the many factors taken into consideration by the
Special Committee in making its determination to approve, and to recommend
that the Company's stockholders approve, the Merger.
Pursuant to the Engagement Letter, the Company agreed to pay NationsBanc
Montgomery a transaction fee contingent upon the consummation of the Merger or
other sale of the Company. The Special Committee was aware of this fee
structure. Based on the terms of the Merger, this transaction fee is $2.2
million. The Engagement Letter also calls for the Company to reimburse
NationsBanc Montgomery for its reasonable out-of-pocket expenses. Pursuant to
a separate letter agreement, the Company has agreed to indemnify NationsBanc
Montgomery, its affiliates, and their respective partners, directors,
officers, agents, consultants, employees and controlling persons against
certain liabilities, including liabilities under the federal securities laws.
In the ordinary course of its business, NationsBanc Montgomery actively
trades the equity securities of the Company for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
NationsBanc Montgomery also acted as underwriter in connection with offerings
of the Company's securities and has performed various investment banking
services for the Company.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In connection with the Merger Agreement, Mr. Lee entered into the Lee
Employment Agreement which will replace his current employment, severance and
noncompetition agreements with the Company. The Lee Employment Agreement has a
term of two years and provides for Mr. Lee to serve as the Chairman of the
Board of the Surviving Corporation on a full-time basis for six months
beginning at the Effective Time and on a part-time basis thereafter. Mr. Lee's
base salary will be $415,000 per annum during his full-time employment and
$207,500 per annum during his part-time employment. Under the Lee Employment
Agreement, the Surviving Corporation will pay Mr. Lee a one-time cash bonus
equal to $860,800 at the Effective Time. Mr. Lee will also be eligible for an
annual performance bonus if certain pre-established net income criteria are
met by the Surviving Corporation. The potential amount of this performance
bonus ranges from 25% to 125% of Mr. Lee's base salary during fiscal 1998 and
from 12.5% to 62.5% of his base salary during fiscal 1999.
In the event Mr. Lee's employment is terminated by the Surviving Corporation
for any reason other than cause or by Mr. Lee for good reason, the Lee
Employment Agreement provides for the payment of Mr. Lee's base salary and any
prorated bonus up to the date of termination and the continued payment of his
base salary, bonus and all other benefits which would otherwise have been
payable for the remainder of the term of the agreement. Additionally, in such
event, any options to purchase securities of the Surviving Corporation granted
to Mr. Lee after the Effective Time will vest and become immediately
exercisable. If, however, Mr. Lee's employment is terminated by the Surviving
Corporation for cause or by Mr. Lee for any reason other than good reason, the
Surviving Corporation will not be obligated to pay Mr. Lee any prorated bonus
or continue his salary
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or bonus opportunities past the date of termination. In the event termination
of Mr. Lee's employment is due to Mr. Lee's death or disability, the Surviving
Corporation will be obligated to pay certain additional amounts past the date
of such event. The Lee Employment Agreement contains a customary provision
providing for the non-disclosure of confidential information. The Lee
Employment Agreement also contains a noncompetition and non-solicitation
agreement for five years following the Effective Time in consideration for
which Mr. Lee will be paid a total of $1,500,000 in three equal annual
installments, commencing at the Effective Time.
In connection with the Merger Agreement, Ms. George entered into the George
Employment Agreement which will become effective at the Effective Time and
which will replace her current employment agreement with the Company. The
George Employment Agreement has a term of five years and provides for Ms.
George to serve as the President and Chief Executive Officer of the Surviving
Corporation. Ms. George's base salary will be $350,000 per annum and may be
increased annually by the Board. Ms. George will also be eligible for an
annual performance bonus in accordance with the Surviving Corporation's
management incentive program. The George Employment Agreement provides for
such management incentive program to be amended for fiscal 1999 to include an
additional measure for determining Ms. George's performance bonus based on the
Surviving Corporation's return on assets. In addition, the Surviving
Corporation will grant stock options to Ms. George at the Effective Time equal
to 41.76% of the management option pool which will be comprised of 12% of the
fully-diluted common equity of the Surviving Corporation at the Effective
Time. Fifty percent of such stock options will vest and become exercisable
equally over a five-year period beginning on the date that is one year from
the Effective Time. The remaining 50% percent of the stock options will vest
and become exercisable over such five-year period according to annual
performance criteria established by the Compensation Committee of the Board of
Directors of the Surviving Corporation. The terms and conditions of the awards
to be received by Ms. George will continue to be discussed as the equity-based
management incentive program (described below) expected to be implemented by
the Surviving Corporation is developed and accordingly, are subject to change.
In the event Ms. George's employment is terminated by the Surviving
Corporation for reason other than cause or by Ms. George for any reason, the
George Employment Agreement provides for the payment of Ms. George's base
salary and any prorated bonus up to the date of termination and the continued
payment of Ms. George's base salary and other benefits, excluding bonus, for a
period of 18 months following the date of termination. Additionally, if Ms.
George's employment is terminated by the Surviving Corporation for reason
other than cause or by Ms. George for good reason, certain of Ms. George's
stock options will vest and become immediately exercisable. If, however, Ms.
George's employment is terminated by the Surviving Corporation for cause, the
Surviving Corporation will not be obligated to pay Ms. George any prorated
bonus or continue her salary past the date of termination. In the event that
the termination of Ms. George's employment is due to Ms. George's death or
disability, the Surviving Corporation will not be obligated to pay additional
salary past the date of such event, but Ms. George's stock options will vest
and become immediately exercisable and a prorated bonus may be payable. Upon
termination of Ms. George's employment prior to an initial public offering of
the Surviving Corporation's equity securities, the Surviving Corporation or
its designee will have the right to purchase and Ms. George will have the
obligation to sell any equity interests in the Surviving Corporation held by
Ms. George and exercisable at the time of termination at the fair market value
of such equity interests. Similarly, in the event of such a termination of her
employment, Ms. George will have the right to sell and the Surviving
Corporation or its designee will have the obligation to purchase all or any
portion of any equity interests in the Surviving Corporation held by Ms.
George and exercisable at the time of termination at the fair market value of
such equity interests. The George Employment Agreement also contains a
customary provision providing for the non-disclosure of confidential
information and a noncompetition and non-solicitation agreement for two years
following the end of Ms. George's employment by the Surviving Corporation.
Ms. George has also entered into the George Equity Agreement pursuant to
which she will exchange a portion of her options to purchase Common Stock for
options to purchase capital stock of the Surviving Corporation. Each share of
Common Stock subject to an option held by Ms. George that will be exchanged
will be, for purposes of such exchange, valued at the Merger Consideration
(exclusive of indemnification rights limited to an amount necessary to avoid
adverse tax consequences to Ms. George arising from such exchange).
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It is anticipated that immediately prior to the Effective Time CBCI will
exchange with HB Acquisition $5 million worth of shares of Common Stock
(valued at the Merger Consideration) and receive, in consideration thereof,
shares of HB Acquisition Common Stock and shares of HB Acquisition Preferred
Stock.
HB Acquisition has indicated that it expects to implement an equity-based
management incentive program in order to attract and retain, as well as
provide incentives to, the management team of the Surviving Corporation. It is
expected that this program will afford management the ability to invest in the
equity of the Surviving Corporation on terms and conditions that have not yet
been determined. Some of these investments may be made at the Effective Time.
It is also expected that the incentive program will include the grant of
restricted stock and options to purchase equity of the Surviving Corporation.
Each option to purchase Common Stock previously issued by the Company that
is outstanding immediately prior to the Effective Time, other than the options
to be exchanged by Ms. George as described above (an "Option"), will become
fully vested and exercisable immediately prior to the Effective Time in
accordance with its terms. The holder of an Option that is not exercised prior
to the Effective Time will be entitled to receive, for each share of Common
Stock subject thereto, a cash payment in an amount equal to the excess, if
any, of the Merger Consideration over the applicable per share exercise price.
See "The Merger Agreement--Stock Options, Restricted Stock, Phantom Stock
Units." Based on the Options held by directors and executive officers of the
Company at the close of business on the Record Date, directors and executive
officers of the Company will be entitled to receive cash in respect of the
Options held by them as follows: Mr. Lee $667,868; Mr. Manko $344,996; Mr.
McCaughen $21,800; Mr. Kiely $48,155; Mr. Harkness $48,155; Mr. Winter
$48,155; Mr. Matthews $48,155; Mr. Wright $48,155; Mr. Hannon $48,155; Mr.
Chavkin $48,155 and Ms. Bounds $116,900. If Ms. George had not entered into
the George Equity Agreement she would be entitled to receive $473,715 in cash
in respect of Options held by her. However, by virtue of the George Equity
Agreement, she will receive approximately $169,175 in cash in respect of
Options held by her and not subject to the George Equity Agreement with the
balance of the Options held by her being exchanged pursuant to the George
Equity Agreement.
Each award of Restricted Stock previously made by the Company (a "Company
Restricted Stock Award") that is outstanding immediately prior to the
Effective Time and not then vested will become fully vested and the holder
thereof will be entitled to receive, in respect of each share of Common Stock
subject thereto, the Merger Consideration. See "The Merger Agreement--Stock
Options, Restricted Stock, Phantom Stock Units." Based on the Company
Restricted Stock Awards held by directors and executive officers of the
Company at the close of business on the Record Date, directors and executive
officers will be entitled to receive cash in respect of Company Restricted
Stock Awards held by them as follows: Mr. Lee $72,591 and Ms. George $72,591.
Each award of a Phantom Stock Unit previously made by the Company (a
"Company Phantom Stock Unit Award") that is outstanding immediately prior to
the Effective Time will become fully vested and exercisable and the holder
thereof will be entitled to receive a cash payment in an amount determined in
accordance with the terms thereof. See "The Merger Agreement--Stock Options,
Restricted Stock, Phantom Stock Units." Based on the Company Phantom Stock
Unit Awards held by directors and executive officers of the Company at the
close of business on the Record Date, and assuming that the value per share of
Common Stock as determined in accordance with the Company Phantom Stock Unit
Awards is equal to the Merger Consideration, directors and executive officers
of the Company will be entitled to receive cash in respect of the Company
Phantom Stock Unit Awards held by them as follows: Mr. Lee $223,071; Ms.
George $758,234 and Ms. Bounds $55,770.
Directors and executive officers of the Company will also benefit from the
provision of indemnification and directors' and officers' liability insurance
after the Merger. See "The Merger Agreement--Indemnification and D&O
Insurance."
PLANS FOR THE COMPANY AFTER THE MERGER
It is expected that following the Merger, the business and operations of the
Company will, except as set forth in this Proxy Statement, be conducted by the
Surviving Corporation substantially as they are currently being conducted,
with a view toward enhancing the Company's performance.
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Except as set forth in this Proxy Statement, the Investors have indicated
that they have no present plans or proposals that relate to or would result in
any extraordinary corporate transactions involving the Company's corporate
structure, business or management, such as a merger, reorganization,
liquidation, relocation of any operations of the Company or sale or transfer
of a material amount of assets. However, the Investors are continuing to
evaluate the business and operations of the Surviving Corporation and may
propose or develop new plans and proposals which they consider to be in the
best interests of the Surviving Corporation and its stockholders.
CERTAIN STOCKHOLDER LITIGATION
Following the announcement of the Merger Agreement, three purported class
action lawsuits were filed in the Delaware Chancery Court seeking preliminary
and permanent injunctive relief against the consummation of the Merger or,
alternatively, the recovery of damages in the event the Merger is consummated.
The complaints, which were filed by Jeffrey Kaplan, Jerry Krim and Cyrus
Schwartz, purported stockholders of the Company, name the Company, HB
Acquisition, Chase Capital Partners, CBCI and the Company's current directors
as defendants. To the knowledge of the Company, none of the complaints has
been served. The complaints allege, among other things, that the Merger is
unfair to the Company's public stockholders and that certain defendants who
are expected to exchange a portion of their shares of Common Stock, options to
purchase shares of Common Stock or other Common Stock-based awards held by
them for shares of common stock of HB Acquisition in connection with the
Merger have a conflict of interest which has caused them, and the Company's
directors, to breach their fiduciary duties to the Company's stockholders. The
lawsuit filed by Jeffrey Kaplan was subsequently withdrawn, without prejudice
to refile. The Company believes that the allegations contained in the
complaints are without merit and intends to vigorously defend each action.
ANTICIPATED ACCOUNTING TREATMENT
It is expected that the Merger and the transactions contemplated by the
Merger Agreement will be accounted for as a recapitalization under generally
accepted accounting principles for financial reporting purposes, which would
result in the assets and liabilities of the Company being accounted for on a
historical cost basis and not being impacted by the Merger.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material federal income tax
consequences of the Merger to beneficial owners of Common Stock and to holders
of Options, Company Restricted Stock Awards and Company Phantom Stock Unit
Awards, and is based upon current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), existing, proposed, temporary and final
regulations thereunder and current administrative rulings and court decisions,
all of which are subject to change (possibly on a retroactive basis). No
attempt has been made to comment on all federal income tax consequences of the
Merger that may be relevant to particular holders, including those that are
subject to special tax rules such as dealers in securities, mutual funds,
insurance companies, tax-exempt entities, holders who do not hold their Common
Stock as capital assets and holders that, for federal income tax purposes, are
non-resident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts.
THE TAX DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL INFORMATION ONLY.
IT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX
ADVICE TO ANY PARTICULAR HOLDER. HOLDERS ARE ADVISED AND EXPECTED TO CONSULT
WITH THEIR OWN LEGAL AND TAX ADVISERS REGARDING THE FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AND ANY
OTHER CONSEQUENCES TO THEM OF THE MERGER UNDER STATE, LOCAL AND FOREIGN TAX
LAWS.
In general, each holder of Common Stock will recognize gain or loss for
federal income tax purposes equal to the difference, if any, between the cash
received pursuant to the Merger or upon perfection of Appraisal Rights and
such holder's adjusted tax basis for its Common Stock. In general, such gain
or loss will be capital gain or loss. The excess of net long-term capital
gains over net short-term capital losses is taxed at a lower rate than
ordinary income for certain noncorporate taxpayers. Under current law,
noncorporate taxpayers generally are
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subject to a maximum rate of 28% on capital gain realized on the disposition
of an asset held for more than one year but not more than 18 months and a
maximum rate of 20% on capital gain realized on the disposition of an asset
held for more than 18 months. Congress is currently considering legislation
which, if enacted into law, would eliminate the 28% rate gain on capital
assets held for more than one year but not more than 18 months and provide
that net long-term capital gain of non-corporate taxpayers would be subject to
a maximum rate of 20%, effective for transactions on or after January 1, 1998.
The distinction between capital gain or loss and ordinary income or loss is
also relevant for purposes of, among other things, limitations on the
deductibility of capital losses.
Unless a holder of Common Stock entitled to receive cash payments pursuant
to the Merger or upon perfection of Appraisal Rights complies with certain
reporting and certification procedures, or otherwise demonstrates that it is
an exempt recipient under applicable withholding provisions of the Code and
the Treasury regulations promulgated thereunder, such holder may be subject to
federal backup withholding at a rate of 31% with respect to all such cash
payments which such holder is entitled to receive. Backup withholding is not
an additional tax. Rather, the tax liability of persons subject to 31% backup
withholding will be reduced by the amount of tax withheld.
Each Option that is outstanding immediately prior to the Effective Time will
become fully vested and exercisable immediately prior to the Effective Time in
accordance with its terms. In general, the holder of an Option that is not
exercised prior to the Effective Time will be entitled to receive, for each
share of Common Stock subject thereto, a cash payment in an amount equal to
the excess, if any, of the Merger Consideration over the applicable per share
exercise price. Each Company Restricted Stock Award that is outstanding
immediately prior to the Effective Time and not then vested will become fully
vested and the holder thereof will be entitled to receive, in respect of each
share of Common Stock subject thereto, the Merger Consideration. Each Company
Phantom Stock Unit Award that is outstanding immediately prior to the
Effective Time will become fully vested and exercisable and the holder thereof
will be entitled to receive a cash payment in an amount determined in
accordance with the terms thereof. See "The Merger Agreement--Stock Options,
Restricted Stock, Phantom Stock Units." Amounts received in respect of Options
or Phantom Stock Unit Awards will constitute ordinary income to the recipients
thereof for federal income tax purposes. Amounts received in respect of
Company Restricted Stock Awards will constitute ordinary income to the
recipients thereof unless the recipient of the Company Restricted Stock Award
elected to be taxed at the time the Company Restricted Stock Award was
granted. If the recipient of a Company Restricted Stock Award made such an
election, the amount received in respect of such Company Restricted Stock
Award will be taxed in the same manner as amounts received by holders of
Common Stock. Subject to the limitations imposed by Section 162(m) or 280G of
the Code, the Company will be entitled to a compensation deduction in respect
of the ordinary income recognized by holders of Options, Restricted Stock
Awards and Phantom Stock Units.
The foregoing discussion is for general information only and is intended to
be only a summary of the principal federal income tax considerations relevant
to the beneficial owners of Common Stock of the Company. The consummation of
the Merger may also have state and local tax consequences to the beneficial
owner. Each beneficial holder should consult their own tax advisor concerning
the federal, state, local and other tax considerations associated with the
Merger.
DELISTING AND DEREGISTRATION OF COMMON STOCK
If the Merger is consummated, the Common Stock will no longer be listed on
Nasdaq and will be deregistered under the Exchange Act.
EFFECT ON CONVERTIBLE DEBENTURES
At the Effective Time, each Convertible Debenture will, in accordance with
its terms and without the consent of the holder thereof, become convertible
only into the cash that a holder of the number of shares of Common Stock into
which such Debenture might have been converted immediately prior to the
Effective Time would have received in connection with the Merger had such
Debenture been converted at such time.
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THE MERGER AGREEMENT
The description of the Merger Agreement contained herein does not purport to
be complete and is qualified in its entirely by reference to the text of the
Merger Agreement, a copy of which is attached hereto as Annex A and
incorporated herein by reference. Stockholders are urged to carefully read the
Merger Agreement in its entirety.
EFFECTIVE TIME
At the time of the closing of the Merger (the "Closing"), a Certificate of
Merger, or if applicable, a Certificate of Ownership and Merger (each, a
"Certificate of Merger") will be filed with the Secretary of State of the
State of Delaware. The Merger will become effective at the time of such filing
or at such later time established by the Certificate of Merger (the "Effective
Time"). The date of the Closing is hereinafter referred to as the Closing
Date.
THE MERGER
At the Effective Time, HB Acquisition will be merged with and into the
Company, upon the terms and subject to the conditions of the Merger Agreement
and in accordance with the DGCL. As a result of the Merger, the separate
corporate existence of HB Acquisition will cease and the Company will continue
as the Surviving Corporation and will succeed to and assume all the rights and
be responsible for all of the obligations of HB Acquisition and the Company in
accordance with the DGCL. At the Effective Time, the Certificate of
Incorporation and the officers of the Company, immediately prior thereto, will
become the Certificate of Incorporation and the officers of the Surviving
Corporation. The By-laws and Board of Directors of HB Acquisition, immediately
prior to the Effective Time, will become the By-laws and Board of Directors of
the Surviving Corporation.
CONVERSION OF SECURITIES
At the Effective Time, by virtue of the Merger and without any further
action on the part of the Company, HB Acquisition or any stockholder of the
Company or HB Acquisition:
(a) each share of Common Stock, together with the associated Right,
issued and outstanding immediately prior to the Effective Time (other than
(i) shares of Common Stock held by HB Acquisition or shares of Common Stock
held by directly or indirectly the Company and (ii) shares of Common Stock
held by individuals perfecting Appraisal Rights) will be converted into the
right to receive the Merger Consideration;
(b) each share of Common Stock held by HB Acquisition and each share of
Common Stock held in the Company's treasury or by any direct or indirect
wholly-owned subsidiary of the Company will be cancelled and retired
without payment of any consideration therefor and will cease to exist; and
(c) each share of HB Acquisition Common Stock, issued and outstanding
immediately prior to the Effective Time will be converted into one share of
common stock, $1.00 par value, of the Surviving Corporation ("Surviving
Corporation Common Stock") and each share of HB Acquisition Preferred
Stock, issued and outstanding immediately prior to the Effective Time will
be converted into one share of Series A Preferred Stock, $1.00 par value,
of the Surviving Corporation ("Surviving Corporation Series A Preferred
Stock").
Any stockholder who does not wish to accept the Merger Consideration has the
right to dissent from the Merger and to seek an appraisal of, and to be paid
the fair cash value (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) for, his or her shares of Common
Stock, provided that such stockholder fully complies with the provisions of
Section 262 of the DGCL. See "Appraisal Rights of Dissenting Stockholders" and
Annex C hereto. If, after the Effective Time, any holder of Common Stock who
had previously sought to perfect Appraisal Rights withdraws his or her demand
for appraisal or fails to perfect (or otherwise loses) his or her right of
appraisal, then each share of Common Stock held by such stockholder will be
deemed to have been converted, as of the Effective Time, into the right to
receive the Merger Consideration, without any interest thereon.
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After the Effective Time, holders of Common Stock will cease to have rights
with respect thereto, except the right to receive the Merger Consideration or
to perfect Appraisal Rights in respect thereof. No transfer of shares of
Common Stock will be made on the stock transfer books of the Surviving
Corporation after the Effective Time.
PAYMENT OF MERGER CONSIDERATION
Prior to the Effective Time, HB Acquisition will designate a bank, trust
company or other entity who will be reasonably satisfactory to the Company to
act as the paying agent (the "Paying Agent") in the Merger. At the Effective
Time, the Surviving Corporation will make available to the Paying Agent funds
necessary to make payment of the Merger Consideration for each share of Common
Stock converted into the right to receive the same.
As soon as reasonably practical after the Effective Time, the Surviving
Corporation will instruct the Paying Agent to promptly, but in no event later
than three business days following the Effective Time, mail to each holder of
record of a certificate or certificates that immediately prior to the
Effective Time represented shares of Common Stock ("Certificates"): (i) a
letter of transmittal (a "Letter of Transmittal") which will specify that
delivery will be effected, and risk of loss and title with respect to each
such Certificate will pass, only upon delivery of such Certificate to the
Paying Agent and will be in a form and have such other provisions as HB
Acquisition may reasonably specify; and (ii) instructions to effect the
surrender of such Certificate or Certificates in exchange for the Merger
Consideration for each share of Common Stock represented by such Certificate
or Certificates.
Upon surrender to the Paying Agent of a Certificate for cancellation,
together with a duly executed Letter of Transmittal and such other documents
as the Paying Agent may reasonably require, the holder of such Certificate
will be entitled to receive in exchange therefor the Merger Consideration for
each share of Common Stock formerly represented by such Certificate. Each such
Certificate so surrendered will be cancelled.
Any portion of the funds made available to the Paying Agent to pay the
Merger Consideration that remains undistributed to the holders of Common Stock
for six months after the Effective Time will be delivered by the Paying Agent
to the Surviving Corporation, upon demand, and any holder of a Certificate who
has not theretofore surrendered such Certificate as described above may
thereafter look only to the Surviving Corporation for delivery of the Merger
Consideration in respect of the shares of Common Stock represented by such
Certificate, without interest, subject in all events to abandoned property,
escheat or other similar laws.
If the amount to be paid upon surrender of a Certificate is to be delivered
to a person other than the person in whose name such Certificate is
registered, it will be a condition of such delivery that such Certificate be
properly endorsed or otherwise be in proper form for transfer, and that the
person requesting such payment, will pay any transfer or other taxes required
by reason of payment to a person other than the registered holder of such
Certificate or establish to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable.
The Surviving Corporation or the Paying Agent will be entitled to deduct and
withhold from the consideration otherwise payable pursuant to the Merger
Agreement such amounts as the Surviving Corporation or the Paying Agent is
required to deduct and withhold under the Code or under any provision of
state, local or foreign tax law. To the extent that amounts are so withheld by
the Paying Agent or the Surviving Corporation, such withheld amounts will be
treated as having been paid to the person for whom such deduction and withhold
ing was made.
HOLDERS OF THE COMMON STOCK SHOULD NOT FORWARD THEIR CERTIFICATES WITH THE
ENCLOSED PROXY CARD, NOR SHOULD THEY RETURN THEIR CERTIFICATES TO THE PAYING
AGENT UNTIL THEY HAVE RECEIVED A LETTER OF TRANSMITTAL.
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STOCK OPTIONS, RESTRICTED STOCK, PHANTOM STOCK UNITS
Pursuant to the Merger Agreement, the Board will take all necessary or
appropriate steps to cause each Option that is outstanding immediately prior
to the Effective Time to be fully vested and exercisable immediately prior to
the Effective Time in accordance with its terms. The holder of an Option that
is not exercised prior to the Effective Time will be entitled to receive, for
each share of Common Stock subject thereto, a cash payment in an amount equal
to the excess, if any, of the Merger Consideration over the applicable per
share exercise price. Notwithstanding the foregoing, certain options to
purchase Common Stock held by Ms. George will be exchanged for options to
purchase capital stock of the Surviving Corporation. See "Special Factors--
Interests of Certain Persons in the Merger."
Each Company Restricted Stock Award that is outstanding immediately prior to
the Effective Time and not then vested will become fully vested and the holder
thereof will be entitled to receive, in respect of each share of Common Stock
subject thereto, the Merger Consideration.
Each Company Phantom Stock Unit Award which is outstanding immediately prior
to the Effective Time will become fully vested and exercisable and the holder
thereof will be entitled to receive a cash payment in an amount determined in
accordance with the terms thereof. Under the terms of each Company Phantom
Stock Unit Award, the holder thereof will be entitled to receive, for each
Phantom Stock Unit subject to such Company Phantom Stock Unit Award, an amount
equal to the value per share of Common Stock as determined in accordance with
such Company Phantom Stock Unit Award.
The amount payable in respect of each Option, Company Restricted Stock Award
or Company Phantom Stock Unit Award will be paid as soon as reasonably
practicable following the Closing Date and will be subject to and made net of
all applicable withholding taxes. Upon receipt of payment in respect of any
Option, Company Restricted Stock Award or Company Phantom Stock Unit Award,
the related Option, Company Restricted Award or Company Phantom Stock Unit
Award will be cancelled. The surrender of any Option, Company Restricted Stock
Award or Company Phantom Stock Unit Award in exchange for the consideration as
described herein will be deemed a release of any and all rights the holder
thereof had or may have had in respect thereof. The Company has agreed to use
reasonable best efforts to obtain all necessary consents or releases from the
holders of Options and to take such other lawful action as may be necessary to
give effect to the provisions of the Merger Agreement relating to the
treatment of Options, Company Restricted Stock Awards and Company Phantom
Stock Unit Awards. The Company has agreed to take all action necessary to
ensure that following the Effective Time no holder of an Option will have any
right in respect thereof to acquire equity securities of the Company or the
Surviving Corporation.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties made by
the Company to HB Acquisition. The representations and warranties of the
Company relate, with respect to the Company, among other things, to: (i) its
organization, existence, good standing, corporate power and similar corporate
matters and the organization, existence, good standing, corporate power and
similar corporate matters with respect to each of its subsidiaries; (ii) the
ownership of its subsidiaries; (iii) its capital structure; (iv) the
authorization, execution, delivery, performance and enforceability of the
Merger Agreement and related matters; (v) the absence of violations, defaults
and conflicts resulting from the execution and delivery of the Merger
Agreement and the consummation of the transactions contemplated thereby under
the Certificate of Incorporation of the Company, its By-laws and certain other
agreements and documents and, with certain specified exceptions, the absence
of required governmental consents and approvals; (vi) the documents and
reports filed by the Company with the SEC under the Securities Act of 1933, as
amended (the "Securities Act") and the Exchange Act and the accuracy and
completeness of the information contained therein; (vii) the absence of
material adverse changes; (viii) the accuracy and completeness of the
information supplied by the Company and contained herein; (ix) the absence of
certain violations and its licenses and permits; (x) tax matters; (xi)
undisclosed liabilities; (xii) benefit plans, employees and employment
practices; (xiii) pending or threatened litigation; (xiv) environmental
matters;
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(xv) the inapplicability to the Merger Agreement and the Merger of Section 203
of the DGCL, Article ELEVENTH of the Company's Certificate of Incorporation
and Article 14 of the Indenture as well as the execution of an amendment to
the Rights Agreement; (xvi) brokers', finders' or similar fees; (xvii) title
to assets; (xviii) intellectual property; (xix) the opinion of NationsBanc
Montgomery relating to the Merger; (xx) insurance; (xxi) the absence of
certain unreported interested party transactions; (xxii) the absence of
certain restrictions on the ability of the Company and its subsidiaries to
conduct their businesses; (xxiii) labor matters; (xxiv) relationships with
significant customers; (xxv) certain consents and approvals; (xxvi) payments
required upon a change of control of the Company; (xxvii) the absence of
certain undisclosed contractual obligations; and (xxviii) the accuracy and
completeness of the representations and warranties made by the Company in the
Merger Agreement.
The Merger Agreement also contains various representations and warranties
made by HB Acquisition to the Company. The representations and warranties of
HB Acquisition relate, with respect to HB Acquisition, among other things, to:
(i) its organization, existence, good standing, corporate power and similar
corporate matters; (ii) the authorization, execution, delivery, performance
and enforceability of the Merger Agreement and related matters; (iii) the
absence of violations, defaults and conflicts resulting from the execution and
delivery of the Merger Agreement and the consummation of the transactions
contemplated thereby under the Certificate of Incorporation of HB Acquisition,
its By-laws and certain other agreements and documents and, with certain
specified exceptions, the absence of required governmental consents and
approvals; (iv) the accuracy and completeness of the information supplied by
HB Acquisition and contained herein; (v) the operations of HB Acquisition
since its formation; (vi) brokers', finders' or similar fees; (vii) financing
commitments sufficient to pay the Merger Consideration; and (viii) the
accuracy and completeness of the representations and warranties made by HB
Acquisition in the Merger Agreement.
None of the representations and warranties contained in the Merger Agreement
or in any instrument delivered pursuant to the Merger Agreement will survive
the Effective Time, except for agreements which expressly survive the
Effective Time, and except as contemplated by the Merger Agreement.
CONDUCT OF BUSINESS PENDING THE MERGER
During the period from the date of the Merger Agreement until the Effective
Time, the Company has agreed that it will, and will cause its subsidiaries to,
in all material respects, except as contemplated by the Merger Agreement,
conduct its business in the ordinary course and, to the extent consistent
therewith, use reasonable efforts to preserve intact its business
organizations, keep available the services of its officers and key employees
and preserve its relationships with customers, suppliers and others having
significant business dealings with it. The Company has agreed that, except as
otherwise expressly contemplated by the Merger Agreement, during such period,
the Company will not, and will not permit any of its subsidiaries to, without
the prior written consent of HB Acquisition (which consent may not be
unreasonably withheld or delayed):
(a) (i) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its stockholders in their
capacity as such (other than the payment by a subsidiary of the Company of
a dividend or distribution to the Company or another wholly-owned
subsidiary of the Company), (ii) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
or (iii) purchase, redeem or otherwise acquire any shares of its capital
stock or those of any subsidiary or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(b) except as required under existing employee benefit plans, agreements,
policies, awards or arrangements in effect on the date of the Merger
Agreement including, without limitation, the Options or upon conversion of
the Convertible Debentures and subject to certain other exceptions, issue,
deliver, sell, pledge, dispose of or otherwise encumber any shares of its
capital stock, any other voting securities or equity equivalent or any
securities convertible into, or any rights, warrants or options to acquire,
any such shares,
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voting securities, equity equivalent or convertible securities (other than
pursuant to the Rights Agreement and other than issuances to a wholly-owned
subsidiary of the Company of its capital stock to the Company);
(c) amend its Certificate of Incorporation or By-laws or other similar
organizational documents;
(d) acquire or agree to acquire any business or any corporation,
partnership, limited liability company, association or other business
organization or division thereof or otherwise acquire or agree to acquire
any assets, other than acquisitions or purchases of assets to the extent
permitted by paragraph (m) below or the purchase of supplies, raw materials
or inventory of finished goods in the ordinary course of business;
(e) sell, lease, license encumber or otherwise dispose of, or agree to
sell, lease, license encumber or otherwise dispose of, any of its assets,
other than sales of inventory in the ordinary course of business or which
in the aggregate involve assets which in the aggregate are not in excess of
$1,000,000;
(f) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or any of its subsidiaries,
guarantee any debt securities of others, enter into any "keep-well" or
other agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any of
the foregoing, except for borrowings incurred in the ordinary course of
business consistent with past practice, or make any loans, advances or
capital contributions to, or other investments in, any other person, other
than to or in the Company or any subsidiary of the Company;
(g) subject to certain exceptions, alter the corporate structure or
ownership of the Company or any subsidiary of the Company;
(h) subject to certain exceptions, increase the compensation payable or
to become payable to its directors, officers or employees, consultants or
independent contractors, except for increases required under agreements
existing on the date of the Merger Agreement, and increases for officers
and employees in the ordinary course of business consistent with past
practice; or grant any severance or termination pay to, or enter into any
employment or severance or consulting agreement, or establish, adopt, enter
into, or amend or take action to enhance or accelerate any rights or
benefits under, any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director,
officer, consultant or independent contractor or employee, except, in each
case, as may be required by the terms of any such plan, agreement, trust,
fund, policy or arrangement or to comply with applicable law or regulation;
(i) knowingly violate or fail to perform any material obligation or duty
imposed upon it by any applicable material federal, state or local law,
rule, regulation, guideline or ordinance;
(j) settle or compromise any suit, proceeding or claim or threatened
suit, proceeding or claim for an amount that is more than $250,000 in the
case of any individual suit, proceeding or claim or $1,000,000 for all
suits, proceedings or claims;
(k) redeem the Rights or, other than as contemplated by the Merger
Agreement, amend the Rights Agreement or take action to declare HB
Acquisition to be an Adverse Person (as defined in the Rights Agreement);
(l) except as may be required as a result of a change in law or in
generally accepted accounting principles, make any material change in its
methods of accounting;
(m) make or agree to make any new capital expenditure not expressly
contemplated by the management plan on the date of the Merger Agreement
that exceeds $100,000;
(n) except as permitted by paragraph (j) above, pay, discharge, settle or
satisfy any claims, liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the payment, discharge,
settlement or satisfaction, (i) in the ordinary course of business
consistent with past practice or in accordance with their terms, of
liabilities recognized or disclosed in the most recent consolidated
financial statements (or the notes thereto) of the Company included in the
documents filed by the Company pursuant
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to the Securities Act or the Exchange Act or incurred since the date of
such financial statements in the ordinary course of business consistent
with past practice or (ii) of liabilities required to be paid, discharged
or satisfied pursuant to the terms of any contract in existence on the date
of the Merger Agreement;
(o) enter into, modify in any material respect, amend in any material
respect or terminate any material contract or agreement to which the
Company or any of its subsidiaries is a party or waive, release or assign
any material rights or claims; or
(p) authorize, recommend, propose or announce an intention to do any of
the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
NO SOLICITATION
The Merger Agreement requires the Company to have ceased any discussions or
negotiations with any parties that were ongoing with respect to any Takeover
Proposal at the time the Company entered into the Merger Agreement and to have
directed its affiliates, officers, directors, employees, representatives and
agents to do the same. The Merger Agreement provides that the Company (i) will
not, (ii) will not permit any of its subsidiaries to, and (iii) will not
authorize any of its affiliates, officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries, or permit any of the
foregoing, other than affiliates who are not controlled by the Company to,
directly or indirectly, (a) solicit or initiate any inquiries or the making of
any proposal which constitutes, or may reasonably be expected to lead to, any
Takeover Proposal or (b) participate in or enter into any discussions or
negotiations regarding any Takeover Proposal; provided, however, that if, at
any time prior to adoption of the Merger Agreement by the Company's
stockholders at the Special Meeting, the Board receives a Takeover Proposal
and determines in good faith, after consultation with outside counsel, that it
would be required in order to fulfill its fiduciary responsibilities to the
Company's stockholders under applicable law, the Company may, in response to a
Takeover Proposal, and subject to providing prior notice to HB Acquisition as
described below, (x) furnish information with respect to the Company to any
person pursuant to a confidentiality agreement in substantially the same form
as the confidentiality agreement entered into between the Company and HB
Acquisition and (y) participate in or enter into discussions, investigations
or negotiations regarding such Takeover Proposal.
The Merger Agreement provides that the Company must promptly notify HB
Acquisition in writing after receipt of any Takeover Proposal, or any
modification of or amendment to any Takeover Proposal, or any request for any
nonpublic information relating to the Company or any of its subsidiaries in
connection with a Takeover Proposal or for access to the properties, books or
records of the Company or any subsidiary by any person or entity that informs
the Board of Directors of the Company or such subsidiary that it is
considering making, or has made, a Takeover Proposal. Such notice is required
to indicate whether the Company is providing or intends to provide the person
making the Takeover Proposal with access to information concerning the Company
as provided in the preceding sentence; such notice will also (to the extent
required in order to fulfill the fiduciary duties of the Board of Directors of
the Company to the Company's stockholders under applicable law) include the
identity of the person or entity engaging in such discussions or negotiations,
requesting such information or making such Takeover Proposal, and the material
terms and conditions of such Takeover Proposal. The Company is obligated to
keep HB Acquisition reasonably and timely informed as to all of the relevant
details relating to, and all material aspects of any such discussions or
negotiations.
As used in the Merger Agreement, "Takeover Proposal" means any proposal or
offer (other than the transactions between the Company and HB Acquisition
contemplated by the Merger Agreement) involving the Company or any of its
subsidiaries for, or an inquiry or indication of interest that reasonably
could be expected to lead to: (A) any merger, consolidation, share exchange,
recapitalization, business combination or other similar transaction; (B) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of 20%
or more of the assets of the Company and its subsidiaries, taken as a whole,
in a single transaction or series of transactions; (C) any material debt or
equity investment in the Company or recapitalization transaction in
substitution for the
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transactions contemplated by the Merger Agreement; or (D) any tender offer or
exchange offer for 20% or more of the outstanding shares of capital stock of
the Company or any of its subsidiaries or the filing of a registration
statement under the Securities Act in connection therewith.
The Merger Agreement provides further that, except as described below,
neither the Board of Directors of the Company nor any committee thereof will
(i) withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to HB Acquisition, the approval or recommendation by the Board of
Directors of the Company or such committee of the Merger or the Merger
Agreement; (ii) approve or recommend, or publicly propose to approve or
recommend, any Takeover Proposal; or (iii) cause the Company to enter into any
letter of intent, agreement in principle, acquisition agreement or other
similar agreement related to any Takeover Proposal provided that, in the event
that prior to the adoption of the Merger Agreement by the Company's
stockholders at the Special Meeting, the Board of Directors of the Company or
such committee determines in good faith, after consultation with outside
counsel, that it would be required in order to fulfill its fiduciary
responsibilities to the Company's stockholders under applicable law, the Board
of Directors of the Company or such committee may withdraw or modify its
approval or recommendation of the Merger and the Merger Agreement, approve or
recommend a Superior Proposal or terminate the Merger Agreement, but in each
case, only at a time after the second business day following HB Acquisition's
receipt of written notice advising HB Acquisition that the Board of Directors
of the Company or such committee has received a Takeover Proposal that may
constitute a Superior Proposal, specifying the material terms and conditions
of such Superior Proposal and identifying the person making such Superior
Proposal.
As used in the Merger Agreement, "Superior Proposal" means any proposal
determined by the Board in good faith, after consultation with outside
counsel, to be a bona fide proposal and made by a third party to acquire,
directly or indirectly, for consideration consisting of cash, property and/or
securities, more than 50% of the combined voting power of the shares of Common
Stock then outstanding or all or substantially all the assets of the Company
and otherwise on terms which the Board determines in its good faith judgment,
after consultation with a financial advisor of nationally recognized
reputation, to be more favorable to the Company's stockholders than the
Merger.
The Merger Agreement provides that nothing contained therein will prohibit
the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2 (position of a subject company with respect to a
tender offer) promulgated under the Exchange Act or from making any disclosure
to the Company's stockholders if, in the good faith judgment of the Board,
after consultation with outside counsel, such disclosure is required in order
to fulfill its fiduciary duties to the Company's stockholders under applicable
law or is otherwise required under applicable law.
EMPLOYEE BENEFIT PLANS, SEVERANCE AND OTHER EMPLOYMENT MATTERS
Each employee of the Company or of its subsidiaries at the Effective Time
(including each employee who is on vacation, temporary layoff, approved leave
of absence, sick leave or short- or long-term disability) will remain an
employee of the Company or subsidiary thereof, as the case may be, immediately
following such time at the same compensation and wages as in effect
immediately preceding the Effective Time. The Merger Agreement provides that
until the first anniversary of the Effective Time, the Surviving Corporation
will maintain or cause to be maintained, wages, compensation levels and such
benefits provided under its benefit plans for the benefit of employees and
former employees of the Company or its subsidiaries which are not less
favorable than those wages, compensation levels and other benefits provided
under the benefit plans maintained by the Company and its subsidiaries as in
effect as of the date of the Merger Agreement; provided, however, that the
Surviving Corporation is not obligated to provide benefits based on equity
securities of the Company or any equivalent thereof. Each employee of the
Company or its subsidiaries will be credited with the unused vacation and sick
leave credited to such employee through the Effective Time under the
applicable vacation and sick leave policies of the Company and its
subsidiaries, and the Surviving Corporation will permit or cause its
subsidiaries to permit such employees to use such vacation and sick leave. For
all purposes under each employee benefit plan
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maintained by the Surviving Corporation which employees and former employees
of the Company become eligible to participate in after the Effective Time, all
persons previously employed by the Company and its subsidiaries and then
employed by the Surviving Corporation will be credited with their years of
service to the extent such service is taken into account under the most
closely corresponding benefit plan maintained by the Company and its
subsidiaries provided, however, any such service need not be taken into
account in determining accrual under a defined benefit pension plan
established after the Effective Time.
HB Acquisition has agreed to maintain, or cause the Surviving Corporation to
maintain, the Company's standard severance policy as in effect on the date of
the Merger Agreement for a period of at least 12 months from the Effective
Time. In addition, HB Acquisition will, and will cause the Surviving
Corporation to, honor or cause to be honored all employment agreements, bonus
agreements, severance agreements and non-competition agreements with the
Company's directors, officers and employees.
HB Acquisition will maintain, or cause the Surviving Corporation to
maintain, the Company's 1998 bonus plans (as in effect on the date of the
Merger Agreement) through the end of the Company's 1998 fiscal year, with
bonuses to be paid to each employee equal to the bonus such employee would
have earned if the transactions contemplated by the Merger Agreement had not
occurred, in all events on a basis consistent with past practice.
HB Acquisition will, or will cause the Surviving Corporation to, (i) waive
all limitations as to preexisting conditions, exclusions and waiting periods
with respect to participation and coverage requirements applicable to the
employees of the Company and its subsidiaries under any welfare plan that such
employees may be eligible to participate in after the Effective Time, other
than limitations or waiting periods that are already in effect with respect to
such employees and that have not been satisfied as of the Effective Time under
any welfare plan maintained for the employees of the Company or its
subsidiaries immediately prior to the Effective Time, and (ii) provide each
employee of the Company or its subsidiaries with credit for any co-payments
and deductibles paid prior to the Effective Time in satisfying any applicable
deductible or out-of-pocket requirements under any welfare plans that such
employees are eligible to participate in after the Effective Time.
For at least twelve months from the Effective Time, HB Acquisition will
maintain, or will cause the Surviving Corporation to maintain the Company's
401(k) retirement plan and contribute, or cause to be contributed, to such
retirement plan, on behalf of each participant therein, on at least a bi-
weekly basis, matching contributions in amounts determined in accordance with
the terms of such retirement plan in effect the date of the Merger Agreement.
OTHER AGREEMENTS
The Company has agreed to provide reasonable cooperation in connection with
the negotiation, execution and delivery of definitive documentation in
connection with the financing commitment letter from SG and the transactions
contemplated thereunder, or any financings in substitute therefor, including
without limitation, (i) causing its subsidiaries and its and their respective
officers and employees to provide reasonable cooperation in connection with
such negotiation, execution and delivery, (ii) causing its subsidiaries and
its and their respective officers and employees to host and participate, upon
reasonable advance notice, in any informational meetings for investors or
"road shows" (iii) causing its subsidiaries and its and their respective
officers and employees to provide such information about the Company and its
subsidiaries as is reasonably necessary to outline, draft, prepare and
circulate any offering memoranda, prospectuses, reports, presentations or
analyses and to ensure that such information is not false or misleading and
(iv) executing and delivering any commitment letters, underwriting or
placement agreements, purchase agreements, pledge and security documents,
indentures, other definitive financing documents, which documents shall be in
form and substance reasonably satisfactory to the Company, or other reasonably
requested certificates or documents, including a certificate of the chief
financial officer of the Company with respect to solvency matters, as may be
reasonably requested by HB Acquisition or its lenders. In conjunction with the
obtaining of any such financing, the Company has agreed, at the request of
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HB Acquisition, to call for prepayment or redemption, or to prepay, redeem or
renegotiate, as the case may be, any then existing indebtedness of the
Company; provided that no such prepayment or redemption will be made until,
contemporaneously with, or after, the Effective Time. HB Acquisition has
agreed to reimburse, indemnify and hold harmless the Company for any costs,
expenses, losses, liabilities, damages, redemption payments, prepayments or
other charges incurred by the Company at the request of HB Acquisition in
connection with the Company's compliance with the provisions of the Merger
Agreement described in this paragraph.
HB Acquisition has agreed to use reasonable efforts to arrange the financing
contemplated by the financing commitment letter from SG, which includes the
use of reasonable efforts to satisfy all conditions applicable to HB
Acquisition in the financing commitment letter and the definitive agreements
relating thereto.
The Merger Agreement provides that prior to the Effective Time, the Company
or its subsidiaries, as the case may be, will amend any employee benefit plans
providing for a right to receive Common Stock, to provide that no participant
in any such plan will have the right to receive Common Stock on or after the
Effective Time.
CONDITIONS PRECEDENT TO THE MERGER
The respective obligations of each party to effect the Merger is subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) the stockholders of the Company shall have approved the Merger Agreement
and the transactions contemplated thereby; (b) no statute, rule, regulation,
executive order, decree, temporary restraining order, preliminary or permanent
injunction, writ or other judgment or order issued by any court of competent
jurisdiction or other governmental entity preventing the consummation of the
Merger will be in effect, provided that each of the parties shall have used
reasonable efforts to prevent the entry of any such temporary restraining
order, injunction or other order and to appeal as promptly as possible any
injunction or other order that may be entered; (c) other than filing the
Certificate of Merger, all authorizations, consents and approvals of all
governmental entities and certain other specified consents and approvals from
third parties shall have been obtained; (d) any waiting period (and any
extension thereof) under the HSR Act applicable to the Merger shall have
expired or been terminated; (e) the respective representations and warranties
of the Company and HB Acquisition contained in the Merger Agreement shall be
true and correct (in the case of any representation or warranty containing any
materiality qualification) or shall be true and correct in all material
respects (in the case of any representation or warranty without any
materiality qualification) as of the Effective Time, as if made at such time
(other than to the extent that any such representation or warranty, is
expressly limited to a specific date, in which case such representation and
warranty shall be true and correct as of such date), in each case except as
contemplated or permitted by the Merger Agreement; (f) each of HB Acquisition
and the Company shall have performed in all material respects its obligations
under the Merger Agreement required to be performed by it at or prior to the
Effective Time; and (g) each of HB Acquisition and the Company shall have
delivered to the other, a certificate, dated as of the Closing Date, signed by
the President or Chief Executive Officer of HB Acquisition or the Company, as
the case may be, certifying compliance with the provisions of the Merger
Agreement described in clauses (e) and (f) of this paragraph.
The obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver, at or prior to the Effective Time, of the Company's
receipt of certain certificates and documentation relating to the solvency of
HB Acquisition.
The obligation of HB Acquisition to effect the Merger is also subject to the
satisfaction or waiver at or prior to the Effective Time of the following
conditions: (a) since the date of the Merger Agreement, there shall have been
no suit, claim, action, proceeding or investigation filed or, to the knowledge
of the Company, threatened against the Company or any of its subsidiaries or
against any properties or rights of the Company or its subsidiaries, that
would in the good faith judgment of HB Acquisition, after consultation with
the Company and its counsel, be reasonably likely (after taking into effect
any applicable insurance coverage) to (i) be material to the business, results
of operations, condition (financial or otherwise) of the Company, (ii) impair
in a material manner the ability of the Company to perform its obligations
under the Merger Agreement, (iii) result in a third
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party materially delaying the consummation of the Merger, or (iv) result in a
third party enjoining or obtaining material damages in respect of the
transactions contemplated by the Merger Agreement; (b) no event, occurrence,
fact, condition, change, development or effect shall have occurred or come to
exist or been threatened, in each case, since the date of the Merger
Agreement, that individually or in the aggregate, has resulted in, or could
reasonably be expected to become or result in a Material Adverse Effect on the
Company (as hereinafter defined); and (c) the receipt pursuant to the
financing commitment letter from SG of sufficient funds to pay the Merger
Consideration and otherwise enable HB Acquisition to consummate the
transactions contemplated by the Merger Agreement and to meet the working
capital requirements of the Surviving Corporation.
HB Acquisition has agreed that the Wandel Verdict (including any judgments,
damages, liabilities, costs, charges, consequences or implications
specifically related thereto or arising in connection therewith) does not
constitute and that it will not be deemed or alleged to constitute a Material
Adverse Change or Material Adverse Effect with respect to the Company.
As used in the Merger Agreement, a "Material Adverse Change" or "Material
Adverse Effect" means any event, change, effect, or diminution in value that,
individually or in the aggregate, is or would reasonably be expected to be
materially adverse to the business, operations, assets, condition (financial
or otherwise) or results of operations of the Company and its subsidiaries,
taken as a whole, or HB Acquisition, as the case may be.
TERMINATION
The Merger Agreement may be terminated in accordance with its terms at any
time prior to the Effective Time, whether before or after the approval of the
stockholders of the Company of the Merger:
(a) by mutual written consent by the Boards of Directors of HB
Acquisition and the Company;
(b) by either HB Acquisition or the Company if: (i) the Merger has not
been consummated on or prior to August 31, 1998 or such other date, if any,
as HB Acquisition and the Company agree upon in writing, provided that the
right to terminate the Merger Agreement under this clause (b)(i) will not
be available to a party who has been the cause of or resulted in the
failure of the Effective Time to occur on or before such date, or (ii) any
governmental entity issues a statute, order, decree or regulation or takes
any other action in each case permanently restraining, enjoining or
otherwise prohibiting the Merger or making the Merger illegal and such
statute, order, decree, regulation or other action shall have become final
and non-appealable;
(c) by the Company, (i) if holders of at least the requisite number of
shares of Common Stock required by the DGCL fail to approve the Merger
Proposal at the Special Meeting (including any postponement or adjournment
thereof) or (ii) in accordance with the provisions of the Merger Agreement
relating to a Superior Proposal described above under the caption "--No
Solicitation"; provided that to the extent required to be paid upon such
termination, the Company shall have made payment to HB Acquisition of the
Termination Fee and Expense Reimbursement in accordance with the Merger
Agreement and as described below under the caption "--Fees and Expenses";
(d) by either party to the Merger Agreement, upon 15 business days' prior
written notice, in the event of a breach of any representation, warranty,
covenant or agreement by the other party such that the conditions of the
Merger Agreement described in clauses (e) or (f) in the first paragraph
under the caption "--Conditions Precedent to the Merger" would not be
satisfied by the breaching party as of the Effective Time, which breach is
not cured prior to the expiration of such 15 business day period, provided
that if such breach is not curable, the nonbreaching party may terminate
the Merger Agreement immediately except where both parties are in breach of
any representation, warranty, covenant or agreement; or
(e) by HB Acquisition, if (i) holders of at least the requisite number of
shares of Common Stock required by the DGCL fail to approve the Merger
Proposal at the Special Meeting (including any postponement or adjournment
thereof); (ii) the Board withdraws, modifies or changes its recommendation
of the Merger Agreement or the Merger in a manner adverse to HB Acquisition
or resolves to do any of the foregoing or the Board recommends to the
stockholders of the Company any Takeover Proposal or resolves
34
<PAGE>
to do so; or (iii) a tender offer or exchange offer for outstanding shares
of capital stock of the Company then representing 20% or more of the
combined power to vote generally for the election of directors is
commenced, and the Board, within the time periods required by law to state
its position thereon, does not recommend that stockholders of the Company
not tender their shares into such tender or exchange offer.
In the event of a termination of the Merger Agreement by either the Company
or HB Acquisition, the Merger Agreement will forthwith become void (except for
certain specified provisions, including those pertaining to the payment of
fees and expenses) and there will be no liability or obligation on the part of
HB Acquisition or the Company or their respective officers or directors, other
than liability for any breach of the Merger Agreement.
FEES AND EXPENSES
Except as provided in the Merger Agreement, whether or not the Merger is
consummated, all fees and expenses incurred in connection with the Merger, the
Merger Agreement and the transactions contemplated thereby, will be paid by
the party incurring such fees and expenses.
The Merger Agreement provides that the Company will pay, or cause to be
paid, in same day funds to HB Acquisition (a) $500,000 for reimbursement of HB
Acquisition's expenses (the "Expense Reimbursement") and (b) $2,500,000 (the
"Termination Fee") under the circumstances and at the times set forth as
follows:
(i) if the Company terminates the Merger Agreement in accordance with the
provisions of the Merger Agreement described in clause (b)(i) under the
caption "--Termination", the Company will pay the Expense Reimbursement
within three business days of such termination;
(ii) if the Company terminates the Merger Agreement in accordance with
the provisions of the Merger Agreement described in clause (c)(ii) under
the caption "--Termination" or HB Acquisition terminates the Merger
Agreement under the provisions of the Merger Agreement described in clauses
(e)(ii) or (e)(iii) under the caption "--Termination", the Company will pay
the Expense Reimbursement and the Termination Fee within three business
days of such termination; and
(iii) if the Company terminates the Merger Agreement in accordance with
the provisions of the Merger Agreement described in clause (c)(i) under the
caption "--Termination" or HB Acquisition terminates the Merger Agreement
in accordance with the provisions of the Merger Agreement described in
clauses (d) or (e)(i) under the caption "--Termination" the Company will
pay HB Acquisition the Expense Reimbursement within three business days of
such termination; provided, however that if between the date of the Merger
Agreement and such termination date a Takeover Proposal shall have been
made (other than a proposal made by HB Acquisition or the investors in HB
Acquisition) and concurrently with such termination or within twelve months
thereafter, the Company enters into a merger agreement, acquisition
agreement or similar agreement (including, without limitation, a letter of
intent) with respect to a Takeover Proposal, or a Takeover Proposal is
consummated, the Company will pay HB Acquisition the Termination Fee upon
the earlier of the execution of such agreement or upon consummation of such
Takeover Proposal.
Any fees and expenses that are not paid when due will bear interest at the
prime rate plus 1% from the date due through the date of final payment of such
amounts.
The Merger Agreement provides that the sole and exclusive remedy for any and
all liabilities, demands, claims, actions, judgments or causes of action,
assessments, losses, fines, penalties, costs, damages and expenses
(collectively, "Claims"), sustained or incurred by HB Acquisition or its
investors as a result of the Merger Agreement or the transactions contemplated
thereby will be limited to an aggregate amount of $3,000,000 (including any
required payments of the Termination Fee and Expense Reimbursement). The
Company's sole and exclusive remedy for any and all Claims resulting from the
Merger Agreement or the transactions contemplated thereby will be against HB
Acquisition and, provided that the Stock Subscription Agreements remain in
full force and effect, the Company will not be entitled to seek any relief or
pursue any Claim against the directors, officers, shareholders or partners of
either HB Acquisition or its investors. See "The Stock Subscription
Agreements."
35
<PAGE>
INDEMNIFICATION AND D&O INSURANCE
The Merger Agreement provides that, all rights to indemnification or
exculpation, existing in favor of a director, officer, employee or agent (an
"Indemnified Person") of the Company or any of its subsidiaries, as provided
for in the Company's Certificate of Incorporation and By-laws or any
indemnification agreement, in each case, as in effect on the date of the
Merger Agreement, will survive the Merger and will continue in full force and
effect, without amendment thereto; provided, however, that the Surviving
Corporation will not be required to indemnify any Indemnified Person in
connection with any proceeding to the extent involving any claim initiated by
such Indemnified Person unless the initiation of such proceeding was
authorized by the Board or unless such proceeding was brought to enforce
indemnification rights provided in the Merger Agreement; provided, further
that any determination required to be made with respect to an Indemnified
Person's conduct complies with the standards set forth under the DGCL, the
Company's Certificate of Incorporation or By-laws or any such agreement, as
the case may be, will be made by independent legal counsel selected by the
Company and reasonably acceptable to the Indemnified Person.
If any Indemnified Person becomes involved in any actual or threatened
action, suit, claim, proceeding or investigation after the Effective Time, HB
Acquisition is required to, or to cause the Surviving Corporation to,
periodically advance to such Indemnified Person its legal and other expenses
(including the cost of any investigation and preparation incurred in
connection therewith), subject to the agreement by such Indemnified Person to
reimburse all amounts so advanced in the event of a non-appealable
determination of a court of competent jurisdiction that such Indemnified
Person is not entitled thereto.
The Merger Agreement provides that prior to the Effective Time, the Company
will have the right to obtain and pay for in full a "tail" directors' and
officers' liability insurance policy ("D&O Insurance") covering a period of
not less than six years after the Effective Time and providing coverage
consistent with the Company's existing D&O Insurance. In the event the Company
is unable to obtain such insurance, HB Acquisition will cause the Surviving
Corporation to maintain the Company's D&O Insurance, for a period of not less
than six years from the Effective Time, provided that the Surviving
Corporation may substitute therefor policies that are not less favorable than
the Company's existing policy provided, further that if the existing D&O
Insurance expires or is cancelled during such period, HB Acquisition or the
Surviving Corporation will use its best efforts to obtain substantially
similar D&O Insurance; and provided, further that the Company may not, without
HB Acquisition's consent, expend an amount in excess of 250% of the last
annual premium paid prior to the date of the Merger Agreement to procure such
"tail" coverage and neither HB Acquisition nor the Surviving Corporation will
be required to expend an amount in excess of 200% of the last annual premium
paid prior to the date of the Merger Agreement, in order to maintain or
procure an annual D&O Insurance policy, in lieu of a "tail" policy.
AMENDMENT; WAIVER
The Merger Agreement may be amended at any time prior to the stockholder
approval of the Merger at the Special Meeting but only by action taken or duly
authorized by the Boards of Directors of both the Company and HB Acquisition
and executed in writing by both parties. Any extension of the time for
performance of any obligations or other acts of the parties to the Merger
Agreement, any waiver of any inaccuracy in the representations and warranties
made by each party or any waiver of compliance with any agreements or
conditions in the Merger Agreement will be valid only if granted prior to the
Effective Time, by action taken or duly authorized by the Boards of Directors
of both the Company and HB Acquisition and executed in writing by both
parties.
THE STOCK SUBSCRIPTION AGREEMENTS
HB Acquisition has entered into a separate Stock Subscription Agreement with
each of the Investors. Each Stock Subscription Agreement provides that the
Investor party thereto will purchase from HB Acquisition one share of its
common stock and, in consideration thereof, pay to HB Acquisition $1,500,000.
36
<PAGE>
The Investors are obligated to subscribe for the shares only upon the
occurrence of a final and unappealable judgement against HB Acquisition
resulting from a termination of the Merger Agreement by the Company, in
accordance with the terms thereof, resulting from a breach by HB Acquisition
of any of its representations, warranties, covenants or agreements. The
Company's sole and exclusive remedy for any and all Claims resulting from the
Merger Agreement or the transactions contemplated thereby will be against HB
Acquisition and, provided that the Stock Subscription Agreements remain in
full force and effect, the Company will not be entitled to seek any relief or
pursue any Claim against the directors, officers, shareholders or partners of
either HB Acquisition or its investors.
The Stock Subscription Agreements may not be amended without the prior
written consent of the Company, other than amendments that are not adverse to
the Company. The Company is intended to be a third-party beneficiary of the
Stock Subscription Agreements after the occurrence of a final and unappealable
judgement as described above and will be entitled to enforce them on behalf of
HB Acquisition.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Under the DGCL, any holder of Common Stock who does not wish to accept the
Merger Consideration in respect of his or her shares of Common Stock has the
right (an "Appraisal Right") to dissent from the Merger and to seek an
appraisal of, and to be paid the fair cash value (exclusive of any element of
value arising from the accomplishment or expectation of the Merger) for, his
or her shares of Common Stock provided that the stockholder fully complies
with the provisions of Section 262 of the DGCL ("Section 262").
The following is intended as a brief summary of the material provisions of
the statutory procedures required to be followed by a stockholder in order to
dissent from the Merger and perfect the stockholder's Appraisal Right. This
summary, however, is not a complete statement of all applicable requirements
and is qualified in its entirety by reference to Section 262, the complete
text of which is attached hereto as Annex C.
If any holder of Common Stock elects to demand appraisal of his or her
shares of Common Stock, such holder must satisfy each of the following
conditions:
(i) the holder must deliver to the Company a written demand for appraisal
of his or her shares of Common Stock before the vote with respect to the
Merger Proposal is taken (this written demand for appraisal must be in
addition to and separate from any proxy or vote abstaining from or against
the Merger Proposal; voting against or failing to vote for the Merger
Proposal by itself does not constitute a demand for appraisal within the
meaning of Section 262); and
(ii) the holder must not vote in favor of the Merger Proposal (an
abstention or failure to vote will satisfy this requirement, but a vote in
favor, by proxy (including by returning an executed but otherwise unmarked
proxy card) or in person, will constitute a waiver of the stockholder's
Appraisal Right in respect of the shares of Common Stock so voted and will
nullify any previously filed written demands for appraisal).
Within ten days after the Effective Time, the Company must give written
notice that the Merger has become effective to each holder of Common Stock who
so filed a written demand for appraisal and who did not vote in favor of the
Merger. Within 120 days after the Effective Time, the Company or any
stockholder who has complied with the requirements of Section 262 may file a
petition in the Delaware Court of Chancery (the "Court of Chancery") demanding
a determination of the fair value of the shares of Common Stock held by all
stockholders entitled to appraisal. The Company does not currently intend to
file such a petition in the event there are dissenting stockholders. INASMUCH
AS THE COMPANY HAS NO OBLIGATION TO FILE SUCH A PETITION, THE FAILURE OF A
STOCKHOLDER TO DO SO WITHIN THE PERIOD SPECIFIED COULD NULLIFY SUCH
STOCKHOLDER'S PREVIOUSLY WRITTEN DEMAND FOR APPRAISAL. At any time within 60
days after the Effective Time, any stockholder who has demanded appraisal has
the right to withdraw the demand and to accept payment of the Merger
Consideration in respect of his or her shares of Common Stock. Within 120 days
after the Effective Time, any stockholder who
37
<PAGE>
has complied with the requirements of Section 262 is entitled, upon written
request, to receive from the Company a statement setting forth the aggregate
number of shares of Common Stock not voted in favor of the Merger Proposal and
with respect to which demands for appraisal have been received and the
aggregate number of holders of such shares.
If any stockholder fails to comply with the above provisions and the Merger
becomes effective, such stockholder will be entitled to receive the Merger
Consideration in respect of his or her shares of Common Stock as provided for
in the Merger Agreement and will have no Appraisal Rights with respect to such
shares.
All demands for appraisal should be addressed to Ms. Linda K. Bounds,
Secretary, Bell Sports Corp., 6350 San Ignacio Avenue, San Jose, California
95119, before the vote on the Merger Proposal is taken at the Special Meeting,
and should be executed by, or on behalf of, the holder of record of the shares
of Common Stock. The demand must reasonably inform the Company of the identity
of the stockholder and the intention of such stockholder to demand appraisal
of his or her shares of Common Stock.
To be effective, a demand for appraisal must be made by or in the name of
the registered stockholder, fully and correctly, as such stockholder's name
appears on his or her stock certificate(s) and cannot be made by the
beneficial owner if the beneficial owner does not also hold the shares of
Common Stock of record. The beneficial holder must, in such cases, have the
registered owner submit the required demand in respect of such shares of
Common Stock.
If shares of Common Stock are owned of record in a fiduciary capacity, such
as by a trustee, guardian or custodian, execution of a demand for appraisal
should be made in such a capacity, and if the shares of Common Stock are owned
of record by more than one person, as in joint tenancy or tenancy in common,
the demand should be executed by or for all joint owners. An authorized agent,
including one for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner or owners and expressly disclose the fact that, in executing the
demand, he or she is acting as agent for the record owner. A record owner,
such as a broker, who holds shares of Common Stock as a nominee for others,
may exercise his or her right of appraisal with respect to the shares of
Common Stock held for one or more beneficial owners, while not exercising this
right for other beneficial owners. In such case, the written demand should
state the number of shares of Common Stock as to which appraisal is sought.
Where no number of shares of Common Stock is expressly mentioned, the demand
will be presumed to cover all shares of Common Stock held in the name of such
record owner.
If a petition for appraisal is duly filed by a stockholder and a copy
thereof is delivered to the Company, the Company will then be obligated within
20 days thereafter to provide the Court of Chancery with a duly verified list
containing the names and addresses of all stockholders who have demanded an
appraisal of their shares of Common Stock and with whom agreements as to the
value of their shares have not been reached. After notice to such
stockholders, the Court is empowered to conduct a hearing upon the petition,
to determine those stockholders who have complied with Section 262 and who
have become entitled to Appraisal Rights. The Court may require the
stockholders who have demanded payment for their shares of Common Stock to
submit their stock certificates to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
After determining the stockholders entitled to an appraisal, the Court of
Chancery will appraise the shares of Common Stock, determining their fair
value exclusive of any element of value arising from the accomplishment or
expectation of the Merger. When the value is so determined, the Court of
Chancery will direct the payment by the Company of such value, with interest
thereon accrued during the pendency of the proceeding if the Court of Chancery
so determines, to the stockholders entitled to receive the same, upon
surrender to the Company by such holders of the certificates representing such
shares of Common Stock. In determining fair value, the Court of Chancery is
required to take into account all relevant factors.
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<PAGE>
The Company has commenced the Debenture Tender Offer for up to $62.5 million
aggregate principal amount of the outstanding Convertible Debentures. The
Company's obligation to purchase Convertible Debentures validly tendered
pursuant to the Debenture Tender Offer is conditioned upon, among other
things, the consummation of the Merger and the completion of the Subsidiary
Note Offering. There can be no assurance that the transactions contemplated by
the Debenture Tender Offer or the Subsidiary Note Offering will be
consummated. CONSUMMATION OF THE MERGER IS NOT CONDITIONED UPON THE
CONSUMMATION OF THE DEBENTURE TENDER OFFER.
Each stockholder considering seeking appraisal should be aware that the fair
value of his or her shares of Common Stock determined under Section 262 could
be more, the same, or less than the Merger Consideration in respect thereof
that he or she is entitled to receive pursuant to the Merger Agreement if he
or she does not seek appraisal, and that opinions of financial advisors as to
fairness from a financial point of view are not necessarily opinions as to
fair value under Section 262.
Costs of the appraisal proceeding may be imposed upon the parties thereto
(that is, the Company and the stockholders participating in the appraisal
proceeding) by the Court of Chancery as is deems equitable in the
circumstances. Upon the application of a stockholder, the Court of Chancery
may order all or a portion of the expenses incurred by any stockholder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts, to be charged
pro-rata against the value of all shares of Common Stock entitled to
appraisal.
Any stockholder who had demanded Appraisal Rights will not, after the
Effective Time, be entitled to vote shares of Common Stock subject to such
demand for any purpose or to receive payments of dividends or any other
distribution with respect to such shares of Common Stock (other than with
respect to payment as of a record date prior to the Effective Time) or to
receive the Merger Consideration in respect thereof that he or she is entitled
to receive pursuant to the Merger Agreement; however, if no petition for
appraisal is filed within 120 days after the Effective Time, or if such
stockholder delivers a written withdrawal of his or her demand for appraisal
and an acceptance of the Merger, either within 60 days after the Effective
Time, or thereafter with written approval of the Company, then the right of
such stockholder to appraisal will cease and such stockholder will be entitled
to receive the Merger Consideration in respect of his or her shares of Common
Stock that he or she is entitled to receive pursuant to the Merger Agreement,
without interest.
Failure to follow the steps required by Section 262 for perfecting Appraisal
Rights may result in the loss of such rights. In view of the complexity of
Section 262, stockholders of the Company who are considering dissenting from
the Merger should consult their legal advisors.
SOURCES OF FUNDS
The total amount of funds required by the Company and HB Acquisition to
complete the Merger, including fees and expenses incurred in connection
therewith, is expected to be approximately $155 million. The Company and HB
Acquisition expect to obtain such funds from (i) bank financing, (ii)
available cash and (iii) equity contributions to the Company from Brentwood
and Harvard Private Capital.
On February 12, 1998, HB Acquisition obtained a commitment from SG to
provide the Company with a senior secured credit facility (the "Credit
Facility") consisting of a $25 million term loan and a $60 million revolving
credit facility. SG has committed to provide the Credit Facility, subject to
usual and customary conditions, including, without limitation, (i) the
consummation of the Merger, (ii) a minimum equity contribution to the Company
by Brentwood and Harvard Private Capital of a total of $65 million and (iii)
the absence of any event that has or would reasonably be expected to have a
material adverse effect upon the condition (financial or otherwise),
operations, business, assets or liabilities of the Company and its
subsidiaries, taken as a whole.
Concurrently with the consummation of the Merger, the Company expects that
there will be private placements, which will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"),
39
<PAGE>
of notes of the Company (the "Company Note Offering") and of notes of Bell
Sports, Inc., a wholly owned subsidiary of the Company (the "Subsidiary Note
Offering"). The notes issued in the Subsidiary Note Offering and the Company
Note Offering may not be offered or sold in the United States absent
registration under the Securities Act or an applicable exemption from such
registration requirements. If the Subsidiary Note Offering is completed, it is
expected that the Credit Facility will consist of a $60 million revolving
credit facility. SG has indicated that if the Company Notes are issued, the
minimum equity contribution to the Company required to be made by Brentwood
and Harvard Private Capital would be reduced. CONSUMMATION OF THE MERGER IS
NOT CONDITIONED UPON THE CONSUMMATION OF THE COMPANY NOTE OFFERING OR THE
SUBSIDIARY NOTE OFFERING.
The Company has commenced the Debenture Tender Offer. The Company's
obligation to purchase Convertible Debentures validly tendered pursuant to the
Debenture Tender Offer is conditioned upon, among other things, the
consummation of the Merger and the completion of the Subsidiary Note Offering.
There can be no assurance that Notes will be sold or that the transactions
contemplated by the Debenture Tender Offer will be consummated. CONSUMMATION
OF THE MERGER IS NOT CONDITIONED UPON THE CONSUMMATION OF THE DEBENTURE TENDER
OFFER. See "The Merger--Effect On Convertible Debentures."
MARKET PRICE OF COMMON STOCK
The Common Stock is listed on Nasdaq under the symbol "BSPT." On February
13, 1998, the last trading day prior to public announcement of the execution
of the Merger Agreement, the last reported sale price of Common Stock, as
reported by Nasdaq was $9.00 per share. On April 8, 1998, the last trading day
prior to public announcement of the execution of the first amendment to the
Merger Agreement, the last reported sale price of Common Stock, as reported by
Nasdaq was $8.25 per share. On June 30, 1998, the last trading day prior to
the date of this Proxy Statement, the last reported sale price of Common
Stock, as reported by Nasdaq was $9.594 per share.
The following table sets forth, for the fiscal quarters indicated, the high
and low sales prices per share of the Common Stock:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1997
1st Quarter................................................. $7.625 $5.500
2nd Quarter................................................. 7.125 5.625
3rd Quarter................................................. 6.375 4.875
4th Quarter................................................. 8.125 4.938
Fiscal 1998
1st Quarter................................................. $9.281 $7.000
2nd Quarter................................................. 10.875 7.750
3rd Quarter................................................. 10.063 8.125
4th Quarter................................................. 10.000 7.875
Fiscal 1999
1st Quarter (through June 30, 1998)......................... $9.594 $9.375
</TABLE>
At the close of business on the Record Date, there were approximately 900
holders of record of Common Stock. The Company has not paid dividends on the
Common Stock since its organization and has no current intention to pay
dividends. The Company's bank credit agreements effectively restrict the
payment of dividends without lender permission. Future borrowing agreements
may contain similar restrictions.
40
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding each person
who, to the knowledge of the Company, beneficially owned more than 5% of the
outstanding shares of Common Stock at the close of business on the Record
Date. Unless otherwise noted, each listed person has sole voting and
dispositive power with the respect to the shares of Common Stock listed as
being beneficially owned by such person.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT OF
COMMON STOCK OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
- ------------------------------------ ------------------- ------------
<S> <C> <C>
CB Capital Investors, 2,281,080 16.5
L.P.(1)................
380 Madison Avenue
12th Floor
New York, New York
10017
Dimensional Fund 873,179 6.31
Advisors Inc.(2).......
1299 Ocean Avenue
11th Floor
Santa Monica,
California 90401
Loomis, Sayles & 847,758 5.8
Company, L.P.(3).......
One Financial Center
Boston, Massachusetts
02111
</TABLE>
- --------
(1) Based on a Schedule 13G/A filed with the SEC as of April 9, 1998. Such
Schedule 13G/A reports that CB Capital Investors, L.P. is the assignee of
CB Capital Investors, Inc. and that as part of an internal reorganization,
all of the investment holdings of CB Capital Investors, Inc. were
contributed to CB Capital Investors, L.P.
(2) Based on a Schedule 13G/A filed with the SEC as of February 10, 1998 which
reports sole voting power with respect to 583,167 shares of Common Stock
and sole dispositive power with respect to 873,179 shares of Common Stock.
Such Schedule 13G/A reports that the securities reported are owned by
advisory clients of Dimensional Fund Advisors Inc. and that Dimensional
Fund Advisors Inc. disclaims beneficial ownership of all such securities.
(3) Based on a Schedule 13G filed with the SEC as of February 12, 1998 which
reports sole voting power with respect to 715,685 shares of Common Stock,
shared voting power with respect to 118,663 shares of Common Stock and
shared dispositive power with respect to 847,758 shares of Common Stock.
Such Schedule 13G reports that it was filed with respect to shares of
Common Stock that Loomis, Sayles & Company, L.P. has a right to acquire as
a result of its beneficial ownership of convertible securities of the
Company.
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<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of the close of business on the Record
Date, certain information with respect to the Common Stock that may be deemed
to be beneficially owned by each director of the Company, the executive
officers named in the Summary Compensation Table in the Company's Proxy
Statement for its 1997 Annual Meeting of Stockholders and by all directors and
executive officers as a group. Unless otherwise noted, each listed person has
sole voting and dispositive power with the respect to the shares of Common
Stock listed as being beneficially owned by such person.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT OF
COMMON STOCK OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
------------------------ ------------------- ------------
<S> <C> <C>
Terry G. Lee(1)............................... 396,450 2.8
Harry H. Manko(2)............................. 372,216 2.7
Mary J. George(3)............................. 131,082 *
Howard A. Kosick(4)........................... 130,657 *
Robert Alan McCaughen(5)...................... 24,640 *
Bernie M. Kotlier............................. 4,479 *
W. Leo Kiely III(6)........................... 13,213 *
Kenneth K. Harkness(7)........................ 16,913 *
Frederick D. Winter(7)........................ 16,913 *
Phillip D. Matthews(8)........................ 28,727 *
Christopher Wright(9)......................... 256,349 1.8
Michael R. Hannon(10)......................... 2,293,493 16.5
Arnold L. Chavkin(10)......................... 2,293,493 16.5
All directors and executive officers as a
group (15 persons) (11)...................... 3,737,837 25.6
</TABLE>
- --------
*Less than one percent.
(1) The shares of Common Stock beneficially owned by Mr. Lee include 224,983
shares issuable upon the exercise of options to purchase Common Stock
which are exercisable or which will become exercisable within 60 days
following the date of this Proxy Statement and 7,082 shares with respect
to which Mr. Lee has sole voting power but no dispositive power.
(2) The shares of Common Stock beneficially owned by Mr. Manko include 75,410
shares issuable upon the exercise of options to purchase Common Stock
which are exercisable or which will become exercisable within 60 days
following the date of this Proxy Statement.
(3) The shares of Common Stock beneficially owned by Ms. George include
124,000 shares issuable upon the exercise of options to purchase Common
Stock which are exercisable or which will become exercisable within 60
days following the date of this Proxy Statement and 7,082 shares with
respect to which Ms. George has sole voting power but no dispositive
power.
(4) The shares of Common Stock beneficially owned by Mr. Kosick include
123,575 shares issuable upon the exercise of options to purchase Common
Stock which are exercisable or which will become exercisable within 60
days following the date of this Proxy Statement and 7,082 shares with
respect to which Mr. Kosick has sole voting power but no dispositive
power.
(5) The shares of Common Stock beneficially owned by Mr. McCaughen include
9,999 shares issuable upon the exercise of options to purchase Common
Stock which are exercisable or which will become exercisable within 60
days following the date of this Proxy Statement.
(6) The shares of Common Stock beneficially owned by Mr. Kiely include 12,413
shares issuable upon the exercise of options to purchase Common Stock
which are exercisable or which will become exercisable within 60 days
following the date of this Proxy Statement.
42
<PAGE>
(7) The shares of Common Stock beneficially owned by each of Messrs. Harkness
and Winter are shares issuable upon the exercise of options to purchase
Common Stock which are exercisable or which will become exercisable within
60 days following the date of this Proxy Statement.
(8) The shares of Common Stock beneficially owned by Mr. Matthews include
14,413 shares issuable upon the exercise of options to purchase Common
Stock which are exercisable or which will become exercisable within 60
days following the date of this Proxy Statement.
(9) Mr. Wright is the general manager of the investment advisor to The KB
Mezzanine Fund, L.P. ("KB"). Mr. Wright beneficially owns 14,413 shares of
Common Stock issuable upon the exercise of options to purchase Common
Stock which are exercisable or which will become exercisable within 60
days following the date of this Proxy Statement. The remaining 241,936
shares of Common Stock shown above are owned by KB, however, by reason of
his position with respect to the investment advisor to KB, Mr. Wright may
be deemed to beneficially own all of the shares of Common Stock owned by
KB, with shared voting and investment power over such shares. Mr. Wright
disclaims beneficial ownership of the shares of Common Stock owned by KB.
(10) The shares of Common Stock owned by each of Messrs. Chavkin and Hannon
include 12,413 shares issuable upon the exercise of options to purchase
Common Stock which are exercisable or which will become exercisable
within 60 days following the date of this Proxy Statement. Mr. Chavkin
and Mr. Hannon are General Partners of Chase Capital Partners, an
affiliate of CBCI. Accordingly, Messrs. Chavkin and Hannon may be deemed
to be the beneficial owners of the 2,281,080 shares of Common Stock owned
by CBCI. Each of Messrs. Chavkin and Hannon disclaim beneficial ownership
of the shares of Common Stock owned by CBCI.
(11) The shares of Common Stock beneficially owned include 697,650 shares
issuable upon the exercise of options to purchase Common Stock which are
exercisable or which will become exercisable within 60 days following the
date of this Proxy Statement as well as the shares beneficially owned by
KB or CBCI.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The Summary of Operations Data, Per Share Data and Balance Sheet Data shown
below at or for the fiscal years ended June 28, 1997, June 29, 1996, July 1,
1995, July 2, 1994 and July 3, 1993 are derived from the Consolidated
Financial Statements of the Company at such dates or for such periods, which
have been audited by Price Waterhouse LLP, independent accountants. Such data
at or for the nine months ended March 28, 1998 and March 29, 1997, are derived
from unaudited consolidated financial information. In management's opinion,
the Company's unaudited consolidated financial statements at or for the nine
months ended March 28, 1998 and March 29, 1997, include all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the results of operations and financial position for each of the respective
periods. The results of operations for the nine months ended March 28, 1998,
are not necessarily indicative of the results that may be expected for the
entire year or any other interim period.
Data for the fiscal year ended June 28, 1997 include a pre-tax loss on
disposal of a product line of $25.4 million related to the sale of the
Company's Service Cycle/Mongoose business. Data for the fiscal year ended June
29, 1996 include an inventory write-up of $14.1 million related to the merger
with American Recreation Company Holdings, Inc. and the acquisitions of
SportRack and Giro businesses, which was fully charged against cost of sales.
Data for the fiscal year ended July 3, 1993 include a loss of $298,000 on an
early extinguishment of debt which was classified as an extraordinary item.
The Selected Consolidated Financial Data of the Company as presented below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related notes thereto included in the Company's Quarterly
Report on
43
<PAGE>
Form 10-Q for the quarter ended March 28, 1998 and the Company's Annual Report
on Form 10-K for the year ended June 28, 1997, each of which is incorporated
herein by reference. See "Available Information" and "Incorporation of Certain
Documents By Reference."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(UNAUDITED) FISCAL YEAR ENDED
------------------- ----------------------------------------------
MARCH 28, MARCH 29, JUNE 28, JUNE 29, JULY 1, JULY 2, JULY 3,
1998 1997 1997 1996 1995 1994 1993
--------- --------- -------- -------- -------- -------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Net sales.................. $138,554 $189,267 $259,534 $262,340 $102,990 $116,090 $82,611
Income (loss) from
continuing operations..... 4,119 (22,414) (18,188) (12,375) (3,443) 10,459 6,582
Income (loss) before
extraordinary items and
cumulative effect of
change in accounting
principle................. 4,119 (22,414) (18,188) (12,375) (3,443) 10,459 6,582
Extraordinary items........ -- -- -- -- -- -- (298)
Income (loss) before
cumulative effect of
change in accounting
principle................. 4,119 (22,414) (18,188) (12,375) (3,443) 10,459 6,284
Cumulative effect of change
in accounting for income
taxes..................... -- -- -- -- -- -- 700
Net income (loss).......... $ 4,119 $(22,414) $(18,188) $(12,375) $ (3,443) $ 10,459 $ 6,984
PER SHARE DATA: (1) (2)
Net income (loss):
Basic.................... $ 0.30 $ (1.63) $ (1.33) $ (0.90) $ (0.42) $ 1.30 $ 0.98
Diluted.................. $ 0.29 $ (1.63) $ (1.33) $ (0.90) $ (0.42) $ 1.27 $ 0.93
Weighted average common
shares outstanding:
Basic.................... 13,827 13,713 13,722 13,740 8,144 8,057 7,152
Diluted.................. 14,176 13,713 13,722 13,740 8,144 8,245 7,523
BALANCE SHEET DATA:
Working capital............ $122,528 $170,311 $130,677 $149,474 $108,821 $ 91,044 $52,013
Total assets............... 247,330 309,776 268,754 298,635 186,434 184,658 82,219
Total debt, less current
portion................... 87,666 150,346 107,689 124,501 89,833 89,445 3,256
Total stockholders' equity. $123,593 $114,264 $118,965 $136,041 $ 75,816 $ 75,187 $67,658
</TABLE>
- --------
(1) All earnings per share amounts have been retroactively restated to reflect
the adoption of Statement of Financial Accounting Standards No. 128,
Earnings Per Share.
(2) For the fiscal year ended July 3, 1993, the impact of extraordinary items
on both basic and diluted earnings per share was a reduction of $(0.04).
The impact of the cumulative effect of the change in accounting for income
taxes on basic and diluted earnings per share was an increase of $0.10 and
$0.09, respectively.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP is the Company's independent accountant.
Representatives of Price Waterhouse LLP are expected to be present at the
Special Meeting to respond to appropriate questions of stockholders and make a
statement if they so desire.
44
<PAGE>
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
If the Merger is not consummated, the Company will hold its 1998 Annual
Meeting of its stockholders in accordance with its By-laws and the DGCL.
Proposals of stockholders to be presented at the Company's 1998 Annual Meeting
may be included in the Company's Proxy Statement for that meeting if they are
received by the Company no later than June 5, 1998 and if they comply with
certain rules and regulations promulgated by the SEC. The Company's By-laws
set forth additional requirements and procedures regarding the submission by
stockholders of matters for consideration at an annual meeting of
stockholders.
OTHER MATTERS
The Board is not aware of any business which will be presented at the
Special Meeting other than those matters set forth in the accompanying Notice
of Special Meeting. If any other matters are properly presented at the Special
Meeting for action, it is intended that the persons named in the accompanying
Proxy and acting thereunder will vote in accordance with their best judgment
on such matters.
45
<PAGE>
ANNEXES
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF RECAPITALIZATION
AND MERGER
BETWEEN
HB ACQUISITION CORPORATION
AND
BELL SPORTS CORP.
DATED AS OF FEBRUARY 17, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE MERGER...................................................... A-1
SECTION 1.1 The Merger................................................. A-1
SECTION 1.2 Closing; Time and Place.................................... A-1
SECTION 1.3 Effective Time............................................. A-1
SECTION 1.4 Effects of the Merger...................................... A-2
SECTION 1.5 Certificate of Incorporation and By-Laws; Officers and
Directors.............................................................. A-2
ARTICLE II CONVERSION OF SHARES........................................... A-2
SECTION 2.1 Conversion of Capital Stock................................ A-2
SECTION 2.2 Surrender of Certificates.................................. A-4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. A-5
SECTION 3.1 Organization............................................... A-5
SECTION 3.2 Subsidiaries............................................... A-5
SECTION 3.3 Capital Structure.......................................... A-6
SECTION 3.4 Authority.................................................. A-6
SECTION 3.5 Consent and Approvals; No Violations....................... A-7
SECTION 3.6 SEC Documents and Other Reports............................ A-7
SECTION 3.7 Absence of Material Adverse Change......................... A-8
SECTION 3.8 Information Supplied in Proxy Statement.................... A-8
SECTION 3.9 Compliance with Laws; Permits.............................. A-9
SECTION 3.10 Tax Matters................................................ A-9
SECTION 3.11 Liabilities................................................ A-10
SECTION 3.12 Benefit Plans; Employees and Employment Practices.......... A-10
SECTION 3.13 Litigation................................................. A-12
SECTION 3.14 Environmental Matters...................................... A-12
SECTION 3.15 State Takeover Statutes; Charter Provisions; Rights
Agreement.............................................................. A-13
SECTION 3.16 Brokers.................................................... A-13
SECTION 3.17 Title to Assets............................................ A-13
SECTION 3.18 Intellectual Property...................................... A-13
SECTION 3.19 Opinion of Financial Adviser............................... A-14
SECTION 3.20 Insurance.................................................. A-14
SECTION 3.21 Interested Party Transactions.............................. A-14
SECTION 3.22 Restrictions on Business Activities........................ A-14
SECTION 3.23 Labor Matters.............................................. A-14
SECTION 3.24 Customers.................................................. A-15
SECTION 3.25 Consents................................................... A-15
SECTION 3.26 Change in Control Payments................................. A-15
SECTION 3.27 Contractual Obligations.................................... A-15
SECTION 3.28 Disclosure................................................. A-15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF NEWCO........................ A-15
SECTION 4.1 Organization............................................... A-15
SECTION 4.2 Authority.................................................. A-15
SECTION 4.3 Consents and Approvals; No Violations...................... A-16
SECTION 4.4 Information Supplied in Proxy Statement.................... A-16
SECTION 4.5 Interim Operations of HB Acquisition....................... A-17
SECTION 4.6 Brokers.................................................... A-17
SECTION 4.7 Financing.................................................. A-17
SECTION 4.8 Disclosure................................................. A-17
</TABLE>
A-i
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS....................... A-17
SECTION 5.1 Conduct of Business by the Company Pending the Merger...... A-17
SECTION 5.2 No Solicitation............................................ A-19
SECTION 5.3 Disclosure to HB Acquisition; Delivery of Certain Filings.. A-20
SECTION 5.4 Employee Benefit Plans..................................... A-20
ARTICLE VI ADDITIONAL AGREEMENTS.......................................... A-20
SECTION 6.1 Stockholder Approval; Preparation of Proxy Statement....... A-20
SECTION 6.2 Access to Information...................................... A-21
SECTION 6.3 Fees and Expenses.......................................... A-21
SECTION 6.4 Public Announcement........................................ A-22
SECTION 6.5 Real Estate Transfer Tax................................... A-22
SECTION 6.6 State Takeover Laws........................................ A-22
SECTION 6.7 Indemnification; Directors and Officers Insurance.......... A-23
SECTION 6.8 Notification of Certain Matters............................ A-23
SECTION 6.9 Recapitalization........................................... A-24
SECTION 6.10 Reasonable Efforts......................................... A-24
SECTION 6.11 Certain Litigation......................................... A-24
SECTION 6.12 Employee Benefits.......................................... A-24
SECTION 6.13 Severance Policy and Other Agreements...................... A-25
SECTION 6.14 1998 Bonus Plan............................................ A-25
SECTION 6.15 Welfare Plans.............................................. A-25
SECTION 6.16 Retirement Plan............................................ A-25
SECTION 6.17 Certain Tax Matters........................................ A-26
SECTION 6.18 Actions Respecting Commitment Letters...................... A-26
ARTICLE VII CONDITIONS PRECEDENT.......................................... A-27
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger. A-27
SECTION 7.2 Conditions to the Obligation of the Company to Effect the
Merger................................................................. A-27
SECTION 7.3 Conditions to Obligation of HB Acquisition to Effect the
Merger................................................................. A-28
ARTICLE VIII TERMINATION AND AMENDMENT.................................... A-28
SECTION 8.1 Termination................................................ A-28
SECTION 8.2 Effect of Termination...................................... A-29
SECTION 8.3 Amendment.................................................. A-29
SECTION 8.4 Extension; Waiver.......................................... A-29
ARTICLE IX GENERAL PROVISIONS............................................. A-30
SECTION 9.1 Non-Survival of Representations and Warranties and
Agreements............................................................. A-30
SECTION 9.2 Notices.................................................... A-30
SECTION 9.3 Interpretation............................................. A-31
SECTION 9.4 Definitions................................................ A-31
SECTION 9.5 Counterparts............................................... A-35
SECTION 9.6 Entire Agreement; No Third-Party Beneficiaries............. A-35
SECTION 9.7 Governing Law.............................................. A-35
SECTION 9.8 Assignment................................................. A-35
SECTION 9.9 Severability............................................... A-35
SECTION 9.10 Enforcement of This Agreement.............................. A-35
SECTION 9.11 Obligations of Subsidiaries................................ A-36
SECTION 9.12 Negotiation of Agreement................................... A-36
</TABLE>
A-ii
<PAGE>
AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER
This AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER is dated as of
February 17, 1998 (this "Agreement") between HB Acquisition Corporation, a
Delaware corporation ("Newco"), and Bell Sports Corp., a Delaware corporation
(the "Company") (Newco and the Company being hereinafter collectively referred
to as the "Constituent Corporations").
WHEREAS, the Board of Directors of Newco has approved and deems it advisable
and in the best interest of the stockholders of Newco to participate in the
recapitalization of the Company, upon the terms and subject to the conditions
set forth herein (the "Recapitalization");
WHEREAS, the Board of Directors of the Company, based upon the
recommendation of a special committee of its independent directors (the
"Special Committee"), has approved and deems it advisable and in the best
interest of the Company, to consummate the Recapitalization upon the terms and
subject to the conditions set forth herein;
WHEREAS, in furtherance of such Recapitalization, the Board of Directors of
Newco and the Board of Directors of the Company (based upon the recommendation
of the Special Committee) have each unanimously approved this Agreement and
the merger of Newco with and into the Company in accordance with the terms of
this Agreement and the DGCL (the "Merger"); and
WHEREAS, the Board of Directors of the Company, based upon the
recommendation of the Special Committee, deems it advisable and in the best
interests of the Company and the stockholders of the Company to effect the
Merger; and
WHEREAS, pursuant to an exchange agreement (the "Exchange Agreement"), to be
entered into prior to the Effective Time, certain shares of Company Common
Stock or Options held by certain existing stockholders of the Company shall be
exchanged, to the extent provided in the Exchange Agreement, for validly
issued, fully paid and nonassessable shares of Newco Common Stock and Series A
Preferred Stock of Newco.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions of this
Agreement, and in accordance with the DGCL, Newco shall be merged with and
into the Company at the Effective Time. Following the Merger, the separate
corporate existence of Newco shall cease and the Company shall continue as the
surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights, privileges, immunities, powers, franchises,
restrictions, duties, debts, liabilities and obligations of the Constituent
Corporations in accordance with the DGCL.
SECTION 1.2 Closing; Time and Place. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 8.1, the consummation and closing of the Merger will take
place at 10:00 a.m. Boston time on a date to be specified by Newco, which date
shall be no later than the third business day after satisfaction or waiver of
the conditions set forth in Article VII (the "Closing Date"), at the offices
of Ropes & Gray, One International Place, Boston, Massachusetts 02110, unless
another date, time or place is agreed to in writing by the parties hereto.
SECTION 1.3 Effective Time. The Merger shall become effective when a
Certificate of Merger or, if applicable, a Certificate of Ownership and Merger
(each, the "Certificate of Merger"), executed in accordance
A-1
<PAGE>
with the relevant provisions of the DGCL, is duly filed with the Secretary of
State of the State of Delaware, or at such other time as Newco and the Company
shall agree upon and specify in the Certificate of Merger. When used in this
Agreement, the term "Effective Time" shall mean the later of the date and time
at which the Certificate of Merger is duly filed with the Secretary of State
of Delaware or such later time established by the Certificate of Merger. Newco
and the Company shall cause the Certificate of Merger to be executed and filed
no later than the third business day after the satisfaction or waiver of the
conditions to the Merger set forth herein.
SECTION 1.4 Effects of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of DGCL.
SECTION 1.5 Certificate of Incorporation and By-Laws; Officers and
Directors.
(a) Pursuant to the Merger, the Certificate of Incorporation of the Company,
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter changed or
amended in accordance with the DGCL and such Certificate of Incorporation.
(b) Pursuant to the Merger, the By-Laws of Newco, as in effect immediately
prior to the Effective Time, shall be the By-Laws of the Surviving Corporation
until thereafter changed or amended in accordance with the DGCL, the
Certificate of Incorporation of the Surviving Corporation and such By-Laws.
(c) Pursuant to the Merger, the directors of Newco immediately prior to the
Effective Time shall be the directors of the Surviving Corporation, each to
hold office in accordance with the Certificate of Incorporation and By-Laws of
the Surviving Corporation.
(d) Pursuant to the Merger, the officers of the Company immediately prior to
the Effective Time shall be the officers of the Surviving Corporation each to
hold office in accordance with the Certificate of Incorporation and By-laws of
the Surviving Corporation.
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 Conversion of Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Newco or the Company or the
holders of any shares of common stock, par value $.01 per share, of the
Company (referred to herein, together with the Rights associated therewith
pursuant to the Rights Agreement, the "Shares" or the "Company Common Stock")
or the common stock, par value $.01 per share, of Newco (the "Newco Common
Stock") or any other securities of the Company or Newco:
(a) Conversion. At the Effective Time, each Share issued and outstanding
immediately prior to the Effective Time (excluding (i) any Shares to be
canceled pursuant to Section 2.1(b) and (ii) any Dissenting Shares shall be
converted into the right to receive $10.50 (the "Merger Consideration"), upon
surrender of the certificate representing such Shares in the manner provided
in and otherwise in accordance with Section 2.2. All such Shares so converted,
and the Rights associated therewith, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and such
holder of a certificate representing any such Shares shall cease to have any
rights with respect thereto, except for the right to receive the Merger
Consideration therefor upon surrender of such certificate in the manner
provided in and in accordance with Section 2.2.
(b) Cancellation. Each Share held in the treasury of the Company or any
direct or indirect wholly-owned Subsidiary of the Company and each Share held
by Newco immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, no longer be
outstanding, and shall automatically be canceled and retired without payment
of any consideration therefor and shall cease to exist.
A-2
<PAGE>
(c) Stock Options, Restricted Stock and Phantom Stock Units. The Board of
Directors of the Company shall take all actions necessary or appropriate to
cause all options to purchase Company Common Stock, including the Company
Benefit Plan Stock Options, the Company Representative Stock Options, the
Brunswick Stock Option and the Company Acquisition Stock Options (the
foregoing are collectively referred to herein as the "Options"), that are
outstanding immediately prior to the Effective Time to be fully vested and
exercisable immediately prior to the Effective Time in accordance with their
terms and the individual agreements and plans governing such options or
rights. The holder of any Option (each an "Option Holder") that is not
exercised prior to the Effective Time will be entitled to receive, in
consideration thereof, for each Share subject to the Options held by such
Option Holder, an amount equal to the excess, if any, of the Merger
Consideration over the exercise price per Share for the purchase of the
Company Common Stock in respect of such Option. Each Company Restricted Stock
Award which is outstanding immediately prior to the Effective Time shall
become fully vested and the holder thereof shall be entitled to receive, in
respect of each share of Company Common Stock subject thereto, the Merger
Consideration. Each Company Phantom Stock Unit Award which is outstanding
immediately prior to the Effective Time shall become fully vested and
exercisable and the holder thereof shall be entitled to receive a cash payment
in an amount determined in accordance with the terms thereof. The amounts
payable pursuant to this Section 2.1(c) shall be paid as soon as reasonably
practicable following the Closing Date and shall be subject to and made net of
all applicable withholding taxes; provided, however, that with respect to any
Option Holder or holder of a Company Restricted Stock Award or holder of a
Company Phantom Stock Unit Award subject to Section 16(a) of the Exchange Act,
any such payment shall be made as soon as reasonably practicable after the
first date payment can be made without liability to such person under Section
16(b) of the Exchange Act. Upon receipt of such payment in respect of any
Option, Company Restricted Stock Award or Company Phantom Stock Unit Award,
the related Option, Company Restricted Stock Award or Company Phantom Stock
Unit Award shall be cancelled. The surrender of any Option, Company Restricted
Stock Award or Company Phantom Stock Unit Award in exchange for the applicable
consideration contemplated by this Section 2.1(c) shall be deemed a release of
any and all rights the holder thereof had or may have had in respect thereof.
Prior to the Effective Time, the Company shall use its reasonable best efforts
to obtain all necessary consents or releases from Option Holders and to take
all such other lawful action as may be necessary to give effect to this
Section 2.1(c) (except for such action as may require the approval of the
Company's stockholders). The Company shall take all action necessary to ensure
that following the Effective Time no Option Holder shall have any right, in
respect of any Option held by such Option Holder, to acquire equity securities
of the Company or the Surviving Corporation.
(d) Shares of Dissenting Stockholders. Notwithstanding anything in this
Agreement to the contrary, any issued and outstanding Shares held by a person
(a "Dissenting Stockholder") who has not voted in favor of or consented to the
Merger and complies with the applicable provisions of the DGCL concerning the
rights of holders of Shares to require appraisal of their Shares ("Dissenting
Shares"), as appropriate, shall not be converted as described in Section
2.1(a), but shall become the right to receive such consideration as may be
determined to be due to such Dissenting Stockholder pursuant to the DGCL. If,
after the Effective Time, such Dissenting Stockholder withdraws his demand for
appraisal or fails to perfect or otherwise loses his right of appraisal, in
any case pursuant to the DGCL, his Shares shall be deemed to be cancelled as
of the Effective Time and be converted into the right to receive the Merger
Consideration allocated as provided in Section 2.1(a). The Company shall give
Newco prompt notice of any demands for appraisal of Shares received by the
Company. The Company shall not, without the prior written consent of Newco,
make any payment with respect to, or settle or offer to settle, any such
demands.
(e) Capital Stock of Newco. Each share of Newco Common Stock issued and
outstanding immediately prior to the Effective Time shall be converted into
and exchanged for one validly issued, fully paid and nonassessable share of
Common Stock, $1.00 par value per share (the "Surviving Corporation Shares" or
"Surviving Corporation Common Stock"), of the Surviving Corporation and each
share of Series A Preferred Stock of Newco issued and outstanding immediately
prior to the Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of Series A Preferred
Stock, $1.00 par value per share (the "Series A Preferred Stock"), of the
Surviving Corporation.
A-3
<PAGE>
SECTION 2.2 Surrender of Certificates.
(a) Paying Agent. Prior to the Effective Time, Newco shall designate a bank,
trust company or other entity who shall be reasonably satisfactory to the
Company to act as paying agent in the Merger (the "Paying Agent") to receive
the funds to which holders of Shares shall become entitled pursuant to Section
2.1(a). At the Effective Time, the Surviving Corporation will make available
to the Paying Agent funds necessary to complete the payments contemplated by
Sections 2.1(a) on a timely basis. In addition, Newco shall take all necessary
action to ensure that at the Effective Time, the Surviving Corporation will
have the funds necessary to complete the payments contemplated by Section
2.1(c) on a timely basis. Funds made available to the Paying Agent shall be
invested by the Paying Agent as directed by Newco or, after the Effective
Time, the Surviving Corporation, provided that such investments shall only be
in obligations of or guaranteed by the United States of America, in commercial
paper obligations rated A-1 or P-1 or better by Moody's Investors Service,
Inc. or Standard & Poor's Corporation, respectively, or in certificates of
deposit, bank repurchase agreements or banker's acceptances of commercial
banks with capital exceeding $1 billion (it being understood that any and all
interest or income earned on funds made available to the Paying Agent pursuant
to this Agreement shall be turned over to the Surviving Corporation).
(b) Exchange Procedure. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall instruct the Paying Agent to
promptly, but in no event later than three business days following the
Effective Time, mail to each holder of record of a certificate or certificates
that immediately prior to the Effective Time represented Shares (the
"Certificates") whose Shares were converted pursuant to Section 2.1(a) into
the right to receive the Merger Consideration (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the Certificates
to the Paying Agent and shall be in a form and have such other provisions as
Newco may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Consideration as
provided in Section 2.1(a). Upon surrender of a Certificate for cancellation
to the Paying Agent or to such other agent or agents as may be appointed by
Newco, together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Paying Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor the Merger
Consideration for each share of Company Common Stock formerly represented by
such Certificate, and the Certificate so surrendered shall forthwith be
cancelled. In the event of a transfer of ownership of Shares that is not
registered in the transfer records of the Company, payment may be made to a
person other than the person in whose name the Certificate so surrendered is
registered, if such Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other
than the registered holder of such Certificate or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is
not applicable. Until surrendered as contemplated by this Section 2.2, each
Certificate (other than Certificates representing Dissenting Shares) shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the amount of cash, without interest, into which
the shares of Company Common Stock theretofore represented by such Certificate
shall have been converted pursuant to Section 2.1. No interest will be paid or
will accrue on the cash payable upon the surrender of any Certificate. The
Surviving Corporation or the Paying Agent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement
to any holder of Shares such amounts as the Surviving Corporation or the
Paying Agent is required to deduct and withhold with respect to the making of
such payment under the Code or under any provision of state, local or foreign
tax law. To the extent that amounts are so withheld by the Surviving
Corporation or the Paying Agent, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the Shares
in respect of which such deduction and withholding was made by the Surviving
Corporation or the Paying Agent.
(c) No Further Ownership Right in Shares. All cash paid upon the surrender
of Certificates in accordance with the terms of this Article II shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
shares of Company Common Stock theretofore represented by such Certificates.
At the Effective Time, the stock transfer books of the Company shall be
closed, and there shall be no further registration of transfers on the
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stock transfer books of the Surviving Corporation of the shares of Company
Common Stock that were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation or the Paying Agent for any reason, they shall be cancelled and
exchanged as provided in this Article II.
(d) Termination of Payment Fund. Any portion of the funds made available to
the Paying Agent (and the proceeds of any interest or other income received by
the Paying Agent in respect of all such funds) to pay the Merger Consideration
which remains undistributed to the holders of Shares for six months after the
Effective Time shall be delivered to the Surviving Corporation, upon demand,
and any holders of Shares who have not theretofore complied with this Article
II and the instructions set forth in the letter of transmittal mailed to such
holders after the Effective Time shall thereafter look only to the Surviving
Corporation (subject to abandoned property, escheat or other similar laws) for
payment of the Merger Consideration to which they are entitled, without
interest.
(e) No Liability. None of Newco, the Company or the Paying Agent shall be
liable to any person in respect of any cash delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Newco as follows:
SECTION 3.1 Organization. The Company and each of its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to carry on its business as now being conducted, except
where the failure to be so organized and in good standing or to have such
power and authority would not reasonably be expected to have a Material
Adverse Effect on the Company. Item 3.1 of the letter from the Company to
Newco dated the date hereof, which letter relates to this Agreement and is
designated therein as the Company Letter (the "Company Letter") sets forth a
true and complete list of the jurisdiction of incorporation of the Company and
its Subsidiaries, and identifies each jurisdiction in which such entity is
qualified to do business. The Company and each of its Subsidiaries is duly
qualified or licensed to do business and in good standing in each jurisdiction
identified in Item 3.1 of the Company Letter, except in such jurisdictions
where the failure to be so duly qualified or licensed and in good standing
would not have a Material Adverse Effect on the Company or prevent or result
in a third party delaying the consummation of the Merger and except as set
forth in Item 3.1 of the Company Letter. The Company has delivered to Newco
complete and correct copies of its Certificate of Incorporation and By-Laws
and has made available to Newco the Certificate of Incorporation and By-Laws
(or similar organizational documents) of each of its Subsidiaries. Neither the
Company nor any of its Subsidiaries is in violation of any provision of its
Certificate of Incorporation.
SECTION 3.2 Subsidiaries. Except as set forth in Item 3.2 of the Company
Letter, all of the outstanding shares of capital stock of each Subsidiary of
the Company are owned by the Company, by another Subsidiary of the Company or
by the Company and another Subsidiary of the Company, free and clear of all
pledges, claims, liens, charges, options, rights of first refusal, agreements,
equitable interests, restrictions on transfer, limitations in the Company's
voting rights, encumbrances and security interests of any kind or nature
whatsoever or restrictions on the creation of any of the foregoing
(collectively, "Liens") other than restrictions on transfer under applicable
securities laws, and are duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in Item 3.2 of the Company Letter and
except for the capital stock of its Subsidiaries, the Company does not own,
directly or indirectly, any capital stock or other ownership interest in any
corporation, partnership, joint venture, limited liability company or other
entity.
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SECTION 3.3 Capital Structure. The authorized capital stock of the Company
consists of 25,000,000 shares of Common Stock and 1,000,000 shares of
Preferred Stock, $.01 par value per share (the "Company Preferred Stock"). At
the close of business on February 6, 1998, (i) 13,856,922 shares of Company
Common Stock were issued and outstanding, all of which were validly issued,
fully paid and nonassessable and free of preemptive rights, (ii) 495,072
shares of Company Common Stock were held by the Company in its treasury and
(iii) no shares of Company Preferred Stock were issued and outstanding. As of
the date of this Agreement, except for (i) the rights to purchase shares of
the Series A Junior Participating Preferred Stock, $.01 par value, of the
Company (the "Rights") issued pursuant to the Stockholders Rights Agreement
dated as of September 22, 1994, as amended by First Amendment to Stockholders
Rights Agreement dated as of February 15, 1995 (collectively, the "Rights
Agreement"), between the Company and Harris Trust and Savings Bank, as Rights
Agent, (ii) (A) options to purchase not in excess of 1,643,071 shares of
Company Common Stock granted under the Company's Restated and Amended 1991
Management Stock Incentive Plan, the Company's Restated and Amended 1992
Management Stock Incentive Plan, the Company's Restated and Amended 1992
Outside Directors Stock Option Plan, the Company's Restated and Amended 1993
Outside Directors Stock Option Plan, the Company's 1996 Stock Option Plan and
the American Recreation Company Holdings, Inc. Stock Option Plan
(collectively, the "Company Benefit Plan Stock Options"), (B) options to
purchase not in excess of 27,500 shares of Company Common Stock granted to
certain representatives of the Company (the "Company Representative Stock
Options"), (C) an option to purchase 600,000 shares of Company Common Stock
granted to Brunswick Corporation (the "Brunswick Stock Option") and (D)
options to purchase not in excess of 26,900 shares of Company Common Stock
granted in connection with certain acquisitions made by the Company or its
Subsidiaries (the "Company Acquisition Stock Options"), (iii) awards of shares
of restricted Company Common Stock covering not in excess of 24,787 shares of
Company Common Stock (the "Company Restricted Stock Awards"), (iv) awards of
phantom stock units covering not in excess of 112,060 units and awards of
phantom stock units that may be made in satisfaction of the obligations of the
Company pursuant to a certain employment agreement (the "Company Phantom Stock
Unit Awards") and (v) 1,595,450 shares of Company Common Stock that may become
deliverable upon conversion of the Company's 4 1/4% Convertible Subordinated
Debentures due 2000 (the "Debentures"), there are no options, warrants, calls,
rights or agreements to which the Company or any of its Subsidiaries is a
party or by which any of them is bound obligating the Company or any of its
Subsidiaries to issue or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or phantom stock units of the Company or
any Subsidiary or obligating the Company or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, right or agreement. Item
3.3 of the Company Letter lists the holders of Options outstanding at the
close of business on February 6, 1998, the number of shares of Company Common
Stock subject to each such Option, the first date such Option became or will
become exercisable and the exercise price applicable to such Option. All of
the shares of capital stock subject to issuance as aforesaid, upon issuance on
the terms and conditions specified in the instruments pursuant to which they
are issuable, shall be duly authorized, validly issued, fully paid and
nonassessable and are not subject to preemptive or other similar rights. There
are not as of the date hereof and there will not be at the Effective Time, any
stockholder agreements, voting trusts or other agreements or understandings to
which the Company or any of its Subsidiaries is a party or by which any of
them is bound relating to the voting of any shares of the capital stock of the
Company which will limit in any way the solicitation of proxies by or on
behalf of the Company from, or the casting of votes by the stockholders of the
Company with respect to the Merger and the transactions contemplated by this
Agreement.
Except as set forth in the Company SEC Documents or Item 3.3 of the Company
Letter, as of the date of this Agreement, there are no outstanding contractual
obligations of the Company or any of its Subsidiaries (i) to repurchase,
redeem or otherwise acquire any shares of capital stock of the Company or any
Subsidiary or (ii) to vote or to dispose of any shares of the capital stock of
any of the Company's Subsidiaries.
SECTION 3.4 Authority. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and, subject to approval by the Company's stockholders of the
Merger, to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions
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contemplated hereby have been duly authorized by all necessary corporate
action on the part of the Company, subject to approval by the Company's
stockholders of this Agreement and the Merger. The Special Committee, at a
meeting duly called and held, has by the unanimous vote of all of its members
approved this Agreement and determined that it is advisable and in the best
interests of the Company to enter into the Merger. The Board of Directors, at
a meeting duly called and held, pursuant to the recommendation of the Special
Committee, by the vote of all directors present and voting (i) approved this
Agreement and determined that it is advisable and in the best interests of the
Company to enter into the Merger and (ii) resolved to recommend that the
holders of shares of Company Common Stock approve and adopt this Agreement and
the transactions contemplated hereunder, including the Merger. The Board of
Directors of the Company, by a vote of at least two-thirds of the incumbent
directors, has approved the Merger for purposes of ARTICLE ELEVENTH of the
Company's Certificate of Incorporation. This Agreement has been duly executed
and delivered by the Company and (assuming the valid authorization, execution
and delivery of this Agreement by Newco) constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms, except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to the
enforcement of creditors' rights generally and (ii) is subject to general
principles of equity.
SECTION 3.5 Consent and Approvals; No Violations. Except as set forth in
Item 3.5 of the Company Letter, the execution and delivery by the Company of
this Agreement do not, and the consummation by the Company of the transactions
contemplated hereby and compliance by the Company with the provisions hereof
will not, result in any violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation, redemption or acceleration of any obligation or the loss of a
benefit under, or result in the creation of any Lien upon any of the
properties or assets of the Company or any of its Subsidiaries under, (i) any
provision of the Certificate of Incorporation, By-Laws or comparable
organization documents of the Company or any of the Subsidiaries of the
Company, (ii) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement (other than, with respect to termination, agreements
terminable at will or upon 90 days' or less notice by the terminating party),
instrument, permit, concession, franchise or license applicable to the Company
or any of its Subsidiaries or (iii) assuming all the consents, filings and
registrations referred to in the next sentence are made and obtained, any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or any of their
respective properties or assets, other than in the case of clause (ii) or
(iii), any such violations, defaults, rights, losses or liens, that,
individually or in the aggregate, are not material. No filing or registration
with, or authorization, consent or approval of, any domestic (federal and
state) or foreign court, commission, governmental body, regulatory agency,
authority or tribunal (a "Governmental Entity") is required by or with respect
to the Company or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by the Company or is necessary for the consummation
of the Merger and the other transactions contemplated by this Agreement,
except (i) in connection, or in compliance, with the provisions of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
and the Securities Exchange Act of 1934, as amended (together with the rules
and regulations promulgated thereunder, the "Exchange Act"), (ii) the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware and appropriate documents with the relevant authorities of other
states in which the Company or any of its Subsidiaries is qualified to do
business, (iii) such filings and consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger or the
other transactions contemplated by this Agreement, (iv) such filings,
authorizations, orders and approvals as may be required by state takeover laws
(the "State Takeover Approvals") or state securities or "blue sky" laws, (v)
such filings as may be required in connection with the taxes described in
Section 6.5, (vi) in connection, or in compliance, with the provisions of the
Competition Act (Canada) (the "Competition Act") and (vii) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under the laws of any foreign country in which the
Company or any of its Subsidiaries conducts any business or owns any property
or assets.
SECTION 3.6 SEC Documents and Other Reports. Except as set forth in Item 3.6
of the Company Letter, the Company has timely filed all required documents
with the Securities and Exchange Commission (the "SEC") since April 10, 1992
(the "Company SEC Documents"). As of their respective filing dates (or if
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amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing), and during any period of effectiveness, the Company
SEC Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (together with the rules and regulations
promulgated thereunder, the "Securities Act"), or the Exchange Act, as the
case may be, each as in effect on the date so filed, and at the time filed
with the SEC none of the Company SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the Company SEC Documents comply as of
their respective dates as to form in all material respects with the then
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of the unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent
basis during the periods involved (except as may be indicated therein or in
the notes thereto) and fairly present the consolidated financial position of
the Company and its consolidated Subsidiaries as at the dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments and to any other adjustments described
therein).
SECTION 3.7 Absence of Material Adverse Change. Except as disclosed in Items
3.7 or 3.12(b) of the Company Letter or in the Company SEC Documents, between
June 28, 1997 and the date hereof, the Company and its Subsidiaries have
conducted their respective businesses only in the ordinary course consistent
with past practice, and there has not been (i) any Material Adverse Change
with respect to the Company or any of its Subsidiaries, (ii) any declaration,
setting aside or payment of any dividend or other distribution with respect to
its capital stock or any redemption purchase or other acquisition of any of
its capital stock, (iii) any split, combination or reclassification of any of
its capital stock or any issuances or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of
its capital stock, (iv) (x) any granting by the Company or any of its
Subsidiaries to any officer of the Company or any of its Subsidiaries of any
increase in compensation, except in the ordinary course of business (including
in connection with promotions) consistent with past practice or as was
required under employment agreements in effect as of June 28, 1997, (y) any
change to the Company's or any of its Subsidiaries' severance or termination
plans, agreements or arrangements with any of their employees, except as part
of a standard employment package to any person promoted or hired (but not
including the five most senior officers), or as was required under employment,
severance or termination agreements in effect as of June 28, 1997, or (z) any
entry by the Company or any of its Subsidiaries into any employment,
consulting, severance, termination or indemnification agreement with any
employee or executive officer, except for agreements entered into in the
ordinary course of business, consistent with past practice, with employees who
are not executive officers of the Company, none of which agreements,
individually or in the aggregate, are or would be reasonably likely to be
material to the Company, (v) any material damage, destruction or loss, whether
or not covered by insurance, (vi) any revaluation by the Company of any of its
material assets, (vii) any material change in accounting methods, principles
or practices by the Company, or (viii) any amendments or changes in the
Certificate of Incorporation or By-Laws of the Company.
SECTION 3.8 Information Supplied in Proxy Statement. None of the information
supplied or to be supplied by the Company specifically for inclusion or
incorporation by reference in the proxy statement, or in any amendments or
supplements thereto (the "Proxy Statement"), to be sent to the stockholders of
the Company in connection with the meeting of stockholders of the Company to
consider the Merger (the "Stockholders Meeting"), or, if required under the
Exchange Act, in the Transaction Statement on Schedule 13E-3 (the "Schedule
13E-3") filed under the Exchange Act with the Proxy Statement, will at the
date the Proxy Statement is first mailed to the Company's stockholders or at
the time of the Stockholders Meeting, (i) be false or misleading with respect
to any material fact, in light of the circumstances under which made, or (ii)
contain any untrue statement of material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they
are made, not misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders
Meeting which has become false or misleading, except that no representation or
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warranty is made by the Company in connection with any of the foregoing with
respect to statements made or incorporated by reference therein based on
information supplied by Newco or any of its respective representatives
specifically for inclusion or incorporation by reference therein. The Proxy
Statement and, if required, the Schedule 13E-3, will comply as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations thereunder, except that no representation or warranty is made by
the Company in connection with any of the foregoing with respect to statements
made or incorporated by reference therein based on information supplied by
Newco or any of its respective representatives specifically for inclusion or
incorporation by reference therein.
SECTION 3.9 Compliance with Laws; Permits. The Company and its Subsidiaries
are not and the businesses of the Company and its Subsidiaries are not being
conducted in material violation of any law, ordinance or regulation, order,
judgment or decree of any Governmental Entity. The Company and its
Subsidiaries hold all material permits, licenses, variances, exemptions,
orders, franchises and approvals of all Government Entities necessary for the
lawful conduct of their respective businesses.
SECTION 3.10 Tax Matters. Except as set forth in Item 3.10 of the Company
Letter:
(a) All Tax Returns required to be filed by or with respect to the Company,
each of its Subsidiaries, and any affiliated, consolidated, combined, unitary
or similar group of which the Company or any of its Subsidiaries is or was a
member (together, the "Company, Subsidiaries and/or Groups"), for which there
could be material liabilities, interest or penalties, have been duly and
timely filed (taking into account all valid extensions of filing dates), and
all such Tax Returns are true, correct and complete in all material respects.
Each of the Company, Subsidiaries and/or Groups has duly and timely paid (or
there has been paid on its behalf) all material Taxes that are due. Except as
set forth in Item 3.10(a) of the Company Letter, none of the Company,
Subsidiaries and/or Groups currently is the beneficiary of any extensions of
time within which to file any Tax Return. With respect to any period for which
Taxes are not yet due with respect to the Company, Subsidiaries and/or Groups,
each of the Company, Subsidiaries and/or Groups has made due and sufficient
current accruals for such Taxes in accordance with GAAP in the most recent
financial statements contained in the Company SEC Documents. The Company and
each of its Subsidiaries have withheld and paid all Taxes required by all
applicable laws to be withheld or paid in connection with any amounts paid or
owing to any employee, creditor, independent contractor, stockholder or other
third party and such amounts have been reserved against and entered on the
books of the Company and its Subsidiaries.
(b) There are no outstanding agreements, waivers, or arrangements extending
the statutory period of limitation applicable to any claim for, or the period
for the collection or assessment of, Taxes due from or with respect to any of
the Company, Subsidiaries and/or Groups for any taxable period. No audit or
other proceeding by any court, governmental or regulatory authority, or
similar person is pending in writing with regard to any Taxes due from or with
respect to the Company or any of its Subsidiaries or any Tax Return filed by
or with respect to any of the Company, Subsidiaries and/or Groups. All
deficiencies of Taxes assessed by any applicable taxing authority have been
paid, fully settled or adequately provided for in the financial statements
contained in the Company SEC Documents. Neither the Company nor any Subsidiary
of the Company has received written notice that any assessment of Taxes is
proposed against any of the Company or any of its Subsidiaries or any of their
assets.
(c) No consent to the application of Section 341(f)(2) of the Code (or any
predecessor provision) has been made or filed by or with respect to the
Company or any of its Subsidiaries or any of their assets.
(d) None of the Company, Subsidiaries and/or Groups has executed or entered
into with the Internal Revenue Service ("IRS"), or any taxing authority, a
closing agreement pursuant to Section 7121 of the Code or any similar
provision of state, local, foreign or other income tax law, which will require
any increase in taxable income or alternative minimum taxable income, or any
reduction in tax credits for, the Company or any of its Subsidiaries for any
taxable period ending after the Closing Date.
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(e) There are no requests for rulings from any taxing authority for
information with respect to Taxes of the Company or any of its Subsidiaries
and, to the knowledge of the Company, no material reassessments (for property
or ad valorem Tax purposes) of any assets or any property owned or leased by
the Company or any of its Subsidiaries have been proposed in written form.
(f) None of the Company and its Subsidiaries has been a United States real
property holding corporation within the meaning of Code (S)897(c)(2) during
the applicable period specified in Code (S)897(c)(1)(A)(ii). Each of the
Company and its Subsidiaries has disclosed on its federal income Tax Returns
all positions taken therein that could give rise to a substantial
understatement of federal income Tax, within the meaning of Code (S)6662. None
of the Company, Subsidiaries and/or Groups (A) has been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which was the Company) or (B) has any liability for
the Taxes of any person (other than any of the Company, Subsidiaries and/or
Groups) under Reg. (S)1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise.
SECTION 3.11 Liabilities. Except (a) for liabilities incurred in the
ordinary course of business consistent with past practice, none of which
individually or in the aggregate would have a Material Adverse Effect on the
Company or any of its Subsidiaries, (b) for expenses incurred in connection
with this Agreement, (c) for liabilities set forth on the most recent balance
sheet (including any notes thereto) included in the Company's financial
statements included in the Company SEC Documents filed with the SEC since June
28, 1997, or (d) as set forth in Item 3.11 of the Company Letter, from June
28, 1997 until the date hereof, neither the Company nor any of its
Subsidiaries has incurred any liabilities of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise.
SECTION 3.12 Benefit Plans; Employees and Employment Practices. (a) Item
3.12(a) of the Company Letter contains a list of (i) each "employee pension
benefit plan" (as defined in Section 3(2) ERISA) maintained, sponsored or
contributed to by the Company or any of its U.S. or foreign Subsidiaries for
the benefit of current or former employees, officers or directors of the
Company and any such Subsidiaries and (ii) each "employee welfare pension
benefit plan" (as defined in Section 3(1) of ERISA) maintained, sponsored or
contributed to by the Company or any of its U.S. or foreign Subsidiaries for
the benefit of current or former employees, officers or directors of the
Company and any such Subsidiaries. The Company has made available to Newco
true, complete and correct copies of (i) each Benefit Plan together with all
amendments (or, in the case of any unwritten Benefit Plans, descriptions
thereof), (ii) the most recent annual report on Form 5500 (and related
schedules and financial statements or opinions required in connection
therewith) filed with the IRS with respect to each Benefit Plan (if any such
report was required), (iii) the most recent actuarial report with respect to
each Benefit Plan, as applicable, (iv) the most recent summary plan
description or other summary (and a summary of material modifications, if
applicable) for each Benefit Plan (if such summary is required or available),
(v) each trust agreement and group annuity contract relating to any Benefit
Plan, and (vi) copies of any notices, letters or other correspondence from the
IRS or the Department of Labor relating to a Benefit Plan.
(b) Except as disclosed in the Company SEC Documents or Item 3.12(b) of the
Company Letter, since the date of the most recent audited financial statements
included in the Company SEC Documents, there has not been any adoption or
amendment in any material respect (including any increase or improvements in
benefits or coverage), whether or not in writing, by the Company or any of its
Subsidiaries of any collective bargaining agreement or any Benefit Plan
providing benefits to any current or former employee, officer, director,
consultant or independent contractor of the Company or any of its
Subsidiaries. Except as disclosed in Item 3.12(b) of the Company Letter or in
the Company SEC Documents, there exist no employment, consulting, severance,
termination or indemnification agreements between the Company or any of its
Subsidiaries and any current or former employee, officer, director, consultant
or independent contractor of the Company or any of its Subsidiaries.
(c) Except as disclosed in Item 3.12(c) of the Company Letter, all Pension
Plans which are intended to be tax-qualified are so tax-qualified and have
received determination letters in respect of such Pension Plans from
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the Internal Revenue Service to the effect that such Pension Plans are
qualified and exempt from federal income taxes under Sections 401(a) and
501(a), respectively, of the Code and, to the knowledge of the Company, there
is no reason why any such Pension Plan is not currently so qualified.
(d) Except as disclosed in Item 3.12(d) of the Company Letter, each Benefit
Plan has been administered in all material respects in conformity with its
terms and the applicable requirements of ERISA and the Code and other
applicable laws and all contributions required to be made have been made in
accordance with the provisions of each such Benefit Plan and with ERISA, the
Code, applicable collective bargaining agreements and other applicable laws.
(e) None of the Company or any of its Subsidiaries, or any other person or
entity that, together with the Company, is treated as a single employer under
Section 414 of the Code or Section 4001 (b)(1) of ERISA (an "ERISA
Affiliate"), currently maintains or has, since becoming affiliated with the
Company, maintained any Pension Plan subject to Title IV or ERISA, including
any "multiemployer plan" (within the meaning of Section 3(37) or Section
4001(a)(3) of ERISA), or has incurred any liability under Title IV of ERISA or
to the Pension Benefit Guaranty Corporation (other than contributions and
premiums in the ordinary course) that has not been fully paid as of the date
hereof which would be reasonably expected to have a Material Adverse Effect on
the Company and, to the knowledge of the Company, no ERISA Affiliate has,
prior to becoming affiliated with the Company, maintained any such Pension
Plan or incurred any such liability. To the Company's knowledge, none of the
Company, any of its Subsidiaries, any officer of the Company or any of its
Subsidiaries or any of the Benefit Plans which are subject to ERISA, including
the Pension Plans, any trusts created thereunder or, to the knowledge of the
Company, any trustee or administrator thereof, has engaged in a "prohibited
transaction" (as such term is defined in Section 406 of ERISA or Section 4975
of the Code) or any breach of fiduciary responsibility that could reasonably
be expected to subject the Company, any of its Subsidiaries or any officer of
the Company or any of its Subsidiaries to any material tax on prohibited
transactions imposed by Section 4975 of the Code or to any material liability
under Section 502(i) or (1) of ERISA, where the liability that would be
reasonably expected to occur would have a Material Adverse Effect on the
Company. With respect to any multiemployer plan within the meaning of Section
3(37) or 4001(a)(3) of ERISA to which the Company has ever contributed or been
obligated to contribute or to which an ERISA Affiliate has, since becoming
affiliated with the Company, contributed or been obligated to contribute, no
event has occurred that could give rise to a liability on the part of the
Company or any Subsidiary under Part 1 of Subtitle E of Title IV of ERISA and,
to the Company's knowledge, with respect to any such plan to which an ERISA
Affiliate has, prior to becoming affiliated with the Company, contributed or
been obligated to contribute, no event has occurred that could give rise to
such a liability.
(f) There is no pending dispute, arbitration, claim, suit or grievance
involving a Benefit Plan (other than routine claims for benefits payable under
any such Benefit Plan), and to the knowledge of the Company, there is no basis
for any such claim, that would reasonably be expected to have a Material
Adverse Effect on the Company.
(g) Except as disclosed in Item 3.12(g) of the Company Letter, there are no
controversies, strikes, work stoppages or disputes pending between the Company
or any of its Subsidiaries and any current or former employees, and, to the
Company's knowledge, no organizational effort by any labor union or other
collective bargaining unit currently is under way with respect to any
employee, which would reasonably be expected to have a Material Adverse Effect
on the Company. A true, complete and correct copy of any applicable collective
bargaining agreement has been made available to Newco, and the Company and its
Subsidiaries are in compliance in all material respects with the terms
thereof.
(h) Except as disclosed in Item 3.12(h) of the Company Letter, and other
than as required under Section 601 et seq. of ERISA, no Benefit Plan that is a
welfare plan provides benefits or coverage following retirement or other
termination of employment. Nothing has occurred with respect to any Benefit
Plan described in Section 4980B of the Code that could subject the Company or
any Subsidiary to a material tax under Section 4980B of the Code. Neither the
Company nor its Subsidiaries maintains or contributes to a welfare
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benefit trust or fund that constitutes or is associated with a Benefit Plan
and that is intended to be exempt from federal income tax under Section
501(c)(9) of the Code.
(i) Except as disclosed in Item 3.12(i) of the Company Letter, no provision
of any Benefit Plan, other than any such plan that is a "multiemployer plan"
within the meaning of Section 4001(a)(3) of ERISA, would result in any
limitation on the ability of the Company, any Subsidiary or the Investors to
amend or terminate the plan.
SECTION 3.13 Litigation. Except as disclosed in Item 3.13 of the Company
Letter or in the Company SEC Documents, as of the date hereof there is no
suit, claim, action, proceeding or investigation pending or, to the knowledge
of the Company, threatened (i) against the Company or any of its Subsidiaries
or against any properties or rights of the Company and its Subsidiaries or
(ii) which would impair the ability of the Company to perform its obligations
under this Agreement or result in a third party delaying the consummation of
the Merger or which seeks to enjoin or obtain damages in respect of the
transactions contemplated by this Agreement. Except as disclosed in Item 3.13
of the Company Letter or in the Company SEC Documents, as of the date hereof
neither the Company nor any of its Subsidiaries is subject to any outstanding
judgment, order, writ, injunction or decree of any court or Governmental
Entity which would impair the ability of the Company to perform its
obligations under this Agreement or result in a third party delaying the
consummation of the Merger or which enjoins or imposes damages in respect of
the transactions contemplated by this Agreement.
SECTION 3.14 Environmental Matters. Except as set forth in Item 3.14 of the
Company Letter:
(a) The operations of the Company and its Subsidiaries have been and, as of
the Effective Time, will be, in compliance in all respects with all
Environmental Laws except for any such noncompliance which would not result in
a Material Adverse Effect on the Company;
(b) The Company and its Subsidiaries have obtained and will, as of the
Effective Time, maintain all permits required under applicable Environmental
Laws for the continued operations of their respective businesses, except such
permits the lack of which would not materially impair the ability of the
Company and its Subsidiaries to continue operations;
(c) The Company and its Subsidiaries are not subject to any outstanding
written orders from, or written agreements with, any Governmental Entity
respecting (A) violations or liability pursuant to Environmental Laws, (B)
Remedial Action or (C) any Release or threatened Release of a Hazardous
Material, except for any agreements which would not result in a Material
Adverse Effect;
(d) The Company and its Subsidiaries have not received any written
communication alleging, with respect to any such party, the violation of or
liability under any Environmental Law, which violation or liability is
outstanding, except for any such violation or liability which would not result
in a Material Adverse Effect on the Company;
(e) Neither the Company nor any of its Subsidiaries has any liability or
contingent liability in connection with the Release of any Hazardous Material
into the environment (whether on-site or off-site) which would result in the
Company and its Subsidiaries incurring Environmental Costs and Liabilities
that would result in a Material Adverse Effect;
(f) The Company or its Subsidiaries do not engage in the transportation,
treatment, storage or disposal of hazardous waste, as defined and regulated
under permit requirements set forth in 40 C.F.R. Parts 260-270 (in effect as
of the date of this Agreement) or any state equivalent;
(g) Except as would not have a Material Adverse Effect on the Company, there
is not now nor has there been in the past, on or in any property of the
Company or its Subsidiaries any of the following: (A) any underground storage
tanks or surface impoundments containing Hazardous Materials, (B) any
asbestos-containing materials, or (C) any polychlorinated biphenyls in
regulated quantities; and
(h) No judicial or administrative proceedings are pending and, to the
knowledge of the Company, no governmental investigations are pending and no
such proceedings or investigations are threatened against the
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Company or any of its Subsidiaries alleging the violation of or seeking to
impose liability pursuant to any Environmental Law or as the result of the
Release or alleged Release of a Hazardous Material.
SECTION 3.15 State Takeover Statutes; Charter Provisions; Rights
Agreement. The action of the Board of Directors of the Company in approving
the Merger, this Agreement and the transactions contemplated by this Agreement
is sufficient to render inapplicable to the Merger and this Agreement the
provisions of (i) Section 203 of the DGCL, (ii) Article ELEVENTH of the
Company's Certificate of Incorporation and (iii) Article 14 of the Indenture
dated as of November 15, 1993 between the Company and Harris Trust and Savings
Bank, Trustee (the "Indenture"), including without limitation the approval of,
election or appointment of representatives of Newco to the Board of Directors
of the Surviving Corporation. The Company has made available to Newco a
complete and correct copy of the Rights Agreement, including all current
amendments and exhibits thereto. The Board of Directors of the Company has
taken all action necessary to amend the Rights Agreement to provide that: (i)
a Distribution Date (as defined in the Rights Agreement) shall not occur, the
Rights shall not separate (to the extent the Rights Agreement otherwise
provides for such separation) or become exercisable and Newco shall not become
an Acquiring Person (as defined in the Rights Agreement) as a result of the
execution or delivery of this Agreement by the Company, the public
announcement of such execution and delivery or the performance or agreement by
the Company to effect the Merger in accordance with the terms of this
Agreement or perform any of its obligations under this Agreement and (ii) the
Rights shall cease to be exercisable at or after the Effective Time in
accordance with the terms thereof and the terms and conditions hereof. The
Company has provided Newco with a copy of such amendment to the Rights
Agreement executed by the Company and the Rights Agent.
SECTION 3.16 Brokers. No broker, investment banker, financial advisor or
other person, other than NationsBanc Montgomery Securities LLC ("NationsBanc
Montgomery"), the fees and expenses of which will be paid by the Company (and
are reflected in an agreement between NationsBanc Montgomery and the Company,
a complete copy of which has been furnished to Newco), is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
SECTION 3.17 Title to Assets. Except as set forth in Item 3.17 of the
Company Letter, the Company and each of its Subsidiaries have good and
defensible title to all of their properties and assets, free and clear of all
Liens, charges and encumbrances, except Liens for taxes not yet due and
payable and such Liens or other imperfections of title, if any, as do not
materially detract from the value of or interfere with the present use of the
property affected thereby or which would not have a Material Adverse Effect;
and, all leases pursuant to which the Company or any of its Subsidiaries lease
from others real or personal property are in good standing, valid and
effective in accordance with their respective terms, and there is not, under
any of such leases, any existing default or event of default (or event which
with notice or lapse of time, or both, would constitute a default), except
where the lack of such good standing, validity and effectiveness or the
existence of such default or event of default would not have a Material
Adverse Effect.
SECTION 3.18 Intellectual Property. The Company or its Subsidiaries own or
have the right to use pursuant to license, sublicense, agreement or permission
all Intellectual Property material to the operation of the businesses of the
Company and its Subsidiaries as currently conducted. To the Company's
knowledge, no third party has asserted any challenge to the validity of any of
the patents and trademark registrations included in the Intellectual Property
that are material to the operation of the businesses of the Company or the
Subsidiaries as currently conducted. Except as disclosed on Item 3.18 of the
Company Letter, to the Company's knowledge, the Company has received no
notice, threat or claim from any third party, nor to the Company's knowledge
has any suit been filed by any third party, asserting that the operation of
the businesses of the Company or its Subsidiaries as currently conducted
infringes the Intellectual Property rights of any third party, nor, to the
knowledge of the Company, does any basis exist for such a notice, threat,
claim or suit. Except as disclosed on Item 3.18 of the Company Letter, to the
Company's knowledge, no third party has infringed or is believed by the
Company to be currently infringing any material Intellectual Property rights
of the Company or its Subsidiaries. Except as disclosed on Item 3.18 of the
Company Letter, neither the Company nor its Subsidiaries has licensed any
material
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Intellectual Property of the Company or its Subsidiaries to any third party
and, to the knowledge of the Company, no third party has any right to use any
such Intellectual Property.
SECTION 3.19 Opinion of Financial Adviser. The Company has received the
opinion (the "Fairness Opinion") of NationsBanc Montgomery to the effect that,
as of the date thereof, the cash consideration to be received by the holders
of Company Common Stock and the Merger are fair from a financial point of view
to such holders. As of the date of this Agreement, the Company has been
authorized by NationsBanc Montgomery to include the Fairness Opinion in the
Proxy Statement. The Fairness Opinion has not been withdrawn or modified (it
being understood that the Company shall be under no obligation to furnish an
update of the Fairness Opinion dated as of the Effective Time). True and
complete copies of all agreements between the Company or any of its affiliates
and NationsBanc Montgomery relating to the transactions contemplated by this
Agreement have previously been provided to the Investors.
SECTION 3.20 Insurance. Except as set forth in Section 3.20 of the Company
Letter, all material fire and casualty, general liability, business
interruption, product liability, professional liability, director and officer
liability and sprinkler and water damage insurance policies (the "Policies")
maintained by the Company or any of its Subsidiaries are with reputable
insurance carriers, provide full and adequate coverage for all normal risks
incident to the business of the Company and its Subsidiaries and their
respective properties and assets and are in character and amount at least
equivalent to that carried by entities engaged in similar businesses and
subject to the same or similar perils or hazards. Except as set forth in the
Company SEC Documents or in Item 3.20 of the Company Letter, the Company and
its Subsidiaries have continuously maintained Policies with reputable
insurance carriers which have provided full and adequate coverage for all
normal risks incident to the business of the Company and its Subsidiaries and
their respective property and assets.
SECTION 3.21 Interested Party Transactions. Except as set forth in Item 3.21
of the Company Letter or in the Company SEC Documents or as expressly
contemplated by this Agreement, since the date of the Company's proxy
statement dated October 17, 1997, no event has occurred that would be required
to be reported by the Company as a Certain Relationship or Related
Transaction, pursuant to Item 404 of Regulation S-K promulgated by the SEC.
SECTION 3.22 Restrictions on Business Activities. Except for this Agreement
or as set forth in Item 3.22 of the Company Letter or in the Company SEC
Documents, there is no material agreement, judgment, injunction, order or
decree binding upon the Company or any of its Subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or impairing any
material business practice of the Company or any of its Subsidiaries, any
acquisition of property by the Company or any of its Subsidiaries or the
conduct of business by the Company or any of its Subsidiaries as currently
conducted or as proposed to be conducted by the Company, except for any
prohibition or impairment as would not have a Material Adverse Effect.
SECTION 3.23 Labor Matters. Except to the extent as set forth in Item 3.23
of the Company Letter or in the Company SEC Documents:
(a) Neither the Company nor any of its Subsidiaries is a party to any labor
or collective bargaining agreement, and no employees of the Company or any of
its Subsidiaries are represented by any labor organization. Within the
preceding three years, there have been no representation or certification
proceedings, or petitions seeking a representation proceeding, pending or, to
the knowledge of the Company, threatened to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal or
authority. Within the preceding three years, to the knowledge of the Company,
there have been no organizing activities involving the Company or any of its
Subsidiaries with respect to any group of employees of the Company or any of
its Subsidiaries.
(b) As of the date hereof, there are no strikes, work stoppages, slowdowns,
lockouts, material arbitrations or material grievances or other material labor
disputes pending or, to the knowledge of the Company, threatened against or
involving the Company or any of its Subsidiaries. There are no unfair labor
practice charges or
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complaints pending or, to the knowledge of the Company, threatened by or on
behalf of any employee or group of employees of the Company or any of its
Subsidiaries.
(c) As of the date hereof, there are no complaints, charges or claims
against the Company or any of its Subsidiaries pending or, to the knowledge of
the Company, threatened to be brought or filed, with any Governmental Entity
or arbitrator(s) based on, arising out of, in connection with, or otherwise
relating to the employment or termination of employment of any individual by
the Company or any of its Subsidiaries.
SECTION 3.24 Customers. Except as set forth in Item 3.24 of the Company
Letter, as of the date hereof, none of the top 5 customers (by annual dollar
volume in fiscal 1997) of the Company or any of its Subsidiaries has
terminated or significantly reduced, or notified the Company or any of its
Subsidiaries of its intention to or, to the knowledge of the Company, intends
to terminate or significantly reduce its relationship with the Company or any
of its Subsidiaries.
SECTION 3.25 Consents. Item 3.25 of the Company Letter sets forth a true,
correct and complete list of any person whose consent or approval is required,
or to whom notice is required to be sent, and the matter, agreement or
contract to which such consent, approval or notice relates, in connection with
the Merger and the transactions contemplated by this Agreement, except for any
consents or notices which do not relate to any material contract, agreement or
instrument to which the Company or any of its Subsidiaries is bound.
SECTION 3.26 Change in Control Payments. Except as contemplated by this
Agreement or as disclosed in Item 3.12(b) or Item 3.26 of the Company Letter
or in the Company SEC Documents, neither the Company nor any of its
Subsidiaries have any plans, programs or agreements to which they are parties,
or to which they are subject, pursuant to which payments (or acceleration of
benefits) may be required upon, or may become payable directly or indirectly
as a result of, a change of control of the Company or any of its Subsidiaries.
SECTION 3.27 Contractual Obligations. Except as disclosed in the Company SEC
Documents, neither the Company nor any of its Subsidiaries is a party to any
contract, agreement, deed, mortgage, lease, license, indenture, commitment,
undertaking, arrangement or understanding, written or oral, or other document
or instrument, including without limitation, any document or instrument
evidencing or otherwise relating to any indebtedness, stock redemption or
purchase agreements, financing agreements, distribution agreements or royalty
agreements, in each case, which is required to be filed as an exhibit to the
Company's SEC Documents which has not been so filed.
SECTION 3.28 Disclosure. The representations and warranties contained in
this Article III (including the Company Letter and any other schedules and
exhibits required to be delivered pursuant to this Agreement) do not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements and information contained in this
Article III not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco represents and warrants to the Company as follows:
SECTION 4.1 Organization. Newco is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now being conducted. Newco is not in violation of any
provision of its Certificate of Incorporation.
SECTION 4.2 Authority. Newco has all requisite corporate power and authority
to execute and deliver this Agreement and to perform its obligations hereunder
and consummate the transactions contemplated hereby.
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The execution, delivery and performance of this Agreement by Newco and the
consummation by Newco of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Newco. This
Agreement has been duly executed and delivered by Newco and (assuming the
valid authorization, execution and delivery of this Agreement by the Company)
constitutes the valid and binding obligation of Newco enforceable against it
in accordance with its terms, except that such enforceability (i) may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
or relating to the enforcement of creditors' rights generally and (ii) is
subject to general principles of equity.
SECTION 4.3 Consents and Approvals; No Violations. The execution and
delivery by Newco of this Agreement does not, and the consummation by Newco of
the transactions contemplated hereby and compliance by Newco with the
provisions hereof will not, result in any violation of, or default (with or
without notice or lapse or time, or both) under, or give rise to a right of
termination, cancellation, redemption or acceleration of any obligation or the
loss of a benefit under, or result in the creation of any Lien upon any of the
properties or assets of Newco under, (i) any provision of the Certificate of
Incorporation, By-Laws or comparable organization documents of Newco, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement (other than, with respect to termination, agreements terminable at
will or upon 90 days' or less notice by the terminating party), instrument,
permit, concession, franchise or license applicable to Newco or (iii) assuming
all the consents, filing and registrations referred to in the next sentence
are made and obtained, any judgment, order, decree, stature, law, ordinance,
rule or regulation applicable to Newco or any of its respective properties or
assets, other than, in the case of clause (ii) or (iii), any such violations,
defaults, rights, losses or Liens, that, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on Newco or
prevent or result in a third party materially delaying the consummation of the
Merger. No filing or registration with, or authorization, consent or approval
of, any Governmental Entity is required by or with respect to Newco in
connection with the execution and delivery of this Agreement by Newco or is
necessary for the consummation of the Merger and the other transactions
contemplated by this Agreement, except (i) in connection, or in compliance,
with the provisions of the HSR Act and the Exchange Act, (ii) the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
and appropriate documents with the relevant authorities of other states in
which Newco is qualified to do business, (iii) such filings and consents as
may be required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval triggered by
the Merger or the other transactions contemplated by this Agreement, (iv) such
filing, authorizations, orders and approvals as may be required to obtain the
State Takeover Approvals or state securities or "blue sky" laws, (v) such
filings as may be required in connection with the taxes described in Section
6.5, (vi) in connection, or in compliance, with the provisions of the
Competition Act and (vii) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under the laws of any foreign country in which it conducts any business or
owns any property.
SECTION 4.4 Information Supplied in Proxy Statement. None of the information
supplied or to be supplied by Newco specifically for inclusion or
incorporation by reference in the Proxy Statement or, if required, the
Schedule 13E-3, will, at the time the Proxy Statement is first mailed to the
Company's stockholders or at the time of the Stockholders Meeting, (i) be
false or misleading with respect to any material fact, in light of the
circumstances which made, or (ii) contain any untrue statement of material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they are made, not misleading or necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Stockholders Meeting which has become false or
misleading, except that no representation or warranty is made by Newco in
connection with any of the foregoing with respect to statements made or
incorporated by reference therein based on information supplied by the Company
or any of its representatives specifically for inclusion or incorporation by
reference therein. The Proxy Statement and, if required, the Schedule 13E-3,
will comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by Newco in connection with any of the
foregoing with respect to statements made or incorporated by reference therein
based on information supplied by the Company or any of its representatives
specifically for inclusion or incorporation by reference therein.
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SECTION 4.5 Interim Operations of Newco. Newco was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as
contemplated hereby.
SECTION 4.6 Brokers. No third party broker, investment banker, financial
advisor or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Newco.
SECTION 4.7 Financing. Newco has financing commitments described in the
commitment letter from Societe Generale Investment Banking dated February 12,
1998 (the "Commitment Letter") to provide funds in an amount adequate to pay
the Merger Consideration. Assuming that the financing contemplated by the
Commitment Letter is consummated in accordance with the terms thereof, the
funds to be borrowed and/or provided thereunder, together with Newco's
available cash, will provide sufficient funds to pay the Merger Consideration.
As of the date of this Agreement, Newco is not aware of any facts or
circumstances that create a reasonable basis for Newco to believe that Newco
will not be able to obtain financing in accordance with the terms of the
Commitment Letter.
SECTION 4.8 Disclosure. The representations and warranties contained in this
Article IV do not contain any untrue statement of a material fact or omit to
state any material fact in order to make the statements and information
contained in this Article IV not misleading.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.1 Conduct of Business by the Company Pending the Merger. During
the period from the date of this Agreement until the Effective Time the
Company shall, and shall cause each of its Subsidiaries to, in all material
respects, except as contemplated by this Agreement, carry on its business in
the ordinary course as currently conducted and, to the extent consistent
therewith, use reasonable efforts to preserve intact its current business
organizations, keep available the services of its current officers and key
employees and preserve its present relationships with customers, suppliers and
others having significant business dealings with it. Without limiting the
generality of the foregoing, and except as otherwise expressly contemplated by
this Agreement or Item 5.1 of the Company Letter, during such period, the
Company shall not, and shall not permit any of its Subsidiaries to, without
the prior written consent of Newco (which consent shall not be unreasonably
withheld or delayed):
(a) (x) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its capital
stock, or otherwise make any payments to its stockholders in their capacity as
such (other than the payment by a Subsidiary of a dividend or distribution to
the Company or another wholly-owned Subsidiary), (y) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
its capital stock or (z) purchase, redeem or otherwise acquire any shares of
its capital stock or those of any Subsidiary or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities;
(b) except as set forth in Item 3.12(b) of the Company Letter and except as
required under existing employee benefit plans, agreements, policies, awards
or arrangements in effect on the date of this Agreement (including, without
limitation, the Options) or upon conversion of Debentures, issue, deliver,
sell, pledge, dispose of or accelerate vesting, exercise or conversion of or
otherwise encumber any shares of its capital stock, any other voting
securities or equity equivalent or any securities convertible into, or any
rights, warrants or options to acquire any such shares, voting securities,
equity equivalent or convertible securities (other than pursuant to the Rights
Agreement and other than issuances by a wholly-owned Subsidiary of the Company
of its capital stock to the Company);
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(c) amend its Certificate of Incorporation or By-Laws or other similar
organizational documents, other than as contemplated by Section 6.9;
(d) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership, limited liability
company, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets, other than acquisitions or
purchases of assets to the extent permitted by Section 5.1(m) or the purchase
of supplies, raw materials or inventory of finished goods in the ordinary
course of business;
(e) sell, lease, license, encumber or otherwise dispose of, or agree to
sell, lease, license, encumber or otherwise dispose of, any of its tangible or
intangible assets, other than sales of inventory in the ordinary course of
business or which involve assets which in the aggregate are not in excess of
$1,000,000;
(f) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or any of its Subsidiaries,
guarantee any debt securities of others, enter into any "keep-well" or other
agreement to maintain any financial statement condition of another person or
enter into any arrangement having the economic effect of any of the foregoing,
except for borrowings incurred in the ordinary course of business consistent
with past practice, or make any loans, advances or capital contributions to,
or other investments in, any other person, other than to or in the Company or
any Subsidiary of the Company;
(g) except as set forth in Item 3.2 of the Company Letter, alter (through
merger, liquidation, reorganization, restructuring or in any other fashion)
the corporate structure or ownership of the Company or any Subsidiary;
(h) except as disclosed in Item 3.12(b) of the Company Letter, increase the
compensation payable or to become payable to its directors, officers,
employees, consultants or independent contractors, except for increases
required under agreements existing on the date hereof, and increases for
officers and employees in the ordinary course of business consistent with past
practice; or grant any severance or termination pay to, or enter into any
employment or severance or consulting agreement with, or establish, adopt,
enter into, or amend or take action to enhance or accelerate any rights or
benefits under any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer,
consultant or independent contractor or employee, except, in each case, as may
be required by the terms of any such plan, agreement, trust, fund, policy or
arrangement or to comply with applicable law or regulation;
(i) knowingly violate or fail to perform any material obligation or duty
imposed upon it by any applicable material federal, state or local law, rule,
regulation, guideline or ordinance;
(j) settle or compromise any suit, proceeding or claim or threatened suit,
proceeding or claim for an amount that is more than $250,000 in the case of
any individual suit, proceeding or claim or $1,000,000 for all suits,
proceedings or claims;
(k) redeem the Rights or, other than as contemplated by Section 3.15 or
Section 5.2, amend the Rights Agreement or take action to declare Newco to be
an Adverse Person (as defined in the Rights Agreement);
(l) except as may be required as a result of a change in law or in generally
accepted accounting principles, make any material change in its method of
accounting;
(m) make or agree to make any new capital expenditure not expressly
contemplated by the current management plan (a copy of which has been
furnished to Newco) that exceeds $100,000;
(n) except to the extent permitted by Section 5.1(j), pay, discharge, settle
or satisfy any claims, liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the payment, discharge,
settlement or satisfaction, (1) in the ordinary course of business consistent
with past practice or in
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accordance with their terms, of liabilities recognized or disclosed in the
most recent consolidated financial statements (or the notes thereto) of the
Company included in the Company SEC Documents or incurred since the date of
such financial statements in the ordinary course of business consistent with
past practice or (2) of liabilities required to be paid, discharged or
satisfied pursuant to the terms of any contract in existence on the date
hereof;
(o) enter into, modify or amend in any respect, other than immaterial
modifications or amendments of which the Company shall give Newco prior
written notice, or terminate any material contract or agreement to which the
Company or any of its Subsidiaries is a party, or waive, release or assign any
material rights or claims, in each case, in any manner adverse to the Company
or any of its Subsidiaries; or
(p) authorize, recommend, propose or announce an intention to do any of the
foregoing, or enter into any contract, agreement, commitment or arrangement to
do any of the foregoing.
SECTION 5.2 No Solicitation. (a) The Company shall, and shall direct its
affiliates, officers, directors, employees, representatives and agents to
immediately cease any discussions or negotiations with any parties that may be
ongoing with respect to a Takeover Proposal. The Company shall not, nor shall
it permit any of its Subsidiaries to, nor shall it authorize any of its
affiliates, officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative retained by it
or any of its Subsidiaries, or permit any of the foregoing, other than
affiliates who are not controlled by the Company to, directly or indirectly,
(i) solicit or initiate any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Takeover Proposal
or (ii) participate in or enter into any discussions or negotiations regarding
any Takeover Proposal; provided, however, that if, at any time prior to
adoption of this Agreement by the Company's stockholders at the Stockholders
Meeting, the Board of Directors of the Company receives a Takeover Proposal
and determines in good faith, after consultation with outside counsel, that it
would be required in order to fulfill its fiduciary responsibilities to the
Company's stockholders under applicable law, the Company may, in response to a
Takeover Proposal, and subject to providing prior notice to Newco as
contemplated below, (x) furnish information with respect to the Company to any
person pursuant to a confidentiality agreement in substantially the same form
as the confidentiality agreement entered into between the Company and Newco
and (y) participate in or enter into discussions, investigations and/or
negotiations regarding such Takeover Proposal.
From and after the date hereof, the Company shall promptly notify Newco
after receipt of any Takeover Proposal, or any modification of or amendment to
any Takeover Proposal, or any request for any nonpublic information relating
to the Company or any of its Subsidiaries in connection with a Takeover
Proposal or for access to the properties, books or records of the Company or
any Subsidiary by any person or entity that informs the Board of Directors of
the Company or such Subsidiary that it is considering making, or has made, a
Takeover Proposal. Such notice to Newco shall be made in writing, and shall
indicate whether the Company is providing or intends to provide the person
making the Takeover Proposal with access to information concerning the Company
as provided in the preceding sentence; such notice shall also (to the extent
required in order to fulfill the fiduciary duties of the Board of Directors to
stockholders under applicable law) include the identity of the person or
entity engaging in such discussions or negotiations, requesting such
information or making such Takeover Proposal, and the material terms and
conditions of any Takeover Proposal. The Company shall keep Newco reasonably
and timely informed as to all of the relevant details relating to, and all
material aspects of any such discussions or negotiations.
(b) Except as set forth in this Section 5.2, neither the Board of Directors
of the Company nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to Newco, the
approval or recommendation by such Board of Directors or such committee of the
Merger or this Agreement; (ii) approve or recommend, or propose publicly to
approve or recommend, any Takeover Proposal; or (iii) cause the Company to
enter into any letter of intent, agreement in principle, acquisition agreement
or other similar agreement related to any Takeover Proposal. Notwithstanding
the foregoing, in the event that prior to the adoption of this Agreement by
the Company's stockholders at the Stockholders Meeting, the Board of Directors
of the Company or such committee determines in good faith, after consultation
with outside counsel, that it would
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be required in order to fulfill its fiduciary responsibilities to the
Company's stockholders under applicable law, the Board of Directors of the
Company or such committee may (subject to this and the following sentences)
withdraw or modify its approval or recommendation of the Merger and this
Agreement, approve or recommend a Superior Proposal or terminate this
Agreement, but in each case, only at a time that is after the second business
day following Newco's receipt of written notice advising Newco that the Board
of Directors of the Company or such committee has received a Takeover Proposal
that may constitute a Superior Proposal, specifying the material terms and
conditions of such Superior Proposal and identifying the person making such
Superior Proposal.
(c) Nothing contained in this Section 5.2 shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule 14e-
2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's stockholders if, in the good faith judgment of the Board of
Directors of the Company, after consultation with outside counsel, such
disclosure is required in order to fulfill its fiduciary duties to the
Company's stockholders under applicable law or is otherwise required under
applicable law.
SECTION 5.3 Disclosure to Newco; Delivery of Certain Filings. The Company
shall promptly advise Newco orally and in writing if there occurs, to the
knowledge of the Company, any change or event which results in the executive
officers of the Company having a good faith belief that such change or event
has resulted in or will result in a Material Adverse Effect on the Company.
The Company shall provide to Newco, and Newco shall provide to the Company,
copies of all filings made by the Company or Newco, as the case may be, with
any Governmental Entity in connection with this Agreement and the transactions
contemplated hereby.
SECTION 5.4 Employee Benefit Plans. Prior to the Effective Time, the Company
and/or any of its Subsidiaries, as necessary, shall amend the Retirement Plan,
and any other Benefit Plan providing for a right to receive Company Common
Stock, to provide that no participant in such plan will have a right to
receive Company Common Stock on or after the Effective Time.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Stockholder Approval; Preparation of Proxy Statement.
(a) As soon as practicable following the date of this Agreement, the Company
shall prepare and file the Proxy Statement and, if required under the Exchange
Act, the Schedule 13E-3 with the SEC and shall use its reasonable best efforts
to have the Proxy Statement and, if required under the Exchange Act, the
Schedule 13E-3, cleared by the SEC as promptly as reasonably practicable.
Newco and its counsel shall be given reasonable opportunity to review and
comment upon the Proxy Statement prior to the Company's filing the Proxy
Statement, or any amendment thereto, with the SEC. Newco and the Company shall
promptly furnish to each other all information, and take such other actions,
as may reasonably be requested in connection with any action by any of them in
connection with the provisions of this Section 6.1.
(b) Prior to the date of approval of the Merger Agreement by the Company's
stockholders, each of Newco and the Company shall correct promptly any
information provided by it to be used specifically in the Proxy Statement and,
if required under the Exchange Act, the Schedule 13E-3, that shall have become
false or misleading in any material respect, and, the Company shall take all
steps reasonably necessary to file with the SEC and have cleared by the SEC
any amendment or supplement to the Proxy Statement and, if required under the
Exchange Act, the Schedule 13E-3, as so corrected to be disseminated to the
stockholders of Company to the extent required by applicable law. Without
limiting the generality of the foregoing, the Company shall notify Newco
promptly of the receipt of the comments of the SEC and of any request by the
SEC for amendments or supplements to the Proxy Statement or the Schedule 13E-
3, or for additional information, and shall supply Newco with copies of all
written correspondence and details of all oral correspondence between the
Company or
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its representatives, on the one hand, and the SEC or members of its staff, on
the other hand, with respect to the Proxy Statement or the Schedule 13E-3.
Whenever any event occurs which is required to be described in an amendment or
a supplement to the Proxy Statement or the Schedule 13E-3, the Company shall,
upon learning of such event, promptly notify Newco and the Company and Newco
shall cooperate to promptly prepare, file and clear with the SEC and mail to
the stockholders of Company such amendment or supplement; provided, however,
that, prior to such mailing, (i) the Company and Newco shall consult with each
other with respect to such amendment or supplement, (ii) the Company and Newco
shall afford each other reasonable opportunity to comment thereon and (iii)
each such amendment or supplement shall be reasonably satisfactory to the
Company and Newco.
(c) The Company shall call and, subject to the fiduciary responsibilities
required of the Board of Directors of the Company, hold the Stockholders
Meeting and provide the Proxy Statement to its stockholders in connection
therewith as promptly as reasonably practicable and in accordance with
applicable laws for the purpose of voting upon the approval of the Merger and
the adoption of this Agreement. The Company shall, subject to its right to
withdraw or modify its approval or recommendation of the Merger and this
Agreement, to approve or recommend a Superior Proposal or to terminate this
Agreement, in each case as set forth in Section 5.2(b), (i) recommend approval
of the transactions contemplated by this Agreement by the stockholders of the
Company and include in the Proxy Statement such recommendation and (ii) use
all reasonable efforts to solicit from stockholders of the Company proxies in
favor of adoption of this Agreement and approval of the transactions
contemplated hereby and shall take all other action necessary or advisable to
secure the vote or consent of stockholders to obtain such approvals.
SECTION 6.2 Access to Information. The Company shall, and shall cause each
of its Subsidiaries to, upon reasonable notice, afford to Newco and to the
officers, employees, accountants, counsel, actuaries, financial advisors and
other representatives of Newco reasonable access to, and permit them to make
such inspections as they may reasonably require of, during normal business
hours during the period from the date of this Agreement through the Effective
Time, all their respective properties, books, contracts, commitments,
documents and records and, during such period, the Company shall, and shall
cause each of its Subsidiaries to, furnish promptly to Newco (i) a copy of
each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of federal or state securities
laws and (ii) all other information concerning its business, properties and
personnel as Newco may reasonably request; provided that the Company shall not
be required to furnish to Newco any information which is subject to an
attorney-client privilege or which constitutes attorney work product. All
information obtained by or on behalf of Newco pursuant to this Section 6.2
shall be kept confidential in accordance with the Confidentiality Agreement
dated October 8, 1997 between Coral Reef Capital L.L.C. and the Company.
SECTION 6.3 Fees and Expenses.
(a) Except as provided below in this Section 6.3, all fees and expenses
incurred in connection with the Merger, this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such fees or
expenses, whether or not the Merger is consummated.
(b) The Company shall pay, or cause to be paid, in same day funds to Newco
(x) $500,000 for reimbursement of Newco's expenses (the "Expense
Reimbursement") and (y) $2,500,000 (the "Termination Fee") under the
circumstances and at the times set forth as follows:
(i) if the Company terminates this Agreement under Section 8.1(b)(i), the
Company shall pay Newco the Expense Reimbursement within three business
days of such termination;
(ii) if the Company terminates this Agreement under Section 8.1(c)(ii) or
Newco terminates this Agreement under Section 8.1(f)(ii) or Section
8.1(f)(iii), the Company shall pay Newco the Expense Reimbursement and the
Termination Fee within three business days of such termination; and
(iii) if the Company terminates this Agreement under Section 8.1(c)(i) or
Newco terminates this Agreement under Section 8.1(e) or Section 8.1(f)(i),
the Company shall pay Newco the Expense Reimbursement within three business
days of such termination; provided, however, that if between
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the date hereof and such termination date a Takeover Proposal shall have
been made (other than a proposal made by Newco or the Investors) and if,
concurrently with such termination or within twelve months thereafter, the
Company enters into a merger agreement, acquisition agreement or similar
agreement (including, without limitation, a letter of intent) with respect
to a Takeover Proposal, or a Takeover Proposal is consummated, the Company
shall pay Newco the Termination Fee upon the earlier of the execution of
such agreement or upon consummation of such Takeover Proposal.
(c) Any amounts due and payable under this Section 6.3 that are not paid
when due shall bear interest at the prime rate as announced from time to time
by BankBoston, N.A. plus 1% from the date due through the date of final
payment of such amounts.
(d) Notwithstanding anything contained in this Agreement to the contrary,
the sole and exclusive remedy for any and all liabilities, demands, claims,
actions, judgments or causes of action (either at law or in equity),
assessments, losses, fines, penalties, costs, damages and expenses
(collectively, "Claims"), sustained or incurred by Newco or the Investors
resulting from this Agreement or the transactions contemplated hereby shall be
limited to an aggregate amount of $3,000,000 (which amount shall include any
required payments of the Termination Fee and Expense Reimbursement).
Notwithstanding anything contained in this Agreement to the contrary, the
Company's sole and exclusive remedy for any and all Claims resulting from this
Agreement or the transactions contemplated hereby shall be against Newco and,
provided that the Stock Subscription Agreements dated of even date herewith
between Newco and each of the Investors shall remain in full force and effect,
in no event shall the Company seek any relief or pursue any Claim against the
directors, officers, shareholders or partners of either Newco or the
Investors. Nothing contained in this Section 6.3(d) shall be construed to
limit any obligation of Newco or the Surviving Corporation hereunder in the
event the Merger is consummated.
SECTION 6.4 Public Announcement. Newco and the Company will consult with
each other before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable law, fiduciary
duties or by obligations pursuant to any listing agreement with any national
securities exchange.
SECTION 6.5 Real Estate Transfer Tax. Newco and the Company agree that the
Surviving Corporation (without any liability to any of the Company's
stockholders) will pay any state or local tax which is attributable to the
transfer of the beneficial ownership of the Company's or its Subsidiaries'
real property, if any (collectively, the "Transfer Taxes"), and any penalties
or interest with respect to the Transfer Taxes, payable in connection with the
consummation of the Merger. The portion of the consideration allocable to the
real property of the Company and its Subsidiaries shall be determined by the
Surviving Corporation in its sole discretion. To the extent permitted by law,
the Company's stockholders shall be deemed to have agreed to be bound by the
allocation established pursuant to this Section 6.5 in the preparation of any
return with respect to the Transfer Taxes.
SECTION 6.6 State Takeover Laws. If any "fair price" or "control share
acquisition" statute or other similar statute or regulation shall become
applicable to the transactions contemplated hereby, Newco and the Company and
their respective Boards of Directors shall use reasonable efforts to grant
such approvals and take such actions as are necessary so that the transactions
contemplated hereby may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to minimize the effects of any such
statute or regulation on the transactions contemplated hereby.
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SECTION 6.7 Indemnification; Directors and Officers Insurance.
(a) All rights to indemnification or exculpation, existing in favor of a
director, officer, employee or agent (an "Indemnified Person") of the Company
or any of its Subsidiaries (including, without limitation, rights relating to
advancement of expenses and indemnification rights to which such persons are
entitled because they are serving as a director, officer, agent or employee of
another entity at the request of the Company or any of its Subsidiaries), as
provided in the Certificate of Incorporation of the Company, the By-Laws of
the Company or any indemnification agreement, in each case, as in effect on
the date of this Agreement, and relating to actions or events through the
Effective Time, shall survive the Merger and shall continue in full force and
effect, without any amendment thereto; provided, however, that the Surviving
Corporation shall not be required to indemnify any Indemnified Person in
connection with any proceeding (or portion thereof) to the extent involving
any claim initiated by such Indemnified Person unless the initiation of such
proceeding (or portion thereof) was authorized by the Board of Directors of
the Company or unless such proceeding is brought by an Indemnified Person to
enforce rights under this Section 6.7; provided further that any determination
required to be made with respect to an Indemnified Person's conduct complies
with the standards set forth under the DGCL, the Certificate of Incorporation
of the Company, the By-Laws of the Company or any such agreement, as the case
may be, shall be made by independent legal counsel selected by the Company and
reasonably acceptable to the Indemnified Person; and provided further that
nothing in this Section 6.7 shall impair any rights of any Indemnified Person.
Without limiting the generality of the preceding sentence, in the event that
any Indemnified Person becomes involved in any actual or threatened action,
suit, claim, proceeding or investigation after the Effective Time, Newco
shall, or shall cause the Surviving Corporation to, periodically advance to
such Indemnified Person its legal and other expenses (including the cost of
any investigation and preparation incurred in connection therewith), subject
to the providing by such Indemnified Person of an undertaking to reimburse all
amounts so advanced in the event of a non-appealable determination of a court
of competent jurisdiction that such Indemnified Person is not entitled
thereto.
(b) Prior to the Effective Time, the Company shall have the right to obtain
and pay for in full a "tail" coverage directors' and officers' liability
insurance policy ("D&O Insurance") covering a period of not less than six
years after the Effective Time and providing coverage in amounts and on terms
consistent with the Company's existing D&O Insurance. In the event the Company
is unable to obtain such insurance, Newco shall cause the Surviving
Corporation to maintain the Company's D&O Insurance for a period of not less
than six years after the Effective Time; provided, that the Surviving
Corporation may substitute therefor policies of substantially similar coverage
and amounts containing terms no less advantageous to such former directors or
officers; provided further that if the existing D&O Insurance expires or is
canceled during such period, Newco or the Surviving Corporation shall use
their best efforts to obtain substantially similar D&O Insurance; and provided
further that the Company shall not, without Newco's consent, expend an amount
in excess of 250% of the last annual premium paid prior to the date hereof to
procure the above described "tail" coverage and neither Newco nor the
Surviving Corporation shall be required to expend, in order to maintain or
procure an annual D&O Insurance policy, in lieu of a tail policy, an amount in
excess of 200% of the last annual premium paid prior to the date hereof. The
last annual premium paid by the Company was $123,100.
(c) The provisions of this Section 6.7 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Person, his or her heirs and
his or her personal representatives.
SECTION 6.8 Notification of Certain Matters. Newco shall give prompt notice
to the Company, and the Company shall give prompt notice to Newco, of: (i) the
occurrence, or non-occurrence, in each case, to the knowledge of the Company
or Newco, as the case may be, of any event the occurrence, or non-occurrence,
of which results in the executive officers of the Company or Newco, as the
case may be, having a good faith belief that such change or event would be
reasonably likely to cause (x) any representation or warranty of such entity
contained in this Agreement that is not qualified as to materiality to be
untrue or inaccurate in any material respect, (y) any representation or
warranty of such entity contained in this Agreement that is qualified as to
materiality to be untrue or inaccurate in any respect, or (z) any covenant,
condition or agreement of such entity contained in this Agreement not to be
complied with or satisfied in all material respects; and (ii) the executive
officers of the Company or Newco, as the case may be, believing in good faith
that the Company or Newco, as
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the case may be, has, to the knowledge of the Company or Newco, as the case
may be, failed to comply with in all material respects or satisfy in all
material respects any covenant, condition or agreement of such entity to be
complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 6.8 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
SECTION 6.9 Recapitalization. Each of the Company and Newco agrees to use
its reasonable best efforts to cause the transactions contemplated by this
Agreement, including the Merger, to be accounted for as a recapitalization and
such accounting treatment to be accepted by their respective accountants and
by the SEC, and each of the Company and Newco agrees that it shall take no
action that would cause such accounting treatment not to be obtained in the
event the Merger is consummated. Each of the Company and Newco agrees to take
all steps reasonable and necessary to effect the Recapitalization.
SECTION 6.10 Reasonable Efforts. Subject to fiduciary responsibilities, each
of the Company and Newco agrees to use reasonable efforts to cause the
consummation of the Merger to occur as soon as practicable in accordance with
the terms hereof. Without limiting the foregoing, (a) each of the Company and
Newco agree to use reasonable efforts to take, or cause to be taken, all
actions necessary to comply promptly with all legal requirements that may be
imposed on itself with respect to the Merger (which actions shall include
furnishing all information required under the HSR Act and in connection with
approvals of or filings with any other Governmental Entity) and shall promptly
cooperate with and furnish information to each other in connection with any
such requirements imposed upon any of them or any of their Subsidiaries in
connection with the Merger and (b) each of the Company and Newco shall, and
shall cause its Subsidiaries to, use reasonable efforts to obtain (and shall
cooperate with each other in obtaining) any consent, authorization, order or
approval of, or any exemption by, or notice to be sent to, any Governmental
Entity or other public or private third party required to be obtained, made or
sent by Newco, the Company or any of their Subsidiaries in connection with the
Merger or the taking of any action contemplated thereby or by this Agreement.
Notwithstanding anything to the contrary contained in this Agreement, in
connection with any filing or submission required or action to be taken by
Newco, the Company or any of its respective Subsidiaries to consummate the
Merger or the other transactions contemplated in this Agreement, the Company
shall not, without Newco's prior written consent, commit to any divestiture of
assets or businesses of the Company and its Subsidiaries if such divested
assets and/or businesses are material to the assets or profitability of the
Company and its Subsidiaries taken as a whole; and Newco shall not be required
to divest or hold separate or otherwise take or commit to take any action that
limits its freedom of action with respect to, or its ability to retain, the
Company or any of the businesses, product lines or assets of the Company or
that would have a Material Adverse Effect on Newco.
SECTION 6.11 Certain Litigation. The Company agrees that it shall not settle
any litigation commenced after the date hereof against the Company or any of
its directors by any stockholder of the Company relating to the Merger or this
Agreement without the prior written consent of Newco, which consent shall not
be unreasonably withheld.
SECTION 6.12 Employee Benefits.
(a) Each employee of the Company or its Subsidiaries at the Effective Time
(including each employee who is on vacation, temporary layoff, approved leave
of absence, sick leave or short- or long-term disability) shall remain an
employee of the Company or a Subsidiary of the Company, as the case may be,
immediately following such time at the same compensation and wages as in
effect immediately preceding such time. Until the first anniversary of the
Effective Time, the Surviving Corporation shall maintain or cause to be
maintained, wages, compensation levels and such benefits provided under the
Benefit Plans for the benefit of employees and former employees of the Company
or its Subsidiaries which are not less favorable than those wages,
compensation levels and other benefits provided under the Benefit Plans that
are in effect as of the date hereof; provided, however, that the Surviving
Corporation shall not have any obligation to provide benefits based on equity
securities of the Company or any equivalent thereof. Each employee of the
Company or its Subsidiaries shall be credited with the unused vacation and
sick leave credited to such employee through the Effective Time under the
applicable
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vacation and sick leave policies of the Company and its Subsidiaries, and the
Surviving Corporation shall permit or cause its Subsidiaries to permit such
employees to use such vacation and sick leave. For all purposes under each
employee benefit plan maintained by the Surviving Corporation which employees
and former employees of the Company become eligible to participate in after
the Effective Time, all persons previously employed by the Company and its
Subsidiaries and then employed by the Surviving Corporation shall be credited
with their years of service to the extent such service is taken into account
under the most closely corresponding Benefit Plan provided, however, any such
service need not be taken into account in determining accrual under a defined
benefit pension plan established after the Effective Time.
(b) Employment of any of the employees by the Surviving Corporation will be
"at will" and may be terminated by the Surviving Corporation at any time for
any reason (subject to any legally binding agreement other than this
Agreement, or any applicable laws or collective bargaining agreement, or any
other arrangement or commitment). Except as otherwise provided in Sections
6.13 through 6.17, nothing in this Agreement shall be interpreted as limiting
the power of the Surviving Corporation to amend or terminate any particular
Benefit Plan or any other employee benefit plan, program, agreement or policy
or as requiring the Surviving Corporation to offer to continue (other than as
required by its terms) any written employment contract.
SECTION 6.13 Severance Policy and Other Agreements.
(a) For a period of not less than twelve months from the Effective Time,
Newco shall and shall cause the Surviving Corporation to maintain (or shall
cause to be maintained) the Company's standard severance practice as in effect
as of the date hereof (which severance practice is described in Item 6.13 of
the Company Letter).
(b) Newco shall and shall cause the Surviving Corporation to honor or cause
to be honored all employment agreements, bonus agreements, severance
agreements and non-competition agreements with the Company's directors,
officers and employees (it being understood that nothing herein shall be
deemed to mean that the Company shall not be required to honor its obligations
under any employment agreement, bonus agreement, severance agreement or non-
competition agreement to which it is a party).
SECTION 6.14 1998 Bonus Plan. Without limitation of Newco's or the Company's
obligations under any existing employment agreement, bonus agreement,
severance agreement or non-competition agreement, Newco shall maintain, or
shall cause the Surviving Corporation to maintain, the Company's 1998 bonus
plan (as in effect on the date of this Agreement) through the end of the
Company's 1998 fiscal year, with bonuses to be paid to each employee equal to
the bonus such employee would have earned under the Company's 1998 bonus plan
if the transactions contemplated by this Agreement had not occurred, in all
events on a basis consistent with past practice.
SECTION 6.15 Welfare Plans. Newco shall, or shall cause the Surviving
Corporation to, (i) waive all limitations as to preexisting conditions,
exclusions and waiting periods with respect to participation and coverage
requirements applicable to the employees of the Company and its Subsidiaries
under any welfare plan that such employees may be eligible to participate in
after the Effective Time, other than limitations or waiting periods that are
in effect with respect to such employees and that have not been satisfied as
of the Effective Time under any welfare plan maintained for the employees of
the Company or its Subsidiaries immediately prior to the Effective Time, and
(ii) provide each employee of the Company or its Subsidiaries with credit for
any co-payments and deductibles paid by such employee for the applicable plan
year prior to the Effective Time in satisfying any applicable deductible or
out-of-pocket requirements under any welfare plans that such employee is
eligible to participate in after the Effective Time.
SECTION 6.16 Retirement Plan. For a period of not less than twelve months
from the Effective Time, Newco shall (i) maintain, or cause to be maintained,
the Bell Sports Corp. Employees' Retirement and 401(k) Plan (the "Retirement
Plan") and (ii) contribute, or cause to be contributed, to the Retirement
Plan, on behalf of each participant therein, matching contributions in amounts
determined in accordance with the terms of the Retirement Plan as in effect as
of the date hereof, such contributions to be made on at least a bi-weekly
basis.
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SECTION 6.17 Certain Tax Matters.
(a) Until the Effective Time, the Company and its Subsidiaries agree (A) to
retain all books and records with respect to Tax matters pertinent to the
Company, Subsidiaries and/or Groups relating to any taxable period beginning
before the Closing Date, and to abide by all record retention agreements
entered into with any taxing authority, and (B) to give Newco reasonable
written notice prior to transferring, destroying or discarding any such books
and records and, if Newco so requests, the Company and its Subsidiaries, as
the case may be, shall allow Newco to take possession of such books and
records.
(b) Until the Effective Time, the Company further agrees, upon request and
at the expense of Newco, to use its reasonable best efforts to obtain any
certificate or other documents from any governmental authority or any other
person as may be reasonably necessary to mitigate, reduce or eliminate any Tax
that could be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
(c) Until the Effective Time, the Company further agrees, upon request, to
provide Newco with all information that may be reasonably required to report
pursuant to Section 6043 of the Code and all Treasury Department Regulations
promulgated thereunder.
SECTION 6.18 Actions Respecting Commitment Letters. (a) The Company agrees
to provide reasonable cooperation in connection with the negotiation,
execution and delivery of definitive documentation in connection with the
Commitment Letter and the transactions contemplated thereunder, or any
financings in substitute therefor, including without limitation, (i) causing
its Subsidiaries and its and their respective officers and employees to
provide reasonable cooperation in connection with such negotiation, execution
and delivery, (ii) causing its Subsidiaries and its and their respective
officers and employees to host and participate, upon reasonable advance
notice, in any informational meetings for investors or "road shows" (iii)
causing its Subsidiaries and its and their respective officers and employees
to provide such information about the Company and its Subsidiaries as is
reasonably necessary to outline, draft, prepare and circulate any offering
memoranda, prospectuses, reports, presentations or analyses and to ensure that
such information is not false or misleading and (iv) executing and delivering
any commitment letters, underwriting or placement agreements, purchase
agreements, pledge and security documents, indentures, other definitive
financing documents, which documents shall be in form and substance reasonably
satisfactory to the Company, or other reasonably requested certificates or
documents, including a certificate of the chief financial officer of the
Company with respect to solvency matters, as may be reasonably requested by
Newco or its lenders. In conjunction with the obtaining of any such financing,
the Company agrees, at the request of Newco, to call for prepayment or
redemption, or to prepay, redeem and/or renegotiate, as the case may be, any
then existing indebtedness of the Company; provided that no such prepayment or
redemption shall actually be made until, contemporaneously with or after the
Effective Time. Newco shall reimburse, indemnify and hold harmless the Company
for any costs, expenses, losses, liabilities, damages, redemption payments,
prepayments or other charges incurred by the Company at the request of Newco
in connection with the Company's compliance with the provisions of this
Section 6.18.
(b) Newco agrees to use its reasonable efforts to arrange the financing
contemplated by the Commitment Letter, including using its reasonable efforts
to satisfy all conditions applicable to Newco in the Commitment Letter and the
definitive agreements relating thereto.
A-26
<PAGE>
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) Company Stockholder Approval. This Agreement and the transactions
contemplated hereby, including the Merger, shall have been approved and
adopted by the requisite vote of the stockholders of the Company under the
DGCL;
(b) No Injunction or Restraint. No statute, rule, regulation, executive
order, decree, temporary restraining order, preliminary or permanent
injunction, writ or other judgment or order issued by any court of competent
jurisdiction or other Governmental Entity preventing the consummation of the
Merger shall be in effect; provided, however, that each of the parties shall
have used reasonable efforts to prevent the entry of any such temporary
restraining order, injunction or other order and to appeal as promptly as
possible any injunction or other order that may be entered;
(c) Authorizations, Consents. Other than filing the Certificate of Merger in
accordance with the DGCL, all authorizations, consents and approvals of all
Governmental Entities and the consents set forth in Item 3.25 of the Company
Letter required to be obtained prior to consummation of the Merger shall have
been obtained;
(d) HSR Act. Any waiting period (and any extension thereof) under the HSR
Act applicable to the Merger shall have expired or been terminated; and
(e) Recapitalization. The definitive Proxy Statement shall contain a
statement to the effect that it is expected that the Merger and the
transactions contemplated by this Agreement will be treated as a
recapitalization for accounting purposes and the SEC shall not have required
that such statement be removed from the definitive Proxy Statement.
SECTION 7.2 Conditions to the Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger is further subject
to the satisfaction or waiver at or prior to the Effective Time of the
following conditions:
(a) The representations and warranties of Newco contained in Article IV of
this Agreement shall be true and correct in all respects (in the case of any
representation or warranty containing any materiality qualification) or in all
material respects (in the case of any representation or warranty without any
materiality qualification) at and as of the Effective Time as if made at and
as of such time (other than to the extent that any such representation or
warranty, by its terms, is expressly limited to a specific date in which case
such representation and warranty shall be true and correct as of such date),
in each case except as contemplated or permitted by this Agreement;
(b) Newco shall have performed in all material respects its obligations
under this Agreement required to be performed by it at or prior to the
Effective Time pursuant to the terms hereof;
(c) Newco shall deliver to the Company a certificate, dated the Closing Date
and signed on behalf of Newco by the President or Chief Executive Officer of
Newco certifying as to compliance with Section 7.2(a) and Section 7.2(b); and
(d) The Company shall have received from Newco copies of the Newco solvency
certificates and the third party solvency opinion contemplated by the
Commitment Letter.
A-27
<PAGE>
SECTION 7.3 Conditions to Obligation of Newco to Effect the Merger. The
obligation of Newco to effect the Merger are further subject to the
satisfaction or waiver at or prior to the Effective Time of the following
conditions:
(a) The representations and warranties of the Company contained in Article
III of this Agreement shall be true and correct in all respects (in the case
of any representation or warranty containing any materiality qualification) or
in all material respects (in the case of any representation or warranty
without any materiality qualification) at and as of the Effective Time as if
made at and as such time (other than to the extent that any such
representation or warranty, by its terms, is expressly limited to a specific
date in which case such representation and warranty shall be true and correct
as of such date), in each case except as contemplated or permitted by this
Agreement;
(b) The Company shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior to
the Effective Time pursuant to the terms hereof;
(c) Since the date hereof, there shall have been no suit, claim, action,
proceeding or investigation filed or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries or against any
properties or rights of the Company and its Subsidiaries, which would in the
good faith judgment of Newco, after consultation with the Company and its
counsel, be reasonably likely (after taking into effect any applicable
insurance coverage) to (i) be material to the business, results of operations,
condition (financial or otherwise) of the Company, (ii) impair in a material
manner the ability of the Company to perform its obligations under this
Agreement, (iii) result in a third party materially delaying the consummation
of the Merger; or (iv) result in a third party enjoining or obtaining material
damages in respect of the transactions contemplated by this Agreement;
(d) No event, occurrence, fact, condition, change, development or effect
shall have occurred or come to exist or been threatened, in each case, since
the date hereof that, individually or in the aggregate, has resulted in, or
could reasonably be expected to become or result in, a Material Adverse Effect
on the Company and its Subsidiaries;
(e) The Company shall deliver to Newco a certificate, dated the Closing Date
and signed on behalf of the Company by the President or Chief Executive
Officer of the Company certifying as to compliance with Section 7.1(a),
Section 7.3(a) through Section 7.3(d); and
(f) Newco and the Company shall have received pursuant to the Commitment
Letter sufficient funds to pay the Merger Consideration and otherwise enable
Newco to consummate the transactions contemplated hereby and to meet the
working capital requirements of the Surviving Corporation.
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, notwithstanding approval thereof by the stockholders of
the Company:
(a) by mutual written consent duly authorized by the Boards of Directors of
Newco and the Company;
(b) by either Newco or the Company if: (i) the Merger has not been
consummated on or prior to July 31, 1998 or such other date, if any, as Newco
and the Company shall agree upon in writing (provided that the right to
terminate this Agreement under this Section 8.1(b)(i) shall not be available
to a party who has been the cause of or resulted in the failure of the
Effective Time to occur on or before such date), or (ii) any Governmental
Entity shall have issued a statute, order, decree or regulation or taken any
other action in each case permanently
A-28
<PAGE>
restraining, enjoining or otherwise prohibiting the Merger or making the
Merger illegal and such statute, order, decree, regulation or other action
shall have become final and non-appealable.
(c) by the Company,(i) if holders of at least the requisite number of Shares
as required by the DGCL fail to approve and adopt this Agreement and the
transactions contemplated hereby at the Stockholders Meeting (including any
postponement or adjournment thereof) or (ii) in accordance with Section
5.2(b); provided in the case of clause (ii) that (to the extent required to be
paid upon such termination) Company shall have made payment to Newco of the
Termination Fee and Expense Reimbursement in accordance with Section 6.3.
(d) by the Company, upon 15 business days' prior written notice, in the
event of a breach of any representation, warranty, covenant or agreement on
the part of Newco such that the condition set forth in Section 7.2(a) or
7.2(b) would not be satisfied as of the Effective Time, which breach is not
cured prior to the expiration of such 15 business day period (provided that if
such breach is not curable, the Company may terminate this Agreement
immediately under this Section 8.1(d)); except where the Company is in breach
of any representation, warranty, covenant or agreement as provided in Section
8.1(e).
(e) by Newco, upon 15 business days' prior written notice, in the event of a
breach of any representation, warranty, covenant or agreement on the part of
the Company such that the condition set forth in Section 7.3(a) or 7.3(b)
would not be satisfied as of the Effective Time, which breach is not cured
prior to the expiration of such 15 business day period (provided that if such
breach is not curable, Newco may terminate this Agreement immediately under
this Section 8.1(e)); except where Newco is in breach of any representation,
warranty, covenant or agreement as provided in Section 8.1(d).
(f) by Newco, if (i) holders of at least the requisite number of Shares as
required by the DGCL fail to approve and adopt this Agreement and the
transactions contemplated hereby at the Stockholders Meeting (including any
postponement or adjournment thereof); (ii) the Board of Directors of the
Company withdraws, modifies or changes its recommendation of this Agreement or
the Merger in a manner adverse to Newco or shall have resolved to do any of
the foregoing or the Board of Directors of the Company shall have recommended
to the shareholders of the Company any Takeover Proposal or resolved to do so;
or (iii) a tender offer or exchange offer for outstanding shares of capital
stock of the Company then representing 20% or more of the combined power to
vote generally for the election of directors is commenced, and the Board of
Directors of the Company, within the time periods required by law to state its
position thereon, does not recommend that stockholders of the Company not
tender their shares into such tender or exchange offer.
SECTION 8.2 Effect of Termination. In the event of a termination of this
Agreement by either the Company or Newco as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Newco or the Company or their respective officers or
directors, except with respect to Section 6.3, this Section 8.2 and Article IX
and the last sentence of Section 6.18; provided, however, that, subject to
Section 6.3(d), nothing herein shall relieve any party of liability for any
breach hereof.
SECTION 8.3 Amendment. This Agreement may be amended by the parties hereto,
by action taken or duly authorized by their respective Boards of Directors at
any time prior to approval of the Merger by the stockholders at the
Stockholders Meeting. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
SECTION 8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or duly authorized by their respective Board
of Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto or (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of those
rights.
A-29
<PAGE>
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations and Warranties and
Agreements. None of the representations and warranties in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
Effective Time except that the agreements which expressly by their terms
survive the Effective Date and those set forth in Article II, Sections 6.7,
6.12, 6.13, 6.14, 6.15 and 6.16 and Article IX shall survive the Effective
Time.
SECTION 9.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given when delivered personally, one day after
being delivered to an overnight courier or when telecopied (with a
confirmatory copy sent by overnight courier) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Newco, to:
c/o Harvard Private Capital Group, Inc.
600 Atlantic Avenue, 26th Floor
Boston, Massachusetts 02109
Attn: Tim R. Palmer
Tami E. Nason, Esq.
with a copy to:
Brentwood Associates Private Equity
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Attn: Edward L. McCall
and
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attn: Larry Jordan Rowe, Esq.
(b) if to the Company, to:
Bell Sports Corp.
15170 North Hayden Road
Suite 1
Scottsdale, Arizona 85260
Attn: Terry G. Lee
Chairman and Chief Executive Officer
and
Matthews Mullaney & Co.
70 South Lake Avenue, Suite 630
Pasadena, California 91101
Attn: Phillip D. Matthews
A-30
<PAGE>
with copies to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attn: Larry A. Barden, Esq.
and
Richards Layton & Finger
One Rodney Square
920 King Street
Wilmington, DE 19801
Attn: Gregory V. Varallo, Esq.
SECTION 9.3 Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation."
SECTION 9.4 Definitions. For purposes of this Agreement, the term:
(a) "Benefit Plan" means any plan, program, policy, agreement and
arrangement, whether or not reduced to writing, that is (i) an "employee
pension benefit plan" (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (sometimes referred to
herein as "Pension Plans"), (ii) an "employee welfare benefit plan (as defined
in Section 3(1) of ERISA), (iii) a stock bonus, stock purchase, stock option,
restricted stock, stock appreciation right or similar equity-based plan or
arrangement, or (iv) any other deferred compensation, retirement, welfare-
benefit, bonus, incentive or fringe benefit plan or arrangement maintained,
sponsored or contributed to, by the Company or any of its U.S. or foreign
Subsidiaries (or to which the Company or any of its Subsidiaries is obligated
to contribute or for which the Company or any of its Subsidiaries may be
liable) for the benefit of any current or former employees, officers,
directors, consultants or independent contractors of the Company or of any of
such Subsidiaries other than a governmental plan that a foreign Subsidiary
contributes to on behalf of any current or former employees, officers,
directors, consultants or independent contractors.
(b) "CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act (42 U.S.C. ss. 9601 et seq.) and the regulations promulgated
thereunder.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "DGCL" means the General Corporation Law of the State of Delaware.
(e) "Environmental Costs and Liabilities" means any and all losses,
liabilities, obligations, damages, fines, penalties, judgments, actions,
claims, costs and expenses (including, without limitation, fees, disbursements
and expenses of legal counsel, experts, engineers and consultants and the
reasonable costs of investigation and feasibility studies and the reasonable
costs to clean up, remove, treat, or in any other way address any Hazardous
Materials) arising with respect to any violation of or liability arising
pursuant to or under any Environmental Law or as the result of any exposure or
alleged exposure of any person or property to any Hazardous Material.
(f) "Environmental Law" means any applicable law regulating or prohibiting
Releases of Hazardous Materials into any part of the natural environment, or
pertaining to the protection of natural resources, the environment and public
and employee health and safety from Hazardous Materials including, without
limitation, CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. ss.
1801 et seq.), the Resource Conservation
A-31
<PAGE>
and Recovery Act (42 U.S.C. ss. 6901 et seq.), the Clean Water Act (33 U.S.C.
ss. 1251 et seq.), the Clean Air Act (33 U.S.C. ss. 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. ss. 7401 et seq.), the Federal Insecticide,
Fungicide, and Rodenticide Act (7 U.S.C. ss. 136 et seq.), and OSHA and the
regulations promulgated pursuant thereto, and any such applicable state or
local statutes, and the regulations promulgated pursuant thereto, as such laws
have been and may be amended or supplemented through the Effective Time.
(g) "ERISA" means the Employment Retirement Income Security Act of 1974, as
amended.
(h) "Hazardous Material" means any substance, material or waste which is
regulated with respect to its toxic or otherwise hazardous character by any
governmental authority in the jurisdictions in which the applicable party or
its Subsidiaries conducts business, or the United States, including, without
limitation, any material or substance which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous waste" or
"restricted hazardous waste," "contaminant," "solid waste," "toxic waste" or
"toxic substance" under any provision of Environmental Law and shall also
include, without limitation, petroleum, petroleum products, asbestos,
polychlorinated biphenyls and radioactive materials.
(i) "Intellectual Property" means the entire right, title and interest in
and to all proprietary rights of every kind and nature, including patents,
copyrights, trademarks, mask works, trade secrets and proprietary information,
all applications for any of the foregoing, and any license or agreements
granting rights related to the foregoing (i) subsisting in, covering, reading
on, directly applicable to or existing in the Products, (ii) that are owned,
licensed or controlled in whole or in part by the Company or any of its
Subsidiaries and relate to the business of the Company or any of its
Subsidiaries; or (iii) that are used in or necessary to the development,
manufacture, sales, marketing or testing of the Products.
(j) "Investors" means collectively Harvard Private Capital Holdings, Inc.
and Brentwood Associates Buyout Fund II, L.P.
(k) "Knowledge" or "Best Knowledge" means the actual knowledge, after
reasonable inquiry, of the officers of the Company (in the case of the
Company) or the officers of Newco or the Investors (in the case of Newco).
(l) "Material Adverse Change" or "Material Adverse Effect" means any event,
change, effect, or diminution in value that, individually or in the aggregate,
is or would reasonably be expected to be materially adverse to the business,
operations, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole, or Newco, as
the case may be.
(m) "OSHA" means the Occupational Safety and Health Act (29 U.S.C. ss. 651
et seq.), and the regulations promulgated thereunder.
(n) "Products" means all current products and services of the Company or any
of its Subsidiaries, any subsequent versions of such products currently being
developed, any products currently being developed by the Company or any of its
Subsidiaries which are designed to supersede, replace or function as a
component of such products, and any upgrades, enhancements, improvements and
modifications to the foregoing.
(o) "Release" means any release, spill, effluent, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching, or
migration into the environment;
(p) "Remedial Action" means all actions, including, without limitation, any
capital expenditures, required by a governmental entity or required under any
Environmental Law, or voluntarily undertaken to (1) clean up, remove, treat,
or in any other way ameliorate or address any Hazardous Materials or other
substance in the environment; (2) prevent the Release or threat of Release, or
minimize the further Release of any Hazardous Material so it does not endanger
or threaten to endanger the public health or welfare or the environment;
(3) perform pre-remedial studies and investigations or post-remedial
monitoring and care pertaining or relating to a Release; or (4) bring the
applicable party into compliance with any Environmental Law.
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<PAGE>
(q) "Subsidiary" of any person means another person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first
person.
(r) "Superior Proposal" means any proposal determined by the Board of
Directors of the Company in good faith, after consultation with outside
counsel, to be a bona fide proposal and made by a third party to acquire,
directly or indirectly, for consideration consisting of cash, property and/or
securities, more than 50% of the combined voting power of the shares of
Company Common Stock then outstanding or all or substantially all the assets
of the Company and otherwise on terms which the Board of Directors of the
Company determines in its good faith judgment, after consultation with a
financial advisor of nationally recognized reputation (such as NationsBanc
Montgomery), to be more favorable to the Company's stockholders than the
Merger.
(s) "Takeover Proposal" means any proposal or offer (other than the
transactions between the Company and Newco contemplated hereunder) involving
the Company or any of its Subsidiaries for, or an inquiry or indication of
interest that reasonably could be expected to lead to: (A) any merger,
consolidation, share exchange, recapitalization, business combination, or
other similar transaction; (B) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 20% or more of the assets of the Company and
its Subsidiaries, taken as a whole, in a single transaction or series of
transactions; (C) any material debt or equity investment in the Company or
recapitalization transaction in substitution for the transactions contemplated
by this Agreement; or (D) any tender offer or exchange offer for 20% or more
of the outstanding shares of capital stock of the Company or any of its
Subsidiaries or the filing of a registration statement under the Securities
Act in connection therewith.
(t) "Tax" (and, with correlative meaning, "Taxes") means (i) any net income,
alternative or add-on minimum, gross income, gross receipts, sales, use, ad
valorem, value added, transfer, franchise, profits, license, withholding on
amounts paid by the Company or any of its Subsidiaries, payroll, employment,
excise, production, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with
any interest and/or any penalty, addition to tax or additional amount imposed
by any taxing authority and (ii) any liability of the Company or any of its
Subsidiaries for the payment of any amounts of the type described in (i) as a
result of being a member of an affiliated or consolidated group or arrangement
whereby liability of the Company or any of its Subsidiaries for the payment of
such amounts was determined or taken into account with reference to the
liability of any other person for any period.
(u) "Tax Return" means all returns, declarations, reports, estimates,
information returns and statements required to be filed by or with respect to
the Company or any of its Subsidiaries in respect of any Taxes, including,
without limitation, (i) any consolidated federal income Tax return in which
any of the Company, Subsidiaries and/or Groups is included and (ii) any state,
local or foreign income Tax returns filed on a consolidated, combined or
unitary basis (for purposes of determining tax liability) in which any of the
Company, Subsidiaries and/or Groups is included.
A-33
<PAGE>
The following terms are defined in the Sections hereof indicated below:
<TABLE>
<CAPTION>
TERM DEFINITION
---- ----------
<S> <C>
"Agreement"................................................ Preamble
"Brunswick Stock Option"................................... Section 3.3
"CBI"...................................................... Section 2.1(f)
"Certificate of Merger".................................... Section 1.3
"Certificates"............................................. Section 2.2(b)
"Claims"................................................... Section 6.3(d)
"Closing Date"............................................. Section 1.2
"Commitment Letter"........................................ Section 4.7
"Company".................................................. Preamble
"Company Acquisition Stock Options"........................ Section 3.3
"Company Benefit Plan Stock Options"....................... Section 3.3
"Company Common Stock"..................................... Section 2.1
"Company Letter"........................................... Section 3.1
"Company Phantom Stock Unit Awards"........................ Section 3.3
"Company Preferred Stock".................................. Section 3.3
"Company Representative Stock Options"..................... Section 3.3
"Company Restricted Stock Awards".......................... Section 3.3
"Company SEC Documents".................................... Section 3.6
"Company, Subsidiaries and/or Groups"...................... Section 3.10(a)
"Competition Act".......................................... Section 3.5
"Constituent Corporations"................................. Preamble
"D&O Insurance"............................................ Section 6.7(b)
"Debentures"............................................... Section 3.3
"Dissenting Shares"........................................ Section 2.1(d)
"Dissenting Stockholder"................................... Section 2.1(d)
"Effective Time"........................................... Section 1.3
"ERISA Affiliate".......................................... Section 3.12(e)
"Exchange Act"............................................. Section 3.5
"Expense Reimbursement".................................... Section 6.3(b)
"Fairness Opinion"......................................... Section 3.19
"Governmental Entity"...................................... Section 3.5
"HSR Act".................................................. Section 3.5
"Indemnified Person"....................................... Section 6.7(a)
"Indenture"................................................ Section 3.15
"IRS"...................................................... Section 3.10(d)
"Liens".................................................... Section 3.2
"Merger"................................................... Recitals
"Merger Consideration"..................................... Section 2.1(a)
"NationsBanc Montgomery"................................... Section 3.16
"HB Acquisition"........................................... Preamble
"HB Acquisition Common Stock".............................. Section 2.1
"Option Holders"........................................... Section 2.1(c)
"Options".................................................. Section 2.1(c)
"Paying Agent"............................................. Section 2.2(a)
"Policies"................................................. Section 3.20
"Proxy Statement".......................................... Section 3.8
"Recapitalization"......................................... Recitals
"Retirement Plan".......................................... Section 6.16
"Rights"................................................... Section 3.3
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TERM DEFINITION
---- ----------
<S> <C>
"Rights Agreement".......................................... Section 3.3
"Schedule 13E-3"............................................ Section 3.8
"SEC"....................................................... Section 3.6
"Securities Act"............................................ Section 3.6
"Series A Preferred Stock".................................. Section 2.1(e)
"Shares".................................................... Section 2.1
"Special Committee"......................................... Recitals
"State Takeover Approvals".................................. Section 3.5
"Stockholders Meeting"...................................... Section 3.8
"Surviving Corporation"..................................... Section 1.1
"Surviving Corporation Common Stock"........................ Section 2.1(e)
"Surviving Corporation Shares".............................. Section 2.1(e)
"Termination Fee"........................................... Section 6.3(b)
"Transfer Taxes"............................................ Section 6.5
</TABLE>
SECTION 9.5 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the
parties and delivered to the other parties.
SECTION 9.6 Entire Agreement; No Third-Party Beneficiaries. Except for the
Confidentiality Letter referred to in the last sentence of Section 6.2, this
Agreement constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to
the subject matter hereof. This Agreement, except for the provisions of
Section 6.7, is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
SECTION 9.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
SECTION 9.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by either parties hereto
without the prior written consent of the other party, except that Newco may
assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to any of the Investors or their affiliates,
but no such assignment shall relieve Newco of any of its obligations
hereunder. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
SECTION 9.9 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated hereby are not affected in any
manner materially adverse to any party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated by this
Agreement may be consummated as originally contemplated to the fullest extent
possible.
SECTION 9.10 Enforcement of This Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of
the United States or any state having jurisdiction, such remedy being in
addition to any other remedy to which any party is entitled at law or in
equity.
A-35
<PAGE>
SECTION 9.11 Obligations of Subsidiaries. Whenever this Agreement requires
any Subsidiary of the Company to take any action, such requirement shall be
deemed to include an undertaking on the part of the Company to cause such
Subsidiary to take such action.
SECTION 9.12 Negotiation of Agreement. Each of the parties acknowledges that
it has been represented by independent counsel of its choice throughout all
negotiations that have preceded the execution of this Agreement and that it
has executed the same with consent and upon the advice of said independent
counsel. Each party and its counsel cooperated in the drafting and preparation
of this Agreement and the documents referred to herein, and any and all drafts
relating thereto shall be deemed the work product of the parties and may not
be construed against any party by reason of its preparation. Accordingly, any
rule of law or any legal decision that would require interpretation of any
ambiguities in this agreement against the party that drafted it is of no
application and is hereby expressly waived.
IN WITNESS WHEREOF, Newco and the Company have caused this Agreement to be
signed by their respective officers thereunto duly authorized all as of the
date first written above.
HB ACQUISITION CORPORATION
/s/ Tim R. Palmer
By:
----------------------------------
Name: Tim R. Palmer
Title: Authorized Signatory
BELL SPORTS CORP.
/s/ Terry G. Lee
By:
----------------------------------
Name: Terry G. Lee
Title: Chairman and Chief
Executive Officer
A-36
<PAGE>
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER
FIRST AMENDMENT TO AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER, dated
as of April 8, 1998 ("First Amendment"), between HB Acquisition Corporation, a
Delaware corporation ("Newco"), and Bell Sports Corp., a Delaware corporation
(the "Company").
WHEREAS, Newco and the Company have entered into an Agreement and Plan of
Recapitalization and Merger dated as of February 17, 1998 (the "Merger
Agreement") providing, among other things, for a recapitalization of the
Company pursuant to which Newco will be merged with and into the Company;
WHEREAS, each of Newco and the Company desires to amend and supplement the
Merger Agreement in certain respects as described in this First Amendment;
WHEREAS, the Board of Directors of the Company, based upon the
recommendation of a special committee of its independent directors, has
approved and deems it advisable and in the best interests of the Company and
its stockholders that such recapitalization and merger be effected in
accordance with the Merger Agreement, as so amended and supplemented by this
First Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties agree as follows:
1. Definitions.
Except as otherwise indicated herein or unless the context requires
otherwise, capitalized terms used herein and not otherwise defined shall have
the meanings ascribed thereto in the Merger Agreement.
2. Amendment of Section 2.1(a) of the Merger Agreement.
Section 2.1(a) of the Merger Agreement is hereby amended, supplemented and
restated in its entirety as follows:
"(a) Conversion. At the Effective Time, each Share issued and outstanding
immediately prior to the Effective Time (excluding (i) any Shares to be
canceled pursuant to Section 2.1(b) and (ii) any Dissenting Shares) shall
be converted into the right to receive $10.25 (the "Merger Consideration"),
upon surrender of the certificate representing such Shares in the manner
provided in and otherwise in accordance with Section 2.2. All such Shares
so converted, and the Rights associated therewith, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and such holder of a certificate representing any such Shares
shall cease to have any rights with respect thereto, except for the right
to receive the Merger Consideration therefor upon surrender of such
certificate in the manner provided in and in accordance with Section 2.2."
3. Amendment of Section 8.1(b) of the Merger Agreement.
Section 8.1(b) of the Merger Agreement is hereby amended, supplemented and
restated in its entirety as follows:
"(b) by either Newco or the Company if: (i) the Merger has not been
consummated on or prior to August 31, 1998 or such other date, if any, as
Newco and the Company shall agree upon in writing (provided that the right
to terminate this Agreement under this Section 8.1(b)(i) shall not be
available to a party who has been the cause of or resulted in the failure
of the Effective Time to occur on or before such date), or (ii) any
Governmental Entity shall have issued a statute, order, decree or
regulation or taken any other action in each case permanently restraining,
enjoining or otherwise prohibiting the Merger
A-37
<PAGE>
or making the Merger illegal and such statute, order, decree, regulation or
other action shall have become final and non-appealable."
4. Addition of New Section 9.13 of Merger Agreement.
Article IX of the Merger Agreement is hereby amended and supplemented to add
a new Section 9.13 which shall read in its entirety as follows:
"SECTION 9.13 Product Liability Verdict. (a) Newco acknowledges that (i)
it has been advised of the entry of a verdict against the Company in the
action Keith D. Wandel and Mary E. Wandel v. Bell Helmets, Inc. and Bill
Atiyehs Cycles, Civil Action #5349-CV-1994 in the Court of Common Pleas of
Luzerne County, Pennsylvania (the "Wandel Verdict") and (ii) Newco, the
Investors, Newco's counsel and Newco's consultants have been provided an
opportunity to meet with representatives of the Company and the Company's
legal advisors (including trial and appellate counsel in such action) to
discuss and review (1) the Wandel Verdict and (2) any costs or charges
(including defense, appeal, appeal bond, pre-judgment, post-judgment or
other legal or similar costs) incurred or expected to be incurred by the
Company specifically in connection with the Wandel Verdict. The amendment
and supplement to Section 2.1(a) of the Agreement effected through the
First Amendment is intended to address any concerns or rights of Newco in
respect of this Agreement or the transactions contemplated hereby and any
effect on the value of the Company, in each case that arise out of or
relate to the Wandel Verdict.
(b) Notwithstanding anything contained in this Agreement to the contrary,
Newco hereby acknowledges and agrees that the Wandel Verdict (including any
judgments, damages, liabilities, costs, charges, consequences or
implications specifically related thereto or arising in connection
therewith) shall not constitute or be deemed or alleged to constitute a
Material Adverse Change or Material Adverse Effect with respect to the
Company."
5. Representations and Warranties of the Company.
Without limitation of the Company's representations and warranties contained
in Article III of the Merger Agreement, the Company represents and warrants to
Newco as follows:
(a) The Company has all requisite corporate power and authority to
execute and deliver this First Amendment. The execution, delivery and
performance of this First Amendment by the Company and the consummation by
the Company of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company,
subject to approval by the Company's stockholders of the Merger Agreement,
as amended by this First Amendment, and the Merger. The Special Committee,
at a meeting duly called and held, has by the unanimous vote of all of its
members present approved this First Amendment and determined that it is
advisable and in the best interests of the Company to enter into the
Merger. The Board of Directors, at a meeting duly called and held, pursuant
to the recommendation of the Special Committee, by the vote of all
directors present and voting (i) approved this First Amendment and
determined that it is advisable and in the best interests of the Company to
enter into the Merger and (ii) resolved to recommend that the holders of
shares of Company Common Stock approve and adopt the Merger Agreement, as
amended by this First Amendment, and the transactions contemplated
thereunder and hereunder, including the Merger. The Board of Directors of
the Company, by a vote of at least two-thirds of the incumbent directors,
has approved the Merger for purposes of ARTICLE ELEVENTH of the Company's
Certificate of Incorporation. This First Amendment has been duly executed
and delivered by the Company and (assuming the valid authorization,
execution and delivery of this First Amendment by Newco) constitutes the
valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except that such enforceability (i) may be
limited by bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to the enforcement of creditors' rights generally and
(ii) is subject to general principles of equity.
(b) The Company has received the revised opinion (the "Revised Fairness
Opinion") of NationsBanc Montgomery to the effect that, as of April 8, 1998
the cash consideration to be received by shareholders of
A-38
<PAGE>
the Company (other than CB Capital Investors, Inc. and Mary J. George)
pursuant to the Merger is fair to such shareholders from a financial point
of view. As of the date of this First Amendment, the Company has been
authorized by NationsBanc Montgomery to include the Revised Fairness
Opinion in the Proxy Statement. The Revised Fairness Opinion has not been
withdrawn or modified (it being understood that the Company shall be under
no obligation to furnish an update of the Revised Fairness Opinion dated as
of the Effective Time and it being further understood that any references
in the Merger Agreement to the Fairness Opinion shall hereafter be deemed
to refer to the Revised Fairness Opinion).
6. Representations and Warranties of Newco.
Without limitation of Newco's representations and warranties contained in
Article IV of the Merger Agreement, Newco represents and warrants to the
Company as follows:
Newco has all requisite corporate power and authority to execute and deliver
this First Amendment. The execution, delivery and performance of this First
Amendment by Newco and the consummation by Newco of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Newco. This First Amendment has been duly executed and
delivered by Newco and (assuming the valid authorization, execution and
delivery of this First Amendment by the Company) constitutes the valid and
binding obligation of Newco enforceable against it in accordance with its
terms, except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to the
enforcement of creditors' rights generally and (ii) is subject to general
principles of equity.
7. Miscellaneous.
Except as expressly modified hereby, the Merger Agreement remains in full
force and effect. Upon the execution and delivery hereof, the Merger Agreement
shall thereupon be deemed to be amended and supplemented as hereinabove set
forth as fully and with the same effect as if the amendments and supplements
made hereby were originally set forth in the Merger Agreement, and this First
Amendment and the Merger Agreement shall henceforth be read, taken and
construed as one and the same instrument, but such amendments and supplements
shall not operate so as to render invalid or improper any action heretofore
taken under the Merger Agreement.
IN WITNESS WHEREOF, Newco and the Company have caused this First Amendment
to be signed by their respective officers thereunto duly authorized all as of
the date first written above.
HB Acquisition Corporation
By /s/ Tim R. Palmer
-----------------------------------
Bell Sports Corp.
By /s/ Terry G. Lee
-----------------------------------
A-39
<PAGE>
LOGO
ANNEX B
LOGO
April 8, 1998
Special Committee of the Board of Directors
Bell Sports Corp.
6350 San Ignacio Avenue
San Jose, CA 95119
Gentlemen:
We understand that Bell Sports Corp., a Delaware corporation ("Company"), and
HB Acquisition Corporation, a Delaware corporation ("Newco"), have entered into
an Agreement and Plan of Recapitalization and Merger dated as of February 17,
1998 (the "Merger Agreement"), which Merger Agreement will be amended by a
First Amendment to Agreement and Plan of Recapitalization and Merger, a draft
of which amendment dated April 8, 1998 has been provided to us by management of
Company (the "Amendment"), pursuant to which Newco will be merged with and into
Company, which will be the surviving entity (the "Merger"). Pursuant to the
Merger, as more fully described in the Merger Agreement and the draft Amendment
and as further described to us by management of Company, we understand that (i)
each outstanding share of the common stock, $0.01 par value per share, and the
corresponding right to purchase shares of the Series A Junior Participating
Preferred Stock, $0.01 par value per share (collectively, "Company Common
Stock"), of Company will be converted into the right to receive $10.25 in cash
(the "Consideration"), (ii) each unexercised stock option of Company will be
converted into the right to receive an amount in cash equal to the excess of
$10.25 over the exercise price for such stock option and (iii) each phantom
stock unit award of Company will be converted into the right to receive an
amount in cash determined in accordance with the terms thereof. In connection
with our analysis, management of Company has described to us certain
arrangements with CB Capital Investors, Inc. and Mary J. George regarding their
continued interests in Company and employment arrangements between each of
Terry G. Lee and Mary J. George and Company. Although you have not requested
and we are not providing any opinion regarding such arrangements, you have
asked us to confirm in writing our awareness of such arrangements. The terms
and conditions of the Merger are set forth in more detail in the Merger
Agreement and draft Amendment.
You have asked for our opinion as investment bankers as to whether the
Consideration to be received by the stockholders of Company (other than CB
Capital Investors, Inc. and Mary J. George) pursuant to the Merger is fair to
such stockholders from a financial point of view, as of the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
publicly available financial and other data with respect to Company, including
the consolidated financial statements for recent years and interim periods to
December 27, 1997 and certain other relevant financial and operating data
relating to Company made available to us from published sources and from the
internal records of Company; (ii) reviewed the financial terms and conditions
of the Merger Agreement and draft Amendment; (iii) reviewed certain publicly
available information concerning the trading of, and the trading market for,
Company Common Stock, (iv) compared Company from a financial point of view with
certain other companies in the sporting goods industry which we deemed to be
relevant; (v) considered the financial terms, to the extent publicly available,
of selected recent business combinations of companies in the sporting goods
industry which we deemed to be comparable, in whole or in part, to the Merger;
(vi) reviewed and discussed with representatives of the management of Company
certain information of a business and financial nature regarding Company,
furnished to us by them, including financial forecasts and related assumptions
of Company; (vii) made inquiries regarding and discussed the Merger
<PAGE>
LOGO
and the Merger Agreement and draft Amendment and other matters related thereto
with company's counsel and counsel for the Special Committee of the Board of
Directors of Company (the "Special Committee"); and (viii) performed such
other analyses and examinations as we have deemed appropriate. We have also
assumed that Newco will be provided with the funds necessary to consummate the
Merger.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for Company provided to us by its management, upon their advice and
with your consent we have assumed for purposes of our opinion that, subject to
the following sentence, the forecasts have been reasonably prepared on bases
reflecting the best available estimates and judgment of Company's management
at the time of preparation as to the future financial performance of Company
and that they provide a reasonable basis upon which we can form our opinion.
With respect to the forecasts for Company provided to us by its management,
for purposes of our analyses we have adjusted such forecasts to reflect more
conservative assumptions than those made by management of Company regarding
new market opportunities including overseas market expansion and new product
development, benefits from restructuring and improvement of general industry
conditions. We have discussed the adjusted forecasts with management of
Company and they have acknowledged our use of such adjusted forecasts in
arriving at our opinion. We have also assumed that there have been no material
changes in Company's assets, financial condition, results of operations,
business or prospects since the date of its last financial statements made
available to us. We have relied on advice of counsel to the Special Committee,
and counsel to Company as to all legal matters with respect to Company, the
Merger and the Merger Agreement and draft Amendment, including the legal
status of litigation involving Company and independent accountants to Company
as to financial reporting matters with respect to Company. We have assumed
that the Merger will be consummated in a manner that complies in all respects
with the applicable provisions of the Securities Exchange Act of 1934 and all
other applicable federal and state statutes, rules and regulations. In
addition, we have not assumed responsibility for making an independent
evaluation, appraisal or physical inspection of any of the assets or
liabilities (contingent or otherwise) of Company, nor have we been furnished
with any such appraisals. Finally, our opinion is based on economic, monetary
and market and other conditions as in effect on, and the information made
available to us as of, the date hereof. Accordingly, although subsequent
developments may affect this opinion, we have not assumed any obligation to
update, revise or reaffirm this opinion.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Merger Agreement and
draft Amendment, without any further amendments thereto, and without waiver by
Company of any of the conditions to its obligations thereunder.
We have acted as financial advisor to Company, and as of February 5, 1998 to
the Special Committee, in connection with the Merger and will receive a fee
for our services, including rendering this opinion, a significant portion of
which is contingent upon the consummation of the Merger. In the ordinary
course of our business, we actively trade the equity securities of Company for
the accounts of customers and accordingly may at any time hold a long or short
position in such securities. We have also acted as an underwriter in
connection with offerings of securities of Company and performed various
corporate finance advisory and investment banking services for Company. We
have also acted as an underwriter in connection with offerings of securities
of certain portfolio companies of, and performed various investment banking
services for Harvard Private Capital and Brentwood Associates.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be received by the stockholders
of Company (other than CB Capital Investors, Inc. and Mary J. George) pursuant
to the Merger is fair to such stockholders from a financial point of view, as
of the date hereof.
B-2
<PAGE>
LOGO
This opinion is directed to the Special Committee in its consideration of
the Merger and is not a recommendation to any stockholder as to how such
stockholder should vote with respect to the Merger. Further, this opinion
addresses only the financial fairness of the Consideration to be received by
stockholders of Company (other than CB Capital Investors, Inc. and Mary J.
George) and does not address the Company's underlying decision to proceed with
or affect the Merger or any other aspect of the Merger. This opinion may not
be used or referred to by Company, or quoted or disclosed to any person in any
matter, without our written consent, which consent is hereby given to the
inclusion of this opinion in any proxy statement filed with the Securities and
Exchange Commission in connection with the Merger.
Very truly yours,
[LOGO]
NATIONSBANC MONTGOMERY SECURITIES
LLC
B-3
<PAGE>
ANNEX C
SEC. 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S)228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
(S)251(g) of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of
this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsections (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision,
C-1
<PAGE>
the procedures of this section, including those set forth in subsections (d)
and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of such stockholder's shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the merger
or consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value
C-2
<PAGE>
of the stock of all such stockholders. Notwithstanding the foregoing, at any
time within 60 days after the effective date of the merger or consolidation,
any stockholder shall have the right to withdraw such stockholder's demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in favor of
the merger or consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days after such
stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such stockholder's
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that such
stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
C-3
<PAGE>
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded has appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of such stockholder's demand for an appraisal and an acceptance of the merger
or consolidation, either within 60 days after the effective date of the merger
or consolidation as provided in subsection (e) of this section or thereafter
with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
C-4
<PAGE>
PROXY PROXY
BELL SPORTS CORP.
Proxy Solicited by The Board of Directors
Special Meeting of Stockholders--August 11, 1998
Terry G. Lee or Linda K. Bounds, or either of them, each with power of
substitution, are hereby appointed proxies to represent and vote as designated
hereon all shares of Common Stock of Bell Sports Corp. which the undersigned
would be entitled to vote at the Special Meeting of Stockholders of Bell Sports
Corp. to be held at 9:00 a.m., local time, on Tuesday, August 11, 1998 at The
Raddison Resort Scottsdale, 7171 N. Scottsdale Road, Scottsdale, Arizona 85253
or any adjournment or postponement thereof, with all powers the undersigned
would possess if personally present.
See reverse side. If you wish to vote in accordance with the Board of
Directors' recommendations, just sign on the reverse side. You need not mark
any boxes. If no specification is made, the Proxies intend to vote "FOR"
Proposal 1. The Board of Directors recommends a vote "FOR" Proposal 1.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY,
USING THE ENCLOSED ENVELOPE.
(continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
<PAGE>
BELL SPORTS CORP.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [_]
1. Approve and adopt the Agreement and Plan of Recapitalization and Merger,
dated as of February 17, 1998, as amended as of April 8, 1998, between HB
Acquisition Corporation and Bell Sports Corp., and the transactions
contemplated thereby, including the Merger (as defined therein).
FOR AGAINST ABSTAIN
[_] [_] [_]
In their discretion, the Proxies are authorized to consider and act upon such
other business matters or proposals as may properly come before the Special
Meeting or any adjournment or postponement thereof.
Mark here for address change and note below [_]
The undersigned acknowledges receipt of the Notice of Special Meeting of
Stockholders to be held on August 11, 1998 and the related Proxy Statement.
Dated: ____________________ 1998
Signature(s)_______________________________
___________________________________________
Please sign exactly as your name appears
hereon. Joint owners should each sign. When
signing as attorney, executor, trustee or
guardian, please give full title as such.
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
