SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1998
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _________
Commission File No. 0-23538
MOTORCAR PARTS & ACCESSORIES, INC.
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(Exact name of Registrant as specified in its charter)
NEW YORK 11-2153962
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2727 MARICOPA STREET, TORRANCE, CALIFORNIA 90503
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 212-7910
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock, $.01 par
value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
Issuer's revenues for its most recent fiscal year: $112,952,000.
The aggregate market value, calculated on the basis of the average bid and asked
prices of such stock on the National Association of Securities Dealers Automated
Quotation System, of Common Stock held by non-affiliates of the Registrant as
of, June 26, 1998 was approximately $81,642,451.
There were 6,433,455 shares of Common Stock outstanding as of June 26, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of the Registrant's Proxy Statement relating to its 1998 Annual
Meeting of Shareholders is incorporated by reference herein
<PAGE>
PART I
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ITEM 1. BUSINESS.
GENERAL
The Company is a leading remanufacturer of replacement alternators
and starters for imported and domestic cars and light trucks in the United
States and Canada. The Company's full line of alternators and starters are
remanufactured for vehicles imported from Japan, Germany, Sweden, England,
France, Italy and Korea and, as recently commenced, for domestic vehicles. The
imported vehicles for which the Company remanufactures alternators and starters
also include vehicles produced by General Motors, Chrysler and Ford that are
originally equipped with components produced by foreign manufacturers, and
"transplants," which are manufactured in the United States by Toyota, Nissan,
Honda, Mazda and other foreign manufacturers. The Company also assembles and
distributes ignition wire sets for imported and domestic cars and light trucks.
The Company's products are sold throughout the United States to many
of the nation's largest chains of retail automotive stores, including AutoZone,
CSK Auto, The Pep Boys, O'Reilly Automotive and Trak Automotive, and throughout
Canada to that country's largest chain of retail automotive stores, Canadian
Tire. The Company also supplies remanufactured alternators and starters for
imported vehicles to Delphi, a division of General Motors. During the last
several years, the Company's marketing and sales of its products for imported
vehicles principally has been to retail automotive chains, which the Company
believes has been the fastest growing segment of the automotive aftermarket
industry. During fiscal 1998, approximately 87% of the Company's sales were to
retail automotive chains comprised of approximately 5,000 stores, with the
balance of sales primarily to large warehouse distributors.
THE AUTOMOTIVE AFTERMARKET INDUSTRY
The Company's historical market, the import automotive aftermarket
for alternators and starters, has experienced significant growth in recent
years. The Company believes that this growth has resulted from, among other
trends, (i) the proliferation of imported cars and light trucks in use, (ii) the
increase in the number of miles driven each year and (iii) the growth in the
number of imported vehicles at the prime repair age of four years and older. In
addition, the Company recently entered the significantly larger domestic
automotive aftermarket for alternators and starters, which the Company believes
represents substantial growth opportunities.
Two distinct groups of end-users buy replacement automotive parts:
(i) individual "do-it-yourself" consumers; and (ii) professional "do-it-for-me"
installers. The individual consumer market is typically supplied through
retailers and through retail arms of warehouse distributors. Automotive repair
shops generally purchase parts through local independent parts wholesalers,
through national warehouse distributors and, at a growing rate, through
automotive parts retailers.
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<PAGE>
The increasing complexity of cars and light trucks and the number of
different makes and models of these vehicles have resulted in a significant
increase in the number of different alternators and starters required to service
imported and domestic cars and light trucks. The technology used in starters and
alternators has become more advanced in response to the installation in vehicles
of an increasing number of electrical components such as cellular telephones,
electrically powered windows, air conditioning equipment, and radio and stereo
systems. Consequently, per unit sale prices have increased for such alternators
and starters.
Remanufacturing, which involves the reuse of parts which might
otherwise be discarded, creates a supply of parts at significantly lower cost to
the user than newly manufactured parts, and makes available automotive parts
which are no longer being manufactured. By making readily available parts for
automotive general use, remanufacturing benefits automotive repair shops by
relieving them of the need to rebuild worn parts on an individual basis and
conserves material which would otherwise be used to manufacture new replacement
parts. Most importantly, however, the Company's remanufactured parts are sold at
significantly lower prices than competitive new replacement parts.
COMPANY PRODUCTS
The Company's primary products are remanufactured replacement
alternators and starters for both imported and domestic cars and light trucks.
The Company also assembles and distributes ignition wire sets for the automotive
aftermarket for use in a wide variety of makes and models of foreign
automobiles. Alternators, starters and ignition wire sets are essential
components in all makes and models of automobiles. These products constitute
non-elective replacement parts, which are required for a vehicle to operate.
Most of the Company's products are sold for resale under customer private
labels, with the remaining products being sold under the Company's brand name,
which includes the use of its registered trademark, "MPA." Customers that sell
the Company's products under private label include AutoZone, CSK Auto, The Pep
Boys, Delphi, Canadian Tire and APS Holdings.
The Company's alternators and starters are produced to meet or exceed
automobile manufacturer specifications depending upon the make and model of the
automobile. The Company remanufactures a broad assortment of starters and
alternators in order to accommodate the numerous and increasing varieties of
these products currently in use. The Company currently provides a full line of
approximately 1,100 different alternators and 800 different starters. The
Company's import alternators and starters are provided for virtually all
Japanese manufacturers, including Toyota, Honda, Nissan, Mazda and Mitsubishi,
for certain European manufacturers, including Mercedes Benz, BMW, Volvo and
Volkswagen, for vehicles manufactured by Chrysler, General Motors and Ford that
are equipped with components produced by foreign manufacturers, and for
manufacturers of transplants.
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<PAGE>
CUSTOMERS
The Company's products are marketed throughout the United States and
Canada. The Company's customers consist of many of the largest chains of retail
automotive stores and automotive warehouse distributors in the United States.
The Company also sells its products to Canada's largest chain of retail
automotive stores, Canadian Tire. The Company services automotive retail chain
store accounts servicing approximately 5,000 retail outlets and warehouse
distributor accounts servicing approximately 6,000 jobbers. Each jobber in turn
sells to various automotive repair facilities, such as garages, dealers and
service stations, as well as to individual motorists.
Many of the largest chains of retail automotive stores in the United
States obtain their imported car alternators and starters from the Company.
Consequently, a significant percentage of the Company's sales has been
concentrated among a relatively small number of customers. The Company's three
largest customers accounted for approximately 43%, 17% and 15%, respectively, of
net sales during fiscal 1998. The Company's three largest customers accounted
for approximately 29%, 18% and 18%, respectively, of net sales during fiscal
1997. The Company's four largest customers accounted for approximately 21%, 20%,
18% and 11%, respectively, of the Company's net sales during fiscal 1996. There
can be no assurance that this concentration of sales among customers will not
continue in the future. The loss of a significant customer or a substantial
decrease in sales to such a customer would have a material adverse effect on the
Company's sales and operating results. The Company's arrangements with most of
its customers are based principally on the receipt of purchase orders and any
long-term written contracts generally may be terminated by customers upon short
notice. In addition, customers may demand price concessions from the Company
that could adversely affect profit margins.
OPERATIONS OF THE COMPANY
CORES
In its remanufacturing operations, the Company obtains used
alternators and starters, commonly known as "cores," which are sorted by make
and model and stored until needed. When needed for remanufacturing, the cores
are completely disassembled into component parts. Components which can be
incorporated into the remanufactured product are thoroughly cleaned, tested and
refinished. All components known to be subject to major wear, and those
components determined not to be reusable or repairable, are replaced by new
components. The unit is then reassembled on an assembly line into a finished
product. Inspection and testing are conducted at various stages of the
remanufacturing process, and each finished product is inspected and tested on
equipment designed to simulate performance under operating conditions.
Components of cores which are not used by the Company in its remanufacturing
process are sold as scrap.
The majority of the cores remanufactured by the Company are obtained
from customers as trade-ins, which are credited against future purchases. The
Company's customers encourage consumers to exchange their used units at the time
of purchase through the use of credits. To a lesser
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extent, the Company also purchases cores in the open market from core brokers,
who are dealers specializing in buying and selling cores. Although the Company
believes that the open market does not and will continue not to represent a
primary source of cores, this market offers a reliable source for maintaining
stock balance. Other materials and components used in remanufacturing are also
purchased in the open market. The ability to obtain cores of the types and
quantities required by the Company is essential to the Company's ability to meet
demand and expand production.
The price of a finished product generally is comprised of a
separately invoiced amount for the core included in the product ("core value")
and an amount for remanufacturing. Upon receipt of a core as a trade-in, credit
generally is given to the customer for the amount originally invoiced with
respect to that core. The Company limits trade-ins to cores for units included
in its sales catalogs and in condition able to be remanufactured. Credit for
cores is allowed only against purchases by a customer of similar remanufactured
products within a specified time period. A customer's total allowable credit for
core trade-ins is further limited by the dollar volume of the customer's
purchases of similar products within such time period. Core values fluctuate on
the basis of several economic factors, including market availability and demand
and core prices then being paid by other remanufacturers and core brokers.
Beginning with fiscal 1997, the Company implemented a new accounting
presentation with respect to its reporting of sales. In the past, the Company
deducted the value of all cores returned from its customers in order to reach
net sales. Under the new presentation, revenues are reported on a gross basis,
that is core returns from customers are not deducted in order to reach net
sales, but rather are included in cost of goods sold. Net sales and cost of
goods sold for prior years have been reclassified to reflect this new
presentation. The Company believes that this new presentation provides a truer
depiction of actual sales and cost of goods sold. In addition, it reflects a
more proper relationship between sales and inventory.
PRODUCTION PROCESS
The initial step in the Company's remanufacturing process begins with
the receipt in boxed quantities of cores from various sources, including
trade-ins from customers and purchases in the open market. The cores are
assessed and evaluated for inventory control purposes and then sorted by part
number. Each core is then completely disassembled into all of its fundamental
components. The components are cleaned in a process that employs customized
equipment and cleaning materials. The cleaning process is accomplished in
accordance with the required specifications of the particular units.
After the cleaning process is complete, the components are then
inspected and tested as prescribed by the Company's rigorous quality control
program. This program, which is implemented throughout the operational process,
is known as statistical process control. Upon passage of all tests, the
components are placed on an automatic conveyor for assembly into the required
units. The assembly process is monitored by designated quality control
personnel. Each fully assembled unit is then subjected to additional testing to
ensure performance and quality. Finished products are then
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<PAGE>
either stored in the Company's warehouse facility or packaged for immediate
delivery. To maximize efficiency, the Company stores in its warehousing
facilities component parts ready for assembly. The Company's management
information systems, including hardware and software, facilitate the
remanufacturing process from cores to finished products. This process takes
approximately four days.
The Company generally assembles ignition wires from components
manufactured by third parties. The assembly process involves the cutting of
predetermined lengths of wire, which have been manufactured to the Company's
specifications, and the attaching of terminals to the ends of such wires. The
final product ultimately is tested and packaged under the Company's name or
customers' private labels.
The Company conducts business through two wholly owned foreign
subsidiaries, MVR Products Pte Limited ("MVR"), which operates a shipping
warehouse and testing facility and maintains office space and remanufacturing
capability in Singapore, and Unijoh Sdn, Bhd ("Unijoh"), which conducts in
Malaysia remanufacturing operations similar to those conducted by the Company at
its remanufacturing facility in Torrance. These foreign operations are conducted
with quality control standards and other internal controls similar to those
currently implemented at the Company's remanufacturing facilities in Torrance.
The facilities of MVR and Unijoh are located approximately one hour drive apart.
The Company believes that the operations of its foreign subsidiaries are
important because of the lower labor costs experienced by these subsidiaries in
the same remanufacturing process.
In April 1997, the Company acquired all of the outstanding capital
stock of MVR and Unijoh from its shareholders, Mel Marks, Richard Marks and
Vincent Quek (each of whom owned one-third of each acquired entity), for an
aggregate purchase price to all such selling shareholders for both acquired
entities of 145,455 shares of Common Stock. The shares of Common Stock
constituting the purchase price have not been registered for sale pursuant to
the Securities Act of 1933 and are subject to a lock-up arrangement between the
Company and each such selling shareholder releasing for public resale one-fourth
of such shares on each of the first four anniversaries of the acquisitions. The
purchase price and other terms of the acquisitions were determined by the
Special Committee of the Board of Directors of the Company following
negotiations with the selling shareholders. In connection with, and as a
condition to, the acquisitions, the Special Committee received a fairness
opinion from Houlihan Lokey Howard & Zukin, a specialty investment banking firm.
PRODUCT TRADE-INS
The Company has a trade-in policy that it believes is typical for the
remanufactured automotive replacement parts industry. A manufacturer typically
provides a product warranty that is honored whether or not the purchaser
continues to do business with the manufacturer. As the Company believes is the
practice in its industry, however, the Company accepts product trade-ins only if
the purchaser makes future purchases from the Company within a specified time
period. Product trade-ins to the Company result only in credits against future
purchases. If a customer ceases
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doing business with the Company, the Company recognizes no further obligations
to that customer with respect to product trade-ins and no additional product
returns would be accepted by the Company. The customer would return any
returnable products to a new remanufacturer maintaining the same policy, which
remanufacturer would accept the product trade-ins and grant appropriate credits
regardless of whether the units were originally purchased from that new
remanufacturer.
As a result of the product trade-in policy in the Company's industry,
the Company accounts for product trade-ins on a current basis. No reserve is
made for future product trade-ins since there is no on-going obligation to
accept such trade-ins in the absence of continuing sales to the returning
customer. The Company believes that its return rate has been consistent with the
return rates generally experienced in its industry. In addition, the obligation
to accept trade-ins is only recognized as a credit against future sales in the
form of a reduction in the purchase price for those sales.
MARKETING AND DISTRIBUTION
The Company markets and distributes its products regionally through
salaried personnel and independent sales representatives. The Company's products
are sold under either its registered name and trademark, "MPA," or private label
names.
Approximately 87% of the Company's sales are to chains or retail
stores, which, the Company believes, constitute the dominant distribution
channel in the Company's market. Sales to chains or retail stores involve fewer
tiers in the distribution process. Products are delivered directly by or on
behalf of the Company to the chain's distribution centers, which then deliver
the merchandise directly to the retail stores for purchase by consumers. By
contrast, sales to warehouse distributors involve more participants in the
distribution network. Products are delivered to warehouse distributors, which
then deliver the merchandise to jobbers, which then sell the merchandise to
automotive repair facilities as well as to individual motorists. The Company
believes that it has obtained significant marketing and distribution, as well as
manufacturing, efficiencies through its focus on sales efforts to chains of
automotive retail stores.
Each year, the Company exhibits its products at customer-sponsored
trade shows and several major national trade shows, including the trade shows of
the Automobile Parts and Accessories Association, Automotive Parts and
Rebuilders Association, the Automotive Service Industries Association and the
Automotive Warehouse Distributors Association. The Company believes that its
brand name is recognized throughout its industry. The Company prepares and
publishes a comprehensive catalog of its starters and alternators, including a
pictorial product identification guide and a detailed technical glossary and
explanation guide. The Company believes that it maintains one of its market's
most extensive catalog and product identification systems, offering one of the
widest varieties of alternators and starters available in that market. The
Company further believes that certain of its customers' use of and reliance on
the catalog and product identification system provide incentives to those
customers to continue to purchase products from the Company.
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COMPETITION
The automotive aftermarket industry of remanufacturers and rebuilders
of alternators and starters for both imported cars and light trucks is highly
competitive. The Company's competitors include several other relatively large
sources of remanufactured units and numerous smaller, regional rebuilders.
Certain of the Company's competitors sell a wide variety of other automotive
parts, thereby establishing broader name recognition in the entire automotive
aftermarket. In addition, certain of the Company's competitors are divisions or
subsidiaries of entities also engaged in other businesses which have
substantially greater resources than those of the Company. The Company also
competes with several large regional remanufacturers and with remanufacturers
which are franchised by certain original equipment manufacturers to
remanufacture their products for regional distribution. Alternators and starters
produced by regional and other small rebuilders typically are not processed and
finished to the same extent as, and do not compete directly with, the Company's
products. The Company also competes with numerous rebuilders which serve
comparatively local areas.
Retailers and other purchasers of replacement automotive parts for
resale are constrained to a finite amount of space in which to display and stock
products. Consequently, the reputation for quality and customer service which a
supplier enjoys is a significant factor in a purchaser's decision as to which
product lines to carry in the limited space available. The Company believes that
these factors favor the Company, which provides quality replacement automotive
products, rapid and reliable delivery capabilities and promotional support. In
this regard, there is increasing pressure from customers, particularly larger
ones, for suppliers to provide "just-in-time" delivery, which allows delivery on
an as-needed basis to promptly meet customer orders. The Company believes that
its ability to provide "just-in-time" delivery distinguishes it from many of its
competitors and provides it a significant competitive advantage and also may
represent a barrier to entry to current or future competitors.
The Company's products have not been patented nor does the Company
believe that its products are patentable. The Company will continue to attempt
to protect its proprietary processes and other information by relying on trade
secret laws and non-disclosure and confidentiality agreements with certain of
its employees and other persons who have access to its proprietary processes and
other information.
GOVERNMENTAL REGULATION
The Company's operations are subject to federal, state and local laws
and regulations governing, among other things, emissions to air, discharge to
waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials. The Company is not subject to any such
laws and regulations which are specific to the automotive aftermarket industry.
The Company believes that its business, operations and facilities have been and
are being operated in compliance in all material respects with applicable
environmental and health and safety laws and regulations, many of which provide
for substantial fines and criminal sanctions for violations. Potentially
significant expenditures, however, could be required in order to comply with
evolving
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environmental and health and safety laws, regulations or requirements that may
be adopted or imposed in the future.
EMPLOYEES
The Company has approximately 690 full time employees. Of the
Company's employees, 30 are considered administrative personnel and eight are
sales personnel. None of the Company's employees is a party to any collective
bargaining agreement. The Company has not experienced any work stoppages and
considers its employee relations to be satisfactory.
ITEM 2. PROPERTIES.
The Company maintains facilities in Torrance, California, Roslyn
Heights, New York and Nashville, Tennessee. The Torrance facilities contain an
aggregate of approximately 352,000 square feet and accommodate most of the
Company's corporate headquarters and remanufacturing, warehousing and other
office requirements. The Company moved into its initial Torrance facility,
consisting of approximately 125,000 square feet, in September 1993. The lease
for the initial facility provides for a monthly rental of $44,280 through
September 1999, increasing thereafter to $47,601 through March 31, 2002, the
termination date of the lease. In September 1995, the Company entered into a
lease for an additional approximately 80,000 square feet in a second facility in
the same industrial area in Torrance and, in April 1997, increased its leased
space in the second facility to a total of approximately 227,000 square feet.
The lease for the second facility provides for a base monthly rental of $60,252
through September 1999, increasing thereafter to $64,771 through March 31, 2002,
the termination date of the lease. The Company's facilities were designed and
equipped according to specifications generated by the Company in order to
accommodate the Company's current and projected needs. The Company believes that
its facilities are sufficient to satisfy its foreseeable production
requirements. The Company also maintains an East Coast administrative and sales
office in Roslyn Heights, New York. This site contains approximately 1,000
square feet of office space. In October 1995, the Company opened a 31,000-square
foot warehouse and distribution facility in Nashville, Tennessee to service the
Company's growing East Coast and Southern market. The lease for this facility
expires on October 31, 1998 and provides for a monthly rental of $9,331. In
addition, the Company has facilities at its subsidiaries' locations in Malaysia
and Singapore.
ITEM 3. LEGAL PROCEEDINGS.
There are no pending material legal proceedings to which the Company
or any of its properties is subject nor, to the knowledge of the Company, are
any such legal proceedings threatened.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock, par value $0.01 per share (the "Common
Stock"), is quoted on the National Association of Securities Dealers' Automated
Quotation ("NASDAQ") National Market under the symbol MPAA. The following table
sets forth the high and low bid prices for the Common Stock during each quarter
of fiscal 1997 and fiscal 1998 as reported by NASDAQ. The prices reported
reflect inter-dealer quotations, may not represent actual transactions and do
not include retail mark-ups, mark-downs or commissions.
FISCAL 1997 FISCAL 1998
-------------------------------------
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter 19 14.250 18.50 13.250
Second Quarter 15.750 9.375 20.50 16.750
Third Quarter 15 11.875 20.250 16.250
Fourth Quarter 17.625 13.250 18 14.750
As of June 26, 1998, there were 6,433,455 shares of Common Stock
outstanding held by 47 holders of record.
The Company has not declared or paid dividends on the Common Stock
during the last two fiscal years.
The declaration of dividends in the future will be at the election of
the Board of Directors and will depend upon the earnings, capital requirements
and financial position of the Company, general economic conditions, state law
requirements and other relevant factors. In addition, the Company's agreement
with its bank lender prohibits payment of dividends without the bank's prior
consent, except dividends payable in Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data has been derived from the
Company's audited financial statements. The Income Statement Data relating to
the fiscal years 1998, 1997 and 1996 and the Balance Sheet Data as of March 31,
1998 and 1997 should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (1):
Net sales ........................................ $ 112,952 $ 86,872 $ 64,358 $ 39,235 $ 29,018
Cost of goods sold ............................... 91,317 69,255 50,965 30,690 21,816
Research and development ......................... 549 185 -- -- --
Selling expenses ................................. 2,417 2,305 1,984 1,498 2,117
General and administrative expenses .............. 6,298 4,974 4,577 3,704 2,593
Moving expenses .................................. -- -- -- -- 256
Operating income ................................. 12,371 10,153 6,832 3,343 2,236
Interest expense (net of interest income) ........ (1,577) (1,090) (833) (540) (453)
--------- --------- --------- --------- ---------
Income before income taxes ....................... 10,794 9,063 5,999 2,803 1,783
Provision for income taxes (pro forma for fiscal
1994) (2) ........................................ 4,192 3,529 2,353 1,197 728
--------- --------- --------- --------- ---------
Net income ................................. $ 6,602 $ 5,534 $ 3,646 $ 1,606 $ 1,055
========= ========= ========= ========= =========
Basic income per share (pro forma for
fiscal 1994) (3) ........................... $ 1.20 $ 1.14 $ 0.96 $ 0.50 $ 0.52
========= ========= ========= ========= =========
Diluted income per share (pro forma for
fiscal 1994) (3) ........................... $ 1.16 $ 1.11 $ 0.93 $ 0.49 $ 0.52
========= ========= ========= ========= =========
Weighted average common shares outstanding -
basic income per share (pro forma for fiscal
1994) (3) ........................................ 5,521 4,859 3,812 3,208 2,018
========= ========= ========= ========= =========
Weighted average common shares outstanding -
diluted income per share (pro forma for fiscal
1994) (3) ........................................ 5,693 5,007 3,939 3,295 2,018
========= ========= ========= ========= =========
MARCH 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(in thousands)
BALANCE SHEET DATA:
Total assets ..................................... $ 98,245 $ 75,510 $ 60,189 $ 25,823 $ 16,871
Working capital .................................. 75,333 51,800 44,254 18,096 12,041
Long-term debt and capitalized lease
obligations -- less current portions ........ 14,585 17,839 15,135 9,502 4,920
Shareholders' equity ............................. 68,127 40,108 34,031 10,016 8,410
</TABLE>
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(1) Net sales and cost of goods sold for fiscal 1996, 1995 and 1994 have been
reclassified to increase cost of goods sold, rather than decrease net
sales, by core trade-ins. See Note A[8] to the financial statements
contained herein.
(2) From January 1, 1987 through December 31, 1993, the Company was subject to
taxation as an "S" corporation in accordance with the Code. As a result,
the net income of the Company during that time was taxed for federal (and
some state) income tax purposes directly to the Company's shareholders
rather than to the Company. Pro forma data reflects the income tax expense
that would have been recorded had the Company not been exempt from the
payment of such taxes.
(3) Pro forma data for fiscal 1994 reflects the stock split effected by the
Company in January 1994, which increased the number of issued and
outstanding shares of Common Stock from 54.3428 shares to 2,000,000
shares.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere herein.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31,
---------------------------
1998 1997 1996
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 80.8 79.7 79.2
------ ------ ------
Gross profit 19.2 20.3 20.8
Research and development 0.4 0.2 0.0
Selling expenses 2.1 2.7 3.1
General and administrative expenses 5.6 5.7 7.1
------ ------ ------
Operating income 10.9 11.7 10.6
Interest expense, net of interest income 1.4 1.3 1.3
------ ------ ------
Income before income taxes 9.5 10.4 9.3
Provision for income taxes 3.7 4.1 3.7
------ ------ ------
Net income 5.8% 6.4% 5.7%
====== ====== ======
In its remanufacturing operations, the Company obtains used
alternators and starters, commonly known as "cores," from its customers as
trade-ins and by purchasing them from vendors. Such trade-ins are recorded when
cores are received from customers. Credits for cores are allowed only against
purchases of similar remanufactured products and generally are used within 60
days of issuance by the customer. Due to this trade-in policy, the Company does
not reserve for trade-ins. In addition, since it is unlikely that a customer
will not utilize its trade-in credits, the credit is recorded when the core is
returned as opposed to when the customer purchases new products. The Company
believes that this policy is consistent throughout the remanufacturing and
rebuilding industry.
Beginning with fiscal 1997, the Company implemented a new accounting
presentation with respect to its reporting of sales. In the past, the Company
deducted the value of all cores returned from its customers in order to reach
net sales. Under the new presentation, net sales are reported on a gross basis,
that is core returns from customers are not deducted in order to reach net
sales, but rather are included in cost of goods sold. The Company's financial
information has been reclassified to reflect this new presentation. The Company
believes that this new presentation provides a truer depiction of actual sales
and cost of goods sold and reflects a more proper relationship between sales and
inventory.
-13-
<PAGE>
Fiscal 1998 compared to Fiscal 1997
- -----------------------------------
Net sales for fiscal 1998 increased $26,080,000 or 30.0%, from
$86,872,000 to $112,952,000, over net sales for fiscal 1997. The increase in net
sales is primarily attributable to sales to one of the Company's largest
customers of alternators for domestic vehicles in connection with the recent
expansion of the Company's product line to include remanufactured products for
domestic vehicles.
Cost of goods sold for fiscal 1998 increased $22,062,000 or 31.9%,
from $69,255,000 to $91,317,000. The increase primarily is attributable to
additional costs incurred in connection with increased production. As a
percentage of net sales, cost of goods sold increased to 80.8% for fiscal 1998
as compared to 79.7% for fiscal 1997. The increase as a percentage of net sales
is attributable to (i) slightly reduced efficiencies resulting from increased
labor and overtime costs in connection with increased production requirements in
response to strong demand for the Company's products, (ii) lower gross margins
relating to the Company's new product line, and, (ii) to a lesser extent,
pricing pressures.
Selling expenses increased over the periods by $112,000 or 4.9%, from
$2,305,000 to $2,417,000. This increase resulted principally from an expansion
of the Company's sales force and related travel expenses offset partially by
reduced sales commissions to outside sales agents. As a percentage of net sales,
selling expenses decreased from 2.7% to 2.1%, reflecting the leveraging of these
expenses over the Company's increased net sales.
General and administrative expenses increased over the periods by
$1,324,000 or 26.6%, from $4,974,000 to $6,298,000. The increase over the
periods resulted principally from the addition of certain management personnel
in connection with the expansion of the Company's operations, an increase in
certain compensation expense and the inclusion of general and administrative
expenses related to the Company's ownership of MVR and Unijoh effective April
1997. Notwithstanding the increase, general administrative expenses as a
percentage of net sales decreased over the periods from 5.7% to 5.6%, reflecting
the leveraging of these expenses over the Company's increased net sales.
For fiscal 1998 interest expense net of interest income was
$1,577,000. This represents an increase of $487,000 or 44.7% over net interest
expense of $1,090,000 for fiscal 1997. Interest expense was comprised
principally of interest on the Company's revolving credit facility, borrowings
under which increased over the periods but were significantly reduced by
payments from the proceeds of the Company's public offering in November 1997.
Fiscal 1997 compared to Fiscal 1996
- -----------------------------------
Net sales for fiscal 1997 increased $22,514,000 or 35.0%, from
$64,358,000 to $86,872,000, over net sales for fiscal 1996. The increase is
attributable to the general growth of business with existing customers,
including the commencement of sales of alternators for domestic vehicles to one
of the Company's largest customers, and an unusually large increase in the
number of stock keeping
-14-
<PAGE>
units ("SKUs") that these customers offer in their stores. In addition, the
Company believes that the continued aging of the import vehicle fleet also
contributed to its increased sales.
Cost of goods sold for fiscal 1997 increased $18,290,000 or 35.9%,
from $50,965,000 to $69,255,000, over cost of goods sold for fiscal 1996. The
increase is primarily attributable to additional costs in connection with
increased production. Cost of goods sold as a percentage of net sales increased
over the periods from 79.2% to 79.7%. While the increase in cost of goods sold
over the periods is minimal, it can be primarily attributed to pricing pressures
experienced by the Company as offset by the continuing lowering of manufacturing
costs by the Company.
Selling expenses for fiscal 1997 increased $321,000 or 16.2%, from
$1,984,000 to $2,305,000, over selling expenses for fiscal 1996. Selling
expenses as a percentage of net sales decreased to 2.7% for fiscal 1997 from
3.1% for fiscal 1996. This decrease in selling expenses as a percentage of net
sales represents the continued leveraging of selling costs over the Company's
increased net sales.
General and administrative expenses for fiscal 1997 increased
$397,000 or 8.7%, from $4,577,000 to $4,974,000, over general and administrative
expenses for fiscal 1996. As a percentage of net sales these expenses decreased
over the periods from 7.1% to 5.7%. This decrease represents the continued
leveraging of these costs over the Company's increased net sales. The increase
over the periods was the result of additional insurance costs, general salary
increases and certain non-income-based state and local taxes.
Interest expense net of interest income was $1,090,000 for fiscal
1997. This represents an increase of $257,000 or 30.9% over interest expense net
of interest income for fiscal 1996. Interest expense was comprised principally
of interest paid on the Company's revolving credit facility, borrowings under
which increased over the periods. The balance of interest expense relates to the
Company's capital leases.
Liquidity and Capital Resources
- -------------------------------
The Company's recent operations have been financed principally from
the net proceeds of the Company's public offering in November 1997, borrowings
under its revolving credit facility and cash flow from operations. As of March
31, 1998, the Company's working capital was $75,333,000, including $3,108,000 of
cash and cash equivalents.
Net cash used in operating activities during fiscal 1998, 1997 and
1996 was $15,616,000, $5,978,000 and $15,344,000, respectively. The principal
use of cash in fiscal 1998 related to an increase in inventory of $12,850,000
and an increase in accounts receivable of $7,263,000. The increase in inventory
was due principally to the addition of inventory in connection with the
Company's recent entrance into the business of remanufacturing alternators and
starters for domestic vehicles. The increase in accounts receivable was due
primarily to the increased net sales in fiscal
-15-
<PAGE>
1998, although the days outstanding of the accounts receivable remained
relatively constant over the periods. As of March 31, 1998, the current portion
of capitalized lease obligations was $395,000.
Net cash used in investing activities during fiscal 1998 was
$1,367,000 as compared to net cash provided by investing activities during
fiscal 1997 of $6,770,000 and net cash used in investing activities of
$10,770,000 during fiscal 1996. During fiscal 1998, the Company used $1,874,000
of investments to fund its operations and purchased $3,241,000 of property,
plant and equipment in order to facilitate the continued expansion of the
Company's manufacturing capacity.
Net cash provided by financing activities in fiscal 1998, 1997 and
1996 was $16,431,000, $2,583,000 and $25,667,000, respectively. The net cash
provided by financing activities in fiscal 1998 primarily was attributable to
the net proceeds in the amount of $19,807,000 from the Company's public offering
in November 1997, the proceeds from which were used in part for a net reduction
of borrowing during the year under the Company's revolving line of credit in the
amount of $3,513,000. The Company also received during fiscal 1998 $911,000 from
the exercise of stock options. The net cash provided by financing activities in
1997 primarily was attributable to an increase in borrowing over the year under
the revolving line of credit and proceeds from the exercise of warrants and
stock options as offset primarily by payments on a capital lease obligation. The
increase in fiscal 1996 was primarily attributable to the net proceeds in the
amount of $19,501,000 from the Company's public offering in November 1995 and,
to a lesser extent, an increase in borrowing of $5,552,000 during the year under
the Company's revolving line of credit and the exercise of warrants and stock
options.
The Company has a credit agreement expiring in June 1999 with Wells
Fargo Bank, National Association (the "Bank") that provides for a revolving
credit facility in an aggregate principal amount not exceeding $25,000,000,
which credit facility is secured by a lien on substantially all of the assets of
the Company. The credit facility provides for an interest rate on borrowings at
the Bank's prime rate less .25% or LIBOR plus 1.25%. Under the terms of the
credit facility and included in the maximum amount thereunder, the Bank will
issue letters of credit and banker's acceptances for the account of the Company
in an aggregate amount not exceeding $2,500,000. At March 31, 1998, the
outstanding balance on the credit facility was approximately $13,983,000.
The Company's accounts receivable as of March 31, 1998 was
$29,591,000, representing an increase of $7,263,000 or 32.5% over accounts
receivable on March 31, 1997. This increase compares to the 30.0% increase in
net sales from fiscal 1997 to fiscal 1998. In addition, the Company occasionally
extends payment terms with certain customers. The Company partially protects
itself from losses due to uncollectible accounts receivable through an insurance
policy with an independent credit insurance company at an annual premium of
approximately $90,000. The Company's policy generally has been to issue credit
to new customers only after the customers have been included to some extent
under the coverage of its accounts receivable insurance policy. As of March 31,
1998, the Company's accounts receivable from its largest customer represented
approximately 49% of all accounts receivable.
-16-
<PAGE>
The Company's inventory as of March 31, 1998 was $54,736,000,
representing an increase of $12,874,000 or 30.7% over inventory as of March 31,
1997. This increase, as discussed above, primarily reflects the Company's
anticipated growth in net sales in connection with domestic vehicles and, to a
lesser extent, increased business from existing customers and the need to have
sufficient inventory to support shorter lead times for deliveries to customers.
Also, the Company continues to increase the number of SKUs sold requiring the
Company to carry raw materials for this wider variety of parts.
The Company currently expects that its capital expenditures
(exclusive of any potential acquisitions) will be approximately $3,500,000 in
fiscal 1999. However, the Company's capital expenditures will be affected by,
and may be greater than currently anticipated depending upon, the size and
nature of new business opportunities.
Disclosure Regarding Private Securities Litigation Reform Act of 1995
- ---------------------------------------------------------------------
This report contains certain forward-looking statements with respect
to the future performance of the Company that involve risks and uncertainties.
Various factors could cause actual results to differ materially from those
projected in such statements. These factors include, but are not limited to, the
uncertainty of long-term results from the Company's recent entrance into the
business of remanufacturing alternators and starters for domestic vehicles,
concentration of sales to certain customers, the potential for changes in
consumer spending, consumer preferences and general economic conditions,
increased competition in the automotive parts remanufacturing industry,
unforeseen increases in operating costs and other factors discussed herein and
in the Company's other filings with the Securities and Exchange Commission.
-17-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is set forth in the
Consolidated Financial Statements, commencing on page F-1 included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
-18-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated by reference
herein in the "Election of Directors" section of the Company's Proxy Statement
to be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference
herein in the "Executive Compensation" section of the Company's Proxy Statement
to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference
herein in the "Security Ownership of Management" section of the Company's Proxy
Statement to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference
herein in the "Certain Transactions" section of the Company's Proxy Statement to
be filed pursuant to Regulation 14A.
-19-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
a. EXHIBITS:
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
3.1 Certificate of Incorporation of the Incorporated by reference
Company. to Exhibit 3.1 to the
Company's Registration
Statement on Form SB-2
(No. 33-74528) declared
effective on March 22, 1994
(the "1994 Registration
Statement").
3.2 Amendment to Certificate of Incorporated by reference
Incorporation of the Company. to Exhibit 3.2 to the
Company's Registration
Statement on Form S-1 (No.
33-97498) declared
effective on November 14,
1995 (the "1995
Registration Statement").
3.3 Amendment to Certificate of Incorporated by reference
Incorporation of the Company. to Exhibit 3.3 to the
Company's Annual Report
on Form 10-K for the fiscal
year ended March 31, 1997
(the "1997 Form 10-K").
3.4 Amendment to Certificate of Filed herewith.
Incorporation of the Company.
3.5 By-Laws of the Company. Incorporated by reference
to Exhibit 3.2 to the 1994
Registration Statement.
4.1 Specimen Certificate of the Incorporated by reference
Company's Common Stock. to Exhibit 4.1 to the 1994
Registration Statement.
4.2 Form of Underwriter's Common Stock Incorporated by reference
Purchase Warrant. to Exhibit 4.2 to the 1994
Registration Statement.
-20-
<PAGE>
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
4.3 1994 Stock Option Plan. Incorporated by reference
to Exhibit 4.3 to the 1994
Registration Statement.
4.4 Form of Incentive Stock Option Incorporated by reference
Agreement. to Exhibit 4.4 to the 1994
Registration Statement.
4.5 1994 Non-Employee Director Stock Incorporated by reference
Option Plan. to Exhibit 4.5 to the
Company's Annual Report on
Form 10-KSB for the fiscal
year ended March 31, 1995.
4.6 1996 Stock Option Plan. Incorporated by reference
to Exhibit 4.6 to the
Company's Registration
Statement on Form S-2 (No.
333-37977) declared
effective on November 18,
1997 (the "1997
Registration Statement").
4.7 Executive and Key Employee Incorporated by reference
Incentive Bonus Plan. to Exhibit 4.6 to the 1995
Registration Statement.
4.8 Rights Agreement, dated as Filed herewith.
of February 24, 1998, by
and between the Company and
Continental Stock Transfer &
Trust Company, as rights agent.
10.1 Credit Agreement, dated as of Incorporated by reference
June 1, 1996, by and between the to Exhibit 10.4 to the
Company and Wells Fargo Bank, N.A. Company's Quarterly Report
on Form 10-Q for the
quarter ended December 31,
1996 (the "December 31,
1996 Form 10-Q").
10.2 First Amendment to Credit Agreement, Incorporated by reference
dated as of November 1, 1996, by and to Exhibit 10.2 to the 1997
between the Company and Wells Fargo Form 10-K.
Bank, N.A.
-21-
<PAGE>
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
10.3 Second Amendment to Credit Agreement, Incorporated by reference
dated as of August 8, 1997, by and to Exhibit 10.3 to the 1997
between the Company and Wells Fargo Registration Statement.
Bank, N.A.
10.4 Third Amendment to Credit Agreement, Filed herewith.
dated as of February 10, 1998,
by and between the Company and Wells
Fargo Bank, N.A.
10.5 Lease Agreement, dated March 9, 1993, Incorporated by reference
by and between the Company and Maricopa to Exhibit 10.3 to the 1994
Enterprises, Ltd., relating to the Registration Statement.
Company's initial facility located in
Torrance, California.
10.6 Second Amendment to Lease, dated Incorporated by reference
October 1, 1996, by and between the to Exhibit 10.5 to the 1997
Company and Maricopa Enterprises, Ltd., Form 10-K.
relating to the Company's initial
facility located in Torrance,
California.
10.7 Amendment to Lease, dated October 3, Incorporated by reference
1996, by and between the Company and to Exhibit 10.17 to the
Golkar Enterprises, Ltd. relating December 31, 1996
to additional property in Torrance, Form 10-Q.
California.
10.8 Amended and Restated Employment Incorporated by reference
Agreement, dated as of September 1, to Exhibit 10.7 to the 1995
1995, by and between the Company and Registration Statement.
Mel Marks.
10.9 First Amendment to Amended and Incorporated by reference
Restated Employment Agreement, to Exhibit 10.8 to the 1997
dated as of April 1, 1997, Form 10-K.
by and between the Company and
Mel Marks.
10.10 Amended and Restated Employment Incorporated by reference
Agreement, dated as of September 1, to Exhibit 10.8 to the 1995
1995, by and between the Company and Registration Statement.
Richard Marks.
-22-
<PAGE>
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
10.11 First Amendment to Amended and Incorporated by reference
Restated Employment Agreement, dated to Exhibit 10.10 to the
as of April 1, 1997, by and between 1997 Form 10-K.
the Company and Richard Marks.
10.12 Employment Agreement, dated as of Incorporated by reference
February 1, 1994, by and between to Exhibit 10.7 to the 1994
the Company and Steven Kratz. Registration Statement.
10.13 First Amendment to Employment Exhibit 10.12 to the 1995
Agreement, dated as of September 1, Registration Statement.
1995, by and between the Company
and Steven Kratz.
10.14 Second Amendment to Employment Incorporated by reference
Agreement, dated as of April 1, to Exhibit 10.13 to the
1997, by and between the Company and 1997 Form 10-K.
Steven Kratz.
10.15 Employment Agreement, dated as of Incorporated by reference
March 1, 1994, by and between the to Exhibit 10.12 to the
Company and Peter Bromberg. 1994 Registration
Statement.
10.16 First Amendment to Employment Incorporated by reference
Agreement, dated as of September 1, to Exhibit 10.12 to the
1995, by and between the Company 1995 Registration
and Peter Bromberg. Statement.
10.17 Second Amendment to Employment Incorporated by reference
Agreement, dated as of April 1, to Exhibit 10.16 to the
1997, by and between the Company 1997 Form 10-K.
and Peter Bromberg.
10.18 Employment Agreement, dated as of Incorporated by reference
September 1, 1995, by and between to Exhibit 10.13 to the
the Company and Eli Markowitz. 1995 Registration
Statement.
10.19 Employment Agreement, dated as of Incorporated by reference
April 1, 1997, by and among MVR, to Exhibit 10.18 to the
Unijoh and Vincent Quek. 1997 Form 10-K.
10.20 Form of Consulting Agreement, dated Incorporated by reference
as of September 1, 1995, by and to Exhibit 10.14
between the Company and Selwyn Joffe. to the 1995 Registration
Statement.
-23-
<PAGE>
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
10.21 Form of Employment Agreement, Incorporated by reference
dated as of October 1, 1997, by and to Exhibit 10.20 to the
between the Company and Karen Brenner. 1997 Registration
Statement.
10.22 Lease Agreement, dated March 28, Incorporated by reference
1995, by and between the Company to Exhibit 10.11 to the
and Equitable Life Assurance Company's Annual Report on
Society of the United States, Form 10-KSB for the fiscal
relating to the Company's facility year ended March 31, 1995.
located in Nashville, Tennessee.
10.23 Lease Agreement, dated September 19, Incorporated by reference
1995, by and between Golkar to Exhibit 10.18 to the
Enterprises, Ltd. and the Company 1995 Registration
relating to the Company's facility Statement.
located in Nashville, Tennessee.
10.24 Agreement and Plan of Reorganization, Incorporated by reference
dated as of April 1, 1997, by and to Exhibit 10.22 to the
among the Company, Mel Marks, 1997 Form 10-K.
Richard Marks and Vincent Quek
relating to the acquisition of MVR
and Unijoh.
10.25 Form of Indemnification Agreement Incorporated by reference
for officers and directors. to Exhibit 10.25 to the
1997 Registration
Statement.
21.1 List of Subsidiaries. Filed herewith.
23.1 Consent of Richard A. Eisner & Filed herewith.
Company, LLP.
27.1 Financial Data Schedule. Filed herewith.
B. REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the Company during the fiscal
quarter ended March 31, 1998.
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: June 29, 1998
MOTORCAR PARTS & ACCESSORIES, INC.
By: /s/ Mel Marks
------------------------------
Mel Marks,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Mel Marks Chairman of the Board and June 29, 1998
- ------------------------- Chief Executive Officer
Mel Marks (principal executive officer)
/s/ Richard Marks President, Chief Operating June 29, 1998
- ------------------------- Officer and Director
Richard Marks
/s/ Peter Bromberg Chief Financial Officer June 29, 1998
- ------------------------- (principal financial officer and
Peter Bromberg principal accounting officer)
/s/ Karen Brenner Director June 29, 1998
- -------------------------
Karen Brenner
Director June 29, 1998
- -------------------------
Selwyn Joffe
/s/ Mel Moskowitz Director June 29, 1998
- -------------------------
Mel Moskowitz
/s/ Murray Rosenzweig Director June 29, 1998
- -------------------------
Murray Rosenzweig
/s/ Gary Simon Director June 29, 1998
- -------------------------
Gary Simon
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
CONTENTS
PAGE
CONSOLIDATED FINANCIAL STATEMENTS
Independent auditors' report F-2
Consolidated balance sheets as of March 31, 1998 and March 31, 1997 F-3
Consolidated statements of income for the years ended March 31, 1998,
1997 and 1996 F-4
Consolidated statements of changes in shareholders' equity for the
years ended March 31, 1998, 1997 and 1996 F-5
Consolidated statements of cash flows for the years ended March 31,
1998, 1997 and 1996 F-6
Notes to consolidated financial statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Motorcar Parts & Accessories, Inc.
Torrance, California
We have audited the accompanying consolidated balance sheets of Motorcar Parts &
Accessories, Inc. and subsidiaries as of March 31, 1998 and 1997 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the years in the three-year period ended March 31, 1998. 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 enumerated above present
fairly, in all material respects, the financial position of Motorcar Parts &
Accessories, Inc. and subsidiaries as of March 31, 1998 and 1997 and the results
of its operations and its cash flows for each of the years in the three-year
period ended March 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
New York, New York
May 19, 1998
F-2
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,108 $ 3,539
Accounts receivable - net of allowance for doubtful
accounts of $250 and $200, respectively 29,591 22,328
Inventory 54,736 41,862
Prepaid expenses and other current assets 1,862 593
Deferred income tax asset -- 142
-------- --------
Total current assets 89,297 68,464
Long-term investments -- 1,874
Plant and equipment - net 7,141 4,291
Other assets 1,807 881
-------- --------
$ 98,245 $ 75,510
======== ========
LIABILITIES
Current liabilities:
Current portion of capital lease obligations $ 395 $ 743
Accounts payable and accrued expenses 11,816 13,777
Income taxes payable 1,592 2,005
Deferred income tax liability 161 --
Due to affiliate -- 139
-------- --------
Total current liabilities 13,964 16,664
Long-term debt 13,983 17,496
Capitalized lease obligations - less current portion 602 343
Other liabilities 1,163 570
Deferred income tax liability 406 329
-------- --------
30,118 35,402
-------- --------
Commitments and other matters
SHAREHOLDERS' EQUITY
Preferred stock; par value $.01 per share, 5,000,000
shares authorized; none issued
Series A Junior participating preferred stock; par
value $.01 per share, 20,000 shares authorized; none issued
Common stock; par value $.01 per share, 20,000,000 shares
authorized; 6,428,000 and 4,868,000 shares issued
and outstanding 64 49
Additional paid-in capital 50,927 28,973
Unearned portion of compensatory stock options (48) --
Accumulated foreign currency translation adjustment (57) --
Retained earnings 17,241 11,086
-------- --------
Total shareholders' equity 68,127 40,108
-------- --------
$ 98,245 $ 75,510
======== ========
</TABLE>
See notes to financial statements
F-3
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income:
Net sales $112,952 $ 86,872 $ 64,358
-------- -------- --------
Operating expenses:
Cost of goods sold 91,317 69,255 50,965
Research and development 549 185 --
Selling expenses 2,417 2,305 1,984
General and administrative expenses 6,298 4,974 4,577
-------- -------- --------
Total operating expenses 100,581 76,719 57,526
-------- -------- --------
Operating income 12,371 10,153 6,832
Interest expense (net of interest income of $101, $218 and
$219 for 1998, 1997 and 1996, respectively) 1,577 1,090 833
-------- -------- --------
Income before income taxes 10,794 9,063 5,999
Provision for income taxes 4,192 3,529 2,353
-------- -------- --------
NET INCOME $ 6,602 $ 5,534 $ 3,646
======== ======== ========
BASIC INCOME PER SHARE $ 1.20 $ 1.14 $ .96
======== ======== ========
DILUTED INCOME PER SHARE $ 1.16 $ 1.11 $ .93
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC
INCOME PER SHARE 5,521 4,859 3,812
Effect of potential common shares 172 148 127
-------- -------- --------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 5,693 5,007 3,939
INCOME PER SHARE ======== ======== ========
</TABLE>
See notes to financial statements
F-4
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
UNEARNED ACCUMULATED
COMMON STOCK PORTION OF FOREIGN
------------------- ADDITIONAL COMPENSATORY CURRENCY
NUMBER OF PAID-IN STOCK TRANSLATION RETAINED
SHARES AMOUNT CAPITAL OPTIONS ADJUSTMENT EARNINGS TOTAL
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE - MARCH 31, 1995 3,208 $ 32 $ 8,078 -- -- $ 1,906 $ 10,016
Proceeds from exercise of warrants and options 112 1 867 -- -- -- 868
Proceeds from public offering (net of costs of
$ 1,874) 1,500 15 19,486 -- -- -- 19,501
Net income -- -- -- -- -- 3,646 3,646
-------- -------- -------- -------- --------
BALANCE - MARCH 31, 1996 4,820 48 28,431 -- -- 5,552 34,031
Proceeds from exercise of options 48 1 355 -- -- -- 356
Tax benefit from exercise of options -- -- 187 -- -- -- 187
Net income -- -- -- -- -- 5,534 5,534
-------- -------- -------- -------- --------
BALANCE - MARCH 31, 1997 4,868 49 28,973 -- -- 11,086 40,108
Issuance of shares for MVR and Unijoh 145 1 679 -- -- (447) 233
Proceeds from public offering (net of costs of
$ 1,806) 1,300 13 19,794 -- -- -- 19,807
Proceeds from exercise of warrants and options 115 1 910 -- -- -- 911
Tax benefit from exercise of stock options -- -- 381 -- -- -- 381
Compensatory stock options issued -- -- 190 $ (48) -- -- 142
Translation adjustment -- -- -- -- $ (57) -- (57)
Net income -- -- -- -- -- 6,602 6,602
-------- -------- -------- -------- -------- -------- --------
BALANCE - MARCH 31, 1998 6,428 $ 64 $ 50,927 $ (48) $ (57) $ 17,241 $ 68,127
======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to financial statements
F-5
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,602 $ 5,534 $ 3,646
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 1,237 717 429
Noncash charge for compensatory stock options issued 142 -- --
Changes in:
Accounts receivable (7,263) (5,064) (6,589)
Inventory (12,850) (13,311) (16,434)
Prepaid expenses and other current assets (1,195) 44 (300)
Other assets (926) (732) (50)
Deferred income taxes 380 314 (82)
Accounts payable and accrued expenses (2,295) 5,134 3,094
Income taxes payable (32) 861 785
Due to affiliate 7 (45) 157
Other liabilities 577 570 --
-------- -------- --------
Net cash used in operating activities (15,616) (5,978) (15,344)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (3,241) (2,085) (657)
Change in investments 1,874 8,855 (10,113)
-------- -------- --------
Net cash (used in) provided by investing activities (1,367) 6,770 (10,770)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in borrowings under line of credit (3,513) 2,955 5,552
Payments on capital lease obligation (774) (728) (254)
Proceeds from public offerings 19,807 -- 19,501
Proceeds from exercise of warrants and options 911 356 868
-------- -------- --------
Net cash provided by financing activities 16,431 2,583 25,667
-------- -------- --------
Effect of exchange rate change on cash (3) -- --
--------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (555) 3,375 (447)
Cash and cash equivalents - beginning of year 3,539 164 611
Beginning cash balance of pooled entity 124 -- --
-------- -------- --------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 3,108 $ 3,539 $ 164
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,717 $ 1,262 $ 1,035
Income taxes 3,844 2,354 1,590
Noncash investing and financing activities:
Property acquired under capital lease 685 454 707
Property acquired included in accounts payable and accrued expense
at March 31, 1996 and financed through a capitalizable lease
during fiscal 1997 -- 212 212
</TABLE>
See notes to financial statements
F-6
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
Motorcar Parts & Accessories, Inc. and subsidiaries (the "Company"),
remanufactures and distributes alternators and starters and assembles and
distributes spark plug wire sets for the automotive after-market industry
(replacement parts sold for use on vehicles after initial purchase). These
automotive parts are sold to automotive retail chains and warehouse distributors
throughout the United States.
[1] PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries as of March
31, 1998 and for the year then ended. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
Company had no subsidiaries at March 31, 1997.
[2] CASH EQUIVALENTS:
The Company considers all highly liquid short-term investments
purchased with a maturity of three months or less to be cash
equivalents.
[3] INVESTMENTS:
The Company's marketable securities are classified as
available-for-sale and reported at fair value. Unrealized gains or
losses are classified as a separate component of shareholders'
equity.
[4] INVENTORY:
Inventory is stated at the lower of cost or market; cost is
determined by the average cost method.
[5] INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes" which requires the use of the liability method of
accounting for income taxes. The liability method measures deferred
income taxes by applying enacted statutory rates in effect at the
balance sheet date to the differences between the tax bases of assets
and liabilities and their reported amounts in the financial
statements. The resulting asset or liability is adjusted to reflect
changes in the tax laws as they occur.
[6] DEPRECIATION AND AMORTIZATION:
Property and equipment are depreciated on the straight-line method
over their estimated useful lives. Leasehold improvements are
amortized by the straight-line method over the shorter of their
estimated useful lives or the term of the lease.
F-7
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[7] FOREIGN CURRENCY TRANSLATION:
Results of the Company's foreign operations are translated using
average exchange rates during the period, while the related assets
and liabilities are translated at the exchange rate in effect at the
balance sheet date. Gains or losses from translating foreign currency
financial statements are accumulated in a separate component of
stockholders' equity.
[8] REVENUE RECOGNITION:
The Company recognizes sales when products are shipped. The Company
obtains used alternator and starter units, commonly known as cores,
from its customers as trade-ins and by purchasing them from vendors.
Cores are an essential material needed for remanufacturing
operations. During the year ended March 31, 1997, the Company
implemented a new accounting presentation with respect to its
reporting of sales. In the past, net sales were reduced by the core
inventory value to reflect deductions for cores returned for credit
from customers ("core trade-ins") and by the value of the credits
issued in excess of core inventory value ("product trade-ins"). As
reclassified, net sales are reduced by product trade-ins and other
deductions and allowances only and core trade-ins are included in
cost of goods sold. Net sales and cost of goods sold for the year
ended March 31, 1996 were reclassified to reflect this change.
Trade-ins are recorded upon receipt of cores from customers. Credits
for core and product trade-ins are allowed only against future
purchases of similar remanufactured products and are generally used
by the customer within sixty days of issuance. Accordingly, the
Company does not provide a reserve for trade-ins. In addition, since
it is remote that a customer will not utilize its trade-in credits,
the credit is recorded when the core is returned as opposed to when
the customer purchases new products. This policy is consistent
throughout the remanufacturing and rebuilding industry.
[9] EARNINGS PER SHARE:
The Company calculates its income per share under the provisions of
SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires a dual
presentation of "basic" and "diluted" income per share on the face of
the statements of operations. Basic income per share is computed by
dividing the net income by the weighted average number of shares of
common stock outstanding during each period. Diluted income per share
includes the effect, if any, from the potential exercise or
conversion of securities, such as stock options and warrants, which
would result in the issuance of incremental shares of common stock.
F-8
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[10] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
[11] IMPAIRMENT OF LONG-LIVED ASSETS:
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" during
the year ended March 31, 1997. SFAS 121 establishes accounting
standards for the impairment of long-lived assets, certain
identifiable assets, and goodwill related to those assets. There was
no effect of adoption of SFAS 121 on the financial statements.
[12] FINANCIAL INSTRUMENTS:
The carrying amounts of cash and cash equivalents, investments,
accounts receivable, accounts payable, accrued expenses, other
liabilities, capitalized lease obligations and long-term debt
approximate their fair value.
Estimated fair value of these financial instruments, some of which
are for short durations, has been determined using available market
information. In evaluating the fair value information, considerable
judgment is required to interpret the market data used to develop the
estimates. The use of different market assumptions and/or different
valuation techniques may have a material effect on the estimated fair
value amounts. Accordingly, the estimates of fair value presented
herein may not be indicative of the amounts that could be realized in
a current market exchange.
[13] STOCK-BASED COMPENSATION:
The Financial Accounting Standards Board (the "FASB") has issued SFAS
No. 123, "Accounting for Stock-Based Compensation", which encourages,
but does not require, companies to record compensation cost for
stock-based employee compensation under a fair value based method.
The Company has elected to continue to account for its stock-based
employee compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees" and disclose the pro forma
effects on net income and earnings per share had the fair value of
such compensation been expensed. Under the provisions of APB No. 25,
compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's common stock at the
date of the grant over the amount an employee must pay to acquire the
stock.
F-9
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[14] RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in a full set of
general purpose financial statements. Comprehensive income is defined
as the change in equity of a business enterprise during a period,
resulting from transactions and other events and circumstances from
nonowner sources. The Company is reviewing the impact of adopting
SFAS No. 130, which will be effective for the Company for the year
ending March 31, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." SFAS No. 131
requires publicly-held companies to report financial and other
information about key revenue-producing segments of the entity for
which such information is available and is utilized by the chief
operating decision maker. Specific information to be reported for
individual segments includes profit or loss, certain revenue and
expense items and total assets. A reconciliation of segment financial
information to amounts reported in the financial statements would be
provided. SFAS No. 131 is effective for the Company for the year
ending March 31, 1999. The Company currently evaluates its operations
as one segment.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the
Costs of Start-Up Activities," which requires costs of start-up
activities and organization costs to be expensed as incurred. The
Company believes that SOP 98-5 would not have a material effect on
its financial statements as of March 31, 1998. SOP 98-5 becomes
effective for the Company during the year ending March 31, 2000.
F-10
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE B - INVESTMENTS
The estimated fair value of available-for-sale investments at March 31, 1997 was
$1,874,000 and consisted of mortgage-backed securities and municipal bonds due
after one year.
The estimated fair value of each investment was approximately equal to the
amortized cost at March 31, 1997 and, therefore, there were no unrealized gains
or losses at that date. The Company did not hold any investments at March 31,
1998.
NOTE C - INVENTORY
Inventory is comprised of the following (in thousands):
MARCH 31,
---------------------------
1998 1997
------- -------
Raw material $28,609 $24,046
Work-in-process 7,066 4,270
Finished goods 19,061 13,546
------- -------
$54,736 $41,862
======= =======
NOTE D - PLANT AND EQUIPMENT
Plant and equipment, at cost, are summarized as follows (in thousands):
MARCH 31,
------------------------
1998 1997
-------- --------
Machinery and equipment $ 7,346 $ 4,362
Office equipment and fixtures 2,031 1,272
Leasehold improvements 1,211 472
-------- --------
10,588 6,106
Less accumulated depreciation and
amortization (3,447) (1,815)
-------- --------
$ 7,141 $ 4,291
======== ========
F-11
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE E - OBLIGATIONS UNDER CAPITAL LEASES
The Company has various capital leases for machinery and computer equipment. The
gross amount of such assets recorded under capital leases was $2,240,000 and
$2,338,000 at March 31, 1998 and 1997, respectively.
Future minimum lease payments at March 31, 1998 for the capitalized leases are
as follows (in thousands):
1999 $ 478
2000 233
2001 172
2002 172
2003 135
---------
1,190
Amount representing imputed interest 193
---------
Present value of future minimum lease payments 997
Less current maturities 395
---------
Long-term obligation at March 31, 1998 $ 602
=========
NOTE F - LONG-TERM DEBT
In November 1996, the Company amended its revolving line of credit agreement.
The agreement provides for a credit facility in an aggregate principal amount
not exceeding $25,000,000 and is collateralized by a lien on substantially all
of the assets of the Company. The agreement expires on June 1, 1998 and provides
for interest on borrowings at a fluctuating rate per annum .25% below the bank's
prime rate or at a fixed rate at 1.65% above LIBOR. The agreement allows the
Company to obtain from the bank letters of credit, and banker's acceptances in
an aggregate amount not exceeding $2,500,000 and requires the Company to
maintain certain financial ratios. As of March 31, 1998 balances due under this
agreement amounted to $13,983,000.
In August 1997, the Company further amended its revolving line of credit
agreement. The agreement provides for a credit facility in an aggregate
principal amount not exceeding $30,000,000 until December 31, 1997, reducing to
$25,000,000 on January 1, 1998, and is collateralized by a lien on substantially
all of the assets of the Company. The agreement expires on June 1, 1999 and
provides for interest on borrowings at a fluctuating rate per annum .25% below
the bank's prime rate or at a fixed rate at 1.25% above LIBOR, as further
amended in February 1998. The agreement also amends the requirements of certain
financial ratios.
F-12
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE G - RELATED PARTIES
In April 1997, MVR Products Co. PTE, Ltd. ("MVR") and Unijoh Sdn, Bhd ("Unijoh")
became wholly owned subsidiaries of the Company in a stock-for-stock merger
which has been accounted for in a manner similar to a pooling of interests.
Under the terms of the merger agreement, the Company issued 145,455 shares of
its common stock. The financial statements prior to the date of combination have
not been restated as the effect is not material to the Company's financial
condition and results of operations. The combined assets and combined
liabilities of MVR and Unijoh aggregated approximately $632,000 and $399,000,
respectively, at the date of combination.
Prior to the merger, the Company conducted business with MVR, which operates a
shipping warehouse and which conducts business with Unijoh. Unijoh operates a
remanufacturing facility similar to the Company. MVR's warehouse is located in
Singapore and Unijoh's factory is located in Malaysia. Two
shareholders/officers/directors of the Company owned 70% of both MVR and Unijoh,
with the remaining 30% owned by an unrelated third party. All of the cores
processed by Unijoh were produced for the Company on a contract remanufacturing
basis. The cores and other raw materials used in production by Unijoh were
supplied by the Company and were included in the Company's inventory. Inventory
owned by the Company and held by MVR and Unijoh was $762,000 at March 31, 1997.
The Company incurred costs of approximately $1,574,000 and $1,432,000 from the
affiliates for the years ended March 31, 1997 and 1996, respectively. The amount
reported as due to affiliate at March 31, 1997 was due to MVR.
NOTE H - EMPLOYMENT AGREEMENTS AND BONUS PLAN
The Company has employment agreements with eight officers, expiring at various
dates through September 1, 2000, which provide for annual base salaries
aggregating $1,473,000. In addition, six of the officers were granted options
pursuant to the Company's stock option plans for the purchase of 270,000 shares
of common stock (88,000, 92,000 and 90,000 granted in fiscal years 1998, 1997
and 1996, respectively). Of these options, 49,000, 25,000 and 10,000 were
exercised during the years ended March 31, 1998, 1997 and 1996, respectively.
The Company has established a bonus plan for the benefit of executives and
certain key employees. The bonus is calculated as a percentage of the base
salary ranging from 14% to 50%. The bonus percentage varies according to the
percentage increase in earnings before income taxes and other predetermined
parameters.
F-13
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE I - COMMITMENTS
The Company leases offices and warehouse facilities in New York, California and
Tennessee under operating leases expiring through 2002. The aggregate rentals
under these leases and leases which have been terminated was $1,175,000,
$819,000 and $609,000 for the years ended March 31, 1997, 1996 and 1995,
respectively. Certain leases contain escalation clauses for real estate taxes
and operating expenses.
Effective December 31, 1996, the Company amended a lease to acquire additional
space at one of its existing warehouse facilities.
The Company also leases office equipment and machinery under noncancellable
operating leases having remaining terms in excess of one year.
At March 31, 1998, the future minimum rental payments under the above operating
leases are as follows (in thousands):
REAL
TOTAL ESTATE MACHINERY
------------ --------------- ---------------
1999 $1,464 $1,339 $ 125
2000 1,393 1,321 72
2001 1,381 1,352 29
2002 1,364 1,348 16
2003 5 -- 5
------ ------ ------
$5,607 $5,360 $ 247
====== ====== ======
NOTE J - MAJOR CUSTOMERS AND CREDIT CONCENTRATION
The Company partially protects itself from losses due to uncollectible accounts
receivable through the purchase of credit insurance. Accounts receivable
balances not covered by credit insurance are primarily due from leading
automotive parts retailers.
The Company's four largest customers accounted for the following percentage of
net sales:
YEAR ENDED MARCH 31,
----------------------------------
CUSTOMER 1998 1997 1996
-------- ---- ---- ----
A 17% 18% 21%
B 15 18 11
C 43 29 20
D 5 8 18
F-14
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE J - MAJOR CUSTOMERS AND CREDIT CONCENTRATION (CONTINUED)
Customer A accounted for approximately 17% and 13%, customer B accounted for
approximately 18% and 11% and customer C accounted for approximately 49% and 57%
of the accounts receivable at March 31, 1998 and 1997, respectively.
NOTE K - INCOME TAXES
The provision for income taxes consists of the following (in thousands):
YEAR ENDED MARCH 31,
---------------------------------------
1998 1997 1996
------- ------- -------
Current:
Federal $ 3,100 $ 2,750 $ 1,913
State 712 465 522
Deferred 380 314 (82)
------- ------- -------
$ 4,192 $ 3,529 $ 2,353
======= ======= =======
The difference between the tax provision and the amount that would be computed
by applying the statutory federal income tax rate to income before taxes is
attributable to the following (in thousands):
YEAR ENDED MARCH 31,
----------------------------------
1998 1997 1996
------- ------- -------
Income tax provision at 34% $ 3,628 $ 3,081 $ 2,040
State and local taxes, net of
federal benefit 469 307 345
Permanent differences 23 (20) 18
Other 72 161 (50)
------- ------- -------
$ 4,192 $ 3,529 $ 2,353
======= ======= =======
The deferred income tax asset of $142,000 at March 31, 1997 is comprised of
temporary differences in tax and financial reporting resulting primarily from
capitalization of certain inventory costs for tax purposes. Deferred tax
liabilities of $567,000 and $329,000 at March 31, 1998 and 1997, respectively,
are comprised of differences resulting from using accelerated depreciation rates
for tax purposes and from certain expenses for tax purposes which have been
capitalized in the Company's financial statements.
F-15
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE L - SHAREHOLDERS' EQUITY
[1] COMMON STOCK:
In November 1995, the Company effected a public offering of its
common stock. The Company issued 1,500,000 shares for $14.25 per
share, yielding net proceeds of $19,501,000 after underwriting
commissions and expenses totalling $1,874,000. In addition, two
principal shareholders sold an aggregate of 344,500 shares in
connection with this offering.
In November 1997, the Company effected a public offering of its
common stock. The Company issued 1,300,000 shares for $16.625 per
share, yielding net proceeds of $19,807,000 after underwriting
commissions and expenses totalling $1,806,000. In addition, two
principal stockholders sold an aggregate of 250,000 shares in
connection with this offering.
[2] PREFERRED STOCK:
In a Rights Agreement, dated as of February 24, 1998, between the
Company and Continental Stock Transfer & Trust Company, the Company
authorized 20,000 shares of Series A Junior Participating Preferred
Stock, par value $.01 per share. The Series A Junior Participating
Preferred Stock has preferential voting, dividend and liquidation
rights over the Common Stock.
On February 24, 1998, the Company declared a dividend distribution to
the holders of record at the close of business on March 12, 1998 of
one Right on each share of Common Stock. Each Right, when
exercisable, entitles the registered holder thereof to purchase from
the Company one one-thousandth of a share of Series A Junior
Participating Preferred Stock at a price of $65 per one
one-thousandth of a share (subject to adjustment).
The Rights will not be exercisable or transferable apart from the
Common Stock until an Acquiring Person, as defined in the Rights
Agreement, without the prior consent of the Company's Board of
Directors, acquires 20% or more of the outstanding shares of the
Common Stock or announces a tender offer that would result in 20%
ownership. The Company is entitled to redeem the Rights, at $.001 per
Right, any time until ten days after a 20% position has been
acquired. Under certain circumstances, including the acquisition of
20% of the Common Stock, each Right not owned by a potential
Acquiring Person will entitle its holder to receive, upon exercise,
shares of Common Stock having a value equal to twice the exercise
price of the Right.
Holders of a Right will be entitled to buy stock of an Acquiring
Person at a similar discount if, after the acquisition of 20% or more
of the Company's outstanding shares of Common Stock, the Company is
involved in a merger or other business combination transaction with
another person in which it is not the surviving company, its common
shares are changed or converted, or the Company sells 50% or more of
its assets or earning power to another person. The Rights expire on
March 12, 2008 unless earlier redeemed by the Company.
F-16
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE L - SHAREHOLDERS' EQUITY (CONTINUED)
[3] STOCK OPTION PLAN:
In January 1994, the shareholders approved the 1994 Stock Option Plan
(the "1994 Plan"), which was amended in October 1996, to provide for
the granting of options to purchase a total of 720,000 common shares
to key employees and directors. Options granted may be either
"incentive stock options" within the meaning of Section 422A of the
Internal Revenue Code or nonqualified options. The 1994 Plan is
administered by the Board of Directors, which determines the terms of
options exercised, including the exercise price, the number of shares
subject to the option and the terms and conditions of exercise.
In August 1995, the shareholders approved a Nonemployee Director
Stock Option Plan (the "Directors Plan") which provides for the
granting of options to purchase a total of 15,000 common shares to
directors. The Directors Plan is administered by the Board of
Directors.
In September 1997, the shareholders approved the 1996 Stock Option
Plan (the "1996 Plan") which provides for the granting of options to
purchase a total of 30,000 common shares to key employees,
consultants and directors. The 1996 Plan is administered by the Board
of Directors.
The following table summarizes the activity under these Plans (in
thousands, except for per share data):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------
1998 1997 1996
---------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 489 $10.31 335 $ 9.23 250 $ 7.40
Granted 117 17.34 382 12.98 109 12.96
Exercised (101) 7.99 (48) 7.46 (23) 7.19
Cancelled -- -- (180) 14.69 (1) 8.13
----- ----- -----
Options outstanding at 505 12.40 489 10.31 335 9.23
end of year ===== ===== =====
Options exercisable at 383 11.95 290 9.34 278 8.83
end of year ===== ===== =====
</TABLE>
F-17
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE L - SHAREHOLDERS' EQUITY (CONTINUED)
[3] STOCK OPTION PLAN: (CONTINUED)
The following table presents information relating to stock options
outstanding at March 31, 1998 (in thousands, except per share data):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF EXERCISE REMAINING EXERCISE
EXERCISE PRICE SHARES PRICE LIFE IN YEARS SHARES PRICE
- --------------- ------ -------- ------------- ------ ---------
$ 6.00 - $ 8.13 96 $ 7.66 6 96 $ 7.66
$ 9.00 - $10.63 174 10.60 8 125 10.59
$11.88 - $13.44 58 12.48 8 37 12.75
$14.69 - $19.13 177 16.72 9 125 16.41
----- ------
505 12.40 8 383 11.95
===== ======
As of March 31, 1998, 66,000 options are available for future grant
under the 1994 Plan, 7,500 options are available for future grant
under the Directors Plan and 15,000 options are available for future
grant under the 1996 Plan.
The weighted-average fair value at date of grant for options granted
during the years ended March 31, 1998, 1997 and 1996 was $9.68, $5.50
and $5.63 per option, respectively. The fair value of options at date
of grant was estimated using the Black-Scholes option pricing model
utilizing the following assumptions:
MARCH 31,
------------------------------
1998 1997 1996
---- ---- ----
Risk-free interest rates 6.5% 5.8%-6.5% 6.1%-6.9%
Expected option life in years 5 5 5
Expected stock price volatility 55% 36% 38%
Expected dividend yield 0% 0% 0%
Had the Company elected to recognize compensation cost based on the
fair value of the options at the date of grant as prescribed by SFAS
123, net income for the years ended March 31, 1998, 1997 and 1996
would have been approximately $5,952,000, $5,180,000 and $3,425,000
or $1.04 per share, $1.03 per share and $.87 per share, respectively.
F-18
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE L - SHAREHOLDERS' EQUITY (CONTINUED)
The effect of applying SFAS 123 for providing proforma disclosures
for each of the years in the three-year period ended March 31, 1998
is not likely to be representative of the effect on future years.
[4] WARRANTS:
In connection with the Company's initial public offering the Company
issued to the underwriter 105,000 warrants to purchase common stock
at an exercise price of $7.20 per share. In connection with a public
offering in November 1995, 90,000 warrants were exercised. 14,000
additional warrants were exercised during the year ended March 31,
1998.
F-19
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
of
MOTORCAR PARTS & ACCESSORIES, INC.
Under Section 805 of the Business Corporation Law
of the State of New York
We the undersigned, Richard Marks, President, and Peter Bromberg,
Assistant Secretary of Motorcar Parts & Accessories, Inc., a corporation
organized and existing under the laws of the State of New York, in accordance
with the provisions of Section 104 of the Business Corporation Law of the State
of New York, DO HEREBY CERTIFY:
1. The name of the corporation is Motorcar Parts & Accessories, Inc.
(hereinafter called the "Corporation"). The name under which the Corporation was
formed was Motorcar Parts Associates, Inc.
2. The Certificate of Incorporation was filed by the Department of
State of the State of New York on April 2, 1968.
3. The Certificate of Incorporation of the Company, as amended
heretofore (the "Certificate of Incorporation"), is further amended by the
addition of the following provisions stating the number, designation, relative
rights, preferences and limitations of a series of Preferred Shares of the
Company designated as "Series A Junior Participating Preferred Stock."
4. To accomplish the foregoing amendment, a new section (c) of Article
FOURTH is added to the Certificate of Incorporation, which section (c) of
Article FOURTH reads in its entirety as follows:
"(c) SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
(1) Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" and the number of
shares constituting such series shall be 20,000.
(2) Dividends and Distributions.
(A) The holders of shares of Series A Junior Participating
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of March, June, September and December
in each year (each such date being referred to herein as a
<PAGE>
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Junior Participating Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $0.01 or (b) subject to the
provision for adjustment hereinafter set forth, 1,000 times the aggregate per
share amount of all cash dividends, and 1,000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions other
than a dividend payable in Common Stock or a subdivision of the outstanding
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Junior Participating Preferred
Stock. In the event the Corporation shall at any time after February 24, 1998
(the "Rights Declaration Date") (i) declare any dividend on Common Stock payable
in Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each such
case the amount to which holders of shares of Series A Junior Participating
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Junior Participating Preferred Stock as provided in Paragraph
(A) above immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $0.01 per share on the
Series A Junior Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of
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<PAGE>
shares of Series A Junior Participating Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record date shall
be no more than 30 days prior to the date fixed for the payment thereof.
(3) Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Junior Participating Preferred Stock shall entitle
the holder thereof to 1,000 votes on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the number of votes per share to which holders of shares of
Series A Junior Participating Preferred Stock were entitled immediately prior to
such event shall be adjusted by multiplying such number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the
holders of shares of Series A Junior Participating Preferred Stock and the
holders of Common Stock shall vote together as one class on all matters
submitted to a vote of shareholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to six (6)
quarterly dividends thereon, the occurrence of such contingency shall mark the
beginning of a period (herein called a "default period") which shall extend
until such time when all accrued and unpaid dividends for all previous quarterly
dividend periods and for the current quarterly dividend period on all shares of
Series A Junior Participating Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default period, all
holders of Preferred Stock (including holders of the Series A Junior
Participating Preferred Stock) with dividends in arrears in an amount equal to
six (6) quarterly dividends thereon, voting as a class, irrespective of series,
shall have the right to elect two (2) directors.
(ii) During any default period, such voting right of
the holders of Series A Junior Participating Preferred Stock may be exercised
initially at a special meeting called pursuant to subparagraph (iii) of this
Section 3(C) or at any annual meeting of shareholders, and thereafter at annual
meetings of shareholders, provided that such voting right shall not be exercised
unless the holders of ten percent (10%) in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The absence of a quorum of
the holders of Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting right. At any meeting at which the holders of
Preferred Stock shall exercise such voting right initially during an existing
default period, they shall have the right, voting as a class, to elect
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<PAGE>
directors to fill such vacancies, if any, in the Board of Directors as may then
exist up to two (2) directors or, if such right is exercised at an annual
meeting, to elect two (2) directors. If the number which may be so elected at
any special meeting does not amount to the required number, the holders of the
Preferred Stock shall have the right to make such increase in the number of
directors as shall be necessary to permit the election by them of the required
number. After the holders of the Preferred Stock shall have exercised their
right to elect directors in any default period and during the continuance of
such period, the number of directors shall not be increased or decreased except
by vote of the holders of Preferred Stock as herein provided or pursuant to the
rights of any equity securities ranking senior to or pari passu with the Series
A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall,
during an existing default period, have previously exercised their right to
elect directors, the Board of Directors may order, or, subject to the provisions
of the Certificate of Incorporation, as amended, any stockholder or shareholders
owning in the aggregate not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding, irrespective of series, may request, the
calling of special meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the President, a Vice-President or the Secretary of
the Corporation. Notice of such meeting and of any annual meeting at which
holders of Preferred Stock are entitled to vote pursuant to this Paragraph
(C)(iii) shall be given to each holder of record of Preferred Stock by mailing a
copy of such notice to him or her at his or her last address as the same appears
on the books of the Corporation. Such meeting shall be called for a time not
earlier than 20 days and not later than 60 days after such order or request or
in default of the calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any shareholder or
shareholders owning in the aggregate not less than ten percent (10%) of the
total number of shares of Preferred Stock outstanding. Notwithstanding the
provisions of this Paragraph (C)(iii), no such special meeting shall be called
during the period within 60 days immediately preceding the date fixed for the
next annual meeting of the shareholders.
(iv) In any default period, the holders of Common
Stock, and other classes of stock of the Corporation if applicable, shall
continue to be entitled to elect the whole number of directors until the holders
of Preferred Stock shall have exercised their right to elect two (2) directors
voting as a class, after the exercise of which right (x) the directors so
elected by the holders of Preferred Stock shall continue in office until their
successors shall have been elected by such holders or until the expiration of
the default period, and (y) any vacancy in the Board of Directors may (except as
provided in Paragraph (C)(ii) of this Section 3) be filled by vote of a majority
of the remaining directors theretofore elected by the holders of the class of
stock which elected the Director whose office shall have become vacant.
References in this Paragraph (C) to directors elected by the holders of
particular class of stock shall include directors elected by such directors to
fill vacancies as provided in clause (y) of the foregoing sentence.
-4-
<PAGE>
(v) Immediately upon the expiration of a default
period, (x) the right of the holders of Preferred Stock as a class to elect
directors shall cease, (y) the term of any directors elected by the holders of
Preferred Stock as a class shall terminate, and (z) the number of directors
shall be such number as may be provided for in the Certificate of Incorporation
or By-laws irrespective of any increase made pursuant to the provisions of
Paragraph (C)(ii) of this Section 3 (such number being subject, however, to
change thereafter in any manner provided by law or in the Certificate of
Incorporation or By-Laws). Any vacancies in the Board of Directors effected by
the provisions of clauses (y) and (z) in the preceding sentence may be filled by
a majority of the remaining directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
(4) Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 of this Section (c) are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not declared, on
shares of Series A Junior Participating Preferred Stock outstanding shall have
been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the Series A
Junior Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series A Junior
Participating Preferred Stock; or
-5-
<PAGE>
(iv) purchase or otherwise acquire for consideration
any shares of Series A Junior Participating Preferred Stock, or any shares of
stock ranking on a parity with the Series A Junior Participating Preferred
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under Paragraph (A) of
this Section 3, purchase or otherwise acquire such shares at such time and in
such manner.
(5) Reacquired Shares. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
(6) Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the Corporation, no distribution shall be made to
the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior Participating
Preferred Stock unless, prior thereto, the holders of shares of Series A Junior
Participating Preferred Stock shall have received an amount equal to 1,000 times
the Exercise Price, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment (the
"Series A Liquidation Preference"). Following the payment of the full amount of
the Series A Liquidation Preference, no additional distributions shall be made
to the holders of shares of Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of Common Stock shall have received an amount
per share (the "Common Adjustment") equal to the quotient obtained by dividing
(i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted
as set forth in subparagraph (C) below to reflect such events as stock splits,
stock dividends and recapitalizations with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series A Junior Participating Preferred
Stock and Common Stock, respectively, holders of Series A Junior Participating
Preferred Stock and holders of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to 1 with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.
-6-
<PAGE>
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of preferred
stock, if any, which rank on a parity with the Series A Junior Participating
Preferred Stock, then such remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of Common Stock outstanding immediately after such event and
the denominator of which is the number of Common Stock that were outstanding
immediately prior to such event.
(7) Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of Series A
Junior Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Junior Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(8) No Redemption. The shares of Series A Junior Participating
Preferred Stock shall not be redeemable.
(9) Ranking. The Series A Junior Preferred Stock shall rank junior
to all other series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
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<PAGE>
(10) Amendment. The Certificate of Incorporation, as amended, of
the Corporation shall not be further amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Junior Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority or more of the
outstanding shares of Series A Junior Participating Preferred Stock, voting
separately as a class.
(11) Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder, in
proportion to such holders fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series A Junior Participating Preferred Stock."
5. The manner in which the foregoing amendment of the Certificate of
Incorporation was authorized is a follows: The Board of Directors of the
Corporation authorized the amendment under the authority vested in said Board
under the provisions of the Certificate of Incorporation and of Section 502 of
the Business Corporation Law.
IN WITNESS WHEREOF, we have subscribed this document on the date set
opposite each of our names below and do hereby affirm, under the penalties of
perjury, that the statements contained therein have been examined by us and are
true and correct.
Date: February 24, 1998
/S/ RICHARD MARKS
-------------------------------
Name: Richard Marks
Title: President
/S/ PETER BROMBERG
-------------------------------
Name: Peter Bromberg
Title: Chief Financial Officer
and Assistant Secretary
-8-
MOTORCAR PARTS & ACCESSORIES, INC.
and
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
Rights Agent
RIGHTS AGREEMENT
Dated as of February 24, 1998
<PAGE>
Table of Contents
Page
----
Section 1. Certain Definitions........................................... 1
Section 2. Appointment of Rights Agent................................... 4
Section 3. Issue of Rights Certificates.................................. 4
Section 4. Form of Rights Certificates................................... 6
Section 5. Countersignature and Registration............................. 7
Section 6. Transfer, Split Up, Combination and Exchange of
Rights Certificates; Mutilated, Destroyed, Lost or
Stolen Rights Certificates.................................... 7
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights........................................................ 8
Section 8. Cancellation and Destruction of Rights Certificates...........10
Section 9. Reservation and Availability of Capital Stock.................10
Section 10. Preferred Stock Record Date...................................12
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
or Number of Rights...........................................12
Section 12. Certificate of Adjusted Purchase Price or Number of Shares....20
Section 13. Consolidation, Merger or Sale or Transfer of Assets
or Earning Power. ............................................21
Section 14. Fractional Rights and Fractional Shares.......................23
Section 15. Rights of Action..............................................24
Section 16. Agreement of Rights Holders...................................25
Section 17. Rights Certificate Holder Not Deemed a Shareholder............25
Section 18. Concerning the Rights Agent...................................26
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<PAGE>
Section 19. Merger or Consolidation or Change of Name of Rights Agent.....26
Section 20. Duties of Rights Agent........................................27
Section 21. Change of Rights Agent........................................29
Section 22. Issuance of New Rights Certificates...........................30
Section 23. Redemption and Termination....................................30
Section 24. Notice of Certain Events......................................31
Section 25. Notices.......................................................31
Section 26. Supplements and Amendments....................................32
Section 27. Successors....................................................33
Section 28. Determinations and Actions by the Board of Directors, etc.....33
Section 29. Benefits of this Agreement....................................33
Section 30. Severability..................................................33
Section 31. Governing Law.................................................34
Section 32. Counterparts..................................................34
Section 33. Descriptive Headings..........................................34
Exhibit A -- Certificate of Amendment
Exhibit B -- Form of Rights Certificate
Exhibit C -- Form of Summary of Rights
-ii-
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of February 24, 1998 (the "Agreement"),
between Motorcar Parts & Accessories, Inc., a New York corporation (the
"Company"), and Continental Stock Transfer & Trust Company, a New York
corporation (the "Rights Agent"), as Rights Agent.
W I T N E S S E T H
WHEREAS, on February 24, 1998 (the "Rights Dividend Declaration
Date"), the Board of Directors of the Company authorized and declared a dividend
distribution of one Right for each share of common stock, par value $0.01 per
share, of the Company (the "Common Stock") outstanding at the close of business
on March 12, 1998 (the "Record Date"), and has authorized the issuance of one
Right (as such number may hereinafter be adjusted pursuant to the provisions of
Section 11(p) hereof) for each share of Common Stock of the Company issued
between the Record Date (whether originally issued or delivered from the
Company's treasury) and the Distribution Date, each Right initially representing
the right to purchase one one-thousandth of a share of Series A Junior
Participating Preferred Stock (the "Preferred Stock") of the Company having the
rights, powers and preferences set forth in the form of Certificate of Amendment
attached hereto as Exhibit A, upon the terms and subject to the conditions
hereinafter set forth (the "Rights");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 20% or more of the shares of Common Stock then outstanding,
but shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii)
any employee benefit plan of the Company or of any Subsidiary of the Company,
(iv) any Person or entity organized, appointed or established by the Company for
or pursuant to the terms of any such plan or (v) an Exempted Person.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Section 912 of the New York Business Corporation Law,
as amended and in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of, and shall
be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire
(whether
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<PAGE>
such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding
(whether or not in writing) or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," (A) securities tendered
pursuant to a tender or exchange offer made by such Person or any of
such Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange, or (B) securities
issuable upon exercise of Rights at any time prior to the occurrence
of a Triggering Event, or (C) securities issuable upon exercise of
Rights from and after the occurrence of a Triggering Event which
Rights were acquired by such Person or any of such Person's
Affiliates or Associates prior to the Distribution Date or pursuant
to Section 3(a) or Section 22 hereof (the "Original Rights") or
pursuant to Section 11(i) hereof in connection with an adjustment
made with respect to any Original Rights;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote pursuant
to any agreement, arrangement or understanding, whether or not in
writing; provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security under
this subparagraph (ii) as a result of an agreement, arrangement or
understanding to vote such security if such agreement, arrangement
or understanding: (A) arises solely from a revocable proxy or
consent given in response to a proxy or consent solicitation made in
accordance with the applicable provisions of the General Rules and
Regulations under the Exchange Act, and (B) is not then reportable
by such Person on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which
such Person (or any of such Person's Affiliates or Associates) has
any agreement, arrangement or understanding (whether or not in
writing), for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the proviso
to subparagraph (ii) of this paragraph (c)) or disposing of any
voting securities of the Company; provided, however, that nothing in
this paragraph (c) shall cause a Person engaged in business as an
underwriter of securities to be the "Beneficial Owner" of, or to
"beneficially own," any securities acquired through such person's
participation in good faith in a firm commitment underwriting until
the
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<PAGE>
expiration of forty days after the date of such acquisition; and
provided further, however, that any shareholder of the Company, with
Affiliates, Associates or other person(s) who may be deemed
representatives of it serving as director(s) or officer(s) of the
Company, shall not be deemed to beneficially own securities held by
other Persons as a result of (i) persons affiliated or otherwise
associated with such shareholder serving as director(s) or
officer(s) or taking any action in connection therewith, (ii)
discussing the status of its shares with the Company or other
shareholders of the Company similarly situated or (iii) voting or
acting in a manner similar to other shareholder(s) similarly
situated, absent a specific finding by the Board of Directors of an
express agreement among such shareholders to act in concert with one
another as shareholders so as to cause, in the good faith judgment
of the Board of Directors, each such shareholder to be the
Beneficial Owner of the shares held by the other shareholder(s).
(d) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(e) "Close of business" on any given date shall mean 5:00 P.M.,
New York City time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., New York City time, on the next succeeding
Business Day.
(f) "Common Stock" shall mean the Common Stock, except that
"Common Stock" when used with reference to any Person other than the Company
shall mean the capital stock of such Person with the greatest voting power, or
the equity securities or other equity interest having power to control or direct
the management, of such Person.
(g) "Exempted Person" shall mean Mel Marks, Richard Marks and any
Affiliate or Associate thereof.
(h) "Person" shall mean any individual, firm, corporation,
partnership or other entity.
(i) "Preferred Stock" shall mean shares of Series A Junior
Participating Preferred Stock, par value $0.01 per share, of the Company, and,
to the extent that there are not a sufficient number of shares of Series A
Junior Participating Preferred Stock authorized to permit the full exercise of
the Rights, any other series of Preferred Stock, par value $0.01 per share, of
the Company designated for such purpose containing terms substantially similar
to the terms of the Series A Junior Participating Preferred Stock.
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(j) "Section 11(a)(ii) Event" shall mean any event described in
Section 11(a)(ii) hereof.
(k) "Section 13 Event" shall mean any event described in clauses
(x), (y) or (z) of Section 13(a) hereof.
(l) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by
the Company or an Acquiring Person that an Acquiring Person has become such.
(m) "Subsidiary" shall mean, with reference to any Person, any
corporation of which an amount of voting securities sufficient to elect at least
a majority of the directors of such corporation is beneficially owned, directly
or indirectly, by such Person, or otherwise controlled by such Person.
(n) "Triggering Event" shall mean any Section 11(a)(ii) Event or
any Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution Date
also be the holders of the Common Stock) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.
Section 3. Issue of Rights Certificates.
(a) Until the earlier of (i) the close of business on the tenth
day after the Stock Acquisition Date (or, if the tenth day after the Stock
Acquisition Date occurs before the Record Date, the close of business on the
Record Date), or (ii) the close of business on the tenth business day (or such
later date as the Board shall determine) after the date that a tender or
exchange offer by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, or any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan) is first published or
sent or given within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act, if, upon consummation thereof, such Person
would be the Beneficial Owner of 20% or more of the shares of Common Stock then
outstanding (the earlier of (i) and (ii) being herein referred to as the
"Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of paragraph (b) of this Section 3) by the certificates for the
Common Stock registered in the names of the holders of the Common Stock (which
certificates for Common Stock shall be deemed also to be certificates for
Rights) and not by separate certificates, and (y) the Rights will be
transferable only in connection with the transfer of the underlying shares of
Common Stock (including a transfer to the
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Company). As soon as practicable after the Distribution Date, the Rights Agent
will send by first-class, insured, postage prepaid mail, to each record holder
of the Common Stock as of the close of business on the Distribution Date, at the
address of such holder shown on the records of the Company, one or more right
certificates, in substantially the form of Exhibit B hereto (the "Rights
Certificates"), evidencing one Right for each share of Common Stock so held,
subject to adjustment as provided herein. In the event that an adjustment in the
number of Rights per share of Common Stock has been made pursuant to Section
11(p) hereof, at the time of distribution of the Rights Certificates, the
Company shall make the necessary and appropriate rounding adjustments (in
accordance with Section 14(a) hereof) so that Rights Certificates representing
only whole numbers of Rights are distributed and cash is paid in lieu of any
fractional Rights. As of and after the Distribution Date, the Rights will be
evidenced solely by such Rights Certificates.
(b) As promptly as practicable following the Record Date, the
Company will send a copy of a Summary of Rights, in substantially the form
attached hereto as Exhibit C (the "Summary of Rights"), by first-class, postage
prepaid mail, to each record holder of the Common Stock as of the close of
business on the Record Date, at the address of such holder shown on the records
of the Company. With respect to certificates for the Common Stock outstanding as
of the Record Date, until the Distribution Date, the Rights will be evidenced by
such certificates for the Common Stock and the registered holders of the Common
Stock shall also be the registered holders of the associated Rights. Until the
earlier of the Distribution Date or the Expiration Date (as such term is defined
in Section 7 hereof), the transfer of any certificates representing shares of
Common Stock in respect of which Rights have been issued shall also constitute
the transfer of the Rights associated with such shares of Common Stock.
(c) Rights shall be issued in respect of all shares of Common
Stock which are issued (whether originally issued or from the Company's
treasury) after the Record Date but prior to the earlier of the Distribution
Date or the Expiration Date. Certificates representing such shares of Common
Stock shall also be deemed to be certificates for Rights, and shall bear the
following legend:
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in the Rights Agreement between
Motorcar Parts & Accessories, Inc. (the "Company") and Continental
Stock Transfer & Trust Company (the "Rights Agent") dated as of
February 24, 1998 (the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is on
file at the principal offices of Motorcar Parts & Accessories, Inc.
Under certain circumstances, as set forth in the Rights Agreement,
such Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. Motorcar Parts &
Accessories, Inc. will mail to the holder of this certificate a copy
of the Rights Agreement, as in effect on the date of mailing,
without charge promptly after receipt of a written request therefor.
Under certain circumstances set forth in the Rights Agreement,
Rights issued to, or held by, any Person who is,
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was or becomes an Acquiring Person or any Affiliate or Associate
thereof (as such terms are defined in the Rights Agreement), whether
currently held by or on behalf of such Person or by any subsequent
holder, may become null and void. With respect to such certificates
containing the foregoing legend, until the earlier of (i) the
Distribution Date or (ii) the Expiration Date, the Rights associated
with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of
Common Stock shall also be the registered holders of the associated
Rights, and the transfer of any of such certificates shall also
constitute the transfer of the Rights associated with the Common
Stock represented by such certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to purchase
and of assignment to be printed on the reverse thereof) shall each be
substantially in the form set forth in Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Rights Certificates, whenever distributed, shall be
dated as of the Record Date and on their face shall entitle the holders thereof
to purchase such number of one one-thousandths of a share of Preferred Stock as
shall be set forth therein at the price set forth therein (such exercise price
per one one-thousandth of a share, the "Purchase Price"), but the amount and
type of securities purchasable upon the exercise of each Right and the Purchase
Price thereof shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring
Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee
of an Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such, or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:
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The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person
or an Affiliate or Associate of an Acquiring Person (as such terms
are defined in the Rights Agreement). Accordingly, this Rights
Certificate and the Rights represented hereby may become null and
void in the circumstances specified in Section 7(e) of such
Agreement.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its Vice Chairman, its President or any
Vice President, either manually or by facsimile signature, and shall have
affixed thereto the Company's seal or a facsimile thereof which shall be
attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. The Rights Certificates shall be
countersigned by the Rights Agent, either manually or by facsimile signature and
shall not be valid for any purpose unless so countersigned. In case any officer
of the Company who shall have signed any of the Rights Certificates shall cease
to be such officer of the Company before countersignature by the Rights Agent
and issuance and delivery by the Company, such Rights Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by the Company with the same force and effect as though the person who signed
such Rights Certificates had not ceased to be such officer of the Company; and
any Rights Certificates may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Rights Certificate, shall be a
proper officer of the Company to sign such Rights Certificate, although at the
date of the execution of this Rights Agreement any such person was not such an
officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the date of each of the Rights
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Section 4(b), Section 7(e) and
Section 14 hereof, at any time after the close of business on the Distribution
Date, and at or prior to the close of business on the Expiration Date, any
Rights Certificate or Certificates may be transferred, split up, combined or
exchanged for another Rights Certificate or Certificates, entitling the
registered holder to purchase a like number of one one-thousandths of a share of
Preferred Stock (or, following a Triggering Event, Common Shares, other
securities, cash or other assets, as the case may be) as the Rights Certificate
or Certificates surrendered then entitled such holder (or former holder in the
case of a transfer) to
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purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Rights Certificate or Certificates shall make such request in
writing delivered to the Rights Agent, and shall surrender the Rights
Certificate or Certificates to be transferred, split up, combined or exchanged
at the principal office or offices of the Rights Agent designated for such
purpose. Neither the Rights Agent nor the Company shall be obligated to take any
action whatsoever with respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the Rights
Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof,
countersign and deliver to the Person entitled thereto a Rights Certificate or
Rights Certificates, as the case may be, as so requested. The Company may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will execute and deliver a new Rights Certificate of like
tenor to the Rights Agent for countersignature and delivery to the registered
owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly executed, to the Rights Agent
at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price with respect to
the total number of one one-thousandths of a share (or other securities, cash or
other assets, as the case may be) as to which such surrendered Rights are then
exercisable, at or prior to the earlier of (i) the close of business on March
12, 2008 (the "Final Expiration Date"), or (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the earlier of (i) and (ii) being
herein referred to as the "Expiration Date").
(b) The Purchase Price for each one one-thousandth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be $65.00,
and shall be subject to adjustment from time to time as provided in Sections 11
and 13(a) hereof and shall be payable in accordance with paragraph (c) below.
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(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment, with respect to each Right so exercised, of the Purchase
Price per one one-thousandth of a share of Preferred Stock (or other shares,
securities, cash or other assets, as the case may be) to be purchased as set
forth below and an amount equal to any applicable transfer tax, the Rights Agent
shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition
from any transfer agent of the shares of Preferred Stock (or make available, if
the Rights Agent is the transfer agent for such shares) certificates for the
total number of one one-thousandths of a share of Preferred Stock to be
purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) if the Company shall have elected to
deposit the total number of shares of Preferred Stock issuable upon exercise of
the Rights hereunder with a depositary agent, requisition from the depositary
agent depositary receipts representing such number of one one-thousandths of a
share of Preferred Stock as are to be purchased (in which case certificates for
the shares of Preferred Stock represented by such receipts shall be deposited by
the transfer agent with the depositary agent) and the Company will direct the
depositary agent to comply with such request, (ii) requisition from the Company
the amount of cash, if any, to be paid in lieu of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to, or upon the order of,
the registered holder of such Rights Certificate, registered in such name or
names as may be designated by such holder, and (iv) after receipt thereof,
deliver such cash, if any, to, or upon the order of, the registered holder of
such Rights Certificate. The payment of the Purchase Price (as such amount may
be reduced pursuant to Section 11(a)(iii) hereof) shall be made in cash or by
certified bank check or bank draft payable to the order of the Company. In the
event that the Company is obligated to issue other securities (including shares
of Common Stock) of the Company, pay cash and/or distribute other property
pursuant to Section 11(a) hereof, the Company will make all arrangements
necessary so that such other securities, cash and/or other property are
available for distribution by the Rights Agent, if and when appropriate. The
Company reserves the right to require prior to the occurrence of a Triggering
Event that, upon any exercise of Rights, a number of Rights be exercised so that
only whole shares of Preferred Stock would be issued.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to, or upon the order of, the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary,
from and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person
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to holders of equity interests in such Acquiring Person or to any Person with
whom the Acquiring Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which a
majority of the Board of Directors of the Company has determined is part of a
plan, arrangement or understanding which has as a primary purpose or effect the
avoidance of this Section 7(e), shall become null and void without any further
action and no holder of such Rights shall have any rights whatsoever with
respect to such Rights, whether under any provision of this Agreement or
otherwise. The Company shall use all reasonable efforts to insure that the
provisions of this Section 7(e) and Section 4(b) hereof are complied with, but
shall have no liability to any holder of Rights Certificates or other Person as
a result of its failure to make any determinations with respect to an Acquiring
Person or its Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates.
All Rights Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Rights Certificates to the Company, or shall, at the written request
of the Company, destroy such cancelled Rights Certificates, and in such case
shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities or out of
its authorized and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Shares and/or other securities) that, as provided in this Agreement including
Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of
all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, shares of Common Stock and/or other
securities) issuable and deliverable upon the
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exercise of the Rights may be listed on any national securities exchange, the
Company shall use its best efforts to cause, from and after such time as the
Rights become exercisable, all shares reserved for such issuance to be listed on
such exchange upon official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a Section
11(a)(ii) Event on which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iii)
hereof, a registration statement under the Securities Act of 1933 (the "Act"),
with respect to the securities purchasable upon exercise of the Rights on an
appropriate form, (ii) cause such registration statement to become effective as
soon as practicable after such filing, and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the earlier of (A) the date as of which the
Rights are no longer exercisable for such securities, and (B) the date of the
expiration of the Rights. The Company will also take such action as may be
appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the various states in connection with the exercisability of the Rights.
The Company may temporarily suspend, for a period of time not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. In addition,
if the Company shall determine that a registration statement is required
following the Distribution Date, the Company may temporarily suspend the
exercisability of the Rights until such time as a registration statement has
been declared effective. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification in such jurisdiction shall not have been obtained, the
exercise thereof shall not be permitted under applicable law or a registration
statement shall not have been declared effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all one one-thousandths of a share of
Preferred Stock (and, following the occurrence of a Triggering Event, shares of
Common Stock and/or other securities) delivered upon exercise of Rights shall,
at the time of delivery of the certificates for such shares (subject to payment
of the Purchase Price), be duly and validly authorized and issued and fully paid
and nonassessable.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Rights Certificates
and of any certificates for a number of one one-thousandths of a share of
Preferred Stock (or shares of Common Stock and/or other securities, as the case
may be) upon the exercise of Rights. The Company shall not, however, be required
to pay any transfer tax which may be payable in respect of any transfer or
delivery of Rights Certificates to a Person other than, or the issuance or
delivery of a number of one one-thousandths of a share of Preferred Stock (or
shares of Common Stock and/or other securities, as the case may be) in respect
of a name other than that of, the registered holder of the Rights Certificates
evidencing Rights
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surrendered for exercise or to issue or deliver any certificates for a number of
one one-thousandths of a share of Preferred Stock (or shares of Common Stock
and/or other securities, as the case may be) in a name other than that of the
registered holder upon the exercise of any Rights until such tax shall have been
paid (any such tax being payable by the holder of such Rights Certificate at the
time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each person in whose name
any certificate for a number of one one-thousandths of a share of Preferred
Stock (or shares of Common Stock and/or other securities, as the case may be) is
issued upon the exercise of Rights shall for all purposes be deemed to have
become the holder of record of such fractional shares of Preferred Stock (or
shares of Common Stock and/or other securities, as the case may be) represented
thereby on, and such certificate shall be dated, the date upon which the Rights
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price (and all applicable transfer taxes) was made; provided, however,
that if the date of such surrender and payment is a date upon which the
Preferred Stock (or Common Shares and/or other securities, as the case may be)
transfer books of the Company are closed, such Person shall be deemed to have
become the record holder of such shares (fractional or otherwise) on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Stock (or shares of Common Stock and/or other securities, as the case
may be) transfer books of the Company are open. Prior to the exercise of the
Rights evidenced thereby, the holder of a Rights Certificate shall not be
entitled to any rights of a shareholder of the Company with respect to shares
for which the Rights shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
or Number of Rights. The Purchase Price, the number and kind of shares covered
by each Right and the number of Rights outstanding are subject to adjustment
from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Stock
payable in shares of Preferred Stock, (B) subdivide the outstanding
Preferred Stock, (C) combine the outstanding Preferred Stock into a
smaller number of shares, or (D) issue any shares of its capital
stock in a reclassification of the Preferred Stock (including any
such reclassification in connection with a consolidation or merger
in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) and Section 7(e)
hereof, the Purchase Price in effect at the time of the record date
for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares
of Preferred Stock or capital stock, as the case may be, issuable on
such date, shall be proportionately adjusted so that the holder of
any Right exercised after such time shall be entitled to receive,
upon payment of the
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Purchase Price then in effect, the aggregate number and kind of
shares of Preferred Stock or capital stock, as the case may be,
which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Stock transfer books of the
Company were open, he or she would have owned upon such exercise and
been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. If an event occurs which would
require an adjustment under both this Section 11(a)(i) and Section
11(a)(ii) hereof, the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event that any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company, any Person or entity organized,
appointed or established by the Company for or pursuant to the terms
of any such plan, or an Exempted Person), alone or together with its
Affiliates and Associates, shall, at any time after the Rights
Dividend Declaration Date, become the Beneficial Owner of 20% or
more of the shares of Common Stock then outstanding, unless the
event causing the 20% threshold to be crossed is a transaction set
forth in Section 13(a) hereof, or is an acquisition of shares of
Common Stock pursuant to a tender offer or an exchange offer for all
outstanding shares of Common Stock at a price and on terms
determined by at least a majority of the members of the Board of
Directors who are not officers of the Company and who are not
representatives, nominees, Affiliates or Associates of an Acquiring
Person, after receiving advice from one or more investment banking
firms, to be (a) at a price which is fair to shareholders (taking
into account all factors which such members of the Board deem
relevant including, without limitation, prices which could
reasonably be achieved if the Company or its assets were sold on an
orderly basis designed to realize maximum value) and (b) otherwise
in the best interests of the Company and its shareholders
(hereinafter, a "Qualifying Offer"), then, promptly following the
occurrence of any such event, proper provision shall be made so that
each holder of a Right (except as provided below and in Section 7(e)
hereof) shall thereafter have the right to receive, upon exercise
thereof at the then current Purchase Price in accordance with the
terms of this Agreement, in lieu of a number of one one-thousandths
of a share of Preferred Stock, such number of shares of Common Stock
of the Company as shall equal the result obtained by (x) multiplying
the then current Purchase Price by the then number of one
one-thousandths of
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a share of Preferred Stock for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii)
Event, and (y) dividing that product (which, following such first
occurrence, shall thereafter be referred to as the "Purchase Price"
for each Right and for all purposes of this Agreement) by 50% of the
current market price (determined pursuant to Section 11(d) hereof)
per share of Common Stock on the date of such first occurrence (such
number of shares, the "Adjustment Shares").
(iii) In the event that the number of shares of Common Stock
which are authorized by the Company's Certificate of Incorporation,
as amended, but not outstanding or reserved for issuance for
purposes other than upon exercise of the Rights are not sufficient
to permit the exercise in full of the Rights in accordance with the
foregoing subparagraph (ii) of this Section 11(a), the Company shall
(A) determine the value of the Adjustment Shares issuable upon the
exercise of a Right (the "Current Value"), and (B) with respect to
each Right (subject to Section 7(e) hereof), make adequate provision
to substitute for the Adjustment Shares, upon the exercise of a
Right and payment of the applicable Purchase Price, (1) cash, (2) a
reduction in the Purchase Price, (3) shares of Common Stock or other
equity securities of the Company (including, without limitation,
shares, or units of shares, of preferred stock, such as the
Preferred Stock, which the Board has deemed to have essentially the
same value or economic rights as shares of shares of Common Stock
(such shares of preferred stock being referred to as "Common Share
Equivalents")), (4) debt securities of the Company, (5) other
assets, or (6) any combination of the foregoing, having an aggregate
value equal to the Current Value (less the amount of any reduction
in the Purchase Price), where such aggregate value has been
determined by the Board based upon the advice of a nationally
recognized investment banking firm selected by the Board; provided,
however, that if the Company shall not have made adequate provision
to deliver value pursuant to clause (B) above within thirty (30)
days following the later of (x) the first occurrence of a Section
11(a)(ii) Event and (y) the date on which the Company's right of
redemption pursuant to Section 23(a) expires (the later of (x) and
(y) being referred to herein as the "Section 11(a)(ii) Trigger
Date"), then the Company shall be obligated to deliver, upon the
surrender for exercise of a Right and without requiring payment of
the Purchase Price, shares of Common Stock (to the extent available)
and then, if necessary, cash, which shares and/or cash have an
aggregate value equal to the Spread. For purposes of the preceding
sentence, the term "Spread" shall mean the excess of (i) the
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Current Value over (ii) the Purchase Price. If the Board determines
in good faith that it is likely that sufficient additional shares of
Common Stock could be authorized for issuance upon exercise in full
of the Rights, the thirty (30) day period set forth above may be
extended to the extent necessary, but not more than ninety (90) days
after the Section 11(a)(ii) Trigger Date, in order that the Company
may seek shareholder approval for the authorization of such
additional shares (such thirty (30) day period, as it may be
extended, is herein called the "Substitution Period"). To the extent
that action is to be taken pursuant to the first and/or third
sentences of this Section 11(a)(iii), the Company (1) shall provide,
subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights, and (2) may suspend the
exercisability of the Rights until the expiration of the
Substitution Period in order to seek such shareholder approval for
such authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to such first
sentence and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement
stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section
11(a)(iii), the value of each Adjustment Share shall be the Current
Market Price per share of Common Stock on the Section 11(a)(ii)
Trigger Date and the per share or per unit value of any share of
Common Stock Equivalent shall be deemed to equal the Current Market
Price per share of Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance
of rights, options or warrants to all holders of Preferred Stock entitling them
to subscribe for or purchase (for a period expiring within forty-five (45)
calendar days after such record date) Preferred Stock (or shares having the same
rights, privileges and preferences as the shares of Preferred Stock ("equivalent
preferred stock")) or securities convertible into Preferred Stock or equivalent
preferred stock at a price per share of Preferred Stock or per share of
equivalent preferred stock (or having a conversion price per share, if a
security convertible into Preferred Stock or equivalent preferred stock) less
than the current market price (as determined pursuant to Section 11(d) hereof)
per share of Preferred Stock on such record date, the Purchase Price to be in
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock outstanding
on such record date, plus the number of shares of Preferred Stock which the
aggregate offering price of the total number of shares of Preferred Stock and/or
equivalent preferred stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price, and the denominator of which shall be the number
of shares of Preferred Stock outstanding on such record date, plus the number of
additional shares of Preferred Stock and/or
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equivalent preferred stock to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible). In
case such subscription price may be paid by delivery of consideration part or
all of which may be in a form other than cash, the value of such consideration
shall be as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent and the holders of the Rights.
Shares of Preferred Stock owned by or held for the account of the Company shall
not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed, and
in the event that such rights or warrants are not so issued, the Purchase Price
shall be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution
to all holders of Preferred Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the continuing
corporation) of evidences of indebtedness, cash (other than a regular quarterly
cash dividend out of the earnings or retained earnings of the Company), assets
(other than a dividend payable in Preferred Stock, but including any dividend
payable in stock other than Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the current market price (as determined pursuant to
Section 11(d) hereof) per share of Preferred Stock on such record date, less the
fair market value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with the
Rights Agent) of the portion of the cash, assets or evidences of indebtedness so
to be distributed or of such subscription rights or warrants applicable to a
share of Preferred Stock and the denominator of which shall be such current
market price (as determined pursuant to Section 11(d) hereof) per share of
Preferred Stock. Such adjustments shall be made successively whenever such a
record date is fixed, and in the event that such distribution is not so made,
the Purchase Price shall be adjusted to be the Purchase Price which would have
been in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) hereof, the Current Market
Price per share of Common Stock on any date shall be deemed to be the average of
the daily closing prices per such share of Common Stock for the thirty (30)
consecutive Trading Days immediately prior to such date, and for purposes of
computations made pursuant to Section 11(a)(iii) hereof, the Current Market
Price per share of Common Stock on any date shall be deemed to be the average of
the daily closing prices per such share of Common Stock for the ten (10)
consecutive Trading Days immediately following such date; provided, however,
that in the event that the Current Market Price per share of Common Stock is
determined during a period following the announcement by the issuer of such
share of Common Stock of (A) a dividend or distribution on such share of Common
Stock payable in such shares of Common Stocks or securities convertible into
shares of such Common Stock (other than the Rights), or (B) any subdivision,
combination or reclassification of such shares of Common Stock, and the
ex-dividend date for such dividend or distribution, or the record date for such
subdivision, combination or
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reclassification shall not have occurred prior to the commencement of the
requisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth
above, then, and in each such case, the Current Market Price shall be properly
adjusted to take into account ex-dividend trading. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the shares of Common Stock are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the shares of Common Stock
are listed or admitted to trading or, if the shares of Common Stock are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System (the "NASDAQ") or such
other system then in use, or, if on any such date the shares of Common Stock are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the shares
of Common Stock selected by the Board. If on any such date no market maker is
making a market in the Common Shares, the fair value of such shares on such date
as determined in good faith by the Board shall be used. The term "Trading Day"
shall mean a day on which the principal national securities exchange on which
the Common Stock is listed or admitted to trading is open for the transaction of
business or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, a Business Day. If the Common Stock is not
publicly held or not so listed or traded, Current Market Price per share shall
mean the fair value per share as determined in good faith by the Board, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the
Current Market Price per share of Preferred Stock shall be determined in the
same manner as set forth above for the Common Stock in clause (i) of this
Section 11(d) (other than the last sentence thereof). If the Current Market
Price per share of Preferred Stock cannot be determined in the manner provided
above or if the Preferred Stock is not publicly held or listed or traded in a
manner described in clause (i) of this Section 11(d), the Current Market Price
per share of Preferred Stock shall be conclusively deemed to be an amount equal
to 1,000 (as such number may be appropriately adjusted for such events as stock
splits, stock dividends and recapitalizations with respect to the Common Stock
occurring after the date of this Agreement) multiplied by the Current Market
Price per shares of Common Stock. If neither the Common Stock nor the Preferred
Stock is publicly held or so listed or traded, Current Market Price per share of
the Preferred Stock shall mean the fair value per share as determined in good
faith by the Board, whose determination shall be described in a statement filed
with the Rights Agent and shall be conclusive for all purposes.
(e) Anything herein to the contrary notwithstanding, no adjustment
in the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the Purchase Price;
provided, however, that any adjustments which by reason of this
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Section 11(e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
11 shall be made to the nearest cent or to the nearest ten-thousandth of a share
of Common Stock or other share or one-ten millionth of a share of Preferred
Stock, as the case may be. Notwithstanding the first sentence of this Section
11(e), any adjustment required by this Section 11 shall be made no later than
the earlier of three (3) years from the date of the transaction which mandates
such adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the
provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-thousandths of a share of Preferred Stock (calculated to the nearest
one-ten millionth) obtained by (i) multiplying (x) the number of one
one-thousandths of a share covered by a Right immediately prior to this
adjustment, by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price, and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any adjustment
of the Purchase Price to adjust the number of Rights, in lieu of any adjustment
in the number of one one-thousandths of a share of Preferred Stock purchasable
upon the exercise of a Right. Each of the Rights outstanding after the
adjustment in the number of Rights shall be exercisable for the number of one
one-thousandths of a share of Preferred Stock for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one-ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the
Rights
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Certificates have been issued, shall be at least ten (10) days later than the
date of the public announcement. If Rights Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price
or the number of one one- thousandth of a share of Preferred Stock issuable upon
the exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price per one one-thousandth of a
share and the number of one one-thousandth of a share which were expressed in
the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then stated value, if any, of the number
of one one-thousandths of a share of Preferred Stock issuable upon exercise of
the Rights, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly and
legally issue fully paid and nonassessable such number of one one-thousandth of
a share of Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of one one-thousandths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
over and above the number of one one-thousandths of a share of Preferred Stock
and other capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive such
additional shares (fractional or otherwise) or securities upon the occurrence of
the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding,
the Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in their good faith judgment the Board of Directors of the
Company shall determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares
of Preferred Stock at
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less than the current market price, (iii) issuance wholly for cash of shares of
Preferred Stock or securities which by their terms are convertible into or
exchangeable for shares of Preferred Stock, (iv) stock dividends or (v) issuance
of rights, options or warrants referred to in this Section 11, hereafter made by
the Company to holders of its Preferred Stock shall not be taxable to such
shareholders.
(n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary
of the Company in a transaction which complies with Section 11(o) hereof), or
(iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), if (x) at the time of or immediately after
such consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately after
such consolidation, merger or sale, the shareholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 23 or Section 26 hereof, take
(or permit any Subsidiary to take) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish substantially
or otherwise eliminate the benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary notwithstanding, in
the event that the Company shall at any time after the Rights Dividend
Declaration Date and prior to the Distribution Date (i) declare a dividend on
the outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding shares of Common Stock, or (iii) combine the
outstanding shares of Common Stock into a smaller number of shares, the number
of Rights associated with each share of Common Stock then outstanding, or issued
or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
following the occurrence of such event.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 and Section 13
hereof, the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts
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accounting for such adjustment, (b) promptly file with the Rights Agent, and
with each transfer agent for the Preferred Stock and the Common Stock, a copy of
such certificate, and (c) mail or cause the Rights Agent to mail a brief summary
thereof to each holder of a Rights Certificate (or, if prior to the Distribution
Date, to each holder of a certificate representing shares of Common Stock) in
accordance with Section 25 hereof. The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of Assets
or Earning Power.
(a) In the event that, following the Stock Acquisition Date,
directly or indirectly, (x) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof), and the Company shall not
be the continuing or surviving corporation of such consolidation or merger, (y)
any Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof) shall consolidate with, or merge with or
into, the Company, and the Company shall be the continuing or surviving
corporation of such consolidation or merger and, in connection with such
consolidation or merger, all or part of the outstanding shares of Common Stock
shall be changed into or exchanged for stock or other securities of any other
Person or cash or any other property, or (z) the Company shall sell or otherwise
transfer (or one or more of its Subsidiaries shall sell or otherwise transfer),
in one transaction or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any Person or Persons (other than the Company
or any Subsidiary of the Company in one or more transactions each of which
complies with Section 11(o) hereof), then, and in each such case (except as may
be contemplated by Section 13(d) hereof), proper provision shall be made so
that: (i) each holder of a Right, except as provided in Section 7(e) hereof,
shall thereafter have the right to receive, upon the exercise thereof at the
then current Purchase Price in accordance with the terms of this Agreement, such
number of validly authorized and issued, fully paid, non-assessable and freely
tradeable shares of Common Stock of the Principal Party (as such term is
hereinafter defined), not subject to any liens, encumbrances, rights of first
refusal or other adverse claims, as shall be equal to the result obtained by (1)
multiplying the then current Purchase Price by the number of one one-thousandths
of a share of Preferred Stock for which a Right is exercisable immediately prior
to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event
has occurred prior to the first occurrence of a Section 13 Event, multiplying
the number of such one one-thousandths of a share for which a Right was
exercisable immediately prior to the first occurrence of a Section 11(a)(ii)
Event by the Purchase Price in effect immediately prior to such first
occurrence), and dividing that product (which, following the first occurrence of
a Section 13 Event, shall be referred to as the "Purchase Price" for each Right
and for all purposes of this Agreement) by (2) 50% of the Current Market Price
per share of the Common Stock of such Principal Party on the date of
consummation of such Section 13 Event; (ii) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such Section 13 Event,
all the obligations and duties of the Company pursuant to this Agreement; (iii)
the term "Company" shall thereafter be deemed to refer to such Principal Party,
it being specifically intended that the provisions of Section 11 hereof shall
apply only to such Principal
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Party following the first occurrence of a Section 13 Event; (iv) such Principal
Party shall take such steps (including, but not limited to, the reservation of a
sufficient number of shares of its Common Stock) in connection with the
consummation of any such transaction as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to its shares of Common Stock thereafter deliverable upon the
exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof shall
be of no effect following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause (x) or
(y) of the first sentence of Section 13(a), the Person that is the
issuer of any securities into which shares of Common Stock of the
Company are converted in such merger or consolidation, and if no
securities are so issued, the Person that is the other party to such
merger or consolidation; and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party
receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions;
provided, however, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "Principal Party" shall refer to such other Person;
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Stock of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of authorized shares of its Common Stock which have not been issued or
reserved for issuance to permit the exercise in full of the Rights in accordance
with this Section 13 and unless prior thereto the Company and such Principal
Party shall have executed and delivered to the Rights Agent a supplemental
agreement providing for the terms set forth in paragraphs (a) and (b) of this
Section 13 and further providing that, as soon as practicable after the date of
any consolidation, merger or sale of assets mentioned in paragraph (a) of this
Section 13, the Principal Party will
(i) prepare and file a registration statement under the
Act, with respect to the Rights and the securities purchasable
upon exercise of the Rights on an appropriate form, and will
use its best efforts to
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cause such registration statement to (A) become effective as
soon as practicable after such filing and (B) remain effective
(with a prospectus at all times meeting the requirements of
the Act) until the Expiration Date; and
(ii) will deliver to holders of the Rights historical
financial statements for the Principal Party and each of its
Affiliates which comply in all respects with the requirements
for registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13 Event
shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the
Rights which have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in subparagraphs
(x) and (y) of Section 13(a) if (i) such transaction is consummated with a
Person or Persons who acquired shares of Common Stock pursuant to a Qualifying
Offer (or a wholly owned subsidiary of any such Person or Persons), (ii) the
price per share of Common Stock offered in such transaction is not less than the
price per share of Common Stock paid to all holders of shares of Common Stock
whose shares were purchased pursuant to such tender offer or exchange offer and
(iii) the form of consideration being offered to the remaining holders of shares
of Common Stock pursuant to such transaction is the same as the form of
consideration paid pursuant to such tender offer or exchange offer. Upon
consummation of any such transaction contemplated by this Section 13(d), all
Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights, except prior to the Distribution Date as provided in Section 11(p)
hereof, or to distribute Rights Certificates which evidence fractional Rights.
In lieu of such fractional Rights, there shall be paid to the registered holders
of the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this Section 14(a), the
current market value of a whole Right shall be the closing price of the Rights
for the Trading Day immediately prior to the date on which such fractional
Rights would have been otherwise issuable. The closing price of the Rights for
any day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading, or if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price
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or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors of
the Company. If on any such date no such market maker is making a market in the
Rights the fair value of the Rights on such date as determined in good faith by
the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of shares
of Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock). In lieu of fractional shares of Preferred Stock that
are not integral multiples of one one-thousandth of a share of Preferred Stock,
the Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one one-thousandth of a share of
Preferred Stock. For purposes of this Section 14(b), the current market value of
one one-thousandth of a share of Preferred Stock shall be one one-thousandth of
the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of
such exercise.
(c) Following the occurrence of a Triggering Event, the Company
shall not be required to issue fractions of shares of Common Stock upon exercise
of the Rights or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of fractional shares of Common Stock, the Company may pay
to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one (1) shares of Common Stock. For purposes of this
Section 14(c), the current market value of one share of Common Stock shall be
the closing price of one share of Common Stock (as determined pursuant to
Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
such exercise.
(d) The holder of a Right by the acceptance of the Rights
expressly waives his or her right to receive any fractional Rights or any
fractional shares upon exercise of a Right, except as permitted by this Section
14.
Section 15. Rights of Action. All rights of action in respect of
this Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights evidenced by such Rights Certificate in
the
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manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and shall be entitled to specific
performance of the obligations hereunder and injunctive relief against actual or
threatened violations of the obligations hereunder of any Person subject to this
Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company
and the Rights Agent may deem and treat the person in whose name a Rights
Certificate (or, prior to the Distribution Date, the associated Common Stock
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a Shareholder. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of
one-thousandths of a share of Preferred Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate, as
such, any of the rights of a shareholder of the Company or any
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right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as provided in Section 24 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including reasonable attorneys' fees and
expenses and the costs and expenses of defending against any claim of liability
in the premises. In no case will the Rights Agent be liable for special,
indirect, incidental or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Rights Agent has been
advised of the possibility of such damages. Any liability of the Rights Agent
will be limited to the amount of fees paid by the Company hereunder. This
Section 18(a) shall survive the termination of this Agreement.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust or shareholder services business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided, however, that such corporation
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature
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of a predecessor Rights Agent and deliver such Rights Certificates so
countersigned; and in case at that time any of the Rights Certificates shall not
have been countersigned, any successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor or in the name of the
successor Rights Agent; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person and the
determination of "current market price") be proved or established by the Company
prior to taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed by the
Chairman of the Board, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any
of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
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(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any adjustment required under the provisions of
Section 11 or Section 13 hereof or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after actual notice of any such adjustment);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Common Stock or
Preferred Stock to be issued pursuant to this Agreement or any Rights
Certificate or as to whether any shares of Common Stock or Preferred Stock will,
when so issued, be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct; provided, however, reasonable care was exercised in the
selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its rights
if there shall be reasonable grounds for believing that
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repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.
(k) If, with respect to any Right Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise of transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company, and to
each transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common Stock
and Preferred Stock, by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his Rights Certificate
for inspection by the Company), then any registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be a corporation or any affiliate of such a
corporation organized and doing business under the laws of the United States or
of the State of New York (or of any other state of the United States so long as
such corporation is authorized to do business as a banking institution in the
State of New York), in good standing, which is authorized under such laws to
exercise corporate trust powers and is subject to supervision or examination by
federal or state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $100,000,000. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock and the
Preferred Stock, and mail a notice thereof in writing to the registered holders
of the Rights Certificates. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.
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Section 22. Issuance of New Rights Certificates. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the Purchase Price and the number or kind or class of shares or
other securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of shares of Common Stock following the Distribution
Date and prior to the redemption or expiration of the Rights, the Company (a)
shall, with respect to shares of Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement, granted or
awarded as of the Distribution Date, or upon the exercise, conversion or
exchange of securities hereinafter issued by the Company, and (b) may, in any
other case, if deemed necessary or appropriate by the Board of Directors of the
Company, issue Rights Certificates representing the appropriate number of Rights
in connection with such issuance or sale; provided, however, that (i) no such
Rights Certificate shall be issued if, and to the extent that, the Company shall
be advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Rights Certificate would be issued, and (ii) no such Rights Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.
Section 23. Redemption and Termination.
(a) The Board of Directors of the Company may, at its option, at
any time prior to the earlier of (i) the close of business on the tenth day
following the Stock Acquisition Date (or, if the Stock Acquisition Date shall
have occurred prior to the Record Date, the close of business on the tenth day
following the Record Date), or (ii) the Final Expiration Date, redeem all but
not less than all the then outstanding Rights at a redemption price of $0.001
per Right, as such amount may be appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as the "Redemption Price").
Notwithstanding anything contained in this Agreement to the contrary, the Rights
shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event
until such time as the Company's right of redemption hereunder has expired. The
Company may, at its option, pay the Redemption Price in cash, shares of Common
Stock (based on the "current market price", as defined in Section 11(d)(i)
hereof, of the Common Stock at the time of redemption) or any other form of
consideration deemed appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have been
filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of Directors ordering
the redemption of the Rights, the Company shall give notice of such redemption
to the Rights Agent and the holders of the then outstanding Rights by mailing
such notice to all such holders at each holder's last address as it appears upon
the registry books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the transfer agent for the Common Stock. Any notice which
is mailed in the manner herein
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provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of redemption will state the method by which the payment of the
Redemption Price will be made.
Section 24. Notice of Certain Events.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with any other Person (other than a Subsidiary of the Company in
a transaction which complies with Section 11(o) hereof), or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer), in one transaction or a series of related transactions,
of more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Rights Certificate, to the extent feasible and in
accordance with Section 25 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action, at
least twenty (20) days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the shares of Preferred
Stock whichever shall be the earlier.
(b) In case any of the events set forth in Section 11(a)(ii)
hereof shall occur, then, in any such case, (i) the Company shall as soon as
practicable thereafter give to each holder of a Rights Certificate, to the
extent feasible and in accordance with Section 25 hereof, a notice of the
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding paragraph to Preferred Stock shall be deemed
thereafter to refer to Common Stock and/or, if appropriate, other securities.
Section 25. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed(until another address is filed in
writing with the Rights Agent) as follows:
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Motorcar Parts & Accessories, Inc.
2727 Maricopa Street
Torrance, California 90503
Attention: President
Subject to the provisions of Section 21, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Rights Certificate to or on the Rights Agent shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
Continental Stock Transfer & Trust Company
Two Broadway
New York, New York 10004
Attention: Compliance Department
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 26. Supplements and Amendments. Prior to the Distribution
Date and subject to the penultimate sentence of this Section 26, the Company and
the Rights Agent shall, if the Company so directs, supplement or amend any
provision of this Agreement without the approval of any holders of certificates
representing shares of Common Stock. From and after the Distribution Date and
subject to the penultimate sentence of this Section 26, the Company and the
Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Rights Certificates in order
(i) to cure any ambiguity, (ii) to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
(iii) to shorten or lengthen any time period hereunder, or (iv) to change or
supplement the provisions hereunder in any manner which the Company may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of Rights Certificates (other than an Acquiring Person or an Affiliate
or Associate of an Acquiring Person); provided, this Agreement may not be
supplemented or amended to lengthen, pursuant to clause (iii) of this sentence,
(A) a time period relating to when the Rights may be redeemed at such time as
the Rights are not then redeemable, or (B) any other time period unless such
lengthening is for the purpose of protecting, enhancing or clarifying the rights
of, and/or the benefits to, the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Company which states that the
proposed supplement or amendment is in compliance with the terms of this Section
26, the Rights Agent shall execute such supplement or amendment. Notwithstanding
anything contained in this Agreement to the contrary, no supplement or amendment
shall be made which changes the Redemption Price, the Final Expiration Date, the
Purchase Price or the number of one one-thousandths of a share of Preferred
Stock for which a Right is exercisable.
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Prior to the Distribution Date, the interests of the holders of Rights shall be
deemed coincident with the interests of the holders of Common Stock.
Section 27. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 28. Determinations and Actions by the Board of Directors,
etc. For all purposes of this Agreement, any calculation of the number of shares
of Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations
under the Exchange Act. The Board of Directors of the Company shall have the
exclusive power and authority to administer this Agreement and to exercise all
rights and powers specifically granted to the Board or to the Company, or as may
be necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
in good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights and all other parties, and (y) not
subject the Board to any liability to the holders of the Rights.
Section 29. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the close of business on the
tenth day following the date of such determination by the Board of Directors.
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Section 31. Governing Law. This Agreement, each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: MOTORCAR PARTS & ACCESSORIES, INC.
By /s/ Peter Bromberg By /s/ Richard Marks
Name: Peter Bromberg Name: Richard Marks
Title: Chief Financial Officer Title: President
& Assistant Secretary
Attest: CONTINENTAL STOCK TRANSFER &
TRUST COMPANY
By /s/ Tuulikki Huovinen By /s/ William F. Seegraber
Name: Tuulikki Huovinen Name: William F. Seegraber
Title: Assistant Secretary Title: Vice President
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Exhibit A
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
of
MOTORCAR PARTS & ACCESSORIES, INC.
Under Section 805 of the Business Corporation Law
of the State of New York
We the undersigned, Richard Marks, President, and Peter Bromberg,
Assistant Secretary of Motorcar Parts & Accessories, Inc., a corporation
organized and existing under the laws of the State of New York, in accordance
with the provisions of Section 104 of the Business Corporation Law of the State
of New York, DO HEREBY CERTIFY:
1. The name of the corporation is Motorcar Parts & Accessories, Inc.
(hereinafter called the "Corporation"). The name under which the Corporation was
formed was Motorcar Parts & Associates, Inc.
2. The Certificate of Incorporation was filed by the Department of
State of the State of New York on April 2, 1968.
3. The Certificate of Incorporation of the Company, as amended
heretofore (the "Certificate of Incorporation"), is further amended by the
addition of the following provisions stating the number, designation, relative
rights, preferences and limitations of a series of Preferred Shares of the
Company designated as "Series A Junior Participating Preferred Stock."
4. To accomplish the foregoing amendment, a new section (c) of Article
FOURTH is added to the Certificate of Incorporation, which section (c) of
Article FOURTH reads in its entirety as follows:
"(c) SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
(1) Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" and the number of
shares constituting such series shall be 20,000.
(2) Dividends and Distributions.
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(A) The holders of shares of Series A Junior Participating
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of March, June, September and December
in each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series A Junior
Participating Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $0.01 or (b) subject to the provision for
adjustment hereinafter set forth, 1,000 times the aggregate per share amount of
all cash dividends, and 1,000 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in Common Stock or a subdivision of the outstanding Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Junior Participating Preferred Stock. In the
event the Corporation shall at any time after February 24, 1998 (the "Rights
Declaration Date") (i) declare any dividend on Common Stock payable in Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Series A Junior Participating Preferred
Stock were entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Junior Participating Preferred Stock as provided in Paragraph
(A) above immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $0.01 per share on the
Series A Junior Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such
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dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of holders of
shares of Series A Junior Participating Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record date shall
be no more than 30 days prior to the date fixed for the payment thereof.
(3) Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Junior Participating Preferred Stock shall entitle
the holder thereof to 1,000 votes on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the number of votes per share to which holders of shares of
Series A Junior Participating Preferred Stock were entitled immediately prior to
such event shall be adjusted by multiplying such number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the
holders of shares of Series A Junior Participating Preferred Stock and the
holders of Common Stock shall vote together as one class on all matters
submitted to a vote of shareholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to six (6)
quarterly dividends thereon, the occurrence of such contingency shall mark the
beginning of a period (herein called a "default period") which shall extend
until such time when all accrued and unpaid dividends for all previous quarterly
dividend periods and for the current quarterly dividend period on all shares of
Series A Junior Participating Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default period, all
holders of Preferred Stock (including holders of the Series A Junior
Participating Preferred Stock) with dividends in arrears in an amount equal to
six (6) quarterly dividends thereon, voting as a class, irrespective of series,
shall have the right to elect two (2) directors.
(ii) During any default period, such voting right of
the holders of Series A Junior Participating Preferred Stock may be exercised
initially at a special meeting called pursuant to subparagraph (iii) of this
Section 3(C) or at any annual meeting of shareholders, and thereafter at annual
meetings of shareholders, provided that such voting right shall not be exercised
unless the holders of ten percent (10%) in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The absence of a quorum of
the holders of Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting right. At any meeting at which
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the holders of Preferred Stock shall exercise such voting right initially during
an existing default period, they shall have the right, voting as a class, to
elect directors to fill such vacancies, if any, in the Board of Directors as may
then exist up to two (2) directors or, if such right is exercised at an annual
meeting, to elect two (2) directors. If the number which may be so elected at
any special meeting does not amount to the required number, the holders of the
Preferred Stock shall have the right to make such increase in the number of
directors as shall be necessary to permit the election by them of the required
number. After the holders of the Preferred Stock shall have exercised their
right to elect directors in any default period and during the continuance of
such period, the number of directors shall not be increased or decreased except
by vote of the holders of Preferred Stock as herein provided or pursuant to the
rights of any equity securities ranking senior to or pari passu with the Series
A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall,
during an existing default period, have previously exercised their right to
elect directors, the Board of Directors may order, or, subject to the provisions
of the Certificate of Incorporation, as amended, any stockholder or shareholders
owning in the aggregate not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding, irrespective of series, may request, the
calling of special meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the President, a Vice-President or the Secretary of
the Corporation. Notice of such meeting and of any annual meeting at which
holders of Preferred Stock are entitled to vote pursuant to this Paragraph
(C)(iii) shall be given to each holder of record of Preferred Stock by mailing a
copy of such notice to him or her at his or her last address as the same appears
on the books of the Corporation. Such meeting shall be called for a time not
earlier than 20 days and not later than 60 days after such order or request or
in default of the calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any shareholder or
shareholders owning in the aggregate not less than ten percent (10%) of the
total number of shares of Preferred Stock outstanding. Notwithstanding the
provisions of this Paragraph (C)(iii), no such special meeting shall be called
during the period within 60 days immediately preceding the date fixed for the
next annual meeting of the shareholders.
(iv) In any default period, the holders of Common
Stock, and other classes of stock of the Corporation if applicable, shall
continue to be entitled to elect the whole number of directors until the holders
of Preferred Stock shall have exercised their right to elect two (2) directors
voting as a class, after the exercise of which right (x) the directors so
elected by the holders of Preferred Stock shall continue in office until their
successors shall have been elected by such holders or until the expiration of
the default period, and (y) any vacancy in the Board of Directors may (except as
provided in Paragraph (C)(ii) of this Section 3) be filled by vote of a majority
of the remaining directors theretofore elected by the holders of the class of
stock which elected the Director whose office shall have become vacant.
References in this Paragraph (C) to directors elected by the holders of
particular class of stock shall include directors elected by such directors to
fill vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default
period, (x) the right of the holders of Preferred Stock as a class to elect
directors shall cease, (y) the term of any
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<PAGE>
directors elected by the holders of Preferred Stock as a class shall terminate,
and (z) the number of directors shall be such number as may be provided for in
the Certificate of Incorporation or By-laws irrespective of any increase made
pursuant to the provisions of Paragraph (C)(ii) of this Section 3 (such number
being subject, however, to change thereafter in any manner provided by law or in
the Certificate of Incorporation or By-Laws). Any vacancies in the Board of
Directors effected by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
(4) Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 of this Section (c) are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not declared, on
shares of Series A Junior Participating Preferred Stock outstanding shall have
been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the Series A
Junior Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series A Junior
Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration
any shares of Series A Junior Participating Preferred Stock, or any shares of
stock ranking on a parity with the Series A Junior Participating Preferred
Stock, except in accordance with a purchase offer made in
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<PAGE>
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under Paragraph (A) of
this Section 3, purchase or otherwise acquire such shares at such time and in
such manner.
(5) Reacquired Shares. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
(6) Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the Corporation, no distribution shall be made to
the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior Participating
Preferred Stock unless, prior thereto, the holders of shares of Series A Junior
Participating Preferred Stock shall have received an amount equal to 1,000 times
the Exercise Price, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment (the
"Series A Liquidation Preference"). Following the payment of the full amount of
the Series A Liquidation Preference, no additional distributions shall be made
to the holders of shares of Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of Common Stock shall have received an amount
per share (the "Common Adjustment") equal to the quotient obtained by dividing
(i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted
as set forth in subparagraph (C) below to reflect such events as stock splits,
stock dividends and recapitalizations with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series A Junior Participating Preferred
Stock and Common Stock, respectively, holders of Series A Junior Participating
Preferred Stock and holders of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to 1 with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of preferred
stock, if any, which rank on a parity with the Series A Junior Participating
Preferred Stock, then such remaining assets shall be distributed ratably to the
holders of such parity
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<PAGE>
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of Common Stock outstanding immediately after such event and
the denominator of which is the number of Common Stock that were outstanding
immediately prior to such event.
(7) Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of Series A
Junior Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Junior Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(8) No Redemption. The shares of Series A Junior Participating
Preferred Stock shall not be redeemable.
(9) Ranking. The Series A Junior Preferred Stock shall rank junior
to all other series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
(10) Amendment. The Certificate of Incorporation, as amended, of
the Corporation shall not be further amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Junior Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority or more of the
outstanding shares of Series A Junior Participating Preferred Stock, voting
separately as a class.
(11) Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder, in
proportion to such holders fractional shares,
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<PAGE>
to exercise voting rights, receive dividends, participate in distributions and
to have the benefit of all other rights of holders of Series A Junior
Participating Preferred Stock."
5. The manner in which the foregoing amendment of the Certificate of
Incorporation was authorized is a follows: The Board of Directors of the
Corporation authorized the amendment under the authority vested in said Board
under the provisions of the Certificate of Incorporation and of Section 502 of
the Business Corporation Law.
IN WITNESS WHEREOF, we have subscribed this document on the date set
opposite each of our names below and do hereby affirm, under the penalties of
perjury, that the statements contained therein have been examined by us and are
true and correct.
Date: February 24, 1998
Name: Richard Marks
Title: President
Name: Peter Bromberg
Title: Chief Financial Officer
and Assistant Secretary
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<PAGE>
Exhibit B
[Form of Rights Certificate]
Certificate No. R- _____ Rights
NOT EXERCISABLE AFTER MARCH 12, 2008 OR EARLIER IF REDEEMED BY THE COMPANY. THE
RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.001 PER
RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS
DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR
WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF SUCH AGREEMENT.]1
Rights Certificate
MOTORCAR PARTS & ACCESSORIES, INC.
This certifies that _______________________ , or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of February 24, 1998 (the "Rights Agreement"),
between Motorcar Parts & Accessories, Inc., a New York corporation (the
"Company"), and Continental Stock Transfer & Trust Company , a New York
corporation (the "Rights Agent"), to purchase from the Company at any time prior
to 5:00 P.M. (New York City time) on March 12 , 2008 at the office or offices of
the Rights Agent designated for such purpose, or its successors as Rights Agent,
one one-thousandth of a fully paid, non-assessable share of Series A Junior
Participating Preferred Stock (the "Preferred Stock") of the Company, at a
purchase price of $65.00 per one one-thousandth of a share (the "Purchase
Price"), upon presentation and surrender of this Rights Certificate with the
Form of Election to Purchase and related Certificate duly executed. The number
of Rights evidenced by this Rights Certificate (and the number of shares which
may be purchased upon exercise thereof) set forth above, and the Purchase Price
per share set forth above, are the number and Purchase Price as of March 12,
1998 based on the Preferred Stock as constituted at such date. The Company
reserves the right to require prior to the occurrence of a Triggering
- --------
1 The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
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<PAGE>
Event (as such term is defined in the Rights Agreement) that a number of Rights
be exercised so that only whole shares of Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Associate or
Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such
Rights shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Section 11(a)(ii)
Event.
As provided in the Rights Agreement, the Purchase Price and the
number and kind of shares of Preferred Stock or other securities, which may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate
are subject to modification and adjustment upon the happening of certain events,
including Triggering Events.
This Rights Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-thousandths of a share of Preferred
Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof another Rights Certificate or Rights Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $0.001 per Right at any time prior to the earlier of the
close of business on (i) the tenth day following the Stock Acquisition Date (as
such time period may be extended pursuant to the Rights Agreement), and (ii) the
Final Expiration Date. In addition, the Rights may be exchanged, in whole or in
part, for shares of Common Stock, or shares of preferred stock of the Company
having essentially the same value or economic rights as such shares. Immediately
upon the action of the Board of Directors of the
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<PAGE>
Company authorizing any such exchange, and without any further action or any
notice, the Rights (other than Rights which are not subject to such exchange)
will terminate and the Rights will only enable holders to receive the shares
issuable upon such exchange. No fractional shares of Preferred Stock will be
issued upon the exercise of any Right or Rights evidenced hereby (other than
fractions which are integral multiples of one one-thousandth of a share of
Preferred Stock, which may, at the election of the Company, be evidenced by
depositary receipts), but in lieu thereof a cash payment will be made, as
provided in the Rights Agreement.
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or, to
receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated:
ATTEST: MOTORCAR PARTS & ACCESSORIES, INC.
_____________________________ By________________________________
Assistant Secretary Title:
Countersigned:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By___________________________
Authorized Officer
[Form of Reverse Side of Rights Certificate]
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<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Rights Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfer unto
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _________________ Attorney,
to transfer the within Rights Certificate on the books of the within-named
Company, with full power of substitution.
Dated: ___________________, 19__
___________________________
Signature
Signature Guaranteed:
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<PAGE>
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned
and transferred by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: __________________, 19__ ______________________
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
-5-
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights represented by the Rights
Certificate.)
To: MOTORCAR PARTS & ACCESSORIES, INC.:
The undersigned hereby irrevocably elects to exercise __________ Rights
represented by this Rights Certificate to purchase the shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of
and delivered to:
Please insert social security
or other identifying number
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by
this Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
(Please print name and address)
Dated: _______________, 19__ ______________________
Signature
Signature Guaranteed:
-6-
<PAGE>
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: ___________, 19__ ___________________________
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.
-7-
<PAGE>
Exhibit C
DETAILED SUMMARY OF RIGHTS TO PURCHASE
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
On February 24, 1998, the Board of Directors of Motorcar Parts &
Accessories, Inc. (the "Company") adopted a Shareholder Rights Plan, providing
that one Right shall be attached to each share of Common Stock, par value $0.01
per share (the "Common Stock"), of the Company. Each Right entitles the
registered holder to purchase from the Company a unit (a "Unit") consisting of
one one-thousandth of a share of Series A Junior Participating Preferred Stock,
par value $0.01 per share (the "Preferred Stock"), at a purchase price (the
"Purchase Price") of $65.00 per one one-thousandth of a share of Preferred Stock
(a "Unit"), subject to adjustment. The description and terms of the Rights are
set forth in the Rights Agreement (the "Rights Agreement"), dated as of February
24, 1998, between the Company and Continental Stock Transfer & Trust Company, a
New York corporation, as Rights Agent (the "Rights Agent").
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate Rights
Certificate will be distributed. The Rights will separate from the Common Stock
upon the earlier of (i) 10 days following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") has acquired,
or has obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of Common Stock (the "Stock Acquisition Date") or (ii) ten
business days following the commencement of a tender offer or exchange offer
that would result in a person or group beneficially owning 20% or more of such
outstanding shares of Common Stock (the earlier of (i) and (ii), the
"Distribution Date"). The definition of Acquiring Person, subject to certain
limitations set forth in the Rights Agreement, excludes Mel Marks, Richard Marks
and their Affiliates or Associates. Until the Distribution Date, (i) the Rights
will be evidenced by the Common Stock certificates and will be transferred with
and only with such Common Stock certificates, (ii) new Common Stock certificates
will contain a notation incorporating the Rights Agreement by reference and
(iii) the surrender for transfer of any certificates for Common Stock
outstanding will also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on March 12, 2008 unless earlier redeemed by the
Company as described below. At no time will the Rights have any voting power.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
-1-
<PAGE>
In the event that an Acquiring Person becomes the beneficial owner
of 20% or more of the then outstanding shares of Common Stock (unless such
acquisition is made pursuant to a tender or exchange offer for all outstanding
shares of the Company, at a price determined by a majority of the independent
directors of the Company who are not representatives, nominees, Affiliates or
Associates of an Acquiring Person to be fair and otherwise in the best interest
of the Company and its shareholders after receiving advice from one or more
investment banking firms (a "Qualifying Offer")), each holder of a Right will
thereafter have the right to receive, upon exercise, shares of Common Stock (or,
in certain circumstances, cash, property or other securities of the Company),
having a value equal to two times the Exercise Price of the Right. The Exercise
Price is the Purchase Price times the number of shares of Common Stock
associated with each Right (initially, one). Notwithstanding any of the
foregoing, following the occurrence of any of the events set forth in this
paragraph (the "Flip-in Events"), all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person will be null and void. However, Rights are not exercisable
following the occurrence of any of the Flip-in Events set forth above until such
time as the Rights are no longer redeemable by the Company as set forth below.
In the event that following the Stock Acquisition Date, (i) the
Company engages in a merger or business combination transaction in which the
Company is not the surviving corporation (other than a merger consummated
pursuant to a Qualifying Offer); (ii) the Company engages in a merger or
business combination transaction in which the Company is the surviving
corporation and the Common Stock of the Company is changed or exchanged; or
(iii) more than 50% of the Company's assets or earning power is sold or
transferred, each holder of a Right (except Rights which have previously been
voided as set forth above) shall thereafter have the right to receive, upon
exercise of the Right, common stock of the acquiring company having a value
equal to two times the Exercise Price of the Right.
The Purchase Price payable, and the number of Units of Preferred
Stock or other securities or property issuable upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) if holders of the Preferred Stock are granted certain
rights or warrants to subscribe for Preferred Stock or convertible securities at
less than the current market price of the Preferred Stock, or (iii) upon the
distribution to holders of the Preferred Stock of evidences of indebtedness or
assets (excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustments in the Purchase Price will
be required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Preferred Stock on the last
trading date prior to the date of exercise.
At any time until ten days following the Stock Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price of $0.001
per Right. Immediately upon the
-2-
<PAGE>
action of the Board of Directors ordering redemption of the Rights, the Rights
will terminate and the only right of the holders of Rights will be to receive
the $0.001 redemption price.
Until a Right is exercised, the holder thereof, as such, will have
no rights as a shareholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights will
not be taxable to shareholders or to the Company, shareholders may, depending
upon the circumstances, recognize taxable income in the event that the Rights
become exercisable for shares of Common Stock (or other consideration) of the
Company as set forth above or in the event that the Rights are redeemed.
Other than those provisions relating to the principal economic terms
of the Rights, any of the provisions of the Rights Agreement may be amended by
the Board of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, to make changes which do not adversely
affect the interests of holders of Rights (excluding the interest of any
Acquiring Person), or to shorten or lengthen any time period under the Rights
Agreement; provided, however, that no amendment to adjust the time period
governing redemption shall be made at such time as the Rights are not
redeemable.
A copy of the Rights Agreement is being filed with the Securities
and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company. This
Summary Description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
-3-
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is
entered into as of February 10, 1998, by and between MOTORCAR PARTS &
ACCESSORIES, INC., a New York corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of June 1, 1996, as amended from time to time ("Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the
terms and conditions set forth in the Credit Agreement and have agreed to amend
the Credit Agreement to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree that the
Credit Agreement shall be amended as follows:
1. Section 1.2(d) is hereby deleted in its entirety, and the
following substituted therefor:
"(d) UNUSED COMMITMENT FEE. Borrower shall pay to
Bank a fee equal to one-fifth of one percent (0.20%) per
annum (computed on the basis of a 360-day year, actual days
elapsed) on the average daily unused amount of the Line of
Credit, which fee shall be calculated on an annual basis by
Bank and shall be due and payable by Borrower in arrears
within five (5) days after each billing is sent by Bank."
2. Except as specifically provided herein, all terms and conditions
of the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
3. Buyer hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein. Borrower
further certifies that as of the date of this Amendment there exists no Event of
Default as defined in the Credit Agreement, nor any condition, act or event
which with the giving of notice or the passage of time or both would constitute
any such Event of Default.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first written above.
MOTORCAR PARTS & WELLS FARGO BANK,
ACCESSORIES, INC. NATIONAL ASSOCIATION
By: /S/ PETER BROMBERG By: /S/ JOHN P. MANNING
--------------------- -----------------------
Title: CFO John P. Manning
Vice President
By: /S/ RICHARD MARKS
---------------------
Title: PRESIDENT
-2-
SUBSIDIARIES
Name Jurisdiction of Organization
---- ----------------------------
MVR Products Pte Limited Singapore
Unijoh Sdn, Bhd Malaysia
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statement pertaining to the 1994 stock option plan of Motorcar Parts &
Accessories, Inc. on Form S-8 of our report dated May 19, 1998 which is included
in the annual report on Form 10-K for the year ended March 31, 1998.
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
New York, New York
June 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000918251
<NAME> MOTORCAR PARTS & ACCESSORIES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,108,000
<SECURITIES> 0
<RECEIVABLES> 29,841,000
<ALLOWANCES> 250,000
<INVENTORY> 54,736,000
<CURRENT-ASSETS> 89,297,000
<PP&E> 10,588,000
<DEPRECIATION> 3,447,000
<TOTAL-ASSETS> 98,245,000
<CURRENT-LIABILITIES> 13,964,000
<BONDS> 0
0
0
<COMMON> 64,000
<OTHER-SE> 68,063,000
<TOTAL-LIABILITY-AND-EQUITY> 98,245,000
<SALES> 112,952,000
<TOTAL-REVENUES> 112,952,000
<CGS> 91,317,000
<TOTAL-COSTS> 100,581,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,577,000
<INCOME-PRETAX> 10,794,000
<INCOME-TAX> 4,192,000
<INCOME-CONTINUING> 6,602,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,602,000
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.16
</TABLE>
