<PAGE>
As filed with the Securities and Exchange Commission on May 15, 1996
Registration No. 333--02903
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
WEST MARINE, INC.
(Exact name of registrant as specified in its charter)
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Delaware 5551 77-035-5502
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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500 Westridge Drive
Watsonville, CA 95076-4100
(408) 728-2700
(Address, including ZIP code, and telephone number, including area code,
of registrant's principal executive offices)
______________________
RANDOLPH K. REPASS
Chairman of the Board
West Marine, Inc.
500 Westridge Drive
Watsonville, CA 95076-4100
(408) 728-2700
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
______________________
With copies to:
RICHARD V. SMITH, ESQ. LAWRENCE G. GRAEV, ESQ.
ORRICK, HERRINGTON & SUTCLIFFE O'SULLIVAN GRAEV & KARBELL, LLP
400 Sansome Street 30 Rockefeller Plaza
San Francisco, California 94111 New York, New York 10112
(415) 392-1122 (212) 408-2400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
At the effective time of the proposed merger (the "Merger") of a
wholly owned subsidiary of West Marine, Inc. ("West Marine") with and into E&B
Marine Inc. ("E&B Marine"), as described in the Agreement and Plan of Merger,
dated as of April 2, 1996 (the "Merger Agreement"), attached as Annex A to the
Proxy Statement/Prospectus forming a part of this Registration Statement, which
shall occur as promptly as practicable after this Registration Statement becomes
effective and the satisfaction of all conditions to the closing of the Merger.
---------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.[_]
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CROSS-REFERENCE SHEET SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS IN FORM S-4
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FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
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(INFORMATION ABOUT THE TRANSACTION)
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1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus..................................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................................... Available Information; Incorporation of
Certain Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information............................................ Summary; Risk Factors; Selected
Historical and Pro Forma Financial
and Operating Data; Comparative Per Share
Data; Comparative Market Price Data;
Pro Forma Combined Condensed
Financial Information; The E&B
Marine Annual Meeting--Record Date
Voting Rights; The Merger--Certain
Federal Income Tax
Consequences;--Regulatory
Approvals;--Federal Securities Law
Compliance;--Absence of Dissenters'
Rights
4. Terms of the Transaction...................................... Summary; The Merger; The Merger
Agreement; The Stockholders
Agreement; Description of West
Marine Capital Stock; Comparison of
the Rights of West Marine Common
Stock and Holders of E&B Marine
Common Stock
5. Pro Forma Financial Information............................... Summary; Pro Forma Combined
Condensed Financial Information
6. Material Contracts with the Company
Being Acquired............................................... The Merger; The Merger Agreement;
The Stockholders Agreement
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters................ Not Applicable
8. Interests of Named Experts and Counsel........................ Legal Matters; Experts
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FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
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9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities............................ Not Applicable
(INFORMATION ABOUT THE REGISTRANT)
10. Information with Respect to S-3 Registrants............... Incorporation of Certain Documents by
Reference; Summary; Risk Factors;
The Merger; The Merger Agreement;
The Stockholders Agreement; Description of
West Marine Capital Stock
11. Incorporation of Certain Information by Reference......... Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2 or S-3 Registrants........ Not Applicable
13. Incorporation of Certain Information by Reference......... Not Applicable
14. Information with Respect to Registrants Other
than S-2 or S-3 Registrants............................... Not Applicable
(INFORMATION ABOUT THE COMPANY BEING ACQUIRED)
15. Information with Respect to S-3 Companies................. Not Applicable
16. Information with Respect to S-2 or S-3 Companies........... Incorporation of Certain Documents by
Reference; Summary; Selected
Historical and Pro Forma Financial and
Operating Data; Comparative Market
Price Data; The E&B Marine Annual Meeting;
E&B Marine; Consolidated Financial
Statements of E&B Marine
17. Information with Respect to Companies Other than
S-2 or S-3 Companies...................................... Not Applicable
(VOTING AND MANAGEMENT INFORMATION)
18. Information if Proxies, Consents or Authorizations Are
to be Solicited........................................... Incorporation of Certain Documents by
Reference; Summary; The E&B Marine
Annual Meeting; The Merger--Interests
of Certain Persons in the Merger; --Absence
of Dissenters' Rights; E&B Marine--Management;
--Director and Executive Compensation; --Security
Ownership of Certain Beneficial Owners and
Management; Description of West Marine Capital Stock
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FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
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19. Information if Proxies, Consents or Authorizations Are
Not to be Solicited or in an Exchange Offer................ Not Applicable
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E&B MARINE INC.
201 MEADOW ROAD
EDISON, NEW JERSEY 08818
(908) 819-7400
May 17, 1996
Dear Stockholder:
An Annual Meeting of Stockholders of E&B Marine Inc. ("E&B Marine") will be
held at the Clarion Hotel & Towers located at 2055 Lincoln Highway, Route 27,
Edison, New Jersey 08117 on Monday, June 17, 1996 at 10:00 a.m., local
time.
At the Annual Meeting you will be asked to consider and vote upon (i) a
proposal (the "E&B Marine Merger Proposal") to approve and adopt an Agreement
and Plan of Merger (the "Merger Agreement") providing for the merger (the
"Merger") of a wholly-owned subsidiary of West Marine, Inc. ("West Marine") with
and into E&B Marine, pursuant to which, among other things, (a) each share of
common stock, par value $.001 per share ("E&B Marine Common Stock"), of E&B
Marine outstanding at the effective time of the Merger (other than shares held
in E&B Marine's treasury or owned by West Marine or any subsidiary of West
Marine or E&B Marine) will be converted into the right to receive a fraction
(the "Exchange Ratio") of a share of common stock, par value $0.001 per share
("West Marine Common Stock"), of West Marine based on the average closing sales
price per share of West Marine Common Stock for the fifteen trading days
preceding the effective time of the Merger (the "Average West Marine Trading
Price"), which Exchange Ratio will be calculated as follows: (x) if the Average
West Marine Trading Price is at least $38.00 but not greater than $43.875, the
Exchange Ratio will equal the quotient of $6.65 divided by the Average West
Marine Trading Price; (y) if the Average West Marine Trading Price is greater
than $43.875, the Exchange Ratio will equal 0.15157; and (z) if the Average West
Marine Trading Price is less than $38.00, the Exchange Ratio will equal 0.17500;
(b) all outstanding options and warrants to purchase shares of E&B Marine Common
Stock will be assumed by West Marine and become options and warrants to purchase
West Marine Common Stock; and (c) E&B Marine will become a wholly-owned
subsidiary of West Marine; (ii) the election of three directors to the E&B
Marine Board of Directors to serve until the earlier of the annual meeting of
stockholders in 1999 or consummation of the Merger; and (iii) a proposal to
ratify the selection of KPMG Peat Marwick LLP as the independent public
accountants of E&B Marine for the 1996 fiscal year.
Houlihan Lokey Howard & Zukin, the investment banking firm retained by the
E&B Marine Board of Directors to act as its financial advisor in connection with
the Merger, has rendered its opinion to the effect that the consideration to be
received by E&B Marine stockholders pursuant to the Merger Agreement is fair
from a financial point of view.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND THE
TRANSACTIONS RELATED THERETO AND HAS DETERMINED THAT THEY ARE IN THE BEST
INTERESTS OF E&B MARINE AND ITS STOCKHOLDERS. AFTER CAREFUL CONSIDERATION, YOUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE E&B
MARINE MERGER PROPOSAL. YOUR BOARD OF DIRECTORS ALSO RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE ELECTION OF THE DIRECTORS NAMED IN THE PROXY
STATEMENT/PROSPECTUS AND THE SELECTION OF KPMG PEAT MARWICK LLP AS E&B MARINE'S
INDEPENDENT PUBLIC ACCOUNTANTS.
In the materials accompanying this letter, you will find a Notice of Annual
Meeting of Stockholders, a Proxy Statement/Prospectus relating to the actions to
be taken by E&B Marine stockholders at the Annual Meeting and a proxy card. The
Proxy Statement/Prospectus more fully describes the proposed Merger.
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE ANNUAL MEETING IN PERSON.
HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
----------------
SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. IF YOU ATTEND THE
- ---------------------------------------------------------
<PAGE>
ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED
AND VOTED AT THE ANNUAL MEETING.
Sincerely,
Kenneth G. Peskin
Chairman of the Board and Chief Executive Officer
E&B Marine Inc.
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E&B MARINE INC.
201 MEADOW ROAD
EDISON, NEW JERSEY 08818
(908) 819-7400
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MONDAY, JUNE 17, 1996
Notice is hereby given that an Annual Meeting of Stockholders of E&B
Marine Inc. ("E&B Marine") will be held on Monday, June 17, 1996, at 10:00 a.m.,
local time, at the Clarion Hotel & Towers located at 2055 Lincoln Highway, Route
27, Edison, New Jersey 08817, for the following purposes:
(1) To consider and vote upon a proposal (the "E&B Marine Merger
Proposal") to approve and adopt an Agreement and Plan of Merger, dated as
of April 2, 1996 ("Merger Agreement"), among E&B Marine, West Marine, Inc.,
a Delaware corporation ("West Marine"), and WM Merger Sub, Inc., a Delaware
corporation and a wholly owned subsidiary of West Marine ("Merger Sub"),
and the transactions contemplated thereby, pursuant to which Merger
Agreement, among other things, (i) Merger Sub will be merged with and into
E&B Marine, following which E&B Marine will become a wholly owned
subsidiary of West Marine (the "Merger"), (ii) as a result of the Merger,
each share of common stock, par value $.001 per share, of E&B Marine ("E&B
Marine Common Stock") outstanding at the effective time of the Merger
(other than shares held in E&B Marine's treasury or owned by West Marine or
any subsidiary of West Marine or E&B Marine) will be converted into the
right to receive a fraction (the "Exchange Ratio") of a share of common
stock, par value $0.001 per share ("West Marine Common Stock"), of West
Marine based on the average closing sales price per share of West Marine
Common Stock for the fifteen trading days preceding the effective time of
the Merger (the "Average West Marine Trading Price"), which Exchange Ratio
will be calculated as follows: (x) if the Average West Marine Trading Price
is at least $38.00 but not greater than $43.875, the Exchange Ratio will
equal the quotient of $6.65 divided by the Average West Marine Trading
Price; (y) if the Average West Marine Trading Price is greater than
$43.875, the Exchange Ratio will equal 0.15157; and (z) if the Average West
Marine Trading Price is less than $38.00, the Exchange Ratio will equal
0.17500; and (iii) all outstanding options and warrants to purchase E&B
Marine Common Stock will be assumed by West Marine and become options and
warrants to purchase West Marine Common Stock;
(2) To elect three directors to the Board of Directors to serve until
the earlier of the annual meeting of E&B Marine stockholders in 1999 or
consummation of the Merger;
(3) To ratify the selection of E&B Marine's independent public
accountants for the 1996 fiscal year; and
(4) To transact such other business that may properly come before the
Annual Meeting or any postponements or adjournments thereof.
Only stockholders of record at the close of business on May 10, 1996 are
entitled to notice of and to vote at the Annual Meeting, or at any postponements
or adjournments thereof. The affirmative vote of the holders of a majority of
the outstanding shares of E&B Marine Common Stock is required for the approval
of the Merger. Directors shall be elected by a plurality of votes present in
person or represented by proxy at the Annual Meeting and entitled to vote on the
election of directors.
Under the Delaware General Corporation Law, stockholders of E&B Marine will
not have the right to assert dissenters rights in connection with the proposed
Merger. See "The Merger--Absence of Dissenters' Rights" in the Proxy
Statement/Prospectus accompanying this notice.
A complete list of stockholders entitled to vote at the Annual Meeting will
be available for examination at E&B Marine's principal executive offices, for
any purposes germane to the Annual Meeting, during ordinary business hours, for
a period of at least 10 days prior to the Annual Meeting.
<PAGE>
IMPORTANT
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES OF E&B MARINE
COMMON STOCK THAT YOU OWN. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL
MEETING IN PERSON, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT WITHOUT DELAY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE
IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY THEN
WITHDRAW YOUR PROXY AND VOTE IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT
ANY TIME BEFORE IT IS VOTED.
Edison, New Jersey
May 17, 1996
BY ORDER OF THE BOARD OF DIRECTORS,
Kenneth G. Peskin
Chairman of the Board and Chief
Executive Officer
E&B Marine Inc.
PLEASE DO NOT SEND IN ANY
STOCK CERTIFICATES AT THIS TIME.
<PAGE>
WEST MARINE, INC.
AND
E&B MARINE INC.
----------------
E&B MARINE INC. PROXY STATEMENT
----------------
WEST MARINE, INC. PROSPECTUS
----------------
This Proxy Statement/Prospectus is being furnished to holders of common
stock, par value $.001 per share ("E&B Marine Common Stock"), of E&B Marine
Inc., a Delaware corporation ("E&B Marine"), in connection with the
solicitation of proxies by the Board of Directors of E&B Marine (the "E&B
Marine Board") for use at the annual meeting of the stockholders of E&B Marine
(the "E&B Marine Annual Meeting") to be held at 10:00 a.m., local time, on
Monday, June 17, 1996, or at any adjournments or postponements thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting
of Stockholders. The E&B Marine Annual Meeting will be held at the Clarion
Hotel & Towers, 2055 Lincoln Highway, Route 27, Edison, New Jersey 08817. E&B
Marine's telephone number at that location is (908) 287-3500.
This Proxy Statement/Prospectus constitutes a prospectus of West Marine,
Inc. ("West Marine") with respect to up to 776,615 shares of West Marine
common stock, par value $0.001 per share ("West Marine Common Stock"), to be
issued in connection with the merger (the "Merger") of WM Merger Sub, Inc.
("Merger Sub"), a Delaware corporation, with and into E&B Marine pursuant to
the Agreement and Plan of Merger, dated as of April 2, 1996 (the "Merger
Agreement"), among West Marine, Merger Sub and E&B Marine.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT/
PROSPECTUS. E&B MARINE STOCKHOLDERS ARE STRONGLY URGED TO READ AND CAREFULLY
CONSIDER THIS PROXY STATEMENT/ PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE
MATTERS REFERRED TO UNDER "RISK FACTORS" BEGINNING ON PAGE 20.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to stockholders of E&B Marine on or about May 17, 1996.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS MAY 17, 1996.
<PAGE>
TABLE OF CONTENTS
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AVAILABLE INFORMATION.................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 1
NO AUTHORIZATION......................................................... 2
CAUTIONARY STATEMENT..................................................... 2
SUMMARY.................................................................. 4
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING
DATA................................................................ 14
COMPARATIVE PER SHARE DATA............................................... 17
COMPARATIVE MARKET PRICE DATA............................................ 18
RISK FACTORS............................................................. 20
Certain Effects of the Merger; Integration of E&B Marine............ 20
Merger Expenses..................................................... 21
Expansion........................................................... 21
Seasonality, Weather and Fluctuations in Operating Results.......... 22
Competition......................................................... 22
Acquisitions........................................................ 22
Dependence on Consumer Spending..................................... 23
Management of West Marine........................................... 23
Control of West Marine.............................................. 23
Environmental Regulation............................................ 23
Possible Volatility of West Marine Common Stock Price............... 24
Reliance on Vendors and Manufacturers............................... 24
THE E&B MARINE ANNUAL MEETING............................................ 24
Time, Place and Date of the E&B Marine Annual Meeting............... 24
Purposes of the E&B Marine Annual Meeting........................... 24
Record Date; Voting Rights.......................................... 25
Proxies; Revocation of Proxies...................................... 25
THE MERGER............................................................... 26
Background of the Merger............................................ 26
E&B Marine's Reasons for the Merger; Recommendations of the
Board of Directors of E&B Marine................................... 28
Opinion of Houlihan Lokey Howard & Zukin............................ 30
Interests of Certain Persons in the Merger.......................... 32
Accounting Treatment................................................ 33
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Certain Federal Income Tax Considerations........................... 33
Regulatory Approvals................................................ 36
Federal Securities Law Consequences................................. 36
NASDAQ National Market ............................................. 37
Absence of Dissenters' Rights....................................... 37
West Marine's Reasons for the Merger................................ 37
Business of E&B Marine Following the Merger......................... 37
THE MERGER AGREEMENT..................................................... 38
Effective Time of Merger............................................ 38
Conversion of Shares................................................ 38
Treatment of E&B Marine Stock Options and Warrants.................. 39
Business of E&B Marine Pending the Merger........................... 40
Solicitation of Other Proposals..................................... 41
Business of West Marine Pending the Merger.......................... 41
Corporate Structure and Related Matters After the Merger............ 42
Conditions to the Merger............................................ 42
Termination; Amendment.............................................. 43
Fees and Expenses................................................... 44
THE STOCKHOLDERS AGREEMENT..,............................................ 45
Agreement To Vote................................................... 45
Covenants of the Stockholders....................................... 45
Termination and Expenses............................................ 47
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION....................... 49
E&B MARINE............................................................... 53
Business............................................................ 53
Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 58
Management.......................................................... 61
Director and Executive Compensation................................. 64
Security Ownership of Certain Beneficial Owners and Management...... 71
ELECTION OF E&B MARINE DIRECTORS......................................... 74
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS........................ 75
DESCRIPTION OF WEST MARINE CAPITAL STOCK................................. 75
Common Stock........................................................ 75
Preferred Stock..................................................... 76
Section 203 of the Delaware General Corporation Law................. 76
Transfer Agent and Registrar........................................ 76
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COMPARISON OF THE RIGHTS OF HOLDERS OF WEST MARINE COMMON
STOCK AND E&B MARINE COMMON STOCK.................................... 77
LEGAL MATTERS............................................................ 80
EXPERTS.................................................................. 80
OTHER MATTERS............................................................ 80
STOCKHOLDER PROPOSALS.................................................... 80
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF E&B MARINE................. 81
</TABLE>
ANNEX A AGREEMENT AND PLAN OF MERGER
ANNEX B STOCKHOLDERS AGREEMENT
ANNEX C OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN
<PAGE>
AVAILABLE INFORMATION
West Marine and E&B Marine are each subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
reports, proxy statements and other information filed by West Marine and E&B
Marine with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center,
Suite 1300, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates. In addition, material filed by West Marine and E&B Marine can be
inspected at the offices of the National Association of Securities Dealers,
Inc., Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
West Marine has filed with the Commission a Registration Statement on Form
S-4 (together with any amendments thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the securities to be issued pursuant to the Merger Agreement. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain parts of
which have been omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Proxy Statement/Prospectus or in any
document incorporated by reference in this Proxy Statement/Prospectus as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference. Copies of the Registration Statement and the exhibits and schedules
thereto may be obtained, upon payment of the fee prescribed by the Commission,
or may be examined without charge at the Commission's principal office in
Washington, D.C.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by West Marine or E&B
Marine pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus:
1. West Marine's Annual Report on Form 10-K for the fiscal year
ended December 30, 1995 ("West Marine's Annual Report");
2. West Marine's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 8, 1996;
3. West Marine's Current Report on Form 8-K, dated April 2, 1996;
4. West Marine's Quarterly Report on Form 10-Q for the quarter
ended March 30, 1996;
5. The Description of the West Marine Common Stock contained in the
Registration Statement on Form 8-A filed with the Commission on
September 30, 1993;
6. E&B Marine's Annual Report on Form 10-K for the fiscal year ended
December 30, 1995; and
7. E&B Marine's Quarterly Report on Form 10-Q for the quarter ended
March 30, 1996.
All documents and reports subsequently filed by West Marine and E&B Marine
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Proxy Statement/Prospectus and prior to the date of the E&B Marine
Annual Meeting shall be deemed to be incorporated by reference in this Proxy
Statement/Prospectus and to be a part hereof from the date of the filing of such
documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by
<PAGE>
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus 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/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST,
WITHOUT CHARGE, IN THE CASE OF DOCUMENTS RELATING TO WEST MARINE, DIRECTED TO
WEST MARINE, INC., 500 WESTRIDGE DRIVE, WATSONVILLE, CALIFORNIA 95076-4100
(TELEPHONE NUMBER (408) 728-2700), ATTENTION: SECRETARY - INVESTOR RELATIONS,
OR, IN THE CASE OF DOCUMENTS RELATING TO E&B MARINE, DIRECTED TO E&B MARINE
INC., 201 MEADOW ROAD, EDISON, NEW JERSEY 08818 (TELEPHONE NUMBER (908) 819-
7400), ATTENTION: SECRETARY. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUESTS SHOULD BE MADE BY JUNE 10, 1996.
WEST MARINE HAS SUPPLIED ALL INFORMATION CONTAINED IN THE PROXY
STATEMENT/PROSPECTUS RELATING TO WEST MARINE AND ITS SUBSIDIARIES, AND E&B
MARINE HAS SUPPLIED ALL INFORMATION CONTAINED IN THE PROXY STATEMENT/PROSPECTUS
RELATING TO E&B MARINE AND ITS SUBSIDIARIES.
Unless the context otherwise requires, "West Marine" refers to both West
Marine, Inc. and its subsidiary, West Marine Products, Inc.
NO AUTHORIZATION
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY WEST MARINE, E&B MARINE OR ANY OTHER
PERSON. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF WEST MARINE OR E&B MARINE SINCE THE DATE HEREOF
OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
CAUTIONARY STATEMENT
This Proxy Statement/Prospectus contains certain forward looking
statements with respect to the financial condition, results of operations and
business of West Marine following the consummation of the Merger, including
statements relating to the restructuring charges expected to be incurred in
connection with the Merger. These forward looking statements involve certain
risks and uncertainties. Factors that may cause actual results to differ
materially from those contemplated by such forward looking statements include,
among others, matters discussed herein under "Risk Factors" as well as the
following possibilities: (1) expected cost savings from the Merger cannot be
fully realized; (2) customer loss or revenue loss following the Merger being
greater than expected; (3) competitive pressure in the recreational boating
supply industry increasing significantly; (4) costs or difficulties related to
the integration of the businesses of West Marine and E&B
2
<PAGE>
Marine being greater than expected; and (5) general economic conditions, either
nationally or in the states in which the combined company will be doing
business, being less favorable than expected.
3
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained, or
incorporated by reference, in this Proxy Statement/Prospectus and the Annexes
hereto. Unless otherwise defined herein, capitalized terms used in this summary
have the respective meanings ascribed to them elsewhere in this Proxy
Statement/Prospectus. E&B Marine stockholders are urged to read this Proxy
Statement/Prospectus and the Annexes hereto in their entirety. See "Risk
Factors" for certain information that should be considered by the stockholders
of E&B Marine.
THE COMPANIES
West Marine........................ West Marine is the leading specialty
retailer of recreational boating supplies
and apparel in the United States, offering
(as of May 10, 1996) products through 82
stores in 18 states and through catalogs
which it distributes several times each
year. West Marine's business strategy is to
offer an extensive selection of high
quality marine supplies and apparel to the
recreational aftermarket for both sailboats
and powerboats at competitive prices in a
convenient, one-stop shopping environment
emphasizing customer service and technical
assistance. West Marine also is engaged
through its Port Supply division and retail
stores in the wholesale distribution of
marine supplies to commercial customers and
other retailers. The principal executive
offices of West Marine are located at 500
Westridge Drive, Watsonville, California
95076-4100, and its telephone number is
(408) 728-2700.
E&B Marine......................... E&B Marine is engaged in the retail and
mail-order merchandising of a wide variety
of marine supplies and apparel to the
recreational boating community. E&B Marine
operates (as of May 10, 1996) 64
specialty stores in 18 states. E&B Marine
markets its products primarily to the
recreational boating community through
specialty stores and catalogs that it
distributes to known and prospective
customers throughout the recreational
boating community several times each year.
The principal executive offices of E&B
Marine are located at 201 Meadow Road,
Edison, New Jersey 08818, and its telephone
number is (908) 819-7400.
Merger Sub......................... Merger Sub was recently organized by West
Marine for the purpose of effecting the
acquisition of E&B Marine. It has no
material assets and has not engaged in any
activities except in connection with the
proposed Merger. The principal executive
offices of Merger Sub are located at 500
Westridge Drive, Watsonville, California
95076-4100, and its telephone number is
(408) 728-2700.
4
<PAGE>
RISK FACTORS
Risk Factors....................... The following information should be
considered carefully by the holders of E&B
Marine Common Stock in evaluating whether
to approve and adopt the Merger Agreement,
and the transactions contemplated thereby,
including the Merger, and thereby become
holders of West Marine Common Stock
pursuant to the Merger:
The integration of E&B Marine's business
operations with West Marine's will present
difficult challenges for West Marine's
management due to the increased time and
resources required in the management
effort. Further, West Marine's ability to
successfully integrate E&B Marine's
business and operations with West Marine's
business and operations is dependent upon a
number of factors, such as West Marine's
ability to hire and train new employees and
integrate existing E&B Marine management
and employees, convert and adapt
information and other operational systems
and retain existing E&B Marine customers.
Accordingly, there can be no assurance that
West Marine will be able to successfully
integrate E&B Marine's business and
operations. Also, failure to successfully
integrate E&B Marine's business and
operations could adversely affect West
Marine's results of operations and
financial condition. See "Risk Factors--
Certain Effects of the Merger; Integration
of E&B Marine."
West Marine's growth has been driven
principally by its store operations. West
Marine's continued growth depends to a
significant degree on its ability to open
new stores and to operate these stores
profitably. West Marine's continued
expansion is subject to a number of
factors, including the adequacy of West
Marine's capital resources and West
Marine's ability to locate suitable store
sites and negotiate acceptable lease terms,
to hire, train and integrate employees and
to adapt its distribution and other
operational systems.
In addition, acquisitions involve a number
of special risks, including the diversion
of management's attention to the
assimilation of the operations and
personnel of the acquired business, and may
have potential adverse short-term effects
on West Marine's operating results and
amortization expense of acquired intangible
assets.
The market for recreational boating
supplies is highly competitive. Competitive
pressures resulting from competitors'
pricing policies have adversely affected
5
<PAGE>
West Marine's gross margins and such
pressures are expected to continue. West
Marine is also susceptible to seasonality
and weather and if unseasonably cool
weather, prolonged winter conditions or
extraordinary amounts of rainfall were to
occur during the peak boating season in the
second and third quarters, West Marine's
net sales and net income could be adversely
affected.
Several other factors which may influence
West Marine's financial results include the
level of consumer spending on recreational
boating supplies, environmental
regulations, demand for and acceptance of
West Marine's products and other risk
factors described in "Risk Factors" herein.
THE E&B MARINE ANNUAL MEETING
Time, Place and Date of the
E&B Marine Annual Meeting.......... The E&B Marine Annual Meeting will be held
at 10:00 a.m., local time, on Monday, June
17, 1996, at the Clarion Hotel & Towers,
2055 Lincoln Highway, Route 27, Edison, New
Jersey 08117.
Purposes of the E&B Marine
Annual Meeting..................... At the E&B Marine Annual Meeting,
stockholders will be asked to consider and
vote upon a proposal to adopt and approve
the Merger Agreement and the transactions
contemplated thereby, including the Merger.
A copy of the Merger Agreement is attached
to this Proxy Statement/Prospectus as Annex
A. If the Merger is approved and
consummated, each share of E&B Marine
Common Stock outstanding at the date and
time that the Merger becomes effective
(other than shares held in E&B Marine's
treasury or owned by West Marine or any
subsidiary of West Marine or E&B Marine)
will be converted into the right to receive
in the Merger a fraction (the "Exchange
Ratio") of a share of West Marine Common
Stock, based upon the arithmetic mean of
the closing sales price of West Marine
Common Stock during each of the fifteen
trading days immediately preceding such
effective time of the Merger (the
"Effective Time"). Specifically, the
Exchange Ratio will be calculated as
follows: (i) if the Average West Marine
Trading Price is at least $38.00 but not
greater than $43.875, the Exchange Ratio
will equal the quotient of $6.65 divided by
the Average West Marine Trading Price; (ii)
if the Average West Marine Trading Price is
greater than $43.875, the Exchange Ratio
will equal 0.15157; and (iii) if the
Average West Marine Trading Price is less
than
6
<PAGE>
$38.00, the Exchange Ratio will equal
0.17500. No fractional shares of West
Marine Common Stock will be issued and cash
will be paid in lieu of any such fractional
shares. See "The Merger Agreement--
Conversion of Shares."
In addition, E&B Marine's stockholders will
also be asked (i) to elect three directors
to the E&B Marine Board, in each case to
serve until the earlier of the consummation
of the Merger (if approved by the
stockholders and subsequently consummated)
or until the 1999 Annual Meeting of
Stockholders of E&B Marine and (ii) to
ratify the selection of E&B Marine's
independent public accountants for the 1996
fiscal year. See "The E&B Marine Annual
Meeting--Purposes of the E&B Marine Annual
Meeting."
Record Date; Voting Rights......... Holders of record of E&B Marine Common
Stock at the close of business on May 10,
1996 (the "Record Date") will be entitled
to notice of, and to vote at, the E&B
Marine Annual Meeting and at any
adjournment or postponement thereof. There
were issued and outstanding 3,943,919
shares of E&B Marine Common Stock as of the
Record Date, held by approximately 1,410
stockholders of record.
Under the Delaware Law, the adoption and
approval of the Merger Agreement by the
stockholders of E&B Marine requires the
affirmative vote of the holders of at least
a majority of the outstanding shares of E&B
Marine Common Stock. As of the Record Date,
2,110,135 shares of E&B Marine Common Stock
(approximately 53.5% of the shares of E&B
Marine Common Stock outstanding as of the
Record Date) were outstanding and entitled
to be voted by the directors and officers,
and their affiliates, of E&B Marine. See
"The E&B Marine Annual Meeting--Record
Date; Voting Rights."
Certain principal stockholders of E&B
Marine consisting of DLJ Capital
Corporation, DLJ Venture Capital Fund II,
L.P., Sprout Capital V, Sprout Growth,
L.P., Sprout Growth, Ltd., Kenneth G.
Peskin, the Chairman of the Board and Chief
Executive Officer of E&B Marine, and his
wife Judith Peskin, as trustee of certain
family trusts (collectively, the "Principal
Stockholders"), have entered into a
Stockholders Agreement, a copy of which is
attached to this Proxy Statement/Prospectus
as Annex B, pursuant to which the Principal
Stockholders have agreed to vote their
respective shares of E&B Marine Common
Stock
7
<PAGE>
in favor of the Merger at the E&B Marine
Annual Meeting. As of the Record Date,
these stockholders beneficially owned, in
the aggregate, 2,065,245 shares of E&B
Marine Common Stock, constituting
approximately 52.4% of the shares of E&B
Marine Common Stock outstanding on the
Record Date, which number is sufficient to
approve the Merger. When these shares of
E&B Marine Common Stock are voted at the
E&B Marine Annual Meeting in favor of the
adoption and approval of the Merger
Agreement and the transactions contemplated
thereby, the affirmative vote of additional
shares of E&B Marine Common Stock will not
be required to so adopt and approve the
Merger Agreement and the transactions
contemplated thereby. See "The Stockholders
Agreement."
A majority of the shares of E&B Marine
Common Stock entitled to vote at the E&B
Marine Annual Meeting is required to ratify
the selection of the independent public
accountants, and the three candidates for
director receiving the highest number of
affirmative votes cast at the E&B Marine
Annual Meeting will be elected as directors
of E&B Marine. Holders of a majority of the
shares of E&B Marine Common Stock entitled
to vote at the E&B Marine Annual Meeting,
represented in person or by proxy, will
constitute a quorum. Each holder will be
entitled to cast one vote for each share of
E&B Marine Common Stock held.
THE MERGER
E&B Marine's Reasons for the Merger;
Recommendations of the Board
of Directors of E&B Marine........ For a discussion of the factors considered
by the E&B Marine Board in reaching its
decisions to approve the Merger Agreement
and the transactions contemplated thereby,
including the Merger and recommend that the
E&B Marine stockholders vote FOR the
proposal to adopt and approve the Merger
Agreement and the transactions contemplated
thereby, including the Merger, see "The
Merger--E&B Marine's Reasons for the
Merger; Recommendations of the Board of
Directors of E&B Marine."
Opinion of Houlihan Lokey
Howard & Zukin..................... Houlihan Lokey Howard & Zukin ("Houlihan
Lokey") has delivered its written opinion
to the E&B Marine Board to the effect that,
as of the date of its opinion, the
consideration to be received by the E&B
Marine stockholders pursuant to the Merger
Agreement is fair to E&B Marine
stockholders from a financial point of
view. A copy of such opinion, which sets
8
<PAGE>
forth the assumptions made, matters
considered, and limits on the review
undertaken by Houlihan Lokey in arriving at
its opinion is attached to this Proxy
Statement/Prospectus as Annex C, and should
be read in its entirety. See "The Merger -
Opinion of Houlihan Lokey Howard & Zukin."
Interests of Certain Persons in
the Merger........................ In considering the recommendation of the
E&B Marine Board to approve and adopt the
Merger Agreement and the transactions
contemplated thereby, including the Merger,
E&B Marine stockholders should be aware
that the executive officers of E&B Marine
and certain members of the E&B Marine Board
have interests in the Merger that are in
addition to the interests of E&B Marine
stockholders generally, and that the
members of the E&B Marine Board having such
interests participated in the discussion,
deliberation and voting of the E&B Marine
Board with respect to the Merger Agreement,
such as:
Ownership of shares of E&B Marine Common
Stock. As of the Record Date, Kenneth G.
Peskin, Chairman of the Board and Chief
Executive Officer of E&B Marine held
336,598 shares of E&B Marine Common Stock,
constituting approximately 8.5% of the then
outstanding shares of E&B Marine Common
Stock. Richard E. Kroon, a director of E&B
Marine, is (i) managing partner of the
general partner of Sprout Growth, L.P. and
Sprout Capital V, (ii) managing partner of
the investment manager of Sprout Growth,
Ltd., (iii) a limited partner of DLJ
Venture Capital Fund II, L.P. and (iv)
President of DLJ Capital Corporation, which
entities (the "DLJ Stockholders")
collectively then beneficially owned
1,728,647 shares of E&B Marine Common
Stock, constituting approximately 43.9% of
the then outstanding shares of E&B Marine
Common Stock.
Financial Advisor. DLJ, an affiliate of the
DLJ Stockholders, has acted as a financial
advisor to E&B Marine throughout the Merger
negotiations and will receive fees and
expense reimbursements from E&B Marine at
the Effective Time in an amount equal to
approximately $820,000.
Acceleration of Options. Options to
purchase shares of E&B Marine Common Stock
have been granted to certain executive
officers of E&B Marine, certain of which
options will accelerate on or prior to the
fifteenth day prior to the Effective Time.
See "The Merger--Interests of Certain
Persons in the Merger."
Retention Agreements. Each of Walfrido A.
Martinez, Senior Vice President and Chief
Financial Officer, Patrick J. Melli, Senior
Vice President, Inventory Management and
Information Services, and Robert G.
Defonte, Senior Vice President,
Merchandising and Secretary, have been
given the opportunity to enter into a
retention agreement (the "Retention
Agreement") with E&B Marine pursuant to
which, among other things, in consideration
of such executive officer of E&B Marine
continuing to provide service to E&B Marine
through a date to be determined by E&B
Marine, E&B Marine will not terminate such
executive officer's employment prior to
such date and will pay such executive
officer an amount equal to 52 weeks of his
then current annual base salary after such
date. As of the Record Date, Messrs.
Martinez and Melli have each entered into a
Retention Agreement with E&B Marine. For a
description of the severance arrangements
for each of Mr. Peskin and James D. Peters,
President and Chief Operating Officer, see
"E&B Marine--Directors and Executive
Compensation."
9
<PAGE>
Accounting Treatment............... The Merger will be accounted for by West
Marine under the purchase method of
accounting in accordance with Accounting
Principles Board Opinion No. 16, "Business
Combinations," as amended. Under this
method of accounting, the purchase price
will be allocated to assets acquired and
liabilities assumed based on their
estimated fair values at the Effective
Time. Income of the combined company will
not include income (or loss) of E&B Marine
prior to the Effective Time.
Certain Federal Income Tax
Considerations................... The Merger is intended to constitute a
reorganization so that no gain or loss
would be recognized by E&B Marine
stockholders with respect to the receipt of
West Marine Common Stock in exchange for
their shares of E&B Marine Common Stock in
the Merger (except with respect to any cash
received in lieu of fractional shares of
West Marine Common Stock). Among the
conditions to the Merger are that each of
West Marine and E&B Marine receive an
opinion of counsel to the effect that the
Merger will constitute a reorganization
within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended
(the "Code"). For a further discussion of
certain of the federal income tax
consequences of the Merger, see "The
Merger--Certain Federal Income Tax
Considerations." See also "The Merger
Agreement--Conditions to the Merger."
Absence of Dissenters' Rights...... Holders of E&B Marine Common Stock will not
be entitled to dissenters' rights under
Delaware Law in connection with the Merger.
See "The Merger--Absence of Dissenters'
Rights."
Business of E&B Marine
Following the Merger.............. West Marine and E&B Marine expect that all
of E&B Marine's directors who are now
serving will be replaced by directors
designated by West Marine concurrently with
the consummation of the Merger. It is
anticipated that the employment of
executive management and certain
administrative personnel of E&B Marine also
will be terminated before the end of 1996.
Certain officers of West Marine will be
appointed as the officers of E&B Marine.
10
<PAGE>
In the short term, the business of E&B
Marine will continue to be conducted under
the names "E&B Marine," "Bliss Marine" and
"Goldberg's Marine." However, in order for
the combined company to operate profitably
after the Merger, the management of West
Marine plans to implement strategies to
improve E&B Marine's operating profits and
to facilitate the successful combination of
the E&B Marine stores and the West Marine
stores into one company, including the
reduction of corporate overhead by
eliminating E&B Marine's corporate
headquarters and centralizing management of
West Marine and E&B Marine at West Marine's
corporate headquarters in Watsonville,
California, the modification of the product
selection in E&B Marine stores, the review
of unprofitable and underperforming E&B
Marine retail stores, with a view to
determining on an expedited basis which
stores can be made profitable or should be
closed and the closing or relocating, after
approximately eighteen months, of E&B
Marine's distribution center in Edison, New
Jersey. West Marine, however, reserves the
right to take any such actions and effect
any such changes it deems desirable.
THE MERGER AGREEMENT
Conditions to the Merger........... Consummation of the Merger is subject to
the satisfaction of a number of conditions,
including but not limited to (i) the
adoption of the Merger Agreement by the
requisite vote of the stockholders of E&B
Marine; (ii) the authorization for
inclusion for trading on the NASDAQ
National Market of the shares of West
Marine Common Stock to be issued in
connection with the Merger; (iii) the
absence of any restrictive court orders or
any other legal restraints or prohibitions,
and of any pending governmental
proceedings, preventing the consummation of
the Merger; (iv) the continuing accuracy in
all material respects of certain of the
representations and warranties made in the
Merger Agreement on and as of the Effective
Time; and (v) the receipt by West Marine
and E&B Marine of certain opinions
regarding legal and tax matters. See "The
Merger Agreement--Conditions to the
Merger."
Termination........................ The Merger Agreement may be terminated and
the Merger may be abandoned prior to the
Effective Time either before or after its
approval by the stockholders of E&B Marine,
under the circumstances specified in the
Merger Agreement, including by the mutual
written agreement of West Marine and E&B
Marine and by either party if the Merger is
not consummated by
11
<PAGE>
August 31, 1996.
Under certain circumstances, E&B Marine may
be required to pay a termination fee and to
reimburse West Marine for certain of its
expenses if the Merger Agreement is
terminated. See "The Merger Agreement--
Termination; Amendment" and "--Fees and
Expenses."
Surrender of Certificates.......... If the Merger becomes effective, E&B
Marine, as the surviving corporation of the
Merger, will mail a letter of transmittal
with instructions to all holders of record
of E&B Marine Common Stock as of the
Effective Time for use in surrendering
their stock certificates in exchange for
certificates representing West Marine
Common Stock and a cash payment in lieu of
fractional shares. Certificates should not
be surrendered until the letter of
transmittal is received.
The Stockholders Agreement......... The Stockholders Agreement provides, among
other things, that each Principal
Stockholder shall vote (or cause to be
voted), at the E&B Marine Annual Meeting or
any other meeting of E&B Marine
stockholders, the shares of E&B Marine
Common Stock held by such stockholder in
favor of (i) the Merger, (ii) the execution
and delivery by E&B Marine of the Merger
Agreement and the approval of the terms
thereof and (iii) each of the other actions
contemplated by the Merger Agreement, and
against (a) certain changes in the
structure, capitalization, business or
governance of E&B Marine or (b) any other
action which is intended, or could
reasonably be expected, to impede,
interfere with, delay, postpone, discourage
or materially adversely affect the
contemplated economic benefits to West
Marine of the Merger or the transactions
contemplated by the Merger Agreement or the
Stockholders Agreement. In addition, each
Principal Stockholder has granted to, and
appointed, West Marine and certain officers
of West Marine as each such Principal
Stockholder's irrevocable proxy and
attorney-in-fact (with full power of
substitution) to vote the shares of E&B
Marine Common Stock in accordance with the
provisions of the Stockholders Agreement.
See "The Stockholders Agreement--Agreement
to Vote."
In the Stockholders Agreement, the
Principal Stockholders have agreed to
certain covenants, including that no such
stockholder shall (i) solicit or respond to
any inquiry, proposal or offer by any
person (other than West Marine or an
affiliate of West Marine)
12
<PAGE>
with respect to E&B Marine that constitutes
or could reasonably be expected to lead to
an Acquisition Proposal or (ii) sell,
encumber or otherwise transfer or dispose
of such Principal Stockholder's shares of
E&B Marine Common Stock or any interest
therein. See "The Stockholders Agreement--
Covenants of the Stockholders."
The Stockholders Agreement terminates upon,
among other things, the first to occur of
the termination of the Merger Agreement in
accordance with its terms or the Effective
Time. Under certain circumstances, certain
of the Principal Stockholders may be
required to pay a termination fee and to
reimburse West Marine for certain of its
expenses if the Stockholders Agreement or
Merger Agreement is terminated. See "The
Stockholders Agreement--Termination and
Expenses."
Comparison of Stockholder Rights... See "Comparison of the Rights of Holders of
West Marine Common Stock and E&B Marine
Common Stock" for a summary of the material
differences between the rights of holders
of West Marine Common Stock and E&B Marine
Common Stock.
13
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
The following selected historical information of West Marine and E&B
Marine has been derived from their respective historical consolidated financial
statements, and should be read in conjunction with such historical consolidated
financial statements of West Marine and the related notes thereto, which are
incorporated by reference in this Proxy Statement/Prospectus, and the historical
consolidated financial statements of E&B Marine and the related notes thereto,
presented elsewhere in this Proxy Statement/Prospectus. The selected pro forma
financial information is derived from the pro forma combined condensed financial
statements and should be read in conjunction with such pro forma statements and
the notes thereto, which are included on pages 49 through 52 in this Proxy
Statement/Prospectus.
The pro forma information and the related notes thereto are provided for
informational purposes only. The pro forma information presented is not
necessarily indicative of the consolidated financial position or results of
operations of West Marine as they may be in the future or as they might have
been had the Merger been effected on the assumed dates.
14
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
FOR THE
FISCAL YEAR/(1)/ FISCAL QUARTER ENDED
-------------------------------------------------- --------------------
April 1, March 30,
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- -------- ---------
HISTORICAL-WEST MARINE
Consolidated Income Statement Data:
- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.............................. $74,750 $97,117 $122,815 $169,923 $224,204 $42,222 $ 49,947
Income from operations................. 4,612 5,819 6,904 10,935 16,198 858 846
Income before income taxes............. 4,094 5,134 5,903 9,740 14,819 244 554
Net income............................. 5,985 8,975 146 332
Pro forma net income/(2)/.............. 2,429 3,080 3,542
Net income per common and
common equivalent share:
Primary......................... 0.91 1.22 0.02 0.04
Fully Diluted................... 0.91 1.21 0.02 0.04
Pro forma net income per common
and common equivalent share:
Primary and fully diluted....... 0.69
Supplemental pro forma net
income per common and
common equivalent share/(3)/:
Primary......................... 0.55 0.60
Fully diluted................... 0.54 0.60
Operating Data:
- ---------------
Stores open at year end................ 19 27 37 54 72 61 77
Comparable store net sales
increase........................... 6.9% 4.3% 8.0% 15.8% 9.0% 11.1% 5.0%
<CAPTION>
AT THE
AT FISCAL YEAR ENDED FISCAL QUARTER ENDED
-------------------------------------------------- --------------------
April 1, March 30,
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- -------- ---------
Consolidated Balance Sheet Data:
- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital........................ $ 9,632 $12,600 $ 21,724 $ 30,757 $ 58,619 $28,659 $ 67,591
Total assets........................... 22,261 36,050 46,458 70,385 95,845 89,292 110,749
Long-term debt......................... 5,188 7,446 4,459 12,297 8,284 12,257 18,820
Total stockholders' equity............. 9,341 11,891 24,816 30,477 67,279 30,663 67,728
<CAPTION>
FOR THE
FISCAL YEAR/(4)/ FISCAL QUARTER ENDED
-------------------------------------------------- --------------------
April 1, March 30,
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- -------- ---------
HISTORICAL-E&B MARINE
Consolidated Income Statement Data:
- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.............................. $84,460 $87,647 $ 92,713 $101,752 $109,818 $19,131 $ 19,205
(Loss) income from operations.......... (827) 2,387 3,878 4,409 3,161 (1,479) (2,776)
(Loss) income before income taxes and
extraordinary items................ (2,328) 1,323 3,353 3,227 1,669 (1,879) (3,237)
Net (loss) income...................... (2,328) 1,286 5,353 5,727 1,019 (1,128) (1,942)
Net (loss) income per share............ (0.64) 0.36 1.34 1.38 0.29 (0.30) (0.49)
Operating Data:
- ---------------
Stores open at year end................ 46 46 49 55 61 56 62
Comparable store net sales
(decrease) increase................. (7.8)% 8.8% 3.2% 1.1% 1.0% 1.6% (3.4)%
<CAPTION>
AT THE
AT FISCAL YEAR ENDED FISCAL QUARTER ENDED
-------------------------------------------------- --------------------
April 1, March 30,
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- -------- ---------
Consolidated Balance Sheet Data:
- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital........................ $ 5,987 $ 4,587 $ 4,814 $ 13,047 $ 18,327 $12,974 $ 17,252
Total assets........................... 25,639 25,210 27,805 33,993 37,791 44,605 50,869
Long-term debt......................... 16,560 12,542 7,667 11,963 15,631 13,058 18,194
Total stockholders' (deficit) equity... (2,040) (654) 4,520 10,378 12,134 9,323 10,193
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
FOR AND AT
FOR THE THE FISCAL
FISCAL YEAR ENDED QUARTER ENDED
DECEMBER 30, 1995 MARCH 30, 1996
----------------- --------------
<S> <C> <C>
PRO FORMA-WEST MARINE
AND E&B MARINE
Consolidated Income Statement Data (5):
- ---------------------------------------
Net sales................................ $334,022 $ 69,152
Income (loss) from operations............ 18,455 (2,113)
Income (loss) before income taxes........ 15,584 (2,866)
Net income (loss)........................ 9,193 (1,767)
Net income (loss) per share.............. 1.14 (0.21)
Consolidated Balance Sheet Data (6):
- ------------------------------------
Working capital.......................... $ 80,796
Total assets............................. 192,013
Long-term debt........................... 37,014
Total stockholders' equity (7)........... 99,361
</TABLE>
____________________
(1) West Marine's fiscal year ends on the Saturday closest to December 31 based
on a 52/53 week year.
(2) The objective of the West Marine pro forma information is to show what the
significant effects on the historical financial information might have been
had West Marine not have been treated as an S Corporation for tax purposes
for the majority of fiscal 1993. The pro forma information presented on the
consolidated statements of income reflects a provision for income taxes at
an effective rate of 40% for fiscal 1993.
(3) The West Marine supplemental pro forma net income per share reflects the
issuance of shares to fund the estimated $10 million payment of certain
undistributed taxable S Corporation earnings to certain West Marine
stockholders upon the termination of West Marine's status as an S
Corporation. The calculation is based upon the weighted average of shares
outstanding used in the calculation of pro forma net income per share plus
the number of shares offered by West Marine (803,213) to fund the $10
million distribution of undistributed taxable S Corporation earnings
distributed after the initial public offering.
(4) E&B Marine's fiscal year ends on the last Saturday in December based on a
52/53 week year.
(5) Pro forma to give effect to the acquisition of E&B Marine as if such
acquisition had occurred as of January 1, 1995.
(6) Pro forma to give effect to the acquisition of E&B Marine as if such
acquisition had occurred as of March 30, 1996.
(7) The value of West Marine Common Stock to be issued in the Merger, $31.6
million, is obtained by multiplying an assumed Exchange Ratio (0.15157) by
the number of shares and options of E&B Marine Common Stock issued and
outstanding immediately prior to the Effective Time of the Merger, and
assumes a market value per share of West Marine Common Stock of $50.00.
The historical equity of E&B Marine is eliminated.
16
<PAGE>
COMPARATIVE PER SHARE DATA
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of West
Marine and E&B Marine and combined per share data on an unaudited pro forma
basis after giving effect to the Merger on the purchase method of accounting
assuming that 0.15157 of a share of West Marine Common Stock is issued in
exchange for each share of E&B Marine Common Stock in the Merger and a per share
market price of $50.00 of West Marine Common Stock. This data should be read in
conjunction with the selected historical and pro forma financial data, the pro
forma combined condensed financial statements and the separate historical
consolidated financial statements of West Marine and E&B Marine, and notes
thereto, included elsewhere in this Proxy Statement/Prospectus and incorporated
herein by reference. The unaudited pro forma combined financial data are not
indicative of the operating results that would have been achieved had the
transaction occurred at the beginning of the periods presented and should not be
construed as representative of future operations. Dividends have not been
declared by either West Marine or E&B Marine during their respective fiscal
years ended December 30, 1995 and respective fiscal quarters ended March 30,
1996.
Equivalent pro forma combined amounts per share of E&B Marine Common
Stock are calculated by multiplying the pro forma income (loss) per West Marine
share from continuing operations and pro forma book value per West Marine share
by the Exchange Ratio so that the per share amounts are equated to the
respective values for one share of E&B Marine Common Stock.
<TABLE>
<CAPTION>
AT AND FOR THE FISCAL YEAR AT AND FOR THE FISCAL QUARTER
ENDED DECEMBER 30, 1995 ENDED MARCH 30, 1996
----------------------- --------------------
<S> <C> <C>
HISTORICAL -- WEST MARINE
Income from continuing operations......... $1.21 $0.04
Book value................................ $9.01 $9.06
<CAPTION>
AT AND FOR THE FISCAL YEAR AT AND FOR THE FISCAL QUARTER
ENDED DECEMBER 30, 1995 ENDED MARCH 30, 1996
----------------------- --------------------
<S> <C> <C>
HISTORICAL -- E&B MARINE
Income (loss) from continuing operations.. $0.29 $(0.49)
Book value................................ $3.08 $ 2.59
<CAPTION>
FOR THE FISCAL YEAR AT AND FOR THE FISCAL QUARTER
ENDED DECEMBER 30, 1995 ENDED MARCH 30, 1996
----------------------- --------------------
<S> <C> <C>
PRO FORMA COMBINED PER WEST MARINE SHARE
Income (loss) from continuing operations.. $ 1.14 $(0.21)
Book value................................ $12.28
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR AT AND FOR THE FISCAL QUARTER
ENDED DECEMBER 30, 1995 ENDED MARCH 30, 1996
----------------------- --------------------
<S> <C> <C>
EQUIVALENT PRO FORMA COMBINED PER
E&B MARINE SHARE
Income (loss) from continuing operations.. $0.17 $(0.03)
Book value................................ $ 1.86
</TABLE>
COMPARATIVE MARKET PRICE DATA
West Marine Common Stock is traded on the NASDAQ National Market (the
"NASDAQ"). West Marine's fiscal year ends on the Saturday closest to December
31. E&B Marine Common Stock is traded on the NASDAQ. Prior to September 28,
1994, E&B Marine Common Stock was listed on the Boston Stock Exchange, and for
the period of December 13, 1993, through September 27, 1994, such stock was
traded on the NASDAQ--Small-Cap Market. E&B Marine's fiscal year ends on the
last Saturday in December.
The table below sets forth, for the fiscal quarters indicated, the reported
high and low sales prices of West Marine Common Stock and E&B Marine Common
Stock as reported on the NASDAQ, the Boston Stock Exchange or the NASDAQ--Small-
Cap Market, as applicable, in each case based on published financial sources. No
dividends have been paid on shares of West Marine Common Stock or E&B Marine
Common Stock for the fiscal quarters indicated in the table below.
18
<PAGE>
<TABLE>
<CAPTION>
WEST MARINE E&B MARINE
COMMON STOCK COMMON STOCK
------------ ------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
Fiscal 1994
First Quarter............ $ 22 1/4 $ 14 $ 14 1/4 $ 8 1/2
Second Quarter........... 22 16 1/2 11 1/2 9 1/4
Third Quarter............ 24 19 1/4 11 1/4 7 1/4
Fourth Quarter........... 23 1/4 18 3/4 8 3/4 5
Fiscal 1995
First Quarter............ $ 26 1/2 $ 17 1/2 $ 8 1/2 $ 6 3/4
Second Quarter........... 26 23 1/2 7 3/4 5 1/4
Third Quarter............ 30 3/4 25 6 3/4 5
Fourth Quarter........... 35 28 3/4 6 1/4 3 1/4
Fiscal 1996
First Quarter............ $ 55 1/4 $ 30 1/4 $ 8 $ 3 1/2
Second Quarter (through
May 13, 1996)............ 71 1/4 47 10 1/4 5 7/8
</TABLE>
On April 2, 1996, the last full trading day prior to the execution and
delivery of the Merger Agreement and the public announcement thereof, the
closing price of West Marine Common Stock was $49 1/2 per share on the NASDAQ
and the closing price of E&B Marine Common Stock was $7 7/8 per share on the
NASDAQ. The equivalent market price per share of E&B Marine Common Stock as of
April 2, 1996, based upon a West Marine Common Stock closing price of $49 1/2,
and an application of an Exchange Ratio of 0.15157, would have been $7.50.
On May 13, 1996, the most recent practicable date prior to the printing of
this Proxy Statement/Prospectus, the closing price of West Marine Common Stock
was $68 3/4 per share on the NASDAQ, and the closing price of E&B Marine Common
Stock was $10 1/4 per share on the NASDAQ.
Because the market price of West Marine Common Stock is subject to
fluctuation, the market value of the shares of West Marine Common Stock that
holders of E&B Marine Common Stock will receive in the Merger may increase or
decrease prior to the Merger. E&B MARINE STOCKHOLDERS ARE URGED TO OBTAIN A
CURRENT MARKET QUOTATION FOR WEST MARINE COMMON STOCK AND E&B MARINE COMMON
STOCK.
19
<PAGE>
RISK FACTORS
Following the Merger, the business of E&B Marine will be combined with West
Marine. On a pro forma basis for the fiscal year ended December 30, 1995, it is
estimated that E&B Marine accounted for approximately 32.9% of the combined
company's net sales. See "Pro Forma Combined Condensed Financial Information."
Following the Merger, E&B Marine is expected to continue to account for,
among other things, a significant portion of the total net sales of the combined
company. Stockholders of E&B Marine should be aware that, in addition to general
market conditions in the industry, the future operating results of West Marine
following the Merger will be influenced by a variety of factors, as described
below.
The following risk factors should be considered carefully by the holders
of E&B Marine Common Stock in evaluating whether to approve and adopt the Merger
Agreement and the transactions contemplated thereby, including the Merger, and
thereby become holders of West Marine Common Stock. These factors should be
considered in conjunction with the other information included and incorporated
by reference in this Proxy Statement/Prospectus.
CERTAIN EFFECTS OF THE MERGER; INTEGRATION OF E&B MARINE
West Marine's acquisition of E&B Marine will increase the number of retail
locations operated by West Marine by approximately 78.1%. West Marine believes
that this expansion will offer opportunities for long-term efficiencies in
operations that such integration should positively affect future operating
results of West Marine. The management and Board of Directors of West Marine
believe that the integration of E&B Marine's business operations with West
Marine's can be effected in a manner which will realize the value of the two
companies. However, such integration will present difficult challenges for West
Marine's management due to the size of E&B Marine's business and operations
relative to West Marine's and the increased time and resources required in
management's integration effort.
Also, following the Merger, in order to maintain and increase
profitability, among other things, West Marine will need to successfully
integrate and streamline overlapping functions of the two companies. West
Marine's ability to successfully integrate E&B Marine's business and operations
with West Marine's business and operations is dependent upon a number of
factors, including the adequacy of West Marine's capital resources, West
Marine's ability to renegotiate acceptable lease terms for certain existing E&B
Marine stores, to integrate existing E&B Marine management and employees, to
integrate E&B Marine's distribution facility into West Marine's distribution
system, to convert and adapt information and other operational systems, to hire
and train new employees and to retain existing E&B Marine customers, including
catalog customers. The difficulties of such integration may be increased by the
necessity of coordinating geographically separated organizations.
Additionally, West Marine and E&B Marine currently operate certain retail
stores within close proximity to each other. Thus, certain E&B Marine stores
acquired as a result of the Merger could reduce sales in certain existing West
Marine stores. Also, E&B Marine's retail stores typically have more square
footage per store than West Marine's historical average, but have had lower
average sales per square foot and have been less profitable. Thus, while West
Marine will seek to increase the average sales per square foot for E&B Marine's
stores, West Marine's average sales per square foot and operating margins may be
adversely affected in the near term due to the lower sales per square foot and
higher operating costs associated with the larger E&B Marine stores acquired as
a result of the Merger. Further, there can be no assurance that E&B Marine
stores will achieve the same level of profitability as existing West Marine
stores.
20
<PAGE>
In light of the foregoing factors and uncertainties, there can be no
assurance that West Marine will be able to successfully integrate E&B Marine's
business and operations. Furthermore, there can be no assurance that the process
of effecting the integration of E&B Marine's business operations into West
Marine's can be effectively managed to realize the operational efficiencies and
profitability anticipated as a result of the Merger. Also, failure to
successfully integrate E&B Marine's business and operations could adversely
affect West Marine's results of operations and financial condition.
MERGER EXPENSES
Transaction costs relating to the negotiation of, preparation for and
consummation of the Merger and the anticipated integration of E&B Marine with
West Marine are expected to result in a one-time charge to West Marine's
earnings. The management of West Marine currently estimates that this charge
will be approximately $3.0 million before taxes, although such amount may be
increased by unanticipated additional expenses incurred in connection with the
Merger. This charge, the actual amount of which will be based on future
developments, is expected to include the estimated costs associated with store
closings, distribution consolidation, contractual obligations and other related
restructuring activities, all of which will be incurred to eliminate duplicate
management information systems, facilities and operations and excess capacity in
the combined operations. While the exact timing of this charge cannot be
determined at this time, management of West Marine currently anticipates that
this charge to earnings will be recorded primarily in the quarter immediately
following consummation of the Merger. In addition, there can be no assurance
that West Marine will not incur additional charges in subsequent quarters as a
result of the Merger.
EXPANSION
West Marine's growth has been driven principally by its store operations
which have grown from net sales of approximately $66.1 million in fiscal 1992 to
approximately $165.8 million in fiscal 1995. Net sales generated by new stores
opened in each of such periods contributed a substantial portion of the increase
in store net sales for such period over the prior period. West Marine's
continued growth depends to a significant degree on its ability to continue to
expand its operations through the opening of new stores and to operate these
stores on a profitable basis. From 1995 fiscal year end through May 10, 1996,
West Marine opened ten new stores and currently anticipates opening a total of
approximately two additional stores in fiscal 1996, not including any stores
acquired in connection with the Merger. These store openings, as well as the
stores acquired in connection with the Merger, would represent a significant
increase in the number of stores operated by West Marine. The addition of new
stores in West Marine's current markets could have the effect of reducing sales
in existing stores within such markets. There can be no assurance that new
stores will achieve the same level of profitability as existing stores. West
Marine's expansion is dependent upon a number of factors, including the adequacy
of West Marine's capital resources and West Marine's ability to locate suitable
store sites and negotiate acceptable lease terms, to hire, train and integrate
employees and to adapt its distribution and other operational systems. There can
be no assurance that West Marine will be able to achieve its planned expansion
or that such expansion will be accomplished on a profitable basis. Failure to
achieve its planned expansion could have a material adverse effect on West
Marine.
To manage its planned expansion, West Marine is continually evaluating the
adequacy of its existing systems and procedures, including product distribution
facilities, store management, financial controls and information systems. There
can be no assurance that West Marine will anticipate all of the changing demands
which its expanding operations will impose on such systems. Although West Marine
believes that its current distribution capabilities will support its planned
expansion through fiscal 1997, failure to expand its distribution capabilities
or other internal systems or procedures as required could adversely affect West
Marine. There can be no assurance that such expansion or replacement will not
21
<PAGE>
result in a disruption of West Marine's business or otherwise adversely affect
West Marine's future financial performance.
Although West Marine's catalog sales increased by 65.7% from fiscal 1993 to
fiscal 1995, West Marine believes that as West Marine or its competitors have
opened stores in markets that have been serviced historically through West
Marine's catalog division, catalog sales have been negatively affected in such
markets. West Marine believes this trend will continue and could have an adverse
effect on West Marine's catalog sales. Catalog net sales as a percentage of
total net sales have declined from 16.1% in fiscal 1993 to 14.6% in fiscal 1995.
SEASONALITY, WEATHER AND FLUCTUATIONS IN OPERATING RESULTS
West Marine's business is highly seasonal. During fiscal 1995,
approximately 60.8% of West Marine's net sales and an even higher percentage of
its net income occurred during the second and third quarters, principally during
the period from April through July, which represents the peak boating months in
most of West Marine's markets. West Marine's annual results would be materially
and adversely affected if West Marine's net sales were to fall below expected
seasonal levels during this period. West Marine's business is also significantly
affected by weather patterns. Unseasonably cool weather, prolonged winter
conditions and/or extraordinary amounts of rainfall may decrease boating use in
the peak season, resulting in lower maintenance needs and, therefore, decreased
sales by West Marine. West Marine will become even more susceptible to
seasonality and weather risks as a result of the Merger, as during fiscal
1995, approximately 65.7% of E&B Marine's net sales and an even higher
percentage of its net income occurred during the second and third quarters,
principally during the period from April through July, which represents the
peak boating months in most of E&B Marine's markets. West Marine's quarterly
results may also fluctuate significantly as a result of a variety of other
factors such as timing of new store openings and associated pre-opening
expenses, acquisitions, competitors' store openings, competitors' pricing
policies, the net sales contributed by new stores and merchandise. Accordingly,
West Marine's results of operations for any prior period may not be indicative
of results for any future period.
COMPETITION
The retail market for recreational boating supplies is highly competitive.
West Marine's stores compete with other national specialty marine supply stores.
Many of these competitors have stores in the markets in which West Marine now
operates and in which it plans to expand. West Marine also competes with a wide
variety of local and regional specialty stores and, to a lesser extent, sporting
goods stores and mass merchants. West Marine's catalog operations compete with
other catalog retailers as well as competitors' stores and West Marine's own
stores as it expands its store base into markets historically serviced solely by
West Marine's catalog division. West Marine also has a number of competitors in
the wholesale distribution of marine products. Certain West Marine competitors
have greater financial, marketing and other resources than West Marine. In
addition, a key competitive factor in the marine supplies market is price.
Competitive pressures resulting from competitors' pricing policies have
adversely affected West Marine's gross margins and such pressures are expected
to continue. There can be no assurance that West Marine will not face greater
competition from other national or regional retailers and that West Marine will
be able to compete successfully with existing and new competitors.
ACQUISITIONS
West Marine has expanded in the past through internal growth and, to a
lesser extent, acquisitions. West Marine will continue to pursue the acquisition
of other companies, assets and product lines that either complement or expand
its existing business. Acquisitions involve a number of special risks, including
the diversion of management's attention to the assimilation of the operations
and
22
<PAGE>
personnel of the acquired business, potential adverse short-term effects on
West Marine's operating results and amortization of acquired intangible assets.
Moreover, there can be no assurance that West Marine will find attractive
acquisition candidates, that acquisitions can be consummated on acceptable terms
or that any acquired companies can be integrated successfully into West Marine's
operations. Except for the Merger, West Marine is not currently engaged in any
negotiations concerning any acquisition which would be material to West Marine's
business.
DEPENDENCE ON CONSUMER SPENDING
The success of West Marine's operations depends upon a number of factors
relating to consumer spending, including future economic conditions affecting
disposable consumer income such as employment, business conditions, interest
rates and tax rates. In addition, West Marine's business opportunities are
directly dependent upon the level of consumer spending on recreational boating
supplies, a discretionary spending item. There can be no assurance that consumer
spending in general or spending in the recreational boating aftermarket in
particular will not decline, thereby adversely affecting West Marine's
expansion, net sales and profitability or that its business will not be
adversely affected by future downturns in the boating industry.
MANAGEMENT OF WEST MARINE
West Marine's future performance is substantially dependent upon the
continued services of certain members of its senior management. West Marine
does not maintain any key man life insurance for its senior management,
including Randolph K. Repass, its Chairman, and Crawford L. Cole who was
President of West Marine from July 1990 to August 1993 and became the President
and Chief Executive Officer of West Marine in April 1995. The loss of the
services of any key members of senior management could have a material adverse
effect upon West Marine. In addition, West Marine's continued growth depends on
its ability to attract and retain skilled associates. There can be no assurance
that West Marine will be able to retain its existing personnel or attract
additional qualified associates in the future or that West Marine's current
management team can achieve West Marine's planned expansion or continue to
operate West Marine in a profitable manner.
CONTROL OF WEST MARINE
Immediately after the consummation of the Merger, Randolph K. Repass, the
Chairman of the Board of West Marine, will beneficially own approximately 47.3%
of the outstanding West Marine Common Stock. As a result, Mr. Repass will retain
substantial power to elect all of the directors of West Marine and, in general,
to determine the outcome of any matter submitted to a vote of West Marine's
stockholders for approval, including mergers, consolidations or the sale of all
or substantially all of West Marine's assets. Due to his significant ownership
position, Mr. Repass may be able, in concert with others, to prevent or cause a
change in control of West Marine.
ENVIRONMENTAL REGULATION
West Marine sells paints, varnishes and other products, the storage,
distribution and disposal of which are subject to a variety of federal and state
environmental regulations. The failure of West Marine to comply with these
regulations could have an adverse impact on West Marine's business. In
addition, West Marine has provided its lender, pursuant to its credit agreement,
and certain of its landlords indemnification for any hazardous waste which may
be found on or about any of its properties or operations.
23
<PAGE>
POSSIBLE VOLATILITY OF WEST MARINE COMMON STOCK PRICE
The market price of West Marine Common Stock may be subject to significant
fluctuations in response to operating results, comparable store sales
announcements, announcements by competitors and other factors. In addition, the
stock market in recent years has experienced extreme price and volume
fluctuations that often have been unrelated or disproportionate to the operating
performance of individual companies. These market fluctuations, as well as
general economic conditions, may adversely affect the market price of the West
Marine Common Stock.
RELIANCE ON VENDORS AND MANUFACTURERS
West Marine deals with its suppliers on an order-by-order basis and has no
long-term purchase contracts or other contractual assurances of continued supply
or pricing. In addition, West Marine has no long-term contracts with its
manufacturing sources and competes with other companies for production
facilities and import quota capacity. Historically West Marine has purchased
enough inventory of products or their substitutes to satisfy demand. However,
the unanticipated failure of any manufacturer or supplier to meet West Marine's
requirements or West Marine's inability to obtain substitutes could have an
adverse effect on West Marine.
THE E&B MARINE ANNUAL MEETING
TIME, PLACE AND DATE OF THE E&B MARINE ANNUAL MEETING
The E&B Marine Annual Meeting will be held at 10:00 a.m., local time, on
Monday, June 17, 1996, at the Clarion Hotel & Towers, 2055 Lincoln Highway,
Route 27, Edison, New Jersey 08117.
PURPOSES OF THE E&B MARINE ANNUAL MEETING
At the E&B Marine Annual Meeting, stockholders of E&B Marine will be asked
to consider and vote upon a proposal to adopt and approve the Merger Agreement
and the transactions contemplated thereby, including the Merger. A copy of the
Merger Agreement is attached to this Proxy Statement/Prospectus as Annex A. If
the Merger is approved and consummated, each share of E&B Marine Common Stock
outstanding at the effective time of the Merger (other than shares of E&B Marine
Common Stock held in E&B Marine's treasury or owned by West Marine or any
subsidiary of West Marine or E&B Marine) (the "Effective Time") will be
converted into the right to receive in the Merger a fraction (the "Exchange
Ratio") of a share of West Marine Common Stock, based upon the arithmetic mean
of the closing sales price of West Marine Common Stock during each of the
fifteen trading days immediately preceding the Effective Time (the "Average West
Marine Trading Price"). Specifically, the Exchange Ratio will be calculated as
follows: (i) if the Average West Marine Trading Price is at least $38.00 but not
greater than $43.875, the Exchange Ratio will equal the quotient of $6.65
divided by the Average West Marine Trading Price; (ii) if the Average West
Marine Trading Price is greater than $43.875, the Exchange Ratio will equal
0.15157; and (iii) if the Average West Marine Trading Price is less than $38.00,
the Exchange Ratio will equal 0.17500. No fractional shares of West Marine
Common Stock will be issued, and cash will be paid in lieu of any such
fractional shares. See "The Merger Agreement--Conversion of Shares."
In addition, E&B Marine's stockholders will also be asked (i) to elect
three directors to the Board, in each case to serve until the earlier of the
consummation of the Merger (if approved by the stockholders and subsequently
consummated) or until the 1999 E&B Marine Annual Meeting of Stockholders, and
(ii) to ratify the selection of E&B Marine's independent public accountants for
the 1996 fiscal year.
24
<PAGE>
RECORD DATE; VOTING RIGHTS
Stockholders of record at the close of business on May 10, 1996 (the
"Record Date") will be entitled to notice of and to vote at the E&B Marine
Annual Meeting and at any adjournment or postponement thereof. There were issued
and outstanding 3,943,919 shares of E&B Marine Common Stock as of the Record
Date, held by approximately 1,410 stockholders of record.
Under the Delaware General Corporation Law ("Delaware Law"), the adoption
and approval of the Merger Agreement by the stockholders requires the
affirmative vote of the holders of at least a majority of the outstanding shares
of E&B Marine Common Stock. As of the Record Date, 2,110,135 shares of E&B
Marine Common Stock (approximately 53.5% of the shares outstanding as of the
Record Date) were outstanding and entitled to be voted by the directors and
officers, and their affiliates, of E&B Marine.
Certain principal stockholders of E&B Marine consisting of DLJ Capital
Corporation, DLJ Venture Capital Fund II, L.P., Sprout Capital V, Sprout Growth,
L.P., Sprout Growth, Ltd., Kenneth G. Peskin, the Chairman of the Board and
Chief Executive Officer of E&B Marine, and his wife Judith Peskin, as trustee of
certain family trusts (collectively, the "Principal Stockholders"), have entered
into the Stockholders Agreement, dated as of April 2, 1996, with West Marine
(the "Stockholders Agreement"), pursuant to which the Principal Stockholders
have agreed to vote their E&B Marine Common Stock in favor of the Merger. See
"The Stockholders Agreement." These stockholders beneficially owned as of the
Record Date an aggregate of 2,065,245 shares of E&B Marine Common Stock,
constituting approximately 52.4% of the shares of E&B Marine Common Stock
outstanding on the Record Date. When these shares of E&B Marine Common Stock are
voted at the E&B Marine Annual Meeting in favor of the adoption and approval of
the Merger Agreement and the transactions contemplated thereby, including the
Merger, the affirmative vote of additional shares of E&B Marine Common Stock
will not be required to so adopt and approve the Merger Agreement and the
transactions contemplated thereby, including the Merger.
A majority of the shares of E&B Marine Common Stock entitled to vote at the
E&B Marine Annual Meeting is required to ratify the selection of the independent
public accountants, and the three candidates for director receiving the highest
number of affirmative votes cast at the E&B Marine Annual Meeting will be
elected as directors of E&B Marine. Holders of a majority of the Shares entitled
to vote at the E&B Marine Annual Meeting, represented in person or by proxy,
will constitute a quorum. Each holder will be entitled to cast one vote for each
share of E&B Marine Common Stock held.
PROXIES; REVOCATION OF PROXIES
Shares of E&B Marine Common Stock represented by properly executed and
unrevoked proxies will be voted at the E&B Marine Annual Meeting in accordance
with the directions contained therein. If no direction is made in a properly
executed and unrevoked proxy, the shares of E&B Marine Common Stock represented
by such proxy will be voted FOR the adoption and approval of the Merger
Agreement, and the transactions contemplated thereby, FOR the election of E&B
Marine's nominees for director and FOR ratification of the selection of KPMG
Peat Marwick LLP as E&B Marine's independent public accountants for the 1996
fiscal year. Any E&B Marine stockholder is empowered to revoke a proxy at any
time before its exercise. A proxy may be revoked by filing with the Secretary of
E&B Marine a written revocation or a duly executed proxy bearing a later date.
Any written notice revoking a proxy should be sent to: E&B Marine Inc., 201
Meadow Drive, Edison, New Jersey 08818, Attention: Secretary, or hand delivered
to the Secretary at or before the taking of the vote at the E&B Marine Annual
Meeting. Any E&B Marine stockholder may attend the E&B Marine Annual Meeting and
vote in person, whether or not he has previously given a proxy.
E&B Marine will bear the costs of soliciting proxies from E&B Marine
stockholders. In addition to soliciting proxies by mail, directors, officers and
employees of E&B Marine may solicit proxies by telephone, by
25
<PAGE>
courier service, by telegram or in person, each without receiving additional
compensation therefor. Arrangements will also be made with brokerage firms and
other custodians, nominees and fiduciaries (collectively, "Fiduciaries") to
forward solicitation materials to the beneficial owners of shares of E&B Marine
Common Stock held of record by such persons, and arrangements may be made with
Fiduciaries to obtain authority to sign proxies. E&B Marine will reimburse such
Fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
therewith.
Abstentions and broker non-votes (as hereinafter defined) will be counted
as present for the purpose of determining the presence of a quorum. For the
purpose of determining the vote required for approval of the Merger Agreement
and the tranactions contemplated thereby, shares of E&B Marine Common Stock held
by E&B Marine stockholders who abstain from voting will be treated as being
"present" and "entitled to vote" on this matter and, thus, an abstention has the
same legal effect as a vote against the matter. However, in the case of a broker
non-vote or where a stockholder withholds authority from his proxy to vote the
proxy as to a particular matter, such shares will not be treated as "present"
and "entitled to vote" on the matter and, thus, a broker non-vote or the
withholding of a proxy's authority will have no effect on the outcome of the
vote on the matter. A "broker non-vote" refers to shares of E&B Marine Common
Stock represented at the E&B Marine Annual Meeting in person or by proxy by a
broker or nominee where such broker or nominee (i) has not received voting
instructions on a particular matter from the beneficial owners or persons
entitled to vote and (ii) the broker or nominee does not have discretionary
voting power on such matter.
E&B MARINE STOCKHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
THE MERGER
BACKGROUND OF THE MERGER
Over the past five years, representatives of West Marine and E&B Marine
have met informally from time to time to discuss in general terms conditions
relevant to the industry in general, including the potential benefits to the
companies' respective businesses and stockholders of a possible transaction
(including a possible combination) between West Marine and E&B Marine at some
point in the future.
The most recent series of such discussions between representatives of the
two companies commenced on November 11, 1995, when Mr. Randolph Repass and
Mr. Crawford Cole, the Chairman of the Board and President and Chief Executive
Officer, respectively, of West Marine, met with Mr. Kenneth Peskin, Chairman of
the Board and President of E&B Marine, and Mr. Richard Kroon, a director.
On December 13, 1995, West Marine signed a confidentiality agreement with
E&B Marine in order to enable West Marine to commence a due diligence review of
E&B Marine.
In mid-December 1995, representatives of Montgomery Securities, West
Marine's financial advisor ("Montgomery Securities"), informed representatives
of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), one of E&B
Marine's financial advisors, that West Marine would be willing to consider an
acquisition of E&B Marine in a merger transaction in which E&B Marine
stockholders would receive shares of West Marine Common Stock with an exchange
ratio which valued E&B Marine Common Stock at $7.00 per share. Such a
transaction would have been structured to enable West Marine to account for the
acquisition as a pooling of interests.
On December 8, 1995, Messrs. Repass, Cole and Peskin and representatives
from Montgomery Securities and DLJ met to discuss West Marine's proposal and the
terms of a possible transaction.
From late December 1995 through mid-February 1996, numerous telephone
conferences were held among representatives of Montgomery Securities and DLJ
concerning the terms of a possible transaction. During this time period,
Montgomery Securities furnished DLJ, on behalf of West Marine, a due diligence
request and drafts of terms sheets which were used to facilitate discussions.
In early January 1996, Messrs. Kroon and Peskin, acting in accordance with
the direction of the E&B Marine Board, authorized DLJ to contact, on a
confidential basis, a selected group of potential acquirers that E&B Marine and
DLJ believed to be the most likely to have a possible interest in acquiring E&B
Marine. DLJ and E&B Marine developed a list of more than 18 independent third
parties, including sporting goods and marine specialty retailers, general
retailers, mass merchandise retailers and investment groups with a record of
interest in acquiring specialty retailers of a size similar to E&B Marine.
Throughout January and early February 1996, DLJ contacted the
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<PAGE>
aforementioned parties on a confidential basis so as not to erode the franchise
of the business or lose key employees of E&B Marine.
In early February 1996, West Marine and E&B Marine concluded that West
Marine would not be able to account for an acquisition of E&B Marine as a
pooling of interests. As a result, Montgomery Securities advised DLJ that
although West Marine was still willing to consider an acquisition of E&B Marine,
due to the goodwill which would be generated by the transaction, West Marine
would not agree to a merger exchange ratio which valued the E&B Marine Common
Stock greater than $6.00 per share.
From February 12 through February 14, 1996, Messrs. Repass and Cole, John
C. Zott, the Senior Vice President and Chief Financial Officer of West Marine,
and Geoffrey Eisenberg, a director of West Marine, met with Mr. Peskin and
certain members of the senior management of E&B Marine in order to discuss West
Marine's interest in E&B Marine and West Marine's due diligence review.
On February 26, 1996, Mr. Peskin met with Messrs. Cole and Repass to
further discuss the terms of a possible transaction and to allow E&B Marine to
conduct due diligence at West Marine.
The E&B Marine Board held a meeting on February 28, 1996 in order
to consider a revised West Marine proposal that contemplated an acquisition of
E&B Marine whereby the merger exchange ratio valued the E&B Marine Common Stock
at $6.75 per share and became fixed if the West Marine Common Stock price before
the Effective Time traded at $37.00 per share or less or $42.50 per share or
more. Among other things, the E&B Marine Board also discussed the status of
negotiations and authorized continued negotiations over the terms of a possible
transaction and received and reviewed the details of DLJ's attempts to solicit
interest from other third parties to acquire E&B Marine.
From February 29, 1996 through March 16, 1996, the financial and legal
advisors for West Marine and E&B Marine continued to discuss, by telephone, the
terms of a possible transaction and exchanged drafts of and comments on a merger
agreement and stockholders agreement.
Between March 7 and March 8, 1996, Messrs. Cole and Zott held meetings with
Mr. Peskin, DLJ and numerous members of the senior management of E&B Marine in
order to discuss business issues relating to an acquisition of E&B Marine and in
furtherance of West Marine's due diligence review.
Between March 17 and March 18, 1996, Mr. Cole, Mr. Peskin and the financial
and legal advisors for West Marine and E&B Marine held meetings to discuss the
terms of a possible acquisition and the results of West Marine's due diligence
review of E&B Marine. West Marine proposed reducing the value of the
consideration it would pay in a transaction in light of various matters it had
studied in connection with its due diligence. West Marine also indicated that it
would not be willing to sign a definitive acquisition agreement unless a Phase 1
environmental survey of E&B Marine's Perth-Amboy store location was completed
and the results were accepted by West Marine. During the course of the meetings,
E&B Marine strongly disagreed with the price reduction and other acquisition
terms proposed by West Marine. On the evening of March 18th, the discussions
were terminated.
On March 22, 1996, Mr. Kroon called Mr. Cole requesting resumption of the
acquisition discussions. Mr. Cole said that he would be willing to continue the
discussions only if E&B Marine would agree to an exchange ratio where the E&B
Marine Common Stock was valued at $6.65 per share and where the ratio would be
fixed in the event the West Marine Common Stock traded at or above $43.875 per
share or at or below $38 per share. Mr. Kroon indicated that he would recommend
these terms to the E&B Marine Board provided that all other outstanding
acquisition terms could be resolved.
27
<PAGE>
Mr. Cole thereafter authorized West Marine's financial and legal advisors
to contact E&B Marine's financial and legal advisors to discuss all open issues
and to negotiate the relevant acquisition documents. From March 24 through March
27, 1996, the advisors negotiated the terms and conditions of the proposed
acquisition, exchanged draft documents and endeavored to resolve open issues.
On April 1, 1996, the E&B Marine Board convened to consider the terms of
the Merger as set forth in drafts of the Merger Agreement and the Stockholders
Agreement. Representatives of Houlihan Lokey Howard & Zukin ("Houlihan Lokey")
presented a financial analysis regarding the proposed transaction and concluded
that the proposed transaction was fair to the stockholders of E&B Marine from a
financial point of view. E&B Marine's legal counsel described the terms of the
proposed transaction as set forth in the drafts of the Merger Agreement and
Stockholders Agreement. Thereafter, the E&B Marine Board unanimously approved
the Merger and the relevant acquisition documents and authorized E&B Marine to
continue and conclude negotiations with E&B Marine.
Also on April 1, 1996, the Board of Directors of West Marine (the "West
Marine Board") convened to consider the terms of the Merger and discuss the
status of the negotiations with management and West Marine's financial and legal
advisors. At this meeting, the West Marine Board unanimously approved the Merger
and the relevant acquisition documents and authorized West Marine to continue
and conclude the negotiations with E&B Marine.
The financial and legal advisors for West Marine and E&B Marine resumed
their discussions by telephone during the evening of April 1, 1996. These
discussions continued on April 2, 1996, whereupon, late in the day, the Merger
Agreement and the Stockholders Agreement were signed by West Marine, Merger Sub,
E&B Marine and the Principal Stockholders.
E&B MARINE'S REASONS FOR THE MERGER; RECOMMENDATIONS
OF THE BOARD OF DIRECTORS OF E&B MARINE
The E&B Marine Board believes that the following are reasons for the
stockholders of E&B Marine to vote FOR approval and adoption of the Merger
Agreement and the transactions contemplated thereby, including the Merger, and
considered each of them to be material in its decision to approve and adopt the
Merger Agreement and the transactions contemplated thereby, including the
Merger.
-The Merger will result in the exchange of E&B Marine Common Stock for West
Marine Common Stock, which has a substantially higher average daily trading
volume than E&B Marine Common Stock.
-The experienced management of West Marine may provide management strength
to E&B Marine.
From January through early February 1996, DLJ, acting as E&B Marine's
financial advisor, solicited indications of interest from more than eighteen
independent third parties that were identified by DLJ and E&B Marine as possibly
having an interest in acquiring E&B Marine, and concluded that the consideration
to be received from West Marine pursuant to a potential merger would exceed any
consideration offered by such third parties.
In the course of its deliberations, the E&B Marine Board reviewed a number
of additional factors relevant to the Merger with E&B Marine's management.
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<PAGE>
In particular, the E&B Marine Board considered, among other matters, (i)
the strategic importance of the Merger and the value expected to be achieved
through the combination of E&B Marine's and West Marine's operations; (ii) the
impact of various strategic alternatives available to E&B Marine if the Merger
were not consummated, including the potential difficulty of raising additional
equity capital which would be required for additional store expansion and
renovation; (iii) information concerning E&B Marine's and West Marine's
respective businesses, prospects, financial performances and conditions,
operations, managements and competitive positions; (iv) the current financial
market conditions and historical market prices, volatility and trading
information with respect to West Marine Common Stock; and (v) the historical
ratio of E&B Marine Common Stock to West Marine Common Stock.
The E&B Marine Board also considered a number of potentially negative
factors in its deliberations concerning the Merger, including (i) the loss of
control of future operations of E&B Marine after the Merger; (ii) the risk prior
to or following consummation of the Merger that the trading price of West
Marine's Common Stock may drop below its level at the time the Merger was
negotiated; (iii) the risk that benefits sought to be achieved in the Merger
will not be achieved; and (iv) and the other risks described above under "Risk
Factors."
The principal factors considered by the E&B Marine Board in the
determination of the exchange ratio for the Merger were the relative trading
prices of the companies' shares over the last several months, the companies'
relative revenues, operating profits and net profits and other financial and
personal assets of the two companies. Specifically, the Board reviewed the
following: (i) the competitive position and prospects of E&B Marine and the
nature of the industry in which E&B Marine competes on both a historical and a
prospective basis; (ii) the stock price trading history of E&B Marine and West
Marine; (iii) the ratio of the closing stock prices of E&B Marine to West
Marine; (iv) an analysis of the implied value of West Marine stock to be
received per share of E&B Marine stock, based on a range of possible West Marine
stock prices and the proposed exchange ratio to range from a minimum of 0.15157
to a maximum of 0.17500; (v) financial results for the two companies; (vi)
valuations of E&B Marine and West Marine based on (A) comparable company
analyses comparing E&B Marine and West Marine to a selected group of retail
companies across a number of financial ratios, including capitalization to
revenue, operating income and net income; (B) precedent mergers and acquisitions
of selected comparable retail companies, with respect to a number of financial
ratios including capitalization to revenue and net income, and the percent
premium paid by the acquiror over the one month prior stock price of the target
company; and (C) discounted cash flow analysis; (vii) merger analysis of the two
companies analyzing pro forma earnings, both before and after the amortization
of goodwill expected to be created by the Merger and before and after potential
synergies that might be created by the Merger; and (viii) the terms and
conditions of the Merger Agreement.
In addition, the E&B Marine Board considered that West Marine has an
experienced management team, that West Marine has a strong consumer focus and
that West Marine is in a strong competitive position.
After taking into consideration all of the factors set forth above, the E&B
Marine Board determined that the Merger was in the best interests of the E&B
Marine and its stockholders and that E&B Marine should proceed with the Merger
at this time. The potential individual interests of the officers and directors
of E&B Marine and West Marine, except for their interests as stockholders, were
not considered by the E&B Marine Board in making this determination.
29
<PAGE>
OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The
following is a brief summary and general description of the valuation
methodologies followed by Houlihan Lokey. The summary does not purport to be a
complete statement of the analyses and procedures applied, the judgements made
of the conclusion reached by Houlihan Lokey, or a complete description of its
presentation. Houlihan Lokey believes, and so advised E&B Marine that its
analyses must be considered as a whole, and that selecting portions of its
analyses and of the factors considered by it, without considering all factors
and analyses, could create an incomplete view of the process underlying its
analyses and opinion.
In connection with their opinion, Houlihan Lokey has, among other things,
reviewed E&B Marine's annual reports to stockholders and Form 10-Ks for the
fiscal years ended December 31, 1992 through December 31, 1995, including the
audited financial statements contained therein, and unaudited financial
statements for the two month period ended February 28, 1996, which E&B
Marine's management has identified as being the most current financial
statements available; reviewed West Marine's annual reports to shareholders and
Form 10-Ks for the fiscal years ended December 31, 1992 through December 31,
1995, including the audited financial statements contained therein, which West
Marine's management has identified as being the most current financial
statements available; reviewed the Merger Agreement; met or spoke with certain
members of the senior management of E&B Marine and West Marine to discuss the
operations, financial condition, future prospects and projected operations and
performance of E&B Marine and West Marine, respectively, and met with
representatives of E&B Marine's financial advisors to discuss certain matters;
visited certain facilities and business offices of E&B Marine and West Marine,
respectively; reviewed forecasted financial statements prepared by E&B Marine's
management with respect to E&B Marine for the year ended December 31, 1996;
reviewed the historical market prices and trading volume for E&B Marine's
and West Marine's publicly traded securities; reviewed certain other publicly
available financial data for certain companies that Houlihan Lokey deemed
similar to E&B Marine and West Marine, respectively, and publicly available
prices and premiums paid in other transactions that Houlihan Lokey considered
similar to the Merger; and conducted such other studies, analyses and inquiries
as Houlihan Lokey deemed appropriate.
The core of Houlihan Lokey's fairness analysis involved determining an
appropriate range of value for E&B Marine. Because the consideration to be
received by E&B Marine's stockholders consists of West Marine Common Stock,
Houlihan Lokey also assessed the reasonableness of the recent trading price for
West Marine's Common Stock.
Houlihan Lokey applied the following valuation methodologies in determining
appropriate ranges of value for E&B Marine and assessing the public trading
market valuation of West Marine:
Selected Company Analysis. Using publicly available information, Houlihan
Lokey reviewed selected financial, operating and stock market information for
E&B Marine and West Marine in comparison with corresponding information for two
groups of selected public companies. The selected companies used for comparison
with E&B Marine were Gander Mountain Inc., Sharper Image Corporation, Brookstone
Inc., Leslie's Poolmart and Sport Chalet Inc. (the "Selected Companies"). The
Selected Companies used for comparison with West Marine were: Autozone Inc.,
Discount Auto Parts Inc., Tractor Supply Company, Trak Auto Corporation, Oshmans
Sporting Goods, Sportsmart Inc. and Sports & Recreation Inc. Houlihan Lokey
advised E&B Marine that there are no companies directly comparable to E&B Marine
or to West Marine and that their analyses had to be considered in light of that
qualification. The purpose of these analyses was to ascertain how E&B Marine and
West Marine compared to respective peers in relation to certain financial
indicators. The multiples and ratios for each
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<PAGE>
of the Selected Companies were based on the most recent publicly available
information and selected analysts' earnings estimates for fiscal 1996 and 1997.
With respect to the Selected Companies, Houlihan Lokey considered, among other
measures, Total Invested Capital ("TIC", the summation of the current trading
market value of common equity plus the book value of last reported preferred
equity and funded debt) as a multiple of latest twelve months ("LTM") 1995,
estimated 1996, and estimated 1997 earnings before interest, taxes, depreciation
and amortization ("EBITDA"). The analyses indicated TIC multiples of LTM 1995
EBITDA of 6.3x - 10.3x and 1996 EBITDA of 4.2x - 7.8x for the specialty
retailers compared to E&B Marine. Estimated 1997 information was not available
for any of the Selected Companies in this group. The analyses indicated TIC
multiples of LTM 1995 EBITDA of 5.0x -17.1x, 1996 EBITDA of 5.6x - 14.9x and
1997 EBITDA of 7.6x -12.5x for the specialty retailers compared to West Marine.
Estimated 1997 information was available only for three of the companies in this
group, Autozone Inc., Discount Auto Parts Inc. and Tractor Supply Company.
Houlihan Lokey also considered the current trading market value for common
equity (common equity value) as a multiple of LTM 1995, estimated 1996, and 1997
net income. The analyses indicated common equity value multiples of LTM 1995 net
income of 15.9x - 27.0x and estimated 1996 net income of 8.0x - 14.4x for the
specialty retailers compared to E&B Marine and common equity value multiples of
LTM 1995 net income of 11.2x - 33.7x, estimated 1996 net income of 10.1x -29.3x
and 1997 net income of 13.3x - 23.8x for the specialty retailers compared to
West Marine. Estimated 1997 earnings information was available only for Autozone
Inc., Discount Auto Parts Inc. and Tractor Supply Company.
Historical Stock Trading Analysis. Houlihan Lokey reviewed the trading
prices and volumes for the E&B Marine Common Stock and West Marines Common Stock
and the relationship between price movements of the E&B Marine Common Stock and
West Marine Common Stock and the price movements of the common stock of their
respective selected company groups.
Selected Combination Analysis. Houlihan Lokey performed analyses of
certain recent transactions involving the acquisition of specialty retailers.
Due to the specific nature of E&B Marine's business and the lack of publicly
available information regarding many of the transactions reviewed, Houlihan
Lokey did not believe that there were transactions appropriate for direct
comparison to the potential sale of E&B Marine, and accordingly, these analyses
were not applied to arrive at valuation indications for E&B Marine, but were
presented to the E&B Marine Board for comparison purposes.
Houlihan Lokey considered in its analyses, among other things, the fact
that DLJ contacted more than eighteen potential acquirers, including sporting
goods and marine specialty retailers, general retailers, mass merchandise
retailers and investment groups with a record of interest in acquiring specialty
retailers of a size similar to E&B Marine.
These analyses were prepared solely for the purposes of Houlihan Lokey
providing its opinion and are not appraisals or representations of prices at
which businesses or securities may actually be sold. Analyses based on forecasts
of future results are not necessarily indicative of actual future results, which
may be more or less favorable than suggested by such analyses. These analyses
are based upon numerous factors and events that are beyond the control of the
parties and their respective advisors. Hence, none of E&B Marine, West Marine,
Houlihan Lokey, or any other person, assumes responsibility if future results
are materially different from those forecast.
Houlihan Lokey has not independently verified the accuracy and completeness
of the information supplied to it with respect to E&B Marine and West Marine and
does not assume any responsibility with respect to it. Houlihan Lokey has not
made any physical inspection or independent appraisal of any of the properties
or assets of E&B Marine or West Marine. Houlihan Lokey's opinion is necessarily
based on business, economic, market and other conditions as they exist and can
be evaluated by it at the date of its opinion.
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<PAGE>
Houlihan Lokey is a nationally recognized investment banking firm with
special expertise in, among other things, valuing businesses and securities and
rendering fairness opinions. Houlihan Lokey is continually engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, private placements of debt and equity,
corporate reorganizations, employee stock ownership plans, corporate and other
purposes. E&B Marine selected Houlihan Lokey because of its experience and
expertise in performing valuation and fairness analysis. Houlihan Lokey does
not beneficially own nor has it ever beneficially owned any interest in E&B
Marine or West Marine.
The full text of the opinion of Houlihan Lokey, dated April 1, 1996, is
attached as Annex C to this Proxy Statement/Prospectus and sets forth the
assumptions made, matters considered and limits on the review undertaken.
STOCKHOLDERS ARE URGED TO READ THE OPINION OF HOULIHAN LOKEY IN ITS ENTIRETY.
Houlihan's opinion is directed only to the fairness, from a financial point of
view, of the Merger and does not constitute a recommendation concerning the
Merger. The summary of the opinion of Houlihan Lokey set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference of the full text
of such opinion set forth in Annex C to this Proxy Statement/Prospectus.
Fees and Expenses. Pursuant to an agreement entered into on March 26,
1996, Houlihan was retained by E&B Marine on behalf of the E&B Marine's common
stockholders to analyze the fairness of the Merger to the common stockholders,
from a financial point of view. E&B Marine has agreed to pay Houlihan Lokey a
fee of $75,000 plus its reasonable out-of-pocket expenses incurred in connection
with the rendering of a fairness opinion. E&B Marine has further agreed to
indemnify Houlihan Lokey against certain liabilities and expenses in connection
with the rendering of their services.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the E&B Marine Board to approve and
adopt the Merger Agreement and the transactions contemplated thereby, including
the Merger, E&B Marine stockholders should be aware that the executive officers
of E&B Marine and members of the E&B Marine Board have interests in the Merger
that are in addition to the interests of E&B Marine stockholders generally, and
that the members of the E&B Marine Board having such interests participated in
the discussion, deliberation and voting of the E&B Marine Board with respect to
the Merger:
Ownership of Shares of E&B Marine Common Stock. As of the Record Date,
Kenneth G. Peskin, Chairman of the Board and Chief Executive Officer of E&B
Marine, held 336,598 shares of E&B Marine Common Stock, constituting
approximately 8.5% of the then outstanding shares of E&B Marine Common Stock.
Richard E. Kroon, a director of E&B Marine, is (i) managing partner of the
general partner of Sprout Growth, L.P. and Sprout Capital V, (ii) managing
partner of the investment manager of Sprout Growth, Ltd., (iii) a limited
partner of DLJ Venture Capital Fund II, L.P. and (iv) President of DLJ
Capital Corporation, which entities (the "DLJ Stockholders") collectively then
beneficially owned 1,728,647 shares of E&B Marine Common Stock, constituting
approximately 43.9% of the then outstanding shares of E&B Marine Common Stock.
Financial Advisor. DLJ, an affiliate of the DLJ Stockholders, has acted
as a financial advisor to E&B Marine throughout the Merger negotiations and
will receive fees and expense reimbursements from E&B Marine at the Effective
Time in an amount of approximately $820,000.
Acceleration of Options. Options to purchase shares of E&B Marine Common
Stock have been granted to certain executive officers of E&B Marine, certain of
which options will accelerate on or prior to the fifteenth day prior to the
Effective Time. The following table sets forth the number of options granted to
each such executive officers, the number of options that are exercisable as of
the Record Date and the number of options that will be exercisable at the
Effective Time:
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<TABLE>
<CAPTION>
OPTIONS
EXECUTIVE OFFICER AND OPTIONS EXERCISABLE EXERCISABLE
PRINCIPAL POSITION OPTIONS GRANTED AS OF RECORD DATE AT EFFECTIVE TIME
<S> <C> <C> <C>
Kenneth G. Peskin 262,500 168,750 262,500
Chairman of the Board
and Chief Executive Officer
James D. Peters 100,500 0 50,000
President and Chief
Operating Officer
Walfrido Martinez 37,000 13,875 37,000
Senior Vice President
and Chief Financial Officer
Robert G. Defonte 37,000 16,250 37,000
Senior Vice President,
Merchandising and
Secretary
Patrick J. Melli 37,000 14,500 37,000
Senior Vice President,
Inventory Management and
Information Services
</TABLE>
Retention Agreements. Each of Walfrido A. Martinez, Senior Vice President
and Chief Financial Officer, Patrick J. Melli, Senior Vice President, Inventory
Management and Information Services, and Robert G. Defonte, Senior Vice
President, Merchandising and Secretary, have been given the opportunity to enter
into a retention agreement (the "Retention Agreement") with E&B Marine pursuant
to which, among other things, in consideration of such executive officer of E&B
Marine continuing to provide service to E&B Marine through a date to be
determined by E&B Marine, E&B Marine will not terminate such executive officer's
employment prior to such date and will pay such executive officer an amount
equal to 52 weeks of his then current annual base salary after such date. As of
the Record Date, Messrs. Martinez and Melli have each entered into a Retention
Agreement with E&B Marine. For a description of the severance arrangements for
each of Mr. Peskin and James D. Peters, President and Chief Operating Officer,
see "E&B Marine--Director and Executive Compensation."
The E&B Marine Board of Directors was aware of these interests but did not
consider them to be significant or of a nature that would affect the objectivity
of any director's determination that the Merger was in the best interests of the
E&B Marine stockholders.
ACCOUNTING TREATMENT
The Merger will be accounted for by West Marine under the purchase method
of accounting in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations," as amended. Under this method of accounting, the
purchase price will be allocated to assets acquired and liabilities assumed
based on their estimated fair values at the Effective Time. Income of the
combined company will not include income (or loss) of E&B Marine prior to the
Effective Time.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain of the principal federal income
tax considerations associated with the Merger under the Internal Revenue Code of
1986, as amended (the "Code"), to holders who hold shares of E&B Marine Common
Stock as capital assets. As it is not feasible to describe all of the tax
consequences associated with the Merger, each stockholder should consult his or
her tax advisor with respect to the tax consequences of the Merger applicable to
his or her specific circumstances. In particular, the following discussion does
not address the potential tax consequences applicable to E&B Marine stockholders
who are dealers in securities, who acquired their E&B Marine Common Stock
through stock option or stock purchase programs or other employee plans or
otherwise as compensation, who are subject to special treatment under the Code
(such as insurance companies, tax-exempt
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organizations, financial institutions, nonresident alien individuals or foreign
entities), or who hold shares of E&B Marine Common Stock in a hedging
transaction or as part of a straddle or conversion transaction, nor any
potential tax consequences applicable to the holders of options or warrants to
purchase E&B Marine Common Stock assumed by West Marine in the Merger. The
following summary is based on the Code, applicable Treasury Regulations,
judicial authority and administrative rulings and practice, all as of the date
hereof. There can be no assurance that future legislative, judicial or
administrative changes or interpretations will not adversely affect the
statements and conclusions set forth herein. Any such changes or interpretations
could be applied retroactively and could affect the tax consequences of the
Merger to E&B Marine, West Marine and their respective stockholders.
Furthermore, the following discussion addresses only certain federal income tax
matters and does not consider any state, local or foreign tax consequences of
the Merger or other transactions described in this Proxy Statement/Prospectus.
Neither West Marine nor E&B Marine has requested or will request any ruling
from the Internal Revenue Service in connection with the Merger. However, the
Merger has been structured with the intention that it qualify as a
reorganization under Section 368(a) of the Code. The respective obligations of
West Marine and E&B Marine to consummate the Merger are conditioned upon the
delivery to West Marine and E&B Marine by their respective counsels of opinions
to the effect that the Merger will qualify as a reorganization under Section
368(a) of the Code. Such tax opinions will be subject to certain assumptions and
qualifications and will be based among other things, on representations and
assumptions relating to certain facts and circumstances of, and the intentions
of the parties to, the Merger, which assumptions have been made with the consent
of E&B Marine and West Marine. Such opinions will neither be binding on the
Internal Revenue Service nor preclude it from adopting a contrary position.
Although counsel to West Marine and E&B Marine anticipate that they will render
the contemplated opinions, if such opinions are not received, the Merger will
not be consummated unless the conditions requiring their receipt are waived.
West Marine and E&B Marine currently anticipate that such opinions will be
delivered and that neither West Marine nor E&B Marine will waive the conditions
requiring receipt of such opinions.
Qualification of the Merger as a reorganization depends on compliance with
certain technical requirements of federal income tax law, including, among
others, the requirement that a continuity of proprietary interest be maintained
by the stockholders of the merged corporation. In order for this requirement to
be satisfied, the stockholders of E&B Marine must not, pursuant to a plan or
intention existing at or prior to the Merger, dispose of so much of either (A)
their shares of E&B Marine Common Stock in anticipation of the Merger or (B) the
West Marine Common Stock received pursuant to the Merger such that the holders
of shares of E&B Marine Common Stock, as a group, would no longer have a
significant equity interest in the E&B Marine business being conducted by the
combined companies after the Merger. It is the position of the Internal Revenue
Service that the continuity of interest requirement generally will be considered
satisfied if the stockholders of the merged corporation receive in the aggregate
(and have no plan to dispose of) stock of the acquiring corporation equal in
value to at least 50% of the value of all of the formerly outstanding stock of
the acquired corporation as of the effective date of the reorganization, and a
decision of the United States Supreme Court indicates that continuity of
interest in the range of 40% is sufficient.
With the exception of cash paid in lieu of fractional shares, the Merger
Agreement provides that all of the consideration paid by West Marine to E&B
Marine stockholders in exchange for their E&B Marine Common Stock pursuant to
the Merger will consist of West Marine Common Stock. Furthermore, pursuant to
the Stockholders Agreement, the Principal Stockholders are obligated to give
a representation that each such stockholder has no plan to sell, transfer or
otherwise dispose of or convey the West Marine Common Stock received by it
pursuant to the Merger. Satisfaction of the continuity of interest requirement,
however, depends in part on actions that may be taken by E&B Marine stockholders
either before or after the consummation of the Merger over which neither E&B
Marine nor West Marine has any control. Accordingly, there can be no assurance
that the
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continuity of interest requirement will be satisfied with respect to the Merger.
If the continuity of interest requirement (or any other requirement for
reorganization treatment under the Code) is not satisfied, the Merger will not
be treated as a reorganization and material adverse tax consequences will result
to E&B Marine and some or all of the holders of E&B Marine Common Stock.
Tax Consequences to E&B Marine Stockholders. Assuming the Merger is
treated as a reorganization under the Code, the following federal income tax
consequences, among others, generally will apply to E&B Marine stockholders:
(i) No gain or loss will be recognized by a holder of E&B Marine
Common Stock with respect to the receipt of West Marine Common Stock in
exchange for such E&B Marine Common Stock pursuant to the Merger (except
with respect to any cash received in lieu of fractional shares of West
Marine Common Stock).
(ii) The aggregate tax basis of the West Marine Common Stock
received by each E&B Marine stockholder will be the same as the aggregate
tax basis of the E&B Marine Common Stock surrendered in the Merger,
decreased by the amount of any tax basis allocable to fractional shares of
West Marine Common Stock in lieu of which cash will be paid.
(iii) The holding period of the West Marine Common Stock received by
each E&B Marine stockholder will include the period for which the E&B
Marine Common Stock surrendered in exchange therefor was considered to be
held, provided the E&B Marine Common Stock so surrendered is held as a
capital asset at the Effective Time.
(iv) Payment received by holders of E&B Marine Common Stock in lieu
of fractional shares of West Marine Common Stock will be treated as payment
in redemption of such fractional shares and, provided that the redeemed
interest is held as a capital asset at the Effective Time, will generally
result in the recognition of capital gain or loss by such holders measured
by the difference between the amount received and the tax basis allocable
to such fractional shares.
Irrespective of the reorganization status of the Merger, a recipient of
shares of West Marine Common Stock will recognize income if and to the extent
any such shares are considered to be received in exchange for services or
property (other than E&B Marine Common Stock). All or a portion of such income
may be taxable as ordinary income. Gain also will be recognized if and to the
extent an E&B Marine stockholder is treated as receiving (directly or
indirectly) consideration other than West Marine Common Stock in exchange for
his or her E&B Marine Common Stock.
Tax Consequences to West Marine and E&B Marine. Assuming the Merger is
treated as a reorganization under the Code, generally no gain or loss will be
recognized by West Marine, Merger Sub or E&B Marine as a result of the Merger.
The Merger will not have any tax consequences for West Marine stockholders.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT A
COMPLETE DESCRIPTION OF ALL POTENTIAL TAX CONSEQUENCES THAT MAY OCCUR AS A
RESULT OF THE MERGER. E&B MARINE STOCKHOLDERS SHOULD THEREFORE CONSULT THEIR
TAX ADVISORS REGARDING THE FEDERAL TAX CONSEQUENCES OF THE MERGER, THE HOLDING
AND DISPOSING OF WEST MARINE COMMON STOCK RECEIVED IN THE MERGER, THE EXERCISE
OF ANY OPTIONS OR WARRANTS TO PURCHASE WEST MARINE COMMON STOCK ASSUMED IN THE
MERGER AND THE TAX CONSEQUENCES OF THE MERGER ARISING UNDER THE LAWS OF ANY
STATE, LOCAL OR OTHER JURISDICTION.
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REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
specified waiting period requirements have been satisfied. West Marine and E&B
Marine each filed notification and report forms under the HSR Act with the FTC
and the Antitrust Division on April 16, 1996. The FTC granted early termination
of the required waiting period under the HSR Act on April 29, 1996. At any time
before or after consummation of the Merger the Antitrust Division or the FTC
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the consummation
of the Merger or seeking divestiture of substantial assets of West Marine or E&B
Marine. At any time before or after the Effective Time of the Merger, and
notwithstanding that early termination of the HSR Act waiting period has been
granted, any state could take such action under the antitrust laws as it deems
necessary or desirable in the public interest. Such action could include seeking
to enjoin the consummation of the Merger or seeking divestiture of E&B Marine or
businesses of West Marine or E&B Marine. Private parties may also seek to take
legal action under the antitrust laws under certain circumstances. See "The
Merger Agreement--Conditions to the Merger."
Based on information available to them, West Marine and E&B Marine believe
that the Merger will be effected in compliance with federal and state antitrust
laws. However, there can be no assurance that a challenge to the consummation of
the Merger on antitrust grounds will not be made or that, if such a challenge
were made, West Marine and E&B Marine would prevail or would not be required to
accept certain conditions, possibly including certain divestitures, in order to
consummate the Merger.
Consummation of the Merger is conditioned upon the receipt of all material
governmental licenses, authorizations, consents, orders and approvals, subject
to waiver of such conditions, in accordance with the terms of the Merger
Agreement. West Marine and E&B Marine intend to pursue vigorously all required
regulatory approvals. However, there can be no assurance regarding the timing of
such approvals or that such approvals will, in fact, be obtained. See "The
Merger Agreement--Conditions to the Merger."
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of West Marine Common Stock received by E&B Marine stockholders
in the Merger will be freely transferable, except that shares of West Marine
Common Stock received by persons who are deemed to be "affiliates" (as such term
is defined under the Securities Act) of E&B Marine are restricted as described
herein. Rule 145 promulgated under the Securities Act regulates the disposition
of securities of "affiliates" of E&B Marine in connection with the Merger.
E&B Marine has delivered to West Marine a letter (the "Affiliate Letter")
identifying all persons who are "affiliates" of E&B Marine for purposes of Rule
145 under the Securities Act. E&B Marine has also agreed to use its best efforts
to cause each person who is identified in the Affiliate Letter as, or who at the
time of the E&B Marine Annual Meeting shall be, an "affiliate" (an "Affiliate")
to deliver to West Marine, prior to the Effective Time, a written agreement (an
"Affiliate Agreement").
Under the Affiliate Agreement, such Affiliate will agree that the Affiliate
may not sell, transfer or otherwise dispose of West Marine Common Stock issued
to the Affiliate in the Merger unless (i) such sale, transfer or other
disposition has been registered under the Securities Act, (ii) such sale,
transfer or other disposition is made in compliance with the requirements of
Rule 145 under the Securities Act, (iii)
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in the opinion of O'Sullivan Graev & Karabell, LLP or other counsel reasonably
acceptable to West Marine, such sale, transfer or other disposition is otherwise
exempt from registration under the Securities Act or (iv) an authorized
representative of the Commission shall have rendered written advice to the
Affiliate to the effect that the Commission would take no action with respect to
such proposed sale, transfer or other disposition if consummated as set forth in
such advice. West Marine is under no obligation to register under the Securities
Act the sale, transfer or other disposition of West Marine Common Stock or to
take any other action necessary to make compliance with an exemption from such
registration available.
Under the Affiliate Agreement, West Marine will issue appropriate stock
transfer instructions to the transfer agent for the shares of West Marine Common
Stock that are to be received by such Affiliate and will place restrictive
legends on the certificates evidencing West Marine Common Stock. Unless the
transfer by the Affiliate of its West Marine Common Stock has been registered
under the Securities Act or is a sale made in compliance with the provisions of
Rule 145 under the Securities Act, West Marine has the right to insert
restrictive legends on the certificates issued to any transferee of the
Affiliate.
The obligations of West Marine and Merger Sub to consummate the Merger are
conditional upon each of E&B Marine's affiliates executing an Affiliate
Agreement.
NASDAQ NATIONAL MARKET
It is a condition to the Merger that the shares of West Marine Common Stock
to be issued pursuant to the Merger Agreement and required to be reserved for
issuance in connection with the Merger be authorized for trading on the NASDAQ
subject to official notice of issuance. Applications have been filed for listing
the shares of West Marine Common Stock on the NASDAQ.
ABSENCE OF DISSENTERS' RIGHTS
Holders of E&B Marine Common Stock will not have dissenters' rights under
Delaware Law with respect to the Merger.
WEST MARINE'S REASONS FOR THE MERGER
The West Marine Board believes that the acquisition of E&B Marine is in
the best interests of West Marine and its stockholders. The West Marine Board
believes that the long-term future of West Marine depends upon its ability to
operate a sufficient number of stores to generate meaningful earnings for its
stockholders. The Merger represents an opportunity to expand West Marine's
retail operations on a scale that could not be achieved as economically through
internal growth. The West Marine Board believes that the success of the Merger
will depend upon, among other factors, the ability of the management of West
Marine to maintain and improve the profitability of the combined operations and
to successfully integrate the business operations of E&B Marine with those of
West Marine. See "Risk Factors--Certain Effects of the Merger; Integration of
E&B Marine" and "--Business of E&B Marine Following the Merger."
BUSINESS OF E&B MARINE FOLLOWING THE MERGER
West Marine and E&B Marine expect that all of E&B Marine's directors who
are now serving will be replaced by directors designated by West Marine
currently with the consummation of the Merger. It is anticipated that the
employment of executive management and certain administrative personnel of E&B
Marine also will be terminated before the end of 1996. West Marine will elect
Randolph K. Repass, Crawford L. Cole and Richard E. Everett as directors of E&B
Marine and Messrs. Repass, Cole and Everett and John C. Zott will be appointed
the Chairman of the Board, President and Chief Executive Officer, Executive Vice
President and Chief Operating Officer and Senior Vice President, Finance and
Chief Financial Officer, respectively, of E&B Marine.
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In the short term, the business of E&B Marine will continue to be conducted
under the names "E&B Marine," "Bliss Marine" and "Goldberg's Marine." However,
in order for the combined company to operate profitably after the Merger, the
management of West Marine plans to implement strategies to improve E&B Marine's
operating profits and to facilitate the successful combination of the E&B Marine
stores and the West Marine stores into one company.
Among others, West Marine expects to take following actions after
completion of the Merger: (i) reduce corporate overhead by eliminating E&B
Marine's corporate headquarters and centralizing management of West Marine and
E&B Marine at West Marine's corporate headquarters in Watsonville, California;
(ii) modify the product selection in E&B Marine stores; (iii) review
unprofitable and underperforming E&B Marine retail stores, with a view to
determining on an expedited basis which stores can be made profitable or should
be closed; and (iv) close or relocate, after approximately eighteen months, E&B
Marine's distribution center in Edison, New Jersey. At the present time, West
Marine has identified up to six E&B Marine retail stores which, based on limited
information, it currently intends to close. West Marine may determine, after
further review of the operations of such stores, that the sale or closure of
such stores is not warranted. West Marine intends to engage in a more detailed
review of E&B Marine, its subsidiaries and their assets, corporate structure,
operations, properties, policies, management and personnel to consider what
further changes may be desirable. West Marine reserves the right to take any
such actions and effect any such changes it deems desirable.
In addition, West Marine intends contemporaneously with the Effective Time
to pay to United Jersey Bank ("UJB") all outstanding amounts owed E&B Marine
under E&B Marine's credit facilities with UJB and to thereby terminate such
credit facilities. For further information regarding the credit facilities with
UJB, see "E&B Marine--Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Transaction costs relating to the negotiation of preparation for and
consummation of the Merger and the anticipated integration E&B Marine with West
Marine are expected to result in a one-time charge to West Marine's earnings.
The management of West Marine currently estimates that this charge will be
approximately $3.0 million before taxes, although such amount may be increased
by unanticipated additional expenses incurred in connection with the Merger. See
"Risk Factors--Merger Expenses."
West Marine, as the sole stockholder of E&B Marine after consummation of
the Merger, intends at that time to take all necessary action to amend the
current Restated Certificate of Incorporation, as amended, of E&B Marine to
substantially conform to the Certificate of Incorporation of West Marine, except
that the authorized number of shares will be reduced to 1,000. Pursuant to the
Merger Agreement, upon consummation of the Merger, the current By-laws of Merger
Sub will become the By-laws of E&B Marine.
THE MERGER AGREEMENT
The following summarizes the material terms of the Merger Agreement, which
is attached hereto as Annex A and incorporated by reference herein. Stockholders
of West Marine and E&B Marine are urged to read the Merger Agreement in its
entirety for a more complete description of the terms of the Merger.
EFFECTIVE TIME OF MERGER
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Merger Agreement, but not on or before June 1, 1996,
the parties thereto will file a certificate of merger with the Secretary of
State of the State of Delaware. The Merger will become effective upon such
filing.
CONVERSION OF SHARES
At the Effective Time, each outstanding share of E&B Marine Common Stock
(other than shares owned by Merger Sub, West Marine or any subsidiary of West
Marine or E&B Marine) will be converted
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into the right to receive a fraction of a share of West Marine Common Stock
equal to the Exchange Ratio. The Exchange Ratio will be calculated as follows:
(i) if the Average West Marine Trading Price is at least $38.00 but not greater
than $43.875, the Exchange Ratio will equal the quotient of $6.65 divided by the
Average West Marine Trading Price; (ii) if the Average West Marine Trading Price
is greater than $43.875, the Exchange Ratio will equal 0.15157; and (iii) if the
Average West Marine Trading Price is less than $38.00, the Exchange Ratio will
equal 0.17500. See "The E&B Marine Annual Meeting--Purposes of the E&B Marine
Annual Meeting." If the Average Trading Price is less than $35.00, West Marine
may terminate the Merger Agreement. See "Termination; Amendment."
Merger Sub will merge with and into E&B Marine, which will be the surviving
corporation of the Merger (the "Surviving Corporation"). Each share of Merger
Sub common stock issued and outstanding immediately prior to the Effective Time
will be converted into one share of common stock of the Surviving Corporation.
As promptly as practicable after the Effective Time, the Surviving
Corporation will send to each stockholder of record of E&B Marine as of the
Effective Time a Letter of Transmittal and other transmittal materials for use
in exchanging certificates of E&B Marine Common Stock for certificates of West
Marine Common Stock. The transmittal materials will contain information and
instructions with respect to the surrender of E&B Marine Common Stock
certificates in exchange for new certificates representing West Marine Common
Stock and cash in payment for any fractional shares resulting from the exchange.
Certificates should not be surrendered until the Letter of Transmittal is
received. Pending delivery to West Marine of E&B Marine Common Stock
certificates, any dividends on the West Marine Common Stock to be issued as a
result of the Merger that are payable prior to the delivery of such certificates
will be held by West Marine. Such dividends will be paid, without interest, to
the persons entitled thereto upon delivery of such E&B Marine Common Stock
certificates to West Marine.
Fractional shares of West Marine Common Stock will not be issued in the
Merger. Instead, each stockholder of E&B Marine who would otherwise be entitled
to a fractional share will receive cash equal to the product of (i) such
fraction multiplied by (ii) the Average West Marine Trading Price.
TREATMENT OF E&B MARINE STOCK OPTIONS AND WARRANTS
At the Effective Time, each outstanding option to purchase shares of E&B
Marine Common Stock under the E&B Marine 1983 Stock Option Plan (the "1983
Plan"), whether vested or unvested, will be assumed by West Marine. Each E&B
Marine option assumed by West Marine under the Merger Agreement will continue to
have, and be subject to, the same terms and conditions set forth in the 1983
Plan immediately prior to the Effective Time, except that (i) such option will
be exercisable for that number of whole shares of West Marine Common Stock equal
to the product of the number of shares of E&B Marine Common Stock that were
purchasable under such option multiplied by the Exchange Ratio, rounded down to
the nearest whole number of shares of West Marine Common Stock and (ii) the per
share exercise price for the shares of West Marine Common Stock issuable upon
exercise of such assumed option will be equal to the quotient determined by
dividing the exercise price per share of E&B Marine Common Stock at which such
option was exercisable immediately prior to the Effective Time by the Exchange
Ratio, and rounding the resulting exercise price up to the nearest whole cent.
E&B Marine currently has outstanding warrants, expiring on March 3, 1999
(the "Warrants"), to purchase approximately 32,329 shares of E&B Marine Common
Stock. Pursuant to the Merger Agreement, E&B Marine will use its reasonable
efforts to cause each of the outstanding Warrants to be exercised before the
Effective Time. Although not specifically provided by the Merger Agreement, it
is expected that at the Effective Time, the remaining outstanding Warrants will
be assumed by West Marine pursuant to separate assumption agreements and will
become warrants to purchase West Marine Common Stock. Each such Warrant will
continue to have, and be subject to, the same terms and conditions set forth in
the respective agreement pursuant to which each such Warrant was
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originally issued by E&B Marine, except that (i) such Warrant will be
exercisable for that number of shares of West Marine Common Stock equal to
the product of the number of shares of E&B Marine Common Stock that were
purchasable under such Warrant multiplied by the Exchange Ratio and (ii) the per
share exercise price for the shares of West Marine Common Stock issuable upon
exercise of each such assumed Warrant will be equal to the quotient determined
by dividing the exercise price per share of E&B Marine Common Stock at which
such Warrant was exercisable immediately prior to the Effective Time by the
Exchange Ratio.
BUSINESS OF E&B MARINE PENDING THE MERGER
Pending the consummation of the Merger, and except as expressly required or
permitted by the Merger Agreement or as otherwise consented to or approved in
advance by West Marine in writing, E&B Marine has agreed that E&B Marine and its
subsidiaries will, among other things, conduct their business in accordance with
their ordinary course of business and in a manner consistent with past practice,
and use commercially reasonable efforts to preserve substantially intact their
business organization, to keep available the services of their present officers,
employees and consultants and to preserve their present relationships with
customers and suppliers and other persons with which they have significant
business relations. In addition, E&B Marine and its subsidiaries have agreed not
to take any of the following actions without the prior written consent of West
Marine: (i) change or amend E&B Marine's Certificate of Incorporation or By-
laws; (ii) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, (a) any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest of E&B Marine, its subsidiaries or affiliates (except for the
issuance of shares of E&B Marine Common Stock issuable pursuant to employee
stock options granted under the 1983 Plan prior to, and outstanding on, the date
of the Merger Agreement), or (b) any of their assets (except for sales of assets
in the ordinary course of business and in a manner consistent with past
practice); (iii) declare or pay any dividends or any other distributions with
respect to their common stock, except for certain intracompany distributions;
(iv) split, combine or reclassify any of their capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of or in substitution for shares of their capital stock; (v) amend the terms of,
repurchase, redeem or otherwise acquire any of their securities; (vi) sell,
transfer, license, sublicense or otherwise dispose of any E&B Marine
intellectual property, or amend or modify any existing agreements with respect
to any E&B Marine intellectual property; (vii) (a) acquire (by merger,
consolidation or acquisition of stock or assets) any corporation, partnership or
other business organization or division thereof; (b) incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee (other than
guarantees of bank debt of E&B Marine's subsidiaries entered into in the
ordinary course of business) or endorse or otherwise become responsible for the
obligations of any person, or make any loans or advances, except in the ordinary
course of business consistent with past practice (taking into account the stores
opened by E&B Marine in 1995) and as otherwise permitted under any loan or
credit agreement to which E&B Marine is a party; (c) enter into any contract or
agreement other than in the ordinary course of business; (d) authorize any
capital expenditures, in the aggregate, in excess of $100,000 for E&B Marine and
its subsidiaries taken as a whole; (e) sell, transfer or dispose of any assets
other than in the ordinary course of business consistent with past practice; or
(f) enter into or amend any contract, agreement, commitment or arrangement with
respect to any of the matters set forth in this clause (vii); (viii) increase
the compensation for their officers or employees, except for increases in salary
or wages of their employees who are not E&B Marine officers in accordance with
past practices, or grant any severance or termination pay or stock options to,
or enter into any employment or severance agreement with any director, officer
or other employee, or establish, adopt, enter into or amend 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 of their current or former directors,
officers or employees; (ix) change, other than in the
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ordinary course of business and in a manner consistent with past practice and
GAAP, any accounting policies or procedures; (x) make any tax election or settle
or compromise any federal, state, local or foreign income tax liability or agree
to an extension of a statute of limitations; or (xi) pay, discharge or satisfy
any claims, liabilities or obligations, except in the ordinary course of
business and consistent with past practice.
SOLICITATION OF OTHER PROPOSALS
Pending the consummation of the Merger or termination of the Merger
Agreement in accordance therewith, E&B Marine and its subsidiaries (i) will
cease any discussions or negotiations with any person with respect to any
acquisition of all or any material portion of the assets of, or any equity
interest in (except for the issuance of E&B Marine Common Stock pursuant to
employee stock options granted under the 1983 Plan and outstanding on the date
of the Merger Agreement), E&B Marine or any of its subsidiaries or any
Acquisition Proposal (as defined below) and (ii) will not solicit or initiate,
or take any action to facilitate any inquiries or the making of any proposal
that constitutes an Acquisition Proposal, or participate in or initiate
discussions or negotiations with, or provide any information to any person,
concerning an Acquisition Proposal or which might result in an Acquisition
Proposal. Notwithstanding the foregoing, E&B Marine is not prohibited from (a)
participating in discussions or negotiations with, or furnishing information to,
any person or entity that submits an unsolicited written Acquisition Proposal to
the E&B Marine Board pursuant to a confidentiality agreement substantially
similar to that then in effect between E&B Marine and West Marine, if the E&B
Marine Board receives a written opinion of outside counsel to the effect that,
and based on such advice the E&B Marine Board determines by a majority vote in
its good faith judgment that, taking such action is likely required to satisfy
the fiduciary duties of the E&B Marine Board; or (b) taking action, upon the
express authorization of the E&B Marine Board, with respect to a Superior
Proposal (as defined in Section 4.2(c) of the Merger Agreement) if (x) the E&B
Marine Board, after consultation with and based on the written opinion of
outside counsel, determines in good faith by a majority vote that such action is
likely required to satisfy the fiduciary duties of such E&B Marine Board, (y)
the E&B Marine Board provides notice within two business days to West Marine to
the effect that it is taking such action and (z) E&B Marine simultaneously pays
to West Marine the Termination Fee (as defined in "-- Fees and Expenses" below).
The term "Acquisition Proposal" means any inquiry, proposal or offer from any
person (other than West Marine, Merger Sub or any of their affiliates) relating
to any direct or indirect business combination, tender or exchange offer,
consolidation, merger, sale of substantial assets, sale of (or right to sell)
shares of capital stock (except for the issuance of E&B Marine Common Stock
pursuant to employee stock options granted under the 1983 Plan and outstanding
on the date of the Merger Agreement), recapitalization, liquidation, dissolution
or similar transaction involving E&B Marine, or any other transaction which
would reasonably be expected to dilute materially the benefits of the
contemplated transactions to West Marine or its affiliates. E&B Marine shall
advise West Marine orally and in writing of any request for information or
Acquisition Proposal, or any inquiry with respect to or which could result in an
Acquisition Proposal, the material terms and conditions of such request,
Acquisition Proposal or inquiry, and the identity of the person making the same,
and shall keep West Marine apprised of related developments.
BUSINESS OF WEST MARINE PENDING THE MERGER
Pending the consummation of the Merger, and unless E&B Marine shall
otherwise agree in writing, West Marine has agreed that West Marine and its
subsidiaries shall conduct their business in accordance with their ordinary
course of business and West Marine shall not (i) amend or otherwise change its
Certificate of Incorporation (other than to increase the number of shares of
West Marine Common Stock authorized thereunder) or By-laws; (ii) (a) declare,
set aside or pay any cash dividend or (b) amend the terms of, repurchase, redeem
or otherwise acquire any of its securities, or propose to do any of the
foregoing; or (iii) acquire (by merger, consolidation or acquisition of stock or
assets) for
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a consideration with a value in excess of $100,000,000 any corporation,
partnership or other business organization or division thereof.
CORPORATE STRUCTURE AND RELATED MATTERS AFTER THE MERGER
At the Effective Time, Merger Sub will be merged with and into E&B Marine,
which will be the Surviving Corporation. Each share of Merger Sub common stock
issued and outstanding immediately prior to the Effective Time will be converted
into and exchanged for one validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation. Each stock certificate of Merger Sub
evidencing ownership of any such shares shall continue to evidence ownership of
such shares of capital stock of the Surviving Corporation.
Unless otherwise determined by West Marine prior to the Effective Time, at
the Effective Time the Certificate of Incorporation of E&B Marine, as in effect
immediately prior to the Effective Time, will be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended. The By-laws
of Merger Sub, as in effect immediately prior to the Effective Time, will be the
By-laws of the Surviving Corporation until thereafter amended.
The directors of Merger Sub immediately prior to the Effective Time will be
the initial directors of the Surviving Corporation, and the officers of E&B
Marine immediately prior to the Effective Time will be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified. See "The Merger--Business of E&B Marine
Following the Merger."
The Merger Agreement provides that after the Effective Time and on a
schedule determined by West Marine, the employees of E&B Marine will become
eligible to participate in the employee benefit plans of West Marine to the same
extent as any similarly situated and geographically located employees of West
Marine.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction of various
conditions, including (i) the approval and adoption of the Merger Agreement and
the Merger by the requisite vote of the stockholders of E&B Marine; (ii) the
authorization for inclusion for trading on the NASDAQ of the shares of West
Marine Common Stock to be issued in connection with the Merger; (iii) the
expiration or termination of any waiting period and any extension thereof
applicable to the consummation of the Merger under the HSR Act; (iv) the absence
of any restrictive court orders or any other legal restraints or prohibitions,
and of any governmental proceedings, preventing the consummation of the Merger,
and the absence of any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Merger which makes the
consummation of the Merger illegal; (v) the receipt of an officer certificate by
each of West Marine and E&B Marine from the other party to the effect that
certain representations and warranties made by the respective party are true and
correct in all material respects on and as of the Effective Time; (vi) the
receipt of an officer certificate by West Marine and E&B Marine from the other
party to the effect that the respective party has performed or complied in all
material respects with all agreements and covenants required by the Merger
Agreement to be performed or complied with by such party on or prior to the
Effective Time; (vii) the receipt of evidence by West Marine and E&B Marine,
respectively, from the other party that such party has obtained certain
licenses, permits, consents, waivers, approvals, authorizations, qualifications
or orders as described in the Disclosure Schedules of West Marine and E&B Marine
delivered pursuant to the Merger Agreement (except that E&B Marine will not be
required to obtain the consent of United Jersey Bank under the credit and
related agreements between E&B Marine and such bank); (viii) the receipt by West
Marine of a representation from each stockholder who is a signatory to the
Stockholders Agreement that certain representations given therein are true and
correct as of the date two days prior to the Effective Time; (ix)
42
<PAGE>
the absence after the date of the Merger Agreement of any change, event or
circumstance that is materially adverse to the business, financial condition or
results of operations of E&B Marine and its subsidiaries (except for such
changes, events and circumstances as are set forth in Section 2.8(a) of the
Disclosure Schedule of E&B Marine); (x) the receipt by West Marine and E&B
Marine, respectively, of certain opinions regarding legal, financial and tax
matters; (xi) the receipt by West Marine of the Affiliate Agreements and that
the Affiliate Agreements and the Stockholders Agreement shall be in full force
and effect; and (xii) the effectiveness of the Registration Statement.
TERMINATION; AMENDMENT
The Merger Agreement may be terminated and the Merger may be abandoned
prior to the Effective Time either before or after its approval by the
stockholders of E&B Marine, under the circumstances specified therein, including
(i) by mutual written consent duly authorized by the Boards of Directors of West
Marine and E&B Marine; (ii) by either West Marine or E&B Marine, if the Merger
shall not have been consummated by August 31, 1996 (or by December 31, 1996, if
the Merger shall not have been consummated solely due to any waiting period or
extension thereof under the HSR Act not having expired or been terminated) and
if the terminating party has not caused the failure of the Merger to be
consummated on or before such date by its own willful failure to fulfill any of
its material obligations under the Merger Agreement; (iii) by either West Marine
or E&B Marine, if a court or a governmental, regulatory or administrative agency
or commission prohibits, by order, decree, ruling or any other action, the
transactions contemplated by the Merger Agreement; (iv) by either West Marine or
E&B Marine, if the stockholders of E&B Marine fail to approve the Merger
Agreement; (v) by West Marine, if the E&B Marine Board has (a) approved or
recommended an Acquisition Proposal other than the Merger, (b) withdrawn or
modified in a manner adverse to West Marine its approval or recommendation of
the Merger, the Merger Agreement or the transactions contemplated thereby, (c)
failed to mail the Proxy Statement/Prospectus to E&B Marine's stockholders when
the Proxy Statement/Prospectus shall be available for mailing or failed to
include therein such approval and recommendation, (d) resolved to do any of the
foregoing or (e) upon request by West Marine, failed, within two business days
after such request is made, to reaffirm any such approval or recommendation;
(vi) by E&B Marine, in order to take certain action referred to in clause (ii)
of Section 4.2(c) of the Merger Agreement with respect to a Superior Proposal,
provided that E&B Marine has complied with all the provisions of the second
sentence of Section 4.2(c) of the Merger Agreement and has determined to accept
such Superior Proposal; (vii) by West Marine, if E&B Marine has entered into an
agreement or understanding with any person (other than West Marine, Merger Sub
or any of their affiliates) relating to a tender offer or exchange offer for any
shares of E&B Marine Common Stock or an acquisition of more than ten percent of
the total assets of E&B Marine or a merger, consolidation or other business
combination involving E&B Marine or any of its subsidiaries, or if the E&B
Marine Board has resolved to authorize E&B Marine to do any of the foregoing;
(viii) by West Marine, if neither West Marine nor Merger Sub is in material
breach of its obligations under the Merger Agreement, and if (1) there has been
a breach by E&B Marine of any of its representations and warranties under the
Merger Agreement such that Section 6.2(a) of the Merger Agreement will not be
satisfied or (2) there has been a willful breach on the part of E&B Marine of
any of its covenants or agreements contained in the Merger Agreement such that
Section 6.2(b) of the Merger Agreement will not be satisfied, and, in both
cases, such breach has not been promptly cured after notice to E&B Marine; (ix)
by E&B Marine, if it is not in material breach of its obligations under the
Merger Agreement, and if (1) there has been a breach by West Marine or Merger
Sub of any of their respective representations and warranties under the Merger
Agreement such that Section 6.3(a) of the Merger Agreement will not be satisfied
or (2) there has been a willful breach on the part of West Marine or Merger Sub
of any of their respective covenants or agreements contained in the Merger
Agreement such that Section 6.3(b) of the Merger Agreement will not be
satisfied, and, in both cases, such breach has not been promptly cured after
notice to West Marine and Merger Sub; (x) by West Marine, in the event of a
material breach by any of the stockholders who are signatories to the
Stockholders Agreement of any representation, warranty, covenant or agreement of
the Stockholders
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<PAGE>
Agreement which is not cured promptly after notice thereof; provided, however,
that such breach shall be of the kind that denies West Marine the material
benefits contemplated by the Stockholders Agreement; or (xi) by West Marine, if
the Average West Marine Trading Price is less than $35.00.
The Merger Agreement may be amended by an agreement in writing among the
parties thereto at any time prior to the Effective Time; provided, however,
that, after approval of the Merger by the stockholders of E&B Marine, no
amendment may be made which would reduce the amount or change the type of
consideration into which each share of E&B Marine Common Stock will be converted
upon consummation of the Merger.
FEES AND EXPENSES
Except as described below, all fees and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby will be paid
by the party incurring such expenses, whether or not the Merger is consummated.
West Marine and E&B Marine will share equally all fees and expenses, other
than attorneys' fees, incurred in relation to the printing and filing of the
Proxy Statement/Prospectus, and any amendments or supplements thereto.
E&B Marine has agreed to reimburse West Marine, within one business day of
West Marine's request therefor, for up to $1,200,000 of those reasonable and
documented fees and expenses actually incurred by West Marine in connection with
the Merger Agreement, the Stockholders Agreement and the transactions
contemplated thereby (including (x) West Marine's efforts to acquire E&B Marine,
(y) steps taken after the date of the Merger Agreement to take operational
control of E&B Marine and (z) salaries, travel costs and expenses incurred by
West Marine as a result of changes to its business plan in contemplation of the
Merger) (the "West Marine Stipulated Expenses"), if the Merger Agreement is
terminated as a result of any of the events described in clauses (v), (vi),
(vii) and (viii) of the section titled "Termination; Amendment" above, provided
in every case that West Marine is not then in breach of its representations and
warranties under the Merger Agreement such that Section 6.3(a) of the Merger
Agreement would not be satisfied or West Marine is not otherwise in material
breach of its obligations under the Merger Agreement such that Section 6.3(b) of
the Merger Agreement will not be satisfied, and provided further (a) that the
expenses described in the preceding clauses (y) and (z) will not be subject to
reimbursement in the event that West Marine terminates the Merger Agreement as a
result of a representation and warranty of E&B Marine which was true and correct
in all material respects as of the date of the Merger Agreement becoming, as a
result of any nonwillful action taken by E&B Marine, not true or correct in all
material respects as of the Effective Time, (b) that E&B Marine will not be
obligated to reimburse West Marine for any fee of West Marine's investment
bankers in excess of $200,000 and (c) that any amount of West Marine Stipulated
Expenses payable by E&B Marine to West Marine as described in this sentence
shall be reduced by any amount actually received by West Marine pursuant to
Section 7.2(b) of the Stockholders Agreement. Moreover, in the event the Merger
Agreement is terminated as a result of any of the events described in clauses
(v), (vi) and (vii) of the section titled "Termination; Amendment" above, E&B
Marine has agreed to pay West Marine a fee of $1,250,000, less the amount of the
West Marine Stipulated Expenses (the "Termination Fee"), simultaneously with
such termination of the Merger Agreement, which fee shall be payable in
immediately available funds. In no event shall E&B Marine be obligated to pay
more than one Termination Fee. The foregoing notwithstanding, West Marine shall
not be entitled to receive a Termination Fee if West Marine has received the
Topping Fee provided by Section 7.2(c) of the Stockholders Agreement. If the
Merger Agreement is terminated under the circumstances described in this
paragraph, then the payments described in this paragraph will be liquidated
damages for loss of the bargain under the Merger Agreement and, together with
the reimbursement of expenses as described above, will be West Marine's sole and
exclusive remedy in such event.
44
<PAGE>
THE STOCKHOLDERS AGREEMENT
The following paragraphs summarize, among other things, the material terms
of the Stockholders Agreement, which is attached hereto as Annex B and
incorporated herein by reference. Stockholders of E&B Marine are urged to read
the Stockholders Agreement in its entirety for a more complete description of
the terms of that agreement.
AGREEMENT TO VOTE
The Stockholders Agreement provides, among other things, that, at any
meeting of stockholders of E&B Marine or in connection with any written consent
of stockholders, each Principal Stockholder shall vote (or cause to be voted)
during the time the Stockholders Agreement is in effect, the shares of E&B
Marine Common Stock held of record or beneficially by such stockholder, as
follows:
(1) In favor of the Merger, the execution and delivery by E&B
Marine of the Merger Agreement and the approval of the terms thereof and each of
the other actions contemplated by the Merger Agreement and the Stockholders
Agreement and any actions required in furtherance thereof;
(2) Against any action or agreement that would result in a breach
in any material respect of any covenant, representation or warranty or any other
obligation or agreement of E&B Marine under the Merger Agreement or the
Stockholders Agreement; or
(3) Except as otherwise agreed to in writing by West Marine,
against (i) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving E&B Marine or its
subsidiaries; (ii) a sale, lease or transfer of a material amount of assets of
E&B Marine or its subsidiaries or a reorganization, recapitalization,
dissolution or liquidation of E&B Marine or its subsidiaries; or (iii) any
change in the majority of the E&B Marine Board, any material
change in the present capitalization of E&B Marine, any amendment to E&B
Marine's Restated Certificate of Incorporation, any other material change to E&B
Marine's corporate structure or business, or any other action which, in the case
of each of the matters referred to in this clause (iii), is intended or could
reasonably be expected, to impede, interfere with, delay, postpone, discourage
or materially adversely affect the contemplated economic benefits to West Marine
of the Merger or the transactions contemplated by the Merger Agreement or the
Stockholders Agreement.
In addition, the Principal Stockholders have agreed not to enter into any
agreement or understanding, whether oral or written, with any person or entity
prior to the Termination Date (as defined in the Stockholders Agreement) to vote
after the Termination Date in any manner inconsistent with paragraphs (1), (2)
or (3) above.
In addition, each Principal Stockholder has granted to, and appointed, West
Marine and certain officers of West Marine as each such Principal Stockholder's
irrevocable proxy and attorney-in-fact (with full power of substitution) to vote
the shares of E&B Marine Common Stock in accordance with the provisions of the
Stockholders Agreement.
COVENANTS OF THE STOCKHOLDERS
During the term of the Stockholders Agreement, no Principal Stockholder
shall: (i) solicit (including by way of furnishing information) or respond to
any inquiries or the making of any proposal by any person (other than West
Marine or any affiliate of West Marine) with respect to E&B Marine that
constitutes or could reasonably be expected to lead to an Acquisition Proposal,
and, if any Principal Stockholder receives any such inquiry or proposal, then
such Principal Stockholder shall promptly inform
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<PAGE>
West Marine of the terms and conditions, if any, of such inquiry or proposal and
the identity of the person making it, and each Principal Stockholder will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted theretofore with respect
to any of the foregoing, or (ii) (a) offer for sale, sell, transfer, tender,
pledge, encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to or consent to the
offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of such Principal Stockholder's shares of E&B Marine
Common Stock or any interest therein; (b) except as contemplated by the
Stockholders Agreement, grant any proxies or powers of attorney, deposit any
shares of E&B Marine Common Stock into a voting trust or enter into a voting
agreement with respect to any shares of E&B Marine Common Stock; or (c) take any
action that would make any representation or warranty of such Principal
Stockholder contained in the Stockholders Agreement untrue or incorrect or have
the effect of preventing or disabling such Principal Stockholder from performing
such Principal Stockholder's obligations under the Stockholders Agreement.
For a period of two (2) years following the date of the Stockholders
Agreement, no Principal Stockholder (other than DLJ Capital Corporation) (i)
shall, directly or indirectly, own (beneficially or of record), manage, operate
or control, or participate in the ownership (beneficially or of record),
management, operation or control of, or be connected with or have any interest
in, as a shareholder, director, officer, employee, agent, consultant, partner,
member or manager, any Competitive Business (as defined below) anywhere within
any state or territory of the United States or the District of Columbia, or (ii)
shall, nor shall it permit any Competitive Business under its control to,
directly or indirectly, without the prior written consent of West Marine, (a)
solicit for employment by a Competitive Business any person then employed by
West Marine or E&B Marine or any of their subsidiaries, whether as an officer,
employee, consultant, adviser or independent contractor (collectively, an
"Employee") or (b) employ any such Employee in a Competitive Business who
voluntarily leaves such employment until the passage of nine (9) months
following termination of such employment. The provisions of the Stockholders
Agreement discussed in paragraph (b) above do not prohibit the employment of any
person after nine (9) following the voluntary termination of such employment.
The provisions of the Stockholders Agreement described in this paragraph do not
prevent any person subject to such provisions from investing in the equity
securities of any person if such securities are listed on a national securities
exchange or the NASDAQ and the aggregate amount of such securities held by all
persons subject to such provisions does not exceed four and nine-tenths percent
(4.9%) of the outstanding equity securities of the issuer thereof. "Competitive
Business" is defined as Boat/U.S., Boater's World and any other retail business
or activity commenced after the Effective Time where more than one half of the
products offered for sale by such retailer are of a type sold in stores operated
by West Marine, E&B Marine or any of their subsidiaries as of the Effective
Time.
Each Principal Stockholder acknowledges under the Stockholders Agreement
that E&B Marine owns and has developed and compiled certain proprietary
techniques and confidential information which have great value to its business
(referred to herein, collectively, as "Confidential Information"). Confidential
Information includes all information that has commercial value in the business
in which E&B Marine is engaged, and all information of which the unauthorized
disclosure could be detrimental to the interests of E&B Marine, whether or not
such information is specifically labelled as Confidential Information by E&B
Marine. By way of example and without limitation, Confidential Information
includes any and all information developed, obtained or owned by E&B Marine
concerning trade secrets, techniques, know-how (including designs, plans,
procedures and merchandising know-how), software, computer programs,
improvements, research, specifications, marketing data and plans, business
plans, strategies, forecasts, unpublished financial information, orders,
agreements and other forms of documents, price and cost information,
merchandising opportunities, expansion plans, store plans, budgets, projections
and customer, supplier and subcontractor identities. Each Principal Stockholder
has agreed not to, directly or indirectly, use, make available, sell, disclose
or otherwise communicate to any person any Confidential Information. For
purposes of the Stockholders Agreement, Confidential Information
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<PAGE>
does not include any information which (i) is or becomes generally available to
the public other than as a result of a disclosure by any Principal Stockholder,
(ii) was within a Principal Stockholder's possession prior to its being
furnished to the Principal Stockholder by or on behalf of E&B Marine, provided
that the source of such information was not known by such Principal Stockholder
to be bound by a confidentiality agreement with or other contractual, legal or
fiduciary obligation of confidentiality to E&B Marine with respect to such
information or (iii) becomes available to a Principal Stockholder on a
non-confidential basis from a source other than E&B Marine, provided that such
source is not bound by a confidentiality agreement with or other contractual,
legal or fiduciary obligation of confidentiality to E&B Marine with respect to
such information. Prior to the Effective Time (or, if the Principal Stockholder
is employed by E&B Marine, the later date of termination of such employment),
each Principal Stockholder who is an employee of E&B Marine shall return to E&B
Marine any Confidential Information (including all copies thereof and materials
prepared by a Principal Stockholder which includes Confidential Information) in
its possession.
Each Principal Stockholder waives (i) any rights to cause E&B Marine to
register, or include in any registration statement of E&B Marine or West Marine
filed with the Commission, under the Securities Act, any of such Principal
Stockholder's shares of E&B Marine Common Stock, (ii) any co-sale or similar
rights respecting shares of E&B Marine Common Stock and (iii) any rights of
appraisal or rights to dissent from the Merger that such Principal Stockholder
may have. Each trustee of a trust that is the record holder or beneficial owner
of, and whose beneficiaries are the beneficial owners (such trustee, a
"Trustee") represents in the Stockholders Agreement that no beneficiary who is a
beneficial owner of shares of E&B Marine Common Stock under any trust for which
such Trustee acts as trustee has any right of appraisal or right to dissent from
the Merger which has not been so waived.
TERMINATION AND EXPENSES
The Stockholders Agreement and the obligations of each Principal
Stockholder thereunder (other than those set forth in Sections 7.1, 7.2, 7.3
(relating to termination and expenses) and 9.4 (relating to governing law)
thereof, which shall survive any such termination) shall terminate on the first
to occur of (a) termination of the Merger Agreement in accordance with its terms
(the "Termination Date") or (b) the Effective Time; provided, however, that the
obligation of each Principal Stockholder under Sections 3.4, 3.5, 3.6 and 9 of
the Stockholders Agreement shall survive any termination pursuant to (b) above.
In addition, the Stockholders Agreement and the obligations of each Principal
Stockholder thereunder may be terminated (other than those set forth in Sections
7.1, 7.2, 7.3 and 9.4 thereof, which shall survive any such termination) by West
Marine if West Marine is not in material breach of its obligations under the
Stockholders Agreement and if there has been a breach in any material respect by
any Principal Stockholder of any of its representations, warranties, covenants
or agreements contained in the Stockholders Agreement and such breach has not
been promptly cured after notice to the breaching Principal Stockholder;
provided, however, that such breach shall be of the kind that denies West Marine
the material benefits contemplated by the Stockholders Agreement.
Except as set forth below, all fees and expenses incurred in connection
with the Stockholders Agreement and the transactions contemplated thereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated.
If the Stockholders Agreement is terminated pursuant to the second sentence
of Section 7.1 of the Stockholders Agreement and provided that West Marine is
not then in material breach of its obligations under the Stockholders Agreement,
then the Principal Stockholder whose breach of the Stockholders Agreement gives
rise to such termination shall reimburse West Marine, within one (1) business
day of West Marine's request therefor, for all West Marine Stipulated Expenses
(if any of the DLJ Stockholders so breach the Stockholders Agreement, then all
of such DLJ Stockholders shall be obligated, jointly and
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<PAGE>
severally, to so reimburse West Marine). The foregoing notwithstanding, any
amount payable to West Marine as described in this paragraph will be reduced by
any amount actually received by West Marine pursuant to Section 7.3(b) of the
Merger Agreement.
In the event that following the receipt by E&B Marine of an Acquisition
Proposal, either (i) West Marine terminates the Merger Agreement pursuant to
Section 7.1(d) or Section 7.1(j) thereof or (ii) E&B Marine terminates the
Merger Agreement pursuant to Section 7.1(d) thereof, and in either such instance
within six (6) months of such termination a Third Party Acquisition (as defined
below) occurs, then the Principal Stockholders who breached their obligations
under the Stockholders Agreement shall pay to West Marine, in immediately
available funds and within one (1) business day of the consummation of such
Third Party Acquisition, an amount equal to one million two hundred fifty
thousand dollars ($1,250,000), less any amounts paid to West Marine in
accordance with the provisions of the Stockholders Agreement described in the
preceding paragraph and less any amounts paid to West Marine by E&B Marine
pursuant to 7.3 of the Merger Agreement (the "Topping Fee"). The immediately
preceding sentence notwithstanding, West Marine shall not be entitled to receive
such Topping Fee if West Marine is paid a Termination Fee by E&B Marine as
provided in the Merger Agreement. If there is more than one Principal
Stockholder liable for the payment of the Topping Fee, each such Principal
Stockholder shall be liable for its proportionate share of the Topping Fee based
on its ownership of shares of E&B Marine Common Stock. The DLJ Stockholders are
jointly and severally liable for each of the DLJ Stockholders' obligations
described in this paragraph. The term "Third Party Acquisition" means the
occurrence of any of the following events: (A) the acquisition of E&B Marine by
merger or otherwise by any person (or any affiliate of such person) making an
Acquisition Proposal prior to the Termination Date (other than West Marine,
Merger Sub or any affiliate thereof)(a "Third Party"); (B) the acquisition by a
Third Party of all or substantially all the assets of E&B Marine and its
subsidiaries taken as a whole; or (C) the acquisition by a Third Party of more
than fifty-percent (50%) of either the outstanding shares of E&B Marine Common
Stock or the total voting power of E&B Marine.
If the Stockholders Agreement is terminated by West Marine as provided in
the second sentence of Section 7.1 of the Stockholders Agreement,
notwithstanding the payment made to West Marine pursuant to Section 7.2 of the
Stockholders Agreement, the breaching Principal Stockholder shall not be
relieved from any liability to West Marine for breach of the Stockholders
Agreement. If the Stockholders Agreement shall be terminated as a result of
termination pursuant to Sections 7.1(d) or 7.1(f) of the Merger Agreement, any
payment made to West Marine pursuant to Section 7.2(c) of the Stockholders
Agreement shall be liquidated damages for loss of the bargain thereunder and
shall be West Marine's sole and exclusive remedy in such event.
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PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
The Merger will be accounted for under the "purchase" method of accounting
which requires the purchase price to be allocated to the acquired assets and
liabilities of E&B Marine on the basis of their estimated fair values as of the
date of acquisition. Consequently, upon consummation of the Merger, the combined
company will establish a new accounting and reporting basis for the acquired
assets and liabilities which will be reflected in the future consolidated
financial statements of West Marine. The following pro forma combined condensed
balance sheet as of March 30, 1996 (unaudited) and the pro forma combined
condensed statements of income for the year ended December 30, 1995 (unaudited)
and for the quarter ended March 30, 1996 (unaudited) (collectively, the "Pro
Forma Financial Information") present the combined historical financial
statements of West Marine and E&B Marine adjusted to give effect to the
transaction on a pro-forma purchase accounting basis. The Pro Forma Combined
Condensed Balance Sheet gives effect to the acquisition of E&B Marine as if it
occurred on March 30, 1996, as applicable. The Pro Forma Combined Condensed
Statements of Income give effect to the acquisition as if it occurred on
January 1, 1995 and includes adjustments directly attributable to the
acquisition and expected to have a continuing impact on the combined company. As
the Pro Forma Financial Information has been prepared based on estimated fair
values, amounts actually recorded may change upon determination of the total
purchase price and additional analysis of individual assets and liabilities
assumed. The Pro Forma Financial Information does not reflect an anticipated
charge to West Marine's earnings of approximately $3.0 million to be taken by
West Marine in connection with the Merger. See "Risk Factors--Merger Expenses."
The Pro Forma Financial Information and related notes are provided for
informational purposes only. The Pro Forma Financial Information presented is
not necessarily indicative of the consolidated financial position or results of
operations of West Marine as they may be in the future or as they might have
been had the Merger been effected on the assumed dates. The Pro Forma Financial
Information should be read in conjunction with the historical consolidated
financial statements of West Marine, and the related notes thereto, which are
incorporated by reference in this Proxy Statement/Prospectus, and the historical
consolidated financial statements of E&B Marine, and the notes related thereto,
presented elsewhere in this Proxy Statement/Prospectus. See "Consolidated
Financial Statements of E&B Marine."
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WEST MARINE AND E&B MARINE
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------- ------------------------
West Marine E&B Marine Adjustments Combined
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Net Sales $224,204 $109,818 $ $334,022
Gross Profit 64,216 29,339 93,555
Selling general and
administrative expenses 48,018 26,178 904 (a,b) 75,100
Interest expense 1,379 1,492 2,871
Provision for income taxes 5,844 650 (103)(c) 6,391
Net income 8,975 1,019 (801) 9,193
Net income per share 1.21 0.29 1.14
Weighted average common
and common equivalent
shares outstanding 7,430 3,751 8,039
</TABLE>
Notes to Pro Forma Combined Condensed Statement of Income.
- ----------------------------------------------------------
The following adjustments represent those necessary to show how the purchase
might have affected the historical consolidated financial statements had it been
consummated at January 1, 1995.
a. Reflects additional amortization of goodwill ($613,000 for the year ended
December 30, 1995) and lease rights ($300,000 for the year ended December
30, 1995) as if the acquisition of E&B Marine had occurred at the
beginning of the period. Goodwill and favorable lease rights are amortized
on a straight-line basis over forty years and seven years, respectively.
Amortization expense recognized on a historical basis for intangible assets
which were eliminated is also eliminated.
b. Adjusts depreciation and amortization calculated on a historical cost basis
to reflect that which would have been calculated on a fair value basis.
c. Adjusts the historical tax expense to give effect of the pro forma
adjustments discussed in a. and b. above.
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WEST MARINE AND E&B MARINE
PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------- ------------------------------
West Marine E&B Marine Adjustments Combined
----------- ---------- ---------------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash $ 643 $ 962 $ $ 1,605
Merchandise inventories 81,641 33,479 2,822 (d) 117,942
Other current assets 8,730 5,293 1,173 (b,f) 15,196
Property, plant and
equipment 18,770 6,011 (410)(c) 24,371
Other assets 965 5,124 26,810 (a,b,f) 32,899
-------- ------- ------- --------
Total $110,749 $50,869 $30,395 $192,013
======== ======= ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities $ 23,423 $22,482 $ 8,042 (g,f) $ 53,947
Long-term debt 18,820 18,194 37,014
Deferred items 778 913 (f) 1,691
Stockholders' Equity 67,728 10,193 21,440 (e) 99,361
-------- ------- ------- --------
Total $110,749 $50,869 $30,395 $192,013
======== ======= ======= ========
</TABLE>
Notes to Pro Forma Combined Condensed Balance Sheet.
- ----------------------------------------------------
The following adjustments represent those necessary to allocate the purchase
price paid to acquire E&B Marine, had the acquisition been consummated at
March 30, 1996.
a. Records goodwill of $26.5 million and favorable lease rights of $2.3
million relating to the acquisition of E&B Marine.
b. Eliminates $1.8 million of previously recorded intangible assets of E&B
Marine.
c. Adjusts property, plant and equipment amounts to reflect estimated fair
values as determined by West Marine based on appraisal and on an analysis
of the individual assets acquired.
d. Adjusts inventory to amounts that reflect approximate fair value as
determined by West Marine based on its analysis of the individual inventory
items.
e. The value of West Marine Common Stock to be issued in the Merger, $31.6
million, is obtained by multiplying an assumed Exchange Ratio (0.15157) by
the number of shares and options of E&B Marine Common Stock issued and
outstanding immediately prior to the Effective Time of the Merger, and
assumes a market value per share of West Marine Common Stock of $50.00.
The historical equity of E&B Marine is eliminated.
f. Net current deferred tax assets of $800,000 and net long-term deferred tax
liabilities of $700,000 acquired in the purchase are based upon the ability
of West Marine to realize the associated benefits.
g. Adjusts liabilities assumed to their estimated fair values including: $1
million pension underfunding liability, reserve for store closures of $1.3
million, reserve for severance of $2.5 million and a liability for expenses
to be incurred in connection with the Merger of $2.1 million.
51
<PAGE>
WEST MARINE AND E&B MARINE
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------- ------------------------
West Marine E&B Marine Adjustments Combined
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Net Sales $49,947 $19,205 $ $69,152
Gross Profit 13,679 3,572 17,251
Selling general and
administrative expenses 12,833 6,348 183 (a,b) 19,364
Interest expense 292 461 753
Provision (benefit) for income taxes 222 (1,295) (26)(c) (1,099)
Net income (loss) 332 (1,942) 157 (1,767)
Net income (loss) per share $ 0.04 $ (0.49) $(0.21)
Weighted average common
and common equivalent
shares outstanding 8,005 3,943 8,614
</TABLE>
Notes to Pro Forma Combined Condensed Statement of Income.
- ----------------------------------------------------------
The following adjustments represent those necessary to show how the purchase
might have affected the historical financial statements had it been consummated
at January 1, 1995.
a. Reflects additional amortization of goodwill ($166,000 for the quarter
ended March 30, 1996) and lease rights ($82,000 for the quarter ended March
30, 1996) as if the acquisition of E&B Marine had occurred at the beginning
of the period. Goodwill and favorable lease rights are amortized on a
straight-line basis over forty years and seven years, respectively.
Amortization expense recognized on a historical basis for intangible assets
which were eliminated is also eliminated.
b. Adjusts depreciation and amortization calculated on a historical cost basis
to reflect that which would have been calculated on a fair value basis.
c. Adjusts the historical tax expense to give effect of the pro forma
adjustments discussed in a. and b. above.
52
<PAGE>
E&B MARINE
BUSINESS
E&B Marine Inc. is engaged in the retail and mail-order merchandising of a
wide variety of marine supplies and apparel to the recreational boating
community. E&B Marine operates (as of May 10, 1996) 64 specialty stores in 18
states. E&B Marine is one of the leading specialty merchandisers of marine
supplies and apparel in the United States.
E&B Marine markets its products primarily to the recreational boating
community through specialty stores and catalogs, which it distributes to known
and prospective customers throughout the recreational boating community several
times each year. E&B Marine's mail-order marketing program promotes its chain
of specialty stores, which sell substantially the same marine products as are
offered through E&B Marine's catalogs.
E&B Marine offers over 14,000 brand-name and private label products.
Additionally, E&B Marine fills special orders for non-stock merchandise to serve
its customers' needs. E&B Marine currently operates under four store names,
E&B, E&B/Bliss ("Bliss"), E&B/Goldbergs' ("Goldbergs'") and E&B/Boatgear
("Boatgear") in order to promote regional awareness and consumer name
recognition. See "-- Properties" for more information concerning E&B Marine's
retail locations. The "E&B" and "Bliss" symbols used by E&B Marine in its
retail business are registered trademarks, and "E&B", "Bliss Marine" and
"Goldbergs' Marine" are registered trade names.
Products. E&B Marine markets and sells a broad range of marine supplies
and apparel primarily for the recreational boating community. E&B Marine's
specialty stores and catalogs offer national brand-name and private label
products with a reputation for high quality and widespread consumer acceptance
at low prices.
Generally, the products distributed by E&B Marine are intended to serve the
aftermarket for boating supplies. E&B Marine's product line includes ship-to-
shore VHF radios, depth-finders, global positioning systems and other electronic
equipment, life-saving and safety equipment, hardware, a wide assortment of
paints and varnishes, rope and chain, anchors and mooring equipment, marine
flotation products, pumps, sanitation equipment, galley equipment, boating
shoes, foul weather gear and other clothing, sailing supplies and equipment,
gift items, fishing accessories and related products. E&B Marine does not sell
engines or boats, other than small outboard motors, inflatable boats and
dinghies.
Some of the products sold by E&B Marine are manufactured to its own
specifications. E&B Marine's exclusive "SeaRanger", "SeaFit", "Bow t' Stern",
"Blue Water" and "North Atlantic Trading Co." product lines consist of products
manufactured domestically and internationally to E&B Marine's specifications.
These product lines include private label electronics, rope, binoculars,
cleaners, foul weather gear and other accessories. The products are of high
quality and are sold at low prices made possible by direct sourcing.
E&B Marine does not depend on any one supplier for any substantial part of
its product line, and believes that alternate sources of supply are available
for its products.
Retail and Mail Order Operations. E&B Marine's marketing strategy
emphasizes its low prices, shopping convenience through accessible store
locations and catalog mailings, the broad selection of marine supplies and
apparel, the general availability of products, the high quality of the products,
knowledgeable sales personnel and the prompt shipment of orders.
53
<PAGE>
E&B Marine operates (as of May 10, 1996) a chain of 64 specialty stores
in 18 states under the names E&B, Bliss, Goldbergs' and Boatgear. See "--
Properties" below. The standard prototype, or "conventional", specialty stores
total 53 out of the 64 specialty stores. The total square footage of E&B
Marine's conventional specialty stores ranges from 5,000 to 14,000; the average
square footage is approximately 9,000 per store. E&B Marine's conventional
specialty stores carry over 7,000 brand-name and private label products which
are tailored to geographical and seasonal requirements.
E&B Marine also has eleven stores with enlarged retail areas. E&B Marine's
strategy is to utilize the increased square footage to enhance the assortment in
its current product lines with emphasis on the expansion of the product
offerings in the fishing equipment and accessories, and clothing categories.
These stores have approximately 9,000 products available for their product mix
with an average of 12,000 square feet of area.
E&B Marine believes that the growth in its retail operations has been in
part attributable to E&B Marine's mail-order marketing program. E&B Marine's
catalogs are mailed throughout the United States and abroad several times each
year. E&B Marine distributed over 2,500,000 mail-order catalogs in 1995. The
1996 master catalog consists of over 388 pages that picture and describe
approximately 10,300 products and indicate E&B Marine's low prices.
Each of E&B Marine's E&B seasonal catalogs are published with a catalog end
date. However, E&B Marine continues to receive orders for many months after the
catalog end date. These orders are processed, with price adjustments made to
reflect prices in effect in subsequent seasonal catalogs. E&B Marine's mail-
order catalogs are printed and distributed by commercial printers which produce
similar publications for other mail-order merchandisers.
E&B Marine's retail advertising primarily includes direct mail events,
circulars and catalogs. In addition to its mail-order and retail promotions,
E&B Marine advertises in boating magazines and local media, participates in boat
shows and supports boating organizations and boating events.
It is E&B Marine's policy to promote the prompt fulfillment of orders. E&B
Marine currently provides seven days a week twenty-four hours a day telephone
service for mail order. E&B Marine processes all catalog orders received by
mail or telephone and replenishes inventories at the specialty stores from its
Edison, New Jersey office and distribution facility.
Merchandising Strategy. E&B Marine's merchandising strategy emphasizes
value for the consumer. Value is delivered to the consumer by providing low
prices with a guaranteed competitor price matching policy and shopping
convenience through accessible store locations and catalog mailings.
Additionally, the broad selection and general availability of high quality
marine supplies and apparel coupled with knowledgeable sales personnel and the
prompt shipment of orders are all important aspects of E&B Marine's
merchandising strategy.
A customer service optimization program has been installed, after extensive
testing and training of all users. This computer driven program reviews
historical sales data at each specialty store and, based on such data, forecasts
customer traffic at specified time intervals. This program improves customer
service at the specialty stores by allowing E&B Marine to tailor sales personnel
schedules to customer shopping patterns.
A key component in E&B Marine's merchandising strategy is its low-cost
operations. E&B Marine believes its low-cost discipline provides it with a
competitive advantage which will continue to further its position as one of the
nation's leading specialty merchandisers of marine supplies and apparel.
54
<PAGE>
Inventories and Purchasing. It is E&B Marine's goal to offer a broad
selection of marine supplies and apparel and to maintain adequate inventory
levels of merchandise in its specialty stores to support anticipated sales.
Additional inventories are maintained at E&B Marine's distribution center in
Edison, New Jersey to fill mail and telephone orders generated by its catalogs
and to replenish inventories at the specialty retail stores.
E&B Marine enjoys substantial purchasing power due to its sales volume and
is therefore able to obtain volume discounts from manufacturers, which allows it
to market its products at a discount. Point-of-sale terminals are located in all
stores to assist in daily sales analysis and inventory control on a company-wide
basis.
Purchasing of E&B Marine's products is performed by a staff of buyers and
rebuyers at E&B Marine's administrative offices in Edison, New Jersey. Each
buyer is responsible for several of E&B Marine's product categories. Two
software systems have been developed and enhanced to assist in maintaining
balanced inventory levels. A store replenishment system automatically
distributes inventory to the stores based upon current and historical trends. A
distribution replenishment system assists in re-ordering goods from vendors to
maintain proper inventory levels. Most vendor shipments are made directly to
E&B Marine's distribution center, unless it is advantageous to do otherwise.
E&B Marine increases inventories prior to its Spring and Summer selling
seasons, with the increase generally financed through short-term borrowings and
credit advanced by suppliers on normal trade terms. E&B Marine believes that
maintaining adequate inventory levels is important to its continuing ability to
satisfy customer demands promptly.
Credit Terms, Returns and Warranties. Substantially all of E&B Marine's
sales are either for cash (including checks) or charged under American Express,
MasterCard, Visa and Discover credit card plans. E&B Marine introduced a private
label E&B credit card in 1995. A third party operates the card, granting credit
to customers, and is fully responsible for credit risk. E&B Marine has a liberal
return policy and assists customers with warranty claims.
E&B Marine's policy is to ship catalog orders for credit card sales only
after receiving credit authorization from the issuing bank. Customers are not
charged on their credit card until the merchandise is shipped. E&B Marine's
exposure for non-payment of credit card bills is minimal since authorization is
obtained from the bank prior to billing the customer.
Expansion, Relocation and Renovation. E&B Marine's strategy is to open
specialty stores when it believes that demand in a particular location will
support its operation. E&B Marine opened seven specialty stores in 1995. In
1996, three specialty stores were opened in Somers Point, New Jersey, New Bern,
North Carolina and Smyrna, Georgia.
E&B Marine has an ongoing program to remodel and relocate its specialty
stores. E&B Marine believes that the updated presentation of merchandise
enhances sales. In the last five years, over 80% of its stores are new or have
been renovated or relocated. Three stores were relocated to what E&B Marine
believes are more advantageous locations in 1995, and seven stores were
renovated to update their merchandise presentation. See "-- Management's
Discussion and Analysis of Financial Condition and Results of Operations" below.
55
<PAGE>
Recent Events. Effective December 22, 1995, E&B Marine amended its existing
Credit Agreement to increase its bank facility to $23,000,000 and extend its
maturity until May 31, 1998. Effective on May 6, 1996, E&B Marine amended its
existing Credit Agreement to (i) temporarily increase the revolving credit
portion of its bank facility from $17,000,000 to $20,000,000 through July
31,1996 and (ii) amend certain financial covenants. The facility now consists of
a $20,000,000 revolving line of credit with the same terms and conditions as the
prior $17,000,000 line (except for the extension of the maturity) and a
$6,000,000 term loan which replaced existing term loans of $3,500,000 and
$2,500,000. See "-- Management's Discussion and Analysis of Financial Conditions
and Results of Operations" below.
Competition. E&B Marine considers the most significant competitive factors
in its retail business to be low prices, shopping convenience through accessible
store locations and catalog mailings, the variety and availability of products,
knowledgeable sales personnel, rapid and accurate fulfillment of orders and
prompt customer service. At present, E&B Marine's principal competition is from
other marine retail store chains and mail-order merchandisers of marine products
and, to a lesser extent, from local and regional boat dealers. E&B Marine
competes in certain markets with specialty stores similar to those of E&B Marine
as well as with local marinas. In addition, with respect to sales of a limited
group of its products, E&B Marine competes with large retailers and mail-order
vendors of general merchandise. Many of these retailers and merchandisers
generally have financial resources which are substantially greater than those of
E&B Marine.
E&B Marine is currently operating in a highly competitive environment. E&B
Marine believes that, in general, its price structure, including the guaranteed
competitor price matching policy, for the products it distributes compares
favorably with the majority of its competitors. While certain of E&B Marine's
retail competitors discount their prices on certain items more than E&B Marine
does, E&B Marine believes that few of its retail competitors offer customer
services which are comparable to those of E&B Marine in terms of speed,
convenience, reliability, knowledge of products or professionalism.
Personnel. As of May 4, 1996, E&B Marine had approximately 953
employees, of whom approximately 699 were employed in retail operations. On a
full-time equivalent basis, E&B Marine employs approximately 698 persons. E&B
Marine increases its retail personnel during the second and third quarters of
each year to accommodate seasonal fluctuations in customer demand. E&B Marine's
employees are not covered by a collective bargaining agreement. E&B Marine
considers its relationship with its employees to be good.
Properties. E&B Marine maintains its administrative offices and
distribution center in Edison, New Jersey. The facility, which is leased,
contains approximately 222,000 square feet of space of which approximately
33,000 square feet is office space and the remainder is warehouse space. The
lease on the Edison facility expires on March 31, 1997 and E&B Marine has two
renewal options for periods of two and three years. E&B Marine currently
subleases 10,000 square feet of office space on a month to month basis.
All of E&B Marine's specialty retail stores are in leased premises, with
the exception of the Perth Amboy, New Jersey store, which is owned by E&B
Marine. The leases (after giving effect to various renewal options exercisable
by E&B Marine) expire between 1996 and 2016. E&B Marine expects to be able to
renegotiate the leases expiring in 1996 on commercially reasonable terms or to
relocate stores to new locations.
For additional information concerning E&B Marine's leases at December 30,
1995, see Note 4 to the Notes to Consolidated Financial Statements of E&B Marine
included elsewhere herein. E&B Marine considers its administrative offices,
distribution center and retail stores to be adequate for E&B Marine's
operations.
56
<PAGE>
The location of E&B Marine's specialty retail stores by state are (unless
otherwise noted the following retail stores operate under the E&B name):
<TABLE>
<CAPTION>
ALABAMA FLORIDA (con't) MASSACHUSETTS NEW YORK
- ------- ------- ------------- --------
<S> <C> <C> <C>
Mobile (3) Pensacola(3) Dedham(2) Cheektowaga
Pompano Beach Hyannis(2) Garden City(2)
CONNECTICUT Port Charlotte Seekonk(2) Huntington(2)
- -----------
Branford Sarasota Woburn(2) New York(1)
Darien (2) South Daytona Port Jefferson
Fairfield St. Petersburg MICHIGAN West Islip(2)
--------
Tallahassee Eastpointe
FLORIDA Tampa Grand Rapids OHIO
- ------- ----
Clearwater Taylor Mentor
Crystal River GEORGIA North Olmsted
-------
Cutler Ridge Doraville(3) MISSISSIPPI
-----------
Fort Myers Savannah Biloxi(3) PENNSYLVANIA
------------
Fort Walton(3) Smyrna Philadelphia(1)
Holiday NEW HAMPSHIRE
-------------
Hollywood ILLINOIS Portsmouth SOUTH CAROLINA
-------- --------------
Jacksonville Highland Park North Charleston
Jensen Beach Villa Park NEW JERSEY
----------
Lake Park Eatontown VIRGINIA
--------
Melbourne MARYLAND Lodi Glen Allen
--------
Miami (West) Glen Burnie Mount Laurel Norfolk
Orange Park Lanham Perth Amboy
Orlando Rosedale Somers Point WISCONSIN
---------
Panama City (3) Toms River Greenfield
NORTH CAROLINA
--------------
New Bern
</TABLE>
(1) Operates under the E&B/Goldbergs' name.
(2) Operates under the E&B/Bliss name.
(3) Operates under the E&B/Boatgear name.
57
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Results Of Operations.
Year ended December 30, 1995 compared to year ended December 31, 1994.
Consolidated net sales in 1995 were $109,818,000 compared to $101,752,000
in 1994, an increase of 7.9 percent. Sales in 1994 increased 9.7 percent from
1993 sales of $92,713,000.
Retail store sales were $94,351,000 in 1995, an increase of 10.9 percent
from 1994 sales of $85,110,000. Retail store sales in 1994 increased 11.1
percent from 1993 retail store sales of $76,635,000.
Same store sales were $85,791,000 in 1995, an increase of 1.0 percent from
1994 same store sales of $84,962,000. Same store sales in 1994 increased 1.1
percent from 1993 same store sales. Same store sales represent stores which were
open during twelve month comparative periods. Fiscal year 1994 contained 53
weeks.
Mail-order sales were $15,467,000 in 1995, a decrease of 7.1 percent from
1994 sales of $16,642,000. Mail-order sales in 1994 increased 3.5 percent from
1993 sales of $16,078,000.
The 1995 sales growth from the prior year is principally attributable to
E&B Marine's continued program of opening new stores and renovating or
relocating others. E&B Marine opened seven new stores in 1995, renovated seven
and relocated three stores to what E&B Marine believes are more advantageous
locations. The 1994 sales growth from the prior year is principally attributable
to new store openings and store relocations and renovations. E&B Marine opened
six stores in 1994. Additionally, five stores were renovated and four stores
were relocated to what E&B Marine believes are more advantageous locations. Same
store sales were largely affected by a large number of competitor retail store
openings in areas where E&B Marine operates.
E&B Marine's gross profit margin was 26.7%, 27.4% and 28.5% of sales in the
fiscal years ended 1995, 1994 and 1993, respectively. The decrease in margin in
1995 and 1994 from the respective prior year reflected increased sales of
merchandise with lower margins. Additionally, in 1995, the decreased margin
reflects the increased occupancy costs, which are included in cost of goods
sold, attributable to the opening of the new retail stores and E&B Marine's
lower pricing response to competitive pressures.
Selling, general and administrative expenses in 1995 were $24,675,000, an
increase of $2,494,000 from 1994. 1994 selling, general and administrative
expenses increased $1,248,000 from 1993. The increase in selling, general and
administrative expenses in 1995 and 1994 from the prior years are principally
due to expenses relating to store relocations, renovations and new store
openings. Selling, general and administrative expenses as a percentage of net
sales were 22.5 percent in 1995, 21.8 percent in 1994 and 22.6 percent in 1993.
Interest expense was $1,492,000 in 1995, an increase of $310,000 from 1994.
Interest increased over the prior year due to increased interest rates and
increased debt. Interest expense in 1994 increased $320,000 from 1993.
Although E&B Marine had lower borrowings in 1994, interest increased principally
due to amortization of premium relating to E&B Marine's long-term debt in 1993.
Effective December 27, 1992, E&B Marine adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The
effects of adopting SFAS 109 were not material to the consolidated financial
statements at December 27, 1992. During the third quarters of 1994 and 1993,
E&B Marine reduced the valuation allowance on the deferred tax asset by
$2,500,000 and $2,000,000, respectively, attributable to E&B Marine's strong
operating performance, resulting in an income tax benefit. At December 30,
1995, net operating loss carryforwards available in future years
58
<PAGE>
are $8,300,000. Certain net operating loss carryforwards of E&B Marine will be
limited for future utilization as a result of a 1989 restructuring of E&B
Marine. See Note 6 to the Notes to Consolidated Financial Statements of E&B
Marine.
Quarter ended March 30, 1996 compared to quarter ended April 1, 1995
Consolidated net sales for the three month period ended March 30, 1996 were
$19,205,000 an increase of $74,000 or 0.4 percent from sales of $19,131,000 for
the three-month period ended April 1, 1995.
Retail store net sales were $16,446,000 for the three-month period ended
March 30, 1996, an increase of 3.3 percent from net sales of $15,925,000 in
1995. Sales in stores opened during comparable periods in 1996 and 1995
decreased 3.4 percent. The increase in sales in the retail stores is principally
attributable to the seven retail stores opened after the first quarter of 1995.
Mail order net sales were $2,759,000 for the three-month period ended
March 30, 1996, a decrease of $447,000 or 13.9 percent compared to net sales of
$3,206,000 for the three-month period ended April 1, 1995.
Gross profit for the three-month period ended March 30, 1996 of $3,572,000
declined $624,000 or 14.9 percent as compared to the three-month period ended
April 1, 1995. E&B Marine's first quarter gross profit margin in 1996 of 18.6
percent decreased 3.3 percentage points from 21.9 percent in the first quarter
of 1995. The decrease in margin from the prior year reflects increased sales of
merchandise with lower margins, increased occupancy costs, which are included in
cost of goods sold, attributable to the opening of new retail stores and E&B
Marine's response to competitive pressures.
Selling, general and administrative expenses increased $470,000 or 8.7
percent from the previous year. As a percentage of sales, selling, general and
administrative expenses increased from 28.2 percent in 1995 to 30.5 percent in
1996. This increase reflects the fact that E&B Marine incurred operating
expenses relating to the seven retail stores opened after the first quarter of
1995.
E&B Marine's effective income tax rate for the first quarter of 1996 was
consistent with the first quarter of 1995.
Interest expense increased to $461,000 in 1996 from $400,000 in 1995. E&B
Marine incurred an increased level of borrowings in 1996, offsetting a slightly
decreased rate on interest from the first quarter of 1995. See "--Liquidity and
Capital Resources" below for further discussion.
The loss for the three-months ended March 30, 1996 was $1,942,000 compared
to the loss at April 1, 1995 of $1,128,000.
Financial Condition. The ratio of current assets to current liabilities
was 2.8 to 1.0 in 1995 compared to 2.1 to 1.0 in 1994. The ratio of debt to
equity, which includes both short-term and long-term debt, increased from 1994
due to lower income from operations and the increase in debt used to finance new
and renovated stores. E&B Marine's short-term and long-term debt totalled
$16,371,000 at the end of 1995 compared to $13,245,000 at the end of 1994. E&B
Marine's credit facility was recently amended. See "--Credit Agreement" below.
Credit Agreement. Effective June 6, 1994, E&B Marine entered into a credit
agreement (the "Credit Agreement") with UJB for the purpose of refinancing all
of its existing bank and institutional debt and providing working capital. The
Credit Agreement provided for, among other things, a credit facility (the "New
Facility") which consists of (i) a $15,000,000 revolving credit facility, (ii) a
$500,000 letter of credit facility, (iii) a $3,500,000 term loan and (iv) a
$500,000 equipment loan facility.
In 1995, the New Facility was amended to include an additional $2,500,000
secured loan facility due on March 15, 1996. On December 22, 1995, the New
Facility was further amended to provide for: (i) a $17,000,000 revolving credit
facility; (ii) a $6,000,000 term loan; both facilities carry a due date of May
31, 1998. E&B Marine's $23,000,000 credit facility will be employed for working
capital and to further New Store openings, renovations and relocations.
Effective May 6, 1996, the New Facility was further amended to (i) temporarily
increase its revolving credit facility from $17,000,000 to $20,000,000 through
July 31, 1996 and (ii) amend certain financial covenants. The funds from the
increased availability under E&B Marine's revolving line of credit will be used
primarily to purchase inventory to enhance product assortment. See "--
Retail Stores" below. The New Facility is collateralized on a first priority
basis by substantially all of the assets of E&B Marine.
Retail Stores. E&B Marine operated 61 stores at December 30, 1995. Seven
stores were opened in 1995. Three stores were opened in 1996 (as of May 10,
1996). Additionally, E&B Marine relocated three stores, renovated seven stores
and closed one store.
The total square footage of E&B Marine's stores range from 5,000 to 14,000;
the average square footage is approximately 9,000 per store. 1996 stores will
be 8,000 to 9,000 square footage.
E&B Marine's typical stores carry over 7,000 brand name and private label
products which are tailored to geographical and seasonal requirements. Larger
stores carry over 9,000 products. Additional products are available through the
mail-order catalog and special order departments. E&B Marine's strategy is to
increase the assortment of marine products with special emphasis on fishing and
clothing categories.
Liquidity and Capital Resources. E&B Marine's working capital at December
30, 1995 and December 31, 1994, was $18,327,000 and $13,047,000, respectively.
The increase in working capital was mainly attributable to the refinancing of
E&B Marine's bank debt in June 1994 (see "--Credit Agreement" above) and
increased inventory levels. The New Facility provides E&B Marine with increased
available borrowing levels and extended maturity dates. E&B Marine increased its
inventory as a result of increases in its product assortment and to accommodate
store openings. Inventory levels will continue to increase as the number of
retail stores expand (see discussion above). Cash used in investing activities
is primarily used for E&B Marine's retail store expansion and renovation
program. Cash used in financing activities reflects the payments on the
revolving line of credit and debt agreements.
E&B Marine's working capital at March 30, 1996 and December 30, 1995 was
$17,252,000 and $18,327,000, respectively. The decrease in working capital was
mainly attributable to increased borrowing under the revolving line of credit
and increased accounts payable to finance increased inventory levels. E&B Marine
increased its inventory to prepare for its peak selling season to increase its
product assortment and to accommodate store openings.
59
<PAGE>
E&B Marine believes that its working capital and credit facility will be
adequate to meet its 1996 identifiable working capital requirements including
principal payments on debt.
In 1995, total outstanding borrowings peaked at $18,508,000 and total
weighted average borrowings were $15,121,000 compared to $15,867,000 and
$12,140,000, respectively, in the prior year. E&B Marine's $17,000,000 line of
credit is expected to be adequate to meet the peak seasonal requirements in
1996. See Note 3 to the Notes to Consolidated Financial Statements of E&B
Marine.
Total weighted average borrowings were $19,467,000 and $16,395,000 in the
first quarter of 1996 and 1995, respectively, and the weighted average interest
rate was 9.6 percent and 9.8 percent in the first quarters of 1996 and 1995,
respectively.
Cash flow from operations combined with its available line of credit are
also expected to provide E&B Marine with necessary funds for planned capital
expenditures. These expenditures are estimated to be $3,000,000 in fiscal 1996
and primarily constitute expenditures for store relocations and remodelings and
the currently planned opening of five new retail stores.
At May 9, 1996, E&B Marine had $14,795,856 outstanding under its
revolving line of credit. These borrowings occurred during E&B Marine's low
sales period and during the time when E&B Marine builds its inventory levels for
its peak selling seasons.
Recently Issued Accounting Standards. E&B Marine has not adopted Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed Of" (SFAS 121). SFAS
121 was issued in March 1995 and is effective for fiscal years beginning after
December 15, 1995. E&B Marine believes that the adoption of this accounting
standard will not have a material effect on E&B Marine's consolidated financial
position or results of operations. E&B Marine has not adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" (SFAS 123). SFAS 123 was issued in October 1995 and is effective
for financial statements for fiscal years beginning after December 15, 1995.
When adopted, certain disclosures are required for fiscal years that begin after
December 15, 1994. SFAS 123 allows for alternative methods of accounting for
stock-based compensation arrangements with employees. E&B Marine adopted SFAS
123 in the first quarter of 1996. In adopting SFAS 123, E&B Marine intends to
continue to utilize the provisions of Accounting Principles Board Opinion No. 25
and, accordingly, the adoption of SFAS 123 will result in certain disclosures as
to net income (loss) and per share amounts in the notes to the consolidated
financial statements in E&B Marine's 1996 Annual Report.
60
<PAGE>
MANAGEMENT
Directors. Certain biographical information concerning the Directors of
E&B Marine is set forth below. Such information was furnished by them to E&B
Marine.
<TABLE>
<CAPTION>
Name of Director Age Certain Biographical Information
- ---------------- --- ---------------------------------
<S> <C> <C>
BRADFORD R. KLATT 42 President of Metropolis Equities, Inc., an investment firm, since June
(Class C Director) 1988 and Partner of Roseland Property Company since 1993. Prior to that,
Mr. Klatt served as a Vice President of Goldman Sachs & Co., an
investment banking firm, from 1984 to 1988. Director of E&B
Marine since April 1989.
RICHARD E. KROON 53 Managing Partner of the Sprout Group, a private equity firm, and
(Class C Director) President and Chief Executive Officer of DLJ Capital
Corporation, the management company director of County Seat Holdings
Inc., Loehmann's Holdings, Inc. and other private companies. Director
of E&B Marine since March 1989.
THEODORE A. PAMPERIN 55 Consultant and Chairman of American Catalog Partnerships since 1995.
(Class B Director) Mr. Pamperin was Executive Vice President of Hanover Direct, Inc., a
direct mail company, from 1993 to 1995. Prior to that, Mr. Pamperin
served as Chairman of Tweeds, Inc., a direct mail apparel catalog,
from 1986 to 1992 and as Executive Vice President and General
Manager of J. Crew Outfitter, a direct mail apparel catalog,
from 1981 through 1985. Director of E&B Marine since April
1989.
KENNETH G. PESKIN 56 Chairman of the Board and Chief Executive Officer of E&B Marine since
(Class B Director) November 1990. Prior to joining E&B Marine, Mr. Peskin was employed by
Supermarkets General Corporation from 1965 through September 1989. He
was Chairman and Chief Executive Officer from June 1987 to September
1989 and President and Chief Executive Officer of the Pathmark Division
from June 1986 to June 1987.
WILLIAM V. ROBERTI 49 President and Chief Executive Officer of Plaid Clothing Group Inc. since
(Class A Director) May 1995. Plaid Clothing Group filed for reorganization under
Chapter 11 of the Federal Bankruptcy Codes on July 12, 1995. Visiting
Professor at Sacred Heart University in Fairfield, Connecticut since
January 1995. Mr. Roberti served as President and Chief Executive
Officer of Brooks Brothers, a men's and women's specialty retailer,
from January 1990 to December 1994 and President and Chief
</TABLE>
61
<PAGE>
<TABLE>
<S> <C> <C>
Operating Officer from May 1987 to January 1990. Prior to that, Mr.
Roberti was employed by Zale Corporation, a jewelry specialty
retailer, from 1984 to 1987. Mr. Roberti is a director of Pivot
Rules, a privately held golf apparel company, and Plaid Clothing
Group, Inc. Director of E&B Marine since May 1993.
JOHN H. WEILAND 40 Group Vice President of C.R. Bard, Inc. since March 1996. Prior to that,
(Class B Director) Mr. Weiland was Senior Vice President of The North America Group,
Dentsply International Inc., a manufacturer of dental supplies, from
1991 to March 1996. Prior to that, Mr. Weiland served as President
and Chief Executive Officer of Pharmacia Diagnostics Inc., from 1989
to 1991 and as Vice President--General Manager of Baxter International--
Scientific Products Division from 1988 to 1989. Mr. Weiland was a White
House Fellow from 1987 to 1988 and Vice President East American
Scientific Products Division of Baxter Healthcare Corporation prior to
1987. Director of E&B Marine since October 1986.
</TABLE>
During the fiscal year ended December 31, 1995, the E&B Marine Board met
six times. Each of the persons named in the table above attended at least 75% of
the meetings of the E&B Marine Board and of each committee of the E&B Marine
Board on which such person served which were held during the time that such
person served, except for Mr. Klatt who attended at least 66% of such meetings
of the E&B Marine Board.
Executive Officers. The following sets forth for each current executive
officer of E&B Marine (based upon information supplied by each of them) his
name, age, positions with E&B Marine, principal occupation and business
experience for the past five years and prior service with E&B Marine:
<TABLE>
<CAPTION>
Name Position with E&B Marine Age
---- ------------------------ ---
<S> <C> <C>
Kenneth G. Peskin Chairman of the Board and 56
Chief Executive Officer
James D. Peters President and
Chief Operating Officer 47
Walfrido A. Martinez Senior Vice President and 56
Chief Financial Officer
Robert G. Defonte Senior Vice President, Merchandising 45
and Secretary
Patrick J. Melli Senior Vice President, Inventory 51
Management and Information Services
</TABLE>
Officers serve at the discretion of the Board of Directors.
Kenneth G. Peskin has been Chairman of the Board and Chief Executive
Officer of E&B Marine since November 1990. Prior to joining E&B Marine, Mr.
Peskin was employed by Supermarkets
62
<PAGE>
General Corporation from 1965 through September 1989. He was Chairman and Chief
Executive Officer from June 1987 to September 1989 and President and Chief
Executive Officer of the Pathmark Division from June 1986 to June 1987.
James D. Peters has been President and Chief Operating Officer of E&B
Marine since July 1995. From 1990 to 1995, Mr. Peters was Senior Vice
President, Merchandising at Sportmart Inc. Prior to that, he was Vice
President, Merchandising at Things Remembered, a division of Cole National from
1984 to 1990.
Walfrido A. Martinez has been Senior Vice President of E&B Marine since
March 1993 and Chief Financial Officer of E&B Marine since March 1992. Mr.
Martinez joined E&B Marine in April 1991 as Vice President, Controller and
Assistant Treasurer. From 1989 to 1991, Mr. Martinez served as Vice President
and Controller for Piser Industries Inc. Mr. Martinez joined the workout
management team of Crazy Eddie, Inc. as controller from August 1988 through May
1989. Prior to Crazy Eddie, Inc., Mr. Martinez served in a variety of positions
at B. Altman & Co. from 1962 through 1988, lastly as Vice President, Controller
and Chief Financial Officer.
Robert G. Defonte has been Senior Vice President, Merchandising of E&B
Marine since July 1984, Secretary of E&B Marine since December 1982 and served
as a Director of E&B Marine from August 1983 until March 1989. From December
1982 to July 1984, he was a Vice President of E&B Marine. He joined E&B Marine
in 1974 and has served in various managerial capacities until his election to
his present positions.
Patrick J. Melli has been Senior Vice President, Inventory Management and
Information Services of E&B Marine since March 1993. Mr. Melli had been Vice
President--Management Information Systems from February 1991 to March 1993 and
Director of Management Information Systems of E&B Marine from October 1990 to
February 1991. In 1990, Mr. Melli was the Director of Circulation Systems
Development at the New York Daily News newspaper. Prior to that he was Director
of Management Information Systems with Crazy Eddie, Inc. from February 1987 to
January 1990, and prior to that was the Manager of Information Systems with the
Newark Star Ledger newspaper from March 1981 to November 1986.
Committees of the Board of Directors. The E&B Marine Board has an Audit
Committee, whose members currently are Messrs. Klatt, Roberti and Weiland, and a
Compensation and Stock Option Committee, whose members currently are Messrs.
Kroon, Klatt and Pamperin. The Audit Committee is authorized to review the
results of auditors' examinations and make recommendations with respect to
accounting practices and procedures and internal controls. The Compensation and
Stock Option Committee is authorized to make recommendations to the E&B Marine
Board regarding compensation to be paid to key employees of E&B Marine,
administers E&B Marine's 1983 Stock Option Plan and determines the persons
who are eligible to receive options thereunder, the number of shares to be
subject to each option and the other terms and conditions upon which options
under such plan are granted and made exercisable. The E&B Marine Board does not
have a Nominating Committee.
During the fiscal year ended December 30, 1995, the Audit Committee did not
meet and the Compensation and Stock Option Committee met two times.
E&B Marine's Restated Certificate of Incorporation contains a provision,
authorized by Delaware Law, which eliminates the personal liability of a
director of E&B Marine to E&B Marine or to any of its stockholders for monetary
damages for a breach of his fiduciary duty as a director, except in the case
where the director breached his duty of loyalty, failed to act in good faith,
engaged in intentional misconduct or knowingly violated a law, authorized the
payment of a dividend or approved a stock repurchase in violation of Delaware
Law, or obtained an improper personal benefit.
Section 16(a) Reporting Requirements. Section 16(a) of the Exchange Act
requires E&B Marine's directors and executive officers, and persons who own more
than ten percent of E&B Marine's Common Stock, to file with the Commission
initial reports of ownership and reports of changes in ownership of E&B Marine
Common Stock. Officers, directors and greater than ten percent
63
<PAGE>
stockholders are required by Commission regulations to furnish E&B Marine with
copies of all Section 16(a) reports they file.
To E&B Marine's knowledge, based solely on a review of the copies of such
reports furnished to E&B Marine and representations that no other reports were
required, during the fiscal year ended December 30, 1995 all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were met, except for the Trustees of General Electric
Pension Trust who reported a transaction one month late.
DIRECTOR AND EXECUTIVE COMPENSATION
Executive Compensation. The following table sets forth information
concerning the compensation during the fiscal years ended December 30, 1995,
December 31, 1994, and December 25, 1993 to the Chief Executive Officer and the
four other most highly compensated executive officers of E&B Marine whose total
annual salary and bonus for the year ended December 30, 1995 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
------------ ------------
Options All Other
Fiscal Granted Compensation
Name and Principal Position Year (1) Salary Bonus # (2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kenneth G. Peskin 1995 $257,716 - 75,000 $172
Chairman of the Board and 1994 238,846 - - 398
Chief Executive Officer 1993 229,038 $115,000 - 996
James D. Peters 1995 129,181 - 100,500 -
President and 1994 (3) - - - -
Chief Operating Officer 1993 (3) - - - -
Walfrido A. Martinez 1995 120,625 - 12,000 165
Senior Vice President and 1994 113,462 - - 383
Chief Financial Officer 1993 98,750 33,000 18,750 516
Robert G. Dafonte 1995 148,500 - 12,000 172
Senior Vice President, 1994 150,240 - - 398
Merchandising and Secretary 1993 143,625 45,705 12,500 768
Patrick J. Melli 1995 115,625 - 12,000 161
Senior Vice President 1994 109,615 - - 373
Inventory Management and 1993 97,500 33,000 17,500 504
Information Services
</TABLE>
(1) The 1994 fiscal year contains 53 weeks.
(2) Consists of contributions made by E&B Marine on behalf of the executive
officers to the Employee Stock Ownership Plan.
(3) Mr. Peters was not an employee of E&B Marine during this period.
64
<PAGE>
See "--Employment Agreements" below for information concerning E&B Marine's
Employment Agreement with its Chairman of the Board and its President.
E&B Marine and its subsidiaries have a stock option plan, a profit sharing
plan, a defined benefit plan, a bonus plan and customary medical and group life
insurance programs.
Director Compensation. E&B Marine pays an annual fee of $6,000 for
directors (other than employees) and a fee of $1,000 for each meeting of the E&B
Marine Board attended, together with reasonable travel and other expenses
incurred in connection with such attendance.
Option Grants. The following table sets forth information concerning
options to purchase E&B Marine Common Stock granted during the fiscal year ended
December 30, 1995 to the executive officers named in the Summary Compensation
Table:
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 30, 1995
INDIVIDUAL GRANTS
-----------------
<TABLE>
<CAPTION>
% of Total
Options Options Granted
Granted to the Employees Exercise Expiration Grant Date
Name and Principal Position (#) In Fiscal Year Price Date Value (1)
- --------------------------- ------- ------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Kenneth G. Peskin
Chairman of the Board and
Chief Executive Officer 75,000 (2) 33.3% $7.50 June 1, 2004 $125,250
James D. Peters
President and
Chief Operating Officer 100,500 (3) 44.6% $5.50 July 24, 2005 151,755
Walfrido A. Martinez
Chief Financial Officer,
Senior Vice President and
Controller 12,000 (4) 5.3% $7.50 Feb. 15, 2000 4,800
Robert G. Defonte
Senior Vice President,
Merchandising and Secretary 12,000 (4) 5.3% $7.50 Feb. 15, 2000 4,800
Patrick J. Melli
Senior Vice President, Inventory
Management and Information
Services 12,000 (4) 5.3% $7.50 Feb. 15, 2000 4,800
</TABLE>
(1) Options are valued using a Black-Scholes-based formula. However, options
will have no realizable value unless, and then only to the extent that, the
E&B Marine Common Stock price appreciates from the grant date to the
exercise date.
(2) Exercisable in full on June 1, 2004, and subject to acceleration in 25,000
share annual installments for 1995, 1996 and 1997, contingent upon the
achievement of certain performance goals by E&B Marine.
65
<PAGE>
(3) Exercisable in five annual installments of 15,000 shares each commencing
July 24, 1996 as well as exercisable in three 8,500 share annual
installments for 1996, 1997 and 1998, contingent upon the achievement of
certain performance goals by E&B Marine.
(4) Exercisable in full on November 15, 1999, and subject to acceleration
contingent upon the achievement of certain performance goals by E&B Marine
for fiscal 1995.
Option Values. During the fiscal year ended December 30, 1995, Kenneth G.
Peskin exchanged 25,000 options with an expiration date February 1, 2001 and an
exercise price of $14.00 for 3,264 shares as part of the "Exchange Offer" (see
Note 7 to the Consolidated Financial Statements of E&B Marine) of E&B Marine.
The following table sets forth information concerning the number and value of
options held by the executive officers named in the Summary Compensation Table
at December 30, 1995.
OPTION VALUES AT DECEMBER 30, 1995
<TABLE>
<CAPTION>
VALUE OF THE UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS (1) IN-THE-MONEY OPTIONS (2)
--------------------------------- ------------------------
Name & Principal Position Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kenneth G. Peskin
Chairman of the Board and
Chief Executive Officer 168,750 93,750 $253,125 $28,125
James D. Peters
President and
Chief Operating Officer 0 100,500 0 0
Walfrido A. Martinez
Senior Vice President and
Chief Financial Officer 13,875 23,125 4,688 1,875
Robert G. Defonte
Senior Vice President,
Merchandising and Secretary 16,250 20,750 10,000 2,500
Patrick J. Melli
Senior Vice President, Inventory
Management and Information
Services 14,500 22,500 5,844 1,813
</TABLE>
(1) All options to purchase E&B Marine Common Stock (other than 50,500 options
held by James D. Peters, President and Chief Operating Officer of E&B
Marine) will become exercisable in full on or prior to fifteenth day prior
to the Effective Time. See "The Merger -- Interests of Certain Persons in
the Merger."
(2) In-the-money options are those where the fair market value of the
underlying E&B Marine Common Stock exceeds the exercise price of the
option. The value of in-the-money options is determined in accordance with
regulations of the Securities and Exchange Commission by subtracting the
aggregate exercise price of the option from the aggregate year-end value of
the underlying E&B Marine Common Stock.
Retirement Plans. E&B Marine provides retirement benefits for employees of
E&B Marine and its subsidiaries, including officers and directors who are
employees, under three plans: the Profit Sharing
66
<PAGE>
Plan (under Section 401(k) of the Code), the Employee Stock Ownership Plan
("ESOP") and the Defined Benefit Plan. The ESOP was terminated effective as of
December 31, 1995. E&B Marine is in the process of performing the final
allocation of shares as of December 31, 1995 and requesting a favorable letter
of determination from the Internal Revenue Service in connection with the
termination.
The compensation of the executive officers of E&B Marine set forth in the
Summary Compensation Table above is the current covered compensation of such
executive officers under the Defined Benefit Plan. Messrs. Peskin, Peters,
Martinez, Defonte and Melli have three, none, three, ten and three credited
years of service under the Defined Benefit Plan, respectively. The Defined
Benefit Plan is no longer available to any other employees of E&B Marine. The
following table shows the estimated annual retirement benefit in the form of a
life annuity under the Defined Benefit Plan for employees retiring at age 65
whose average annual compensation and years of participation at retirement would
be in the classifications shown. The amounts shown in the table do not take
into account the additional benefit determined by reference to E&B Marine Common
Stock purchased under the Profit Sharing Plan or the offset for benefits payable
under the ESOP.
ESTIMATED ANNUAL RETIREMENT BENEFIT
-----------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL YEARS OF SERVICE
----------------
COMPENSATION 10 15 20 25
-------------- -- -- -- --
<S> <C> <C> <C> <C>
$ 50,000 $ 7,500 $11,250 $15,000 $18,750
100,000 15,000 22,500 30,000 37,500
150,000 22,500 33,750 45,000 56,250
200,000 22,500 33,750 45,000 56,250
250,000 22,500 33,750 45,000 56,250
300,000 22,500 33,750 45,000 56,250
</TABLE>
Employment Agreements. By agreement dated as of January 28, 1995, E&B
Marine extended and amended the employment agreement between E&B Marine and
Kenneth G. Peskin dated as of February 26, 1991. As extended and amended, this
agreement (the "Employment Agreement") provides for, among other items, (i) the
employment of Mr. Peskin as E&B Marine's Chairman and Chief Executive Officer
until January 28, 1997 (with automatic one-year extensions of the term effective
as of each anniversary of the date of the agreement unless either E&B Marine or
Mr. Peskin gives a notice of non-extension at least ninety days prior to such
anniversary), (ii) an annual base salary for 1995 of $240,000 and annual base
salaries thereafter to be agreed upon by E&B Marine and Mr. Peskin, (iii) the
payment of an annual cash bonus of 50% or more of base salary based upon the
achievement by E&B Marine of certain performance goals for the applicable fiscal
year, (iv) the grant to Mr. Peskin of options to purchase up to 187,500 shares
of E&B Marine Common Stock at an exercise price of $2.00 per share, of which
168,750 are currently vested, (v) the grant to Mr. Peskin of options to purchase
up to 75,000 shares of E&B Marine Common Stock at an exercise price of $7.50,
vesting on June 1, 2004 but subject to accelerated vesting based upon the
achievement by E&B Marine of certain performance goals during fiscal years 1995
through 1997, (vi) the grant to Mr. Peskin of additional options to purchase
shares of E&B Marine Common Stock at an exercise price of $14.00 per share, with
the number of shares subject to these options to be determined in accordance
with a formula set forth in the Employment Agreement, which options were
exchanged as part of the "Exchange Offer" (see Note 7 to the Consolidated
Financial Statements of E&B Marine), (vii) certain rights of co-sale with
respect to sales of E&B Marine Common Stock held by certain stockholders of E&B
Marine, (viii) certain severance payments to Mr. Peskin of up to one year's base
salary and bonus in the event of his death, disability or upon termination of
the employment of Mr. Peskin under certain circumstances, (ix) an agreement by
Mr. Peskin not to compete with E&B Marine for up to one year following
termination, and (x) certain benefits for Mr. Peskin reasonably consistent with
those offered to similar executives by companies which are substantially of the
same size and economic condition as E&B Marine.
E&B Marine has an employment agreement with James D. Peters which provides
for, among other items (i) the employment of Mr. Peters as the President and
Chief Operating Officer of E&B Marine for a three year period commencing in July
1995 at an annual base salary of $230,000 and at annual base salaries thereafter
to be agreed upon by E&B Marine and Mr. Peters, (ii) the payment of cash bonuses
of up to a maximum of 40% of base salary based upon the achievement by E&B
Marine of certain performance goals and, (iii) the grant of options as of July
24, 1995 to purchase up to 75,000 shares of E&B Marine Common Stock at an
exercise price of $5.50, with 15,000 of such options vesting annually for five
years starting on July 24, 1996, (iv) certain severance payments to Mr. Peters
of up to one year's base salary upon a termination without cause and (v) the
grant of options as of July 24, 1995 to purchase up to 25,500 shares of E&B
Marine Common Stock with 8,500 of such options vesting annually for three years
provided E&B Marine achieves certain performance goals in each of the three
years starting with fiscal year 1996.
67
<PAGE>
Performance Graph. The following graph compares the cumulative total return
on E&B Marine Common Stock to the Standard and Poor's 500 Index and the
Russell 2000 Index. The graph assumes that $100 was invested in E&B Marine
Common Stock and each Index on December 31, 1990 and that the dividends were
reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG E&B MARINE, S&P 500 INDEX AND RUSSELL 2000 INDEX
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period E&B S&P RUSSELL
(Fiscal Year Covered) MARINE 500 INDEX 2000 INDEX
- ------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt- 1990 $100 $100 $100
FYE 1991 $ 80 $130 $148
FYE 1992 $173 $140 $174
FYE 1993 $399 $155 $206
FYE 1994 $234 $157 $204
FYE 1995 $117 $215 $260
</TABLE>
68
<PAGE>
Report of the Compensation and Stock Option Committee. The Compensation and
Stock Option Committee of the E&B Marine Board (the "Committee") determines the
compensation arrangements for executive officers of E&B Marine. E&B Marine's
philosophy and objectives in setting executive compensation are to offer
competitive levels of compensation which will assist E&B Marine in attracting
and retaining qualified executives, reward individual achievement and link
executive compensation with E&B Marine's annual and long-term performance goals.
The compensation program for E&B Marine's executives consists of base
salary, an annual incentive bonus plan and stock options. E&B Marine's salary
levels are intended to be competitive with those offered by companies in similar
businesses and commensurate with the executive's level of responsibility. Salary
adjustments, which are normally made annually, are determined by monitoring the
overall financial performance of E&B Marine, the performance of the individual
executive, as well as salaries at other companies of similar size.
E&B Marine has an employment agreement with Kenneth G. Peskin, Chairman
and Chief Executive Officer. Pursuant to this agreement, Mr. Peskin's annual
base salary is subject to increases at the discretion of the E&B Marine Board
based upon performance of E&B Marine and performance of the executive. Effective
January 28, 1995, E&B Marine extended and amended Mr. Peskin's employment
agreement to provide for, among other things, an annual base salary of $240,000.
Salary increases of the other executive officers of E&B Marine are at the
recommendation of the Chief Executive Officer based upon individual performance
and E&B Marine performance.
E&B Marine entered into an employment agreement with James D. Peters,
President and Chief Operating Officer on July 24, 1995. Pursuant to this
agreement, Mr. Peters' annual base salary is $230,000 for the first year of
employment and is subject to modification as mutually agreed in June 1996.
Salary increases of the other executive officers of E&B Marine are at the
recommendation of the Chief Executive Officer based upon individual performance
and company performance.
E&B Marine's annual incentive bonus plan provides participating executives
the opportunity to earn additional compensation based upon the achievement by
E&B Marine of its annual financial plan. The financial plan, which is
established at the beginning of each fiscal year by the E&B Marine Board after
consultation with management, focuses on achievement of certain levels of cash
flow from operating activities. Threshold and maximum levels are established
around a mid-point target in order to create a range of cash flow that will be
used to measure the potential award opportunity for each executive under the
annual incentive bonus plan. A target bonus opportunity equal to a percentage of
annual salary is established for each executive based on his or her level of
responsibility, potential contribution to the success of E&B Marine and
competitive considerations. Awards for senior management are dependent on
achievement of E&B Marine goals. Awards to lower-level executives are in part
based on E&B Marine performance and in part based upon individual or group
performance as evaluated by the Chief Executive Officer. Based upon such bonus
plan, no such bonuses were paid for the fiscal year ended 1995.
E&B Marine periodically grants options to purchase E&B Marine Common Stock
to its executive officers and other key employees. Stock option grants are
intended to align the interests of E&B Marine's executive officers more closely
with the interests of E&B Marine's stockholders by providing its executives and
key employees who have substantial responsibility for the management and growth
of
69
<PAGE>
E&B Marine with an opportunity to profit from increases in the value of E&B
Marine Common Stock. Options granted to senior management often provide for
accelerated exercise upon the achievement of predetermined performance goals by
E&B Marine. On July 24, 1995, pursuant to his employment agreement, Mr. Peters
was awarded options to purchase 100,500 shares. Such options were granted with
an exercise price equal to the market value of E&B Marine Common Stock on the
date of grant and 75,000 of such options vest at a rate of 15,000 per year and
25,000 of such options vest upon the achievement by E&B Marine of certain
performance goals during fiscal years 1996, 1997 and 1998.
The Compensation and Stock Option
Committee of the Board of Directors
Bradford R. Klatt
Richard E. Kroon
Theodore A. Pamperin
70
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The stockholders (including any "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934) who, to the knowledge of the
E&B Marine Board, owned beneficially more than five percent of any class of the
outstanding voting securities of E&B Marine as of January 1, 1996, each director
and each executive officer named in the Summary Compensation Table of E&B Marine
who beneficially owned shares of E&B Marine Common Stock and all directors and
executive officers of E&B Marine as a group, and their respective stockholdings
as of such date (according to information furnished by them to E&B Marine), are
set forth in the following table. The following table also sets forth certain
information regarding the shares of West Marine Common Stock anticipated to be
received by such E&B Marine stockholders in the Merger based on their E&B Marine
Common Stock ownership as of such date, and assuming (i) a total of 8,108,276
shares of West Marine Common Stock outstanding (which includes 7,510,496 shares
outstanding on the Record Date and 597,780 shares to be issued upon consummation
of the Merger assuming it occurred on the Record Date) and (ii) the Exchange
Ratio is 0.15157. Except as indicated in the footnotes to the table, all of such
shares are owned with sole voting and investment power.
71
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
E&B MARINE COMMON STOCK SHARES OF
OWNED BENEFICIALLY WEST MARINE COMMON STOCK
AS OF PERCENT TO BE RECEIVED PERCENT
NAME AND ADDRESS JANUARY 1, 1996 OF CLASS IN THE MERGER OF CLASS
- ---------------- ----------------------- -------- ------------------------ --------
<S> <C> <C> <C> <C>
Sprout Growth L.P. 760,854 (1) 19.3% 115,322 1.4%
c/o Sprout Group
277 Park Avenue
New York, NY 10172
Sprout Capital V 628,753 (1) 16.0% 95,300 1.2%
c/o Sprout Group
277 Park Avenue
New York, NY 10172
Trustees of General Electric
Pension Trust 395,944 10.0% 60,013 (5)
3003 Summer Street
P.O. Box 7900
Stamford, CT 06905
Kenneth G. Peskin 505,625 (2)(3) 12.3% 76,637 (5)
201 Meadow Road
Edison, NJ 08818
DLJ Capital Corporation 217,441 5.5% 32,957 (5)
c/o Sprout Group
277 Park Avenue
New York, NY 10172
Robert G. Defonte 19,651 (4) (5) 2,978 (5)
201 Meadow Road
Edison, NJ 08818
Bradford R. Klatt 15,996 (6) (5) 2,424 (5)
201 Meadow Road
Edison, NJ 08818
Richard E. Kroon 0 (7) (5) 0 (5)
c/o Sprout Group
277 Park Avenue
New York, NY 10172
Walfrido A. Martinez 14,047 (8) (5) 2,129 (5)
201 Meadow Road
Edison, NJ 08818
Patrick J. Melli 14,688 (9) (5) 2,226 (5)
201 Meadow Road
Edison, NJ 08818
Theodore A. Pamperin 18,626 (5) 2,823 (5)
201 Meadow Road
Edison, NJ 08818
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
E&B MARINE COMMON STOCK SHARES OF
OWNED BENEFICIALLY WEST MARINE COMMON STOCK
AS OF PERCENT TO BE RECEIVED PERCENT
NAME AND ADDRESS JANUARY 1, 1996 OF CLASS IN THE MERGER OF CLASS
- ---------------- ----------------------- -------- ------------------------ --------
<S> <C> <C> <C> <C>
William V. Roberti 2,500 (10) (5) 378 (5)
201 Meadow Road
Edison, NJ 08818
John H. Weiland 6,507 (5) 986 (5)
201 Meadow Road
Edison, NJ 08818
All Directors and Executive
Officers as Group (11 persons) 597,449 14.4% 90,555 1.1%
</TABLE>
(1) Richard E. Kroon, director of E&B Marine, is managing partner of the
general partner of Sprout Growth, L.P. and of Sprout Capital V. DLJ Growth
Associates and DLJ Associates V, is a general partner of Sprout Growth,
L.P. and Sprout Capital V, respectively, and as such has shared voting and
dispositive power with respect to such shares. Does not include: 83,832
shares beneficially owned by Sprout Growth, Ltd., of which Mr. Kroon is
managing partner of the investment manager; 37,767 shares beneficially
owned by DLJ Venture Capital Fund II, L.P., of which Mr. Kroon is a limited
partner of the general partner; and 217,441 shares beneficially owned by
DLJ Capital Corporation, of which Mr. Kroon is President and Chief
Executive Officer (see footnote 7 below).
(2) Includes 168,750 shares issuable upon the exercise of presently exercisable
options.
(3) Does not include 25,000 shares held by the ESOP, with respect to which Mr.
Peskin and Mr. Martinez, as trustees, have shared voting and investment
power.
(4) Includes 16,250 shares issuable upon the exercise of presently exercisable
options.
(5) Less than one percent.
(6) Does not include 19,151 shares beneficially owned by Metropolis Two
Associates of which Mr. Klatt is a partner.
(7) Mr. Kroon disclaims beneficial ownership of the shares described in
Footnote 1 above, except for specific individual partnership interests.
(8) Includes 13,875 shares issuable upon the exercise of presently exercisable
options.
(9) Includes 14,500 shares issuable upon the exercise of presently exercisable
options.
(10) Consists of 2,500 shares issuable upon the exercise of presently
exercisable options.
73
<PAGE>
ELECTION OF E&B MARINE DIRECTORS
The persons named below are nominees for director to serve until the
earlier of (i) the 1999 annual meeting E&B Marine stockholders and until their
successors shall have been elected or (ii) the consummation of the Merger. Only
the directors denominated as Class B directors will be elected at the E&B Marine
Annual Meeting. This is in accord with E&B Marine's Restated Certificate of
Incorporation, as amended, which provides for the division of the E&B Marine
Board into three classes with the term of office of the Class B directors
expiring at the E&B Marine Annual Meeting. The Class A and Class C directors
were elected at the Annual Meetings of Stockholders held in 1992 and 1994,
respectively. Except as provided above, directors in each class are elected to
serve for a term of three years and until a successor shall have been chosen and
qualified. If the number of directors on the E&B Marine Board is increased, the
increase will be apportioned among the classes so as to make all classes as
nearly equal in number as possible.
In the absence of instructions to the contrary, shares of E&B Marine Common
Stock represented by the proxy will be voted and the proxies will vote FOR the
election of all such nominees to the Board of Directors. If any of such persons
is unable or unwilling to be a candidate for the office of director at the dates
of the E&B Marine Annual Meeting, or any adjournment thereof, the proxies will
vote FOR such substitute nominee as shall be designated by the proxies. The
management of E&B Marine has no reason to believe that any of such nominees will
be unable or unwilling to serve if elected a director. Set forth below is
certain information concerning the nominees which is based on data furnished by
them.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR SERVED AS
NOMINEES FOR DIRECTOR AGE POSITION HELD WITH E&B MARINE DIRECTOR SINCE
- --------------------- --- ----------------------------- --------------
<S> <C> <C> <C>
Theodore A. Pamperin 55 Consultant and Chairman of 1989
American Catalog Partnerships
Kenneth G. Peskin 56 Chairman of the Board & Chief 1990
Executive Officer of E&B Marine
John H. Weiland 40 Group Vice President of 1986
C.R. Bard, Inc
</TABLE>
For certain biographical information regarding the directors of E&B Marine
and certain information regarding committees of the Board of Directors and
director compensation, see "E&B Marine--Management" and "--Director and
Executive Compensation."
74
<PAGE>
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The E&B Marine Board has selected KPMG Peat Marwick LLP to serve as
independent auditors for the E&B Marine for the fiscal year ending December 28,
1996. The E&B Marine Board considers KPMG Peat Marwick LLP to be eminently
qualified.
Although it is not required to do so, the E&B Marine Board is submitting
its selection of the E&B Marine's auditors for ratification at the E&B Marine
Annual Meeting in order to ascertain the views of E&B Marine stockholders
regarding such selection. If the selection is not ratified, the E&B Marine Board
will reconsider its selection.
The E&B Marine Board recommends that stockholders vote FOR ratification of
the selection of KPMG Peat Marwick LLP to examine the financial statements of
the E&B Marine for the E&B Marine's financial year ending December 28, 1996. It
is the intention of the persons named in the accompanying form of Proxy to vote
the shares represented thereby in favor of such ratification unless otherwise
instructed therein. However, if the Merger is approved at the E&B Marine Annual
Meeting, KPMG Peat Marwick LLP will be dismissed at the time of the consummation
of the Merger and the independent auditor selected by the West Marine Board,
Deloitte & Touche LLP, will become the independent auditors of the combined
company.
A representative of KPMG Peat Marwick LLP will be present at the E&B Marine
Annual Meeting with the opportunity to make a statement if such representative
desires to do so and will be available to respond to appropriate questions.
DESCRIPTION OF WEST MARINE CAPITAL STOCK
As of the date of this Proxy Statement/Prospectus, the authorized capital
stock of West Marine consists of 20,000,000 shares of West Marine Common Stock
and 1,000,000 shares of Preferred Stock, par value $0.001 per share ("West
Marine Preferred Stock") of West Marine. West Marine's stockholders at their
Annual Meeting of Stockholders on May 8, 1996 approved an amendment to West
Marine's Certificate of Incorporation to increase the number of shares of West
Marine's Common Stock by 30,000,000 shares. This amendment is expected to be
filed with the Secretary of State of the State of Delaware on or about May 17,
1996. For a discussion of significant differences between West Marine's
Certificate of Incorporation and Bylaws, as amended and restated, and E&B
Marine's Restated Certificate of Incorporation, as amended, and Amended and
Restated Bylaws, see "Comparison of the Rights of Holders of West Marine Common
Stock and E&B Marine Common Stock."
COMMON STOCK
As of the Record Date, there were 7,510,496 shares of West Marine Common
Stock outstanding held of record by 142 stockholders. Holders of shares of West
Marine Common Stock are entitled to one vote per share on all matters to be
voted on by stockholders. Subject to the preferences that may be applicable to
any outstanding West Marine Preferred Stock, holders of West Marine Common Stock
are entitled to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution, or winding up of West Marine, the holders of West
Marine Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any outstanding West
Marine Preferred Stock. Holders of West Marine Common Stock have no preemptive
rights and have no rights to convert their West Marine Common Stock into any
other securities. The outstanding shares of West Marine Common Stock are, and
the West Marine Common Stock to be outstanding immediately following
consummation of the Merger will be, validly issued, fully paid and
nonassessable.
75
<PAGE>
PREFERRED STOCK
The West Marine Board has the authority to cause West Marine to issue up to
1,000,000 shares of West Marine Preferred Stock in one or more series and to fix
the rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without any further vote or action by the stockholders of West
Marine. The issuance of West Marine Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of West Marine without
further action by the stockholders of West Marine. The issuance of West Marine
Preferred Stock could decrease the amount of earnings and assets available for
distribution to the holders of West Marine Common Stock or could adversely
affect the rights and powers, including the voting power, of the holders of the
West Marine Common Stock. In certain circumstances, such issuance could have the
effect of decreasing the market price of the West Marine Common Stock as of the
date of this Proxy Statement/Prospectus, no shares of West Marine Preferred
Stock were outstanding and West Marine has no present plans to issue any shares
of West Marine Preferred Stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
West Marine is subject to the provisions of Section 203 of the Delaware
Law. This statute generally prohibits, under certain circumstances, a Delaware
corporation whose stock is publicly traded, from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless (i) the corporation has elected in its certificate of
incorporation or bylaws not to be governed by this Delaware law (West Marine has
not made such an election); (ii) prior to the time the stockholder became an
interested stockholder, the board of directors approved either the business
combination or the transaction which resulted in the person becoming an
interested stockholder, (iii) the stockholder owned at least 85% of the
outstanding voting stock of the corporation (excluding shares held by directors
who were also officers or held in certain employee stock plans) upon
consummation of the transaction which resulted in a stockholder becoming an
interested stockholder or (iv) the business combination was approved by the
board of directors and by two-thirds of the outstanding voting stock of the
corporation (excluding shares held by the interested stockholder). An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or any time within the prior three years did own) 15% or more
of the corporation's outstanding voting stock. The term "business combination"
is defined generally to include mergers, consolidations, stock sales, asset
based transactions, and other transactions resulting in a financial benefit to
the interested stockholder.
TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston serves as the transfer agent and
registrar for West Marine's Common Stock.
76
<PAGE>
COMPARISON OF THE RIGHTS OF HOLDERS OF
WEST MARINE COMMON STOCK AND E&B MARINE COMMON STOCK
As a consequence of the Merger, the stockholders of E&B Marine will become
stockholders of West Marine. The following is a summary of material differences
between the rights of holders of West Marine Common Stock and the rights of
holders of E&B Marine Common Stock. As each of West Marine and E&B Marine is
organized under the laws of Delaware, these differences arise from various
provisions of West Marine's Certificate of Incorporation ("West Marine's
Certificate of Incorporation") and By-laws ("West Marine's By-laws") and E&B
Marine's Restated Certificate of Incorporation, as amended ("E&B Marine's
Certificate of Incorporation"), and Amended and Restated By-laws ("E&B Marine's
By-laws"). An intended amendment to West Marine's Certificate of Incorporation
to increase the number of authorized shares of West Marine Common Stock is
described under "Description of West Marine Common Stock."
The following summary does not purport to be a complete statement of the
rights of E&B Marine's stockholders under E&B Marine's Certificate of
Incorporation and E&B Marine's By-laws as compared with the rights of West
Marine's stockholders under West Marine's Certificate of Incorporation and West
Marine's By-laws, or a complete description of the specific provisions referred
to herein. The summary is qualified in its entirety by reference to the
governing corporate instruments, including the aforementioned instruments, of
E&B Marine and West Marine.
Classification of Board of Directors. Neither West Marine's Certificate of
Incorporation nor West Marine's By-laws provide for the classification of the
West Marine Board. E&B Marine's Certificate of Incorporation provides for the
classification of the E&B Marine Board into three classes, with directors
serving staggered three-year terms.
Stockholder Approval of Certain Business Combinations. E&B Marine's
Certificate of Incorporation provides that the affirmative vote of not less than
80% of the outstanding shares of E&B Marine's voting capital stock shall be
required to approve any merger or consolidation of E&B Marine or a subsidiary
thereof with or into a Related Person (as defined in E&B Marine's Certificate of
Incorporation), certain dispositions of assets to Related Persons, certain
issuances or transfers by E&B Marine or a subsidiary thereof of securities of
such corporations to a Related Person, or any other Business Combination (as
defined in E&B Marine's Certificate of Incorporation), except that any such
Business Combination need not be so approved if: (1) a majority of E&B Marine's
Board of Directors approved both the acquisition of E&B Marine capital stock by
which the Related Person became a Related Person, and the Business Combination
prior to the Related Person having become a Related Person, (2) the Business
Combination is between E&B Marine and a wholly-owned subsidiary of E&B Marine,
or (3) certain conditions of the Business Combination have been met relating to,
among other things, the value of the consideration provided for such Business
Combination by the Related Person, the timing of such Business Combination, the
payment of dividends on E&B Marine's capital stock and the solicitation of a
proxy to the E&B Marine securityholders by the Related Person in connection with
the Business Combination.
Neither West Marine's Certificate of Incorporation nor West Marine's By-
laws contain similar provisions.
Action of Stockholders by Written Consent. Pursuant to West Marine's By-
laws, any action which may be taken at a meeting of West Marine's stockholders
may be taken by written consent of the holders of West Marine's outstanding
capital stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares of
such stock entitled to vote thereon were present and voted.
77
<PAGE>
E&B Marine's Certificate of Incorporation provides that, unless approved by
a majority of E&B Marine Board, no action shall be taken by E&B Marine's
stockholders except at an annual or special meeting of stockholders.
Special Meetings of Stockholders. Pursuant to West Marine's By-laws, a
special meeting of stockholders of West Marine may be called at any time by the
Chairman of the Board, the President, the Board of Directors or at the request
in writing of stockholders of West Marine holding not less than 10% of the
outstanding capital stock of West Marine. E&B Marine's By-laws provide that a
special meeting of the stockholders of E&B Marine may be called by the Board of
Directors, the Chairman of the Board, the President or, if approved by the Board
of Directors, by the holders of a majority of the outstanding capital stock of
E&B Marine.
Voting by Written Ballot. Pursuant to West Marine's Certificate of
Incorporation and By-laws, all matters to be decided by stockholder vote at a
meeting thereof shall be by voice or by ballot as the presiding officer at such
meeting shall determine.
E&B Marine's By-laws require that the election of directors be made by
written ballot, while all other matters to be decided at the stockholders'
meetings shall be made by written ballot only if demanded by the holders of a
majority of the capital stock of E&B Marine represented in person or by proxy at
such meeting.
Preferred Stock. West Marine may issue West Marine Preferred Stock with
such rights, privileges, restrictions and preferences as the West Marine Board
may authorize from time to time. See "Description of West Marine Capital Stock-
- -Preferred Stock."
E&B Marine may issue E&B Marine Preferred Stock with the rights,
privileges, restrictions and preferences fixed by the E&B Marine Board, except
that the following apply to each share of Preferred Stock issued by E&B Marine:
(i) upon the issuance of any series of E&B Marine Preferred Stock, E&B Marine
shall execute a certificate setting forth the resolutions (including the
designation, description and terms of such series) (the "Certificate of
Designations") adopted by the E&B Marine Board with respect to such series of
E&B Marine Preferred Stock, (ii) in the event of any liquidation, dissolution or
winding up of E&B Marine, the holders of E&B Marine Preferred Stock are entitled
to receive, prior to the distribution of E&B Marine's assets to any capital
stock of E&B Marine more junior to such E&B Marine Preferred Stock, all amounts
to be paid to such E&B Marine Preferred Stock pursuant to the Certificate of
Designations of such E&B Marine Preferred Stock and all dividends accrued and
accumulated but unpaid, (iii) the holders of each series of E&B Marine Preferred
Stock shall be entitled to receive, when and as declared by the E&B Marine Board
(but only out of funds of the dividends), such declared dividends within fifty
days following the end of the quarter for which such dividends were declared,
(iv) in the case the stated dividends and the amounts, if any, payable upon
liquidation, dissolution or winding up of E&B Marine are not paid in full to the
respective shares of E&B Marine Preferred Stock, then prior to payment to any
capital stock of E&B Marine more junior to such E&B Marine Preferred Stock, such
E&B Marine Preferred Stock shall receive the sums which shall be payable on such
E&B Marine Preferred Stock if all dividends were declared and paid in full and
in any distribution of assets other than by way of dividends and (v) on all
matters with respect to which holders of the E&B Marine Preferred Stock or
series thereof are entitled to vote as a single class, each holder of E&B Marine
Preferred Stock shall be entitled to one vote for each share held. Pursuant to
the Certificate of Designation of Series A Preferred Stock and Series B
Preferred Stock of E&B Marine, E&B Marine has designated certain rights,
privileges, restrictions and preferences for such series of E&B Marine Preferred
Stock. However, there are no shares of E&B Marine Preferred Stock outstanding
on the date of this Proxy Statement/Prospectus and E&B Marine has no present
plan to issue any shares of Preferred Stock.
78
<PAGE>
Compromises of Creditors or Stockholders and the Corporation. E&B Marine's
Certificate of Incorporation provides that whenever a compromise or arrangement
is proposed between E&B Marine and its creditors and/or its stockholders (or any
class thereof), then at any court-ordered meeting of such creditors or
stockholders, as the case may be, three-fourth in value or interest of the
respective creditors or stockholders, as the case may be, may approve such
compromise or arrangement. Upon such approval and the sanction of the
applicable court of law, such compromise or arrangement shall be binding upon
E&B Marine and its creditors or stockholders (or any class thereof), as the case
may be.
West Marine's Certificate of Incorporation and By-laws do not include
similar provisions.
Quorum of the Boards of Directors. A majority of West Marine's directors
constitute a quorum for the transaction of business at any meeting of the West
Marine Board, while one-third of the directors (but in no event fewer than two
directors) of E&B Marine's Board of Directors is required to constitute a
quorum.
Vacancies on the Board of Directors. Pursuant to West Marine's By-laws,
vacancies on the West Marine Board created by the removal of a director by the
stockholders of West Marine may be filled by the majority vote of the remaining
directors on West Marine's Board of Directors. E&B Marine's By-laws provide
that such vacancies may be filled only by the vote of the stockholders of E&B
Marine at the next meeting of such stockholders.
Liability of Management; Indemnification. West Marine's Certificate of
Incorporation provides that the liability of a director of West Marine to West
Marine or its stockholders for monetary damages for breaches of fiduciary duty
as a director shall be eliminated to the fullest extent permitted by Delaware
Law. E&B Marine's Certificate of Incorporation similarly eliminates such
director liability, except for liability (i) for any breach of the director's
duty of loyalty to E&B Marine or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) for the unlawful payment of dividends or unlawful stock purchases
under Section 174 of the Delaware Law or (iv) for any transaction from which the
director derived any improper personal benefit.
Both West Marine's By-laws and E&B Marine's Certificate of Incorporation
provide for the indemnification of directors and officers of the respective
corporations to the fullest extent authorized by Delaware Law. E&B Marine's
Certificate of Incorporation also mandatorily extends this right of
indemnification to all employees and agents of E&B Marine, whereas West Marine's
By-laws provide that this right to indemnification may only be extended to
employees and agents by action of the West Marine Board.
Certain Amendments to Certificates of Incorporation. E&B Marine's
Certificate of Incorporation requires the affirmative vote of at least eighty
percent of the outstanding capital stock of E&B Marine to amend or repeal the
portions of E&B Marine's Certificate of Incorporation relating to the division
of the E&B Marine Board into three classes, the indemnification of directors,
officers, employees and agents of E&B Marine, Business Combinations, stockholder
action by written consent, amendment and repeal of E&B Marine's By-laws and
ARTICLE FOURTEENTH of E&B Marine's Certificate of Incorporation requiring such
supermajority votes.
West Marine's Certificate of Incorporation or By-laws do not include
provisions requiring a supermajority vote of the stockholders to amend or repeal
portions of West Marine's Certificate of Incorporation.
Amendments to By-laws. West Marine's Board of Directors and stockholders
are authorized to alter, amend or repeal West Marine's By-laws or to adopt new
By-laws. Pursuant to E&B Marine's Certificate of Incorporation and By-laws, E&B
Marine's By-laws may be altered, amended or repealed,
79
<PAGE>
or new By-laws adopted, only by a majority of E&B Marine's Board of Directors or
by the affirmative vote of at least eighty percent of E&B Marine's capital
stock.
West Marine's Certificate of Incorporation or By-laws do not include
provisions requiring a supermajority vote of the stockholders to amend or repeal
portions of West Marine's Certificate of Incorporation.
LEGAL MATTERS
Orrick, Herrington & Sutcliffe, San Francisco, California is acting as
counsel for West Marine in connection with certain legal matters relating to the
Merger Agreement and the transactions contemplated thereby, including the
validity of the shares of West Marine Common Stock to be issued in connection
with the Merger.
O'Sullivan, Graev & Karabell, LLP, New York, New York is acting as counsel
for E&B Marine in connection with certain legal matters relating to the Merger
Agreement and the transactions contemplated thereby.
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this Proxy Statement/Prospectus by reference from West Marine's
Annual Report on Form 10-K for the fiscal year ended December 30, 1995 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference and have been so
incorporated in reliance on the reports of such firm, given on their authority
as experts in accounting and auditing.
The consolidated financial statements of E&B Marine and subsidiaries as
of December 30, 1995 and December 31, 1994 and for each of the years in the
three-year period ended December 30, 1995, have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing. The report of
KPMG Peat Marwick LLP covering the December 30, 1995 consolidated financial
statements refers to a change in the method of accounting for income taxes.
OTHER MATTERS
E&B Marine's Board does not intend to bring any matters before the Meetings
other than those specifically set forth in the Notice of Annual Meeting and it
does not know of any matters to be brought before the E&B Marine Annual Meeting
by others. If any other matters properly come before the E&B Marine Annual
Meeting, it is the intention of the persons named in the accompanying proxies to
vote such proxies in accordance with the judgment of the E&B Marine Board.
STOCKHOLDER PROPOSALS
The date by which stockholder proposals must be received by E&B Marine for
inclusion in the Proxy Statement and Form of Proxy for its 1997 Annual Meeting
of Stockholders is January 21, 1997. Such stockholder proposals should be
submitted to E&B Marine, 201 Meadow Road, Edison, New Jersey 08818, Attention:
Secretary.
80
<PAGE>
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS OF E&B MARINE
Independent Auditors' Report......................................... F-1
Consolidated Balance Sheets -- December 30, 1995 and
December 31, 1994................................................. F-2
Consolidated Statements of Operations --
Years Ended December 30, 1995, December 31, 1994
and December 25, 1993............................................. F-3
Consolidated Statements of Stockholders' Equity (Deficit) --
Years Ended December 30, 1995, December 31, 1994
and December 25, 1993............................................. F-4
Consolidated Statements of Cash Flows --
Years Ended December 30, 1995, December 31, 1994
and December 25, 1993............................................. F-5
Notes to Consolidated Financial Statements........................... F-7
SCHEDULES:
- ----------
All financial statement schedules have been omitted because they are
inapplicable or the information is provided in the financial statements,
including the notes thereto.
Unaudited Consolidated Balance Sheet -- March 30, 1996............... F-20
Unaudited Consolidated Statements of Operations --
Three Months Ended March 30, 1996 and April 1, 1995 .............. F-21
Unaudited Consolidated Statements of Cash Flows --
Three Months Ended March 30, 1996 and April 1, 1995 .............. F-22
Notes to Unaudited Consolidated Financial Statements ................ F-23
81
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
E&B MARINE INC.:
We have audited the consolidated financial statements of E&B Marine Inc. and
subsidiaries as listed in the accompanying index. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of E&B Marine Inc. and
subsidiaries at December 30, 1995 and December 31, 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 30, 1995 in conformity with generally accepted accounting
principles.
As discussed in note 1 to the consolidated financial statements, in 1993 the
Company changed its method of accounting for income taxes.
KPMG PEAT MARWICK LLP
SHORT HILLS, NEW JERSEY
FEBRUARY 15, 1996
F-1
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 443 $ 719
Accounts receivable 522 501
Inventory 22,945 19,987
Prepaid expenses 1,650 802
Other current assets 2,793 2,690
- --------------------------------------------------------------------------------
Total current assets 28,353 24,699
Property, plant and equipment, net 5,549 4,569
Excess of cost over fair value of
assets acquired, net of accumulated
amortization of $801 and $730 in
1995 and 1994, respectively 2,041 2,112
Other assets 1,848 2,613
- --------------------------------------------------------------------------------
TOTAL ASSETS $37,791 $33,993
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 740 $ 1,282
Accounts payable 5,766 6,370
Accrued expenses 3,520 4,000
- --------------------------------------------------------------------------------
Total current liabilities 10,026 11,652
Revolving line of credit 10,168 9,427
Long-term debt, less current maturities 5,463 2,536
Shareholders' equity:
Common stock - par value $.001 per
share, authorized 10,000,000 and
30,000,000 shares in 1995 and
1994, respectively, issued
4,019,650 and 3,783,349 in 1995
and 1994, respectively 4 4
Additional paid-in capital 21,799 21,002
Accumulated deficit (7,481) (8,500)
Minimum pension liability
adjustment (104) -
Treasury stock - at cost (2,084) (2,084)
Value assigned to unearned compensation - (44)
- --------------------------------------------------------------------------------
Total shareholders' equity 12,134 10,378
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $37,791 $33,993
- --------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND DECEMBER 25, 1993
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $109,818 $101,752 $92,713
Cost of goods sold excluding
amortization and depreciation 80,479 73,903 66,313
- --------------------------------------------------------------------------------------------------
Gross profit 29,339 27,849 26,400
Selling, general, and administrative
expenses 24,675 22,181 20,933
Depreciation and amortization 1,134 1,259 1,589
Non-cash compensation expense 369
- --------------------------------------------------------------------------------------------------
Income from operations 3,161 4,409 3,878
Other income (337)
Interest expense 1,492 1,182 862
- --------------------------------------------------------------------------------------------------
Income before income taxes 1,669 3,227 3,353
Income tax expense (benefit) 650 (2,500) (2,000)
- --------------------------------------------------------------------------------------------------
Net income $ 1,019 $ 5,727 $ 5,353
- --------------------------------------------------------------------------------------------------
Per share amounts:
Net income $.29 $1.38 $1.34
Weighted average number of
shares outstanding 3,751,000 3,692,000 3,717,000
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND DECEMBER 25, 1993
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MINIMUM VALUE
COMMON STOCK ADDITIONAL PENSION TREASURY STOCK ASSIGNED
------------ --------------
NUMBER PAID-IN ACCUMULATED LIABILITY NUMBER TO UNEARNED
OF SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT OF SHARES AMOUNT COMPENSATION TOTAL
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 26, 1992 14,978,374 $150 $20,745 ($19,580) (168,351) ($1,747) ($222) ($654)
Net income 5,353 5,353
Earned compensation
related to ESOP 89 89
Issuance of common stock 83,800 1 66 67
Exercise of stock options 4,000 2 2
One-for-four reverse
stock split: Effective
December 9, 1993 (11,300,041) (147) 147 126,264 0
Repurchase of treasury
shares (37,500) (337) (337)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 25, 1993 3,766,133 4 20,960 (14,227) (79,587) (2,084) (133) 4,520
Net income 5,727 5,727
Issuance of common stock 4,576 16 16
Earned compensation related
to ESOP 89 89
Exercise of stock options 12,640 26 26
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 3,783,349 4 21,002 (8,500) (79,587) (2,084) (44) 10,378
Net income 1,019 1,019
Minimum pension
liability adjustment (104) (104)
Issuance of common stock 196,516 679 679
Earned compensation related
to ESOP 44 44
Exercise of stock options 39,785 118 118
====================================================================================================================================
Balance, December 30, 1995 4,019,650 $4 $21,799 ($7,481) ($104) (79,587) ($2,084) $0 $12,134
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND DECEMBER 25,1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,019 $5,727 $5,353
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 1,134 1,259 1,589
Amortization of premium on debt (284)
Loss on disposal of fixed assets 9 29 42
Earned compensation related to ESOP 44 89 89
Decrease (increase) in deferred tax asset 650 (2,500) (2,000)
Change in assets and liabilities net of
non-cash transactions and acquisitions:
(Increase) decrease in accounts receivable (21) 31 351
Increase in inventory (2,958) (2,170) (1,822)
Increase in other current assets (103) (66) (59)
Increase in prepaid expenses (848) (238) (134)
Decrease (increase) in other assets 83 (242) 266
(Decrease) increase in accounts payable (604) 789 1,467
Decrease in accrued expenses (584) (837) (445)
Decrease in other liabilities (375)
- --------------------------------------------------------------------------------
Net cash (used in) provided by operating
activities (2,179) 1,871 4,038
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of property, plant and
equipment 4
Purchases of property, plant and equipment (2,020) (1,967) (973)
- --------------------------------------------------------------------------------
Net cash used in investing activities (2,020) (1,967) (969)
Cash flows from financing activities :
Borrowings under debt agreements 19,431 9,634 15,900
Payments of debt (16,305) (9,256) (18,842)
Stock, option and warrant transactions (net) 797 42 (268)
- --------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 3,923 420 (3,210)
</TABLE>
F-5
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net (decrease) increase in cash and
cash equivalents (276) 324 (141)
Cash and cash equivalents at
beginning of year 719 395 536
- --------------------------------------------------------------------------------
Cash and cash equivalents at
end of year $443 $719 $395
- --------------------------------------------------------------------------------
Interest Paid $1,485 $1,117 $1,190
Income Taxes Paid $87 $79 $94
- --------------------------------------------------------------------------------
</TABLE>
See ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995 AND DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - E&B Marine Inc. and subsidiaries (the "Company")
operate in one business segment, the retail and mail-order merchandising of a
wide variety of marine supplies and apparel to the recreational boating
community. The Company's stores are primarily located in the eastern and
southern United States and in the area of the Great Lakes. The Company's
business is highly seasonal and susceptible to weather conditions and generates
a significant portion of its annual sales and net income in the second and third
quarters, the primary boating season in the Company's markets. The Company does
not have any major customers and does not extend credit to its retail store or
mail-order customers. The Company does not depend on any one supplier for a
substantial part of its product line and believes that alternative sources of
supply are available for its products.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the ac counts of the Company and its wholly-owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.
CASH and CASH EQUIVALENTS - Cash equivalents are considered, in general, to
be those se curities with maturities of three months or less when purchased.
INVENTORY - Inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
PROPERTY, PLANT and EQUIPMENT - Property, plant and equipment and leasehold
improvements are carried at cost. Depreciation and amortization are computed
using the straight-line method. When assets are retired or otherwise disposed
of, the cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is recognized in operations for the period. The cost of
maintenance and repairs is charged to operations as incurred; significant
renewals and betterments are capitalized. Leasehold improvements are amortized
over the life of the lease including renewal options which are probable of
exercise, or the estimated useful lives of the related assets, whichever is
shorter. Properties under capital leases are amortized on a straight-line basis
over the related lease terms or the economic lives of the related assets, as
appropriate.
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED - The excess of cost over
fair value of assets acquired is being amortized over a 40-year period using the
straight-line method. The Company regularly assesses the recoverability of
unamortized amounts of the excess of cost over fair value of assets acquired
utilizing relevant cash flow and profitability information. The assessment of
the recoverability of unamortized amounts will be impacted if estimated future
operating cash flows are not achieved.
F-7
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995 AND DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET SALES - Net sales include all merchandise sold within the year less
sales returns.
RETAIL STORE EXPENSES - All pre-opening store expenses are expensed as
incurred and store closing expenses are recognized when a decision is made to
close a store.
INCOME TAXES - Effective December 27, 1992 the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). The effects of adopting SFAS 109 were not material to the consolidated
financial statements at December 27, 1992. The Company utilizes the asset and
liability method of accounting for income taxes. Under this method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period of the event that
included the enactment date. A valuation allowance is provided when it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.
NET INCOME PER SHARE - Net income per share in 1995 is computed based on
the weighted average number of common shares and common equivalent shares
outstanding during the period in accordance with the modified treasury stock
method through the date the outstanding options and warrants exceeded 20 percent
of the Company's outstanding common stock, and in accordance with the treasury
stock method thereafter. Under such approach approximately 417,000 incremental
shares have been added to the weighted average number of shares outstanding, and
net interest has been reduced by an aggregate of approximately $198. Net income
per share in 1994 and 1993 is computed based on the weighted average number of
common shares and common equivalent shares outstanding during the period, in
accordance with the modified treasury stock method. Under such approach, in 1994
and 1993, respectively, approximately 750,000 and 830,000 incremental shares
have been added to the weighted average number of shares outstanding, and net
interest has been reduced by approximately $409 and $741.
REVERSE STOCK SPLIT - On December 9, 1993, the Company effected a one-for-
four reverse stock split. The par value of the Common Stock was reduced from
$0.01 to $0.001 per share. Accordingly, all per share and stock option data have
been restated to reflect the split.
F-8
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995 AND DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REPORTING YEAR - The Company and its subsidiaries utilize a 52-53 week
fiscal year ending on the last Saturday in the month of December. Fiscal year
1995 and 1993 contain 52 weeks; fiscal year 1994 contains 53 weeks.
USE OF ESTIMATES - In conformity with generally accepted accounting
principles, management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value Of Financial Instruments,"
requires disclosure of the fair value of certain financial instruments. Cash and
cash equivalents, accounts receivable, accounts payable and accrued expenses are
reflected in the consolidated financial statements at carrying value which
approximates fair value because of the short-term maturity of these instruments.
The carrying value of the Company's short- and long-term bank borrowings
approximates the fair value based on the current rates available to the Company
for similar instruments.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at:
<TABLE>
<CAPTION>
ESTIMATED
DECEMBER 30, DECEMBER 31, USEFUL LIVES
1995 1994 (YEARS)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $100 $100
Building and improvements 474 474 10 - 35
Leasehold improvements 4,503 3,540 5 - 15
Furniture and equipment 7,795 8,222 3 - 7
Properties under capital leases 407 407 7
- --------------------------------------------------------------------------------
13,279 12,743
Less accumulated
depreciation and amortization 7,730 8,174
- --------------------------------------------------------------------------------
$5,549 $4,569
================================================================================
</TABLE>
Accumulated amortization on properties under capital leases was $102 at December
30, 1995 and $44 at December 31, 1994.
F-9
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995 AND DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
3. FINANCING OBLIGATIONS
Effective June 6, 1994, the Company refinanced all of its then existing
bank and institutional debt. In connection therewith, the Company entered into a
credit agreement with United Jersey Bank ("UJB"). The credit agreement provided
for, among other things, a credit facility (the "New Facility") which consisted
of (I) a $15,000 revolving credit facility, (ii) a $500 letter of credit
facility, (iii) a $3,500 term loan and (iv) a $500 equipment loan facility. In
1995, the New Facility was amended to include an additional $2,500 term loan
facility due March 15, 1996.
The $15,000 revolving credit line facility provided for in the New Facility
bears interest at a rate of 0.75 percent above the bank's prime rate. The
$15,000 revolving credit line facility imposes certain restrictions on the
borrowing base predicated on inventory levels, and is collateralized on a first
priority basis by substantially all of the assets of the Company. Prior to June
6, 1994, the effective date of the New Facility, the Company's revolving credit
line facility bore interest at a rate of one percent above the bank's prime
rate, matured on December 31, 1995 and required a 30-day clean-down period.
On December 22, 1995, the New Facility was further amended to include: (I)
a $17,000 revolving line of credit with the same terms and conditions as the
prior $15,000 line except for an extension of maturity; and (ii) a $6,000 term
loan with an interest rate of 1.5 percent per annum above the prime rate which
was used in part to repay the aforementioned $3,500 and $2,500 bank loans. Both
facilities have a due date of May 31, 1998.
At December 30, 1995 and December 31, 1994, the outstanding borrowings on
the revolving line of credit were $10,168 and $9,427, respectively. The rate of
interest at December 30, 1995 was 9.25 percent.
At December 30, 1995 and December 31, 1994, long-term debt consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
$3,500 term loan due December 31, 1997.
Interest is payable at 1.5 percent over
the bank's prime rate. $ - $3,500
Capital leases due on various maturity
dates. Interest is payable at various fixed
rates. 203 318
$6,000 term loan due May 31, 1998.
Interest is payable at 1.5 percent over
the bank's prime rate. As of December
30, 1995, the rate of interest was 10.0 percent. 6,000 -
- --------------------------------------------------------------------------------
6,203 3,818
Less current maturities 740 1,282
- --------------------------------------------------------------------------------
$5,463 $2,536
- --------------------------------------------------------------------------------
</TABLE>
F-10
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995 AND DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
3. FINANCING OBLIGATIONS (CONTINUED)
The New Facility is collateralized by substantially all assets of the
Company. The terms of the New Facility (including the revolver) include certain
restrictive covenants which provide, among other things, restrictions on the
payment of dividends, and require the Company to meet certain financial ratios
and amounts related to tangible net worth, debt and current ratio. In addition,
there are limitations on capital expenditures and incurring additional
indebtedness.
Minimum principal payments relating to the Company's long-term debt at December
30, 1995 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR TOTAL
----------------------------------------------
<S> <C>
1996 $740
1997 1,663
1998 3,800
----------------------------------------------
$6,203
==============================================
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company leases stores and a warehouse facility under long-term lease
agreements. These leases are classified as operating leases and expire in
various years through 2005. They generally contain renewal options for periods
ranging from two to ten years. On June 16, 1986, the Company entered into a
five-year lease with four options totaling ten years for its Edison, New Jersey
warehouse and office facilities. The Company has exercised an option on the
Edison facility to extend the term of the lease to March 31, 1997.
F-11
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995 AND DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
4. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rental expense for all operating leases was $6,202, $5,210 and $4,567 in
1995, 1994 and 1993, respectively. The following is a schedule of future minimum
lease payments, net of sublease income, for each of the next five years for
operating leases (with initial or remaining terms in excess of one year):
<TABLE>
<CAPTION>
MINIMUM
YEAR LEASE PAYMENTS
--------------------------------------------------------
<S> <C>
1996 $7,315
1997 5,812
1998 5,071
1999 4,255
2000 2,423
</TABLE>
The Company entered into employment agreements with its Chairman of the
Board and Chief Executive Officer and its President and Chief Operating Officer
for four- and five-year periods initially ending in January 1995 and March 1997,
respectively. Effective January 28, 1995, the Company's President and Chief
Operating Officer resigned his positions. In addition, effective January 28,
1995, the Chairman of the Board and Chief Executive Officer amended his
employment agreement. The amended agreement provides for, among other things, an
extended term through January 28, 1997 and the grant of options to purchase
75,000 shares of Common Stock at an exercise price of $7.50. In July 1995, the
Company entered into a three-year employment agreement with its new President
providing for a grant of 100,500 options at an exercise price of $5.50.
From time to time, the Company may be a party to various legal proceedings
relating to the conduct of its business. In management's judgement, the
consolidated financial position of the Company will not be affected materially
by the outcome of any current legal proceedings or other contingent liabilities
and commitments.
F-12
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995 AND DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
5. PROFIT-SHARING AND PENSION PLANS
Effective April 1, 1985 the Company adopted the E&B Marine Inc. Employee
Stock Ownership Plan ("ESOP"). Under the Plan, the Company makes annual
contributions to the Trust for the benefit of eligible employees. The
contributions may be in the form of either cash or Common Stock of the Company.
The amount of the annual contribution is at the discretion of the Board of
Directors of the Company, except that the minimum amount must be sufficient to
enable the Trust to meet its current obligations to the Company. Expenses
relating to this plan were $44, $96 and $99 in 1995, 1994 and 1993,
respectively. The amount due from the ESOP, which is considered unearned
compensation, has been recorded as a separate reduction of shareholders' equity.
In December 1995, the Board of Directors of the Company amended the ESOP,
effective December 31, 1995. The amendment provided for no new entrants into the
ESOP after 1995, full vesting of all participants as of December 31, 1995 and
simplified the definition of compensation used in the allocation.
The Company's profit-sharing plan and trust was amended and restated in
1994. The amended plan includes a provision for a company match of elective
contributions made by plan participants; expenses totalled $164 and $78 in 1995
and 1994, respectively. The Company has not made any discretionary contributions
to the profit-sharing plan in the years 1995, 1994 and 1993.
In addition to the discretionary profit-sharing plan, a defined benefit
plan was adopted and be came effective June 1, 1985. The minimum benefit
contribution is calculated by the plan actuaries. The defined benefit plan
provides a retiree with the excess, if any, of amounts required under the
Company's pension formula over the value of the retiree's ESOP accounts
converted to an annual retirement annuity. In addition, the defined benefit plan
provides amounts necessary to cover a decrease, if any, in the value of the
common stock purchased under the special arrangement. The value of the common
stock is to be determined at the retirement date and computed to an annual
retirement annuity. The defined benefit plan was amended, effective January 28,
1994, so that no further benefits will accrue after that date. A curtailment
expense of approximately $96 was recorded in 1993. Statement of Financial
Accounting Standards No. 87 requires recognition of a minimum pension liability
to reflect the excess of accumulated benefits over the fair value of pension
plan assets for defined benefit plans. As a result, in fiscal 1995, the Company
recorded a minimum pension liability of $104.
F-13
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995 AND DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
5. PROFIT-SHARING AND PENSION PLANS (CONTINUED)
The following table sets forth the funded status and amounts recognized by the
Company relating to the defined benefit plan as of December 30, 1995, December
31, 1994 and December 25, 1993:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation including
vested benefits of $1,957, $1,544 and $1,721
in 1995, 1994 and 1993, respectively. $2,110 $1,649 $1,823
- --------------------------------------------------------------------------------
Projected benefit obligation for services
rendered to date. 2,110 1,649 1,823
Less: Plan assets at fair value, primarily
common stocks and U.S. government bond
commingled funds with the custodian. 1,937 1,612 1,660
- --------------------------------------------------------------------------------
Projected benefit obligation in excess
of plan assets. 173 37 163
Deferred gain (loss) (104) 54 -
Additional minimum liability adjustment 104 - -
- --------------------------------------------------------------------------------
Accrued Pension Cost $173 $91 $163
- --------------------------------------------------------------------------------
Net pension cost for the fiscal years ended
1995, 1994 and 1993 include the following
components:
Future service cost - $35 $206
Interest cost on projected benefit obligation 134 131 139
Return on plan assets (355) 72 (116)
Net amortization and deferral 227 (204) 29
Curtailment expense - - 96
- --------------------------------------------------------------------------------
Net Pension Cost $6 $34 $354
- --------------------------------------------------------------------------------
Weighted average discount rate 7.25% 8.5% 7.5%
Rate of increase in future compensation levels N/A N/A N/A
Long-term rate of return on assets 8.0% 8.0% 7.5%
</TABLE>
F-14
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995 AND DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
6. INCOME TAXES
The Company had no current tax expense in 1995, 1994 and 1993 as a result
of the utilization of net operating loss carryforwards. In 1995, the Company
reduced its deferred tax asset and recognized $650 of deferred tax expense
primarily for utilization of net operating loss carryforwards against current
taxable income. During the third quarters of 1994 and 1993, the Company reduced
its valuation allowance on the deferred tax asset by $2,500 and $2,000,
respectively, attributable to the Company's strong operating performance,
resulting in a credit to income tax expense.
The components of deferred taxes at December 30, 1995 and December 31, 1994 are
as follows:
Deferred Tax Asset:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Inventory $742 $732
Employee benefit accruals 261 339
Intangible asset, basis difference -- 120
Restructuring reserves 8 67
Net operating loss carryforwards 3,323 4,021
Other 20 75
Valuation allowance (504) (564)
----- -----
Deferred tax asset 3,850 4,790
----- -----
Deferred Tax Liability - excess of tax
over financial statement depreciation -- (290)
----- -----
Net Deferred Tax Asset $3,850 $4,500
====== ======
</TABLE>
At December 30, 1995 and December 31, 1994, the net deferred tax asset is
classified as follows:
<TABLE>
<S> <C> <C>
Other current assets $2,500 $2,500
Other assets 1,350 2,000
------ ------
$3,850 $4,500
====== ======
</TABLE>
In order to fully realize the net deferred tax asset, the Company will need
to generate future taxable income of approximately $9,555. A portion of the net
deferred tax asset is attributable to net operating loss carryforwards ("NOLs")
which for federal income tax purposes expire during the years 2003 through 2006.
Although realization is not assured, management believes it is more likely than
not that the Company will realize the benefit of the NOLs before they begin to
expire. The amount of the net deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income during
the carryforward period are reduced.
F-15
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995 AND DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
6. INCOME TAXES (CONTINUED)
As of December 30, 1995, the Company had unused net operating loss
carryforwards of approximately $8,300 for tax reporting purposes. The
utilization of $3,100 of the tax loss carryforwards will be limited in
subsequent years as a result of the 1989 restructuring of the Company which
resulted in a change of control of the Company of greater than fifty percent.
The total tax loss carryforward subject to limitation represents annual tax
losses incurred prior to the beginning of the year 1989 and the tax loss
incurred for the period January 2, 1989 to March 3, 1989, the date of the change
in control.
The tax net operating loss carryforwards expire as follows:
<TABLE>
<CAPTION>
YEAR OF TAX
EXPIRATION REPORTING
---------------------------------------------
<S> <C>
2003 $2,160
2004 600
2005 2,740
2006 2,800
---------------------------------------------
$8,300
=============================================
</TABLE>
The Company is subject to the alternative minimum tax, which is approximately
$30 and $40 in 1995 and 1994, respectively. The alternative minimum tax is
capitalized as part of the net deferred assets in 1995 and 1994.
The effective income tax rate is different from the U.S. Federal Statutory rate
for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $568 $1,097 $1,140
Increase (reduction) in taxes resulting from:
State income taxes, net of federal
income tax benefit 100 193 96
Non-deductible amortization of goodwill 42 34 24
Debt premium amortization - - (96)
Change in valuation allowance (60) (3,824) (3,164)
- --------------------------------------------------------------------------------
$650 ($2,500) ($2,000)
- --------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995 AND DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
7. EMPLOYEE STOCK OPTION AND PURCHASE PLAN, WARRANTS and RELATED MATTERS
As of January 26, 1983, the shareholders of the Company adopted a stock
option plan and a stock purchase plan. The stock option plan, as amended,
provides for 650,000 shares of common stock available for option thereunder. The
options are exercisable at varying dates not to exceed ten years from date of
grant. The stock purchase plan, as amended in 1991, makes available 50,000
shares of common stock which have been reserved for purchase by eligible
employees at 85 percent of fair market value. During 1995, 1994 and 1993, shares
issued under the stock purchase plan totalled 0, 4,576 and 12,200, respectively.
The stock purchase plan expired in 1994.
Transactions, restated to reflect the reverse stock split, relating to stock
options granted under the stock option plan are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDER OPTION
- --------------------------------------------------------------------------------
<S> <C>
OUTSTANDING AT DECEMBER 26, 1992 ($2.00 - $15.00) 293,725
Granted ($3.00 - $4.75) 55,250
Exercised ($2.50) (1,000)
Cancelled ($2.375 - $15.00) (6,175)
- --------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 25, 1993 ($2.00 - $15.00) 341,800
Granted ($9.50 - $10.00) 13,500
Exercised ($2.38 - $2.50) (800)
Cancelled ($2.50 - $10.00) (2,900)
- --------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1994 ($2.00 - $15.00) 351,600
Granted ($5.25 - $7.50) 225,375
Exercised ($2.38 - $2.63) (26,785)
Cancelled ($2.38 - $9.50) (32,567)
- --------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 30, 1995 ($2.00 - $15.00) 517,623
EXERCISABLE AT DECEMBER 30, 1995 ($2.00 - $15.00) 230,220
- --------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995 AND DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
7. EMPLOYEE STOCK OPTION AND PURCHASE PLAN, WARRANTS AND RELATED MATTERS
(CONTINUED)
The Company has granted additional stock options and warrants to purchase
common stock. These options and warrants were issued during the period from 1988
through 1991. In November 1995, the Company announced an offer (the "Exchange
Offer") to exchange up to 181,531 shares of the Company's common stock for up to
1,032,418 warrants and options (other than the options issued under the
Company's 1983 Stock Option Plan). Pursuant to the Exchange Offer which closed
on December 1, 1995, the Company issued an aggregate of 176,575 shares of common
stock in exchange for 1,000,089 warrants and options. As a result of the
Exchange Offer, the Company incurred $369 in non-cash compensation expense.
Additionally, during 1995, the Company issued 19,941 shares of common stock for
proceeds of approximately $119.
At December 30, 1995 and December 31, 1994, the number of shares under
option/warrant other than under the Company's 1983 Stock Option Plan were 32,329
and 1,141,631, respectively, at exercise prices ranging from $8.44 to $11.15 and
$1.00 to $14.00, respectively.
In 1992, two former officers of the Company were issued 11,986 three-year
options at an exercise price of $2.00 and in 1994 these options were exercised.
In addition, warrants which were convertible into an aggregate of 141,086 shares
of common stock at an exercise price of $28.36 per share expired unexercised
effective April 7, 1993. During 1995, options held by a director to purchase
13,000 shares of common stock were exercised at an exercise price of $3.72.
8. OTHER INCOME
In 1988, a loan to a former officer, collateralized by 37,500 shares of
common stock, was fully reserved against due to uncertainties concerning
collectibility. In 1993, the Company and the former officer agreed that the
Company will retain the common stock in full satisfaction of the debt. The fair
market value of the common stock of $337 has been recorded as other income in
1993.
F-18
<PAGE>
E&B MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995 AND DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
9. QUARTERLY FINANCIAL DATA.
The following table sets forth certain unaudited quarterly financial
information:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 30, 1995
- ----------------------------
Net sales $19,131 $42,780 $29,367 $18,540
Gross profit 4,196 13,054 8,370 3,719
Income (loss) before income taxes (1,879) 4,926 1,370 (2,748)
Income tax expense (benefit) (751) 1,972 549 (1,120)
Net income (loss) (1,128) 2,954 821 (1,628)
Net income (loss) per share (1) (0.30) 0.67 0.20 (0.43)
YEAR ENDED DECEMBER 31, 1994
- ----------------------------
Net sales $16,148 $39,845 $27,456 $18,303
Gross profit 3,500 12,129 7,938 4,282
Income (loss) before income taxes (1,790) 4,915 1,712 (1,610)
Income tax expense (benefit) -- -- (2,500) --
Net income (loss) (1,790) 4,915 4,212 (1,610)
Net income (loss) per share (1) (0.49) 1.11 0.96 (0.45)
</TABLE>
(1) The sum of the four quarters' per share amounts do not agree to the
reported net income per share for the full year due to common stock
equivalents being included in the calculation in certain quarters and
excluded in other quarters when the effect is antidilutive.
F-19
<PAGE>
E & B MARINE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996
UNAUDITED
================================================================================
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 962
Accounts receivable 1,116
Inventory 33,479
Prepaid expenses 1,370
Other current assets 2,807
- --------------------------------------------------------------------------------
Total current assets 39,734
Property, plant and equipment, net 6,011
Excess of cost over fair value of
assets acquired, net of accumulated
amortization 2,023
Other assets 3,101
===============================================================================
TOTAL ASSETS $ 50,869
===============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 1,449
Current maturities of long-term debt 744
Accounts payable 15,262
Accrued expenses 5,027
- --------------------------------------------------------------------------------
Total current liabilities 22,482
Revolving line of credit 12,766
Long-term debt, less current maturities 5,428
Shareholders' equity:
Common stock 4
Additional paid-in capital 21,800
Accumulated deficit (9,423)
Minimum pension liability adjustment (104)
Treasury stock--at cost (2,084)
- --------------------------------------------------------------------------------
Total shareholders' equity 10,193
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 50,869
================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial
statements.
F-20
<PAGE>
E & B MARINE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 30, 1996 AND APRIL 1, 1995
UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $19,205 $19,131
Cost of goods sold excluding amortization
and depreciation 15,633 14,935
- -------------------------------------------------------------------------------
Gross profit 3,572 4,196
Selling, general, and administrative expenses 5,860 5,390
Depreciation and amortization 287 285
Non-recurring merger expense 201
- -------------------------------------------------------------------------------
Loss from operations (2,776) (1,479)
Interest expense 461 400
- -------------------------------------------------------------------------------
Loss before income taxes (3,237) (1,879)
Income tax benefit (1,295) (751)
- -------------------------------------------------------------------------------
Net loss $(1,942) $(1,128)
===============================================================================
Per share amounts:
Net loss $ (0.49) $ (0.30)
Weighted average number of shares outstanding 3,943,000 3,708,000
===============================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial
statements.
F-21
<PAGE>
E & B MARINE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 30, 1996 AND APRIL 1, 1995
UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Loss $ (1,942) $ (1,128)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 287 285
Increase in deferred tax asset (1,295) (751)
Earned compensation related to ESOP 0 22
Change in assets and liabilities net of
non-cash transactions:
(Increase) in accounts receivable (594) (482)
(Increase) in inventory (10,534) (9,096)
(Increase) in other current assets (14) (47)
Decrease in prepaid expense 280 38
Decrease in other assets 36 23
Increase in accounts payable 9,496 8,255
Increase in accrued expenses 1,507 486
- --------------------------------------------------------------------------------
Net cash used in operating activities (2,773) (2,395)
================================================================================
Cash flows from investing activities:
Purchase of property, plant and equipment (725) (421)
- --------------------------------------------------------------------------------
Net cash used in investing activities (725) (421)
================================================================================
Cash flows from financing activities:
Borrowings under debt agreements 4,047 3,245
Payments of debt (31) (319)
Proceeds from issuance of stock (net) 1 51
- --------------------------------------------------------------------------------
Net cash provided by financing activities 4,017 2,977
================================================================================
Net change in cash and cash equivalents 519 161
Cash and cash equivalents at beginning of year 443 719
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of quarter $ 962 $ 880
================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial
statements.
F-22
<PAGE>
E & B MARINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1: BASIS OF PRESENTATION
The financial information included herein is unaudited, however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the three-month period ended March 30, 1996 are
not necessarily indicative of the results to be expected for the full year.
2: INVENTORIES
Inventory has been calculated using the cost complement obtained from the
inventory tracking system which is applied on an individual store basis.
Additionally, gross profit margin is reduced by an estimated percentage of sales
for shrinkage.
3: LOSS PER COMMON SHARE
The loss per Common Share for 1996 and 1995 is based on the weighted average
number of Common Shares outstanding during the quarters. Common stock
equivalents are not considered in the computation, as their inclusion would be
anti-dilutive on the per share amounts.
4: CREDIT AGREEMENT AMENDMENT
Effective May 6, 1996, the Company amended its Credit Agreement with United
Jersey Bank (i) to increase its revolving line of credit from $17,000,000 to
$20,000,000 through July 31, 1996 and (ii) to amend certain financial covenants.
The funds from the increased availability under the Company's revolving line of
credit will be used primarily to purchase inventory to enhance product
assortment.
5: DEFINITIVE MERGER AGREEMENT
The Company entered into an Agreement and Plan of Merger on April 2, 1996 (the
"Merger Agreement"), with West Marine, Inc., a Delaware corporation ("West") and
WM Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of West
("Merger Sub"), pursuant to which, among other things, Merger Sub will, at the
effective time of the Merger, be merged with and into the Company (the "Merger")
and the Company will become a wholly-owned subsidiary of West. At the effective
time of the Merger, each share of common stock, $.001 par value, of the Company
(the "Company Common Stock") outstanding at the effective time of the Merger
will be converted into the right to receive a fraction (the "Exchange Ratio") of
a share of common stock, $.001 par value, of West (the "West Common Stock")
based on the average closing sales price per share of West Common Stock for the
15 trading days preceding the effective time of the Merger (the "Average Trading
Price"), which exchange ratio will be calculated as follows: (i) if the Average
Trading Price is at least $38.00 but not greater than $43.875, the Exchange
Ratio will equal the quotient of $6.65 divided by the Average Trading Price;
(ii) if the Average Trading Price is greater than $43.875, the Exchange Ratio
will equal 0.15167; and (iii) if the Average Trading Price is less than $38.00,
the Exchange Ratio will equal 0.17500. Upon the effective time of the Merger,
all outstanding options and warrants to purchase shares of the Company Common
Stock will be assumed by West and become options and warrants to purchase shares
of West Common Stock. Consummation of the Merger is contingent upon customery
closing conditions, including approval of the Merger by the stockholders of the
Company.
F-23
<PAGE>
ANNEX A
[CONFORMED COPY]
================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
WEST MARINE, INC.,
WM MERGER SUB, INC.
AND
E&B MARINE INC.
Dated as of April 2, 1996
================================================================================
<PAGE>
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
------- ----
ARTICLE I
THE MERGER
<C> <S> <C>
1.1 The Merger.................................................... 1
1.2 Effective Time................................................ 1
1.3 Effect of the Merger.......................................... 2
1.4 Certificate of Incorporation; By-Laws......................... 2
1.5 Directors and Officers........................................ 2
1.6 Effect on Capital Stock....................................... 2
1.7 Surrender of Certificates..................................... 4
1.8 No Further Ownership Rights in Company Common Stock........... 5
1.9 Lost, Stolen or Destroyed Certificates........................ 5
1.10 Tax Consequences.............................................. 5
1.11 Taking of Necessary Action; Further Action.................... 6
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1 Organization and Qualification; Subsidiaries.................. 6
2.2 Certificate of Incorporation and By-Laws...................... 6
2.3 Capitalization................................................ 6
2.4 Authority Relative to this Agreement.......................... 7
2.5 No Conflict; Required Filings and Consents.................... 8
2.6 Material Agreements; Compliance; Permits...................... 8
2.7 SEC Filings; Financial Statements............................. 9
2.8 Absence of Certain Changes or Events.......................... 9
2.9 No Undisclosed Liabilities.................................... 10
2.10 Absence of Litigation......................................... 10
2.11 Employee Benefit Plans........................................ 10
2.12 Labor Matters................................................. 11
2.13 Registration Statement; Proxy Statement/Prospectus............ 12
2.14 Restrictions on Business Activities........................... 12
2.15 Title to Property............................................. 12
2.16 Taxes......................................................... 13
2.17 Environmental Matters......................................... 14
2.18 Brokers....................................................... 14
2.19 Intellectual Property......................................... 14
2.20 Insurance..................................................... 15
2.21 No Restrictions on the Merger................................. 15
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
2.22 Inventories................................................... 16
2.23 Opinion of Financial Advisor.................................. 16
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
3.1 Organization and Qualification, Subsidiaries................. 16
3.2 Certificate of Incorporation and By-Laws..................... 17
3.3 Capitalization............................................... 17
3.4 Authority Relative to this Agreement......................... 17
3.5 No Conflict, Required Filings and Consents................... 17
3.6 Compliance, Permits.......................................... 18
3.7 SEC Filings; Financial Statements............................ 18
3.8 Absence of Certain Changes or Events......................... 19
3.9 No Undisclosed Liabilities................................... 19
3.10 Absence of Litigation........................................ 19
3.11 Labor Matters................................................ 20
3.12 Registration Statement; Proxy Statement/Prospectus........... 20
3.13 Title to Property............................................ 20
3.14 Environmental Matters........................................ 21
3.15 Brokers...................................................... 21
3.16 Opinion of Financial Advisor................................. 21
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business by the Company Pending the Merger......... 21
4.2 Solicitation of Other Proposals............................... 23
4.3 Conduct of Business by Parent Pending the Merger.............. 24
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement........... 25
5.2 Meeting of Company Stockholders.............................. 25
5.3 Access to Information; Confidentiality....................... 26
5.4 Best Efforts................................................. 26
5.5 Stock Options................................................ 27
5.6 Employee Benefits............................................ 27
5.7 Agreements of Affiliates..................................... 28
5.8 Company Warrants............................................. 28
5.9 Notification of Certain Matters.............................. 28
5.10 National Market System....................................... 28
5.11 Public Announcements......................................... 28
5.12 Takeover Laws................................................ 28
5.13 Accountant's Letters......................................... 29
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
5.14 Stop Transfer................................................ 29
5.15 Representations of Stockholders.............................. 29
ARTICLE VI
CONDITIONS OF MERGER
6.1 Conditions to Obligation of Each Party to Effect the Merger.... 29
6.2 Additional Conditions to Obligations of Parent and Merger Sub.. 30
6.3 Additional Conditions to Obligations of the Company............ 31
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination.................................................... 32
7.2 Effect of Termination.......................................... 33
7.3 Fees and Expenses.............................................. 33
7.4 Amendment...................................................... 35
7.5 Waiver......................................................... 35
ARTICLE VIII
GENERAL PROVISIONS
8.1 Nonsurvival of Representations and Warranties................. 35
8.2 Notices....................................................... 35
8.3 Disclosure Schedules.......................................... 36
8.4 Certain Definitions........................................... 36
8.5 Interpretation................................................ 37
8.6 Severability.................................................. 37
8.7 Entire Agreement.............................................. 37
8.8 Assignment.................................................... 38
8.9 Parties in Interest........................................... 38
8.10 Governing Law................................................. 38
8.11 Counterparts.................................................. 38
</TABLE>
EXHIBIT A Form of Certificate of Merger
EXHIBIT B Form of Affiliate Agreement
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 2, 1996 (the
"Agreement") among WEST MARINE, INC., a Delaware corporation ("Parent"), WM
MERGER SUB, INC., a Delaware corporation and a wholly owned subsidiary of Parent
("Merger Sub"), and E&B MARINE INC., a Delaware corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company
have each determined that it is in the best interests of their respective
stockholders for Parent to acquire the Company upon the terms and subject to the
conditions set forth herein; and
WHEREAS, in furtherance of such acquisition, the Boards of Directors
of Parent, Merger Sub and the Company have each approved the merger (the
"Merger") of Merger Sub with and into the Company, in accordance with the
General Corporation Law of the State of Delaware ("Delaware Law") and upon the
terms and subject to the conditions set forth herein, which Merger will result
in, among other things, the Company becoming a wholly owned subsidiary of
Parent; and
WHEREAS, a condition to the willingness of Parent and Merger Sub to
enter into this Agreement is that, contemporaneously with the execution and
delivery of this Agreement, certain stockholders of the Company enter into an
agreement (the "Stockholders Agreement") providing for certain actions relating
to the transactions contemplated by this Agreement; and in order to induce
Parent and Merger Sub to enter into this Agreement, the Company has approved the
entering into by such stockholders of the Stockholders Agreement, and such
stockholders have agreed to enter into, execute and deliver the Stockholders
Agreement; and
WHEREAS, for Federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Code (as defined in Section 2.11);
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, Parent, Merger Sub and the Company hereby
agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement and Delaware
Law, Merger Sub shall be merged with and into the Company, the separate
corporate existence of Merger Sub shall cease and the Company shall continue as
the surviving corporation. The Company as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
1.2 EFFECTIVE TIME. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by filing a Certificate of
Merger substantially in the form of Exhibit A (the "Certificate of Merger") with
the Secretary of State of the State of Delaware, executed in accordance with the
relevant provisions of Delaware Law (the date and time of such filing being the
"Effective Time"); provided,
1
<PAGE>
however, that the Certificate of Merger shall not be filed as aforesaid and the
Effective Time shall not occur on or before June 1, 1996.
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BY-LAWS. (a) Unless otherwise
determined by Parent prior to the Effective Time, at the Effective Time 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 amended as provided by law and such Certificate of
Incorporation.
(b) The By-laws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended as provided by Delaware Law, the Certificate of Incorporation
of the Surviving Corporation and such By-laws.
1.5 DIRECTORS AND OFFICERS. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified. Prior to the Effective Time, the
Company shall deliver to Parent evidence satisfactory to Parent of the
resignations of all directors of the Company to be effective as of such
Effective Time.
1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the Company or the
holders of any of the securities described below:
(a) CONVERSION OF COMPANY COMMON STOCK. Each share of common
stock, par value $.001 per share, of the Company ("Company Common Stock") issued
and outstanding immediately prior to the Effective Time (other than any shares
of Company Common Stock to be cancelled pursuant to Section 1.6) will be
converted automatically into the right to receive that fraction of a share of
common stock, par value $0.001 per share, of the Parent ("Parent Common Stock")
as is equal to the "Exchange Ratio," which shall be determined in the manner
provided below, upon surrender of the certificate representing such share of
Company Common Stock in the manner provided in Section 1.7.
(i) For purposes of this Agreement, the "Exchange Ratio"
shall be calculated as follows:
(1) if the Average Parent Trading Price (as defined
below) is at least equal to $38.00 but not greater than $43.875, the
Exchange Ratio shall equal
2
<PAGE>
the quotient of (A) $6.65 divided by (B) the Average Parent Trading
Price, calculated to the nearest one-one thousandth of a share;
(2) if the Average Parent Trading Price is greater
than $43.875, then the Exchange Ratio shall equal .15157; or
(3) if the Average Parent Trading Price is less than
$38.00, then the Exchange Ratio shall equal .17500.
(ii) As used in this Agreement, the term "Average Parent
Trading Price" shall mean the arithmetic mean of each of the closing sales
prices per share of Parent Common Stock on the NASDAQ/National Market System for
each of the fifteen (15) most recent days that shares of Parent Common Stock has
traded thereon ending on the day immediately prior to the Effective Time.
(b) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK. Each
share of Company Common Stock held in the treasury of the Company and each share
of Company Common Stock owned by Merger Sub, Parent or any direct or indirect
wholly owned subsidiary of Parent or the Company immediately prior to the
Effective Time shall be cancelled and extinguished without any conversion
thereof.
(c) STOCK OPTIONS. At the Effective Time, all options to purchase
Company Common Stock then outstanding under the Amended and Restated E&B Marine
Inc. 1983 Stock Option Plan (the "1983 Plan") shall be assumed by Parent in
accordance with Section 55. The Company shall promptly take all actions
necessary to terminate, as of the Effective Time, the 1983 Plan and all other
plans, programs or arrangements providing for the issuance or grant of any
interest in respect of the capital stock of the Company or any subsidiary of the
Company and to ensure that following the Effective Time no holder of any options
or rights pursuant to, nor any participant in, the 1983 Plan or any other plan,
program or arrangement providing for the issuance or grant of any interest in
respect of the capital stock of the Company or any subsidiary of the Company
will have any right thereunder to acquire equity securities of the Company, any
such subsidiary or the Surviving Corporation.
(d) CAPITAL STOCK OF MERGER SUB. Each share of common stock, par
value $0.001 per share, of Merger Sub 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, par value $0.001 per
share, of the Surviving Corporation. Each stock certificate of Merger Sub
evidencing ownership of any such shares shall continue to evidence ownership of
such shares of capital stock of the Surviving Corporation.
(e) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Parent Common Stock or Company Common Stock), reorganization, recapitalization
or other like change with respect to Parent Common Stock or Company Common Stock
occurring after the date hereof and prior to the Effective Time.
(f) FRACTIONAL SHARES. No fraction of a share of Parent Common
Stock will be issued, but in lieu thereof each holder of shares of Company
Common Stock who would otherwise
3
<PAGE>
be entitled to a fraction of a share of Parent Common Stock (after aggregating
all fractional shares of Parent Common Stock to be received by such holder)
shall receive from Parent an amount of cash (rounded to the nearest whole cent)
equal to the product of (i) such fraction multiplied by (ii) the Average Trading
Price.
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Parent shall
designate a bank or trust company (which shall be reasonably acceptable to the
Company) to act as exchange agent (the "Exchange Agent") in the Merger.
(b) PARENT TO PROVIDE COMMON STOCK. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I, through such reasonable procedures as Parent may
adopt, the shares of Parent Common Stock issuable pursuant to Section 1.6 in
exchange for outstanding shares of Company Common Stock.
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock whose
shares were converted into the right to receive shares of Parent Common Stock
pursuant to Section 1.6, (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 Exchange Agent and shall be
in such form and have such other provisions as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Parent Common Stock and payment in lieu of fractional shares which
such holder has the right to receive pursuant to Section 1.6, and the
Certificate so surrendered shall forthwith be cancelled. Until so surrendered,
each outstanding Certificate that, prior to the Effective Time, represented
shares of Company Common Stock will be deemed from and after the Effective Time,
for all corporate purposes, other than the payment of dividends, to evidence the
ownership of the number of full shares of Parent Common Stock into which such
shares of Company Common Stock shall have been so converted and the right to
receive an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 1.6. Any portion of the shares of Parent Common Stock
deposited with the Exchange Agent pursuant to Section 1.7 which remains
undistributed to the holders of the Certificates representing shares of Company
Common Stock for six (6) months after the Effective Time shall be delivered to
Parent, upon demand, and any holders of shares of Company Common Stock who have
not theretofore complied with this Article I shall thereafter look only to
Parent and only as general creditors thereof for payment of their claim for
Parent Common Stock, any cash in lieu of fractional shares of Parent Common
Stock and any dividends or distributions with respect to Parent Common Stock to
which such holders may be entitled.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions declared or made after the Effective Time with
respect to Parent Common Stock with a record date after the Effective Time will
be paid to the holder of any unsurrendered Certificate with
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respect to the shares of Parent Common Stock represented thereby until the
holder of record of such Certificate shall surrender such Certificate. Subject
to applicable law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, without interest, at the time
of such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such whole shares
of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Parent Common Stock in any name other than that of the registered
holder of the certificate surrendered, or established to the satisfaction of
Parent or any agent designated by it that such tax has been paid or is not
payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.7, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Company Common Stock for any
amount properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
1.8 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All
shares of Parent Common Stock issued upon the surrender for exchange of shares
of Company Common Stock in accordance with the terms of this Article I
(including any cash paid in respect thereof) shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of Company Common
Stock, and there shall be no further registration of transfers on the records of
the Surviving Corporation of shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged as provided in this Article I.
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such shares of Parent Common Stock and cash for
fractional shares, if any, as may be required pursuant to Section 1.6; provided,
however, that Parent may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
1.10 TAX CONSEQUENCES. For Federal income tax purposes, the parties
intend that the Merger be treated as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code by reason of Section 368(a)(2)(E) of the Code.
Except for cash paid in lieu of fractional shares, no consideration that could
constitute "other property" within the meaning of Section 356(b) of the Code is
being transferred by Parent for Company Common Stock in the Merger. The parties
shall not take a position on any Tax Return (as defined in Section 2.16)
inconsistent with this Section 1.10.
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1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time
after the Effective Time, any such further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving Corporation
with the full right, title and possession to all assets, property, rights,
privileges, powers and franchises of the Company and Merger Sub, the officers
and directors of the Company and Merger Sub shall be fully authorized in the
name of their respective corporations or otherwise to take, and will take, all
such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub as
follows:
2.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of 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 the requisite corporate power and authority and is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates, approvals and orders ("Company Approvals")
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power, authority and Company Approvals would not, individually or in the
aggregate, have a Material Adverse Effect (as defined below). Each of the
Company and each of its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would
not, either individually or in the aggregate, have a Material Adverse Effect.
When used in connection with the Company or any of its subsidiaries, the term
"Material Adverse Effect" means any fact, event, change, circumstance or effect
that is materially adverse to the business, financial condition or results of
operations of the Company and its subsidiaries taken as a whole. A true and
complete list of all of the Company's subsidiaries, together with the
jurisdiction of incorporation of each subsidiary, is set forth in Section 2.1 of
the Disclosure Schedule previously delivered on the date hereof by the Company
to Parent (the "Company Disclosure Schedule"). Except as set forth in Section
2.1 of the Company Disclosure Schedule, the Company does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity or similar interest in, any
person.
2.2 CERTIFICATE OF INCORPORATION AND BY-LAWS. The Company has
heretofore furnished to Parent a complete and correct copy of its Restated
Certificate of Incorporation and Amended and Restated By-laws, as amended to
date. Such Restated Certificate of Incorporation, Amended and Restated By-laws
and equivalent organizational documents of each of its subsidiaries are in full
force and effect. Neither the Company nor any of its subsidiaries is in
violation of any of the provisions of its Certificate of Incorporation or By-
laws or equivalent organizational documents.
2.3 CAPITALIZATION. The authorized capital stock of the Company
consists of 10,000,000 shares of Company Common Stock and 5,000,000 shares of
preferred stock, par value $0.01 per share (the "Company Preferred Stock"). As
of April 2, 1996, (i) 3,943,594 shares of
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Company Common Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable, (ii) 79,587 shares of Company Common Stock
were held in the treasury of the Company, (iii) no shares of Company Common
Stock were held by subsidiaries of the Company, (iv) 650,000 shares of Company
Common Stock were reserved for future issuance pursuant to employee stock
options granted pursuant to the 1983 Plan, and (v) 32,329 shares of Company
Common Stock were reserved for future issuance pursuant to other outstanding
stock options and warrants as described in Section 2.3(a) of the Company
Disclosure Schedule. Except as set forth in the immediately preceding sentence,
the Company has no shares of capital stock issued and outstanding or reserved
for issuance. Except as described in Section 2.3(b) of the Company Disclosure
Schedule, no material change in such capitalization has occurred between
December 31, 1995 and the date hereof. None of the shares of Company Preferred
Stock is issued and outstanding. Except as described in Section 2.3(a) of the
Company Disclosure Schedule, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of the Company or any of its subsidiaries or
obligating the Company or any of its subsidiaries to issue or sell any shares of
capital stock of, or other equity interests in, the Company or any of its
subsidiaries. All shares of Company Common 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. There are no obligations,
contingent or otherwise, of the Company or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of Company Common Stock or
the capital stock of any subsidiary or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
such subsidiary or any other entity other than guarantees of bank obligations of
subsidiaries entered into in the ordinary course of business. Except as
described in Section 2.3(a) of the Company Disclosure Schedule, all of the
outstanding shares of capital stock (other than directors' qualifying shares) of
each of the Company's direct and indirect subsidiaries is duly authorized,
validly issued, fully paid and nonassessable and all such shares (other than
directors' qualifying shares) are owned by the Company or another subsidiary of
the Company free and clear of all security interests, liens, claims, pledges,
agreements, limitations in the Company's voting rights, charges or other
encumbrances of any nature whatsoever. No holder of Company securities has any
contractual right to include any such securities in any registration statement
proposed to be filed by Parent under the Securities Act (as defined below).
2.4 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
and no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated
(other than, with respect to the Merger, the approval and adoption of this
Agreement by the holders of a majority of the outstanding shares of Company
Common Stock in accordance with Delaware Law and the Company's Certificate of
Incorporation and By-laws). This Agreement has been duly and validly executed
and delivered by the Company and, assuming the due authorization, execution and
delivery thereof by Parent and Merger Sub, constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by general equitable principles.
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2.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) Except as
described in Section 2.5(a) of the Company Disclosure Schedule, the execution
and delivery of this Agreement by the Company do not, and the performance of
this Agreement by the Company shall not, (i) conflict with or violate the
Certificate of Incorporation or By-laws or equivalent organizational documents
of the Company or any of its subsidiaries, (ii) conflict with or violate any
order, judgment or decree or, to the best knowledge of the Company, any law,
rule or regulation, in each case applicable to the Company or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected, or (iii) result in any breach or violation of or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or impair the Company's rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of the Company or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or its or any of their respective properties
is bound or affected, except, with respect to clauses (ii) and (iii), for any
such conflicts, breaches, violations, defaults or other occurrences that would
not, individually and in the aggregate, have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company shall not, require the
Company to obtain any consent, approval, authorization, license, waiver,
qualification, order or permit of, or require the Company to make any filing
with or notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for compliance with applicable requirements, if any, of the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), state securities laws
("Blue Sky Laws") or the pre-merger notification requirements of the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) the
filing and recordation of appropriate merger or other documents as required by
Delaware Law or (iii) where the failure to obtain such consents, approvals,
authorizations, licenses, waivers, qualifications, orders or permits, or to make
such filings or notifications, would not have a Material Adverse Effect.
2.6 MATERIAL AGREEMENTS; COMPLIANCE; PERMITS. (a) Except for
Exhibits 10(a) through 10(q) of the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, which report is one of the Company SEC Reports (as
defined below), Section 2.6(a) of the Company Disclosure Schedule sets forth a
true and complete list of all contracts, agreements and instruments to which the
Company or any of its subsidiaries is a party or by which any of them or any of
their properties or assets may be bound which provide for individual or
aggregate payments or receipts in any one year in excess of $50,000
(collectively, the "Material Agreements"). Each such Material Agreement is
valid and binding and in full force and effect and, to the best knowledge of the
Company, there has not occurred any default by any party thereto which remains
unremedied as of the date hereof and which would have a Material Adverse Effect.
(b) Neither the Company nor any of its subsidiaries is in conflict
with, or in default or violation of, (i) any law, rule, regulation, order,
judgment or decree applicable to the Company or any of its subsidiaries or by
which its or any of their respective properties is bound or affected, or (ii)
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or any
of its subsidiaries is a party
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or by which the Company or any of its subsidiaries or its or any of their
respective properties is bound or affected, except for any such conflicts,
defaults or violations which would not, individually and in the aggregate, have
a Material Adverse Effect.
(c) The Company and its subsidiaries are in compliance with the
terms of the Company Approvals, except where the failure to so comply would not,
individually and in the aggregate, have a Material Adverse Effect.
2.7 SEC FILINGS; FINANCIAL STATEMENTS. (a) The Company has filed
all forms, reports and documents required to be filed with the Securities and
Exchange Commission ("SEC") since December 31, 1992, and has made available to
Parent (i) its Annual Reports on Form 10-K for the four fiscal years ended
December 30, 1995, (ii) all proxy statements relating to the Company's meetings
of stockholders (whether annual or special) held since December 31, 1992, (iii)
all other reports, information and registration statements filed by the Company
with the SEC since December 31, 1992 and (iv) all amendments and supplements to
all such reports, information and registration statements filed by the Company
with the SEC (collectively, the "Company SEC Reports"). The Company SEC Reports
(1) were prepared in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations promulgated
thereunder and (2) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Section 2.7(a) of the Company Disclosure Schedule sets
forth a true and complete list of each Company SEC Report. True and complete
copies of each Company SEC Report, including all exhibits thereto, have been
furnished to Parent.
(b) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in the Company SEC Reports was
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved (except as may be
expressly described in the notes thereto) and each fairly presents the
consolidated financial position of the Company and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements included in the Company's Form 10-Q reports were or are subject to
normal and recurring year-end adjustments. The consolidated statements of
operations of the Company for the two-month periods ended February 28, 1995 and
February 29, 1996 and the consolidated balance sheet of the Company as at
February 29, 1996 set forth on Section 2.7(b) of the Company Disclosure Schedule
were prepared in accordance with the accounting principles used in the
preparation of the consolidated financial statements contained in the Company's
Quarterly Reports on Form 10-Q included in the SEC Reports applied on a
consistent basis and fairly present the consolidated financial position of the
Company and its subsidiaries as at the date thereof and the consolidated results
of its operations for the periods indicated, subject to normal and recurring
year-end adjustments none of which is material to the Company.
2.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as described in
Section 2.8(a) of the Company Disclosure Schedule, since December 30, 1995, the
Company and its subsidiaries have conducted their businesses only in the
ordinary course and in a manner consistent with past practice and, since such
date, there has not been any change, event or circumstance affecting the Company
or any of its subsidiaries having a Material Adverse Effect. Except as
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described in Section 2.8(b) of the Company Disclosure Schedule, since December
30, 1995, there has not been (i) any damage, destruction or loss (whether or not
covered by insurance) with respect to any assets of the Company or any of its
subsidiaries having a Material Adverse Effect, (ii) any change by the Company in
its accounting methods, principles or practices, (iii) any revaluation by the
Company of any of its assets, including, writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary course of
business, (iv) except as disclosed in Section 2.8(b) of the Company Disclosure
Schedule, any other action or event that would have required the consent of
Parent pursuant to Section 4.1 had such action or event occurred after the date
of this Agreement, or (v) any condition, event or occurrence which could
reasonably be expected to prevent, hinder or materially delay the ability of the
Company to consummate the transactions contemplated by this Agreement.
2.9 NO UNDISCLOSED LIABILITIES. Neither the Company nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise)
which are, in the aggregate, material to the business, operations or financial
condition of the Company and its subsidiaries taken as a whole, except
liabilities (a) adequately provided for in the Company's balance sheet for the
year ended December 30, 1995 included in the Company SEC Reports (the "1995
Balance Sheet"), (b) incurred in the ordinary course of business consistent with
past practice and not required under GAAP to be reflected on a consolidated
balance sheet of the Company, or (c) incurred since the date of the 1995 Balance
Sheet in the ordinary course of business consistent with past practice, except
with respect to clauses (b) and (c), for any liability that has not had a
Material Adverse Effect.
2.10 ABSENCE OF LITIGATION. Except as described in Section 2.10 of
the Company Disclosure Schedule, there are no claims, actions, suits,
proceedings or investigations pending or, to the best knowledge of the Company,
threatened against the Company or any of its subsidiaries, or any properties or
rights of the Company or any of its subsidiaries, before any court, arbitrator
or administrative, governmental or regulatory authority or body, domestic or
foreign, except for such claims, actions, suits, proceedings or investigations
that would not, individually and in the aggregate, have a Material Adverse
Effect. Neither the Company nor any of its subsidiaries is subject to any
outstanding order, writ, injunction or decree which, individually or in the
aggregate, in the future will have a Material Adverse Effect or would prevent
the Company from consummating the transactions contemplated by this Agreement.
2.11 EMPLOYEE BENEFIT PLANS. (a) Section 2.11 of the Company
Disclosure Schedule describes all employee benefit plans (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar fringe or
employee benefit plans, programs or arrangements, and any current or former
employment or executive compensation or severance agreements, written or
otherwise, for the benefit of, or relating to, any employee of the Company, any
trade or business (whether or not incorporated) which is a member or which is
under common control with the Company (an "ERISA Affiliate") within the meaning
of Section 414 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any subsidiary of the Company (together, the "Employee Plans"), and a copy of
each such Employee Plan has been made available to Parent.
(b)(i) None of the Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person; (ii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Employee
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Plan, which could result in any material liability of the Company or any of its
subsidiaries; (iii) all Employee Plans are in compliance in all material
respects with the requirements prescribed by any and all statutes (including
ERISA and the Code), orders, or governmental rules and regulations currently in
effect with respect thereto (including all applicable requirements for
notification to participants or the Department of Labor, Internal Revenue
Service or Secretary of the Treasury), and the Company and each of its
subsidiaries have performed all material obligations required to be performed by
them under, are not in any material respect in default under or violation of,
and have no knowledge of any default or violation by any other party to, any of
the Employee Plans; (iv) each Employee Plan intended to qualify under Section
401(a) of the Code and each trust intended to qualify under Section 501(a) of
the Code does so qualify and a favorable determination letter with respect to
each such Employee Plan and trust has been received from the Internal Revenue
Service (the "IRS"), and nothing has occurred which may reasonably be expected
to cause the loss of such qualification or exemption; (v) all contributions
required to be made to any Employee Plan pursuant to Section 412 of the Code,
the terms of the Employee Plan or any collective bargaining agreement, have been
made on or before their due dates and a reasonable amount has been accrued for
contributions to each Employee Plan for the current plan years; (vi) with
respect to each Employee Plan, no "reportable event" within the meaning of
Section 4043 of ERISA (excluding any such event for which the thirty (30) day
notice requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA has
occurred; and (vii) no Employee Plan is covered by, and neither the Company nor
any subsidiary has incurred or expects to incur any liability under, Title IV of
ERISA or Section 412 of the Code.
(c) Section 2.11(c) of the Company Disclosure Schedule sets forth a
true and complete list of each current or former employee, officer, director or
investor of the Company or any of its subsidiaries who holds, as of the date of
this Agreement, any option, warrant or other right to purchase Company Common
Stock or Company Preferred Stock, together with the number of shares of Company
Common Stock or Company Preferred Stock subject to such option, warrant or
right, the date of grant or issuance of such option, warrant or right, the
extent to which such option, warrant or right is vested and/or exercisable, the
exercise price of such option, warrant or right, whether such option is intended
to qualify as an incentive stock option within the meaning of Section 422(b) of
the Code, and the expiration date of each such option, warrant and right.
Section 2.11(c) of the Company Disclosure Schedule also sets forth the total
number of such options, warrants and rights. True and complete copies of each
agreement (including all amendments and modifications thereto) between the
Company and each holder of such options, warrants and rights relating to the
same have been furnished to Parent and are listed on Section 2.11(c) of the
Company Disclosure Schedule. The Company's Employee Stock Purchase Plan has
expired in accordance with its terms and there are no outstanding rights to
acquire shares of Company Common Stock thereunder.
2.12 LABOR MATTERS. Except as set forth in Section 2.12 of the
Company Disclosure Schedule, (i) there are no controversies pending or, to the
knowledge of the Company, threatened, between the Company or any of its
subsidiaries and any of their respective employees, which controversies have or
could reasonably be expected to have a Material Adverse Effect; (ii) neither the
Company nor any of its subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company or its subsidiaries nor does the Company or any of its subsidiaries know
of any activities or proceedings of any labor union to organize any such
employees; and (iii) neither the Company nor any of its subsidiaries has any
knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with
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respect to any employees of the Company or any of its subsidiaries which has had
a Material Adverse Effect.
2.13 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information supplied by the Company for inclusion in the Registration Statement
(as defined in Section 3.12) will not at the time the Registration Statement is
declared effective contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. The information supplied by the
Company for inclusion in the joint proxy statement/prospectus to be sent to the
stockholders of the Company in connection with the meeting of the Company's
stockholders to consider the Merger (the "Company Stockholders' Meeting") (such
proxy statement/prospectus, as amended or supplemented, is referred to herein as
the "Proxy Statement") will not, on the date the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to Company
stockholders, at the time of the Company Stockholders' Meeting and at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state any material fact necessary in
order to make the statements made therein not false or misleading in light of
the circumstances under which they were made, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Company Stockholders' Meeting which has
become false or misleading. If at any time prior to the Effective Time any
event relating to the Company or any of its respective affiliates, officers or
directors should be discovered by the Company which should be set forth in an
amendment to the Registration Statement or an amendment or supplement to the
Proxy Statement, the Company shall promptly inform Parent and Merger Sub.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by Parent or Merger Sub which is
contained in any of the foregoing documents. The Proxy Statement shall comply
in all material respects as to form and substance with the requirement of the
Exchange Act and the rules and regulations promulgated thereunder.
2.14 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth in
Section 2.14 of the Company Disclosure Schedule, there is no Material Agreement,
judgment, injunction, order or decree binding upon the Company or any of its
subsidiaries or any of their properties which has had or could reasonably be
expected to have the effect of prohibiting or materially impairing any business
practice of 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, other than such effects, individually and in the
aggregate, which have not had and which will not have a Material Adverse Effect.
2.15 TITLE TO PROPERTY. Except as described in Section 2.15 of the
Company Disclosure Schedule, the Company owns no real property. Section 2.15 of
the Company Disclosure Statement sets forth a true and complete list of all real
property leased by the Company or any of its subsidiaries, and the aggregate
monthly rental or other fee payable under such lease. Except as described in
Section 2.15 of the Company Disclosure Schedule, 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 (as defined below) 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,
individually or in the aggregate, 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
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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 material default and in
respect of which the Company or such subsidiary has not taken adequate steps to
prevent such a default from occurring), 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.
2.16 TAXES. (a) The Company and its subsidiaries have filed all
United States federal income tax returns and all other Tax Returns (as defined
below) required to be filed by them with any governmental or taxing authority or
agency, foreign or domestic, and the Company and its subsidiaries have paid and
discharged all Taxes (as defined below) due in connection with or with respect
to the filing of all Tax Returns and have paid all other Taxes as are due,
except such as are being contested in good faith by appropriate proceedings (to
the extent any such proceedings are required) and with respect to which the
Company is maintaining reserves to the extent currently required by GAAP
adequate for their payment, except to the extent the failure to do so would not
have a Material Adverse Effect. For purposes of this Agreement, "Tax" or
"Taxes" shall mean taxes and governmental impositions of any kind in the nature
of (or similar to) taxes, payable to any federal, state, local or foreign taxing
authority, including (i) income, franchise, profits, gross receipts, ad valorem,
value added, sales, use, service, real or personal property, capital stock,
license, payroll, withholding, employment, social security, workers'
compensation, unemployment compensation, utility, severance, production, excise,
stamp, occupation, premiums, windfall profits, transfer and gains taxes, and
(ii) interest, penalties and additions to tax imposed with respect thereto; and
"Tax Returns" shall mean returns, reports and information statements with
respect to Taxes required to be filed with the IRS or any other governmental or
taxing authority or agency, domestic or foreign, including consolidated,
combined and unitary tax returns. As of the date of this Agreement, neither the
IRS nor any other governmental or taxing authority or agency is now asserting
or, to the best of the Company's knowledge, threatening to assert against the
Company or any of its subsidiaries any deficiency or claim for additional Taxes
other than additional Taxes with respect to which the Company is maintaining
reserves adequate for their payment. Neither the Company nor any of its
subsidiaries has granted any waiver of any federal, state, local or foreign
statute of limitations with respect to, or any extension of a period for the
assessment of, any Tax. The accruals and reserves for taxes reflected in the
1995 Balance Sheet are adequate to cover all Taxes accruable through the date
thereof (including interest and penalties, if any, thereon and Taxes being
contested) in accordance with GAAP. Neither the Company nor any of its
subsidiaries has made an election under Section 341(f) of the Code. The Company
has not been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code during the applicable period specified
in Section 897(c)(1)(A)(ii) of the Code. The Company is not a party to any tax
allocation or sharing agreement. Other than with its subsidiaries, the Company
is not and has never been (nor does the Company have any liability for unpaid
Taxes because it once was) a member of an affiliated group.
(b) Section 2.16(b) of the Company Disclosure Schedule sets forth a
true and complete description of all contracts, agreements, arrangements or
understandings pursuant to which any person may receive any amount or
entitlement from the Company or the Surviving Corporation or any of their
respective subsidiaries (including cash or property or the vesting of property)
that may be characterized as an "excess parachute payment" (as such term is
defined in Section 280G(B)(1) of the Code) as a result of any of the
transactions contemplated by this Agreement. Except as described in Section
2.16(b) of the Company Disclosure Schedule, no person is entitled to receive
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any additional payment from the Company, the Surviving Corporation, their
respective subsidiaries or any other person (a "Parachute Gross-Up Payment") in
the event that the twenty per cent (20%) parachute excise tax of Section 4999(a)
of the Code is imposed on such person. The Board of Directors of the Company
has not during the twelve (12) months prior to the date of this Agreement
granted to any officer, director or employee of the Company or any of its
subsidiaries any right to receive any Parachute Gross-Up Payment.
2.17 ENVIRONMENTAL MATTERS. Except as described in Section 2.17 of
the Company Disclosure Schedule, and except in all cases as, in the aggregate,
have not had and will not have a Material Adverse Effect, the Company and each
of its subsidiaries, to the best of their respective knowledge, (a) have
obtained all applicable permits, licenses and other authorization which are
required under federal, state or local laws relating to pollution or protection
of the environment or public health or safety, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into ambient air,
surface water, ground water or land or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
by the Company or its subsidiaries (or their respective agents); (b) are in
compliance with all terms and conditions of such required permits, licenses and
authorizations, and also are in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in such laws or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder; (c) as of the date hereof, there has not
been any event, condition, circumstance, activity, practice, incident, action or
plan which is reasonably likely to interfere with or prevent continued
compliance with the terms of such permits, licenses and authorizations or which
would give rise to any common law or statutory liability, or otherwise form the
basis of any claim, action, suit or proceeding, based on or resulting from the
Company's or any of its subsidiary's (or any of their respective agent's)
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, or release into the
environment, of any pollutant, contaminant or hazardous or toxic material or
waste; and (d) have taken all actions necessary under applicable requirements of
federal, state or local laws, rules or regulations to register any products or
materials required to be registered by the Company or its subsidiaries (or any
of their respective agents) thereunder.
2.18 BROKERS. No broker, finder or investment banker (other than
Donaldson, Lufkin & Jenrette Securities Corporation and Houlihan, Lokey, Howard
& Zukin, Inc.) is entitled to any brokerage, finder's or other fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. The Company has heretofore
furnished to Parent a complete and correct copy of all agreements between the
Company and Donaldson, Lufkin & Jenrette Securities Corporation and Houlihan,
Lokey, Howard & Zukin, Inc. pursuant to which such firm would be entitled to any
payment relating to the transactions contemplated hereunder.
2.19 INTELLECTUAL PROPERTY. Section 2.19 of the Company Disclosure
Schedule contains a true and complete list of all patents, trademarks, trade
names, copyright registrations and applications therefor now or heretofore used
or presently proposed to be used in the conduct of the business of the Company
and its subsidiaries. Except as set forth in Section 2.19 of the Company
Disclosure Schedule, (a) the Company owns or possesses adequate licenses or
other valid rights to use (without the making of any payment to others or the
obligation to grant rights to others in
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exchange) all patents, patent rights, trademarks, trademark rights, trade names,
trade name rights, copyright registrations, know-how and other proprietary
information (collectively, "Rights") necessary to the conduct of the business of
the Company and its subsidiaries as presently being conducted, except where the
failure to have such Rights would not, individually or in the aggregate, have a
Material Adverse Effect; (b) the Company has not licensed any Rights to any
third party; (c) the validity of such Rights and the title thereto of the
Company has not been questioned in any litigation to which the Company is a
party, nor, to the Company's best knowledge, is any such litigation threatened,
other than any litigation which will not have a Material Adverse Effect; (d) to
the Company's knowledge, the conduct of the business of the Company and its
subsidiaries as now conducted does not and will not conflict with Rights of
others in any way which has or might have a Material Adverse Effect; and (e) no
proceedings are pending against the Company nor, to the Company's knowledge, are
any proceedings threatened against the Company alleging any violation of Rights
of any third person, other than any proceeding which will not have a Material
Adverse Effect. The Company does not know of (x) any use that has heretofore
been or is now being made of any Rights owned by the Company, except by the
Company or by a person duly licensed by it to use the same under an agreement
described in Section 2.19 of the Company Disclosure Schedule or (y) any material
infringement of any Right owned by or licensed by or to the Company. All Rights
heretofore owned or held by any agent, independent contractor, employee or
officer of the Company or any subsidiary thereof and used in the business of the
Company or any Subsidiary thereof in any manner have been duly and effectively
transferred to the Company. The consummation of the transactions contemplated
by this Agreement will not alter or impair the rights and interests of the
Company in any of the items listed in Schedule 2.19 of the Company Disclosure
Schedule, and the Surviving Corporation will have the same rights and interests
in such items as the Company will have immediately prior to the Effective Time.
2.20 INSURANCE. Section 2.20 of the Company Disclosure Schedule
sets forth a true and complete list of all material insurance policies and
fidelity bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company and its subsidiaries. There is
no claim by the Company or any of its subsidiaries pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds, other than any claim which will
not have a Material Adverse Effect. All premiums payable under all such policies
and bonds have been paid and the Company and its subsidiaries are otherwise in
full compliance with the terms of such policies and bonds (or other policies and
bonds providing substantially similar insurance coverage). Such policies of
insurance and bonds are of the type and in amounts customarily carried by
persons conducting businesses similar to those of the Company and its
subsidiaries. As of the date of this Agreement, the Company does not know of any
threatened termination of or material premium increase with respect to any of
such policies or bonds.
2.21 NO RESTRICTIONS ON THE MERGER. The Board of Directors of the
Company has, prior to the date hereof and prior to the date of the Stockholders
Agreement, approved the execution and delivery of by the Company of this
Agreement and the entry by certain stockholders of the Company into the
Stockholders Agreement and the consummation of the Merger and the other
transactions contemplated by this Agreement and the Stockholders Agreement. Such
approval is sufficient to render inapplicable to this Agreement, the
Stockholders Agreement and the transactions contemplated hereby and thereby,
including the Merger, (x) the provisions of Section 203 of the Delaware Law and
the New Jersey Shareholder Protection Act (New Jersey Business Corporation Act
(S)(S) 14A:10A-1 et seq.) (the "New Jersey Takeover Statute") and (y) the
restrictions contained
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in Article ELEVENTH of the Company's Restated Certificate of Incorporation. No
state takeover statute or similar statute or regulation, including Section 203
of the Delaware Law and the New Jersey Takeover Statute, and no provision of the
Certificate of Incorporation, By-laws or other governing instruments of the
Company or any of its subsidiaries (a) imposes restrictions which might
adversely affect (or delay) the consummation of the transactions contemplated by
this Agreement or the Stockholders Agreement or, (b) as a result of the
consummation of the transactions contemplated by this Agreement or the
Stockholders Agreement or the acquisition of securities of the Company or the
Surviving Corporation by Parent or Merger Sub, (i) restricts or impairs the
ability of Parent to vote or otherwise exercise the rights of a stockholder with
respect to securities of the Company or the Surviving Corporation that may be
acquired or controlled by Parent or (ii) entitles any person to acquire
securities of the Company or the Surviving Corporation on a basis not available
to Parent.
2.22 INVENTORIES. The inventories set forth on the face of the 1995
Balance Sheet are, and all inventories held by the Company and its subsidiaries
immediately prior to the Effective Time will be, properly valued at the lower of
cost (on a first-in, first-out basis) or market in accordance in all material
respects with GAAP consistently applied.
2.23 OPINION OF FINANCIAL ADVISOR. The Company has been advised by
its financial advisor, Houlihan, Lokey, Howard & Zukin, Inc., that in its
opinion, as of the date hereof, the terms of the Merger are fair to the
stockholders of the Company from a financial point of view.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and
warrant to the Company that:
3.1 ORGANIZATION AND QUALIFICATION, SUBSIDIARIES. Each of Parent
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 the requisite corporate power and authority and is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders ("Parent Approvals") necessary to own, lease
and operate the properties it purports to own, operate or lease and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority and
Parent Approvals would not, individually or in the aggregate, have a Material
Adverse Effect (as defined below). Each of Parent and each of its subsidiaries
is duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that would not, either individually
or in the aggregate, have a Material Adverse Effect. When used in connection
with Parent or any of its subsidiaries, the term "Material Adverse Effect" means
any fact, event, change, circumstance or effect that is materially adverse to
the business, financial condition or results of operations of Parent and its
subsidiaries taken as a whole. A true and complete list of all of Parent's
subsidiaries, together with the jurisdiction of incorporation of each subsidiary
and the percentage of each subsidiary's outstanding capital stock owned by
Parent or another subsidiary, is set forth in Section 3.1 of the Disclosure
Schedule previously delivered on the date hereof by Parent to the Company (the
"Parent Disclosure Schedule"). Except for such
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subsidiaries, Parent does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity.
3.2 CERTIFICATE OF INCORPORATION AND BY-LAWS. Parent has
heretofore furnished to the Company a complete and correct copy of its
Certificate of Incorporation and the By-laws, as amended to date of this
Agreement. Such Certificate of Incorporation, By-laws and equivalent
organizational documents of each of its subsidiaries are in full force and
effect. Neither Parent nor any of its subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or By-laws or equivalent
organizational documents.
3.3 CAPITALIZATION. (a) As of March 29, 1996, the authorized
capital stock of Parent consisted of (i) 20,000,000 shares of Parent Common
Stock of which: 7,479,240 shares were issued and outstanding, no shares were
held in treasury, 1,315,116 shares were reserved for issuance pursuant to
outstanding options or rights under Parent stock option and stock purchase
plans; and (ii) 1,000,000 shares of Preferred Stock, par value $0.001 per share,
of which, no shares were issued and outstanding. No material change in such
capitalization has occurred between December 31, 1995 and the date hereof. The
authorized capital stock of Merger Sub consists of 1,000 shares of common stock,
par value $0.001 per share, 1,000 shares of which, as of the date hereof, are
issued and outstanding. All of the outstanding shares of Parent's and Merger
Sub's respective capital stock have been duly authorized and validly issued and
are fully paid and nonassessable. Except as set forth in this Section 3.3 of the
Parent Disclosure Schedule, as of March 29, 1996 there were no options, warrants
or other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of Parent or any of its
subsidiaries or obligating Parent or any of its subsidiaries to issue or sell
any shares of capital stock of, or other equity interests in, Parent or any of
its subsidiaries.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid and nonassessable
and, subject to notice of issuance, will be included for trading in
NASDAQ/National Market System.
3.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Merger Sub and the consummation by Parent and
Merger Sub of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and Merger
Sub and no other corporate proceedings on the part of Parent or Merger Sub are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
Parent and Merger Sub and, assuming the due authorization, execution and
delivery by the Company, constitutes a legal, valid and binding obligation of
Parent and Merger Sub, enforceable against Parent and Merger Sub in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by general equitable principles.
3.5 NO CONFLICT, REQUIRED FILINGS AND CONSENTS. (a) Except as
described in Section 3.5(a) of the Parent Disclosure Schedule, the execution and
delivery of this Agreement by Parent and Merger Sub do not, and the performance
of this Agreement by Parent and Merger Sub
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shall not, (i) conflict with or violate the Certificate of Incorporation, By-
laws or equivalent organizational documents of Parent or any of its
subsidiaries, (ii) conflict with or violate any order, judgment or decree or, to
the best knowledge of Parent, any law, rule or regulation, in each case
applicable to Parent or any of it subsidiaries or by which its or their
respective properties are bound or affected, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or impair Parent's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Parent
or any of it subsidiaries pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its subsidiaries is a party
or by which Parent or any of its subsidiaries or its or any of their respective
properties are bound or affected, except, with respect to clauses (ii) and
(iii), for any such conflicts, violations, breaches, defaults or other
occurrences that would not, individually or in the aggregate, have a Material
Adverse Effect.
(b) The execution and delivery of this Agreement by Parent and
Merger Sub do not, and the performance of this Agreement by Parent and Merger
Sub shall not, require Parent and Merger Sub to obtain any consent, approval,
authorization or permit of, or require Parent and Merger Sub to make any filing
with or notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for applicable requirements, if any, of the Securities Act,
the Exchange Act, Blue Sky Laws, the pre-merger notification requirements of the
HSR Act and the rules and regulations thereunder, and the filing and recordation
of appropriate merger or other documents as required by Delaware Law and (ii)
where the failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, would not prevent or delay
consummation of the Merger, or otherwise prevent Parent or Merger Sub from
performing their respective obligations under this Agreement, and would not have
a Material Adverse Effect.
3.6 COMPLIANCE, PERMITS. (a) Neither Parent nor any of its
subsidiaries is in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Parent or any of its subsidiaries is a party or by which Parent or any of its
subsidiaries or its or any of their respective properties is bound or affected,
except for any such conflicts, defaults or violations which would not,
individually and in the aggregate, have a Material Adverse Effect.
(b) Parent and its subsidiaries are in compliance with the terms of
the Parent Approvals, except where the failure to so comply would not,
individually and in the aggregate, have a Material Adverse Effect.
3.7 SEC FILINGS; FINANCIAL STATEMENTS. (a) Parent has filed all
forms, reports and documents required to be filed with the SEC since December
31, 1992, and has made available to the Company (i) its Annual Reports on Form
10-K for the three fiscal years ended December 30, 1995, (ii) all proxy
statements relating to the Company's meetings of stockholders (whether annual or
special) held since December 31, 1992, (iii) all other reports, information or
registration statements filed by the Company with the SEC since December 31,
1992 and (iv) all amendments and supplements to all such reports, information
and registration statements filed by the Company with the SEC (collectively, the
"Parent SEC Reports"). The Parent SEC Reports were prepared (1)
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in accordance with the requirements of the Securities Act or the Exchange Act,
as the case may be, and (2) did not at the time they were filed (or if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing) contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. True and complete copies of each Parent SEC Report,
including all exhibits thereto, have been made available to the Company.
(b) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in the Parent SEC Reports has
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved (except as may be expressly described in the notes thereto)
and each fairly presents the consolidated financial position of Parent and its
subsidiaries as at the respective dates thereof and the consolidated results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount.
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 30, 1995,
except as disclosed in the Parent SEC Reports filed since that date to the date
of this Agreement, Parent and its subsidiaries have conducted their businesses
only in the ordinary course and in a manner consistent with past practice and,
since such date, there has not been (i) any change, event or circumstance
affecting Parent or any of its subsidiaries having a Material Adverse Effect,
(ii) any damage, destruction or loss (whether or not covered by insurance) with
respect to any assets of Parent or any of its subsidiaries having a Material
Adverse Effect, (iii) any change by Parent in its accounting methods, principles
or practices, (iv) any revaluation by Parent of any of its assets, including,
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business, (v) except as disclosed in
Section 3.8 of the Parent Disclosure Schedule, any other action or event that
would have required the consent of the Company pursuant to Section 4.3 had such
action or event occurred after the date of this Agreement, or (vi) any
condition, event or occurrence which could reasonably be expected to prevent,
hinder or materially delay the ability of Parent to consummate the transactions
contemplated by this Agreement.
3.9 NO UNDISCLOSED LIABILITIES. Neither Parent nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise)
which are, in the aggregate, material to the business, operations or financial
condition of Parent and its subsidiaries taken as a whole, except liabilities
which have (a) not had a Material Adverse Effect, (b) been adequately provided
for in Parent's balance sheet for the fiscal year ended December 30, 1995
included in the Parent SEC Reports or (c) been incurred since December 30, 1995
in the ordinary course of business consistent with past practice and liabilities
incurred in connection with this Agreement.
3.10 ABSENCE OF LITIGATION. Other than as disclosed in the Parent
SEC Reports, there are no claims, actions, suits, proceedings or investigations
pending or, to the best knowledge of Parent, threatened against Parent or any of
its subsidiaries, or any properties or rights of Parent or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, except for such claims,
actions, suits, proceedings or investigations that would not, individually and
in the aggregate, have a Material Adverse Effect.
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3.11 LABOR MATTERS. Except as set forth in Section 3.11 of the
Parent Disclosure Schedule, (i) there are no controversies pending or, to the
knowledge of Parent or any of its subsidiaries, threatened, between Parent or
any of its subsidiaries and any of their respective employees, which
controversies have or may have a Material Adverse Effect; (ii) neither Parent
nor any of its subsidiaries is a party to any collective bargaining agreement or
other labor union contract applicable to persons employed by Parent or its
subsidiaries nor does Parent or any of its subsidiaries know of any activities
or proceedings of any labor union to organize any such employees; and (iii)
neither Parent nor any of its subsidiaries has any knowledge of any strikes,
slowdowns, work stoppages, lockouts, or threats thereof, by or with respect to
any employees of Parent or any of its subsidiaries which has had a Material
Adverse Effect.
3.12 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. Subject to
the accuracy of the representations of the Company in Section 2.13, the
registration statement (the "Registration Statement") pursuant to which the
shares of Parent Common Stock to be issued in the Merger will be registered with
the SEC will not, at the time the Registration Statement (including any
amendments or supplements thereto) is declared effective by the SEC, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements included therein, in light of the circumstances
under which they were made, not misleading. The information supplied by Parent
for inclusion in the Proxy Statement will not, on the date the Proxy Statement
is first mailed to stockholders of the Company, at the time of the Company
Stockholders' Meeting and at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or shall omit to state
any material fact necessary in order to make the statements therein not false or
misleading in light of the circumstances under which they were made, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Stockholders' Meeting which has become false or misleading. If at any time
prior to the Effective Time any event relating to Parent, Merger Sub or any of
their respective affiliates, officers or directors should be discovered by
Parent or Merger Sub which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Parent or Merger
Sub will promptly inform the Company. Notwithstanding the foregoing, Parent and
Merger Sub make no representation or warranty with respect to any information
supplied by the Company which is contained in any of the foregoing documents.
The Registration Statement and Proxy Statement shall comply in all material
respects as to form and substance with the requirements of the Securities Act,
the Exchange Act and the rules and regulations promulgated thereunder.
3.13 TITLE TO PROPERTY. Parent owns no material real property.
Except as set forth in Section 3.13 of the Parent Disclosure Schedule, Parent
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,
individually or in the aggregate, would not have a Material Adverse Effect; and
all leases pursuant to which Parent or any of its subsidiaries lease from others
material amounts of 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 material default or event of default (or event
which with notice or lapse of time, or both, would constitute a material default
and in respect of which Parent or such subsidiary has not taken adequate steps
to prevent such
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a default from occurring) 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.
3.14 ENVIRONMENTAL MATTERS. Parent and each of its subsidiaries to
the best of their respective knowledge is in compliance in all material respects
with all federal, state or local laws relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants, or hazardous or
toxic materials or waste, except to the extent noncompliance with such laws has
not had and could not reasonably be expected to have a Material Adverse Effect.
3.15 BROKERS. No broker, finder or investment banker (other than
Montgomery Securities) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent or Merger Sub.
3.16 OPINION OF FINANCIAL ADVISOR. Parent has been advised by its
financial advisor, Montgomery Securities, that in its opinion, as of the date
hereof, the terms of the Merger are fair from a financial point of view to the
stockholders of Parent.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
4.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. The
Company covenants and agrees that, between the date of this Agreement and the
Effective Time, except as expressly required or permitted by this Agreement or
unless Parent shall otherwise agree in writing, the Company shall and shall
cause the businesses of its subsidiaries to be conducted only in, and the
Company and its subsidiaries shall not take any action except in, the ordinary
course of business and in a manner consistent with past practice; and the
Company shall use its commercially reasonable efforts to preserve substantially
intact the business organization of the Company and its subsidiaries, to keep
available the services of the present officers, employees and consultants of the
Company and its subsidiaries and to preserve the present relationships of the
Company and its subsidiaries with customers, suppliers and other persons with
which the Company or any of its subsidiaries has significant business relations.
By way of amplification and not limitation, except as contemplated by this
Agreement, neither the Company nor any of its subsidiaries shall, between the
date of this Agreement and the Effective Time, directly or indirectly do, or
propose to do, any of the following without the prior written consent of Parent:
(a) amend or otherwise change the Certificate of Incorporation or
By-laws or equivalent organizational document of the Company or any of its
subsidiaries;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, (i) any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest of the Company, any of its subsidiaries or affiliates (except
for the issuance of shares of Company Common Stock issuable pursuant to employee
stock options granted prior to the date hereof under the 1983 Plan, which
options are outstanding on the date hereof), or (ii) any assets of the Company
or any of its subsidiaries (except for sales of assets in the ordinary course of
business and in a manner consistent with past practice);
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(c)(i) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned subsidiary of the Company
may declare and pay a dividend to its parent, (ii) split, combine or reclassify
any of its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock or (iii) amend the terms of, repurchase, redeem or otherwise
acquire, or permit any subsidiary to repurchase, redeem or otherwise acquire,
any of its securities or any securities of its subsidiaries, or propose to do
any of the foregoing;
(d) sell, transfer, license, sublicense or otherwise dispose of any
Rights, or amend or modify in any material way any existing agreements with
respect to any Rights;
(e)(i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof; (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee (other than guarantees of bank debt of the
Company's subsidiaries entered into in the ordinary course of business) or
endorse or otherwise as an accommodation become responsible for, the obligations
of any person, or make any loans or advances, except in the ordinary course of
business consistent with past practice (taking into account the stores opened by
the Company in 1995) and as otherwise permitted under any loan or credit
agreement to which the Company is a party; (iii) enter into any contract or
agreement other than in the ordinary course of business; (iv) authorize any
capital expenditures which are, in the aggregate, in excess of $100,000 for the
Company and its subsidiaries taken as a whole; (v) sell, transfer or dispose of
any assets other than in the ordinary course of business consistent with past
practice; or (vi) enter into or amend in any material way any contract,
agreement, commitment or arrangement with respect to any of the matters set
forth in this Section 4.1(e);
(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of employees of
the Company or its subsidiaries who are not officers of the Company in
accordance with past practices, or grant any severance or termination pay or
stock options to, or enter into any employment or severance agreement with any
director, officer or other employee of the Company or any of its subsidiaries,
or establish, adopt, enter into or amend 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
current or former directors, officers or employees;
(g) change, other than in the ordinary course of business and in a
manner consistent with past practice and GAAP (none of which changes shall be
unreasonable or unusual), any accounting policies or procedures (including
procedures with respect to reserves, revenue recognition, payments of accounts
payable and collection of accounts receivable);
(h) make any Tax election or settle or compromise any federal,
state, local or foreign income tax liability or agree to an extension of a
statute of limitations; or
(i) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities reflected
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or reserved against in the financial statements of the Company or incurred in
the ordinary course of business and consistent with past practice.
4.2 SOLICITATION OF OTHER PROPOSALS. (a) Except to the extent
permitted by Section 4.2(b) or Section 4.2(c), from the date of this Agreement
through and until the earlier of the Effective Time or the termination of this
Agreement in accordance with Section 7.1, the Company shall, and shall cause its
affiliates, subsidiaries and its and their respective officers, directors,
employees, representatives or agents to, cease any discussions or negotiations
with any person (which includes any person within the meaning of Section
13(d)(3) of the Exchange Act) with respect to any acquisition of all or any
material portion of the assets of, or any equity interest in (except for the
issuance of shares of Company Common Stock pursuant to employee stock options
granted under the 1983 Plan and outstanding on the date of this Agreement), the
Company or any of its subsidiaries or any Acquisition Proposal (as defined
below) or possible Third Party Acquisition (as defined in Section 7.3). Except
to the extent permitted by Section 4.2(b) or Section 4.2(c), from the date of
this Agreement until the earlier of the Effective Time or the termination of
this Agreement in accordance with its terms, neither the Company nor any of its
affiliates or subsidiaries or any of its or their respective officers,
directors, employees, representatives or agents shall, directly or indirectly,
(i) solicit or initiate, or take any action to facilitate any inquiries or the
making of any proposal that constitutes, an Acquisition Proposal or (ii)
participate in or initiate discussions or negotiations with, or provide any
information to, any person (including any "person" as defined in Section
13(d)(3) of the Exchange Act) concerning an Acquisition Proposal or which might
result in an Acquisition Proposal. For purposes of this Agreement, the term
"Acquisition Proposal" shall mean any inquiry, proposal or offer from any person
(other than Parent, Merger Sub or any of their affiliates) relating to any
direct or indirect business combination, tender or exchange offer,
consolidation, merger, sale of substantial assets, sale of (or right to sell)
shares of capital stock (except for the issuance of shares of Company Common
Stock pursuant to employee stock options granted under the 1983 Plan and
outstanding on the date of this Agreement), recapitalization, liquidation,
dissolution or similar transaction involving the Company or any of its
subsidiaries, or any other transaction the consummation of which would
reasonably be expected to impede, interfere with, prevent or materially delay
the consummation of the transactions contemplated hereby or which would
reasonably be expected to dilute materially the benefits to Parent or its
affiliates of the transactions contemplated hereby.
(b) Notwithstanding the foregoing, the Company may participate in
discussions or negotiations with, or furnish information with respect to the
Company pursuant to a confidentiality agreement substantially similar to that
then in effect between the Company and Parent to, any person if such person has
submitted an unsolicited written Acquisition Proposal to the Board of Directors
of the Company and such Board of Directors receives a written opinion of outside
counsel to the effect that, and based on such advice such Board determines by a
majority vote in its good faith judgment that, taking such action is likely
required to satisfy the fiduciary duties of such Board.
(c) Except as set forth in the following sentence, neither the
Board of Directors of the Company nor any committee thereof shall (i) (1)
withdraw or modify in a manner adverse to Parent or Merger Sub its approval or
recommendation of the Merger, this Agreement or the transactions contemplated
hereby, (2) approve or recommend any Acquisition Proposal other than the Merger,
(3) fail to mail the Proxy Statement to the Company's stockholders when the
Proxy Statement shall be available for mailing or fail to include therein such
approval and recommendation, (4) resolve to do any of the foregoing or (5) upon
a request to reaffirm the Company's approval or
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recommendation of this Agreement or the Merger, fail to do so within two (2)
business days after such request is made; or (ii) resolve to authorize the
Company to, and (regardless of whether such authorization is given) the Company
shall not, enter into an agreement or contract or an agreement in principle,
letter of intent or similar document or understanding with any person (other
than Parent, Merger Sub or any of their affiliates) relating to a tender offer
or exchange offer for any shares of Company Common Stock, an acquisition or
purchase of more than ten percent (10%) of the total assets of the Company on a
consolidated basis or a merger, consolidation or other business combination with
or involving the Company or any subsidiary thereof. The immediately preceding
sentence notwithstanding, in the event that prior to the Effective Time the
Board of Directors of the Company receives a Superior Proposal (as defined
below), the Board of Directors of the Company may take, and the Company may take
upon the express authorization of such Board, any action referred to in such
sentence (x) if such Board of Directors receives a written opinion of outside
counsel to the effect that, and based on such advice such Board determines by a
majority vote of directors in its good faith judgment that, taking such action
is likely required to satisfy the fiduciary duties of such Board; (y) if such
Board furnishes Parent two (2) business days' prior written notice of the taking
of such action (which notice shall include a description of the material terms
and conditions of the Superior Proposal and identify the person making the
same); and (z) simultaneously with the taking of such action the Company pays to
Parent the Termination Fee referred to in Section . For purposes of this
Agreement, the term "Superior Proposal" means any bona fide Acquisition Proposal
to acquire more than fifty percent (50%) of the outstanding shares of Company
Common Stock on a fully diluted basis or all or substantially all of the assets
of the Company which is on terms which the Board of Directors of the Company
determines by a majority vote of its directors in its good faith judgment (based
on the written opinion, with only customary qualifications, of a financial
advisor of nationally recognized reputation that the consideration provided in
such Acquisition Proposal likely exceeds the value of the consideration provided
for in the Merger, after taking into account all relevant factors, including,
any conditions to such Acquisition Proposal, the timing of the closing thereof,
the risk of nonconsummation and any required governmental or other consents,
filings and approvals) to be more favorable to the Company's stockholders than
the Merger.
(d) In addition to the obligations of the Company set forth in this
Section 4.2, the Company shall immediately advise Parent orally and in writing
of any request for information or Acquisition Proposal, or any inquiry with
respect to or which could result in an Acquisition Proposal, the material terms
and conditions of such request, Acquisition Proposal or inquiry, and the
identity of the person making the same. The Company shall keep Parent
periodically apprised of developments (including any increase in the amount of
the consideration) which relate to the foregoing or of any other developments or
circumstances which could reasonably be expected to culminate in the taking of
any of the actions referred to in Section 4.2(c).
4.3 CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. Parent
covenants and agrees that, between the date of this Agreement and the Effective
Time, unless the Company shall otherwise agree in writing, Parent shall conduct
its business, and cause the businesses of its subsidiaries to be conducted, in
the ordinary course of business, other than actions taken by Parent or its
subsidiaries in contemplation of the Merger, and shall not directly or
indirectly do, or propose to do, any of the following without the prior written
consent of the Company:
(a) amend or otherwise change Parent's Certificate of Incorporation
(other than to increase the number of shares of Parent Common Stock
authorized thereunder) or By-laws;
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(b)(i) declare, set aside or pay any cash dividend or (ii) amend the
terms of, repurchase, redeem or otherwise acquire, any of its securities,
or propose to do any of the foregoing; or
(c) acquire (by merger, consolidation, or acquisition of stock or
assets) for a consideration with a value in excess of $100,000,000 any
corporation, partnership or other business organization or division
thereof.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. (a) As
promptly as practicable after the execution of this Agreement, the Company and
Parent shall prepare and file with the SEC preliminary proxy materials which
shall constitute the Proxy Statement of the Company and the Prospectus of Parent
with respect to the Parent Common Stock to be issued in connection with the
Merger. As promptly as practicable after comments are received from the SEC on
the preliminary proxy material and after the furnishing by the Company and
Parent of all information required to be contained therein, the Company and
Parent shall file with the SEC a registration statement on SEC Form S-4 (or on
such other form as shall be appropriate) relating to the approval of the Merger
and the transactions contemplated hereby by the stockholders of the Company and
shall use all reasonable efforts to cause such registration statement to become
effective as soon thereafter as practicable. The Proxy Statement shall include
the recommendation of the Board of Directors of the Company in favor of the
Merger; provided that such recommendation may not be included or may be
withdrawn if previously included if the Board of Directors of the Company has
accepted a Superior Proposal in accordance with the terms of Section 4.2(c) and
the Company has been advised by its independent legal counsel that the Company's
Board of Directors would likely be in breach of its fiduciary duties if it
included such recommendation or did not withdraw such recommendation if
previously included.
(b) Parent and the Company shall make all necessary filings with
respect to the Merger under the Securities Act and the Exchange Act and the
rules and regulations thereunder and under applicable Blue Sky or similar
securities laws, rules and regulations, and shall use all reasonable efforts to
obtain required approvals and clearances with respect thereto.
5.2 MEETING OF COMPANY STOCKHOLDERS. The Company shall promptly
after the date hereof take all action necessary in accordance with Delaware Law
and its Restated Certificate of Incorporation and By-laws to convene the Company
Stockholders' Meeting within forty-five (45) calendar days after the
Registration Statement becomes effective. Once the Company Stockholders Meeting
has been called and noticed, the Company shall not postpone or adjourn (other
than for the absence of a quorum) the Company Stockholders' Meeting without the
consent of Parent. Subject to Section 5.1(a), the Company shall use its best
efforts to solicit from stockholders of the Company proxies in favor of the
Merger and shall take all other action necessary or advisable to secure the vote
or consent of stockholders required by Delaware Law to effect the Merger.
Anything contained herein to the contrary notwithstanding, the Company shall be
under no obligation to take any action which would result in the Effective Time
occurring on or prior to June 1, 1996.
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5.3 ACCESS TO INFORMATION; CONFIDENTIALITY. (a) Upon reasonable
notice and subject to restrictions contained in confidentiality agreements to
which such party is subject (from which such party shall use reasonable efforts
to be released) the Company and Parent shall each (and shall cause each of their
respective subsidiaries to) afford to the officers, employees, accountants,
counsel and other representatives of the other, reasonable access, during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, each of the Company and Parent
shall (and shall cause each of their respective subsidiaries to) furnish
promptly to the other all information concerning its business, properties and
personnel as such other party may reasonably request, and each party shall make
available to the other party the appropriate individuals for discussion of such
party's business, properties and personnel as the other party may reasonably
request. No investigation pursuant to this Section 5.3 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
(b) Each party shall keep such information confidential in
accordance with the terms of the confidentiality agreements, dated December 13,
1995 and March 1, 1996 (collectively, the "Confidentiality Agreement"), between
Parent and the Company.
5.4 BEST EFFORTS. (a) Upon the terms and subject to the conditions
set forth in this Agreement, each party hereto shall use its best efforts to
take, or cause to be taken, all actions, and do, or cause to be done, and to
assist and cooperate with the other party or parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated hereby and by the Stockholders Agreement; provided, however, that
the Certificate of Merger shall not be filed as aforesaid and the Effective Time
shall not occur on or before June 1, 1996. The Company and Parent shall use
their best efforts to obtain all licenses, permits, consents, waivers,
approvals, authorizations, qualifications or orders (including all United States
and foreign governmental and regulatory rulings and approvals), and the Company
and Parent shall make all filings (including, without limitation, all filings
with United States and foreign governmental or regulatory agencies) required in
connection with the authorization, execution and delivery of this Agreement by
the Company and Parent and the consummation by them of the transactions
contemplated hereby. Neither party hereto will take any action which results in
any of the representations or warranties made by such party pursuant to Articles
II or III, as the case may be, becoming untrue or inaccurate in any material
respect.
(b) Parent and the Company shall use their best efforts to satisfy
or cause to be satisfied all of the conditions precedent that are set forth in
Article VI, as applicable to each of them, and to cause the transactions
contemplated by this Agreement to be consummated.
(c) The Company and Parent shall cooperate with one another:
(i) in connection with the preparation of the Registration
Statement and the Proxy Statement;
(ii) in connection with the preparation of any filing
required by the HSR Act;
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(iii) in determining whether any action by or in respect of,
or filing with, any governmental authority, agency or official, or other third
party, is required, or any actions, licenses, permits, consents, waivers,
approvals, authorizations, qualifications or orders are required to be obtained
from parties in connection with the consummation of the transactions
contemplated hereby; and
(iv) in seeking any actions, licenses, permits, consents,
waivers, approvals, authorizations, qualifications or orders, or making any
filings, furnishing information required in connection therewith or with the
Registration Statement or the Proxy Statement and seeking timely to obtain any
such actions, licenses, permits, consents, waivers, approvals, authorizations,
qualifications or orders, or making any filings; and
(v) in order to facilitate the achievement of the benefits
reasonably anticipated from the Merger.
(d) In connection with the legal opinions referred to in Sections
6.2(d) and 6.3(c), Parent and the Company agree to deliver letters of
representation reasonable under the circumstances as to their present intention
and present knowledge.
5.5 STOCK OPTIONS. (a) At the Effective Time, each outstanding
stock option to purchase shares of Company Common Stock (each a "Company
Option") under the 1983 Plan, whether vested or unvested, will be assumed by
Parent. Each Company Option so assumed by Parent under this Agreement shall
continue to have, and be subject to, the same terms and conditions set forth in
the 1983 Plan immediately prior to the Effective Time, except that (i) such
Company Option will be exercisable for that number of whole shares of Parent
Common Stock equal to the product of the number of shares of Company Common
Stock that were purchasable under such Company Option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded down to the nearest
whole number of shares of Parent Common Stock and (ii) the per share exercise
price for the shares of Parent Common Stock issuable upon exercise of such
assumed Company Option will be equal to the quotient determined by dividing the
exercise price per share of Company Common Stock at which such Company Option
was exercisable immediately prior to the Effective Time by the Exchange Ratio,
and rounding the resulting exercise price up to the nearest whole cent.
(b) Parent shall reserve for issuance a sufficient number of shares
of Parent Common Stock for delivery upon exercise of Company Options assumed by
Parent under this Agreement. Parent will file on the Effective Date a
registration statement on Form S-8 under the Securities Act covering the shares
of Parent Common Stock issuable upon the exercise of the Company Options assumed
by Parent pursuant to Section 5.5(a), and will use its reasonable efforts to
cause such registration statement to become effective on or about the Effective
Time or soon as thereafter as practicable and to maintain such registration in
effect until the exercise or expiration of such assumed Company Incentive
Options.
5.6 EMPLOYEE BENEFITS. After the Effective Time and on a schedule
determined by Parent in connection with its integration of its business with
that of the Company, the employees of the Company shall be eligible to
participate in the employee benefit plans of Parent to the same extent as any
similarly situated and geographically located employees of Parent.
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5.7 AGREEMENTS OF AFFILIATES. The Company has delivered to Parent,
prior to the date of this Agreement, a letter (the "Affiliate Letter")
identifying all persons who are "affiliates" of the Company for purposes of Rule
145 under the Securities Act. The Company shall use its best efforts to cause
each person who is identified as an "affiliate" in the Affiliate Letter, or who
shall be an "affiliate" at the time of the Company Stockholders' Meeting, to
deliver to Parent, prior to the Effective Time, a written agreement (an
"Affiliate Agreement") in the form attached hereto as Exhibit B.
5.8 COMPANY WARRANTS. The Company shall use its reasonable efforts
to cause each outstanding warrant to purchase Company Common Stock to be
exercised before the Effective Time.
5.9 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which results in any representation or warranty contained in this Agreement
to be untrue or inaccurate in any material respect and (ii) any failure of the
Company, Parent or Merger Sub, as the case may be, to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice. The Company shall give
prompt notice to Parent of any occurrence that has had or may reasonably be
expected to have a Material Adverse Effect on the Company and its subsidiaries
taken as a whole.
5.10 NATIONAL MARKET SYSTEM. Parent shall use its best efforts to
cause the Parent Common Stock to be issued in the Merger to be approved for
inclusion in the NASDAQ/National Market System, subject to official notice of
issuance, prior to the Effective Time.
5.11 PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
with each other before issuing any press release with respect to the Merger or
this Agreement and shall not issue any such press release prior to such
consultation, except as may be required by law or any listing agreement related
to the trading of the shares of either party on the NASDAQ/National Market
System.
5.12 TAKEOVER LAWS. If any "fair price," "moratorium," "control
share acquisition," "shareholder protection" or other form of antitakeover
statute, regulation or charter provision or contract is or shall become
applicable to the Merger or the transactions contemplated hereby or by the
Stockholders Agreement, the Company and the Board of Directors of the Company
shall grant such approvals and take such actions as are necessary under such
laws and provisions so that the transactions contemplated hereby and thereby may
be consummated as promptly as practicable on the terms contemplated hereby and
thereby and otherwise act to eliminate or minimize the effects of such statute,
regulation, provision or contract on the transactions contemplated hereby or
thereby. The Company shall not take, and shall not permit any of its controlled
affiliates to take, any action which would require or permit, or could
reasonably be expected to require or permit, the Company or any other person or
entity to treat Parent or Merger Sub, acting pursuant to and as permitted by
this Agreement or the Stockholders Agreement, as an "interested stockholder" or
"related person" with whom the Company is prevent for any period of time
pursuant to Section 203 of the Delaware Law, the New Jersey Takeover Statute or
Article ELEVENTH of the Company's Restated Certificate of Incorporation from
engaging in any 'business combination" or take any action
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(including any charter or by-law amendment) that has the effect of rendering any
such statutes or such Article ELEVENTH applicable to Parent or any of its
subsidiaries.
5.13 ACCOUNTANT'S LETTERS. Upon reasonable notice from the other,
the Company or Parent shall cause their respective independent public
accountants to deliver to Parent or the Company, as the case may be, a letter
covering such matters as are requested by Parent or the Company, as the case may
be, and as are customarily addressed in accountant's "comfort" letters in
connection with registration statements similar to Form S-4.
5.14 STOP TRANSFER. The Company acknowledges and agrees to be bound
by and comply with the provisions of Section 6 of the Stockholders Agreement as
if a party thereto with respect to transfers of record of ownership of shares of
the Company Common Stock, and agrees to notify the transfer agent for any shares
of Company Common Stock and provide such documentation and do such other things
as may be necessary to effectuate the provisions of such Stockholders Agreement.
5.15 REPRESENTATIONS OF STOCKHOLDERS. The Company and Parent will
use their best efforts to cause each of its principal stockholders to cooperate
with counsel to the Company and Parent to assist them in providing the tax
opinions called for by Section 6.1(f).
ARTICLE VI
CONDITIONS OF MERGER
6.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) EFFECTIVENESS OF THE REGISTRATION STATEMENT. The Registration
Statement shall have been declared effective; no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
SEC and no proceedings for that purpose; and no similar proceeding in
respect of the Proxy Statement shall have been initiated or, to the
knowledge of Parent or the Company, threatened by the SEC;
(b) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of the
Company;
(c) NASDAQ/NATIONAL MARKET SYSTEM DESIGNATION. The shares of
Parent Common Stock issuable to the Company's stockholders pursuant to this
Agreement shall have been authorized for inclusion for trading on the
NASDAQ/National Market System upon official notice of issuance.
(d) HSR ACT. Any waiting period (and any extension thereof)
applicable to the consummation of the transactions contemplated hereby and
by the Stockholders Agreement, including the Merger, under the HSR Act
shall have expired or been terminated;
(e) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent
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jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by any administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any
of the foregoing be pending, and there shall not be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger
illegal; and
(f) TAX OPINION. Parent and the Company shall have received
written opinions of Orrick, Herrington & Sutcliffe and O'Sullivan Graev &
Karabell, LLP, in form and substance reasonably satisfactory to them to the
effect that the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code, and Parent shall have obtained a
representation from each stockholder who is a signatory to the Stockholders
Agreement that the representations given in Section 1(g) of the
Stockholders Agreement are true and correct in all respects as of the date
two (2) days prior to the Effective Time.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to effect the Merger are also subject
to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the Effective Time, except for changes
contemplated by this Agreement (together with the Company Disclosure Schedule),
and except for those representations and warranties which address matters only
as of a particular date (which shall remain true and correct in all material
respects as of such date), with the same force and effect as if made on and as
of the Effective Time, and Parent and Merger Sub shall have received a
certificate to such effect signed by the President and Chief Financial Officer
of the Company;
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, and Parent and Merger Sub shall have received a certificate to
such effect signed by the President and Chief Financial Officer of the Company;
(c) CONSENTS OBTAINED. Parent shall have received evidence, in
form and substance reasonably satisfactory to it, that those licenses, permits,
consents, waivers, approvals, authorizations, qualifications or orders
(including all United States and foreign governmental and regulatory rulings and
approvals) of governmental authorities and other third parties described in
Section 2.5(a) of the Company Disclosure Schedule have been obtained; provided,
however, that notwithstanding the necessity to obtain the foregoing, it shall
not be a condition to the obligations of Parent and Merger Sub under this
Agreement for the Company to obtain the consent of United Jersey Bank under the
credit and related agreements between the Company and such bank;
(d) NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement,
there shall not have occurred any change, event or circumstance affecting the
Company or any of its subsidiaries which has had a Material Adverse Effect (as
defined in Section 2.1); provided, however, that, solely for purposes of
determining whether the condition set forth in this Section 6.2(d) has been
satisfied, any change, event or circumstance set forth on Section 2.8(a) of the
Company Disclosure Schedule
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which adversely affects the business, financial condition or results of
operations of the Company or any of its subsidiaries after the date of this
Agreement shall not, in and of itself, be deemed to have had a Material Adverse
Effect;
(e) OPINION OF COUNSEL. Parent shall have received from O'Sullivan
Graev & Karabell, LLP, or other counsel for the Company reasonably satisfactory
to Parent, an opinion dated the Effective Time, in form and substance reasonably
satisfactory to Parent, which opinion shall be based on such assumptions and
containing such qualifications and limitations as are appropriate and reasonably
satisfactory to Parent;
(f) OPINION OF INVESTMENT BANKER. Montgomery Securities shall have
delivered an opinion to the Board of Directors of Parent, dated as of the date
of this Agreement and reaffirmed no earlier than five (5) days prior to the
mailing of the Proxy Statement, in form reasonably satisfactory to Parent, to
the effect that the consideration to be received by the stockholders of the
Company in connection with the transactions contemplated by this Agreement is
fair from a financial point of view to the stockholders of Parent; and
(g) AFFILIATE AND STOCKHOLDERS AGREEMENTS. Parent shall have
received from each person who is identified in the Affiliate Letter as an
"affiliate" of the Company, an Affiliate Agreement substantially in the form
attached hereto as Exhibit A and Parent shall have entered into a Stockholders
Agreement in the form attached hereto as Exhibit B with each stockholder listed
on the signature pages thereto, and such Affiliate Agreements and Stockholders
Agreement shall be in full force and effect.
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Effective Time, except for
changes contemplated by this Agreement (together with the Parent Disclosure
Schedule), and except for those representations and warranties which address
matters only as of a particular date (which shall remain true and correct in all
material respects as of such date), with the same force and effect as if made on
and as of the Effective Time, and the Company shall have received a certificate
to such effect signed by the President and Treasurer of Parent;
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and the Company shall have received a certificate to such
effect signed by the President and Treasurer of Parent;
(c) OPINION OF COUNSEL. The Company shall have received from
Orrick, Herrington & Sutcliffe or other counsel for Parent reasonably
satisfactory to the Company, an opinion dated the Effective Time, in form and
substance reasonably satisfactory to the Company, which opinion shall be based
on such assumptions and containing such qualifications and limitations as are
appropriate and reasonably satisfactory to the Company;
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(d) OPINION OF INVESTMENT BANKER. Houlihan Lokey Howard & Zukin,
Inc. shall have delivered an opinion to the Board of Directors of the Company,
dated the date of this Agreement and reaffirmed no earlier than five (5) days
prior to the mailing of the Proxy Statement, in form reasonably satisfactory to
the Company, to the effect that the consideration to be received by the holders
of shares of Company Common Stock pursuant to this Agreement is fair from a
financial point of view to such holders; and
(e) CONSENTS OBTAINED. The Company shall have received evidence,
in form and substance reasonably satisfactory to it, that those licenses,
permits, consents, waivers, approvals, authorizations, qualifications or orders
(including all United States and foreign governmental and regulatory rulings and
approvals) of governmental authorities and other third parties described in
Section 3.5(a) of the Parent Disclosure Schedule have been obtained.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned 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 Parent and the Company; or
(b) By either Parent or the Company if the Merger shall not have
been consummated by August 31, 1996; provided, however, that if the Merger shall
not have been consummated solely due to the waiting period (or any extension
thereof) under the HSR Act not having expired or been terminated, then such date
shall be extended to December 31, 1996; and provided, further, that the right to
terminate this Agreement under this Section 7.1(b) shall not be available to any
party whose willful failure to fulfill any material obligation under this
Agreement has been the cause of, or resulted in, the failure of the Merger to
have been consummated on or before such date; or
(c) By either Parent or the Company, if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued an order, decree or ruling or taken any other action, in each
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger; or
(d) By either Parent or the Company, if, at the Company
Stockholders' Meeting (including any adjournment or postponement thereof), the
requisite vote of the stockholders of the Company shall not have been obtained;
or
(e) By Parent, if the Board of Directors of the Company or any
committee thereof shall have (i) approved or recommended an Acquisition Proposal
other than the Merger, (ii) withdrawn or modified in a manner adverse to Parent
its approval or recommendation of the Merger, this Agreement or the transactions
contemplated hereby, (iii) failed to mail the Proxy Statement to its
stockholders when the Proxy Statement shall be available for mailing or failed
to include therein such approval and recommendation (including the
recommendation that the
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stockholders of the Company vote in favor of the Merger), (iv) resolved to do
any of the foregoing, or (v) upon a request by Parent, failed, within two (2)
business days after such request is made, to reaffirm any such approval or
recommendation; or
(f) By the Company, in order to take any action referred to in
clause (ii) of Section 4.2(c) with respect to a Superior Proposal, provided that
the Company has complied with all the provisions of the second sentence of
Section 4.2(c) and has determined to accept such Superior Proposal; or
(g) By Parent, if the Company or its Board of Directors or any
committee thereof takes any of the actions referred to in clause (ii) of Section
4.2(c); or
(h) By Parent, if neither Parent nor Merger Sub is in material
breach of its obligations under this Agreement, and if (1) there has been a
breach by the Company of any of its representations and warranties hereunder
such that Section 6.2(a) will not be satisfied or (2) there has been the willful
breach on the part of the Company of any of its covenants or agreements
contained in this Agreement such that Section 6.2(b) will not be satisfied, and,
in both case (1) and case (2), such breach has not been promptly cured after
notice to the Company; or
(i) By the Company, if it is not in material breach of its
obligations under this Agreement, and if (1) there has been a breach by Parent
or Merger Sub of any of their respective representations and warranties
hereunder such that Section 6.3(a) will not be satisfied or (2) there has been
the willful breach on the part of Parent or Merger Sub of any of their
respective covenants or agreements contained in this Agreement such that Section
6.3(b) will not be satisfied, and, in both case (1) and case (2), such breach
has not been promptly cured after notice to Parent and Merger Sub; or
(j) By Parent, if any of the stockholders who are parties to the
Stockholders Agreement shall have breached in any material respect any
representation, warranty, covenant or agreement thereof and such breach has not
been promptly cured after notice to any such stockholder; provided, however,
that such breach shall be of the kind that denies Parent the material benefits
contemplated by the Stockholders Agreement; or
(k) By Parent, if the Average Trading Price is less than $35.00.
7.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void
(other than this Section 7.2 and Sections 7.3 and 8.10, which shall survive the
termination of this Agreement) and there shall be no liability on the part of
any party hereto except as set forth in Section 7.3. The Confidentiality
Agreement shall survive termination of this Agreement. In the event that this
Agreement is terminated by the Company pursuant to Section 7.1(i), nothing
herein shall relieve Parent and Merger Sub from liability for any breach hereof.
7.3 FEES AND EXPENSES. (a) Except as set forth in this Section
7.3, all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; provided, however, that
Parent and the Company shall share equally all fees and expenses, other than
attorneys' fees, incurred in relation to the printing and filing of the Proxy
Statement (including any preliminary
33
<PAGE>
materials related thereto) and the Registration Statement (including financial
statements and exhibits) and any amendments or supplements thereto.
(b) If this Agreement is terminated pursuant to Sections 7.1(e),
7.1(f), 7.1(g) or 7.1(h) and provided that (i) Parent is not then in breach of
its representations and warranties under this Agreement such that Section 6.3(a)
of this Agreement would not be satisfied or (ii) Parent is not otherwise in
material breach of its obligations under this Agreement such that Section 6.3(b)
will not be satisfied, then the Company shall reimburse Parent, within one (1)
business day of Parent's request therefor, for all Parent Stipulated Expenses.
As used in this Agreement, the term "Parent Stipulated Expenses" shall mean
those reasonable and documented fees and expenses actually incurred by Parent in
connection with this Agreement, the Stockholders Agreement and the transactions
contemplated hereby and thereby, including (x) Parent's efforts to acquire the
Company, (y) steps taken after the date hereof to take operational control of
the Company and (z) salaries, travel costs and expenses incurred by Parent as a
result of changes to its business plan in contemplation of the Merger, which
fees and expenses shall not exceed, in the aggregate, one million two hundred
thousand dollars ($1,200,000); provided, however, that with respect to the
expenses described in the preceding clauses (y) and (z), such expenses shall not
be subject to reimbursement pursuant to this Section 7.3(b) in the event that
Parent terminates this Agreement pursuant to clause (1) of Section 7.1(h) as a
result of a representation and warranty of the Company which was true and
correct in all material respects as of the date of this Agreement becoming, as a
result of any nonwilful action taken by the Company, not true or correct in all
material respects as of the Effective Time; and provided further, that the
Company shall not be obligated to reimburse Parent for any fee of Montgomery
Securities in excess of $200,000. The foregoing notwithstanding, any amount
payable by the Company to Parent pursuant to this Section 7.3(b) shall be
reduced by any amount actually received by Parent pursuant to Section 7.2(b) of
the Stockholders Agreement.
(c) In the event that:
(i) Parent terminates this Agreement pursuant to Section
7.1(e) or 7.1(g); or
(ii) following receipt of an Acquisition Proposal, the
Company terminates this Agreement pursuant to Section 7.1(f),
the Company shall pay to Parent, simultaneously with such termination of this
Agreement referred to in clauses (i) or (ii) above, a fee of one million two
hundred fifty thousand dollars ($1,250,000), less the amount of Parent
Stipulated Expenses paid to Parent pursuant to Section 7.3(b) (the "Termination
Fee"), which amount shall be payable in immediately available funds. In no
event shall the Company be obligated to pay more than one Termination Fee. The
foregoing notwithstanding, Parent shall not be entitled to receive a Termination
Fee if Parent has received the Topping Fee provided by Section 7.2(c) of the
Stockholders Agreement.
(d) If this Agreement shall be terminated in the circumstances
specified in the foregoing Sections 7.3(b) or 7.3(c), then the payment
thereunder shall be liquidated damages for loss of the bargain hereunder (and
together with the reimbursement of expenses to the extent provided in Section
7.3(b), 7.3(c) above) and shall be the recipient's sole and exclusive remedy in
such event.
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7.4 AMENDMENT. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that, after approval of the
Merger by the stockholders of the Company, no amendment may be made which would
reduce the amount or change the type of consideration into which each share of
Company Common Stock shall be converted upon consummation of the Merger. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
7.5 WAIVER. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts required hereunder, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any of the agreements or conditions contained herein.
Any such extension or waiver shall be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the consummation of the Merger and the
Effective Time. This Section 8.1 shall not limit any covenant or agreement of
the parties which by its terms contemplates performance after the Effective
Time.
8.2 NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered personally or mailed by registered
or certified mail (postage prepaid, return receipt requested), or sent by
facsimile transmission, (confirmation received) to the parties at the following
addresses and facsimile transmission numbers (or at such other address or number
for a party as shall be specified by like notice), except that notices after the
giving of which there is a designated period within which to perform an act and
notices of changes of address or number shall be effective only upon receipt:
(a) If to Parent or Merger Sub:
West Marine, Inc.
500 Westridge Drive
Watsonville, CA 95076-4100
Telecopier No.: (408) 728-2736
Telephone No.: (408) 728-2700
Attention: Crawford L. Cole, Chief Executive
Officer and President
With a copy to:
Orrick, Herrington & Sutcliffe
Old Federal Reserve Bank Building
400 Sansome Street
35
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San Francisco, California 94111
Telecopier No.: (415) 773-4283
Telephone No.: (415) 773-5830
Attention: Richard V. Smith, Esq.
(b) If to the Company:
E&B Marine Inc.
201 Meadow Road
Edison, New Jersey
Telecopier No.: (908) 819-4772
Telephone No.: (908) 819-7400
Attention: Kenneth G. Peskin, Chairman
and Chief Executive Officer
With a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Telecopier No.: (212) 408-2420
Telephone No.: (212) 408-2400
Attention: Lawrence G. Graev, Esq.
8.3 DISCLOSURE SCHEDULES. The Company Disclosure Schedule and the
Parent Disclosure Schedule each shall be divided into sections corresponding to
the sections and subsections of this Agreement. Disclosure of any fact or item
in any section of a party's Disclosure Schedule shall not, should the existence
of the fact or item or its contents be relevant to any other section of the
Disclosure Schedule, be deemed to be disclosed with respect to Sections 2.5(a),
2.7(a), 2.8(a), 2.8(b) and 2.16(b) of the Company Disclosure Schedule or 3.5(a)
and 3.8 of the Parent Disclosure Schedule. Disclosure of any fact or item in
any other section of a party's Disclosure Schedule shall be deemed disclosed
with respect to all sections thereof other than those specified in the preceding
sentence. Disclosure of any matter in such Disclosure Schedules shall not be
deemed to imply that such matter is or is not material. Disclosure of any
matter in such Disclosure Schedules shall not constitute an admission or raise
any inference that such matter constitutes a violation of law or an admission of
liability or facts supporting liability.
8.4 CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
(a) "affiliates" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person; including, without limitation,
any partnership or joint venture in which the Company (either alone, or through
or together with any other subsidiary) has, directly or indirectly, an interest
of 5% or more;
(b) "beneficial owner" with respect to any shares of Company Common
Stock, means a person who shall be deemed to be the beneficial owner of such
shares (i) which such person or any of its affiliates or associates beneficially
owns, directly or indirectly, (ii) which such person
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or any of its affiliates or associates (as such term is defined in Rule 12b-2 of
the Exchange Act) has, directly or indirectly, (1) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon the exercise of
consideration rights, exchange rights, warrants or options, or otherwise, or (2)
the right to vote pursuant to any agreement, arrangement or understanding or
(iii) which are beneficially owned, directly or indirectly, by any other persons
with whom such person or any of its affiliates or person with whom such person
or any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
shares;
(c) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(d) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, limited liability company,
other entity or group (as defined in Section 13(d)(3) of the Exchange Act); and
(e) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means any corporation, partnership,
joint venture, limited liability company or other legal entity of which the
Company, the Surviving Corporation, Parent or such other person, as the case may
be, (either alone or through or together with any other subsidiary) owns,
directly or indirectly, more than 50% of the stock or other equity interests the
holders of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
8.5 INTERPRETATION. When a reference is made in this Agreement to
Sections, subsections, Schedules or Exhibits, such reference shall be to a
Section, subsection, Schedule or Exhibit to this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without limitation."
The word "herein" and similar references mean, except where a specific Section
or Article reference is expressly indicated, the entire Agreement rather than
any specific Section or Article. The table of contents and the headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
8.6 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 or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
8.7 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Stockholders Agreement and Confidentiality Agreement), both written and oral,
among the parties, or any of them, with respect
37
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to the subject matter hereof and, except as otherwise expressly provided herein,
are not intended to confer upon any other person any rights or remedies
hereunder.
8.8 ASSIGNMENT. This Agreement shall not be assigned by operation
of law or otherwise, except that Parent and Merger Sub may assign all or any of
their rights hereunder to any affiliate provided that no such assignment shall
relieve the assigning party of its obligations hereunder.
8.9 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, other than Section 5.8 (which is intended to be for the benefit of
the Indemnified Parties and may be enforced by such Indemnified Parties).
8.10 GOVERNING LAW. This Agreement shall 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.
8.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
WEST MARINE, INC.
By /s/Crawford L. Cole
----------------------------------------------
Name: Crawford L. Cole
Title: Chief Executive Officer and President
WM MERGER SUB, INC.
By /s/Crawford L. Cole
---------------------------------------------
Name: Crawford L. Cole
Title: President
E&B MARINE INC.
By /s/Kenneth G. Peskin
---------------------------------------------
Name: Kenneth G. Peskin
Title: Chairman of the Board and
Chief Executive Officer
39
<PAGE>
EXHIBIT A TO MERGER AGREEMENT
CERTIFICATE OF MERGER
OF
WM MERGER SUB, INC.
INTO
E&B MARINE INC.
The undersigned corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
NAME STATE OF INCORPORATION
WM Merger Sub, Inc. Delaware
E&B Marine Inc. Delaware
SECOND: That an Agreement and Plan of Merger between the parties to
the merger has been approved, adopted, certified, executed and acknowledged by
each of the constituent corporations in accordance with the requirements of
Section 251 of the General Corporation Law of the State of Delaware.
THIRD: That the name of the surviving corporation of the merger is
E&B Marine Inc.
FOURTH: That the restated certificate of incorporation, as amended,
of E&B Marine Inc., a Delaware corporation, the surviving corporation, shall be
the certificate of incorporation of the surviving corporation.
FIFTH: That the executed Agreement and Plan of Merger is on file at
the principal place of business of the surviving corporation. The address of
the principal place of business of the surviving corporation is 500 Westridge
Drive, Watsonville, California 95076-4100.
SIXTH: That a copy of the Agreement and Plan of Merger will be
furnished by the surviving corporation, on request and without cost, to any
stockholder of any constituent corporation.
IN WITNESS WHEREOF, the undersigned surviving corporation has caused
this Certificate to be signed by its authorized officer this ____ day of
____________, 1996.
E&B MARINE INC.
By: ____________________________________
Name:
Title:
A-1
<PAGE>
EXHIBIT B TO MERGER AGREEMENT
AFFILIATE AGREEMENT
, 1996
West Marine, Inc.
500 Westridge Drive
Watsonville, CA 95076-4100
Attention: _________________
Gentlemen:
Pursuant to the terms of the Agreement and Plan of Merger, dated as of
April 2, 1996 (the "Agreement"), among West Marine, Inc., a Delaware corporation
("Parent"), WM Merger Sub, Inc., a Delaware corporation and wholly owned
subsidiary of Parent ("Sub"), and E&B Marine Inc., a Delaware corporation (the
"Company"), Parent will acquire the Company through the merger of Sub with and
into the Company (the "Merger"). Subject to the terms and conditions of the
Agreement, at the Effective Time (as defined in the Agreement), outstanding
shares of the common stock, par value $.001 per share, of the Company (the
"Company Common Stock") will be converted into the right to receive shares of
the common stock, par value $0.001 per share, of Parent (the "Parent Common
Stock") on the basis described in the Agreement.
The undersigned has been advised that as of the date hereof it may be
deemed to be an "affiliate" of the Company, as the term "affiliate" is (i)
defined for purposes of paragraphs (c) and (d) of Rule 145 of the Rules and
Regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), and/or (ii) used in and for purposes of Accounting Series Releases 130
and 135, as amended, of the Commission.
The undersigned understands that the representations, warranties and
covenants set forth herein will be relied upon by Parent, stockholders of
Parent, the Company, other stockholders of the Company and their respective
counsel and accounting firms.
The undersigned represents and warrants to and agrees with Parent
that:
1. The undersigned has full power to execute and deliver this
Affiliate Agreement and to make the representations and warranties herein
and to perform its obligations hereunder.
2. The undersigned has carefully read this letter and the Agreement
and discussed its requirements and other applicable limitations upon its
ability to sell, transfer or otherwise dispose of Parent Common Stock to
the extent the undersigned felt necessary, with its counsel or counsel for
the Company.
3. The undersigned shall not make any sale, transfer or other
disposition of Parent Common Stock in violation of the Act or the Rules and
Regulations.
4. The undersigned has been advised that the issuance of shares of
Parent Common Stock to the undersigned in connection with the Merger has
been or will be registered with the Commission under the Act on a
Registration Statement on Form S-4.
B-1
<PAGE>
However, the undersigned has also been advised that, since, at the time the
Merger was submitted for a vote of the stockholders of the Company the
undersigned may be deemed to have been an affiliate of the Company and the
distribution by the undersigned of any Parent Common Stock has not been
registered under the Act, the undersigned may not sell, transfer or
otherwise dispose of Parent Common Stock issued to the undersigned in the
Merger unless (i) such sale, transfer or other disposition has been
registered under the Act, (ii) such sale, transfer or other disposition is
made in conformity with the requirements of Rule 145 promulgated by the
Commission under the Act, (iii) in the opinion of counsel reasonably
acceptable to Parent, such sale, transfer or other disposition is otherwise
exempt from registration under the Act or (iv) an authorized representative
of the Commission shall have rendered written advice to the undersigned
(which advice shall be sought in writing by the undersigned or counsel to
the undersigned, with copies thereof and all other related communications
delivered to Parent concurrently with delivery thereof to the Commission)
to the effect that the Commission would take no action, or that the staff
of the Commission would not recommend that the Commission take action, with
respect to the proposed sale, transfer or other disposition of such Parent
Common Stock if consummated as set forth in such advice.
5. Parent is under no obligation to register the sale, transfer or
other disposition of Parent Common Stock by the undersigned or on its
behalf under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available. Parent
agrees that it shall make available adequate current public information as
required by Rule 144(c) promulgated by the Commission under the Act.
6. Stop transfer instructions will be given to Parent's transfer
agents with respect to the Parent Common Stock and that there will be
placed on the certificates for the Parent Common Stock issued to the
undersigned, or any substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of
1933 applies. The shares represented by this certificate may only be
transferred in accordance with the terms of an agreement dated
__________ ___, 1996, between the registered holder hereof and Parent,
a copy of which agreement is on file at the principal offices of
Parent."
7. Unless the transfer by the undersigned of its Parent Common Stock
has been registered under the Act or is a sale made in conformity with the
provisions of Rule 145, Parent reserves the right to put the following
legend on the certificates issued any transferee of the undersigned:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and were acquired from a
person who received such shares in a transaction to which Rule 145
promulgated under the Securities Act of 1933 applies. The shares have
been acquired by the holder not with a view to, or for resale in
connection with, any distribution thereof within the meaning of the
Securities Act of 1933 and may not be sold, pledged or otherwise
transferred except in accordance with an exemption from the
registration requirements of the Securities Act of 1933."
B-2
<PAGE>
8. The legends set forth in paragraphs 6 and 7 above shall be
removed by delivery of substitute certificates without such legend if the
undersigned shall have delivered to Parent a copy of a letter from the
staff of the Commission, or an opinion of O'Sullivan Graev & Karabell, LLP
or other counsel in form and substance reasonably satisfactory to Parent,
to the effect that such legend is not required for purposes of the Act.
9. The undersigned is the beneficial owner of (has sole or shared
voting or investment power with respect to) all the shares of Company
Common Stock, and options warrants to purchase Company Common Stock (the
"Company Securities") indicated on the last page of this letter. Except
for the Company Securities, the undersigned does not beneficially own any
shares of Company Common Stock or any other equity securities of the
Company or any options, warrants or other rights to acquire any equity
securities of the Company.
10. From and after the Effective Time (as defined in the Agreement
and for so long as necessary in order to permit the undersigned to sell
Parent Common Stock pursuant to Rule 145 of the Rules and Regulations and,
to the extent applicable, Rule 144 of the Rules and Regulations, Parent
shall use reasonable efforts to file on a timely basis all reports required
to be filed by it pursuant to Section 13 of the Securities Exchange Act of
1934, as amended, referred to in paragraph (c)(1) of such Rule 144 (or,
alternatively, Parent shall use reasonable efforts to make publicly
available the information regarding itself referred to in paragraph (c)(2)
of such Rule 144), in order to permit the undersigned to sell, pursuant to
the terms and conditions of such Rule 145 and the applicable provisions of
such Rule 144, Parent Common Stock beneficially owned by the undersigned.
B-3
<PAGE>
NUMBER OF SHARES OF COMPANY COMMON STOCK
BENEFICIALLY OWNED BY THE UNDERSIGNED:
____________________
NUMBER OF SHARES OF COMPANY COMMON STOCK SUBJECT TO
OPTIONS OR WARRANTS BENEFICIALLY OWNED BY THE UNDERSIGNED:
____________________
Very truly yours,
________________________________________________
(print name of stockholder above)
By:_____________________________________________
Title: (if applicable)
Accepted this day of , 1996, by
WEST MARINE, INC.
By:__________________________
Name:
Title:
B-4
<PAGE>
ANNEX B
[CONFORMED COPY]
STOCKHOLDERS AGREEMENT*
STOCKHOLDERS AGREEMENT ("Agreement"), dated as of April 2, 1996, by
and between West Marine, Inc., a Delaware corporation ("Parent"), and the
undersigned stockholders (collectively, "Stockholders") of E&B Marine Inc., a
Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company, Parent, and WM Merger Sub, Inc., a Delaware
corporation and wholly owned subsidiary of Parent ("Merger Sub"), propose to
enter into an Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"), providing for, inter alia, the merger (the "Merger") of
Merger Sub with and into the Company; and
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Parent and Merger Sub have required that each Stockholder enter into,
and each such Stockholder has agreed to enter into, this Agreement; and
WHEREAS, in order to induce Parent and Merger Sub to enter into the
Merger Agreement, each Stockholder desires to grant Parent a proxy as to all
shares of Company Common Stock beneficially owned by each Stockholder and make
certain agreements with Parent and Merger Sub as provided herein;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, and for other good and valuable consideration
including the inducement to Parent and Merger Sub to consummate the Merger
Agreement, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Representations and Warranties. Each Stockholder hereby severally
represents and warrants to Parent as to itself as follows:
(a) Ownership of Shares. Such Stockholder is either (i) the record
and beneficial owner of, (ii) trustee of a trust that is the record holder or
beneficial owner of, and whose beneficiaries are the beneficial owners (such
trustee, a "Trustee") of, or (iii) the beneficial owner but not the record
holder of, the number of shares of Company Common Stock as set forth opposite
such Stockholder's name on Schedule 1 hereto (the "Existing Shares", and
together with any shares of Company Common Stock acquired by such Stockholder
after the date hereof and prior to the termination hereof, whether upon exercise
of options, conversion of convertible securities, purchase, exchange or
otherwise, the "Shares"). On the date hereof, the Existing Shares set forth
opposite such Stockholder's name on Schedule 1 constitute all of the shares of
Company Common Stock owned of record or beneficially by such Stockholder. Such
Stockholder (or, to the extent such Stockholder is a Trustee, such Stockholder
together with other Trustees who are signatories to this Agreement) has sole
voting power with respect to the matters set forth in Section 2, sole power of
disposition and sole power to demand appraisal rights in each case with respect
to all of the Existing shares set forth opposite such Stockholder's name on
Schedule 1, with no restrictions subject to applicable federal securities laws
and the terms of this Agreement, on such rights.
- ------------
*Conformed to include the amendments made to the Stockholders Agreement
pursuant to the letter agreement among the parties dated May 10, 1996.
<PAGE>
(b) Power; Binding Agreement. Such Stockholder has the legal
capacity, power and authority to enter into and perform all of such
Stockholder's obligations under this Agreement. The execution, delivery and
performance of this Agreement by such Stockholder will not violate any other
agreement to which such Stockholder is a party including, without limitation,
any trust agreement, voting agreement, stockholders agreement or voting trust.
This Agreement has been duly and validly executed and delivered by such
Stockholder and constitutes a valid and binding agreement of such Stockholder,
enforceable against such Stockholder in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles. There is no beneficiary or holder of a voting trust
certificate or other interest of any trust of which a Stockholder is Trustee
whose consent is required for the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby. If such Stockholder is
married and such Stockholder's Shares constitute community property, this
Agreement has been duly authorized, executed and delivered by, and constitutes a
valid and binding agreement of, such Stockholder's spouse, enforceable against
such person in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
(c) No Conflicts. (i) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Stockholder and the
consummation by such Stockholder of the transactions contemplated hereby and
(ii) neither the execution and delivery of this Agreement by such Stockholder
nor the consummation by such Stockholder of the transactions contemplated hereby
nor compliance by such Stockholder with any of the provisions hereof shall (x)
conflict with or result in any breach of any applicable trust or other
organizational documents applicable to such Stockholder, (y) result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which such Stockholder is a party or by which such
Stockholder or any of such Stockholder's properties or assets may be bound or
(z) violate any order, writ, injunction, decree, judgment, order, statute, rule
or regulation applicable to such Stockholder or any of such Stockholder's
properties or assets.
(d) Such Stockholder's Shares and the certificates representing such
Shares are now and at all times during the term hereof will be held by such
Stockholder, or by a nominee or custodian for the benefit of such Stockholder,
free and clear of all liens, claims, security interests, proxies, voting trusts
or agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising hereunder.
(e) Except as disclosed in Section 2.18 of the Merger Agreement, no
broker, investment banker, financial adviser or other person is entitled to any
broker's, finder's, financial adviser's or other similar fee or commission in
connection with the transactions contemplated hereby based upon arrangements
made by or on behalf of such Stockholder.
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(f) Such Stockholder understands and acknowledges that Parent is
entering into, and causing Merger Sub to enter into, the Merger Agreement in
reliance upon such Stockholder's execution and delivery of this Agreement.
(g) Such Stockholder has no plan or intention, directly or
indirectly, to sell, exchange or otherwise dispose of, reduce the risk of loss
by short sale or otherwise, or enter into any contract or other arrangement with
respect to, or consent to the sale, exchange or other disposition of any
interest in, any Parent Common Stock to be received by such Stockholder pursuant
to the Merger. Such Stockholder acknowledges that such Stockholder is giving
this representation to enable Orrick, Herrington & Sutcliffe and O'Sullivan
Graev & Karabell, LLP to opine that the Merger constitutes a reorganization
within the meaning of Section 368(a) of the Code and further recognizes that
significant adverse tax consequences might result if such representation is not
true. Such Stockholder understands and agrees that, in connection with the
Merger, such Stockholder will be required to restate the foregoing
representation on or about the Effective Time of the Merger.
2. Agreement to Vote; Proxy.
2.1 Voting. Each Stockholder hereby severally agrees that, during
the time this Agreement is in effect, at any meeting of the stockholders of the
Company, however called, or in connection with any written consent of the
stockholders of the Company, such Stockholder shall vote (or cause to be voted)
the Shares held of record or beneficially by such Stockholder, (a) in favor of
the Merger, the execution and delivery by the Company of the Merger Agreement
and the approval of the terms thereof and each of the other actions contemplated
by the Merger Agreement and this Agreement and any actions required in
furtherance hereof and thereof; (b) against any action or agreement that would
result in a breach in any material respect of any covenant, representation or
warranty or any other obligation or agreement of the Company under the Merger
Agreement or this Agreement; (c) except as otherwise agreed to in writing in
advance by Parent, against the following actions (other than the Merger and the
transactions contemplated by the Merger Agreement): (i) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company or its subsidiaries; (ii) a sale, lease or
transfer of a material amount of assets of the Company or its subsidiaries or a
reorganization, recapitalization, dissolution or liquidation of the Company or
its subsidiaries; (iii) (1) any change in the majority of the board of directors
of the Company; (2) any material change in the present capitalization of the
Company or any amendment of the Company's Restated Certificate of Incorporation;
(3) any other material change in the Company's corporate structure or business;
or (4) any other action; which, in the case of each of the matters referred
clauses (iii)(1), (2), (3) or (4), is intended, or could reasonably be expected,
to impede, interfere with, delay, postpone, discourage or materially adversely
affect the contemplated economic benefits to Parent of the Merger or the
transactions contemplated by the Merger Agreement or this Agreement. Such
Stockholder shall not enter into any agreement or understanding, whether oral or
written, with any person or entity prior to the Termination Date (as defined in
Section 7.1) to vote after the Termination Date in any manner inconsistent with
clauses (a), (b) or (c) of the preceding sentence.
2.2 Proxy. Each Stockholder hereby grants to, and appoints, Parent
and Randolph K. Repass and Crawford L. Cole, in their respective capacities as
officers of Parent, and any individual who shall hereafter succeed to any such
office of Parent, and any other designee of
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Parent, each of them individually, such Stockholder's irrevocable proxy and
attorney-in-fact (with full power of substitution) to vote the Shares as
indicated in Section 2.1 above. Each Stockholder intends this proxy to be
irrevocable and coupled with an interest and will take such further action and
execute such other instruments as may be necessary to effectuate the intent of
this proxy and hereby revokes any proxy previously granted by such Stockholder
with respect to such Stockholder's Shares.
3. Certain Covenants of Stockholders. Except in accordance with the
terms of this Agreement, each Stockholder hereby severally covenants and agrees
as follows:
3.1 No Solicitation. No Stockholder shall, directly or indirectly,
solicit (including by way of furnishing information) or respond to any inquiries
or the making of any proposal by any person (other than Parent or any affiliate
of Parent) with respect to the Company that constitutes or could reasonably be
expected to lead to an Acquisition Proposal. If any Stockholder receives any
such inquiry or proposal, then such Stockholder shall promptly inform Parent of
the terms and conditions, if any, of such inquiry or proposal and the identity
of the person making it. Each Stockholder will immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing.
3.2 Restriction on Transfer, Proxies and Non-Interference;
Restriction on Withdrawal. No Stockholder shall, directly or indirectly: (a)
offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale, sale, transfer,
tender, pledge, encumbrance, assignment or other disposition of, any or all of
such Stockholder's Shares or any interest therein; (b) except as contemplated
hereby, grant any proxies or powers of attorney, deposit any Shares into a
voting trust or enter into a voting agreement with respect to any Shares; or (c)
take any action that would make any representation or warranty of such
Stockholder contained in this Agreement untrue or incorrect or have the effect
of preventing or disabling such Stockholder from performing such Stockholder's
obligations under this Agreement.
3.3 Waiver of Appraisal Rights. Each Stockholder hereby waives any
rights of appraisal or rights to dissent from the Merger that such Stockholder
may have. Each Trustee represents that no beneficiary who is a beneficial owner
of Shares under any trust for which such Trustee acts as trustee has any right
of appraisal or right to dissent from the Merger which has not been so waived.
3.4 Non-Competition.
(a) Scope. For a period of two (2) years following the date of this
Agreement, no Stockholder (other than DLJ Capital Corporation) shall, directly
or indirectly, own (beneficially or of record), manage, operate or control, or
participate in the ownership (beneficially or of record), management, operation
or control of, or be connected with or have any interest in, as a shareholder,
director, officer, employee, agent, consultant, partner, member or manager, any
Competitive Business (as defined below) anywhere within any state or territory
of the United States or the District of Columbia.
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<PAGE>
(b) Competitive Business. For purposes of this Agreement, the term
Competitive Business shall mean Boat/U.S., Boater's World and any other retail
business or activity commenced after the Effective Time where more than one half
of the products offered for sale by such retailer are of a type sold in stores
operated by Parent, the Company or any of their subsidiaries as of the Effective
Time.
(c) Ownership of Publicly Traded Stock. Nothing contained in this
Section 3.4 shall prevent any person subject to this Section 3.4 from investing
in the equity securities of any person if such securities are listed on a
national securities exchange or the NASDAQ/National Market System and the
aggregate amount of such securities held by all persons subject to this Section
3.6 does not exceed four and nine-tenths percent (4.9%) of the outstanding
equity securities of the issuer thereof.
(d) Confidential Information. Each Stockholder hereby acknowledges
that the Company owns and has developed and compiled certain proprietary
techniques and confidential information which have great value to its business
(referred to in this Agreement, collectively, as "Confidential Information").
Confidential Information includes all information that has commercial value in
the business in which the Company is engaged, and all information of which the
unauthorized disclosure could be detrimental to the interests of the Company,
whether or not such information is specifically labelled as Confidential
Information by the Company. By way of example and without limitation,
Confidential Information includes any and all information developed, obtained or
owned by the Company concerning trade secrets, techniques, know-how (including
designs, plans, procedures and merchandising know-how), software, computer
programs, improvements, research, specifications, marketing data and plans,
business plans, strategies, forecasts, unpublished financial information,
orders, agreements and other forms of documents, price and cost information,
merchandising opportunities, expansion plans, store plans, budgets, projections
and customer, supplier and subcontractor identities. Each Stockholder shall
not, directly or indirectly, use, make available, sell, disclose or otherwise
communicate to any person any Confidential Information. For purposes of this
Agreement, Confidential Information shall not include any information which (i)
is or becomes generally available to the public other than as a result of a
disclosure by any Stockholder, (ii) was within a Stockholder's possession prior
to its being furnished to the Stockholder by or on behalf of the Company,
provided that the source of such information was not known by such Stockholder
to be bound by a confidentiality agreement with or other contractual, legal or
fiduciary obligation of confidentiality to the Company with respect to such
information or (iii) becomes available to a Stockholder on a non-confidential
basis from a source other than the Company, provided that such source is not
bound by a confidentiality agreement with or other contractual, legal or
fiduciary obligation of confidentiality to the Company with respect to such
information. Prior to the Effective Time (or, if the Stockholder is employed by
the Company, the later date of termination of such employment), each Stockholder
who is an employee of the Company shall return to the Company any Confidential
Information (including all copies thereof and materials prepared by a
Stockholder which includes Confidential Information) in its possession.
3.5 No Solicitation of Employees. For a period of two (2) years
following the date of this Agreement, no Stockholder (other than DLJ Capital
Corporation) shall, nor shall it permit any Competitive Business under its
control to, directly or indirectly, without the prior written consent of Parent,
(a) solicit for employment by a Competitive Business any person then
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<PAGE>
employed by Parent or the Company or any of their subsidiaries, whether as an
officer, employee, consultant, adviser or independent contractor (collectively,
an "Employee") or (b) employ any such Employee in a Competitive Business who
voluntarily leaves such employment until the passage of nine (9) months
following termination of such employment. The preceding clause (b) shall not
prohibit the employment of any person after nine (9) following the voluntary
termination of such employment.
3.6 Certain Rights. Each Stockholder hereby waives any rights to
cause the Company to register, or include in any registration statement of the
Company or Parent filed with the Securities and Exchange Commission, under the
Securities Act of 1933, as amended, any of such Stockholder's Shares. Each
Stockholder hereby waives any co-sale or similar rights respecting shares of
Company Common Stock.
4. Further Assurances. From time to time, at the other party's request
and without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
5. Certain Events. Each Stockholder agrees that this Agreement and the
obligations hereunder shall attach to such Stockholder's Shares and shall be
binding upon any person to which legal or beneficial ownership of such Shares
shall pass, whether by operation of law or otherwise, including without
limitation such Shareholder's heirs, guardians, administrators or successors.
6. Stop Transfer. Each Stockholder agrees with, and covenants to, Parent
that such Stockholder shall not request that the Company register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing any of such Stockholder's Shares, unless such transfer is made in
compliance with this Agreement. Each Stockholder agrees, with respect to any
Shares in certificated form, that such Stockholder will tender to the Company,
within fifteen (15) business days after the date hereof, the certificates
representing such Shares and the Company will inscribe upon such certificates
the following legend: "The shares of Common Stock, par value $.001 per share, of
E&B Marine Inc. (the "Company") represented by this certificate are subject to a
Stockholders Agreement, dated as of April 2, 1996, and may not be sold or
otherwise transferred, except in accordance therewith. Copies of such Agreement
may be obtained at the principal executive offices of the Company." Each
Stockholder agrees that within fifteen (15) business days after the date hereof,
such Stockholder will no longer hold any Shares, whether certificated or
uncertificated, in "street name" or in the name of any nominee. Pursuant to the
Merger Agreement, the Company has agreed to notify the transfer agent for any
Shares in uncertificated form of the provisions set forth in this Section 6 and
has agreed to, and each Stockholder agrees to, provide such documentation and to
do such other things as may be required to give effect to such provisions with
respect to such uncertificated Shares. In the event of a stock dividend or
distribution, or any change in the Company Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" as used in this Agreement shall be deemed to refer to
and include the Shares as well as all such stock dividends and distributions and
any shares into which or for which any or all of the Shares may be changed or
exchanged.
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7. Termination; Expenses.
7.1 Events of Termination. This Agreement and the obligations of each
Stockholder hereunder (other than those set forth in this Section 7.1 and
Sections 7.2, 7.3 and 9.4 hereof, which shall survive any such termination)
shall terminate on the first to occur of (a) termination of the Merger Agreement
in accordance with its terms (the "Termination Date") or (b) the Effective Time;
provided, however, that the obligations of the Stockholders under Sections 3.4,
3.5, 3.6 and 9 shall survive any termination pursuant to Subsection 7.1(ii). In
addition, this Agreement and the obligations of each Stockholder hereunder may
be terminated (other than those set forth in this Section 7.1 and Sections 7.2,
7.3 and 9.4 hereof, which shall survive any such termination) by Parent if
Parent is not in material breach of its obligations under this Agreement and if
there has been a breach in any material respect by any Stockholder of any of its
representations, warranties, covenants or agreements contained in this Agreement
and such breach has not been promptly cured after notice to the breaching
Stockholder; provided, however, that such breach shall be of the kind that
denies Parent the material benefits contemplated by this Agreement. The
Confidentiality Agreement shall survive termination of this Agreement.
7.2 Expenses. (a) Except as set forth in this Section 7.2, all fees
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, whether
or not the Merger is consummated.
(b) If this Agreement is terminated pursuant to the second sentence of
Section 7.1 of this Agreement and provided that Parent is not then in material
breach of its obligations under this Agreement, then the Stockholder whose
breach of this Agreement gives rise to such termination shall reimburse Parent,
within one (1) business day of Parent's request therefor, for all Parent
Stipulated Expenses (it being understood that if any of DLJ Capital Corporation,
DLJ Venture Capital Fund II LP, Sprout Capital V, Sprout Growth Ltd. or Sprout
Growth LP (collectively, the "DLJ Stockholders") so breach this Agreement, then
all of such DLJ Stockholders shall be obligated, jointly and severally, to so
reimburse Parent). The foregoing notwithstanding, any amount payable to Parent
pursuant to this Section 7.2(b) shall be reduced by any amount actually received
by Parent pursuant to Section 7.3(b) of the Merger Agreement.
(c) In the event that following the receipt by the Company of an
Acquisition Proposal, either (i) Parent terminates the Merger Agreement pursuant
to Section 7.1(d) or Section 7.1(j) thereof or (ii) the Company terminates the
Merger Agreement pursuant to Section 7.1(d) thereof, and in either such instance
within six (6) months of such termination a Third Party Acquisition (as defined
below) occurs, then the Stockholders who breached their obligations under this
Agreement shall pay to Parent, in immediately available funds and within one (1)
business day of the consummation of such Third Party Acquisition, an amount
equal to one million two hundred fifty thousand dollars ($1,250,000), less any
amounts paid to Parent pursuant to Section 7.2(b) hereof and less any amounts
paid to Parent by the Company pursuant to 7.3 of the Merger Agreement (the
"Topping Fee"). The immediately preceding sentence notwithstanding, Parent
shall not be entitled to receive such Topping Fee if Parent is paid a
Termination Fee by the Company as provided in the Merger Agreement. If there is
more than one Stockholder liable for the payment of the Topping Fee, each such
Stockholder shall be liable for its proportionate share of the Topping Fee based
on its ownership of Shares. For purposes of this Section 7.1(c), the DLJ
Stockholders
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shall be jointly and severally liable for each of the DLJ Stockholders'
obligations pursuant to this Section 7.2(c)).
(d) For purposes of this Agreement, the term "Third Party Acquisition"
shall mean the occurrence of any of the following events: (A) the acquisition of
the Company by merger or otherwise by any person (or any affiliate of such
person) making an Acquisition Proposal prior to the Termination Date (other than
Parent, Merger Sub or any affiliate thereof)(a "Third Party"); (B) the
acquisition by a Third Party of all or substantially all the assets of the
Company and its subsidiaries taken as a whole; or (C) the acquisition by a Third
Party of more than fifty-percent (50%) of either the outstanding shares of
Company Common Stock or the total voting power of the Company.
7.3 Remedies. If this Agreement shall be terminated by Parent as
provided in the second sentence of this Section 7.1, notwithstanding the payment
made to Parent pursuant to such Section 7.2 the breaching Stockholder shall not
be relieved from any liability to Parent for breach of this Agreement. If this
Agreement shall be terminated as a result of termination pursuant to Sections
7.1(d) or 7.1(f) of the Merger Agreement, any payment made to Parent pursuant to
Section 7.2(c) of this Agreement shall be liquidated damages for loss of the
bargain hereunder and shall be Parent's sole and exclusive remedy in such event.
8. Stockholder Capacity. No person executing this Agreement who is or
becomes during the term hereof a director of the Company makes any agreement or
understanding herein in his or her capacity as such director. Each Stockholder
signs solely in his or her capacity as the record and beneficial owner of, or
the trustee of a trust whose beneficiaries are the beneficial owners of, such
Stockholder's Shares.
9. Miscellaneous.
9.1 Entire Agreement; Assignment. This Agreement (i) constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof (other than
the Merger Agreement and the Confidentiality Agreement) and (b) shall not be
assigned by operation of law or otherwise without the prior written consent of
the other party; provided that Parent may assign, in its sole discretion, its
rights and obligations hereunder to any direct or indirect wholly owned
subsidiary of Parent, but no such assignment shall relieve Parent of its
obligations hereunder if such assignee does not perform such obligations.
9.2 Amendments. This Agreement may not be modified, amended, altered
or supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto; provided that Schedule 1 hereto may be
supplemented by Parent by adding the name and other relevant information
concerning any stockholder of the Company who agrees to be bound by the terms of
this Agreement without the agreement of any other party hereto, and thereafter
such added stockholder shall be treated as a "Stockholder" for all purposes of
this Agreement.
9.3 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail,
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postage prepaid, return receipt requested) or by any courier service, such as
Federal Express, providing proof of delivery. All communications hereunder
shall be delivered to the respective parties at the following addresses:
If to a Stockholder: At the address set forth on Schedule 1 hereto
copy to: O'Sullivan, Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attn.: Lawrence G. Graev, Esq.
If to Parent: West Marine, Inc.
500 Westridge Drive
Watsonville, California 95076
Attn.: Crawford L. Cole, Chief Executive
Officer and President
copy to: Orrick, Herrington & Sutcliffe
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, California 94111
Attn.: Richard V. Smith, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
9.4 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.
9.5 Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity. Parent agrees that it
shall not bring any action for money damages relating to this Agreement or the
transactions herein contemplated against any trustee of any Stockholder that is
a trust in such trustee's personal capacity based upon any action taken or not
taken pursuant to a court order or a final legal judgment.
9.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same Agreement.
9.7 Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
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9.8 Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
9.9 Definitions. For purposes of this Agreement:
(a) "beneficially own", "beneficial owner" or "beneficial
ownership" with respect to any securities shall mean having "beneficial
ownership" of such securities (as determined pursuant to Rule 13d-3 under
the Securities Exchange Act of 1934, as amended), including pursuant to any
agreement, arrangement or understanding, whether or not in writing.
Without duplicative counting of the same securities by the same holder,
securities beneficially owned by a person shall include securities
beneficially owned by all other persons with whom such person would
constitute a "group" as described in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended.
(b) "person" shall mean an individual, corporation,
partnership, joint venture, association, trust, unincorporated
organization, limited liability company or other entity.
(c) Capitalized terms used herein and not defined shall have
the meanings assigned to them in the Merger Agreement.
10
<PAGE>
IN WITNESS WHEREOF, Parent, the Company and each Stockholder have
caused this Agreement to be duly executed as of the day and year first above
written.
WEST MARINE, INC.
By /s/Crawford L. Cole
--------------------------------------------
Name: Crawford L. Cole
Title: Chief Executive Officer and President
STOCKHOLDERS
DLJ CAPITAL CORPORATION
By /s/Richard E. Kroon
--------------------------------------------
Name: Richard E. Kroon
Title: President
DLJ VENTURE CAPITAL FUND II, L.P.
By: DJL Fund Associates II, its general
partner
By /s/Richard E. Kroon
--------------------------------------------
Name: Richard E. Kroon
Title: General Partner
SPROUT CAPITAL V
By: DLJ Associates V, its general partner
By /s/Richard E. Kroon
--------------------------------------------
Name: Richard E. Kroon
Title: General Partner
11
<PAGE>
SPROUT GROWTH, L.P.
By: DLJ Growth Associates, its general partner
By /s/Richard E. Kroon
--------------------------------------------
Name: Richard E. Kroon
Title: General Partner
SPROUT GROWTH, LTD.
By: DLJ Growth Partners, Attorney-in-Fact
By /s/Richard E. Kroon
--------------------------------------------
Name: Richard E. Kroon
Title: General Partner
/s/Kenneth G. Peskin
-----------------------------------------------
Kenneth G. Peskin
/s/Judith Peskin
-----------------------------------------------
Judith Peskin, as trustee u/a dated
December 24, 1992 for the
Kenneth G. Peskin and Sara Peskin Trust
/s/Judith Peskin
-----------------------------------------------
Judith Peskin, as trustee u/a dated
December 24, 1992 for the
Kenneth G. Peskin and Margery Peskin Trust
/s/Judith Peskin
-----------------------------------------------
Judith Peskin, as trustee u/a dated
December 24, 1992 for the
Kenneth G. Peskin and Lisa Peskin Trust
12
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMPANY COMMON
NAME AND ADDRESS STOCK OWNED
OF STOCKHOLDER BY STOCKHOLDER*
- -------------------------------------------------- ----------------------
<S> <C>
DLJ Capital Corporation 217,441
c/o Sprout Group
277 Park Avenue
New York, NY 10172
37,767
DLJ Venture Capital Fund II, L.P.
c/o Sprout Group
277 Park Avenue
New York, NY 10172
Sprout Capital V 628,753
c/o Sprout Group
277 Park Avenue
New York, NY 10172
Sprout Growth, Ltd. 83,832
c/o Sprout Group
277 Park Avenue
New York, NY 10172
Sprout Growth, L.P. 760,854
c/o Sprout Group
277 Park Avenue
New York, NY 10172
Kenneth G. Peskin 327,223
201 Meadow Road
Edison, NJ 08818
Judith Peskin, as trustee u/a dated 3,125
December 24, 1992 for the
Kenneth G. Peskin and Sara Peskin Trust
Judith Peskin, as trustee u/a dated 3,125
December 24, 1992 for the
Kenneth G. Peskin and Margery Peskin Trust
Judith Peskin, as trustee u/a dated 3,125
December 24, 1992 for the
Kenneth G. Peskin and Lisa Peskin Trust
</TABLE>
_______________________
* Indicates beneficial and, unless otherwise indicated, record ownership.
13
<PAGE>
ANNEX C
FAIRNESS OPINION OF HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
[Logo]
Houlihan, Lokey, Howard & Zukin
A Specialty Investment Banking Firm
April 1, 1996
To The Board of Directors
E&B Marine Inc.
Gentlemen:
We understand that E&B Marine Inc. (the "Company") is contemplating entering
into a merger agreement (the "Merger") with West Marine, Inc. ("West") and a
newly created wholly-owned subsidiary ("Merger Company") of West, pursuant to
which the Company would become a wholly-owned subsidiary of West. We further
understand that in connection with the Merger all of the outstanding shares of
the Company's common stock will be converted into shares of West's common stock
at an exchange ratio initially estimated at .15157, and that the actual exchange
will range from a minimum of .15157 to a maximum of .17500. The Merger is
referred to herein as the "Transaction."
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the Company.
Furthermore, at your request, we have not negotiated the Transaction or advised
you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders and on Form
10-K for the fiscal years ended December 31, 1992 through
December 31, 1994, and unaudited financial statements for the
fiscal year ended December 31, 1995 and the two month period
ended February 28, 1996, which the Company's management has
identified as being the most current financial statements
available;
2. reviewed West's annual reports to shareholders and on Form 10-K
for the fiscal years ended December 31, 1992 through December 31,
1994, and unaudited financial statements for the fiscal year
ended December 31, 1995, which West's management has identified
as being the most current financial statements available;
3. reviewed the Agreement and Plan of Merger among the Company,
West, and Merger Company ("Merger Agreement"), draft dated March
26, 1996;
C-1
<PAGE>
To The Board of Directors
E&B Marine Inc.
April 1, 1996
4. met or spoke with certain members of the senior management of the
Company and West to discuss the operations, financial condition,
future prospects and projected operations and performance of the
Company and West, respectively, and met with representatives of
the Company's financial advisors to discuss certain matters;
5. visited certain facilities and business offices of the Company
and West respectively;
6. reviewed forecasted financial statements prepared by the
Company's management with respect to the Company for the year
ended December 31, 1996;
7. reviewed the historical market prices and trading volume for the
Company's and West's publicly traded securities;
8. reviewed certain other publicly available financial data for
certain companies that we deem comparable to the Company and West
respectively, and publicly available prices and premiums paid in
other transactions that we considered similar to the Transaction;
and
9. conducted such other studies, analyses and inquiries as we have
deemed appropriate.
We have relied upon and assumed, without independent verification, that the
forecasted income statements provided to us have been reasonably prepared and
reflect the best currently available estimates of the future financial results
and condition of the Company, and that there has been no material change in the
assets, financial condition, business or prospects of the Company since the date
of the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other conditions
as they exist and can be evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that the
consideration to be received by the stockholders of the Company in connection
with the Transaction is fair to them from a financial point of view.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
/s/ Houlihan, Lokey, Howard & Zukin, Inc.
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Sixth, Section 2 of West Marine's Certificate of Incorporation
provides that directors of West Marine shall not be personally liable to West
Marine or its stockholders for monetary damages for breach of fiduciary duty as
a director, to the fullest extent permitted by the General Corporation Law of
the State of Delaware ("Delaware Law"). Article V of West Marine's By-laws
provides for indemnification of officers and directors to the full extent and in
the manner permitted by Delaware Law. Section 145 of the Delaware Law makes
provision for such indemnification in terms sufficiently broad to cover officers
and directors under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended.
West Marine has entered into indemnification agreements with each of its
directors and officers which provide indemnification under certain circumstances
for acts and omissions which may not be covered by any directors' and officers'
liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Agreement and Plan of Merger dated as of April 2, 1996 among
the Registrant, WM Merger Sub, Inc. and E&B Marine Inc.
("E&B Marine") (incorporated by reference to Exhibit 2.1 to
Registrant's Current Report or Form 8-K dated April 2,
1996).
2.2 Stockholders Agreement, dated as of April 2, 1996, by and
between the Registrant and certain Stockholders of E&B
Marine (incorporated by reference to Exhibit 2.2 to
Registrant's Current Report on Form 8-K dated April 2,
1996).
*2.3 Letter Amendment of Stockholders Agreement, dated May 10,
1996, between the Registrant and certain stockholders of E&B
Marine.
4.1 Specimen certificate of the Registrant's Common Stock.
(incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-69604)).
*5.1 Opinion of Orrick, Herrington & Sutcliffe, counsel to the
Registrant.
*8.1 Tax Opinion of Orrick, Herrington & Sutcliffe, counsel to
the Registrant.
*8.2 Tax Opinion of O'Sullivan, Graev & Karabell, LLP.
11.1 Statement re computation of per share earnings (incorporated
by reference to Exhibit 11.1 to the Registrant's Annual
Report on Form 10-K dated December 30, 1995).
*23.1 Consent of Orrick, Herrington & Sutcliffe (included in
Exhibits 5.1 and 8.1).
*23.2 Consent of O'Sullivan, Graev & Karabell, LLP (included in
Exhibit 8.2).
*23.3 Consent of KPMG Peat Marwick LLP.
II-1
<PAGE>
*23.4 Consent of Deloitte & Touche LLP.
*23.5 Consent of Houlihan, Lokey, Howard & Zukin, Inc.
+24.1 Power of Attorney.
_________
* Filed herewith
+ Previously filed
(b) Financial Statement Schedules
None
ITEM 22. UNDERTAKINGS
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended (the "Securities Act"),
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as amended, that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Watsonville, State of California, on May 15, 1996.
WEST MARINE, INC.
By: /s/ RANDOLPH K. REPASS
------------------------------------
Randolph K. Repass
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ RANDOLPH K. REPASS Chairman of the Board and May 15, 1996
- ---------------------- Director
(Randolph K. Repass)
CRAWFORD L. COLE* Chief Executive Officer, May 15, 1996
- --------------------- President and Director
(Crawford L. Cole) (Principal Executive Officer)
JOHN C. ZOTT* Senior Vice President, May 15, 1996
- ----------------- Finance, Chief Financial
(John C. Zott) Officer (Principal Financial
Officer and Principal
Accounting Officer)
JAMES P. CURLEY* Director May 15, 1996
- -------------------
(James P. Curley)
GEOFFREY A. EISENBERG* Director May 15, 1996
- -------------------------
(Geoffrey A. Eisenberg)
RICHARD E. EVERETT* Director May 15, 1996
- ----------------------
(Richard E. Everett)
II-4
<PAGE>
Signature Title Date
--------- ----- ----
WALTER SCOTT* Director May 15, 1996
- ---------------------
(Walter Scott)
RONALD P. YOUNG* Director May 15, 1996
- ---------------------
(Ronald P. Young)
*By: /s/ RANDOLPH K. REPASS
-----------------------
(Randolph K. Repass)
Attorney-in-Fact
II-5
<PAGE>
FORM OF PROXY
P PRELIMINARY COPY -- CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
R
O E&B MARINE INC.
X 201 MEADOW ROAD
Y P.O. BOX 747
EDISON, NJ 08818
ANNUAL MEETING OF STOCKHOLDERS - JUNE 17, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kenneth G. Peskin and Walfrido A. Martinez or
either of them as proxies, each with full powers of substitution, and hereby
authorizes them to represent and to vote, as designated below, all shares of
Common Stock, $.001 par value, of E&B Marine Inc. held of record by the
undersigned on May 10, 1996, at the Annual Meeting of Stockholders to be held on
June 17, 1996, or any adjournment thereof.
This Proxy when properly executed and returned in a timely manner will be voted
at the Annual Meeting and any adjournment thereof in the manner described
herein. If no contrary indication is made, the proxy will be voted FOR
Proposals 1, 2 and 3 in accordance with the judgment of the persons named as
proxies herein on any other matters that may properly come before the Annual
Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE SEE REVERSE
----------------------------------------------------
SIDE
Please mark
[X] votes as in
this example.
The Board of Directors unanimously recommends that you vote
FOR proposals 1, 2 and 3.
FOR AGAINST ABSTAIN
[_] [_] [_]
1. Proposal to approve and adopt the Agreement and Plan of Merger and the
transactions contemplated thereby, as described in the accompanying Proxy
Statement/Prospectus.
2. Ratification of appointment of KPMG Peat Marwick [_] [_] [_]
LLP as independent auditors for fiscal 1996.
3. Election of Directors FOR nominee WITHHOLD AUTHORITY to vote
listed below. for nominee listed below
Theodore A. Pamperin [_] [_]
Kenneth G. Peskin [_] [_]
John H. Weiland [_] [_]
4. In accordance with their judgment, the proxies are authorized to vote upon
such other matters as may properly come before the Special Meeting or any
adjournment hereof.
MARK HERE FOR ADDRESS CHANGE [_]
AND NOTE AT LEFT
This proxy must be signed exactly as your name appears hereon. When shares are
held by joint tenants, both should sign. Attorneys, executors, administrators,
trustees and guardians should indicate their capacities. If the signer is a
corporation, please print full corporate name and indicate capacity of duly
authorized officer executing on behalf of the corporation. If the signer is a
partnership, please print full partnership name and indicate capacity of duly
authorized person executing on behalf of the partnership.
Signature:__________________________ Date:________
Signature:__________________________ Date:________
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Agreement and Plan of Merger dated as of April 2, 1996 among
the Registrant, WM Merger Sub, Inc. and E&B Marine Inc.
("E&B Marine") (incorporated by reference to Exhibit 2.1 to
Registrant's Current Report or Form 8-K dated April 2,
1996).
2.2 Stockholders Agreement, dated as of April 2, 1996, by and
between the Registrant and certain Stockholders of E&B
Marine (incorporated by reference to Exhibit 2.2 to
Registrant's Current Report on Form 8-K dated April 2,
1996).
*2.3 Letter Amendment of Stockholders Agreement, dated May 10,
1996, between the Registrant and certain stockholders of E&B
Marine.
4.1 Specimen certificate of the Registrant's Common Stock.
(incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-69604)).
*5.1 Opinion of Orrick, Herrington & Sutcliffe, counsel to the
Registrant.
*8.1 Tax Opinion of Orrick, Herrington & Sutcliffe, counsel to
the Registrant.
*8.2 Tax Opinion of O'Sullivan, Graev & Karabell, LLP.
11.1 Statement re computation of per share earnings (incorporated
by reference to Exhibit 11.1 to the Registrant's Annual
Report on Form 10-K dated December 30, 1995).
*23.1 Consents of Orrick, Herrington & Sutcliffe (included in
Exhibits 5.1 and 8.1).
*23.2 Consent of O'Sullivan, Graev & Karabell, LLP (included in
Exhibit 8.2).
*23.3 Consent of KPMG Peat Marwick LLP.
*23.4 Consent of Deloitte & Touche LLP.
*23.5 Consent of Houlihan, Lokey, Howard & Zukin, Inc.
+24.1 Power of Attorney.
_________
* Filed herewith
+ Previously filed
<PAGE>
Exhibit 2.3
May 10, 1996
West Marine, Inc.
500 Westridge Drive
Watsonville, CA 95076-4100
RE: STOCKHOLDERS AGREEMENT ("AGREEMENT"), DATED AS OF APRIL 2, 1996,
BY AND BETWEEN WEST MARINE, INC., A DELAWARE CORPORATION, AND THE
UNDERSIGNED STOCKHOLDERS OF E&B MARINE INC., A DELAWARE
CORPORATION
Gentlemen:
This letter agreement sets forth our mutual agreement to amend
Sections 3.4(c), 7.1 and 7.2 of the Agreement as follows:
1. The two references in Section 3.4(c) to "Section 3.6" shall be
amended in each case to read "Section 3.4".
2. The first sentence of Section 7.1 shall be amended to read: "This
Agreement and the obligations of each Stockholder hereunder (other than
those set forth in this Section 7.1 and Sections 7.2, 7.3 and 9.4 hereof,
which shall survive any such termination) shall terminate on the first to
occur of (i) termination of the Merger Agreement in accordance with its
terms (the "Termination Date") or (ii) the Effective Time; provided,
however, that the obligations of each Stockholder under Sections 3.4, 3.5,
3.6 and 9 shall survive any termination pursuant to subsection 7.1(ii)".
3. The third sentence of Section 7.1 shall be deleted in its
entirety.
4. Section 7.2(d)(A) shall be amended to read: "(A) the acquisition
of the Company by merger or otherwise by any person (or any affiliate of
such person) making an Acquisition Proposal prior to the Termination Date
(other than Parent, Merger Sub or any affiliate thereof) (a "Third
Party");".
Except as amended by this letter agreement, the Agreement shall remain
in full force and effect.
<PAGE>
West Marine, Inc.
May 10, 1996
Page 2
This letter agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same agreement.
Very truly yours,
DLJ CAPITAL CORPORATION
By /s/ Thomas E. Siegler
--------------------------------------
Name: Thomas E. Siegler
Title: Secretary and Treasurer
DLJ VENTURE CAPITAL FUND II, L.P.
By: DJL Fund Associates II, its general
partner
By /s/ Janet A. Hickey
--------------------------------------
Name: Janet A. Hickey
Title: General Partner
SPROUT CAPITAL V
By: DLJ Associates V, its general partner
By /s/ Janet A. Hickey
--------------------------------------
Name: Janet A. Hickey
Title: General Partner
<PAGE>
West Marine, Inc.
May 10, 1996
Page 3
SPROUT GROWTH, L.P.
By: DLJ Growth Associates, its general
partner
By /s/ Janet A. Hickey
--------------------------------------
Name: Janet A. Hickey
Title: General Partner
SPROUT GROWTH, LTD.
By: DLJ Growth Partners, Attorney-in-Fact
By /s/ Janet A. Hickey
-------------------------------------
Name: Janet A. Hickey
Title: General Partner
/s/ Kenneth G. Peskin
-----------------------------------------
Kenneth G. Peskin
/s/ Judith Peskin
-----------------------------------------
Judith Peskin, as trustee u/a dated
December 24, 1992 for the
Kenneth G. Peskin and Sara Peskin Trust
/s/ Judith Peskin
------------------------------------------
Judith Peskin, as trustee u/a dated
December 24, 1992 for the
Kenneth G. Peskin and Margery Peskin Trust
<PAGE>
West Marine, Inc.
May 10, 1996
Page 4
/s/ Judith Peskin
---------------------------------------
Judith Peskin, as trustee u/a dated
December 24, 1992 for the
Kenneth G. Peskin and Lisa Peskin Trust
ACKNOWLEDGED AND AGREED THIS
10TH DAY OF MAY, 1996.
WEST MARINE, INC.
By /s/ John C. Zott
-----------------------------------------
Name: John C. Zott
Title: Vice President, Finance and
Chief Financial Officer
<PAGE>
Exhibit 5.1
May 14, 1996
West Marine, Inc.
500 Westridge Dr.
Watsonville, CA 95076
Re: West Marine, Inc.
Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
At your request, we are rendering this opinion in connection with a
proposed issuance by West Marine, Inc., a Delaware corporation (the "Company"),
of up to 776,615 shares of common stock, $0.001 par value (the "Common Stock"),
at the effective time of the merger (the "Merger") of a wholly-owned subsidiary
of the Company with and into E&B Marine Inc., a Delaware corporation.
We have examined instruments, documents, and records which we deemed
relevant and necessary for the basis of our opinion hereinafter expressed. In
such examination, we have assumed the following: (a) the authenticity of
original documents and the genuineness of all signatures; (b) the conformity to
the originals of all documents submitted to us as copies; and (c) the truth,
accuracy, and completeness of the information, representations, and warranties
contained in the records, documents, instruments, and certificates we have
reviewed.
Based on such examination, we are of the opinion that the 776,615
shares of Common Stock to be issued and sold by the Company in connection with
the Merger are duly authorized and will be, when issued at the effective time of
the Merger, legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever it
appears in said Registration Statement, including the Proxy Statement/Prospectus
constituting a part thereof, as originally filed or as subsequently amended or
supplemented. In giving such consent, we do not consider that we are "experts"
within the meaning of such term as used in the Securities Act of 1933, as
amended, or the rules and regulations
<PAGE>
West Marine, Inc.
May 14, 1996
Page 2
of the Securities and Exchange Commission issued thereunder, with respect to any
part of the Registration Statement, including this opinion as an exhibit or
otherwise.
Very truly yours,
/s/ Orrick, Herrington & Sutcliffe
ORRICK, HERRINGTON & SUTCLIFFE
<PAGE>
Exhibit 8.1
May 14, 1996
West Marine, Inc.
500 Westridge Drive
Watsonville, CA 95076
Attention: Board of Directors
Ladies and Gentlemen:
We have acted as your counsel in connection with the contemplated merger
(the "Merger") between E&B Marine Inc., a Delaware corporation ("E&B"), and WM
Merger Sub, Inc., a Delaware corporation ("Subsidiary"), pursuant to an
Agreement and Plan of Merger among E&B, Subsidiary and West Marine, Inc., a
Delaware corporation ("West"), dated as of April 2, 1996 (the "Merger
Agreement"). You have requested our opinions as to certain federal income tax
matters relating to the Merger. As your counsel, we are familiar with the terms
of the contemplated Merger, as described in the Merger Agreement and West's
Registration Statement on Form S-4 (the "Registration Statement") with respect
to the Merger. This opinion is being delivered to you in connection with the
filing of the Registration Statement.
Unless otherwise defined herein, all capitalized terms herein shall have
the meanings ascribed to them in the Merger Agreement.
Materials Examined
- ------------------
In this regard, we have examined executed originals or copies of the
following:
(a) The Merger Agreement;
(b) The Registration Statement;
(c) Representation letters dated the date hereof from E&B and West;
and
(d) Such other instruments, corporate records, certificates, and other
documents as we have deemed necessary as a basis for the opinions
hereinafter expressed.
<PAGE>
West Marine, Inc.
May 14, 1996
Page 2
Opinions
- --------
The opinions expressed in this letter are expressly based upon the
representation letters referred to above and the assumptions set forth below.
We have not independently verified the facts underlying the representations.
The opinions expressed in this letter are based upon relevant
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), Income
Tax Regulations, and current interpretations thereof as expressed in court
decisions and administrative determinations in effect on this date, as well as
such examination, and are subject to the assumptions, limitations, and
qualifications below.
Based upon and subject to the foregoing, it is our opinion that, if
the Merger is consummated in accordance with the provisions of the Merger
Agreement and the exhibits thereto, the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code.
In addition, we have reviewed the discussion contained in the
Registration Statement under the caption "THE MERGER -- Certain Federal Income
Tax Considerations" (the "Tax Discussion"). Subject to the qualifications and
limitations contained herein and in the Tax Discussion, we are of the opinion
that the statements of law and legal conclusions set forth in the Tax Discussion
are correct in all material respects.
Certain Assumptions
- -------------------
With your permission we have assumed for purposes of rendering the
requested opinions that the former E&B stockholders will, at the Effective Time,
have no plan or intention to sell or otherwise dispose of a number of shares of
Parent Common Stock that would reduce such stockholders' ownership to less than
50 percent of the total number of shares of Parent Common Stock received
pursuant to the Merger Agreement. For purposes of this assumption, shares of
Company Common Stock surrendered by dissenters or exchanged for cash in lieu of
fractional shares and shares of Company Common Stock sold or otherwise disposed
of during the period ending at the Effective Time will be treated as
<PAGE>
West Marine, Inc.
May 14, 1996
Page 3
outstanding Company Common Stock on the Effective Time exchanged for Parent
Common Stock in the Merger and then disposed of pursuant to a plan. We also
have assumed with your permission that: (a) no indebtedness of E&B or West will
be treated as equity for tax purposes; (b) no equity of West or E&B will be
treated as indebtedness for tax purposes; (c) no outstanding security,
instrument, agreement or arrangement that provides for, contains or represents
either a right to acquire Company Common Stock or to share in the appreciation
thereof will be treated as "stock" for purposes of Section 368(c) of the Code;
and (d) the Merger will be consummated pursuant to the Merger Agreement in
accordance with applicable laws.
In addition, with your permission we have assumed the following: (a)
the authenticity of original documents and the genuineness of all signatures;
(b) the conformity to the originals of all documents submitted to us as copies;
(c) the truth, accuracy, and completeness of the information, factual matters,
representations, and warranties contained in the records, documents, instruments
and certificates we have reviewed; (d) the due authorization, execution, and
delivery on behalf of the respective parties thereto of documents referred to
herein and the legal, valid, and binding effect thereof on such parties; (e) the
compliance by you with any applicable requirements to file returns and other
statements and pay taxes under the Code; and (f) the absence of any evidence
extrinsic to the provisions of the written agreement(s) between the parties that
the parties intended a meaning contrary to that expressed by those provisions.
Certain Limitations and Qualifications
- --------------------------------------
We express no opinion as to matters of law other than federal income
tax law. We caution that all of the provisions of law, regulations, and
interpretations are subject to changes that might result in modifications to our
opinions, and that although our opinions expressed in this letter represent our
best judgments as to such matters, our opinions have no binding effect on the
Internal Revenue Service or the courts. No ruling has been or will be requested
from the Internal Revenue Service concerning any of the federal income tax
consequences of the Merger. If the facts vary from those relied upon (including
if
<PAGE>
West Marine, Inc.
May 14, 1996
Page 4
any representation, covenant, warranty or assumption is inaccurate, incomplete,
breached or ineffective), our opinions contained herein could be inapplicable.
Use of Opinion
- --------------
Except as set forth above, we express no opinion as to the tax
consequences of the Merger to any party under federal, state, local or foreign
laws. This opinion letter is being delivered to you solely for the purpose of
filing with the Registration Statement and may not be relied upon, used,
circulated, quoted, or referred to, nor may copies hereof be delivered to, any
other person without our prior written approval. We disclaim any obligation to
update this opinion letter for events occurring or coming to our attention after
the date hereof. We consent to the use of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Orrick, Herrington & Sutcliffe
ORRICK, HERRINGTON & SUTCLIFFE
<PAGE>
EXHIBIT 8.2
May 14, 1996
E&B Marine, Inc.
201 Meadow Road
Edison, New Jersey
Attention: Board of Directors
Merger of West Marine, Inc.'s wholly-owned subsidiary,
WM Merger Sub, Inc., with and into E&B Marine, Inc.
with E&B Marine, Inc. surviving
-------------------------------
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing
of a Registration Statement on Form S-4 (the "Registration Statement") in
connection with the proposed merger of a newly-formed corporation, WM Merger
Sub, Inc., organized and existing under the laws of the State of Delaware
("Sub") and wholly-owned by West Marine, Inc., a corporation organized and
---
existing under the laws of the State of Delaware ("West Marine"), with and into
-----------
E&B Marine, Inc., a corporation organized and existing under the laws of the
State of Delaware ("E&B"), with E&B surviving the merger and becoming a wholly-
---
owned subsidiary of West Marine, pursuant to the applicable corporate laws of
the State of Delaware (the "Merger"), and in accordance with that certain
------
Agreement and Plan of Merger among West Marine, Sub and E&B, dated April 2, 1996
(the "Agreement").
---------
Except as otherwise provided, capitalized terms not defined herein
have the meanings set forth in the Agreement or in certificates delivered to us
by West Marine, Sub and E&B containing certain representations of West Marine,
Sub and E&B (the "Certificates").
To render this opinion, we have examined and are relying upon (without
any independent investigation or review thereof) the truth and accuracy at all
relevant times of the statements, covenants, representations and warranties
contained in the following documents:
1. the Agreement (including exhibits thereto);
2. the Certificate dated of even date herewith,
addressed to us; signed by an authorized officer of West Marine
and Sub, and delivered to us from West Marine and Sub in the form
<PAGE>
E&B Marine, Inc.
May 14, 1996
Page 2
attached hereto as "Exhibit A", and incorporated herein by reference;
---------
3. the Certificate dated of even date herewith, addressed to us,
signed by an authorized officer of E&B, and delivered to us from E&B in the form
attached hereto as "Exhibit B", and incorporated herein by reference;
---------
4. the Registration Statement; and
5. such other instruments and documents related to the formation,
organization and operation of West Marine, E&B and Sub or the consummation of
the Merger and the transactions contemplated thereby as we have deemed
necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
(1) original documents (including signatures) are authentic,
documents submitted to us as copies conform to the original documents and there
has been (or will be by the Effective Time of the Merger) due execution and
delivery of all documents where due execution and delivery are prerequisites to
the effectiveness thereof;
(2) any representation or statement referred to above made "to the
best knowledge of" or otherwise similarly qualified is correct without such
qualification;
(3) the Merger will be consummated pursuant to the Agreement and will
be effective under applicable state law;
(4) there is no plan or intention on the part of the E&B shareholders
(a "Plan") to sell, exchange, transfer, distribute, pledge or otherwise dispose
----
of (a "Sale") (a) shares of West Marine common stock to be issued to E&B
----
stockholders in the Merger, which shares would have an aggregate fair market
value, as of the Effective Time of the Merger, in excess of fifty percent (50%)
of the aggregate fair market value, immediately prior to the Merger, of all
outstanding shares of E&B stock, or (b) more than fifty percent (50%) of the
shares of West Marine common stock to be received in exchange for E&B stock in
the Merger. For purposes of this assumption, shares of E&B stock (or the
portion thereof) (i) with respect to which an E&B stockholder receives
consideration in the Merger other than West Marine common stock (including,
without limitation, cash received
<PAGE>
E&B Marine, Inc.
May 14, 1996
Page 3
pursuant to the exercise of dissenters' rights, if any, or in lieu of fractional
shares of West Marine common stock) and/or (ii) with respect to which a Sale
occurs during the period ending at the Effective Time shall be considered shares
of outstanding E&B stock exchanged for West Marine common stock in the Merger
and then disposed of pursuant to a Plan;
(5) following the Merger, E&B will continue its historic business or
use a significant portion of its historic business assets in a business;
(6) no outstanding indebtedness of West Marine, E&B or Sub has or
will represent equity for tax purposes; no outstanding equity of West Marine,
E&B or Sub has represented or will represent indebtedness for tax purposes; no
outstanding security, instrument, agreement or arrangement that provides for,
contains or represents either a right to acquire E&B stock or to share in the
appreciation thereof constitutes or will constitute "stock" for purposes of
Section 368(c) of the Code; and
(7) none of West Marine, Sub or E&B is, or will be at the time of the
Merger, (a) an "investment company" within the meaning of Section 368(a)(2)(F)
of the Code; or (b) under the jurisdiction of a court in a Title 11 or similar
case within the meaning of Section 368(a)(3)(A) of the Code.
Based on the foregoing documents, materials, assumptions and
information, and subject to the qualifications and assumptions set forth herein,
we are of the opinion that, if the Merger is consummated in accordance with the
provisions of the Agreement and the exhibits thereto, the Merger of Sub with and
into E&B, with E&B surviving the Merger and becoming a wholly-owned subsidiary
of West Marine, will qualify as a reorganization, for federal income tax
purposes, within the meaning of Section 368(a) of the Code.
In addition, we have reviewed the discussion contained in the
Registration Statement under the caption "The Merger -- Certain Federal Income
Tax Considerations" (the "Tax Discussion"). Subject to the qualifications and
limitations contained herein and in the Tax Discussion, we are of the opinion
that the Tax Discussion fairly presents the material federal income tax
consequences to E&B and its stockholders of the Merger.
This opinion is based upon the existing provisions of the Code,
Treasury Regulations (including Temporary and Proposed Treasury Regulations)
promulgated under the Code, published
<PAGE>
E&B Marine, Inc.
May 14, 1996
Page 4
Revenue Rulings, Revenue Procedures and other announcements of the Internal
Revenue Service (the "Service") and existing court decisions, any of which could
-------
change at any time. Any such changes might be retroactive with respect to
transactions entered into prior to the date of such changes and could
significantly modify the opinion set forth above. Nevertheless, we undertake no
responsibility to advise you of any subsequent developments in the application,
operation of interpretation of the federal income tax laws.
Our opinion concerning certain of the federal tax consequences of the
Merger is limited to the specific federal tax consequences described herein. No
opinion is expressed as to any transaction other than the Merger, including any
transaction undertaken in connection with the Merger. In addition, this opinion
does not address any estate, gift, state, local or foreign tax consequences that
may result from the Merger. In particular, we express no opinion regarding; (i)
the amount, existence or availability after the Merger of any of the federal
income tax attributes of E&B or West Marine (including, without limitation,
foreign tax credits or net operating loss carryforwards, if any, of E&B or West
Marine); (ii) the potential application of the "disqualifying disposition" rules
of Section 421 of the Code to dispositions of E&B stock; (iii) the effects of
the Merger and West Marine's assumption of outstanding options to acquire E&B
stock on the holders of such options under any E&B employee stock option or
stock purchase plan; (iv) the consequences of the Merger to holders of E&B stock
acquired subject to the provisions of Section 83(a) of the Code; and (v) the
effects of the Merger on any pension or other employee benefit plan maintained
by West Marine or E&B.
No ruling has been or will be requested from the Service concerning
the federal income tax consequences of the Merger. In reviewing this opinion,
you should be aware that the opinion set forth above represents our conclusions
regarding the application of existing federal income tax law to the instant
transaction. If the facts vary from those relied upon (including if any
representation, covenant, warranty or assumption upon which we have relied is
inaccurate, incomplete, breached or ineffective), our opinion contained herein
could be inapplicable. You should be aware that an opinion of counsel
represents only counsel's best legal judgment, and has no binding effect or
official status of any kind, and that no assurance can be given that contrary
positions will not be taken by the Service or that a court considering the
issues would not hold otherwise.
<PAGE>
E&B Marine, Inc.
May 14, 1996
Page 5
We understand that counsel for West Marine, Orrick, Herrington &
Sutcliffe, has rendered a tax opinion substantially similar to this opinion
concerning the federal income tax consequences of the Merger.
This opinion is being delivered to you for the purpose of filing with
the Registration Statement and may not be distributed or otherwise made
available to any other person or entity, without our prior written consent. We
consent to the use of this form of opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement.
Very truly yours,
/s/ O'Sullivan, Graev & Karabell
O'Sullivan Graev & Karabell, LLP
<PAGE>
EXHIBIT A
May 14, 1996
Orrick, Herrington & Sutcliffe
400 Sansome Street
San Francisco, CA 94111-3143
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10012
Ladies and Gentlemen:
E&B Marine Inc., a Delaware corporation ("Target"), intends to
consummate on or about June 17, 1996 a merger (the "Merger") with WM Merger Sub,
Inc., a Delaware corporation ("Subsidiary"), pursuant to an Agreement and Plan
of Merger, dated as of April 2, 1996, among West Marine, Inc., a Delaware
corporation ("Parent"), Subsidiary, and Target (the "Merger Agreement").
Subsidiary is a direct, wholly-owned subsidiary of Parent created for the
purpose of participating in the Merger. Pursuant to the Merger, each Target
shareholder will receive a number of shares of Parent stock in exchange for each
share of Target stock based on the Exchange Ratio set forth in the Merger
Agreement. Orrick, Herrington & Sutcliffe has acted as counsel to Parent in
connection with the Merger and you have advised the undersigned that O'Sullivan
Graev & Karabell, LLP has acted as counsel to Target in connection with the
Merger. Capitalized terms used without definition herein have the meanings
ascribed to them in the Merger Agreement.
You have been asked to render opinions with respect to certain federal
income tax matters relating to the Merger. This letter sets forth
representations upon which you are entitled to rely, without independent
verification of the accuracy of such representations, for all purposes
concerning the contemplated Merger, including the rendering of the requested
legal opinions.
After consulting with their counsel and auditors regarding the meaning
of and the factual support for the following representations, the undersigned
hereby certify and represent that the following facts are true and correct as of
the date hereof:
(a) Parent's principal reasons for participating in the Merger are
bona fide business reasons.
<PAGE>
(b) Subsidiary is a newly-formed corporation that was created for the
sole purpose of facilitating the acquisition of Target. It has not conducted
and is not conducting any business activities.
(c) The fair market value of the Parent stock and other consideration
to be received by the stockholders of Target will be, in each instance,
approximately equal to the fair market value of the Target stock surrendered in
exchange therefor.
(d) There is no plan or intention by the stockholders of Target who
own five percent (5%) or more of the outstanding Target stock, and to the best
of our knowledge, there is no plan or intention on the part of the remaining
stockholders of Target to sell, exchange or otherwise dispose of a number of
shares of Parent stock to be received in the Merger that will reduce such
stockholders' ownership of Parent stock to a number of shares having, in the
aggregate, a value as of the effective date of the Merger of less than fifty
percent (50%) of the total fair market value of all of the formerly outstanding
Target stock as of the effective date of the Merger. For purposes of this
representation, shares of Target stock exchanged for cash or other property,
surrendered by dissenters or exchanged for cash in lieu of fractional shares
will be treated as outstanding Target Common Stock on the effective date of the
Merger. Moreover, shares of Target stock and shares of Parent stock held by
Target stockholders and otherwise sold, redeemed, or disposed of prior or
subsequent to the Merger will be taken into account in making this
representation.
(e) Following the Merger, Target will hold at least 90 percent of the
fair market value of its net assets and at least 70 percent of the fair market
value of its gross assets and at least 90 percent of the fair market value of
Subsidiary's net assets and at least 70 percent of the fair market value of
Subsidiary's gross assets held immediately prior to the Merger. For purposes of
this representation, amounts paid by Target or Subsidiary to dissenters, amounts
paid by Target or Subsidiary to stockholders who receive cash or other property,
amounts used by Target or Subsidiary to pay reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends) made by
Target will be included as assets of Target or Subsidiary, respectively, held
immediately prior to the Merger.
(f) Parent has no plan or intention to reacquire any of its stock
issued in the Merger.
(g) Parent has no plan or intention to liquidate Target, to merge
Target with and into another corporation, to sell or otherwise dispose of the
stock of Target except for transfers of stock to corporations controlled by
Parent, or to cause Target to sell or otherwise dispose of any of its assets or
any of the assets of Subsidiary acquired in the Merger, except for dispositions
made in the ordinary course of business or transfers to a corporation controlled
by Target.
(h) Prior to the Merger, Parent will be in control of Subsidiary
within the meaning of section 368(c)(1) of the Internal Revenue Code of 1986, as
amended (the "Code").
(i) Following the Merger, Target will not issue additional shares of
its stock (or rights to acquire shares of its stock) that would result in Parent
losing control of Target within the meaning of section 368(c)(1) of the Code.
<PAGE>
(j) Following the Merger, Target will continue its historic business
or use a significant portion of its historic business assets in a business.
(k) Subsidiary will have no liabilities assumed by Target, and will
not transfer to Target any assets subject to liabilities, in the Merger.
(l) Parent, Subsidiary, Target, and the stockholders of Target will
each pay their own expenses, if any, that are incurred in connection with the
Merger.
(m) No stockholder of Target is acting as agent for Parent in
connection with the Merger or approval thereof, and Parent will not reimburse
any Target stockholder for Target stock such stockholder may have purchased or
for other obligations such stockholder may have incurred.
(n) There is no intercorporate indebtedness between Target and Parent
or Target and Subsidiary that was issued, acquired or will be settled at a
discount.
(o) Parent and Subsidiary each are not an investment company as
defined in section 368(a)(2)(F)(iii) and (iv) of the Code.
(p) At the Effective Time of the Merger, the fair market value of the
assets of Target will exceed the sum of its liabilities plus the amount of
liabilities, if any, to which such assets are subject.
(q) In the Merger, shares of Target stock representing control of
Target, as defined in Section 368(c)(1) of the Code, will be exchanged solely
for voting stock of Parent.
(r) To the best of our knowledge, at the time of the Merger, Target
will not have outstanding any warrants, options, convertible securities, or any
other type of right pursuant to which any person could acquire stock in Target
that, if exercised or converted, would affect Parent's acquisition or retention
of control of Target as defined in section 368(c)(1) of the Code.
(s) Parent does not own, nor has it owned during the past five years,
any shares of the stock of Target.
(t) Neither Parent nor Subsidiary is under the jurisdiction of a court
in a Title 11 or similar case within the meaning of section 368(a)(3)(A) of the
Code.
(u) None of the payments to be received by any stockholder-employees
of Target as compensation for services is separate consideration for or
allocable to their shares of Target Common Stock surrendered in the Merger, and
the compensation to be paid to such stockholder-employees after the Merger will
be commensurate with the amounts paid to third parties bargaining at arm's
length for similar services. None of the stock or cash to be received by any
stockholder-employees in the Merger is separate consideration for or allocable
to any compensation owed to such stockholder-employees.
(v) The payment of cash in the Merger in lieu of fractional shares of
Parent Common Stock is solely for the purpose of avoiding the expense and
inconvenience to Parent of issuing fractional shares and does not represent
separately bargained-for consideration. The Parent
<PAGE>
fractional share interests to which each Target stockholder may be entitled in
the Merger will be aggregated and no Target stockholder will receive cash in an
amount equal to or greater than the value of one full share of Parent common
Stock.
(w) Except with respect to (i) payments of cash to Target stockholders
in lieu of fractional shares of Parent Common Stock, and (ii) payments of cash
to Target dissenting stockholders, if any, one hundred percent (100%) of the
Target stock outstanding immediately prior to the Merger will be exchanged
solely for Parent Common Stock. Thus, except as set forth in the preceding
sentence, Subsidiary and Parent intend that no consideration be paid or received
(directly or indirectly, actually or constructively) for Target stock other than
Parent Common Stock.
(x) The total fair market value of all consideration other than Parent
Common Stock received by Target stockholders in exchange for their Target stock
in the Merger (including, without limitation, cash paid to Target dissenting
stockholders, if any, or in lieu of fractional shares of Parent Common Stock)
will be less than ten percent (10%) of the aggregate fair market value of Target
stock outstanding immediately prior to the Merger. In addition, the total cash
consideration that will be paid in the Merger to Target stockholders in lieu of
fractional shares of Parent Common Stock will not exceed one percent (1%) of
the total consideration that will be issued in the Merger to Target stockholders
in exchange for their shares of Target stock.
(y) No shares of Subsidiary have been or will be used as consideration
or issued to stockholders of Target in the Merger.
(z) The terms of the Merger Agreement and all other agreements entered
into in connection therewith are the result of arm's length negotiations.
(aa) Parent and Subsidiary are authorized to make all of the
representations set forth herein.
The undersigned recognizes that (i) your opinions will be based on,
among other things, the representations and statements set forth herein, in the
Merger Agreement (including exhibits and schedules thereto) and in the documents
related thereto, and (ii) your opinions will be subject to certain limitations,
qualifications and assumptions, including that the opinions may not be relied
upon if any such representations or statements are not accurate in all material
respects.
[intentionally left blank]
<PAGE>
The undersigned recognizes that your opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except as
expressly set forth in such opinions.
Very truly yours,
West Marine, Inc.
a Delaware corporation
By: /s/ JOHN C. ZOTT
--------------------------------------
Name: John C. Zott
-----------------------------------
Title: Vice President, Finance
-----------------------------------
WM Merger Sub, Inc.
a Delaware corporation
By: /s/ JOHN C. ZOTT
---------------------------------------
Name: John C. Zott
-----------------------------------
Title: Chief Financial Officer
-----------------------------------
<PAGE>
EXHIBIT B
May 14, 1996
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10012
Orrick, Herrington & Sutcliffe
400 Sansome Street
San Francisco, CA 94111-3143
Ladies and Gentlemen:
E&B Marine Inc., a Delaware corporation ("Target"), intends to consummate
on or about June 17, 1996 a merger (the "Merger") with WM Merger Sub, Inc., a
Delaware corporation ("Subsidiary") pursuant to an Agreement and Plan of Merger,
dated as of April 2, 1996, among West Marine, Inc., a Delaware corporation
("Parent"), Subsidiary, and Target (the "Merger Agreement"). Subsidiary is a
direct, wholly-owned subsidiary of Parent. Pursuant to the Merger, each Target
shareholder will receive a number of shares of Parent stock in exchange for each
share of Target stock based on the Exchange Ratio set forth in the Merger
Agreement. O'Sullivan Graev & Karabell, LLP has acted as counsel to Target in
connection with the Merger and you have advised the undersigned that Orrick,
Herrington & Sutcliffe has acted as counsel to Parent in connection with the
Merger. Capitalized terms used without definition herein have the meanings
ascribed to them in the Merger Agreement.
You have been asked to render opinions with respect to certain federal
income tax matters relating to the Merger. This letter sets forth
representations upon which you are entitled to rely, without independent
verification of the accuracy of such representations, for all purposes
concerning the contemplated Merger, including the rendering of the requested
legal opinions.
After consulting with its counsel and auditors regarding the meaning of and
the factual support for the following representations, the undersigned hereby
certify and represent that the following facts are true and correct as of the
date hereof:
(a) Target's principal reasons for participating in the Merger are bona
fide business reasons.
<PAGE>
(b) The fair market value of the Parent stock and other consideration to be
received by the stockholders of Target will be, in each instance, approximately
equal to the fair market value of the Target stock surrendered in exchange
therefor.
(c) There is no plan or intention by the stockholders of Target who own
five percent (5%) or more of the Target stock, and to the best of our knowledge,
there is no plan or intention on the part of the remaining stockholders of
Target to sell, exchange or otherwise dispose of a number of shares of Parent
stock to be received in the Merger that will reduce such stockholders' ownership
of Parent stock to a number of shares having, in the aggregate, a value as of
the effective date of the Merger of less than fifty percent (50%) of the total
fair market value of all of the formerly outstanding Target stock as of the
effective date of the Merger. For purposes of this representation, shares of
Target stock exchanged for cash or other property, surrendered by dissenters or
exchanged for cash in lieu of fractional shares will be treated as outstanding
Target Common Stock on the effective date of the Merger. Moreover, shares of
Target stock and shares of Parent stock held by Target stockholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the Merger will
be taken into account in making this representation.
(d) Following the Merger, Target will hold at least 90 percent of the fair
market value of its net assets and at least 70 percent of the fair market value
of its gross assets and at least 90 percent of the fair market value of
Subsidiary's net assets and at least 70 percent of the fair market value of
Subsidiary's gross assets held immediately prior to the Merger. For purposes of
this representation, amounts paid by Target or Subsidiary to dissenters, amounts
paid by Target or Subsidiary to stockholders who receive cash or other property,
amounts used by Target or Subsidiary to pay reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends) made by
Target will be included as assets of Target or Subsidiary, respectively, held
immediately prior to the Merger.
(e) To the best of our knowledge, prior to the Merger, Parent will be in
control of Subsidiary within the meaning of section 368(c)(1) of the Internal
Revenue Code of 1986, as amended (the "Code").
(f) Target has no plan or intention to issue additional shares of its stock
that would result in Parent losing control of Target within the meaning of
section 368(c)(1) of the Code.
(g) Following the Merger, Target will continue its historic business or use
a significant portion of its historic assets in a business.
(h) Subsidiary will have no liabilities assumed by Target, and will not
transfer to Target any assets subject to liabilities, in the Merger.
(i) Target and the stockholders of Target will each pay their own expenses,
if any, that are incurred in connection with the Merger.
(j) There is no intercorporate indebtedness between Target and Subsidiary
or Target and Parent that was issued, acquired, or will be settled at a
discount.
(k) Target is not an investment company as defined in section
368(a)(2)(F)(iii) and (iv) of the Code.
<PAGE>
(l) In the Merger, shares of Target stock representing control of Target,
as defined in Section 368(c)(1) of the Code, will be exchanged solely for voting
stock of Parent. For purposes of this representation, shares of Target stock
exchanged for cash or other property originating with Parent will be treated as
outstanding Target stock on the date of the Merger.
(m) At the time of the Merger, Target will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in Target that, if exercised or
converted, would affect Parent's acquisition or retention of control of Target
as defined in section 368(c)(1) of the Code.
(n) Parent does not own, nor has it owned during the past five years, any
shares of the stock of Target.
(o) On the effective date of the Merger, the fair market value of the
assets of Target will exceed the sum of its liabilities plus the amount of
liabilities, if any, to which such assets are subject.
(p) Target is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Code.
(q) None of the payments to be received by any shareholder-employees of
Target as compensation for services is separate consideration for or allocable
to their shares of Target Common Stock surrendered in the Merger, and the
compensation to be paid to such shareholder-employees after the Merger will be
commensurate with the amounts paid to third parties bargaining at arm's length
for similar services. None of the stock or cash to be received by any
shareholder-employees in the Merger is separate consideration for or allocable
to any compensation owed to such shareholder-employees.
(r) The payment of cash in the Merger in lieu of fractional shares of
Parent Common Stock is solely for the purpose of avoiding the expense and
inconvenience to Parent of issuing fractional shares and does not represent
separately bargained-for consideration. The Parent fractional share interests
to which each Target stockholder may be entitled in the Merger will be
aggregated and no Target stockholder will receive cash in an amount equal to or
greater than the value of one full share of Parent common Stock.
(s) The terms of the Merger Agreement and all other agreements entered into
in connection therewith are the result of arms' length negotiations.
[intentionally left blank]
<PAGE>
(t) Target is authorized to make all of the representations set forth
herein.
The undersigned recognizes that (i) your opinions will be based on, among
other things, the representations and statements set forth herein, in the Merger
Agreement (including exhibits and schedules thereto) and in the documents
related thereto, and (ii) your opinions will be subject to certain limitations,
qualifications and assumptions, including that the opinions may not be relied
upon if any such representations or statements are not accurate in all material
respects.
The undersigned recognizes that your opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except as
expressly set forth in such opinions.
Very truly yours,
E&B Marine Inc.
a Delaware corporation
By: /s/ KENNETH G. PESKIN
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Name: Kenneth G. Peskin
------------------------------------
Title: Chief Executive Officer
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<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
E&B Marine Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus. Our report refers to a
change in the method of accounting for income taxes.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
MAY 14, 1996
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
of West Marine, Inc.:
We consent to the incorporation by reference in this Registration Statement of
West Marine, Inc. on Form S-4 of our reports dated February 6, 1996, appearing
in and incorporated by reference in the Annual Report on Form 10-K of West
Marine, Inc. for the year ended December 30, 1995 and to the reference to us
under the heading "Experts" in the Proxy Statement/Prospectus, which is part of
this Registration Statement.
DELOITTE & TOUCHE LLP
San Francisco, California
MAY 13, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
To the Board of Directors of
West Marine, Inc.
To the Board of Directors of
E&B Marine Inc.
We consent to i) the attachment of our fairness opinion letter as an Annex to
the Proxy Statement/Prospectus contained in this Registration Statement on Form
S-4 for West Marine, Inc. and ii) use of our firm's name and description of our
fairness opinion and analysis prepared in connection with West Marine, Inc.'s
proposed merger with E&B Marine Inc., under the headings "Summary" and "The
Merger" in the Proxy Statement/Prospectus which is part of this Registration
Statement, and in E&B Marine Inc.'s letter to shareholders in this Registration
Statement.
Very truly yours,
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
