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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [ X ]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential for the Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section
240.14a-11(c) or Section 240.14a-12
HAHN AUTOMOTIVE WAREHOUSE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-16(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock
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(2) Aggregate number of securities to which transaction applies:
571,442
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
$3.00 - Determined based upon the maximum proposed number of
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shares to be cashed-out in transaction of 571,442 shares at
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$3.00 per share.
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(4) Proposed maximum aggregate value of transaction:
$1,714,344
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(5) Total fee paid:
$342.87
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------
(4) Date Filed:
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HAHN AUTOMOTIVE WAREHOUSE, INC.
415 West Main Street
Rochester, New York
To Our Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders
of Hahn Automotive Warehouse, Inc. to be held at Hahn's corporate headquarters
at 415 West Main Street, Rochester, New York on the ____ day of ____________,
2001 at 10:00 a.m., local time.
The purpose of the Special Meeting is to consider and vote upon the
amended and restated merger agreement dated May 16, 2001, among Hahn Automotive
Warehouse, Inc., Glick, LLC, HAW Acquisition, Inc., Eli N. Futerman and Daniel
J. Chessin, and the related merger, whereby HAW Acquisition will be merged with
and into Hahn. If the merger is consummated, all of the issued and outstanding
common stock of Hahn held by shareholders other than Messrs. Futerman and
Chessin and certain other family members will be converted into the right to
receive $3.00 per share in cash, without interest. Hahn will be the surviving
corporation in the merger and will become a wholly-owned subsidiary of Glick.
The merger agreement is attached as APPENDIX A to the enclosed proxy statement.
Consummation of the merger is subject to certain conditions, including
the approval of two-thirds of all of the votes entitled to be cast on the matter
by holders of Hahn's outstanding common stock on the record date. Glick and
Messrs. Futerman and Chessin and certain other family members have agreed to
vote, or cause to be voted, in favor of the merger and the merger agreement,
shares representing approximately 64% of Hahn's outstanding common stock. In
addition, officers and directors of Hahn who hold less than 1% of Hahn's
outstanding common stock have indicated that they will vote in favor of the
merger and merger agreement.
Consummation of the merger will also require the approval of the merger
and merger agreement by a majority of the votes cast on the matter, either in
person or by proxy, by our public shareholders. Our public shareholders include
all shareholders other than those affiliated with the Futerman/Chessin buy-out
group.
THE HAHN BOARD OF DIRECTORS APPOINTED A SPECIAL COMMITTEE OF
INDEPENDENT DIRECTORS TO CONSIDER, NEGOTIATE AND RECOMMEND EITHER THE APPROVAL
OR REJECTION OF THE MERGER BY THE BOARD. THE SPECIAL COMMITTEE UNANIMOUSLY
RECOMMENDED TO OUR BOARD OF DIRECTORS THAT THE MERGER BE APPROVED.
In connection with its evaluation of the merger, the special committee
engaged Empire Valuation Consultants, Inc. to act as its financial advisor.
Empire Valuation has rendered its written opinion that, as of May 16, 2001,
based upon and subject to the assumptions, limitations and qualifications
included in its opinion, the consideration of $3.00 per share to be received in
the merger is fair from a financial point of view to our public shareholders.
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Empire Valuation's written opinion dated May 16, 2001 is attached as APPENDIX B
to the accompanying proxy statement. You should read it carefully.
Based on the special committee's recommendation and careful
consideration of certain other factors, the board of directors believes that the
terms of the merger and merger agreement are fair to, and in the best interests
of, the public shareholders of Hahn. Thus, the board approved the merger and
recommends that shareholders vote FOR the merger and the merger agreement. Since
Messrs. Futerman and Chessin have personal conflicts of interest in recommending
this merger to you, they abstained from voting at the board meeting at which
this recommendation was made.
The accompanying proxy statement provides a description of the proposed
merger and additional information that you may wish to consider in deciding how
to vote. Please give this information your careful attention.
Whether or not you plan to attend, it is important that your shares are
represented and voted at the Special Meeting. Accordingly, please promptly
complete, sign and date the enclosed proxy card and return it in the envelope
provided.
Sincerely,
-----------------------------------
William A. Buckingham,
Chairman, Special Committee
June ___ , 2001
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HAHN AUTOMOTIVE WAREHOUSE, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on _____________, 2001
To Our Shareholders:
A special meeting of shareholders of Hahn Automotive Warehouse, Inc., a
New York corporation, will be held at Hahn's executive offices located at 415
West Main Street, Rochester, New York 14608 on _____________, 2001, at 10:00
a.m. (local time), for the following purposes:
(1) To consider and vote on a proposal to adopt an Amended and
Restated Agreement and Plan of Merger, dated as of May 16,
2001, by and among Hahn and Glick, LLC, HAW Acquisition Corp.,
Eli N. Futerman and Daniel J. Chessin, whereby, among other
things, HAW Acquisition will merge with and into Hahn and each
outstanding share of Hahn common stock held by shareholders,
other than Glick, Futerman, Chessin and certain other family
members, will be converted into a right to receive $3.00 in
cash, without interest. Holders of options to purchase common
stock that are vested as of the effective date of the merger,
shall have the right to receive the positive difference, if
any, between the $3.00 per share merger consideration and the
stock option exercise price. The merger agreement is more
fully described in the accompanying proxy statement and the
full text can be found as APPENDIX A thereto.
(2) To consider a potential adjournment of the special meeting, if
necessary, to solicit additional votes in favor of the merger
proposal.
(3) To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof. We are
not aware of any other business to come before the special
meeting.
The board of directors of Hahn has fixed the close of business on June
5, 2001 as the record date for the determination of shareholders entitled to
notice of, and to vote at the special meeting and at any adjournment thereof. A
proxy statement and proxy are enclosed. It is important that all shares be
represented at the special meeting. You have a right to dissent from the merger
and obtain payment of the fair value of your shares by complying with the New
York law provisions contained in APPENDIX C to the proxy statement.
ADOPTION OF THE MERGER AGREEMENT WILL REQUIRE THE AFFIRMATIVE VOTE OF
AT LEAST TWO-THIRDS OF THE VOTES OF ALL OUTSTANDING SHARES OF HAHN'S COMMON
STOCK. WHILE NOT REQUIRED BY THE NEW YORK BUSINESS CORPORATION LAW OR HAHN'S
RESTATED CERTIFICATE OF INCORPORATION OR AMENDED AND RESTATED BY-LAWS, THE
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MERGER AGREEMENT PROVIDES THAT THE MERGER MUST ALSO BE APPROVED AND ADOPTED BY
THE AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE VOTES CAST AT THE MEETING,
EITHER IN PERSON OR BY PROXY, EXCLUDING VOTES CAST BY GLICK, FUTERMAN, CHESSIN
AND CERTAIN OTHER FAMILY MEMBERS, ABSTENTIONS AND BROKER NON-VOTES. THE BOARD
OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE MERGER AND THE MERGER AGREEMENT.
You are cordially invited to attend the special meeting. However, to
ensure your representation at the special meeting, please complete, sign, date
and promptly mail your proxy card in the enclosed postage-paid envelope. If you
are a shareholder whose shares are not registered in your name, you will need
additional documentation from the holder of record of your shares to vote in
person at the meeting. The prompt return of your proxy will save us the expense
of further requests for proxies.
By Order of the Board of Directors,
Daniel J. Chessin
Executive Vice President
and Secretary
Rochester, New York
June __, 2001
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES AGENCY
HAS APPROVED OR DISAPPROVED THIS TRANSACTION OR PASSED UPON THE FAIRNESS OR
MERITS OF THIS TRANSACTION OR THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THESE DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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HAHN AUTOMOTIVE WAREHOUSE, INC.
415 W. Main Street
Rochester, New York
PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS
JULY __, 2001
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE MERGER............................................................................1
WHERE YOU CAN FIND MORE INFORMATION...............................................................................5
FORWARD-LOOKING INFORMATION.......................................................................................5
SUMMARY...........................................................................................................7
Recent Developments..........................................................................................7
The Special Meeting..........................................................................................7
The Parties..................................................................................................8
The Merger...................................................................................................9
Special Factors..............................................................................................9
The Merger Agreement........................................................................................11
RECENT DEVELOPMENTS..............................................................................................13
THE SPECIAL MEETING..............................................................................................13
Date, Time, Place and Matters to be Considered..............................................................13
Record Date; Quorum Requirements............................................................................13
Voting Requirements.........................................................................................14
Voting and Revocation of Proxies............................................................................14
Rights of Objecting Shareholders............................................................................14
Possible Adjournment of Special Meeting and Other Matters to be Considered at the Special Meeting...........16
Costs of Soliciting Proxies.................................................................................16
Exchanging Stock Certificates...............................................................................16
Effective Time of the Merger................................................................................16
SPECIAL FACTORS..................................................................................................16
Background Of The Transaction...............................................................................16
Recommendation of Special Committee.........................................................................23
Recommendation of our Board Of Directors....................................................................26
Glick Buy-Out Group's Purpose And Reasons For The Merger....................................................28
Position of the Glick Buy-Out Group as to Fairness of the Merger............................................29
Fairness Opinion of Special Committee's Financial Advisor...................................................30
Projections.................................................................................................35
Preliminary Calculation of Value by the Glick Buy-Out Group's Financial Advisor.............................36
Plans for Hahn After the Merger.............................................................................37
Conduct of the Business of Hahn if the Merger is not Consummated............................................38
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND HAHN..............................................................38
Merger Consideration and Stock Options......................................................................38
Directors And Officers Of The Surviving Corporation.........................................................39
Compensation Of Directors...................................................................................39
Compensation of Special Committee Members...................................................................39
Indemnification Arrangements................................................................................41
Certain Other Transactions..................................................................................41
Effects Of The Merger.......................................................................................42
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THE MERGER AGREEMENT.............................................................................................42
The Merger; Merger Consideration............................................................................44
The Exchange Fund; Payment for Shares of Common Stock.......................................................44
Transfers of Common Stock...................................................................................45
Treatment of Stock Options..................................................................................45
Tax Withholding.............................................................................................45
The Directors and Officers, Certificate of Incorporation and By-Laws Following the Merger...................46
Representations And Warranties..............................................................................46
Covenants...................................................................................................46
Indemnification and Insurance...............................................................................47
Conditions..................................................................................................48
Termination.................................................................................................50
Fees And Expenses...........................................................................................51
Amendment And Waiver........................................................................................51
Accounting Treatment........................................................................................52
Financing of the Merger.....................................................................................52
Regulatory Approvals and Third Party Transactions...........................................................53
Risk that the Merger Will Not Be Consummated................................................................53
FEES AND EXPENSES................................................................................................53
FEDERAL INCOME TAX CONSEQUENCES..................................................................................54
INFORMATION REGARDING HAHN.......................................................................................55
Business of Hahn............................................................................................55
Selected Consolidated Financial Data of Hahn................................................................60
Management's Discussion and Analysis of Financial Condition and Results of Operations.......................61
Results of Operations.......................................................................................61
Market Prices of and Dividends on the Common Stock..........................................................66
Directors and Executive Officers............................................................................67
Stock Ownership.............................................................................................69
INFORMATION REGARDING GLICK AND HAW ACQUISITION..................................................................70
Glick, LLC..................................................................................................70
HAW Acquisition.............................................................................................71
Recent Stock Purchases......................................................................................71
Contribution and Voting Agreement...........................................................................71
INDEPENDENT AUDITORS.............................................................................................72
SHAREHOLDER PROPOSALS............................................................................................72
INDEX TO FINANCIAL STATEMENTS....................................................................................F-1
LIST OF APPENDICES
Appendix A - Amended and Restated Agreement and Plan of Merger
Appendix B - Opinion of Empire Valuation Consultants, Inc.
Appendix C - Section 623 of the New York Business Corporation Law
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HAHN AUTOMOTIVE WAREHOUSE, INC.
415 W. MAIN STREET
ROCHESTER, NEW YORK
PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS
_____________, 2001
We are providing this proxy statement and accompanying proxy card to our
shareholders in connection with the solicitation by our board of directors of
proxies to be used at the special meeting of shareholders to be held on
_____________, 2001 at 10:00 a.m., local time, at Hahn's offices at 415 W. Main
Street, Rochester, New York, including at any adjournment of the special
meeting. We began mailing these materials, the accompanying letter to
shareholders and the notice of the meeting to our shareholders on or about
_______, 2001.
On May 9, 2001, Hahn's shareholders approved a 1-for-3 reverse stock split. The
reverse stock split was effected as of the close of business on May 10, 2001.
All share and per share information in this proxy statement as of all dates and
for all periods prior to the reverse stock split have been adjusted as if the
reverse stock split had been in effect as of that time.
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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
Q: WHY AM I RECEIVING THESE MATERIALS?
A: Our board of directors is providing these proxy materials to give you
information to determine how to vote in connection with the special
meeting.
Q: WHAT AM I BEING ASKED TO VOTE ON AT THE MEETING?
A: You are being asked to vote and approve the merger and the merger agreement
whereby HAW Acquisition will merge with and into Hahn. You may also be
asked whether to adjourn the meeting if insufficient votes in favor of the
merger have been obtained as of the scheduled time for the meeting so that
our board may solicit additional proxies voting in favor of the merger.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Upon consummation of the merger, each share of Hahn common stock you own
will be converted into the right to receive $3.00 in cash, without
interest. This represents a 60% premium to the closing price of the common
stock on the date that Futerman and Chessin first submitted the acquisition
proposal to the board.
Q: HOW MANY VOTES DO I HAVE?
A: You have one vote for each share of Hahn common stock that you owned at the
close of business on June 5, 2001.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE MERGER?
A: For the merger to occur, two different shareholder approvals are required.
First, the merger and the merger agreement must be approved and adopted by
holders of
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66 2/3% of our outstanding shares of common stock. This approval is
required under New York law. Futerman, Chessin and certain other family
members possess 64% of our outstanding common stock. These shareholders are
required to vote their shares and those over which they have voting control
in favor of approval of the merger and the merger agreement. In addition,
directors holding an additional 1,201 shares of our common stock have
indicated they intend to vote in favor of the merger. Accordingly, if
holders of an additional 43,018 shares of common stock, representing
approximately 2.7% of our outstanding shares of common stock, also vote in
favor of the merger and the merger agreement, the statutorily required 66
2/3% vote will be obtained.
Second, the merger and merger agreement must be approved by a majority of
all the votes cast on the merger proposal by our public shareholders,
excluding abstentions and broker non-votes. This approval is required under
the merger agreement. If all of the public shareholders cast votes at the
special meeting, an affirmative vote FOR the merger proposal by public
shareholders holding 285,724 shares of our common stock would be necessary
to obtain the public shareholder approval.
Q: HAS OUR BOARD OF DIRECTORS RECOMMENDED THE MERGER?
A. Yes. Our board of directors and the special committee of independent
directors formed by our board of directors have both unanimously approved
the merger and the merger agreement, with Futerman and Chessin abstaining.
Our board voted unanimously to recommend that you vote "FOR" approval of
the merger and the merger agreement, again with Futerman and Chessin
abstaining.
Q: WHY IS OUR BOARD OF DIRECTORS RECOMMENDING THE MERGER?
A: Our board of directors and the special committee formed by the board to
consider this transaction are recommending the merger because they believe
that the merger is a more desirable alternative for you than maintaining
the status quo. In reaching this conclusion, our board of directors and the
special committee considered, among other factors:
- the current limited liquidity of your Hahn investment;
- the immediate liquidity provided by the merger at a price that
our board of directors and the special committee believe is fair;
and
- the fact that the merger eliminates your risk of loss in the
event our stock price decreases more in the future.
To review the reasons for the merger and the factors considered by the
special committee and the board of directors in approving the exchange in
greater detail, see "Special Factors - Background of the Transaction" on
page 16 and "-- Recommendation of the Special Committee", "--
Recommendation of our Board of Directors" on page 23.
Q: WHY WAS THE SPECIAL COMMITTEE FORMED?
A: Our board of directors formed a special committee of independent directors
to protect your interests in evaluating and negotiating the terms of the
merger and the merger agreement because it recognized that the merger
transaction would present a conflict of interest for Futerman and Chessin
as members of our senior management and our board of directors.
The members of the special committee are William A. Buckingham (Chairman),
Stephen B. Ashley, Nathan Lewinger and E. Philip Saunders. These directors
are not officers or employees of Hahn. The special committee independently
selected and retained legal and financial advisors to assist the committee
in its work. You can find further details about the special committee
beginning on page 18.
Q: WHAT WAS THE OPINION OF THE FINANCIAL ADVISOR?
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A: Each of the special committee and our board of directors considered the
opinion of the special committee's financial advisor, Empire Valuation
Consultants, Inc. Empire Valuation presented a written opinion to the
effect that the merger consideration is fair, from a financial point of
view, to our public shareholders.
Q: WHO ARE THE OTHER FILING PERSONS AND WHAT WAS THEIR OPINION?
A: The other persons required to file this Proxy Statement are Eli N.
Futerman, Daniel J. Chessin, Glick and HAW Acquisition. These filing
persons, along with certain other family members, comprise the Glick
buy-out group. Each of these persons and entities believe that the merger
and the consideration to be paid to our public shareholders is fair to such
holders. A more complete description of these persons and their opinion can
be found on pages 8, 28 and 29.
Q: DOES GLICK HAVE THE FINANCIAL RESOURCES TO PAY FOR THE COMMON STOCK HELD BY
OUR PUBLIC SHAREHOLDERS?
A: The aggregate consideration payable in the merger is approximately $1.7
million, and the aggregate amount of transaction expenses payable by the
Glick buy-out group if the merger is completed is estimated to be
approximately $300,000. The Glick buy-out group has received a commitment
from Manufacturers and Traders Trust Company to provide them with mortgage
financing to fund the aggregate merger consideration and the expenses
related to the transaction.
Q: HOW DO I VOTE?
A: You may choose one of the following ways to cast your vote:
- by completing the accompanying proxy card and returning it in the
enclosed envelope; or
- by appearing and voting in person at the special meeting.
If your shares are held in "street name," which means that your shares are held
in the name of a bank, broker or other financial institution instead of in your
own name, you must either direct the financial institution as to how to vote
your shares or obtain a proxy from the financial institution to vote at the
special meeting.
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY OR VOTING INSTRUCTION
CARD?
A: It means your shares are registered differently or are held in more than
one account. Please provide voting instructions for each proxy card that
you receive.
Q: HOW DO I CHANGE MY VOTE?
A: You may change your proxy instructions at any time prior to the vote at the
special meeting by following any of these procedures. If you are a
shareholder "of record," meaning one whose shares are registered in his or
her name, to revoke a proxy, you must:
- complete a new proxy bearing a later date and submit it to the
Secretary of Hahn,
- sign and send a written instrument revoking the proxy to the
Secretary of Hahn, or
- attend the special meeting and vote in person.
Attendance at the special meeting alone will not cause your previously granted
proxy to be revoked unless you vote in person. A "beneficial holder" whose
shares are registered in another name (for example in "street name") must follow
the procedures required by the holder of record, which is usually a brokerage
firm or financial institution, to revoke a proxy. You should contact the holder
of record directly for more information on these procedures.
Q: Q: MAY I ATTEND THE SPECIAL
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MEETING IN PERSON?
A: You may attend the special meeting in person if you have shares registered
in your name or if you present a valid proxy in your favor from the
registered holder. If shares are registered in the name of a corporation or
other organization, you must bring a letter from an authorized agent of
that corporation or organization giving you authority to vote its shares.
Q: IF I HAVE SHARES REGISTERED IN MY NAME OR IF I HAVE A PROXY IN MY FAVOR
FROM A REGISTERED HOLDER, WHAT DO I NEED TO DO TO ATTEND THE SPECIAL
MEETING IN PERSON?
A: Just bring proper photographic identification to the meeting, such as a
driver's license, passport or United States military identification.
Q: WHEN SHOULD I SEND IN MY STOCK CERTIFICATE(S)?
A: You will receive separate instructions for surrendering stock
certificate(s) following the special meeting . You should not send in your
stock certificate(s) until you receive these instructions.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger as quickly as possible. We hope to
complete the merger shortly after the special meeting, assuming the
required shareholder approvals are obtained and the Glick buy-out group's
financing has been completed.
Q: WHO CAN ANSWER MY QUESTIONS?
A: If you have more questions about the merger or would like additional copies
of this proxy statement, you should contact:
Hahn Automotive Warehouse, Inc.
Donald T. Hiller, Investor Relations Manager Telephone No.: (716) 464-3831
or
toll-free at (800) 777-HAHN (4246)
Facsimile No.: (716) 235-1688
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WHERE YOU CAN FIND MORE INFORMATION
Hahn is subject to the informational requirements of the Securities
Exchange Act of 1934. As a result, Hahn files reports, proxy statements and
other information with the SEC. You can review and copy these reports, proxy
statements and other information at the public reference facilities maintained
by the SEC in Washington, D.C., New York, New York, and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference facilities.
You can also access copies of these materials at the SEC's web site on
the internet at http://www.sec.gov. These documents are also available for
inspection and copying at Hahn's headquarters at 415 West Main Street,
Rochester, New York 14608, during regular business hours, by any shareholder or
representative designated in writing. Hahn will also send you copies of these
documents on request and without charge.
Hahn, Glick, HAW Acquisition, Futerman and Chessin have jointly filed a
Schedule 13E-3 with the SEC with respect to the merger. This proxy statement
does not contain all of the information contained in the Schedule 13E-3, some of
which is omitted as permitted by the SEC's rules. Statements made in this proxy
statement, while complete in all material respects, are qualified by reference
to documents filed as exhibits to the Schedule 13E-3. The Schedule 13E-3,
including exhibits, is available for inspection and copying at the SEC and at
Hahn's headquarters, as described above.
FORWARD-LOOKING INFORMATION
The following cautionary statement identifies important factors that
could cause Hahn's actual results to differ materially from those projected in
forward-looking statements included in this proxy statement, including
statements incorporated by reference into this proxy statement. Except for the
historical information, the matters discussed in this proxy statement may be
deemed forward-looking statements. Forward-looking statements are statements
that include projections, predictions, expectations or beliefs about future
events or results or otherwise are not statements of historical fact. Such
statements are often characterized by the use of qualifying words (and their
derivatives) such as "expect," "believe," "plan," "project," or other statements
concerning our opinions or judgment about future events. Forward-looking
statements involve risks and uncertainties that may cause actual events and
results to differ materially from expected events and results. As detailed in
our periodic SEC reports, these risks and uncertainties include, among others:
- our substantial leverage and significant working capital needs;
- restrictions imposed by our debt instruments;
- stock price volatility and the absence of dividends;
- competition;
- general risks of the automotive parts replacement industry;
- dependence on key personnel; and
- the market's acceptance of our iAutoparts internet strategy.
In addition, the merger is subject to compliance with or waiver of all
of the closing conditions stated in the merger agreement. In view of these
considerations, you should not place undue reliance on the predictive value of
the forward-looking statements made in this proxy statement.
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References in this proxy statement to "we," "our" or "us" refers to
Hahn, not to Glick, HAW Acquisition or Futerman and Chessin or any of their
family members who are part of the Glick buy-out group. When we refer to Hahn's
management, we mean one or more of Hahn's principal executive officers, Eli N.
Futerman (President and Chief Executive Officer), Daniel J. Chessin (Executive
Vice-President and Secretary), Daniel R. McDonald (Vice President and General
Counsel), Albert J. Van Erp (Vice-President-Finance) and Timothy Vergo
(Vice-President-Wholesale Operations). References to "public shareholders" means
Hahn shareholders other than the members of the Glick buy-out group.
All information contained in this proxy statement relating to Glick,
HAW Acquisition and Messrs. Futerman and Chessin and certain other family
members, has been supplied by them for inclusion and has not been independently
verified by Hahn. No persons have been authorized to give any information or to
make any representations other than those contained in this proxy statement.
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SUMMARY
This summary highlights information from the proxy statement that Hahn
believes is important information about the merger and merger agreement. You
should read this entire document carefully and the documents to which it refers
for a complete description of the merger and merger agreement. This summary
includes page references in parentheses to direct you to more complete
descriptions of the topics presented in this summary.
RECENT DEVELOPMENTS (page 13)
Hahn completed a 1-for-3 reverse stock split on May 10, 2001. The
reverse stock split was proposed so that Hahn could endeavor to satisfy the
maintenance requirements established by the Nasdaq SmallCap Market for continued
listing, which, among other things, requires that Hahn's common stock maintain a
bid price of at least $1.00 per share. Nasdaq has required that Hahn achieve a
$1.00 minimum bid price no later than May 14, 2001 and maintain it for 10
consecutive trading days, thereafter. On May 14, 2001, Hahn's common stock
closed at $3.00 per share. If Hahn's stock price does not meet the required
minimum bid price, Nasdaq could delist the stock. This would result in Hahn's
stock being traded in the over-the-counter market, which might adversely affect
the liquidity of the stock and further depress its price.
THE SPECIAL MEETING (page 13)
Date, Time, Place and Purpose. The special meeting will be held at
10:00 a.m., local time, on July __, 2001, at Hahn's headquarters at 415 West
Main Street, Rochester, New York. At the special meeting, you will be asked to
consider and vote upon the merger proposal, or if necessary, the adjournment of
the special meeting to allow time to solicit additional proxies in favor of the
merger proposal.
Record Date; Quorum Requirements. The close of business on June 5,
2001, is the record date for determining holders of shares of our common stock
entitled to vote at the special meeting. On the record date, we had outstanding
______ shares of common stock.
Voting Requirements. The merger proposal is subject to both the
approval of shareholders holding 66 2/3% of our outstanding common stock and the
approval by a majority of our public shareholders who cast votes on the matter
(excluding abstentions and broker non-votes) at the special meeting. Holders of
our common stock are entitled to one vote for each share of their common stock.
The first approval is required by law and the second approval was required by
the special committee and the board of directors as a condition to approving the
merger. As a result of their stock ownership, as of May 11, 2001, the Glick
buy-out group held and controlled 1,010,229 shares or 64% of our outstanding
common stock. These shareholders have agreed to vote, or cause to be voted, all
of the shares of common stock owned by them, or over which they have voting
power, for approval of the merger proposal. Hahn's other directors and executive
officers, who together own 1,201 shares, or approximately 0.07% of our
outstanding shares of common stock, have indicated that they also intend to vote
their shares in favor of the merger proposal. Accordingly, the 66 2/3% approval
only requires the affirmative vote by shareholders holding 43,013 additional
shares of common stock, or approximately 2.7% of our outstanding common stock.
The number of shares of common stock necessary to receive the public shareholder
approval depends on the number of shares of common stock held by public
shareholders who are present, in person or by proxy, and vote at the special
meeting. If all of the public shareholders are present and voting at the special
meeting, an affirmative vote in favor of the merger proposal by those
shareholders holding 285,724 shares of common stock will be necessary to obtain
this second shareholder approval.
In the event that Hahn has not obtained a sufficient number of proxies
to approve the merger and the merger agreement as of the special meeting date,
then Hahn may also ask you to vote upon a motion to adjourn
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the special meeting in order to solicit additional votes in favor of the merger
to the extent necessary to obtain the required vote necessary to approve the
merger and the merger agreement. If this motion is made, a majority of the
shares of common stock present and voting will be required to approve the
motion. Futerman and Chessin own and control sufficient shares to approve this
motion.
Voting and Revocation of Proxies. Unless contrary instructions are
indicated on your proxy, all of your shares represented by valid proxies will be
voted FOR the approval of the merger proposal, or if necessary, the adjournment
proposal. You may revoke your proxy at any time before the special meeting by
delivering a written notice of revocation to our Secretary, by executing and
delivering a later-dated proxy or by attending the meeting and giving oral
notice of your intention to vote in person. Your attendance at the special
meeting will not by itself constitute a revocation of your proxy. You must also
vote your shares in person at the special meeting. If you have instructed a
broker to vote your shares, you must follow the directions received from your
broker to change those instructions. (Pages 14).
Rights of Objecting Shareholders. If the merger is to be completed, but
you do not wish to exchange your shares of our common stock for the merger
consideration, you have the right under New York law to have the "fair value" of
your shares determined by a New York court. (Pages 14). This "right of
appraisal" is subject to a number of restrictions and technical requirements.
Generally, in order to exercise appraisal rights, you must, among other things:
- Not vote in favor of the merger and the merger agreement;
- Make a written demand for appraisal before the vote on the merger
and the merger agreement; and
- Submit your stock certificates to Hahn to have the proper legend
placed thereon.
You will not protect your right of appraisal by merely voting against the merger
and the merger agreement. A copy of the relevant sections of New York law
regarding dissenters' rights is included in this proxy statement as APPENDIX C.
You should read the provisions of this law carefully.
THE PARTIES (pages 55, 70 and 71)
Hahn. Hahn was incorporated in New York in 1958. Hahn is a distributor
of automotive aftermarket replacement parts through its seven direct
Professional Automotive Warehouse Distributions Centers to the professional
installer, 13 strategically located distribution centers to 78 Advantage Auto
Stores, and approximately 1,100 independent jobbers, in the Midwest and along
the Eastern Seaboard. Through its wholly-owned subsidiary, iAutoparts, Inc.,
Hahn operates iAutoparts.com(R), an on-line automotive parts store. Its
principal executive offices are located at 415 West Main Street, Rochester, New
York 14608, and its telephone number is (716) 235-1595.
Glick. Glick, LLC is a Nevada limited liability company organized on
April 27, 2001, by Futerman, Chessin and certain other family members for the
purpose of effecting the merger. Futerman, Chessin and certain other family
members are the only members of Glick. Glick is a holding entity that has no
material assets other than the shares of HAW Acquisition. Glick is a party to a
Contribution and Voting Agreement effective May 11, 2001 with Futerman, Chessin
and certain other family members, whereby those individuals have agreed to
contribute their shares of Hahn common stock to Glick on or before the merger so
that at the effective time of the merger, Glick will hold 1,010,229 shares of
Hahn common stock, or approximately 64% of Hahn's outstanding common stock.
Except in connection with entering into the merger agreement and carrying out
the transactions contemplated by the merger agreement, including the
organization of HAW Acquisition and the execution and delivery of the
Contribution and Voting Agreement, Glick has not engaged
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in any activities since its organization. Futerman and Chessin are the managers
of Glick and, together, hold 100% of the voting control of Glick. The address of
Glick is c/o Eli N. Futerman and Daniel J. Chessin, 415 West Main Street,
Rochester, New York 14608, and its telephone number is (716) 235-1595.
HAW Acquisition. HAW Acquisition is a New York corporation organized on
April 5, 2001 by Futerman and Chessin for the purpose of effecting the merger.
The only shareholder of HAW Acquisition is Glick. If the merger is consummated,
then at the effective time, HAW Acquisition will be merged with and into Hahn,
with Hahn as the surviving corporation following the merger. HAW Acquisition has
no material assets and has not engaged in any activities except in connection
with entering into the merger agreement and carrying out the transactions
contemplated by the merger agreement. Futerman and Chessin are co-chief
executive officers of HAW Acquisition, and are its only directors. The address
of HAW Acquisition is c/o Eli N. Futerman and Daniel J. Chessin, 415 West Main
Street, Rochester, New York 14608, and its telephone number is (716) 235-1595.
THE MERGER (Page 44)
The merger will be effected by having HAW Acquisition merge with and
into Hahn. Hahn will continue as the surviving corporation and will become a
wholly owned subsidiary of Glick.
After the merger, (i) public trading of Hahn common stock will cease,
(ii) Hahn common stock will be delisted from the Nasdaq SmallCap Market and
(iii) Hahn will formally terminate its reporting obligations under the
Securities Exchange Act of 1934 and no longer will be required to file periodic
and other reports with the SEC. As a result of the merger, public shareholders
(other than those who perfect their appraisal rights) will be entitled to
receive the cash merger price and will no longer have any ownership interest in
Hahn, including the right to participate in the future earnings and growth of
Hahn.
SPECIAL FACTORS (Page 16)
Background of the Transaction. For a description of the events leading
to the approval of the merger agreement and the merger by the board and the
reasons for such approval, you should refer to pages 16-23.
Recommendation of the Special Committee and our Board of Directors. On
March 20, 2001, the merger proposal was presented for consideration to a meeting
of the special committee, consisting of four directors of Hahn who are not
employees of, or consultants to, Hahn, Glick, HAW Acquisition, Futerman, Chessin
or any of Futerman's and Chessin's family members, and have no interest in the
proposed merger, other than as holders of non-employee director stock options
and, in some cases, as public shareholders. The special committee concluded that
the proposed merger, on the terms reflected in the January 16, 2001 proposal
letter submitted by Futerman and Chessin, including the cash merger
consideration, but modified to include the public shareholder vote as a
condition, was fair to, and in the best interests of, Hahn and the public
shareholders, and resolved to recommend to the board that it approve the merger
and authorize the execution of a merger agreement. Thereafter, on March 26,
2001, our board of directors, based in part upon the recommendation of the
special committee, concluded that the merger on the terms and conditions
approved by the special committee and more specifically set forth in a letter of
intent submitted to the board, dated March 26, 2001, was fair to, and in the
best interests of, Hahn and the public shareholders. Our board of directors then
approved the merger, authorized the chairman of the special committee to
negotiate and enter into the merger agreement on behalf of Hahn, and resolved to
recommend to the public shareholders that they vote to approve the merger and
the merger agreement. The special committee addressed its recommendation to our
board and our board specifically addressed its recommendation to the public
shareholders. Neither the special committee nor our board addressed its
recommendation to Glick, Futerman, Chessin or the other members of the Glick
buy-out group. (Pages 23, 28).
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Factors Considered by the Special Committee and our Board of Directors.
The special committee, in reaching its decision to recommend approval of the
merger to our board, and our board, in approving the merger and the execution of
the merger agreement and recommending adoption of the merger and the merger
agreement by the public shareholders, each considered a number of factors,
including, among others, the following:
- The belief of the special committee that the merger was a better
financial alternative for the public shareholders than continuing
to operate Hahn as a public company due to the limited liquidity
of its publicly traded shares and the uncertainty of its future
financial performance;
- Empire Valuation's opinion that, as of March 20, 2001, the date
of the special committee's meeting to consider the merger, the
merger consideration was fair, from a financial point of view, to
the public shareholders;
- The fact that the terms of the merger agreement and the merger
consideration are the product of arms' length negotiations
between Futerman and Chessin and the special committee; and
- The other factors described in more detail on pages 23 through
26.
Glick's Purpose And Reasons for the Merger. Futerman and Chessin
believe that as a private company, Hahn will be better positioned for long-range
planning, without the concern of short-term impact on stock price. They also
believe that reducing the expenses and pressures of being a public company will
enhance our long-term success. They believe that the merger offers public
shareholders the opportunity to obtain a fair value for their shares, with the
merger price of $3.00 per share being 60% above the closing price of our common
stock on the day that Futerman and Chessin submitted the Glick buy-out group's
initial proposal.
Fairness Opinion of Special Committee's Financial Advisor Empire
Valuation delivered its oral opinion to the special committee on March 20, 2001,
to the effect that, as of that date, based upon and subject to the various
considerations, assumptions and limitations stated therein, the merger price of
$3.00 per share in cash is fair, from a financial point of view, to the public
shareholders. Empire Valuation reviewed this opinion with our board of directors
on March 26, 2001. Empire Valuation confirmed its oral opinion in a written
opinion to the same effect. The full text of the written opinion of Empire
Valuation is set forth as APPENDIX B to this proxy statement. You should read
this opinion carefully. (Pages 30-35).
Interest of Certain Persons in the Merger and Hahn. In considering the
recommendations of the special committee and of our board of directors, you
should be aware that the Glick buy-out group and certain executive officers and
directors of Hahn have relationships or interests in the merger and Hahn that
are different from your interests as a shareholder that may present actual or
potential conflicts of interest. For example, Eli N. Futerman, our President and
Chief Executive Officer and a member of our board of directors, and Daniel J.
Chessin, our Executive Vice-President and Secretary and a member of our board of
directors, are co-managers and members of Glick; Futerman and Chessin and
members of their family who constitute the Glick buy-out group own 100% of the
outstanding equity of Glick, which will own 100% of Hahn's equity after
consummation of the merger. In addition, our executive officers are expected to
continue to serve as executive officers of Hahn after consummation of the
merger. See page 46 for more information. The special committee and our board
of directors were aware of these potential or actual conflicts of interest and
considered them in evaluating the proposed merger. For a more detailed
description of these and other interests, see pages 38-42.
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Federal Income Tax Consequences. Generally, for United States federal
income tax purposes, you will be taxed on your receipt of the $3.00 per share
cash merger consideration in the same manner as if you sold your shares for such
amount. Thus, you will be taxed on any gain you recognize as a result of the
merger and will be able, subject to some limitations, to deduct any loss that
you recognize as a result of the merger. You are advised to see your own tax
advisor regarding the tax consequences of the merger to you.
Financing of the Merger. Approximately $2.0 million will be required to
pay the aggregate merger consideration to the public shareholders and to pay the
estimated fees and expenses of the Glick buy-out group related to the
transaction. The Glick buy-out group intends to obtain financing for this entire
amount by mortgaging certain personal assets, and contributing the net proceeds
of the financing to Glick. Manufacturers Traders and Trust Company has issued a
commitment letter, dated May 22, 2001, to an affiliate of the Glick buy-out
group for this mortgage financing, in an amount sufficient to complete the
merger transaction. Glick will contribute the proceeds to HAW Acquisition to
fund the payment of the aggregate merger consideration which is due to the
public shareholders who have not perfected their appraisal rights. The closing
of the financing by the Glick buy-out group is a condition to the obligation of
HAW Acquisition to close under the merger agreement.
THE MERGER AGREEMENT
The following is only a brief summary of certain terms specified in the
merger agreement, and are qualified in their entirety by reference to the
merger agreement. See pages 42-53 and APPENDIX A at the back of this proxy
statement for the complete text of the merger agreement.
The Merger Consideration. If the merger is consummated, each share of
our common stock held by public shareholders (other than those held by public
shareholders who have perfected their appraisal rights) will be converted into
the right to receive the merger consideration of $3.00 per share in cash,
without interest.
Payment of Merger Consideration and Surrender of Stock Certificates. If
the merger is completed, we will send you detailed instructions regarding the
surrender of your stock certificates. You should not send your stock
certificates to Hahn or anyone else until you receive these instructions. We
will send payment of the merger consideration to you as promptly as practicable
following our receipt of your stock certificates and other required documents.
For further information concerning procedures for delivery of your shares and
receipt of the merger consideration, see pages 44-45.
Conditions To, And Termination Of, The Merger. The respective
obligations of the parties to consummate the merger are subject to the
satisfaction or waiver of each of the following conditions:
- approval and adoption of the merger and the merger agreement by
the required shareholder votes;
- receipt of an approval by Hahn's lender, Fleet Capital, so that
the consummation thereof shall not result in an event of default
under Hahn's loan agreement;
- receipt of all third party consents or government approvals which
are material shall have been obtained;
- absence of any law or court order imposing material limitations
on the ability of Glick to effectively acquire or hold the
business and Hahn and its subsidiaries, taken as a whole;
- with certain exceptions, the representations and warranties of
the parties are true and correct in all material respects at the
closing date of the merger and the obligations to be performed
and complied with by the parties shall have been performed and
complied with; and
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- the other conditions described in more detail on pages 48
through 50.
The obligation of Hahn to consummate the merger is subject to the
additional condition that Empire Valuation's fairness opinion is not withdrawn
or modified or amended in such a manner that is not acceptable to the special
committee prior to the special meeting.
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The obligations of the Glick buy-out group to consummate the merger are
subject to the satisfaction or waiver of the following additional conditions:
- the Glick buy-out group shall have completed the financing
necessary to pay the aggregate merger consideration and expenses
related to the transaction;
- the number of shares of common stock with respect to which public
shareholders shall have perfected their appraisal rights shall
not exceed 113,334 shares;
- nothing shall have occurred that has a material adverse effect on
Hahn with certain exceptions;
- the cancellation of all stock options and plans, programs or
arrangements which obligate Hahn to issue any equity securities;
and
- the resignation of all existing Hahn directors, other than
Messrs. Futerman and Chessin.
Effective Time. The merger will be effective when, following the
required shareholder approvals of the merger agreement, a certificate of merger
is filed with the Secretary of State of the State of New York. If the merger is
approved by the requisite shareholder approvals at the special meeting, the
merger is expected to be completed and a certificate of merger filed as soon as
practicable after the special meeting, subject to the satisfaction or waiver of
the terms and conditions included in the merger agreement, including the
financing condition. Pages 44, 48-50. The time at which the merger becomes
effective is referred to in this proxy statement as the "effective time."
RECENT DEVELOPMENTS
On May 9, 2001, at Hahn's annual meeting of shareholders, by a majority
vote, Hahn's shareholders approved a 1-for-3 reverse stock split of its issued
and outstanding shares of common stock. The reverse stock split was effective as
of the close of business on May 10, 2001. The reverse stock split had the effect
of reducing Hahn's outstanding common stock from 4,745,014 shares to
approximately 1,581,671 shares. Wherever a number of shares of Hahn common stock
or per share information is listed in this proxy statement for a date or period
prior to the close of business on May 10, 2001, that number has been
proportionately adjusted as if the 1-for-3 reverse stock split had been in
effect as of that date.
The reverse stock split was proposed so that Hahn could endeavor to
satisfy the maintenance requirements established by the Nasdaq SmallCap Market
for continued listing, which, among other things, requires that Hahn's common
stock maintain a bid price of at least $1.00 per share. Nasdaq has required that
Hahn achieve a $1.00 minimum bid price no later than May 14, 2001 and maintain
it for 10 consecutive trading days, thereafter. On May 14, 2001, Hahn's common
stock closed at $3.00 per share. If Hahn's stock price does not meet the
required minimum bid price, Nasdaq could delist the stock. This would result in
Hahn's stock being traded in the over-the-counter market, which might adversely
affect the liquidity of the stock and further depress its price.
THE SPECIAL MEETING
DATE, TIME, PLACE AND MATTERS TO BE CONSIDERED.
The special meeting will be held on _____________, 2001 at 10:00 a.m.,
local time, at Hahn's executive offices at 415 West Main Street, Rochester, New
York 14608. RECORD DATE; QUORUM REQUIREMENTS.
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The close of business on June 5, 2001 has been fixed as the record date
for determining shareholders entitled to notice of, and to vote at, the special
meeting. Each holder of record of common stock on the record date is entitled to
one vote for each share then held for each matter submitted to shareholders at
the special meeting. As of the record date, _______ shares of common stock were
outstanding, held by ____ holders of record. The presence, in person or by
proxy, of a majority of all outstanding common stock is required to constitute a
quorum for the transaction of business at the special meeting. Proxies marked as
abstentions are counted as shareholders present represented by proxy at the
special meeting for purposes of this quorum requirement.
VOTING REQUIREMENTS.
Under New York law, the affirmative vote of at least 66 2/3% of all
outstanding shares of common stock is required to approve the merger and the
merger agreement. The members of the Glick buy-out group who own, or have voting
power over, 1,010,229 shares of common stock, or approximately 64% of the
outstanding common stock, have agreed to vote these shares in favor of the
merger proposal. In addition, the merger agreement provides that it is a
condition to the consummation of the merger that at least a majority of the
votes cast, in person or by proxy, at the special meeting by the public
shareholders (excluding abstentions and broker non-votes) be cast in favor of
the merger proposal. Abstentions and proxies relating to "street name" shares
that are returned to Hahn but marked by brokers as "not voted" are counted as
present for purposes of determining the presence or absence of a quorum unless
authority to vote is completely withheld on the proxy. These votes will have the
same effect as a vote against the merger proposal for purposes of the
statutorily required 66 2/3% approval, but will not have an effect on the public
shareholder approval.
Approval of a motion to adjourn the special meeting in order to solicit
additional proxies will require the affirmative vote of a majority of the shares
of common stock voting in person or by proxy at the special meeting. The
shareholders affiliated with the Glick buy-out group hold in excess of 50% of
our outstanding common stock. Accordingly, if such a motion is made at the
special meeting, the Glick buy-out group has the voting power to approve the
motion and adjourn the meeting to allow additional time to solicit proxies
voting in favor of the merger.
OUR BOARD OF DIRECTORS HAS RECOMMENDED A VOTE "FOR" ADOPTION OF THE MERGER AND
THE MERGER AGREEMENT.
VOTING AND REVOCATION OF PROXIES.
A proxy card is enclosed for your use in voting by mail. If the
enclosed proxy is properly executed and returned prior to the special meeting
and not revoked, the shares represented thereby will be voted in accordance with
the directions contained therein. If the proxy is signed and returned without
choices having been specified, the shares represented thereby will be voted in
favor of the merger proposal, or, if made, an adjournment motion. The proxy may
be revoked by the person giving it at any time prior to its use by filing with
Hahn's Secretary a written revocation, a duly signed later dated proxy or by
requesting return of the proxy at the special meeting and voting in person.
Attendance at the special meeting alone will not cause your previously granted
proxy to be revoked unless you vote in person. For shares held in "street name"
this may be accomplished by following the instructions of your broker or nominee
who is the record holder of the shares. A proxy may be revoked at any time prior
to its exercise at the special meeting.
RIGHTS OF OBJECTING SHAREHOLDERS.
If you oppose the merger you may vote against it at the special
meeting. Even if you vote against the merger, if the requisite shareholder votes
are obtained and the merger and merger agreement are so approved, the merger
will be completed and your shares of common stock will be converted into the
right to receive
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$3.00 per share of common stock, in cash without interest, as the merger
consideration. Because Hahn is incorporated in New York, New York law governs
its internal affairs, as well as any rights you may have if you object to the
merger. New York, like many states, generally provides a statutory remedy to
shareholders who object to a merger. This remedy, commonly called "appraisal
rights," entitles shareholders who object to a merger and who follow required
procedures to ask a court to determine the fair value of their shares and
requires payment of that amount instead of the merger consideration.
The New York statute establishing appraisal rights provides that
appraisal rights are the exclusive remedy available to shareholders who object
to a merger, except that those shareholders may challenge a merger if the merger
is unlawful or fraudulent. Pursuant to Section 910 of the New York Business
Corporation Law, holders of common stock at the close of business on the record
date have the right to dissent from the merger and, if the merger and the merger
agreement are approved and the merger is consummated, receive payment of the
fair value of their common stock by complying with the requirements of Section
623 of the New York Business Corporation Law (the full text of which is set
forth as APPENDIX C to this proxy statement).
Section 623 requires that any shareholder who wishes to exercise such
appraisal rights must not vote in favor of the adoption of the merger or the
merger agreement, and must file with Hahn, before shareholders vote on the
merger or the merger agreement, a written objection including a notice of
election to dissent, his name and residence address, the number of shares as to
which he or she dissents (shareholders may not dissent as to less than all of
their shares) and a demand for payment of the fair value for his or her shares
if the merger is effected. Such objection is not required from any shareholder
to whom Hahn did not give proper notice of the special meeting. Within 10 days
after the vote of shareholders authorizing the merger, Hahn must give written
notice of such authorization to each dissenting shareholder who filed written
objection or from whom written objection was not required. Any shareholder from
whom written objection was not required and who elects to dissent from the
merger must file with Hahn, within 20 days after the giving of such notice to
him or her, a written notice of such election, stating his or her name and
residence address, the number of shares as to which he or she dissents and a
demand for payment of the fair value for his or her shares.
At the time of filing the notice of election to dissent or within one
month thereafter, the shareholder must submit the certificates representing his
or her shares to Hahn or its transfer agent for notation thereon of the election
to dissent, after which such certificates will be returned to the shareholder.
Failure to submit the certificates for such notation may result in the loss of
appraisal rights. Within 15 days after the expiration of the period within which
shareholders may file their notices of election to dissent or within 15 days
after consummation of the merger, whichever is later (but not later than 90 days
after the shareholders' vote authorizing the merger agreement), Hahn must make a
written offer (which if the merger has not been consummated, may be conditioned
upon such consummation) to each shareholder who has filed such notice of
election to pay for his or her shares at a specified price which Hahn considers
to be their fair value. If Hahn fails to make the offer within such 15-day
period, or if any dissenting shareholder fails to agree to it within 30 days
after it is made, Hahn shall institute a judicial proceeding within 20 days
after the expiration of the applicable period to determine the rights of
dissenting shareholders and to fix the fair market value of their shares of
common stock. If Hahn fails to institute such proceeding, a dissenting
shareholder may institute the same. A negative vote on the merger agreement does
not constitute a "written objection" required to be filed by a dissenting
shareholder.
The foregoing summary does not purport to be a complete statement of
the provisions of Section 623 of the New York Business Corporation Law, and is
qualified in its entirety by reference to a copy of Section 623 of the New York
Business Corporation Law which is attached as APPENDIX C.
If you object to the merger and wish to examine your rights further,
you should consult your legal counsel at your expense. Neither Hahn, Glick, HAW
Acquisition, Futerman nor Chessin nor any other
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members of the Glick buy-out group has made any provision to reimburse you for
any of your legal expenses or for any expenses for any appraisal services you
may obtain in separately evaluating the merger. Your right to examine Hahn's
corporate records is described in "Where You Can Find More Information."
POSSIBLE ADJOURNMENT OF SPECIAL MEETING AND OTHER MATTERS TO BE CONSIDERED AT
THE SPECIAL MEETING.
Under New York law, only the specific matters included in a notice of
the meeting and procedural motions regarding the conduct of the meeting may be
presented for shareholder approval at a special meeting. In the event Hahn has
not obtained a sufficient number of proxies to approve the merger, then Hahn may
also ask you to vote upon a motion to adjourn the meeting in order to solicit
additional proxies in order to obtain the required vote necessary to approve the
merger. If you send your proxy card to us for use at the special meeting and
either vote "FOR" this motion or do not specify a choice and do not revoke that
proxy by the means indicated above, we will have authority to vote your shares
in our discretion with regard to such motion to adjourn.
COSTS OF SOLICITING PROXIES
Hahn will pay all expenses incurred in connection with solicitation of
the enclosed proxy. Hahn's officers, directors and regular employees may solicit
proxies by telephone or personal call, but they will receive no additional
compensation for doing so. Hahn has requested brokers and nominees who hold
stock in their names to furnish this proxy material to their customers and to
request authority for the execution of the proxy. Hahn will reimburse these
brokers and nominees for their related reasonable out-of-pocket expenses. In
addition, Hahn has engaged Mellon Investor Services to solicit proxies. Hahn has
agreed to pay Mellon Investor Services, a fee of approximately $6,000, plus
out-of-pocket expenses, for its services.
EXCHANGING STOCK CERTIFICATES
Holders of our common stock should not send in their stock certificates
with the proxy cards. If the merger is completed, you will receive written
instructions for exchanging your stock certificates for cash.
EFFECTIVE TIME OF THE MERGER
The merger will be effective when, following both required shareholder
approvals of the merger proposal, a certificate of merger is filed with the
Secretary of State of the State of New York. Provided that both required
shareholder approvals are obtained at the special meeting, we expect to complete
the merger and file a certificate of merger as soon as practicable after the
special meeting, subject to the satisfaction or waiver of the other terms and
conditions included in the merger agreement. See "The Merger Agreement --
Conditions."
SPECIAL FACTORS
BACKGROUND OF THE TRANSACTION
During the period from July 2000 to September 30, 2000, Eli N.
Futerman, Hahn's president and chief executive officer and a director, and
Daniel J. Chessin, Hahn's executive vice president and secretary and a director,
had several conversations between themselves regarding whether Hahn should
continue to operate its business as a public company. Futerman and Chessin also
had conversations with all of Hahn's other directors about taking Hahn private.
These conversations revolved around whether Hahn should consider becoming a
private company due to its relatively small size, lack of growth, and the
illiquidity of its shares. Futerman and Chessin further discussed with these
directors the under-performance of the common stock and the best way to maximize
the value of the shareholders' investment. They also discussed the costs
associated with being a public company.
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Due to a depressed stock price, by letter dated November 7, 2000,
Nasdaq notified Hahn that it failed to meet the $1.00 per share minimum bid
requirement for continued listing on Nasdaq and that Hahn had 90 days, or until
February 5, 2001, to regain compliance. On November 29, 2000, at our board's
regular quarterly meeting, the board considered the Nasdaq delisting issue and
discussed its potential effects on Hahn's stock and shareholders. Our board then
discussed ways to bring Hahn's stock price in compliance with Nasdaq's minimum
per share bid requirements. Our board considered the fact that if, subsequently,
Hahn's common stock was delisted, the only practical alternative would be
trading on the OTC Bulletin Board and that this would likely result in a more
limited trading volume, rendering the holdings of Hahn's shareholders even less
liquid. Our board then discussed the mechanics and anticipated effects of a
reverse stock split. After a full discussion, our board approved the reverse
stock split, subject to shareholder approval, if the price for our common stock
did not increase by December 14, 2000, and authorized management to proceed with
the reverse stock split and to present the proposal at Hahn's 2001 annual
shareholders' meeting.
In December 2000, after the audit of Hahn's financial statements for
Fiscal 2000 had been completed, Futerman and Chessin reviewed Hahn's business
operations, financial results and stock prices. At this time Futerman and
Chessin decided to explore with their family members the possibility of Hahn
becoming a private company.
On January 6, 2001, Futerman and Chessin met with representatives of
Manufacturers and Traders Trust Company regarding possible financing in
connection with taking Hahn private. There was a general discussion regarding
the availability of financing and the structuring of possible transactions which
would involve the mortgaging of certain real estate owned by the Futerman
family.
On January 16, 2001, Futerman and Chessin submitted a letter to our
board of directors expressing their interest in acquiring Hahn in a merger
transaction at a valuation of $3.00 per share to public shareholders, for an
aggregate purchase price of approximately $1.7 million, following which Hahn
would be privately held. The contemplated transaction included as closing
conditions:
- the consent of Hahn's lender, Fleet Capital;
- receipt of a fairness opinion from a financial advisor to the
special committee that the proposed transaction is fair from a
financial point of view to public shareholders.
- approval of the transaction by the special committee, the full
board and the holders of 66 2/3% of Hahn's outstanding shares
of common stock;
- receipt of satisfactory financing for the merger
consideration; and
- execution of a definitive merger agreement with Hahn.
On January 18, 2001, our board of directors convened to consider
Futerman's and Chessin's acquisition proposal and to review the Nasdaq delisting
situation. In addition to the directors, Futerman's and Chessin's counsel
attended the meeting. Futerman and Chessin and their counsel reviewed the
acquisition proposal in detail with the directors. Futerman and Chessin also
informed the directors that neither they nor the family members which constitute
the Glick buy-out group were interested in selling their shares to a third
party. Hahn's counsel reviewed with the directors their duties and
responsibilities and the steps that needed to be taken for the board to consider
and take action with respect to the proposal. Following this discussion, our
board established a special committee consisting of independent directors
Stephen B. Ashley, William A. Buckingham, Nathan Lewinger and E. Philip
Saunders. Our board delegated to the special committee broad authority to
consider any proposal made by the Glick buy-out group and to retain independent
legal counsel and financial advisors. Our board formed the special committee
primarily because it believed that the
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exploration by the full board of a possible acquisition of Hahn would present
conflicts of interest for Futerman and Chessin as directors of Hahn since,
unlike other shareholders, they would have a continuing interest in Hahn
following the completion of such a transaction and they would be negotiating
against themselves.
At the January 18, 2001 board meeting, Hahn's counsel also reviewed
with the directors the status of the Nasdaq delisting process and the previously
approved reverse stock split. In light of further declines in the trading price
of Hahn's common stock since the last board meeting, our board increased the
reverse stock split ratio to a 1-for-3 reverse split in order to increase the
probability of meeting Nasdaq's minimum bid requirement for continued listing.
Immediately following the January 18, 2001 board meeting, the special
committee convened its first meeting and elected William A. Buckingham as the
committee's chairman. Hahn's general counsel and outside corporate counsel also
attended the meeting. The committee also authorized the chairman to identify and
interview candidates to be the committee's independent legal counsel and
financial advisor to assist the special committee in its work.
On January 19, 2001, Hahn issued a press release announcing its receipt
of the Glick buy-out group's acquisition proposal and the board's formation of a
special committee to consider the proposal. The press release also noted that
the special committee had been authorized to retain independent legal and
financial advisors.
Beginning on January 20, 2001, the chairman of the special committee
began the process of retaining independent legal and financial advisors. The
chairman contacted various legal counsel with experience in representing boards
of directors and special committees in merger and acquisition transactions.
After considering these firms, the special committee retained as its legal
counsel, Underberg & Kessler, LLP, of Rochester, New York. In addition, the
chairman contacted and interviewed Empire Valuation Consultants, Inc., a
regionally recognized professional services firm that provides business
valuations for businesses and securities, mergers, acquisitions and private
placement transactions. The chairman interviewed Empire Valuation
representatives to determine the qualifications of, and the terms for, that firm
to act as the special committee's financial advisor.
On January 24, 2001, Futerman and Chessin contacted Wells Fargo, N.A.
to discuss possible financing for the proposed transaction. The discussions
involved the possibility of providing mortgage financing and related due
diligence questions.
On January 31, 2001, the special committee convened to further consider
the Glick buy-out group's acquisition proposal. At the meeting, the committee
unanimously approved the selection of Underberg & Kessler as counsel to the
committee. The committee's counsel then reviewed with the committee members
their fiduciary duties in considering the proposal and the scope of the
committee's authority in carrying out these duties. The committee chairman then
reviewed his discussions with Empire Valuation, including the proposed terms of
engagement, and the qualifications of Empire Valuation. After considering the
matter, the committee unanimously approved the selection of Empire Valuation,
authorized the chairman to engage Empire Valuation for the purpose of evaluating
the financial terms of the acquisition proposal and, if requested, to render a
fairness opinion concerning the proposed transaction. The committee also
established time frames for responding to the Glick buy-out group. The committee
further recommended that compensation for the committee members would be the
same as for other board committees or $500 per meeting, but that the chairman
would receive $1,000 per meeting.
On February 14, 2001, the special committee chairman signed a retainer
letter with Empire Valuation that is dated February 8, 2001. During the next
three weeks, Empire Valuation representatives gathered from various public and
company sources information regarding Hahn, its products, operations, prospects,
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customers, competitors and other relevant information. As part of this process,
Empire Valuation representatives met several times with members of Hahn's
management. On March 8, 2001, Empire Valuation completed its analysis and a
written summary of its analysis, which it distributed to the special committee
and its counsel.
On February 26, 2001, Hahn contacted its lender, Fleet Capital,
requesting its consent to the proposed buyout and its agreement to make an
adjustment to Hahn's financial covenants to exclude expenses expected to be
incurred in connection with the transaction. Without the consent, the proposed
transaction would not have been permitted under Hahn's loan and security
agreement.
On March 14, 2001, the special committee convened with its legal and
financial advisors. At that meeting, Empire Valuation presented an overview of
its valuation of Hahn and the fairness of the merger consideration. Empire
Valuation discussed the various methods it used in valuing Hahn, including the
investment value, the market value and the net asset value. Following the
presentation, the committee requested that Empire Valuation perform further
analysis of the net asset value using appropriate discounts for the liquidation
of Hahn's receivables and inventory and projected settlement of all lease
obligations. Upon review and consideration of all the presented information the
special committee was of the view that it should negotiate the best price
attainable at or above $3.00 per share and it authorized its chairman to do so.
Following the March 14th meeting, the special committee chairman and
the committee's counsel met with Futerman and Chessin and the Glick buy-out
group's counsel to discuss the terms of the transaction. At the meeting, the
chairman advised Futerman and Chessin that the special committee would recommend
to the board that the merger be approved if the Glick buy-out group increased
the offered price to $3.90 per share and eliminated the financing contingency.
The special committee chairman also indicated that the special committee was
considering a requirement that its recommendation of the merger to the board be
conditioned on a requirement that the merger be approved by a majority vote of
the public shareholders. Futerman and Chessin indicated that they believed the
$3.00 valuation was more than appropriate given the state of the automotive
parts industry, the recent steep declines in the financial market place and the
impending delisting of Hahn's common stock by Nasdaq. Futerman and Chessin also
offered to provide the committee with a preliminary calculation of value by the
Glick buy-out group's financial advisors, Bonadio & Co, LLP. This preliminary
calculation of value was not a valuation of Hahn performed in accordance with
the Uniform Standards of Professional Appraisal Practice and Bonadio & Co., LLP
did not express any opinion or conclusion as to the value of Hahn.
On March 15, 2001, Futerman and Chessin, on behalf of the Glick buy-out
group, delivered to the special committee chairman a letter stating that they
did not intend to increase the proposed acquisition price, but would accept a
condition being included in the merger agreement that the merger would be
subject to approval by a majority vote of the public shareholders present and
voting at the meeting. In their letter, Futerman and Chessin also stated that
if such a vote were required, it would be a condition to the merger that the
public shareholders who perfect their appraisal rights hold less than 113,334
shares of common stock. Enclosed with this letter was the preliminary
calculation of value by the Glick buy-out group's financial advisor Bonadio &
Co., LLP. These calculations, which are not opinions or conclusions as to the
value of Hahn, resulted in a range of values for Hahn's common stock from a
negative value to $1.92 per share.
On March 20, 2001, the special committee held a meeting to consider the
response of Futerman and Chessin and the Glick buy-out group's refusal to
increase the acquisition price of $3.00 per share. At the request of the
chairman, Futerman and Chessin and their counsel attended the meeting to address
the committee directly. At the meeting, Futerman and Chessin reviewed their
valuation of Hahn and the preliminary calculation of value prepared by Bonadio &
Co., LLP. After making their presentation, Futerman and Chessin departed the
meeting. Empire Valuation then commented on its supplemental report concerning
Hahn's net asset value. Empire Valuation also stated that although it did not
agree entirely with the Glick buy-
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out group's underlying assumptions, Empire Valuation did concur with its overall
conclusion that Hahn's fair market value was reasonably stated at, or below,
$3.00 per share, and that it would be prepared to render an opinion that the
$3.00 per share acquisition price was fair to the public shareholders from a
financial point of view.
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Following a discussion by the committee that included consideration of
the factors mentioned under "Special Factors -- Recommendation of the Special
Committee" below, the committee resolved unanimously to recommend to our board
that it approve and adopt the merger and the merger agreement and declare its
advisability and recommend it to Hahn's public shareholders, provided that
Futerman and Chessin furnished more detailed information regarding their
proposed financing for the transaction. The special committee also resolved to
recommend to our board that it approve the merger, subject to the statutory 66
2/3% approval and the public shareholder approval. The special committee
requested that Empire Valuation confirm its fairness opinion in writing prior to
the execution of a merger agreement. Stephen Ashley was unable to attend the
meeting, but subsequently approved the merger and the merger agreement in his
capacity as a director and voted in favor of recommending approval of the merger
and the merger agreement to Hahn's shareholders, and has confirmed that he would
have voted in favor of recommending the merger proposal to our board had he been
able to attend the special committee meeting.
By letter dated March 21, 2001, Fleet Capital provided its consent to
the transaction and agreed to the requested financial covenant adjustments,
subject to an expense limitation of $200,000.
Futerman and Chessin subsequently prepared and submitted to our board a
non-binding letter of intent incorporating the material terms of the proposed
merger. On March 26, 2001, our board of directors held a meeting at which the
special committee chairman gave a presentation summarizing the special
committee's work to date and the terms of the merger that had been negotiated.
The special committee's legal counsel also reviewed the terms of the merger and
the fiduciary duties of the directors. Empire Valuation then presented its oral
opinion that the proposed merger consideration of $3.00 per share in cash for
each share of common stock held by the public shareholders was fair to the
public shareholders from a financial point of view. The chairman then reported
to our board that the special committee had concluded, and so advised and
recommended to our board, that the terms of the merger be approved and that our
board authorize and recommend its approval to the shareholders. After full
discussion and deliberation (including consideration of the special committee's
recommendation), our board (i) determined that the terms of the merger were fair
to, and in the best interests of, the public shareholders, (ii) approved the
non-binding letter of intent, (iii) authorized the special committee's chairman
to execute the letter of intent and to negotiate and execute on behalf of Hahn a
merger agreement consistent with the terms of the letter of intent, and (iv)
resolved that a recommendation would be made to the public shareholders that
they vote to adopt the merger and the merger agreement. All directors present
other than Futerman and Chessin, both of whom abstained, voted in favor of the
resolutions. E. Philip Saunders was unable to attend the meeting, but had
recommended that the board of directors approve the merger and the merger
agreement in his capacity as a special committee member, and has confirmed that
he would have voted in favor of the merger had he been able to attend the
meeting.
Prior to commencement of trading in the common stock on the next
business day, on March 27, 2001, Hahn issued a press release announcing our
board's approval of the merger and the execution of the letter of intent.
On March 27, 2001, Hahn's counsel distributed to the special committee,
the Glick buy-out group and their respective legal counsel a form of merger
agreement consistent with the terms of the letter of intent. Between March 30,
2001 and April 6, 2001, upon the authorization of the special committee, counsel
for the special committee, Hahn and the Glick buy-out group negotiated open
issues with respect to the non-financial terms of the proposed merger agreement,
including who would be the parties to the merger agreement, the nature of the
financing condition and expense reimbursement by the Glick buy-out group.
On April 6, 2001, Empire Valuation issued its written opinion
confirming its previously delivered oral opinion as to the fairness of the
merger consideration to the public shareholders from a financial point of view.
The merger agreement was then executed. Prior to the commencement of trading in
the common stock on the next business day, April 9, 2001, Hahn issued a press
release announcing that the merger agreement had been
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executed by the parties.
As a result of the reverse stock split and the filing by the Company of
its quarterly report on Form 10-Q, Empire Valuation was requested by the special
committee to review its prior analysis and to update and reissue its fairness
opinion, taking into account the reverse stock split, the Company's financial
performance through April 30, 2001, and changes in economic and market
conditions, if any. Empire Valuation's updated fairness opinion was issued on
May 16, 2001.
Also on May 16, 2001, Hahn, Glick, HAW Acquisition and Messrs. Futerman
and Chessin entered into an amended and restated merger agreement as described
in this proxy statement reflecting the impact of the 1-for-3 reverse stock split
and clarifying certain issues.
On May 22, 2001, Manufacturers and Traders Trust Company issued a
written commitment letter to a member of the Glick buy-out group for a
commercial mortgage in an amount sufficient to fund the obligations of HAW
Acquisition under the merger agreement and to pay related transaction expenses.
RECOMMENDATION OF SPECIAL COMMITTEE.
In determining to recommend that our board approve the merger and the
merger agreement, the special committee considered a number of factors. The
material factors considered by the special committee were:
(1) The belief of the special committee that the merger was a better
alternative for the public shareholders than continuing to operate
Hahn as a public company. The special committee also concluded
that, based on Hahn's limited trading volume, lack of
institutional sponsorship, limited public float (which has been
further reduced as a result of the May 10, 2001 1-for-3 reverse
stock split), its small market capitalization, and the lack of
research attention that it received from market analysts, Hahn's
continuing status as a public company would limit the ability of
Hahn's shareholders to obtain a fair price in selling their shares
in the market.
(2) The belief of the special committee that the merger would provide
shareholders with liquidity for their investment that might not
otherwise be available in the public market and would protect
shareholders against further decreases in the stock price.
(3) The fact that the $3.00 per share merger consideration represented
a significant premium to recent trading prices of Hahn's common
stock. The special committee recognized that the merger
consideration was 60% above the $1.875 per share closing price of
Hahn common stock on the day before Hahn announced that Futerman
and Chessin had submitted their initial acquisition proposal to
the board. See " Market Prices of Common Stock; Dividends."
(4) Empire Valuation's opinion that, as of March 20, 2001, the date of
the special committee's meeting to consider the merger, the merger
consideration was fair, from a financial point of view, to the
public shareholders. Empire Valuation confirmed the opinion in
writing. The special committee also considered the presentations
by Empire Valuation to the special committee regarding:
- Hahn's current financial condition, results of operations and
future prospects (both as a public and a private company);
- the industry in which Hahn operates and the financial,
operating and stock price history of Hahn in comparison to
certain other distributors of automotive aftermarket
replacement parts,
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all of which are reflected in the report presented by Empire
Valuation to the special committee on March 20, 2001.
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(5) The fact that the terms of the merger agreement and the merger
consideration are the product of arms' length negotiations between
Futerman and Chessin and the special committee. Futerman and
Chessin made it clear in these discussions that $3.00 per share
was the highest price that the Glick buy-out group would be
willing to pay for the public shareholders' shares.
(6) The terms and conditions of the merger, including:
- the requirement that the merger agreement be adopted by the
affirmative vote of a majority of the votes cast at the
special meeting by the public shareholders (excluding
abstentions and broker non-votes), as well as by 66 2/3% of
all outstanding shares of common stock, thereby allowing for
an informed vote by the public shareholders on the merits of
the transaction without requiring a tender of shares or other
potentially coercive transaction structure, and which could
possibly require (because Futerman and Chessin own or control
the vote of approximately 64% of the outstanding shares) that,
for the merger to be approved, holders of up to approximately
82.1% of Hahn's outstanding shares of common stock (if all
such shareholders attend or are present by proxy and vote at
the special meeting) must vote to approve the transaction;
- the requirement that the approval of the special committee is
required for any action that may be taken by the board
pursuant to the merger agreement (including any amendment or
termination of the merger agreement or waiver of any of Hahn's
rights thereunder);
- the absence of any termination or "break up" fees payable by
Hahn and the fact that Hahn would have no financial obligation
to the Glick buy-out group in the event of termination of the
merger agreement;
- the fact that if the merger agreement is terminated and HAW
Acquisition could not close due to the lack of necessary
financing to pay the merger consideration that Glick, HAW
Acquisition, Futerman and Chessin must pay Hahn $75,000 as
reimbursement for the fees and expenses incurred by Hahn in
connection with the merger, provided that, as of the
termination, neither the special committee nor our board of
directors has withdrawn their recommendation to the
shareholders to approve the merger and the merger agreement,
the merger and the merger agreement has been approved by
Hahn's shareholders, no injunction prohibiting the merger or
requiring certain actions has been issued by any court and
Hahn is not in material default under the merger agreement;
and
- the fact that the merger agreement may be terminated by the
special committee if our board or special committee withdraws
or modifies its approval or recommendation of the merger,
merger agreement or the transactions contemplated thereby, and
determines to pursue a more advantageous transaction.
(7) Hahn's current financial condition, results of operations and
future prospects (both as a public company and as a private
company), as well as the strategic direction of its business and
the trends in the automotive aftermarket replacement parts
industry, based upon the knowledge of the members of the special
committee, most of whom have been directors of Hahn for a number
of years.
The special committee did not consider the possibility of seeking, or
hiring an investment banking firm to seek, an independent or competing proposal
for the purchase of Hahn's common stock because the special committee was aware
that the Glick buy-out group had stated an unwillingness to sell their 64%
ownership interest in Hahn to an independent purchaser. Thus, the special
committee sought instead to obtain
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a fair price for the common stock owned by the public shareholders by
negotiating with Futerman and Chessin for the highest possible cash price for
the common stock owned by the public shareholders. The special committee
recognized that consummation of the merger will preclude current shareholders of
Hahn, other than the Glick buy-out group, from participating in any future
growth of the surviving corporation. The special committee also recognized that
the Glick buy-out group will have an investment in the equity of the surviving
corporation. Nevertheless, the special committee concluded that, in light of its
analysis of Hahn, its business and its growth prospects, receiving a premium
above the market price of the common stock by public shareholders is preferable
to an uncertain future return in light of the historical limited trading market,
the lack of any significant market interest in the common stock and the lack of
payment of any dividends on the common stock.
Although there was no intention to liquidate Hahn, the special
committee did attempt to determine the approximate liquidation value of Hahn in
light of the per share book value of Hahn (which was $9.17 at December 31, 2000,
the end of Hahn's last fiscal quarter for which such information was calculated
prior to the special committee's determination). They concurred that indicia
such as net book value or liquidation value were less meaningful given:
- the nature of Hahn's assets and business;
- the fact that Hahn's net book value was below the range of
fair values determined by use of the other methodologies
employed by Empire Valuation;
- the fact that net book value does not reflect the
going-concern value of Hahn; and
- the fact that Empire Valuation found no evidence of hidden
assets or other factors that might lead Empire Valuation to
believe that a liquidation value analysis would be relevant.
The committee, upon advice from Empire Valuation, believed that the liquidation
value was well below the merger consideration, after applying appropriate
discounts to Hahn's assets from book value and providing for the settlement of
all contingent obligations, including lease obligations.
The special committee did not give significant weight to the open
market purchases of Hahn's common stock made by Eli N. Futerman over the past
two years because the purchases occurred over four months prior to the date on
which the Glick buy-out group first submitted their acquisition proposal. The
Special Committee also did not give significant weight to the purchase of Hahn's
common stock made by Eli Futerman in a private transaction in May, 2000 because
the transaction did not reflect fair market value as other considerations were
involved in the structure and purchase of these shares. See "Information
Regarding Glick and HAW Acquisition -- Recent Stock Purchases" (Page 71).
RECOMMENDATION OF OUR BOARD OF DIRECTORS.
In reaching its determination that the merger and merger consideration
are fair to, and in the best interests of, Hahn and the public shareholders,
approving the merger and the merger agreement and recommending that the public
shareholders adopt the merger agreement, our board considered the special
committee's recommendation and specifically adopted the conclusions and
recommendation of the special committee and the factors described above which
the special committee took into account in making its recommendation to the
board.
In light of the number and variety of factors that the special
committee and our board considered in their respective evaluations of the
merger, neither the special committee nor the board found it practicable to
assign relative weights to the foregoing factors and, accordingly, neither did
so.
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Each of the special committee and our board believes that the merger is
procedurally fair because, among other things, (i) the special committee
consisted of independent directors appointed by our board to represent solely
the interests of, and to negotiate on behalf of, the public shareholders, (ii)
the special committee retained and was advised by Underberg & Kessler, LLP as
the committee's legal counsel, which assisted the special committee in its
negotiations, (iii) the special committee retained Empire Valuation to assist it
in evaluating the merger consideration and received an opinion from Empire
Valuation as to the fairness of the merger consideration to the public
shareholders from a financial point of view, (iv) the terms and conditions of
the merger agreement, including the merger consideration, resulted from arms'
length negotiations between the special committee and the Glick buy-out group
and their respective advisors, and (v) the merger and the merger agreement is
subject to approval by the affirmative vote of a majority of the votes cast at
the special meeting by the public shareholders (excluding abstentions and broker
non-votes), in addition to the statutory requirement that the merger agreement
be adopted by two-thirds of the votes of all outstanding shares of common stock.
EACH MEMBER OF THE SPECIAL COMMITTEE AND OUR BOARD OF DIRECTORS
BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, HAHN AND THE
PUBLIC SHAREHOLDERS. OUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AND THE
MERGER AGREEMENT AND RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE MERGER AND
THE MERGER AGREEMENT.
Except to the extent a recommendation is made in a person's capacity as
a director, no executive officer of Hahn, Glick or HAW Acquisition nor any of
Futerman or Chessin or their family members in an individual capacity, has made
any recommendation with respect to the approval of the merger and the merger
agreement. Messrs. Eli N. Futerman and Daniel J. Chessin have agreed to vote or
to cause to be voted all of the shares of common stock which they own or control
in favor of the merger and the merger agreement. See "The Merger."
Hahn, Glick, HAW Acquisition, Futerman and Chessin have been informed
by the other directors and executive officers of Hahn, who owned an aggregate of
1,201 shares of common stock on the record date, that they plan to vote their
common stock in favor of adoption of the merger and the merger agreement.
GLICK BUY-OUT GROUP'S PURPOSE AND REASONS FOR THE MERGER
The Glick buy-out group entered into the merger transaction in order to
become the sole owners of Hahn. The transaction is structured as a merger, in
which the equity interest in Hahn of all the public shareholders would be
extinguished in exchange for $3.00 in cash per share of common stock. A merger
enables the transaction to be completed in one step, which would minimize the
risk that the contemplated transactions will not be finalized and reduce
transaction costs.
The Glick buy-out group believes that, due to decreasing profitability
and increasing risk in the automotive replacement parts industry generally, our
small size and the lack of equity research coverage for our common stock
(factors they believe are in large measure beyond our control), it is and will
continue to be difficult for us to attract new investor interest and to obtain
access to the capital markets, and for our shareholders, including themselves,
to get a fair price when selling their shares in the market which is important
due to Hahn's highly leveraged capital structure. In addition, trading volume in
our common stock has historically been low. For the twelve months immediately
preceding January 19, 2001, when we announced that we were in talks with the
Glick buy-out group regarding a possible transaction, the trading volume
averaged approximately 4,993 shares a day.
While the Glick buy-out group believes that these factors do and would
continue to limit the ability of our shareholders, including themselves, to
receive a fair price selling their shares in the market, they also
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believe that we are a viable company with the opportunity to increase our
revenues and net income in the future. The Glick buy-out group believes that as
a private company, Hahn can better position itself for long-range strategic
planning, without the concern of short-term impact on stock price. They also
believe that the expenses and pressures of being a public company are
significant for a company our size and that mitigating those expenses and
pressures would enhance our long-term success. They further believe that the
merger offers our public shareholders the opportunity to obtain a fair value for
their shares, with the offer price of $3.00 per share being 60% above the $1.875
per share closing price of our common stock on January 18, 2001, the day before
we initially announced our board's receipt of the acquisition proposal. However,
the Glick buy-out group also recognizes that the merger will deprive our public
shareholders of the opportunity to share in any future increase to its revenues
or net income.
The Glick buy-out group owns 1,010,229 shares of common stock.
Immediately prior to completion of the merger, Futerman, Chessin and certain
other family members intend to contribute their shares to Glick. This represents
an indirect investment in Glick by Futerman, Chessin and certain other family
members of approximately $3,030,672 (based on the $3.00 per share to be received
by the public shareholders in the merger). Certain members of the Glick buy-out
group will also contribute approximately $2.0 million in cash to Glick. If the
merger and financing are completed, Futerman, Chessin and certain other family
members will own 100% of Glick's outstanding equity interest and Glick will own
100% of the surviving corporation's outstanding equity interest. The Glick
buy-out group believes that, if Hahn is able to successfully continue its
business strategy, then the value of its ownership interest in Hahn will, over
time, exceed the amount that they will have invested through completion of the
merger.
POSITION OF THE GLICK BUY-OUT GROUP AS TO FAIRNESS OF THE MERGER
The Glick buy-out group has concluded that the merger, including the
merger consideration of $3.00 per share in cash and the terms and conditions of
the merger agreement, are fair to Hahn and the public shareholders. The Glick
buy-out group arrived at this conclusion after considering the analyses and
findings of the special committee and the board of directors (described in
detail in "Special Factors -- Recommendation of the Special Committee and "--
Recommendation of our Board of Directors") with respect to the fairness of the
merger to Hahn's public shareholders. As of the date of this proxy statement,
the Glick buy-out group adopted the analyses and findings of the special
committee and the board with respect to the fairness of the merger and they
believe that the merger is both procedurally and substantively fair to Hahn's
public shareholders.
The Glick buy-out group recognizes that the merger consideration of
$3.00 per share in cash is less than Hahn's book value price as of the end of
the last quarter prior to the submission of their acquisition proposal to our
board. The Glick buy-out group, however, believes that Hahn's liquidation value
would be much less than its book value, due to the discounts that would occur in
liquidating Hahn's assets (including its receivables and inventory) and the
significant lease obligations that would have to be settled. Based on this
liquidation estimate and the fact that there is no intention to liquidate Hahn,
the Glick buy-out group did not give significant weight to the per share book
value of Hahn. The Glick buy-out group believes that the merger consideration of
$3.00 in cash does not represent less than Hahn's going concern value. See
"Special Factors -- Valuation Analysis of the Glick Buy-Out Group's Financial
Advisor."
The Glick buy-out group recognizes that, following the merger, the
public shareholders will no longer have an equity interest in Hahn and,
therefore, will not participate in any potential future earnings and growth of
Hahn. While this could be detrimental to the public shareholders if Hahn
successfully grows, the Glick buy-out group believes that offering the public
shareholders the opportunity to select, by majority action of the public
shareholders present and voting at the special meeting, whether to approve the
transaction ensures the fairness of the transaction.
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In adopting the analysis and findings of the special committee and the
board, the Glick buy-out group noted that its members, as holders of
approximately 64% of Hahn's outstanding common stock, had stated their
unwillingness to sell its shares to any third party acquirer.
As members of our board of directors, Futerman and Chessin abstained
from voting on approval of the merger agreement and on the recommendation to the
shareholders that they vote to approve the agreement.
The Glick buy-out group believes that the merger is both procedurally
and substantively fair to Hahn's public shareholders.
FAIRNESS OPINION OF SPECIAL COMMITTEE'S FINANCIAL ADVISOR
On March 20, 2001, Empire Valuation delivered its opinion to the
special committee to the effect that, as of such date, the merger consideration
was fair, from a financial point of view, to the public shareholders. Empire
Valuation presented the financial analysis underlying its opinion at meetings of
the special committee on March 14, 2001 and March 20, 2001 and presented its
report to our board of directors on March 26, 2001. Empire Valuation confirmed
its opinion in writing on April 6, 2001, except that the opinion was given as of
that date.
As a result of the reverse stock split and the filing by the Company of
its quarterly report on Form 10-Q, Empire Valuation was requested by the special
committee to review its prior analysis and to update and reissue its fairness
opinion, taking into account the reverse stock split, the Company's financial
performance through April 30, 2001, and changes in economic and market
conditions, if any. Empire Valuation's updated fairness opinion was issued on
May 16, 2001.
The full text of the Empire Valuation updated written opinion, dated
May 16, 2001, which sets forth the assumptions made, matters considered and
limits on the review undertaken, is attached to this proxy statement as APPENDIX
B and is incorporated herein by reference. The summary of the Empire Valuation
opinion set forth below is qualified in its entirety by reference to the full
text of the Empire Valuation opinion. You are urged to read the Empire Valuation
opinion in its entirety.
THE EMPIRE VALUATION OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE
MERGER CONSIDERATION TO THE PUBLIC SHAREHOLDERS FROM A FINANCIAL POINT OF VIEW.
IT DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW A
SHAREHOLDER SHOULD VOTE AT THE MEETING OR AS TO ANY OTHER ACTION THAT A
SHAREHOLDER SHOULD TAKE REGARDING THE PROPOSED MERGER.
The summary contained herein of the presentation by Empire Valuation
relating to its opinion is qualified in its entirety by reference to the full
text of the presentations of March 14, 2001 and March 20, 2001, filed as
exhibits to the Schedule 13E-3. See "Where You Can find More Information."
In preparing its opinion, among other things, Empire Valuation:
- reviewed and analyzed certain publicly available historical,
business, financial and operating data for Hahn including, but not
limited to, (i) the Annual Report to shareholders and Annual
Report on Form 10-K for the fiscal year ended September 30, 2000,
(ii) the Quarterly Reports on Form 10-Q for the fiscal quarters
ended December 31, 2000, and March 31, 2001, respectively, (iii)
Hahn -prepared interim financial statements for the period ended
April 30, 2001 (which Hahn's management identified as being the
most current financial statements available as of the time they
were provided), (iv) Hahn's preliminary proxy statement dated
January 29, 2001 for Hahn's 2001 annual meeting of shareholders
and (v) additional public filings made by Hahn with the SEC
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since 1996;
- held discussions with certain members of the management of Hahn
covering its business, operations and prospects and visited Hahn's
Rochester, New York facility;
- reviewed and analyzed certain publicly available information
regarding the automotive aftermarket replacement parts industry;
- reviewed and analyzed certain information relating to Hahn,
including a projected balance sheet and statements of income and
cash flow data for the 2001 fiscal year (ending September 30,
2001), prepared by the management of Hahn;
- reviewed and analyzed historical stock market prices and trading
volumes for the common stock;
- reviewed and analyzed publicly available financial, operating and
stock market data concerning certain companies engaged in
businesses that Empire Valuation deemed comparable to Hahn or
otherwise relevant to its inquiry;
- reviewed the initial Glick buy-out group proposal submitted to our
board of directors dated January 16, 2001 and the executed letter
of intent dated March 26, 2001 between Hahn and Messrs. Futerman
and Chessin on behalf of the Glick buy-out group;
- reviewed a draft, dated April 6, 2001, of the original merger
agreement, including the exhibits thereto; and
- considered such other information, financial studies and analyses
and performed such other analyses, studies and investigations as
it deemed relevant.
Empire Valuation assumed, with the special committee's consent, that
the draft of the merger agreement that they reviewed would conform in all
material respects to the definitive merger agreement.
In connection with its review and analysis and in the preparation of
its opinion, Empire Valuation relied upon the accuracy and completeness of the
financial and other information publicly available or provided to it by Hahn and
did not undertake any independent verification of such information or any
independent valuation or appraisal of any of the assets or liabilities of Hahn.
Further, the Empire Valuation opinion was based on economic, financial and
market conditions as they existed on the date the opinion was rendered and can
only be evaluated as of such date.
Neither Hahn nor any member of the Glick buy-out group imposed any
limitations upon the scope of the investigation to be performed by Empire
Valuation in formulating its opinion.
The Empire Valuation opinion, including Empire Valuation's presentation
of such opinion to the special committee, was one of the many factors that the
special committee took into consideration in making its determination to
recommend to our board approval of the merger and the merger agreement. See
"Special Factors -- Recommendation of the Special Committee" and "--
Recommendation of our Board of Directors." Consequently, Empire Valuation's
analyses described below should not be viewed as solely determinative of the
opinion of the special committee with respect to the merger consideration.
In arriving at its opinion, Empire Valuation performed a variety of
financial analyses, including those summarized in this proxy statement. The
summary set forth below of the analyses presented to the special committee at
the March 14, 2001 and March 20, 2001 meeting does not purport to be a complete
description of
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the analyses performed. The preparation of a fairness opinion is a complex
process that involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstance. Therefore, such an opinion is not necessarily
susceptible to partial analysis or summary description. Empire Valuation
believes that its analyses must be considered as a whole and selecting portions
thereof or portions of the factors considered by it, without considering all
analyses and factors, could create an incomplete view of the evaluation process
underlying its opinion. Empire Valuation made numerous assumptions with respect
to industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Hahn. Any
estimates contained in Empire Valuation's analyses are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses. Additionally, estimates of
the values of businesses and securities do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities may be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty.
Empire Valuation arrived at valuation ranges for Hahn by utilizing two
principal valuation methodologies: the investment value and the market value.
Empire Valuation also considered and placed secondary reliance on Hahn's net
asset value. Empire Valuation then reached its fairness conclusion based on the
valuation ranges derived from these valuation methodologies. The following is a
brief summary of these analyses and the other factors considered by Empire
Valuation and reviewed with the special committee and our board in Empire
Valuation's oral presentation and Empire Valuation's opinion to the special
committee on March 14, 2001 and March 20, 2001 and to our board on March 26,
2001 and subsequently confirmed in writing.
Investment Value. The investment value, which is sometimes referred to
as the income value or earnings value, establishes a range of values of a
business based on various methods. One investment value method frequently used
estimates the present value of an enterprise's future earnings or cash flow.
Another recognized investment value method is to determine the level of current
annual benefits (i.e., earnings, cash flow, dividends, etc.), and then
capitalize one or more of the benefit types using an appropriate capitalization
rate. Yet another method of calculating investment value is a cash flow analysis
of the ability of an enterprise to service acquisition debt obligations (at a
certain price level) while providing sufficient earnings for reasonable
dividends and capital adequacy requirements. In connection with the cash flow
analysis, the return on investment that would accrue to a prospective buyer at
the transaction value is calculated.
Due to Hahn's highly leveraged nature, the investment value method
which Empire Valuation selected to analyze Hahn was the capitalization of
current annual benefits in the form of Hahn's annual debt-free operating cash
flow. Under this method, Empire Valuation first calculated Hahn's current
earnings capacity based on Hahn's historical operating income and Hahn's
projected operating income for the 2001 fiscal year which had been provided to
Empire Valuation by Hahn's management. Empire Valuation then calculated Hahn's
operating cash flow by adjusting Hahn's current earnings capacity for
depreciation and normalized capital expenditures. Empire Valuation then
capitalized Hahn's adjusted operating cash flow using a range of capitalization
rates based on various changes in the assumptions used to determine Hahn's
weighted average cost of capital. From these figures, Empire Valuation deducted
Hahn's long-term debt and applied a 30% control premium. Empire Valuation then
added back the net present value of Hahn's net operating loss tax
carry-forwards. Applying a reasonable range of capitalization rates, Empire
Valuation derived an implied per share value ranging from $2.40 to $2.97 on a
control basis.
Market Value. Market value is generally defined as the price,
established on an "arms-length" basis, at which knowledgeable, unrelated buyers
and sellers would agree. The "hypothetical" market value for a corporation is
normally determined by comparison of certain financial data of similarly
situated publicly traded corporations, adjusting for significant differences in
financial performance criteria and for any lack of marketability or liquidity.
The market value in connection with the evaluation of control is determined by
the
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sales of comparable companies. In valuing a business enterprise, when sufficient
comparable trading data is available, the market value deserves similar emphasis
as the investment value, and greater weight than the net asset value.
Under the market approach, Empire Valuation, using publicly available
information compared selected financial data of Hahn with similar data of
selected publicly-traded companies engaged in businesses considered by Empire
Valuation to be reasonably related to Hahn's business. Specifically, Empire
Valuation included in its review Genuine Parts Company, Keystone Automotive
Industries, Inc., O'Reilly Automotive, Inc., R&B Inc. and Clarcor Inc. Each of
these companies engages in the sale of automotive replacement parts in the
wholesale, jobber and in some cases, retail markets.
When compared to the comparable companies, Empire Valuation's analysis
showed, among other things, that:
- historical revenue growth over the trailing four years ended
between September 30, 2000 and December 30, 2000 ranged from 9.7%
to 39.1% compared to 2.4% for Hahn;
- historical earnings before interest, taxes, depreciation and
amortization ("EBITDA") growth over the same four years ranged
from 7.7% to 36.7% compared to negative 11% for Hahn;
- historical earnings before interest and taxes ("EBIT") growth over
the same four years ranged from 6.4% to 35.1% compared to negative
14.06 % for Hahn;
- historical net income growth for the same four year period ranged
from negative 3.06% to 33.1% compared to negative 29.8% for Hahn;
- total latest twelve months revenue as of the latest reported
quarter prior to March 7, 2001 ranged from $372.5 million to
$7,981.7 million compared to $125.6 million for Hahn;
- equity market capitalization as of March 7, 2001 ranged from $19.8
million to $4,702.5 million compared to $3.6 million for Hahn;
- EBITDA margins as of the fiscal year ended closest to September
30, 2000 ranged from 9.6% to 15.5% compared to 5.3% for Hahn;
- Gross margins for the same fiscal year ranged from 30.1% to 43.1%
compared to 38.6% for Hahn; and
- total debt to total book capitalization as of the latest reported
quarter ended prior to March 7, 2001 ranged from 0.3x to 3.4x
compared to 7.2x for Hahn.
Empire Valuation's analysis also showed that Hahn's liquidity ratios
and profitability were at or below those of the comparable companies, and that
its operating cycle (days receivable and days inventory) were significantly
longer than those of the comparable companies.
Empire Valuation concluded that:
- Hahn's historical growth of revenue and earnings is below that of
the comparable companies;
- Hahn is more highly leveraged than the comparable companies;
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- Hahn's liquidity ratios, efficiency ratio and operating cycles
compared unfavorably to those of the comparable companies; and
- Hahn's gross profit was in line with the comparable companies,
however, its operating and net margins were significantly below
that of comparable companies.
Empire Valuation analyzed Hahn's historical stock trading price prior
to, and after the announcement of the merger proposal. Empire Valuation compared
these stock prices and total invested capital (which includes Hahn's funded debt
and market priced equity) relative to Hahn's revenue, EBIT, EBITDA, book value,
net income and operating cash flow. Empire Valuation also analyzed these ratios
for the comparable companies. When compared to the comparable companies, Empire
Valuation's analysis of comparative pricing multiplies for the trailing 12
months closest to December 31, 2000 showed, among other things, that:
- the stock price-to-earnings ratio ranged from 5.20x to 13.75x,
compared to 4.59x for Hahn;
- the stock price-to-operating cash flows ratio ranged from 1.70x to
8.84x, compared to 1.09x for Hahn;
- the price-to-book value ratio ranged from .50x to 4.42x, compared
to .20x for Hahn;
When compared to the comparable companies, Empire Valuation's analysis
of comparable debt-free multiples for the trailing twelve months closest to
December 31, 2000 showed, among other things, that:
- the total invested capital-to-revenue ratio ranged from .37x to
1.29x, compared to .39x for Hahn;
- the total invested capital-to-EBIT ratio ranged from 7.93x to
13.60x, compared to 9.85x for Hahn;
- the total invested capital-to-EBITDA ratio ranged from 5.05x to
9.72x, compared to 7.24x for Hahn; and
- the total invested capital-to-book value ratio ranged from .82x to
2.67x, compared to .89x for Hahn.
From this analysis, Empire Valuation concluded that prior to the merger
proposal announcement, Hahn's stock price was reasonably priced relative to the
comparable companies. Based on this, Empire Valuation determined that a
reasonable control price for Hahn's common stock was in the range of $2.25 to
$2.43 per share.
Empire Valuation searched for, but did not identify any merger,
acquisition or other comparable transactions during the last three years which
Empire Valuation deemed to be sufficiently meaningful for purposes of analyzing
the fairness of the merger consideration. For this reason, Empire Valuation did
not employ this analysis in its evaluation of Hahn.
None of the comparable companies used in the above analysis for
comparative purposes is, of course, identical to Hahn. Accordingly, a complete
analysis of the results of the foregoing calculations cannot be limited to a
quantitative review of such results and involves complex considerations and
judgments concerning differences in financial and operating characteristics of
each of the comparable companies and other factors that could affect the public
trading value of the comparable companies as well as the proposed merger
consideration for Hahn.
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Net Asset Value. Net asset value is the value of the net equity of an
entity, including every kind of property and value. This approach normally
adjusts on the date of appraisal of the company's assets and liabilities to a
market value, with the recognition of securities gains or losses, real estate
appreciation or depreciation, adjustments to inventory, receivables and changes
in the net value of other assets. Empire Valuation developed a range of
estimated net asset values per share based on assumed market values for Hahn's
assets and liabilities in a going-concern orderly liquidation and forced
liquidation. Based on this analysis, Empire Valuation determined that $5.61
could be available for each outstanding share of Hahn's common stock, assuming
first-in, first-out inventory values and no discount to Hahn's accounts
receivable and inventory. However, Empire Valuation determined that this figure
would drop to zero with a 14% discount to Hahn's accounts receivable and
inventory (on a first-in, first-out basis). Based on the special committee's
belief that Hahn's inventory would be discounted in a range of 40% to 50% in an
orderly liquidation, it was determined that Hahn's net asset value was
reasonably expected to fall significantly below the cash merger consideration of
$3.00 per share.
Conclusion. It is Empire Valuation's opinion that the proposed cash
merger consideration of $3.00 per share is fair from a financial perspective to
the public shareholders. In arriving at its opinion, Empire Valuation, based on
its experience and judgment as an independent appraiser, subjectively weighed
the values arrived at using the market value, investment value and net asset
value appraisal methods previously summarized, and concluded that each analysis
independently supports Empire Valuation's ultimate opinion regarding the
fairness of the transaction.
The special committee engaged Empire Valuation to be its exclusive
financial advisor in connection with the Glick buy-out group's merger proposal
and to provide a fairness opinion because Empire Valuation is a recognized
regional firm engaged in the valuation of businesses and their securities in
connection with merger and acquisition transactions. Pursuant to an engagement
letter dated February 8, 2001 between Hahn and Empire Valuation, Hahn paid
Empire Valuation a retainer of $5,000 on February 20, 2001 and agreed to pay an
additional fee of $20,000 for the valuation analysis and the delivery of its
fairness opinion. No portion of Empire Valuation's fee was contingent upon the
successful completion of the merger. In addition, the February 8, 2001
engagement letter with Empire Valuation provides that Hahn will reimburse Empire
Valuation for its out-of-pocket expenses and will indemnify Empire Valuation and
certain related persons against certain liabilities, including liabilities under
securities laws, arising out of the merger or its engagement. Empire Valuation
has no material prior relationship with Hahn or its affiliates.
PROJECTIONS
As discussed above, Hahn's management prepared projections in August,
2000 with respect to its financial performance over a one-year period ending
September 30, 2001, which projections were provided to Empire Valuation. The
following is a summary of the projections:
PROJECTIONS
FOR FISCAL YEAR ENDING
SEPTEMBER 30, 2001
------------------
(in thousands,
except per share data)
INCOME STATEMENT DATA:
Net sales $126,229
Cost of products sold 77,155
--------
Gross profit 49,073
Selling, general and administrative
expense 42,310
Depreciation and amortization expense 1,722
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Income from operations 5,041
Interest expense 4,300
Service Charge Income 343
--------
Income before provision for
income taxes 1,084
Provision for income taxes 423
--------
Income from continuing operations $661
BALANCE SHEET DATA:
Working capital $47,495
Total assets 74,995
Long-term obligations 41,714
Shareholders' equity 14,658
Hahn does not as a matter of course make public forecasts or
projections as to future performance (including as to revenues, earnings, other
income statement items and cash flows) or financial position. Management's
projections are included in this proxy statement solely because they were
provided to Empire Valuation for purposes of performing its work for the special
committee and rendering a fairness opinion.
Management's projections reflect its then current view of Hahn's future
prospects in light of present and expected future business trends. Management's
projections were based upon numerous estimates and assumptions that are
inherently subject to significant uncertainties, are difficult to predict and,
in many cases, are influenced by factors beyond Hahn's control. The material
assumptions used in preparing the management's projections are described in
management's projections and footnotes to management's projections. Certain
assumptions on which management's projections were based related to the
achievement of strategic goals, objectives and targets over the applicable
periods that were more favorable than recent historical results. Accordingly,
there can be no assurance that the projected results will be realized or that
actual results will not be significantly higher or lower than those predicted.
See "Summary -- Forward-Looking Information."
While management's projections were prepared in good faith by Hahn's
management, no assurance can be made regarding future events. Therefore,
management's projections cannot be considered a reliable prediction of future
operating results and should not be relied on as such. Additionally,
management's projections were prepared at the times indicated above and do not
reflect any subsequent results or any changes that have occurred or may occur in
the future regarding the business, assets, operations, properties, management,
capitalization, corporate structure or policies of Hahn, general economic or
business conditions, or any other transaction or event that has occurred since
the respective dates of preparation, or that may occur, and were not anticipated
at the time such information was prepared. Management's projections were not
prepared to comply with the published guidelines of either the SEC regarding
projections or forecasts or the American Institute of Certified Public
Accountants' Guide for Prospective Financial Statements, nor in accordance with
generally accepted accounting principles. Hahn's independent auditors have not
examined, compiled or performed any procedures regarding management's
projections, nor have they expressed any opinion or given any assurance on such
information or its achievability and, accordingly, they assume no responsibility
for management's projections. Neither Hahn nor the Glick buy-out group intend to
update or supplement management's projections prior to the special meeting.
Shareholders are cautioned not to place undue reliance on management's
projections.
PRELIMINARY CALCULATION OF VALUE BY THE GLICK BUY-OUT GROUP'S FINANCIAL ADVISOR
Futerman and Chessin engaged Bonadio & Co. LLP to act as their
financial advisor with respect to the merger transaction. Bonadio & Co., LLP is
a Rochester, New York, based accounting firm which provides
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valuation services for businesses for merger and acquisition transactions.
As part of its engagement, Futerman and Chessin asked Bonadio & Co.,
LLP to perform preliminary mathematical calculations of value of Hahn based on
assumptions and financial information provided by Futerman and Chessin to assist
them in determining an amount to bid for Hahn's public shares and to assess the
level of financing necessary to complete the merger at a fair price. Bonadio &
Co., LLP did not perform a valuation of Hahn in accordance with Uniform
Standards of Professional Appraisal Practice and, accordingly, does not express
any opinion or conclusion as to the value of Hahn or the fairness of the
proposed transaction, from a financial point of view, to the public
shareholders. In addition, during the course of negotiations with the special
committee, Bonadio & Co., assisted the Glick buy-out group in its determination
of the amount it would offer.
On January 16, 2001, Bonadio & Co., LLP presented a preliminary
calculation of value of Hahn to Futerman and Chessin. Bonadio & Co., LLP's
preliminary calculation of value consisted of 13 pages of calculations and an
oral explanation by Bonadio & Co., LLP of its procedures. Bonadio & Co., LLP's
preliminary calculations of value were based upon information provided to it by
Futerman and Chessin, including historical Fiscal 2000 financial information for
Hahn, Hahn's 2001 operating budget and names of other publicly traded companies
operating in Hahn's industry. Futerman and Chessin discussed with Bonadio & Co.,
LLP the range of appropriate assumptions regarding sales and expense amounts for
Fiscal 2002 through 2005 and estimated weighted average cost of capital for
Hahn, from which Bonadio & Co., LLP calculated projections for Fiscal 2002
through 2005. This information was not audited, reviewed, examined or compiled
by Bonadio & Co., LLP and Bonadio & Co., LLP expresses no opinion or other form
of assurance on this historical or projected information.
Using this information, Bonadio & Co., LLP made preliminary
calculations of the value of Hahn using generally accepted valuation calculation
methods and techniques.
Bonadio & Co., LLP calculated a range of value for Hahn using a market
approach and an income approach using EBITDA. Market multiples were calculated
using financial information of other publicly owned distributors of automotive
parts, including: Rankin Automotive Group, Inc, The Coast Distribution System,
Inc., Discount Autoparts, Inc. and O'Reilly Automotive Group, Inc. Using the
latest 12 months financial data, Bonadio & Co., LLP calculated a multiple for
market value of total invested capital to EBITDA of 6.71 for these companies.
Bonadio & Co. LLP then applied this multiple to Hahn's Fiscal 2000 EBITDA
(adjusted for extraordinary items) and deducted the market value of Hahn's
interest-bearing debt. For the income method, Bonadio & Co., LLP performed a
discounted cash flow analysis for the five fiscal years ended September 30, 2005
using a weighted average cost of capital of 14.4% and a terminal value of $21.5
million. To the resulting amount Bonadio & Co., LLP added the book value of
liquid non-operating assets and deducted the market value of Hahn's
interest-bearing debt. These methods indicated an equity valuation per share for
Hahn ranging from a negative value of ($1.74) per share to $1.92 per share.
You may review and copy Bonadio & Co., LLP's preliminary calculation of
value during regular business hours at Hahn's headquarters located at 415 West
Main Street, Rochester, New York. The preliminary calculation of value was also
filed as an exhibit to the Schedule 13E-3 filed by Hahn, Glick, HAW Acquisition,
Futerman and Chessin. In addition, we will provide you with a copy of the report
at no cost to you. See "Where You Can Find More Information."
PLANS FOR HAHN AFTER THE MERGER
Neither Hahn nor the Glick buy-out group have any plans or proposals
that relate to or would result in an extraordinary corporate transaction, such
as a merger, reorganization or liquidation involving Hahn or any of its
subsidiaries, a sale or transfer of a material amount of assets of Hahn or any
of its subsidiaries or, except
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as indicated elsewhere in this proxy statement, any material change in Hahn's
capitalization, corporate structure or business or the composition of the
executive officers following the consummation of the merger. However, Futerman
and Chessin intend, from time to time, to evaluate and review Hahn's businesses,
operations, properties, management and other personnel, corporate structure and
capitalization, and to make such changes as are deemed appropriate. Futerman and
Chessin also intend to continue to look for opportunities to expand Hahn's
business following the merger. In that regard, Futerman and Chessin may review
proposals or may propose the acquisition or disposition of assets or other
changes in Hahn's business, corporate structure, capitalization, management or
dividend policy which they consider to be in the best interests of Hahn and its
then shareholders.
CONDUCT OF THE BUSINESS OF HAHN IF THE MERGER IS NOT CONSUMMATED
Our board has made no determination as to the direction of Hahn should
the merger not be consummated. Our board currently expects that Hahn's present
management will continue to operate Hahn's business substantially as presently
operated. However, even if the merger is not consummated, management and the
board intend, from time to time, to evaluate and review Hahn's businesses,
operations, properties, management and other personnel, corporate structure,
dividend policy and capitalization, and make such changes as are deemed
appropriate and to continue to explore opportunities to expand Hahn's business.
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND HAHN
In considering the recommendation of the special committee and of our
board, you should be aware that Futerman, Chessin and certain other family
members and certain executive officers and directors of Hahn have certain
relationships or interests in the merger and Hahn, including those referred to
below, that are different from the interests of public shareholders and that may
present actual or potential conflicts of interest. The special committee and our
board were aware of these potential and actual conflicts of interest and
considered them in evaluating the proposed merger.
MERGER CONSIDERATION AND STOCK OPTIONS.
As of the record date, Futerman, Chessin and certain other family
members owned 64% of Hahn's outstanding common stock. Glick, Futerman, Chessin
and certain other family members have entered into a Contribution and Voting
Agreement dated May 11, 2001 which requires them, prior to the merger, to
contribute each of their shares of Hahn common stock to Glick for non-voting
membership interests in Glick in proportion to the shares they contribute. In
the merger, the contributed shares then held by Glick will be cancelled for no
consideration and the shares of HAW Acquisition owned by Glick will be converted
into new shares of Hahn's common stock. Following the merger, Glick will own all
of the outstanding common stock of Hahn, as the surviving corporation.
As of the record date, directors and executive officers of Hahn and
members of their immediate families, other than Futerman and Chessin, owned an
aggregate of 1,201 shares of Hahn common stock for each of which shares, they,
as public shareholders, will be entitled to receive the merger consideration of
$3.00 per share in cash. Accordingly, as a group, upon consummation of the
merger, these persons will receive $3,603 in the form of merger consideration
for their shares of common stock.
At the effective time of the merger, each outstanding option to
purchase shares of our common stock held by our directors and executive
officers, including Futerman and Chessin will terminate and each option holder
will be entitled to receive the merger consideration for each share of common
stock subject to the option less the exercise price of the option. Because,
however, each of the outstanding options has an exercise price per share in
excess of $3.00, each option will be terminated without any payment. See "The
Merger Agreement -- Treatment of Options" and "Information Regarding Hahn --
Stock Ownership."
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DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.
Under the terms of the merger agreement, upon consummation of the
merger, the current executive officers of Hahn will remain as the initial
executive officers of the surviving corporation. The merger agreement further
provides that the directors of HAW Acquisition will be the initial directors of
the surviving corporation. The initial directors of HAW Acquisition will be
Futerman and Chessin.
COMPENSATION OF DIRECTORS.
Non-employee directors currently receive $1,000 for each meeting of the
board attended and $500 for each meeting attended of a committee of the board on
which they serve, except that the chairman of the special committee received
additional compensation for service on that committee as described below.
Members of our board also are reimbursed for reasonable travel expenses incurred
in attending board and committee meetings. The regular compensation of employee
directors of Hahn covers compensation for services as a director.
The non-employee directors earned the following cash compensation
(exclusive of travel reimbursements) from Hahn for services as members of our
board (other than for service on the special committee) during Fiscal 2000:
Stephen B. Ashley.................................... $5,500
William A. Buckingham................................ $6,500
Gordon E. Forth...................................... $3,500
Nathan Lewinger...................................... $5,000
E. Philip Saunders................................... $5,500
Hahn's 1993 Non-Employee Director stock option plan, as amended
provided for the automatic grant of an option to purchase 1,000 shares of common
stock to each non-employee director immediately after election to our board of
directors and 334 shares for each director in office immediately after each
annual meeting of shareholders. Each option has a ten year term, is subject to
early termination in certain instances, and is exercisable commencing one year
following the date of grant at an exercise price equal to 100% of the fair
market value of the common stock on the date of grant. The 1993 Non-Employee
Director Stock Option Plan expired in December 1998; however, the plan remains
in effect for the purpose of determining the rights of the holders of
outstanding and unexpired options previously issued under the plan. In addition,
on March 15, 2000, the board of directors approved a grant to each non-employee
director of stock options for the purchase of 1,667 shares of common stock each
at an exercise price of $3.84 per share. This grant was approved at Hahn's 2001
annual shareholders meeting held on May 9, 2001. As of the date of this proxy
statement, the non-employee directors of Hahn, including each member of the
special committee, holds stock options under this plan to purchase an aggregate
of 14,501 shares of common stock at exercise prices ranging from $3.84 to $38.25
per share. Because each of the outstanding options has an exercise price per
share in excess of the merger consideration, the directors have agreed to
terminate these options upon consummation of the merger without consideration or
payment of any kind.
COMPENSATION OF SPECIAL COMMITTEE MEMBERS.
As compensation for serving on the special committee, each committee
member received the established committee fee of $500 per meeting. Hahn also
agreed to pay to the special committee's chairman, William A. Buckingham, $1,000
for each meeting. Each member of the special committee is being reimbursed for
all out-of-pocket expenses incurred in performing his services.
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Through April 6, 2001, the members of the special committee have earned
the following cash compensation (exclusive of travel reimbursements) from Hahn
in connection with the Glick buy-out group acquisition proposal:
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William A. Buckingham, Chairman...................... $3,000
Stephen B. Ashley.................................... $1,000
Nathan Lewinger...................................... $1,500
E. Philip Saunders................................... $1,500
INDEMNIFICATION ARRANGEMENTS.
For a discussion of certain requirements in the merger agreement for
the indemnification of directors and officers of Hahn and the maintenance of
directors' and officers' insurance, see "The Merger Agreement -- Indemnification
and Insurance." (Pages 47-48).
CERTAIN OTHER TRANSACTIONS.
As of September 30, 2000, Hahn leased from Michael Futerman's estate,
Eli N. Futerman, Daniel J. Chessin and other relatives and partnerships,
corporations or trusts in which such persons have an interest, 14 of its 21
distribution center sites and 33 of its 77 Advantage Auto Stores sites. (Michael
Futerman, deceased, was Hahn's Chairman of the board of directors and Eli N.
Futerman is the executor of Michael Futerman's estate, and trustee of the
Michael Futerman Living Trust, which together hold 787,354 shares of Hahn common
stock). The approximate total gross distribution center space under such leases
was 355,360 square feet. The approximate aggregate store space under such leases
was 181,008 square feet. All such leases provide for security deposits equal to
one month's rent, annual base rental increases equal to the annual increase in a
specified Consumer Price Index applied to the preceding year's base rent, and
for Hahn to pay insurance, real property taxes, utilities and to perform all
maintenance and repairs. In Fiscal 2000, Hahn paid approximately $1,835,000 as
base rental for all distribution centers and store properties under such related
party leases. As of September 30, 2000, the total base rentals payable under all
such distribution center and store leases through the end of their respective
terms was approximately $7.1 million, subject to CPI-based increases described
above. Some of the aforementioned leases have been capitalized. These rental
figures are total rents for all such leases, including amounts representing
interest under those leases which have been capitalized.
In February, 1996, Michael Futerman and Eli N. Futerman advanced $2.5
million to Hahn. Hahn repaid $350,000 of this debt and exchanged five-year
subordinated demand notes representing the $2,150,000 principal balance of this
debt. The Futermans' subordinated notes bear interest at the rate of 12% per
annum. Interest is payable monthly. The notes are redeemable at the option of
Hahn, in whole or part, at any time, subject to a subordination agreement with
Hahn's lender, Fleet Capital. During Fiscal 2000, the estate of Michael
Futerman, and Eli N. Futerman, deferred principal payments due them from Hahn
under the subordinated notes until 2003. As a result, in Fiscal 2000, Hahn made
interest payments only on the subordinated notes. In the event that Hahn's net
income is $4,141,000 or greater in any fiscal year, then Hahn must make a
principal prepayment on the notes equal to 19.186% of its net income in excess
of such amount, provided Hahn is not in default under the credit facility with
Fleet Capital. The notes are unsecured and subordinate to all of Hahn's
indebtedness to Fleet Capital.
On or about December 3, 1998, FCA Associates, a partnership consisting
of, at that time, Eli N. Futerman, Daniel J. Chessin and David M. Appelbaum (a
former executive officer), entered into a purchase and sale agreement with a
third party for the purchase of three (3) properties located in Rochester, New
York and the Towns of Gates, New York and Farmington, New York. Hahn is a tenant
with direct distribution facilities at the latter two locations. The closing of
the transaction took place on January 15, 1999 and the Hahn leases were assigned
from the third party to FCA Associates. In May 2000, Mr. Futerman withdrew from
FCA Associates and transferred his entire interest in FCA Associates. The total
gross space of the latter two leases is approximately 9,500 square feet. The
leases require Hahn to pay for liability insurance, real property taxes, and
utilities and to perform all interior maintenance and repairs. Hahn closed its
Merchants
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Road direct distribution facility in Rochester, New York on or about October 1,
1999 and ended its occupancy and terminated the lease on or about December 31,
1999. As of September 30, 2000, the total base rentals payable under the leases
for Gates, New York and Farmington, New York, until the end of their terms on
October 31, 2001, will be approximately $104,000, or $96,000 annually.
In May 2000, Eli N. Futerman, as trustee of the Michael Futerman Living
Trust, purchased 80,024 shares of Hahn common stock from David M. Appelbaum, for
$660,203.50 at a price of $8.25 per share in a private transaction. Mr.
Appelbaum is a former executive officer of Hahn. This transaction was in
connection with the settlement of a dispute between Mr. Appelbaum and Mr.
Futerman. Also in connection with the transaction, Mr. Futerman transferred to
Mr. Appelbaum his interest in FCA Associates, a real estate partnership, and Mr.
Appelbaum resigned from his position with Hahn. See "Information Regarding Glick
and HAW Acquisition -- Recent Stock Purchases."
EFFECTS OF THE MERGER
If the merger is consummated, the entire equity in Hahn will be owned
by Glick, the sole members of which are Futerman, Chessin and certain other
family members. The public shareholders will no longer have any ownership
interest in, and will not be shareholders of, Hahn. As a result, the public
shareholders will no longer benefit from any increases in the value of Hahn, nor
will they bear the risk of any decreases in the value of Hahn. Instead, upon
consummation of the merger, each public shareholder will have the right to
receive $3.00 in cash for each share of common stock held. Following the merger,
the Glick buy-out group will benefit from any increases in the value of Hahn and
also bear the risk of any decreases in the value of Hahn.
Because the common stock will be closely held and cease to be publicly
traded, the Glick buy-out group believes that they will be able to focus on
increasing the long-term value of Hahn to a greater degree by reducing
management's commitment of resources with respect to procedural and compliance
requirements of a company with publicly owned common stock. However, the Glick
buy-out group will bear the risks associated with the lack of liquidity of their
continuing investment in Hahn.
Following the merger, the public shareholders will have no continuing
interest in Hahn. As a result, the common stock will no longer meet the
requirements of the Nasdaq SmallCap for continued listing and will be delisted
from the Nasdaq SmallCap.
The common stock is currently registered as a class of securities under
the Exchange Act. Registration of the common stock under the Exchange Act may be
terminated upon application of Hahn to the SEC if the common stock is not listed
on a national securities exchange or quoted on Nasdaq and there are fewer than
300 record holders of the outstanding shares. Termination of registration of the
common stock under the Exchange Act would substantially reduce the information
required to be furnished by Hahn to its shareholders and to the SEC and would
make certain provisions of the Exchange Act, such as the short-swing trading
provisions of Section 16(b), the requirement of furnishing a proxy statement in
connection with shareholders' meetings pursuant to Section 14(a) and the
requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions no longer applicable to Hahn. In addition, "affiliates" of
Hahn and persons holding "restricted securities" of Hahn may be deprived of the
ability to dispose of those securities pursuant to Rule 144 promulgated under
the Securities Act of 1933, as amended. It is the present intention of Hahn to
make an application for the termination of the registration of its common stock
under the Exchange Act as soon as practicable after the effective time of the
merger.
THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement. This summary and all other descriptions in this proxy statement of
the merger agreement are qualified in their entirety by reference to the full
text of the merger agreement, a copy of which is attached as APPENDIX A to this
proxy
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statement and incorporated herein by reference.
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THE MERGER; MERGER CONSIDERATION
The merger agreement provides that the merger will become effective at
such time as a certificate of merger is duly filed with the New York Department
of State by both Hahn and HAW Acquisition, or at such later time as is specified
in the certificate of merger. If the merger agreement is adopted at the special
meeting by both the statutorily required 66 2/3% shareholder approval and the
public shareholder approval, it is currently anticipated that the merger will
become effective as soon thereafter as practicable after all conditions have
been satisfied, including HAW Acquisition's financing condition. See "The Merger
Agreement -- Conditions." However, there can be no assurance as to the timing of
the consummation of the merger or that the merger will be consummated.
At the effective time of the merger, HAW Acquisition will be merged
with and into Hahn, the separate corporate existence of HAW Acquisition will
cease, and Hahn will continue as the surviving corporation. In the merger, each
share of common stock issued and outstanding immediately prior to the effective
time (other than common stock then (i) held in the treasury of Hahn, (ii) owned
of record by the Glick buy-out group) or (iii) public shareholders who dissent
and seek appraisal rights in accordance with New York law will, by virtue of the
merger and without any action on the part of the holder of the shares, be
converted into the right to receive the merger consideration in cash, without
interest, upon surrender of the stock certificate representing such common
stock. At the effective time, the public shareholders will cease to have any
rights as shareholders of Hahn, except the right to receive the merger
consideration. Each certificate representing a share of common stock held by a
public shareholder will, after the effective time, evidence only the right to
receive, upon the surrender of such certificate, an amount of cash per share
equal to the merger consideration multiplied by the number of shares evidenced
by such certificate.
Each share of common stock issued and outstanding immediately prior to
the effective time which is then (i) held in the treasury of Hahn or (ii) owned
of record by any member of the Glick buy-out group will automatically be
canceled, retired and cease to exist and no payment will be made with respect to
those shares.
Each share of HAW Acquisition capital stock issued and outstanding
immediately prior to the effective time of the merger will be converted into and
become one share of common stock of the surviving corporation, and will
constitute the only issued or outstanding shares of capital stock of the
surviving corporation immediately after the effective time of the merger.
Accordingly, after the merger, Glick will be the only shareholder of the
surviving corporation. Glick's members will be Futerman, Chessin and certain
other family members.
THE EXCHANGE FUND; PAYMENT FOR SHARES OF COMMON STOCK
As of or as soon as reasonably practicable following the effective time
of the merger, the surviving corporation will deposit in trust with Hahn's
registrar or transfer agent or a bank or trust company, for the benefit of the
public shareholders, cash in an aggregate amount equal to the product of (i) the
number of shares held by the public shareholders issued and outstanding
immediately prior to the effective time and (ii) the merger consideration. The
paying agent will, pursuant to irrevocable instructions, make the payments
provided for under the merger agreement out of the exchange fund.
Promptly after the effective time of the merger, the surviving
corporation will cause the paying agent to mail to each public shareholder
holding shares of common stock on the record date a form letter of transmittal
containing instructions for use in surrendering certificates for payment in
accordance with the merger agreement in exchange for the merger consideration.
NO SHAREHOLDER SHOULD SURRENDER ANY CERTIFICATES UNTIL THE SHAREHOLDER RECEIVES
THE LETTER OF TRANSMITTAL AND OTHER MATERIALS FOR SUCH SURRENDER. Upon surrender
of a certificate for cancellation, together with a properly completed and
executed letter of transmittal, to the paying agent after the effective
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time, the holder of such certificate will be entitled to receive the merger
consideration in exchange for each share formerly represented by such
certificate, without any interest, less any required withholding of taxes. See
"The Merger Agreement -- Tax Withholding." The certificate so surrendered will
be canceled.
Until surrendered pursuant to the procedures described above, after the
effective time of the merger, each certificate will represent, for all purposes,
only the right to receive the merger consideration in cash multiplied by the
number of shares evidenced by such certificate, without any interest.
Any portion of the exchange fund that remains unclaimed by the public
shareholders 180 days after the effective time of the merger (including any
interest, dividends, earnings or distributions received on the unclaimed funds)
will be repaid to the surviving corporation, upon demand. Any public
shareholders who have not complied with the procedures set forth above may look
only to the surviving corporation for payment of their claim for the merger
consideration, without any interest, but will have no greater rights against the
surviving corporation than may be accorded to general creditors of the surviving
corporation under New York law. Notwithstanding the foregoing, neither the
paying agent nor any party to the merger agreement will be liable to any public
shareholder holding certificates formerly representing shares of common stock
for any amount paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
TRANSFERS OF COMMON STOCK
After the effective time of the merger, there will be no transfers of
shares of common stock on the stock transfer books of Hahn. If, after the
effective time, certificates are presented to the paying agent or the surviving
corporation by anyone other than the Glick buy-out group, they will be canceled
and exchanged for the merger consideration multiplied by the number of shares
evidenced by such certificates, without any interest.
TREATMENT OF STOCK OPTIONS
At the effective time of the merger, all outstanding stock options,
including stock options held by members of the Glick buy-out group, are to be
terminated. Under the merger agreement, in consideration of such termination,
the surviving corporation is obligated to pay to the holder of each such stock
option, in cash and as full settlement for such stock option, whether or not
then exercisable, an amount determined by multiplying (i) the excess, if any, of
the merger consideration over the applicable exercise price per share of common
stock subject to such stock option by (ii) the total number of shares of common
stock subject to such stock option. However, because each of the outstanding
options has an exercise price per share in excess of $3.00, each option will be
terminated without any payment.
TAX WITHHOLDING
The surviving corporation and the paying agent will be entitled to
deduct and withhold from the amounts payable to any public shareholder or holder
of stock options such amounts as HAW Acquisition, the surviving corporation or
the paying agent are required to deduct and withhold with respect to the making
of such payment under applicable tax law. To the extent that amounts are so
deducted and withheld by the surviving corporation or the paying agent, such
amounts will be treated for all purposes of the merger agreement as having been
paid to the relevant public shareholder or holder of stock options. See "Federal
Income Tax Consequences."
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THE DIRECTORS AND OFFICERS, CERTIFICATE OF INCORPORATION AND BY-LAWS FOLLOWING
THE MERGER
The merger agreement provides that the directors of HAW Acquisition
will be the initial directors of the surviving corporation and the current
executive officers of Hahn will be the officers of the surviving corporation.
The Restated Certificate of Incorporation of Hahn in effect immediately
prior to the effective time will be the Certificate of Incorporation of the
surviving corporation until it is subsequently amended, and the By-Laws of HAW
Acquisition immediately prior to the effective time will be the By-Laws of the
surviving corporation until subsequently amended.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains certain representations and warranties of
Hahn to Glick, HAW Acquisition, Futerman and Chessin and from these entities and
individuals back to Hahn. The representations of Hahn relate to, among other
things, its organization, capitalization, power and authority to enter into the
merger agreement and the transactions contemplated thereby, the binding effect
of the merger agreement, the fairness opinion of Empire Valuation, the
recommendations by the special committee and by our board, compliance with
required filings and consents under applicable law, and the absence of conflicts
with corporate documents and agreements. The representations of Glick, HAW
Acquisition and Futerman and Chessin (which are joint and several) relate to,
among other things, the organization of Glick and HAW Acquisition, the ownership
of Glick and HAW Acquisition, the absence of obligations, liabilities or
activities of Glick and HAW Acquisition, except in furtherance of the
transactions contemplated by the merger agreement, the power and authority of
Glick and HAW Acquisition to enter into the merger agreement and the
transactions contemplated by the merger agreement, the binding effect of the
merger agreement, required filings and consents and the financing. The
representations and warranties expire at the effective time of the merger. No
party is entitled to indemnification based on a breach of the representations
and warranties which may be discovered after the effective time of the merger.
COVENANTS
Hahn has agreed that, prior to the effective time of the merger,
neither Hahn nor its subsidiaries will: (i) carry on their respective businesses
other than in the usual, regular and ordinary course of business consistent with
past practice, (ii) issue shares of common stock (other than pursuant to the
exercise of outstanding stock options) or capital stock or options to purchase
common stock or capital stock, (iii) declare, set aside or pay any dividend or
other distribution in respect of its capital stock or other equity interest
(with certain exceptions in the case of subsidiaries), or (iv) repurchase its
capital stock, or agree to do any of the foregoing. Hahn has agreed to use its
commercially reasonable efforts to obtain the necessary approval of the merger
and the merger agreement by the public shareholders. The merger agreement
provides that this proxy statement will include the recommendation of our board
to the public shareholders in favor of the adoption of the merger and the merger
agreement (and reflect that the special committee has made a similar
recommendation to our board), subject to the fiduciary duties under applicable
law of such directors (including the directors constituting the special
committee). Notwithstanding any other provision of the merger agreement to the
contrary, if our board or the special committee determines, in good faith in the
exercise of its fiduciary duties under applicable law, that it is required to
withdraw, modify or amend its recommendation in favor of the merger, such
withdrawal, modification or amendment will not constitute a breach of the merger
agreement.
Futerman and Chessin have agreed (i) to vote at the special meeting all
shares of outstanding common stock owned of record or controlled by them for
adoption of the merger agreement, (ii) not to grant a proxy to vote any shares
other than to Glick, HAW Acquisition or certain other family members or to
persons identified
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in a proxy card distributed on behalf of our board, to vote such shares at the
special meeting in the manner provided in clause (i), and (iii) not to sell,
transfer or otherwise dispose of any of their shares (other than transfers of
shares to Glick or HAW Acquisition or any family members or trusts for their
benefit or the benefit of their family members).
Glick and HAW Acquisition have agreed not to conduct any business or
enter into any activities of any nature prior to the effective time, other than
activities in connection with the merger agreement and the transactions
contemplated by the merger agreement. Futerman and Chessin have agreed to
proceed in good faith and use their best efforts to obtain as soon as reasonably
practicable the financing necessary to pay the aggregate merger consideration
and related transaction expenses.
In addition, Hahn, Glick, HAW Acquisition and Futerman and Chessin have
made further agreements regarding access to Hahn's records, the calling of the
special meeting, the preparation, filing and mailing of this proxy statement and
the Schedule 13E-3, the obtaining of consents of third parties and governmental
authorities and making public announcements.
Subject to the terms and conditions provided in the merger agreement
and the fiduciary duties under applicable law of the directors of Hahn,
including directors constituting the special committee, as determined by such
directors in good faith, each of the parties has agreed to use commercially
reasonable efforts consistent with applicable legal requirements to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary or proper and advisable under applicable laws and regulations to
ensure that the conditions to consummation of the merger are satisfied and to
consummate and make effective, in a commercially reasonable manner, the
transactions contemplated by the merger agreement. Glick, HAW Acquisition,
Futerman and Chessin and Hahn also have agreed to use their commercially
reasonable efforts to obtain all material consents of third parties and
governmental authorities, and to make all governmental filings, necessary for
the consummation of the transactions contemplated by the merger agreement.
INDEMNIFICATION AND INSURANCE
The New York Business Corporation Law permits, in general, a New York
corporation, such as Hahn, to indemnify any person made, or threatened to be
made, a party to an action or proceeding by reason of the fact that he or she
was a director or officer of the corporation, or served in any capacity at the
request of the corporation, against any judgment, fines, amounts paid in
settlement and reasonable expenses, including attorney's fees actually and
necessarily incurred as a result of such action or proceeding, or any appeal
therein, if such director or officer acted in good faith, for a purpose he or
she reasonably believes to be in, or, in the case of service for another entity,
not opposed to, the best interests of the corporation and, in criminal actions
or proceedings, in addition, had no reasonable cause to believe that his or her
conduct was unlawful. The New York Business Corporation Law also permits the
corporation to pay in advance of a final disposition of such action or
proceeding the expenses incurred in defending such action or proceeding upon
receipt of an undertaking by or on behalf of such person to repay such amount
as, and to the extent, required by law. The New York Business Corporation Law
provides that indemnification and advancement of expense provisions contained in
the New York Business Corporation Law are not exclusive of any rights to which a
person seeking indemnification or advancement of expenses may be entitled,
whether contained in the certificate of incorporation or the by-laws of the
corporation or, when authorized by such certificate of incorporation or by-laws,
(i) a resolution of shareholders, (ii) a resolution of directors or (iii) an
agreement providing for indemnification. However, the New York Business
Corporation Law also provides that no indemnification may be made on behalf of
any such person if a judgment or other final adjudication adverse to the person
establishes that his or her acts were committed in bad faith or were the result
of active or deliberate dishonesty and were material to the cause of action so
adjudicated, or that he or she personally gained, in fact, a financial profit or
other advantage to which he or she was not legally entitled.
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Hahn's Restated Certificate of Incorporation provides, in accordance
with the New York Business Corporation Law, that a director will not be
personally liable to Hahn or its shareholders for damages for any breach of duty
as a director unless a judgment or other final adjudication adverse to the
director establishes that (i) the director's acts or omissions were in bad faith
or involved intentional misconduct or knowing violation of law, (ii) the
director personally gained, in fact, a financial profit or other advantage to
which the director was not legally entitled, or (iii) the director's acts
violated provisions of the New York Business Corporation Law that impose
liability upon directors in certain instances for declarations of dividends,
stock repurchases or redemptions, distributions of assets following a
dissolution, or loans to directors, when made contrary to New York Business
Corporation Law provisions.
Hahn's Restated Certificate of Incorporation and Amended and Restated
By-Laws provide, among other things, that Hahn will indemnify any officer or
director (including officers and directors serving another entity in any
capacity at Hahn's request) to the fullest extent permitted by-law.
The merger agreement provides that the provisions of Hahn's Restated
Certificate of Incorporation limiting the personal liability of directors for
damages and the indemnification provisions of Hahn's Restated Certificate of
Incorporation as they relate to those who have served as directors or officers
of Hahn at any time through the effective time of the merger will not be
amended, repealed or otherwise modified in any manner that would make any of
such provisions less favorable to the directors or officers of Hahn or the
surviving corporation than those that pertain to directors and officers on the
date of the merger agreement. The merger agreement further provides that the
by-laws of the surviving corporation in the merger will be no less favorable to
those who served as directors immediately before the merger. After the effective
time of the merger (subject to extension until the final disposition of any
claim asserted or made during such period), the surviving corporation will (i)
indemnify, defend and hold harmless the present and former officers and
directors of Hahn and its subsidiaries, from and against, and pay or reimburse
indemnified parties for, all losses, obligations, expenses, claims, damages or
liabilities resulting from or arising out of actions or omissions of such
indemnified parties occurring on or prior to the effective time (including,
without limitation, the transactions contemplated by the merger agreement) to
the fullest extent permitted or required, as the case may be, under (a)
applicable law, (b) Hahn's Restated Certificate of Incorporation or By-Laws in
effect on the date of the merger agreement, including, without limitation,
provisions relating to advances of expenses incurred in the defense of any
action or suit and (ii) advance to any indemnified party's expenses incurred in
defending any action or suit with respect to such matters upon receipt of an
undertaking (which need not be secured) by or on behalf of such indemnified
party to repay such amount as, and to the extent, it is not entitled to be
indemnified, in each case to the fullest extent such indemnified party is
entitled to indemnification or advancement of expenses under Hahn's Restated
Certificate of Incorporation or new by-laws in effect on the date hereof and
subject to the terms of such Restated Certificate of Incorporation and new
by-laws,.
To support its indemnification obligation, the surviving corporation
has agreed to use its best efforts to obtain, and maintain effective for a
period of at least three years after the effective time of the merger, at least
$3.0 million of directors' and officers' liability insurance (i) covering
reimbursement of the surviving corporation for any obligation it may incur as a
result of indemnification of directors and officers and (ii) providing insurance
for directors and officers in cases where such reimbursement is not applicable,
including in the event of insolvency of Hahn. However, the surviving corporation
is not required to pay a premium in excess of 200% of the last annual premium
for such insurance, but, if such premium would exceed such amount, the surviving
corporation is required to purchase as much coverage as possible for such
amount.
CONDITIONS
The respective obligations of each party to the merger agreement to
effect the merger are subject to the following conditions:
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- the adoption of the merger and the merger agreement at the
special meeting by the affirmative vote (i) of at least
two-thirds of the votes of all outstanding shares of common
stock and (ii) by a majority of the votes cast at the special
meeting by the public shareholders (excluding abstentions and
broker non-votes),
- the approval of the merger and the merger agreement by Hahn's
lender, Fleet Capital,
- the obtaining by Hahn and HAW Acquisition of all necessary
consents from third parties and approvals from governmental
instrumentalities as are required for the consummation of the
transactions contemplated by the merger agreement, except for
such consents the failure to obtain which would not have a
"material adverse effect," and
- the lack of any United States federal or state statute, rule
or regulation enacted or promulgated after April 6, 2001 that
would result in the imposition of material limitations on the
ability of Glick effectively to acquire or hold Hahn's
business or any court order prohibiting the merger.
When used with respect to HAW Acquisition's obligations, a material
adverse effect is defined in the merger agreement as something that is or is
reasonably likely to have a material adverse effect on the business, condition
(financial or otherwise), properties, assets or prospects of Hahn and its
subsidiaries, taken as a whole.
The obligations of HAW Acquisition and Futerman and Chessin to effect
the merger are also subject to the additional conditions that:
- with certain exceptions, the representations and warranties of
Hahn contained in the merger agreement will be true and
correct as of the date of the merger agreement and as of the
closing date of the merger (except where the failure to be
true and correct does not have a material adverse effect on
Hahn )
- each and all of the covenants and agreements of Hahn contained
in the merger agreement will have been duly performed and
complied with in all material respects,
- there has been no material adverse change in the business,
condition (financial or otherwise), properties, assets or
prospects of Hahn and its subsidiaries taken as a whole
(except that the delisting of the common stock by Nasdaq will
not be deemed a material adverse effect),
- no federal, state or foreign government or governmental
authority or court or governmental agency of competent
jurisdiction shall have issued any order, decree or ruling, or
taken any other action restraining or enjoining or otherwise
(a) prohibiting the consummation of the merger or the
transactions contemplated by the merger agreement, (b)
prohibiting or limiting the ownership or operation by Hahn or
any of its subsidiaries any material portion of Hahn's
business or requiring it to dispose of or hold separate any
material portion of Hahn's business or assets as a result of
the merger or any of the transactions contemplated by the
merger agreement, or (c) imposing material limitations on the
ability of Glick to effectively exercise full rights of
ownership with respect to the shares of common stock to be
issued to them pursuant to the merger agreement,
- Glick shall have obtained the financing necessary to pay the
aggregate merger consideration and related transaction
expenses,
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- all stock options shall be canceled or terminated,
- all existing directors of Hahn shall have tendered their
resignation,
- the public shareholders who have perfected their appraisal
rights as of the effective time shall hold less than 113,334
shares of common stock and
- Glick and HAW Acquisition shall have received an acceptable
opinion of counsel to Hahn.
The obligations of Hahn to effect the merger are also subject to the
additional conditions that:
- with certain exceptions, the representations and warranties of
Glick, HAW Acquisition and Futerman and Chessin in the merger
agreement will be true and correct as of the date of the
merger agreement and the closing date of the merger (except
where the failure to be true and correct does not have a
material adverse effect on Glick, HAW Acquisition or Futerman
and Chessin),
- each and all of the covenants and agreements of Glick, HAW
Acquisition and Futerman and Chessin contained in the merger
agreement will have been duly performed and complied with in
all material respects prior to the consummation of the merger,
except where the failure to comply would not have a material
adverse effect to consummate the transactions contemplated by
the merger agreement,
- no federal, state or foreign government or governmental
authority or court or governmental agency of competent
jurisdiction shall have issued any order, decree or ruling, or
taken any other action restraining or enjoining or otherwise
(a) prohibiting the consummation of the merger or the
transactions contemplated by the merger agreement, (b)
prohibiting or limiting the ownership or operation by Hahn or
any of its subsidiaries any material portion of Hahn's
business or requiring it to dispose of or hold separate any
material portion of Hahn's business or assets as a result of
the merger or any of the transactions contemplated by the
merger agreement, or (c) imposing material limitations on the
ability of Glick to effectively exercise full rights of
ownership with respect to the shares of common stock to be
issued to them pursuant to the merger agreement,
- Hahn shall receive a satisfactory opinion from Boylan, Brown,
Code, Vigdor & Wilson, LLP, counsel for Glick, HAW Acquisition
and Futerman and Chessin, and
- the fairness opinion delivered to the special committee shall
not have been withdrawn or, in the alternative, modified or
amended to such an extent that it is no longer acceptable to
the special committee.
When used with respect to Glick, HAW Acquisition, Futerman and Chessin,
a "material adverse effect" means something that is or is reasonably likely to
be materially adverse (i) to the assets, liabilities, business, property,
condition (financial or otherwise) or operations or prospects of any of them or
(ii) the ability of any of them to perform their obligations under the merger
agreement or to obtain the financing.
TERMINATION
The merger agreement may be terminated at any time prior to the
effective time, whether before or after approval by the shareholders of Hahn:
(i) by mutual consent of the board and Glick, HAW Acquisition
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and Futerman and Chessin; (ii) by either the Glick buy-out group or Hahn, if, at
the special meeting, Hahn's shareholders have not voted to adopt the merger
agreement by the requisite shareholder votes, including both the statutorily
required 66 2/3% approval and the public shareholder approval; (iii) by Hahn or
HAW Acquisition if, without the fault of the terminating party, the merger has
not been consummated on or prior to September 1, 2001; (iv) by Hahn, HAW
Acquisition, Futerman and Chessin, if the board or the special committee has
failed to recommend that shareholders approve the merger and the merger
agreement or either the board or the special committee withdraws or modifies in
a manner adverse to HAW Acquisition its approval or recommendation of the
merger, the merger agreement or the transactions contemplated by the merger
agreement (or the board or the special committee resolve to do either of the
foregoing); or, (v) by Hahn or Glick, HAW Acquisition and Futerman and Chessin
if the other parties shall be in material breach of the merger agreement and
such breach is not cured within 20 days after receipt of written notice of such
from the non-breaching party of such breach. See "The Merger Agreement --
Conditions."
The merger agreement provides that, in the event of its termination,
the merger agreement will become void and have no effect, and no party to the
merger agreement will have any liability or further obligation to any other
party to the merger agreement. However (i) any termination by Hahn arising out
of a breach by Glick, HAW Acquisition or Futerman and Chessin of any
representation, warranty, covenant or agreement contained in the merger
agreement will be without prejudice to the rights of Hahn to seek damages with
respect such breach, and (ii) any termination by Glick, HAW Acquisition and
Futerman and Chessin arising out of a breach by Hahn of any representation,
warranty, covenant or agreement contained in the merger agreement, other than a
breach by Hahn, will be without prejudice to the rights of Glick, HAW
Acquisition and Futerman and Chessin to seek damages with respect to such
breach. The obligations described in this paragraph and the obligations of the
parties with respect to the payment of fees and expenses described below survive
any termination of the merger agreement.
FEES AND EXPENSES
If the merger agreement is terminated for any reason, except as
discussed below, Hahn, on the one hand, and Glick, HAW Acquisition and Futerman
and Chessin, on the other hand, are each to pay their own fees and expenses. The
fees and expenses of Hahn will include fees and expenses of financial advisors
(including Empire Valuation), accountants and counsel for Hahn and the special
committee, and fees and expenses for the preparation, printing, mailing and
filing of documents used in connection with the merger. The fees and expenses of
Glick, HAW Acquisition and Futerman and Chessin will include any commitment and
other fees or expenses of any person providing or proposing to provide the
financing, and fees and expenses of counsel and financial advisors for the Glick
buy-out group. Except with respect to any stock transfer taxes payable by public
shareholders, the surviving corporation will pay any transfer taxes (including
any interest and penalties thereon and additions on any transfer taxes) payable
in connection with the merger and will be responsible for the preparation and
filing of any required tax returns, declarations, reports, schedules, terms and
information returns with respect to such transfer taxes.
If termination of the merger agreement is due to the failure to obtain
the required financing by Glick and HAW Acquisition, then they will reimburse
Hahn for the fees and expenses incurred by them in connection with the merger by
making a $75,000 payment to them in the absence of certain circumstances. In
particular, Glick, HAW Acquisition, Futerman and Chessin shall not be liable for
payment of the $75,000 if (i) the Hahn board or special committee has withdrawn
their recommendation to the shareholders that they approve and adopt the merger,
(ii) a court has issued an order restraining, enjoining or otherwise prohibiting
the merger or imposing any other actions which would cause a condition to
closing to fail, (iii) the merger is not approved by the shareholders of Hahn or
(iv) Hahn is in material default of the obligations to be performed under the
merger agreement.
AMENDMENT AND WAIVER
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Subject to applicable law, the merger agreement may be amended,
modified or supplemented by the written agreement of the parties at any time
prior to the effective time, except that, in the case of Hahn, the special
committee must approve such action. In addition, after the requisite shareholder
adoption of the merger agreement has been obtained, no amendment may be made
that reduces the amount or changes the form of the merger consideration or
otherwise materially and adversely affects the rights of the public shareholders
without further approval by the holders of such number of votes of common stock
that are required to adopt the merger agreement in accordance with the merger
agreement.
Hahn, on the one hand, and Glick, HAW Acquisition, Futerman and
Chessin, on the other hand, may waive the satisfaction of any obligation,
covenant, agreement or condition of the other under the merger agreement.
However, the waiver of any of Hahn's rights under the merger agreement requires
the approval of the special committee. Hahn has made no determination as to
whether it would waive any condition and any such determination would be made on
behalf of Hahn by the board with the special committee's approval based on the
facts and circumstances existing at the time such waiver is requested.
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, the historical cost
basis of assets and liabilities will remain the same after the completion of the
proposed merger.
FINANCING OF THE MERGER
The Glick buy-out group estimates that approximately $2.0 million will
be required to complete the merger, including $1.7 million to pay the aggregate
merger consideration to the public shareholders and $300,000 for fees and
expenses related to the transactions. Since none of the stock options have an
exercise price below the merger consideration, no additional payment will be due
for the stock options following consummation of the merger. Further, since by
letter signed March 22, 2001, Hahn's lender, Fleet Capital, has consented to the
merger, no additional financing will be necessary to fund Hahn's ongoing working
capital needs, including capital expenditures.
Unless waived by Glick and HAW Acquisition, obtaining financing to pay
the merger consideration is a condition to the Glick buy-out group's obligation
to complete the merger. In order to fund the merger consideration and related
fees and expenses, the Glick buy-out group intends to borrow the necessary
funds from Manufacturers and Traders Trust Company. On May 22, 2001,
Manufacturers and Traders Trust Company provided a commitment letter to Abba,
L.P., as borrower and Eli N. Futerman and Sara Futerman (mother of Eli N.
Futerman and mother-in-law of Daniel J. Chessin) as guarantors. Abba, L.P., is
a New York limited parternship in which Abba, Inc., a New York corporation is
sole general partner, and Sara Futerman is sole limited partner. Sara Futerman
is the sole shareholder of Abba, Inc. Abba, L.P., plans to contribute the
borrowed funds to Glick in exchange for a non-voting membership interest. It is
anticipated that Glick will then contribute the proceeds to HAW Acquisition to
fund the merger consideration and related expenses.
The commitment letter provides that the loan proceeds will be payable
over 120 months at either a floating rate based upon the prime rate as quoted by
the bank, or a fixed rate which is the greater of 7.5% or 200 basis points over
the bank's cost of funds based upon the yield on United States Treasury
obligations with a constant maturity of 10 years. Disbursement of the proceeds
of the loan is contingent upon shareholder approval of the merger. The
commitment is contingent upon shareholder approval of the merger proposal and
the closing of the loan by August 1, 2001. The commitment provides that the
financing will be secured by a commercial building owned by Abba, L.P. in
Rochester, New York. It is anticipated that the proceeds of the loan will be
repaid through cash flow from rental proceeds paid by tenants of the commercial
building. Glick and HAW Acquisition have no alternative financing plans.
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If the financing is not consummated, the merger will likely not be
consummated, even if the merger and the merger agreement are approved by the
shareholders at the special meeting. See "The Merger Agreement -- Conditions."
REGULATORY APPROVALS AND THIRD PARTY TRANSACTIONS
Hahn is not aware of any license or regulatory permit that is material
to the business of Hahn and that is likely to be adversely affected by the
merger.
Hahn has sought and obtained the consent of its lender, Fleet Capital,
to the transaction. Hahn does not believe there are any other material third
party consents required by Hahn under the merger agreement.
RISK THAT THE MERGER WILL NOT BE CONSUMMATED
Consummation of the merger is subject to certain conditions, including,
among other things, (i) shareholder adoption of the merger agreement, including
approval by the public shareholders (ii) continuing approval of the merger by
Hahn's lender, Fleet Capital (which was obtained on March 22, 2001), and (iii)
receipt by Glick of financing for the transactions contemplated by the merger
agreement. See "The Merger Agreement -- Conditions." The merger agreement
provides that Glick and HAW Acquisition are not obligated to consummate the
merger if, among other things, the financing is not consummated. Glick, HAW
Acquisition, Futerman and Chessin are obligated to expend their best efforts to
obtain a commitment for the financing on terms and conditions which are
reasonably satisfactory to them and to close such financing. Nevertheless, even
if the requisite approval by shareholders is obtained, there can be no assurance
that the merger will be consummated. See "Special Factors -- Conduct of the
Business of Hahn if the Merger is not Consummated" and "The Merger Agreement --
Fees and Expenses" with respect to obligations of Hahn, on the one hand, and
Glick, HAW Acquisition, Futerman and Chessin, on the other hand, to reimburse
each other for fees and expenses in certain instances if the merger agreement is
terminated.
FEES AND EXPENSES
Estimated fees and expenses (rounded to the nearest thousand dollars)
incurred or to be incurred by Hahn and the Glick buy-out group in connection
with the merger are approximately as follows:
Financial advisory fees and expenses....................... $ 50,000.00
Legal fees and expenses.....................................$167,000.00
SEC filing fee..................................................$342.87
Printing and mailing expenses...............................$ 7,000.00
Proxy solicitation agent fees and expenses..................$ 6,000.00
Paying agent fees..............................................4,000.00
Special committee fees and expenses.........................$ 8,000.00
Miscellaneous.................................................78,000.00
---------
Total.......................................................$320,342.87
The above fees and expenses include approximately $100,000, which
represent fees and expenses incurred or to be incurred by or on behalf of the
Glick buy-out group in connection with the merger that will, in effect, be borne
by Hahn if the merger is consummated since, by operation of law, in a merger,
the surviving corporation assumes and becomes liable for the obligations of the
entity merging into it.
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The merger agreement provides that, except in certain circumstances, in
the event of termination of the merger agreement without consummation of the
merger, Hahn, on the one hand, and Glick, HAW Acquisition and Futerman and
Chessin, on the other hand, will pay their own expenses. Futerman and Chessin,
however, have agreed to pay to Hahn $75,000 in reimbursement of expenses
incurred by Hahn in connection with the merger if the merger agreement is
terminated due to the Glick or HAW Acquisition, failing to obtain financing for
the aggregate merger consideration due under the merger agreement, provided
that, as of the time of the termination of the merger agreement, neither the
special committee nor the board of directors has withdrawn their recommendation
to the shareholders to approve the merger and the merger agreement, the merger
agreement has been presented to Hahn's shareholders for consideration, no
injunction prohibiting the merger or requiring certain actions has been issued
by any court and Hahn has not been in material default under the merger
agreement. See "The Merger Agreement -- Fees and Expenses." The fees and
expenses to be borne by Hahn will include those of Hahn's financial advisor,
accountants and counsel for Hahn and the special committee, and fees and
expenses for the preparation, printing, mailing and filing of documents used in
connection with the merger and proxy solicitation fees. The fees and expenses of
HAW Acquisition will include any commitment and other fees or expenses of any
person providing or proposing to provide financing and fees and expenses for HAW
Acquisition's counsel and financial advisor.
For information regarding payment of fees and expenses to the special
committee, see "Interests of Certain Persons in the Merger and Hahn --
Compensation of Special Committee Members." For information regarding Empire
Valuation's engagement by the special committee and the payment of fees and
expense in connection with that engagement, see "Special Factors -- Presentation
and Fairness Opinion of Empire Valuation, Inc." For information regarding
payment of fees and expenses of the proxy solicitations see "The Special Meeting
- - Costs of Soliciting Proxies."
None of the parties to the merger agreement will pay any fees or
commissions to any broker or dealer or any other person (other than the proxy
solicitation agent) for soliciting proxies pursuant to the merger. Brokers,
banks, and other custodians, nominees and fiduciaries will, upon request, be
reimbursed by Hahn for reasonable out-of-pocket expenses incurred by them in
forwarding proxy soliciting materials to the beneficial owners of shares.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material United States
federal income tax consequences of the merger to the public shareholders under
provisions of the Code, and regulations and administrative and judicial
interpretations thereunder as currently in effect, and all of which are subject
to change, possibly with retroactive effect. The discussion applies only to
shareholders who hold shares of common stock as capital assets within the
meaning of Section 1221 of the Code. In addition, the discussion does not apply
to any shareholder who is attributed any shares of the Glick buy-out group under
Section 318 of the Code (to whom the entire merger consideration may be treated
as a dividend taxable at ordinary income tax rates), any shareholder who is not
a U.S. person within the meaning of Section 7701(a)(30) of the Code, any
shareholder who acquired shares in a compensatory transaction, including upon
the exercise of an option, any shareholder who holds shares as part of a hedging
or conversion transaction, straddle or other risk reduction transaction, and any
other category of shareholder who is subject to special tax rules, such as
financial institutions, insurance companies, broker-dealers and tax-exempt
entities. In addition, the following discussion does not consider the effect of
any state, local, foreign or other tax laws.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, YOU ARE ADVISED TO CONSULT
WITH YOUR OWN TAX ADVISOR AS TO THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX CONSEQUENCES OF THE MERGER TO YOU.
If the merger is consummated, each public shareholder will be treated
as having sold shares for the
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merger consideration. As a result, a public shareholder will recognize capital
gain or loss in an amount equal to the difference between the merger
consideration and the public shareholder's adjusted tax basis in his or her
shares of common stock. Such capital gain or loss will be a long-term capital
gain or loss if the public shareholder has held those shares for more than one
year on the effective date of the merger even though the merger consideration is
not paid to the public shareholder on the effective date of the merger. There
are certain limitations on the deductibility of capital losses. Gain or loss
must be determined separately for each block of common stock (i.e., shares
acquired at the same cost in a single transaction).
In general, (i) capital gain from the disposition of capital stock
acquired after December 31, 2000, and held more than five years is currently
taxed at a maximum federal income tax rate of 18%; (ii) capital gain from the
disposition of stock held more than one year but five years or less is currently
taxed at a maximum federal income tax rate of 20%; and (iii) capital gain from
the disposition of stock held one year or less is currently taxed at a maximum
federal income tax rate of 39.6%.
To prevent backup withholding equal to 31% of the merger consideration
payable to a public shareholder, the public shareholder must either (i)
establish an exemption from backup withholding (e.g., because it is a
corporation) or (ii) provide its taxpayer identification number to the paying
agent, certify that the public shareholder is not subject to backup withholding
and otherwise comply with the backup withholding rules under the Code. Backup
withholding is not an additional tax; rather, any amount so withheld is credited
against the shareholder's federal income tax liability. See "The Merger
Agreement -- Tax Withholding."
Certain penalties may apply to a failure to furnish correct
information. A public shareholder should consult with his or her own tax advisor
as to the qualifications for an exemption from withholding and the procedures
for obtaining an exemption.
Neither Hahn nor any member of the Glick buy-out group will recognize
gain or loss as a result of the merger.
INFORMATION REGARDING HAHN
INCORPORATION OF DOCUMENTS BY REFERENCE
We are incorporating by reference our annual report on Form 10K for the
fiscal year ended September 30, 2000 and our Form 10-Q for the period ended
March 31, 2001, both filed with the SEC.
In addition, we are incorporating by reference all documents we file in
response to the requirements of Sections 13(a), 13(d), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, after the date of this proxy
statement and before the date of the special meeting. Accordingly, those
documents will be considered a part of this proxy statement from the date they
are filed.
If you would like copies of the documents we file after the date of
this proxy statement, please contact Donald T. Hiller at Hahn Automotive
Warehouse, Inc., 415 W. Main Street, Rochester, New York 14608 or by telephone
(716) 464-3831 or toll free at (800) 777-HAHN (4246). You may also review our
filings with the SEC as described under "Where You Can Find More Information."
BUSINESS OF HAHN
Hahn is engaged in the sale of automotive aftermarket products to
commercial service establishments on a regional basis and to consumers via the
internet. Hahn's traditional business is conducted through ten full-service
distribution centers, four specialty distribution centers, seven direct
distribution centers and 77 jobbing stores that operate in the same areas as
Hahn's full-service distribution centers generally under the name
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Advantage Auto Stores, except in the Dayton, Ohio area, where Hahn's jobbing
stores operate under the name Genuine Auto Parts. Hahn's operations are located
along the Eastern Seaboard and in the Midwest.
Hahn, through its wholly-owned subsidiary iAutoparts, Inc., operates
iAutoparts.com(R), an online automotive parts store. iAutoparts extended Hahn's
reach directly to the consumer, entering new geographical and customer markets,
and further expanded its distribution mix. To date, iAutoparts has had a nominal
financial impact on Hahn.
Hahn's wholly owned subsidiary, H.F.V. Inc. owns debt and a 37.5%
equity investment in Autoworks, Ltd. a distributor of automotive aftermarket
products, based in Tel Aviv, Israel.
Hahn's operations are contained in two industry segments: wholesale
sale of automotive aftermarket products through traditional and direct
distribution methods. Below is a description of each segment. Financial
information about these segments is contained in Note 11, Notes to Consolidated
Financial Statements, September 30, 2000 page F-22.
Industry Overview. The market is composed of two basic segments:
Passenger car and light truck products and heavy duty truck products. Hahn
operates in the passenger car and light truck market, and currently has a minor
presence in the heavy duty truck market. The market for passenger car and light
truck products has two basic sales channels: (i) wholesale or installed parts
service, serving professional installers, vehicle dealers, retail auto parts
stores and other distributors, and (ii) retail, serving do-it-yourself ("DIY")
retail customers.
The wholesale segment is Hahn's primary area of focus. Traditionally,
the wholesale segment has distributed automotive parts using a three-step or
full-service distribution process. With full-service distribution, parts
manufacturers deliver parts to warehouse distributors, who then deliver to local
jobbers who sell individual parts to end users for installation. Full service
distribution allows jobbers to provide rapid parts availability to local area
professional installers, including service stations, garages and major accounts.
Hahn's full service distribution centers and jobbing stores operate in this
market.
The two-step or direct distribution process has evolved in response to
increasing capital needs and shrinking margins, and to date, has been more
successful in metropolitan areas where there are higher concentrations of
professional installers. Direct distributors eliminate a level of distribution
from the traditional full-service distribution process. Thus, a large jobber may
purchase directly from manufacturers and sell directly to professional
installers, thereby eliminating the warehouse distributor level, or a warehouse
distributor may skip the jobber level and sell parts directly to installers.
Hahn's direct distribution division targets this market.
Distribution Business. Hahn purchases nearly 150,000 automotive
aftermarket stock keeping units ("SKUs"), consisting predominately of nationally
branded automotive hard parts, as well as maintenance items, accessories and
private label products, from 240 manufacturers, and distributes these products
through its distribution network to approximately 1,050 independent jobbing
stores and 77 Company owned jobbing stores, which operate principally under the
Advantage Auto Stores name. These jobbers supply automotive parts to commercial
establishments performing automotive services and, to a much lesser extent, the
DIY market. Hahn's distribution network consists of ten full-service
distribution centers, four specialty distribution centers, seven direct
distribution centers and 77 Advantage Auto jobbing stores located along the
Eastern Seaboard and in the Midwest. Hahn generally does not sell tires or
perform automobile repairs or installations through either its distribution
centers or jobbing operations.
Distribution Strategy. Hahn's distribution strategy is based on five
key elements:
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- Rapid Delivery From Extensive Inventory - Hahn maintains a
broad product inventory consisting of approximately 150,000
stock keeping units (SKU's) throughout its full-service
distribution network, from which it generally delivers
products to customers within 24 hours of receipt of an order.
Hahn believes that speed of delivery is essential for a jobber
to meet the time constraints of its service establishment
customers and to manage its own inventory.
- Strong Customer Relationships and Trained Work Force - Hahn is
a customer driven company built on strong, long-term
relationships. Hahn provides operational support to its
customers on a regular basis to assist them in many aspects of
their businesses. In addition, Hahn maintains trained and
experienced sales and distribution center personnel to assist
jobbers in selecting parts and filling their inventory needs.
- Growth in Existing Markets - Hahn seeks to build its revenue
base in existing markets by (i) adding new jobbing store
customers within territories presently served, and (ii)
encouraging existing accounts to purchase additional product
lines from Hahn.
- Leadership in Aftermarket Auto Parts Alliance Programmed
Distribution Group - Aftermarket Auto Parts Alliance, Inc.
("AAPA") (formerly Auto Value Associates, Inc. ("Auto Value"))
is an independent national purchasing and marketing program in
the automotive aftermarket. Hahn seeks to convert its
independent jobbing customers to the AAPA Auto Value program,
as Hahn believes AAPA's Auto Value purchasing and marketing
programs are beneficial to the jobbers and result in such
customers purchasing the preponderance of their inventory
needs from Hahn.
Operating Efficiencies - Hahn's operations are structured to
realize operating efficiencies both for itself and for its customers, to benefit
from economies of scale in product purchasing, information systems and employee
training and to provide an efficient distribution system with the objectives of
ease of order placement and speed of delivery.
Products. Hahn's distribution centers and Company-owned jobbing stores,
operating as Advantage Auto Stores (and Genuine Auto Parts in the Dayton, Ohio,
area) (herein collectively referred to as "Advantage Auto Stores"), generally
offer a wide selection of predominantly nationally branded automotive products
for domestic and foreign cars, vans and light trucks. Hahn stocks a wide range
of automotive aftermarket products throughout its distribution network,
consisting principally of new and remanufactured automotive hard parts, as well
as maintenance items and accessory products. Hard parts include, among others,
brake parts, exhaust components, engine parts, suspension parts and fuel
systems.
Hahn's customers purchase name-brand products and private label
products which carry a larger gross profit margin. These private-label products,
marketed under the Parts Master label, are manufactured by a variety of vendors
for members of the AAPA Auto Value programmed distribution group. Parts Master
products accounted for approximately 21.1%, 19.9% and 17.8% of Hahn's net sales,
in Fiscal 2000, 1999 and 1998, respectively, with the remainder of net sales
derived from manufacturer's branded products. Since Parts Master brand products
have higher profit margins than name brand products, Hahn continually seeks ways
to expand sales of Parts Master products, in some instances by having national
brand manufacturers supply products under this label.
Distribution Centers. Central to Hahn's strategy of providing rapid
distribution of a broad variety of parts is a distribution network comprised of
three varieties of distribution centers: full-service, direct distribution and
specialty (which consist of pick-up and accessory distribution centers).
Full-Service Distribution Centers. Full-service distribution centers
distribute to jobbers within a
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radius of approximately 150 miles, and nine of them serve as hubs for a
surrounding network of Company-owned Advantage Auto Stores. Hahn extends the
distribution area of three of its full service distribution centers with smaller
pick-up distribution centers. These pick-up distribution centers carry
specialized inventory categories, with lower inventory turns, for customer
pickup when needed, to supplement regular deliveries from the full service
distribution center. Hahn also operates a specialty distribution center to
centralize the purchasing and distribution of accessory items.
Hahn, in total, operates ten full-service distribution centers, three
pick-up distribution centers and one accessory distribution center. The
inventory carried by full-service distribution centers generally range from
approximately 33,500 to over 75,500 SKUs, while the pick-up distribution centers
stock, on average, approximately 19,000 SKUs and the accessory distribution
center stocks selected items.
Each full-service distribution center employs a General Manager, sales
force, clerical, stock-handling and delivery employees. Customers may place
their stock orders by computer, telephone, fax or in person at service counters.
Direct Distribution Centers. Hahn operates seven (7) direct
distribution centers, one of which does business under the Professional Auto
Warehouse ("PAW") name in Albany, New York. Hahn has selected direct
distribution center locations that it has acquired or has opened based upon a
high concentration of repair bays and competitive rent. On September 22, 2000,
Hahn closed its Professional Auto Warehouse location in Harrisburg,
Pennsylvania. Hahn has no plans to replace the PAW Harrisburg location.
Hahn believes that its direct distribution centers carry a more
complete inventory selection than most other national direct distributors. The
average Company direct distribution center stocks approximately 23,000 SKU's,
with the largest stocking approximately 51,000 SKU's. In addition to parts, the
direct distribution centers also supply professional installers with equipment
and tools. Each direct distribution center maintains a delivery fleet to provide
professional installers with rapid delivery of parts orders.
Aftermarket Auto Parts Alliance Program. Hahn is a member of AAPA
(formerly Auto Value Associates, Inc.), an independent corporation which was
created by a merger with All Pro/ Bumper to Bumper, another large programmed
automotive parts buying group, in July 1999. This union increased the size and
buying power of Auto Value, which provides to its shareholders the benefits of
collective purchasing power under arrangements which it negotiates with vendors
from whom its shareholders may purchase inventory. AAPA neither purchases nor
sells automotive parts and is not involved in the chain of distribution.
AAPA offers its shareholders value-added marketing, merchandising,
advertising and promotion and interior and exterior design layout for delivery
to the participating jobber customers of its shareholders. AAPA also offers its
shareholders access to private label products under the Parts Master name.
AAPA requires its shareholders to participate in its purchasing
programs to a specified degree and to contribute equally toward its operating
expenses. Shareholders, whose jobber customers participate in the marketing
service of the Auto Value program, are required to pay a basic fee plus charges
for goods and services provided under the program.
Eli N. Futerman, President and Chief Executive Officer of Hahn, is a
past Chairman and currently a director and Treasurer of AAPA. Hahn does not
believe that any material conflicts of interests exist as a result of Mr.
Futerman's positions in Hahn and AAPA.
Jobber Services. Hahn's extensive inventory line provides jobber
customers with the opportunity to purchase aftermarket products from a single
source, which affords its jobber customers the opportunity to reduce operating
expenses and improve inventory planning and control.
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Hahn provides support to its customers through its account executives
who visit them on a regular basis, advising such customers on products and
services, assisting in solving logistical, marketing, merchandising and other
problems, as well as soliciting increased purchases from Hahn. These customer
support services are supplemented by manufacturers' sales representatives who
periodically call on Hahn's customers on behalf of Hahn and by annual trade
shows at Company locations. In Fiscal 2000, Hahn held trade shows in Dayton,
Ohio and Goldsboro, North Carolina.
Hahn provides value-added services to its jobber customers that
participate in the AAPA programmed distribution group. Through the AAPA program,
Hahn assists its participating jobber customers in marketing, merchandising,
inventory management and control, store appearance, advertising and product
promotion.
During Fiscal 2000, 29 of Hahn's independent jobber customers joined
the AAPA program through Hahn and 24 independent jobber customers resigned or
were terminated from the program. As of October 31, 2000, 273 of Hahn's
independent jobber customers and all of Hahn-owned jobbing stores participated
in the AAPA marketing program.
Advantage Auto Stores. To support its distribution center business,
Hahn operates a chain of jobbing stores under the Advantage Auto Stores name,
except for certain Company-owned jobbing stores which operate under "Genuine
Parts Company" in Dayton, Ohio, "Finn Auto Parts" in Canandaigua, New York and
"Eagle Auto Parts" in East Rochester, New York. References to Advantage Auto
Stores in this report include these jobbing stores. The Advantage Auto Stores
are located only in regions supplied by Hahn's full-service distribution
centers. As of May 11, 2001, Hahn owned and operated a total of 78 Advantage
Auto Stores.
As the Advantage Auto Stores are members of the AAPA program, they
typically feature certain consistent appearances and merchandising programs. The
stores emphasize knowledgeable sales people and rapid availability of parts with
daily truck deliveries. Approximately nine years ago, Hahn embarked on a jobbing
store remodeling project. During Fiscal 2000, Hahn remodeled nine jobbing
stores, leaving seven stores to be remodeled. Hahn plans to remodel or relocate
six more jobbing stores in the next fiscal year.
iAutoparts. On July 6, 1999, Hahn, through its wholly-owned subsidiary,
iAutoparts, Inc., launched iAutoparts.com(R), its online automotive parts store
available 24 hours a day. iAutoparts.com(R) was the first online automotive
parts store powered by the industry's leading CCI/Triad ePartExpert electronic
parts catalog. The Web site guides users through a logical search to ensure
accurate automotive parts selection. ePartExpert provides technical tips, parts
specifications and suggestions for related parts.
iAutoparts.com(R) is operated by iAutoparts, Inc., a wholly- owned
subsidiary of Hahn, with the assistance of its information technology service
provider, CCI/Triad, located in Austin, Texas. iAutoparts has a direct
relationship with parts manufacturers which enables it to provide rapid delivery
of hard-to-find parts. All iAutoparts.com(R) orders have been fulfilled from
Hahn's full service distribution center in Rochester, New York. To date,
iAutoparts has had a nominal financial impact on Hahn.
iAutoparts, Inc., has joined in the formation of Internet Autoparts,
Inc., ("IAP") a new internet company that will provide the automotive
aftermarket's first industry-sponsored, web-based parts ordering and
communications platform linking automotive service providers and the wholesale
distributors who supply them with automotive aftermarket products. IAP intends
to focus on three major initiatives in the automotive aftermarket parts
industry: business-to-business ("B2B") from the professional service dealer to
local auto parts stores and warehouses, business-to-consumer ("B2C") from the
"do-it-yourselfer" to local auto parts stores and other suppliers; and B2C from
the "do-it-for-me" consumer to service dealers. IAP's primary objective is the
creation and launch of a quality B2B service. No specific date has been
announced for the launch of IAP's internet parts ordering and communications
site.
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H.F.V. Inc. A subsidiary of Hahn, H.F.V. Inc. owns a 37.5% interest in
Autoworks, Ltd., a corporate joint venture, which distributes automotive
aftermarket products in Tel-Aviv, Israel. See Note 4, Notes to Consolidated
Financial Statements, September 30, 2000 page F-17.
SELECTED CONSOLIDATED FINANCIAL DATA OF HAHN
The following table presents our selected historical financial data and
other operating information for the five fiscal years ended September 30, 2000
and for the six months ended March 31, 2001. We derived the financial
information for each of the five fiscal years from our audited consolidated
financial statements. The consolidated financial statements for such five fiscal
years have been audited by PricewaterhouseCoopers LLP, independent auditors We
have derived the selected information as of and for the six-month periods ended
March 31, 2001 and 2000, from our consolidated financial statements, which are
not audited. In the opinion of management, however, all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation at such dates
and for such periods have been made. The income statement data for the six
months ended March 31, 2001 is not necessarily indicative of results for a full
year. The following data should be read together with "Management's Discussion
and Analysis of Financial Condition and Results of Operation" of Hahn appearing
in this proxy statement, and also should be read together with the consolidated
audited and unaudited financial statements of Hahn and the notes thereto
included at the end of this proxy statement. All share and per share data has
been proportionately adjusted for the May 10, 2001 1-for-3 reverse stock split
as if the reverse stock split had occurred as of the date for which the
information is presented.
SIX MONTHS ENDED YEARS ENDED
MARCH 31, SEPTEMBER 30,
--------------------- ----------------------------------------------------------
2001 2000 2000 1999 1998 1997(1) 1996
---- ---- ---- ---- ---- ------- ----
(IN THOUSANDS, EXCEPT SHARE DATA)
INCOME STATEMENT DATA:
Net sales $57,910 $60,425 $125,575 $130,998 $133,503 $142,242 $138,395
Cost of products sold 34,785 37,129 77,071 82,002 82,778 86,967 86,077
Gross profit 23,125 23,296 48,504 48,996 50,725 55,275 52,318
Selling, general and
administrative expense 20,353 20,929 42,587 43,512 44,059 46,717 41,657
Depreciation and amortization
expense 887 895 1,789 1.775 1,602 2,005 1,756
Income from operations 1,885 1,472 4,128 3,709 5,064 6,553 8,905
Interest expense (2,037) (1,920) (3,796) (3,650) (3,771) (4,670) (4,402)
Service charge and other
income 233 179 509 399 631 719 600
Gain on sale of marketable
security ---- ---- 196 ---- ---- ---- ----
Income (loss) from equity
investment 28 53 189 (27) (220) ---- ---
Income (loss) before
provision for income taxes 109 (216) 1,226 431 1,704 2,602 5,103
Provision for income taxes 41 (82) 450 151 665 1,011 1,950
Income (loss) from continuing
operations 68 (134) 776 280 1,039 1,591 3,153
Loss from discontinued operations:
Write-down of investment in
subsidiary, net of tax ---- ---- ---- ---- ---- (18,789)(1) ----
Loss from discontinued
operations, net of tax ---- ---- ---- ---- ---- (3,937) (1,294)
Total loss from discontinued
operations ---- ---- ---- ---- ---- (22,726) (1,294)
Net income (loss) $68 $(134) $776 $280 $1,039 ($21,135) $1,859
Income from continuing operations
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per share $0.04 ($0.08) $0.49 $0.18 $0.66 $1.01 $1.99
Loss from discontinued operations
per share ---- ---- ---- ---- ---- (14.37) (0.82)
Basic and diluted net income
(loss) per share $0.04 ($0.08) $0.49 $0.18 $0.66 ($13.36) $1.17
Weighted average shares
outstanding 1,581,671 1,581,671 1,581671 1,581,671 1,581,671 1,581,671 1,581,671
BALANCE SHEET DATA:
Working capital $43,055 $44,636 $43,684 $44,919 $42,212 $45,485 $65,452
Total assets 76,438 76,505 78,951 79,723 78,311 77,792 97,819
Long-term obligations 42,972 44,277 44,043 45,484 44,645 45,908 40,893
Shareholders' equity 14,527 13,665 14,459 13,773 13,561 12,364 33,499
Book value per share $9.18
- ---------------------------------
(1) On July 24, 1997, Autoworks, Inc. filed for protection under Chapter 11
of the United States Bankruptcy Code. In connection with the filing, Hahn
recorded a one time after tax charge of $18.8 million and restated all of its
financial statements to reflect Autoworks as a discontinued business.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The discussion contained in this section should be read in conjunction
with the Selected Financial Data section of this proxy statement, the
consolidated financial statements and accompanying notes appearing at the end of
this proxy statement. In all periods discussed in this proxy statement, Hahn's
fiscal year ended on September 30th of the indicated year.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2001 Compared to Three Months Ended March
31, 2000. Hahn's net sales declined $1.8 million or 5.9% to $29.1 million for
the fiscal quarter ended March 31, 2001 from $30.9 million, for the same fiscal
quarter for the last fiscal year. A major factor causing the net sales decline
was the general softness in the auto parts aftermarket caused by various
factors, which include improved vehicle manufacturing and performance, longer
vehicle warranties, leased vehicles and increased competition in all segments of
distribution. Another factor causing the decline in net sales was the closing of
an under-performing direct distribution center. For the quarter, on a comparable
location basis, and in comparison to the same quarter last year, net sales
decreased by 7.0% at the full service distribution centers, 3.6% at the
Advantage Auto Stores and 9.5% at the direct distribution centers.
Gross profit for the current quarter decreased $218,000 as compared to
the second quarter of Fiscal 2000. This decline resulted from a decrease in net
sales which was partially offset by an increase in gross profit margin. Gross
profit expressed as a percentage of net sales increased to 40.0% from 38.4%.
This is primarily due to the increase in the net sales at the Advantage Auto
Stores as a percentage of Hahn's total net sales and a focused effort to sell
slow moving product at a higher margin.
Selling, general and administrative expense decreased $200,000 from
$10.5 million in the second quarter of Fiscal 2000, to $10.3 million, for the
comparable quarter of Fiscal 2001. The decline is primarily due to the closing
of a direct distribution center and Hahn's efforts to control and reduce
expenses. As a percentage of net sales, selling, general and administrative
expense increased to 35.4% from 33.9%. The percentage increase is a result of
the net sales decline.
As a result of the factors discussed above, operating income decreased
to $911,000 for the second quarter of Fiscal 2001, from $946,000, for the second
quarter of fiscal 2000. As a percentage of net sales, operating
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income remained even at 3.1% for the second quarter of both fiscal years.
Depreciation and amortization increased $17,000 from $430,000 during
the second fiscal quarter last year, to $447,000 for the second quarter of the
current fiscal year. This increase is attributable to the purchase of equipment
at lease expiration and was partially offset by certain assets becoming fully
depreciated.
Interest expense increased $24,000 to $1.0 million from $979,000 for
the same quarter of the previous fiscal year. This increase is primarily the
result of interest charges on overadvances which were not charged in the
previous fiscal year.
As a result of the factors discussed above, Hahn had net income of
$19,000 or $.01 per share, in the current fiscal year's second quarter, compared
to a net profit of $59,000 or $.04 per share for the same quarter of the
previous fiscal year.
Six Months Ended March 31, 2001 Compared to Six Months Ended March 31,
2000. Hahn's net sales declined $2.5 million or 4.2%, to $57.9 million for the
fiscal six months ended March 31, 2001, from $60.4 million for the same six
month period of Fiscal 2000. A major factor causing the net sales decline was
the general softness in the auto parts aftermarket caused by various factors,
which include improved vehicle manufacturing and performance, longer vehicle
warranties, leased vehicles and increased competition in all segments of
distribution. During this six month period, Hahn had one less direct
distribution center operating compared to the same period one year ago. On a
comparable location basis, for the same period during the previous fiscal year,
net sales declined by 3.5% at the full service distribution centers, 2.1% at the
Advantage Auto Stores and 7.8% at the direct distribution centers.
Gross profit for the first six months of the current fiscal year
decreased $171,000 from $23.3 million in fiscal year 2000 to $23.1 million in
Fiscal 2001. This was due to the decline in net sales, partially offset by an
increase in gross profit margin. As a percentage of net sales, gross profit
increased to 39.9% from 38.6% for the previous fiscal year. This percentage
increase is primarily due to the increase in Advantage Stores net sales as a
percentage of Hahn's total net sales and a focused effort to sell slow moving
product at a higher margin.
Selling, general and administrative expense decreased $576,000, from
$20.9 million for the first six months of Fiscal 2000, to $20.4 million, for the
same period of Fiscal 2001. This decline is primarily due to the closing of a
direct distribution center and Hahn's efforts to control and reduce expenses. As
a percentage of net sales, selling, general and administrative expense increased
to 35.1% from 34.6% in the previous fiscal year. This percentage increase was
due to a decline in net sales as discussed above.
Depreciation and amortization decreased $8,000 from $895,000 for the
first six months of Fiscal 2000 to $887,000 for the same period of Fiscal 2001.
This decrease is primarily the result of certain assets becoming fully
depreciated, partially offset by the purchase of equipment at lease expiration.
As a result of the factors discussed above, operating income increased
to $1.9 million for the first six months of Fiscal 2001 from $1.5 million for
the first six months of Fiscal 2000. As a percentage of net sales, operating
income increased to 3.3% from 2.4% in the same six month period of fiscal 2000.
Interest expense increased $117,000, in the first six months of Fiscal
2001, to $2.0 million. This increase is primarily attributable to higher
interest rates in the first quarter of Fiscal 2001 as compared to the rates for
the same period of Fiscal 2000.
As a result of these factors, Hahn reported a net profit of $68,000, or
$.04 per share for the six month period ended March 31, 2001, compared to a net
loss of $134,000 or $.08 per share for the first six months of
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Fiscal 2000.
Fiscal Year 2000 Compared to Fiscal Year 1999. Net sales for Fiscal
2000 decreased $5.4 million, or 4.1% from the prior fiscal year, to $125.6
million. This decrease is attributable to net sales decreases of 6.9% at the
direct distribution centers and 6.8% at the full-service distribution centers,
partially offset by a net sales increase of .2% at the Advantage Auto Stores.
The Advantage Auto Stores net sales increase was the result of the
acquisition of two former jobbing store customers and a 1.7% increase in
comparable store sales which were partially offset by the closing of three
Advantage Auto Stores. The net sales decreases in the direct distribution and
full service distribution centers are attributable to the softness in the
automotive aftermarket parts industry. This softness is the result of factors
such as leasing, improved vehicle performance, warranties and increased
competition in the industry. Additionally, direct distribution sales were
affected by the closing of one direct distribution center while the full service
distribution decrease was compounded by the purchase of two jobbing customers
that are now operated as Advantage Auto Stores. Sales on a comparable location
basis improved by 1.7% in the Advantage Auto Stores, 3.0% in the direct
distribution division and declined by 6.8% in the full service distribution.
Gross profit declined $492,000 or 1.0% to $48.5 million in Fiscal 2000
from $49.0 million in the previous fiscal year. The gross profit decrease was
due to the decline in net sales and partially offset by an increase in the gross
profit margin. Gross profit margin increased to 38.6% in Fiscal 2000 from 37.4%
in fiscal 1999.
Selling, general and administrative expenses decreased $925,000 from
$43.5 million in Fiscal 1999 to $42.6 million, in the current fiscal year. The
expense reduction is net of an increase in fuel costs of approximately $349,000
in Fiscal 2000 when compared to Fiscal 1999. This dollar decrease is generally
due to Hahn's expense control programs, the closing of one direct distribution
center and the closing of one Advantage Auto Store, net of openings. Due to the
decrease in net sales, the selling, general and administrative expense, as a
percentage of net sales, increased to 33.9% in fiscal 2000, from 33.2% in Fiscal
1999.
Depreciation and amortization expense increased $14,000 and remained at
$1.8 million for both fiscal years ending September 30, 2000 and 1999. As a
percentage of net sales, depreciation and amortization increased to 1.42% in
fiscal 2000, compared to 1.35% for the previous Fiscal year.
As a result of the factors discussed above, income from operations for
Fiscal 2000, increased $419,000 from $3.7 million or 2.8% of net sales in the
prior fiscal year to $4.1 million or 3.3% of net sales in the current fiscal
year.
Interest expense increased $146,000 in Fiscal 2000 to $3.8 million from
$3.7 million for Fiscal 1999. This increase is attributable to the increase in
interest rates during Fiscal 2000, as compared to Fiscal 1999.
In Fiscal 2000 the Company realized a one-time gain resulting from the
sale of its only marketable security. It also recorded, under the equity method
of accounting, income of $189,000 from the debt and equity investments of H.F.V.
Inc., a wholly owned subsidiary of the Company, in Autoworks, Ltd. There are no
assurances that Autoworks, Ltd. will achieve similar results in the future due
to the political instabilities in Israel.
In Fiscal 2000 the provision for income taxes on income was $450,000,
an effective rate of 36.7%, as compared to $151,000, an effective rate of 35.0%,
in fiscal 1999.
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As a result of the factors discussed above, Hahn had net income for
Fiscal 2000 of $776,000, or $.16 per share, as compared to $280,000, or $.06 per
share, of net income for fiscal 1999.
Fiscal Year 1999 Compared to Fiscal Year 1998. Net sales for Fiscal
1999 decreased $2.5 million, or 1.9% from the prior fiscal year, to $131.0
million. This decrease is attributable to net sales decreases of 3.3% at the
direct distribution centers and 3.7% at the full-service distribution centers,
partially offset by a net sales increase of 1.1% at the Advantage Auto Stores.
The Advantage Auto Stores net sales increase was the result of the
acquisition of two former jobbing store customers and partially offset by the
closing of five Advantage Auto Stores and a 1.8% decrease in comparable store
sales. The net sales decreases in the direct distribution and full service
distribution centers are attributable to the softness in the automotive
aftermarket parts industry. This softness is the result of factors such as
leasing, improved vehicle performance, warranties and increased competition in
the industry. Sales on a comparable location basis declined by 1.8% in the
Advantage Auto Stores, 3.3% in the direct distribution division and 3.7% in the
full service distribution. Full service distribution decrease was compounded by
the purchase of two jobbing customers that are now operated as Advantage Auto
Stores.
Gross profit declined $1.7 million or 3.4% to $49.0 million in Fiscal
1999 from $50.7 million in the previous fiscal year. Gross profit decrease was
due to the decline in net sales and the gross profit margin. Gross profit margin
declined to 37.4% in Fiscal 1999 from 38.0% in Fiscal 1998.
Selling, general and administrative expenses decreased $547,000 from
$44.1 million in Fiscal 1998 to $43.5 million, in the current fiscal year. This
dollar decrease is generally due to a net reduction of three Advantage Auto
Store locations. Due to the decrease in net sales, the selling, general and
administrative expense as a percentage of net sales increased to 33.2% in fiscal
1999 from 33.0% in Fiscal 1998.
Depreciation and amortization expense increased $173,000 from $1.6
million in Fiscal 1998 to $1.8 million in the fiscal year ending September 30,
1999. This increase is primarily attributable to negative goodwill being fully
amortized in January of Fiscal 1999.
As a result of the factors discussed above, income from operations
before interest and taxes for Fiscal 1999, decreased $1.4 million from $5.1
million or 3.8% of net sales in the prior fiscal year to $3.7 million or 2.8% of
net sales in the current fiscal year.
Interest expense decreased $121,000 in Fiscal 1999 to $3.7 million from
$3.8 million for Fiscal 1998. This decrease is attributable to slightly lower
outstanding debt balances during fiscal 1999 as compared to fiscal 1998.
In Fiscal 1999, the provision for income taxes on income was $151,000,
an effective rate of 35.0%, as compared to $665,000, an effective rate of 39.0%,
in 1998.
As a result of the factors discussed above, Hahn had net income for
fiscal 1999 of $280,000 or $.06 per share as compared to $1.0 million or $.22
per share of net income for Fiscal 1998.
Liquidity and Capital Resources. Hahn's principal sources of liquidity
for its operational and capital requirements are internally generated funds,
borrowings under its revolving credit facility, leasing arrangements and
extended terms from vendors.
During the first six months of Fiscal 2001, operations provided net
cash of $575,000. This was largely due to a decrease in inventory of $2,669,000
and non-cash items of depreciation and amortization of
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$887,000. These were partially offset by a decrease in accounts payables and
other accrued expenses of $2,396,000 and an increase in accounts receivable of
$728,000.
During Fiscal 2000, 1999 and 1998, operating activities provided net
cash of $1.6 million, $300,000 and $2.4 million, respectively, including
non-cash items for depreciation and bad debt of $2.2 million, $1.9 million and
$2.1 million, respectively. These were partially offset by increases in
inventory of $1.7 million, $500,000 and $1.5 million for fiscal years 2000, 1999
and 1998, respectively.
During the first six months of Fiscal 2001 and during Fiscal 2000, 1999
and 1998, investing activities consisted mainly of routine capital expenditures
for delivery vehicles, computer equipment, and store and warehouse fixtures.
Capital expenditures were $393,000 during the first six months of Fiscal 2001
compared to $162,000 during the same period of the previous fiscal year. Net
capital expenditures during Fiscal 2000, 1999 and 1998 were $600,000, $800,000,
and $300,000, respectively.The Company anticipates making capital expenditures
of approximately $250,000 during the remainder of the current fiscal year..
Financing activities during the first six months of Fiscal 2001
consumed $185,000 of cash. This was primarily due to payments on long-term debt.
Financing activities during Fiscal 2000 consumed cash of approximately $1.7
million, during Fiscal 1999 financing activities generated approximately
$300,000, and in Fiscal 1998 financing activities consumed approximately $2.5
million. The cash used in financing activities during both Fiscal 2000 and
Fiscal 1998 reflect the payment of long term debt. The funds generated by
financing activities during Fiscal 1999 resulted from the increased use of
Hahn's line of credit, partially offset by paydowns on other long term notes
payable. During Fiscal 2000, the Estate of Michael Futerman, (the former
Chairman of the board and majority shareholder of Hahn), and Eli Futerman, (the
President and Chief Executive Officer of Hahn), deferred principal payments due
them from the Company under the subordinated notes until 2003. As a result, in
Fiscal 2000, Hahn made interest payments only on the subordinated notes.
Hahn has a Loan and Security Agreement with Fleet Capital, which
matures on October 22, 2002. The facility provides for, among other things, a
revolving credit facility with $50 million in maximum availability subject,
however, to borrowing base restrictions, and a $2.5 million term loan, a $3.5
million supplemental availability line and a $2.0 million letter of credit
sub-facility. The obligations of Hahn under the credit facility are
collateralized by a first priority security interest on substantially all
present and future assets of Hahn and is guaranteed up to a maximum amount of
$2.5 million by the Estate of Michael Futerman. Mortgages on certain real estate
were pledged as collateral for the estate's guarantee. These obligations are now
guaranteed by the Estate of Michael Futerman. The credit facility contains
restrictive covenants, including, without limitation, restrictions on changes in
the character of the business, mergers, sales or transfers of assets,
acquisitions, capital expenditures, liens, indebtedness, restricted payments or
repurchases of other indebtedness, dividends and transactions with affiliates.
(See Note 5, Notes to Consolidated Financial Statements, page F-17.) Hahn is
required to meet a fixed charge coverage ratio of .50 for the first three
quarters and .7 for the fourth quarter of Fiscal 2000, which will be measured on
a rolling twelve month basis. As of May 11, 2001, Hahn had an outstanding
balance of $36.4 million under the credit facility, with availability of an
additional $1.7 million due to borrowing base restrictions.
On July 24, 1997, Hahn's wholly-owned subsidiary, Autoworks, Inc.,
filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy
Code. On April 22, 1998, a settlement agreement and release was negotiated
between Hahn and the official unsecured creditors' committee. The settlement
agreement was approved by the bankruptcy court on June 18, 1998. Under the
settlement agreement, as amended on November 18, 1999, Hahn agreed to make
certain payments in exchange for the committee's release of the Company from all
claims. In Fiscal 2000, the Company paid $353,333 to the creditor trust and is
due to make payments of the same amount in both Fiscal 2001 and 2002. Such
payments are appropriately reserved for by Hahn. Hahn has also reserved for the
present value of future minimum rental payments of Autoworks, Inc. that were
guaranteed by the Company. During Fiscal 2000, the bankruptcy court approved
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the Autoworks, Inc. plan of reorganization which included establishing a
creditor trust to make distributions to creditors under the plan.
In the future Hahn may make minor strategic acquisitions and open new
direct distribution centers and Advantage Auto Stores to the extent that its
debt service and other funding requirements permit. Hahn's ability to open new
direct distribution centers depends on Hahn's ability to negotiate extended
payment terms with vendors (which initially minimizes additional working capital
requirements), and on consents from Hahn's lender.
Hahn anticipates that its sources of cash flow will provide sufficient
working capital to operate its business, make expected capital expenditures and
meet its other short-term and longer-term liquidity needs at least through the
end of Fiscal 2001.
Inflation. Hahn does not believe that its operations have been
materially affected by inflation. In general, Hahn has been able to pass on to
its customers any increases in the cost of its inventory.
Seasonality. Hahn's business is somewhat seasonal in nature, primarily
as a result of the impact of weather conditions on the demand for automotive
aftermarket products. Historically, Hahn's net sales and gross profits have been
higher in the second half of each fiscal year than in the first half.
Quantitative And Qualitative Disclosure About Market Risks. Hahn's
credit facility and other financial obligations at March 31, 2001 are sensitive
to changes in interest rates. At March 31, 2001, approximately 85.0% of Hahn's
debt and capital lease obligations are subject to changes in market interest
rates and are sensitive to those changes. Hahn currently has no derivative
instruments to offset the risk of interest rate changes. Hahn's weighted average
of interest rates on the total debt outstanding as of March 31, 2001 was 8.55%.
MARKET PRICES OF AND DIVIDENDS ON THE COMMON STOCK
The common stock is listed on the Nasdaq SmallCap Market under the
symbol "HAHCD." The following table shows the range of high and low sales prices
(rounded to the nearest cent) of the common stock for the periods indicated
based upon information supplied by the Nasdaq system. Prices represent
quotations between dealers without adjustments for retail mark-ups, mark-downs
or commissions, and may not represent actual transactions.
FISCAL YEAR ENDED SEPTEMBER 30
-------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- --- ---- --- ---- --- ---- ---
1st Quarter $3.37 $1.13 $7.41 $3.00 16.31 $6.00 21.38 17.00 25.96 23.08 21.00 21.94
2nd Quarter $3.75 $1.50 $6.75 $3.19 $8.44 $6.00 18.00 15.00 25.96 21.64 26.25 17.25
3rd Quarter --- --- $4.03 $1.69 $5.63 $1.50 17.25 16.50 27.00 20.25 28.50 23.38
4th Quarter --- --- $4.13 $2.25 18.75 $3.00 1.650 15.75 21.00 18.00 27.75 24.00
Hahn announced the Glick buy-out group acquisition proposal through a
press release which it issued after the close of trading on the Nasdaq SmallCap
Market on January 19, 2001. The closing price of the common stock on the Nasdaq
SmallCap Market on January 18, 2001 was $1.875 per share. On April 6, 2001, the
last business day before public announcement that the merger agreement had been
entered into, the closing price of the common stock on the Nasdaq SmallCap
Market was $2.43. YOU ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR YOUR
SHARES OF COMMON STOCK.
Hahn has not paid any cash dividends on the common stock in the past,
and has no present intentions of paying cash dividends on the common stock in
the foreseeable future. In addition, payment of dividends by
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Hahn is subject to restrictions under Hahn's existing loan and security
agreement, and under the merger agreement, Hahn has agreed not to pay any
dividends on the common stock prior to the effective time of the merger.
Nasdaq has required that Hahn achieve a $1.00 minimum bid price no
later than May 14, 2001 and maintain it for 10 consecutive trading days,
thereafter. On May 14, 2001, Hahn's common stock closed at $3.00 per share. If
Hahn's stock price does not meet the required minimum bid price, Nasdaq could
delist the stock from the Nasdaq SmallCap Market. This would result in Hahn's
stock being traded in the over-the-counter market, which might adversely affect
the liquidity of the stock and further depress its price. See "Recent
Developments."
DIRECTORS AND EXECUTIVE OFFICERS
The following persons are Hahn's executive officers and directors:
Name Age Position
---- --- --------
Eli N. Futerman 42 Chief Executive Officer and President
Daniel J. Chessin 39 Executive Vice President and Secretary
Daniel R. McDonald 50 Vice President - General Counsel
Albert J. Van Erp 63 Vice President - Finance
Timothy Vergo 51 Vice President - Wholesale Operations
Stephen B. Ashley 60 Director
William A. Buckingham 58 Director
Gordon E. Forth 39 Director
Nathan Lewinger 56 Director
E. Philip Saunders 63 Director
Eli N. Futerman has been President of Hahn since May, 1992. In January,
1999 he assumed the additional responsibility of Chief Executive Officer. Prior
to that time, he held various offices with Hahn, including Vice President and
Secretary, since beginning employment with Hahn in June, 1980. From November,
1993, Mr. Futerman served as President and as the Chief Executive Officer
respectively of Hahn's wholly owned subsidiary Autoworks, Inc. which filed for
protection under Chapter 11 of the Bankruptcy Code in July, 1997 and which had
its plan of reorganization approved by the Bankruptcy Court in November, 1999.
Since its inception in May, 1999, Mr. Futerman has been the President of Hahn's
internet e-commerce auto parts business, iAutoparts.com(R). Mr. Futerman has
been a director of Hahn since September, 1979. Mr. Futerman is a member of the
board of directors and Treasurer of Aftermarket Auto Parts Alliance, Inc.
formerly Auto Value Associates, Inc., the programmed distribution group of which
Hahn is a member. Mr. Futerman is 42 years of age.
Daniel J. Chessin has been Executive Vice President of Hahn since
March, 1995, and Secretary and a director of Hahn since May, 1992. Prior to that
time, he held various offices with Hahn since beginning employment with Hahn in
March, 1988. From November, 1993, Mr. Chessin served as Vice President and as
Executive Vice President of Hahn's wholly owned subsidiary Autoworks, Inc. which
filed for protection under Chapter 11 of the Bankruptcy Code in July, 1997 and
which had its plan of reorganization approved by the Bankruptcy Court in
November, 1999. Since May, 1999, Mr. Chessin has been Secretary of Hahn's
internet e-commerce auto parts business, iAutoparts.com(R). Prior to joining
Hahn, Mr. Chessin was engaged in the private practice of law. Mr. Chessin is a
member of the Board of Governors of the Car Care Council (a national association
for automobile maintenance awareness). Mr. Chessin is 39 years of age.
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Albert J. Van Erp has been Vice President - Finance of Hahn since March
2001. From August 1998 to March 2001, he served as Vice President - Controller
of Hahn. From May, 1992 until August, 1998 he served as Vice President -
Finance. From December, 1985 to May, 1992, he served as Controller of Hahn. Mr.
Van Erp has over 35 years experience in corporate internal accounting. Mr. Van
Erp is 63 years of age.
Timothy Vergo has been Vice President - Wholesale Operations of Hahn
since May, 1992. From August, 1981 to May, 1992, he served as Director of
Operations of Hahn. Mr. Vergo is 51 years of age.
Daniel R. McDonald joined Hahn as Vice President - General Counsel in
July, 1997. Prior to joining Hahn, Mr. McDonald was Associate General Counsel of
First Federal Savings and Loan Association of Rochester, which was headquartered
in Rochester, New York. Before joining First Federal in April, 1993, Mr.
McDonald was engaged in private law practice. Mr. McDonald has also served as
Vice President and Deputy General Counsel of Goldome FSB and was previously a
partner in the Buffalo law firm of Jaeckle, Fleischmann & Mugel. Mr. McDonald is
50 years of age.
Stephen B. Ashley has been a director of Hahn since May, 1992. Mr.
Ashley is Chairman and Chief Executive Officer of the Ashley Group (which
includes related companies focused on management, brokerage, financing and
investment in commercial and multi-family real-estate), 600 Powers Building, 16
West Main Street, Rochester, New York 14614. Mr. Ashley served as Chairman and
Chief Executive Officer of both Sibley Mortgage Corporation and Sibley Real
Estate Services, Inc. from January, 1991 to March, 1996, at which time he
resigned as Chief Executive Officer of Sibley Mortgage Corporation. Prior to
1991 he served as President and Chief Executive Officer of both corporations (or
their predecessors-in-interest) since 1975. He is also a director of The Genesee
Corporation (which engages in dry food processing), the Federal National
Mortgage Association, Inc. (Fannie Mae), and the Exeter Fund, Inc. and Manning
and Napier Insurance Fund, Inc. (both of which are advisory firms to a family of
mutual funds). In December, 2000 Mr. Ashley became a director of the High Falls
Brewing Company and President of The Genesee Corporation, which sold the High
Falls Brewing Company to a group of private investors. Mr. Ashley is 60 years of
age.
E. Philip Saunders has been a director of Hahn since May, 1992. Mr.
Saunders is the former Chairman and Chief Executive Officer of Sugar Creek
Corp., 760 Brooks Avenue, Rochester, New York 14619, and its subsidiaries, W.W.
Griffith Oil Co. (a petroleum distributor) and Sugar Creek Stores, Inc. (a
convenience chain store operation) since 1977 and 1982, respectively. He has
also been Chairman and Chief Executive Officer of Travel Ports of America, Inc.
(a truck stop chain operation) since November, 1987. Mr. Saunders has been Vice
Chairman of the Genesee Regional Bank (formerly the Lyndon Guaranty Bank) since
April, 1997. He has also been a member of the board of directors, since October,
1998, of American Rock Salt, LLC and in November, 2000, he was named Chief
Executive Officer of that entity. Mr. Saunders previously served as a director
of Truckstops of America, Inc. (a regional chain of truck stops) and of Ryder
Systems, Inc. (which engages mainly in the rental of vehicles) after that
corporation acquired Truckstops of America, Inc., and as a director of
Richardson Food Corporation (a distributor of dessert toppings and condiments).
Mr. Saunders is 63 years of age.
William A. Buckingham has been a director of Hahn since November, 1997
and is currently a consultant in the private sector at 24 Berkley Street,
Rochester, New York 14607. From 1990 to 1997 he held several positions in the
banking industry which included Executive Vice President of First Empire State
Corporation and M&T Bank where he was responsible for that Company's Retail
Banking Division. From 1973 to 1990, Mr. Buckingham held several positions with
the Manufacturers Hanover Trust Company where he was Executive Vice President
with responsibility for branch operations and consumer and small business
lending, and President and Chief Executive Officer of Manufacturers Hanover,
N.A. Mr. Buckingham currently serves as Chairman of the Board of Trustees at the
Rochester Institute of Technology and as a Director of its for-profit RIT
Research Corporation subsidiary. Mr. Buckingham also serves as Vice Chairman of
the Directors Advisory Council of M&T Bank and as a Director and member of the
Management Continuity
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Committee of The Genesee Corporation (which engages in dry food processing). Mr.
Buckingham is 58 years of age.
Nathan Lewinger is a private investor whose investments include real
estate and high tech companies. His business address is c/o Usave Express, 2627
Ives Dairy Road, Suite 100, Aventura, Florida 33180. From 1976 until 1988 Mr.
Lewinger served as President of Pennant Products Inc. (a manufacturer of bakery
ingredients) until Pennant Products was sold in 1988 to Unilever Corporation.
From 1988 to 1990 Mr. Lewinger served as President of the Bakery Division of Van
Den Burgh Foods (a division of Unilever) and from 1990 to 1993 he was a
consultant to Unilever Corporation. He currently serves on the Board of EKMS, an
intellectual property consulting firm in Cambridge, Massachusetts. Mr. Lewinger
is 56 years of age.
Gordon E. Forth served as a director of Hahn from May, 1992, to June,
1997. Mr. Forth rejoined Hahn's board of directors in March, 2000. Mr. Forth is
a partner of Woods Oviatt Gilman LLP, a Rochester, New York based law firm,
where he has practiced law since 1987. His business address is Woods Oviatt
Gilman LLP, 700 Crossroads Building, Rochester, New York 14614. Mr. Forth also
serves as corporate secretary for Zapata Corporation, a holding company, and
Zap.Com Corporation, which until January 2001 was an internet advertising and
e-commerce networking company. Woods Oviatt provides legal services to Hahn. Mr.
Forth is 39 years of age.
Hahn, and to its knowledge, the directors and officers thereof, and
Futerman, Chessin, Glick and HAW Acquisition, have not, during the last five
years, been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) and were not a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction, as a result of which any such
person was or is subject to a judgment, decree or final order enjoining further
violations of, or prohibiting activities subject to, federal or state securities
laws or finding any violation of these laws.
All filing persons and directors and officers of Hahn, Glick and HAW
Acquisition are citizens of the United States.
STOCK OWNERSHIP
The following table sets forth the number of shares of common stock
beneficially owned at April 30, 2001 by (i) each director, (ii) each executive
officer, (iii) by all directors and executive officers of Hahn as a group and
(iv) each person or other entity known by Hahn to beneficially own more than 5%
of the outstanding common stock.
Amount and Nature of
Director, Nominee or Group Beneficial Ownership(1) Percent of Class(6)
- -------------------------- --------------------- -----------------
Eli N. Futerman, 972,442(2) 60.9
President, Chief Executive
Officer and Director
Daniel J. Chessin, 48,933(3) 3.1
Executive Vice President,
Secretary and Director
Stephen B. Ashley, 4,783 *
Director
William A. Buckingham, 3,334 *
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Director
Gordon E. Forth, 1,667 *
Director
Nathan Lewinger, 1,667 *
Director
E. Philip Saunders, 4,249(4) *
Director
Albert J. Van Erp, 14,506(4) *
Vice President - Finance
Timothy Vergo, 17,039(4) 1.1
Vice President-Wholesale Operations
All Directors and Named Executive Officers
of Hahn as a Group (9 persons) 1,068,620(5) 64.2
*Indicates the number of shares constitutes less than 1% of the outstanding
common stock.
(1) Unless otherwise indicated, the persons included in the table have sole
voting and sole investment power with respect to the shares owned by
him. Shares of common stock subject to options that are either
currently exercisable or exercisable with Hahn within 60 days of April
30, 2001 are deemed to be outstanding and to be beneficially owned by
the option holder for purposes of computing the percentage of ownership
of the option holder. These shares, however, are not treated as
outstanding for purposes of computing the percentage ownership of any
other person.
(2) Includes 5,496 shares owned by Mr. Futerman's immediate family and
15,561 shares which may be purchased by Mr. Futerman pursuant to stock
options that are currently exercisable. Also includes 787,354 shares
over which Mr. Futerman has voting and investment control as the
executor of Michael Futerman's Estate and trustee of the Michael
Futerman Living Trust and voting and investment control over 59,987
shares in the name of Sara Futerman. Under Michael Futerman's will and
Living Trust, his shares have been distributed to a marital trust under
the Living Trust, for the benefit of Michael Futerman's wife, Sara
Futerman. Eli N. Futerman will continue to have voting and investment
control over these shares as trustee of the marital trust. Mr. Futerman
disclaims beneficial ownership of shares not held of record by him,
individually, as executor or as trustee.
(3) Includes 24,885 shares owned jointly of record by Mr. and Mrs. Chessin,
20,384 shares which may be purchased by Mr. Chessin pursuant to stock
options that are currently exercisable and 3,664 shares controlled by
Mrs. Chessin as custodian for their minor children. Mr. Chessin
disclaims beneficial ownership over all shares owned by his immediate
family members.
(4) Includes shares issuable upon exercise of stock options presently
exercisable as follows: Stephen B. Ashley, 4,250 shares; William A.
Buckingham, 2,667 shares; Gordon E. Forth, 1,667; Nathan Lewinger,
1,667; E. Philip Saunders, 4,250 shares; Timothy Vergo, 17,039 shares;
and Albert J. Van Erp, 14,506 shares.
(5) Includes 81,991 shares issuable upon exercise of stock options
presently exercisable.
(6) The percentages in this column have been calculated on the basis of the
1,581,671 shares outstanding on April 30, 2001, plus the number of
shares of common stock deemed outstanding pursuant to Securities and
Exchange SEC Rule 13d-3(d)(1).
INFORMATION REGARDING GLICK AND HAW ACQUISITION
GLICK, LLC
Glick is a Nevada limited liability company organized on April 27,
2001, by Futerman, Chessin and certain other family members for the purpose of
effecting the merger. Futerman, Chessin and certain other family members are the
only members of Glick. Glick is a holding entity that has no material assets
other than
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the shares of HAW Acquisition. Glick is a party to a Contribution and Voting
Agreement dated as of May 11, 2001 with Futerman, Chessin and certain other
family members, whereby those individuals have agreed to contribute their shares
of Hahn common stock to Glick on or before the merger so that at the effective
time of the merger, Glick will hold 1,010,229 shares of Hahn common stock, or
approximately 64% of Hahn's outstanding common stock. Except in connection with
entering into the merger agreement and carrying out the transactions
contemplated by the merger agreement, including the organization of HAW
Acquisition and the execution and delivery of the Contribution and Voting
Agreement, Glick has not engaged in any activities since its organization.
Futerman and Chessin are managers of Glick and, together, hold 100% of the
voting control of Glick. The address of Glick is c/o Eli N. Futerman and Daniel
J. Chessin, 415 West Main Street, Rochester, New York 14608, and its telephone
number is (716) 235-1595.
HAW ACQUISITION
HAW Acquisition is a New York corporation organized on April 5, 2001 by
Futerman and Chessin for the purpose of effecting the merger. The only
shareholder of HAW Acquisition is Glick. If the merger is consummated, at the
effective time of the merger, HAW Acquisition will be merged with and into Hahn,
with Hahn as the surviving corporation following the merger. HAW Acquisition has
no material assets and has not engaged in any activities except in connection
with entering into the merger agreement and carrying out the transactions
contemplated by the merger agreement. Futerman and Chessin are Co-Chief
Executive Officers of HAW Acquisition, and are its only directors. The address
of HAW Acquisition is c/o Eli N. Futerman and Daniel J. Chessin, 415 West Main
Street, Rochester, New York 14608, and its telephone number is (716) 235-1595.
RECENT STOCK PURCHASES
In May 2000, Eli N. Futerman, as trustee of the Michael Futerman Living
Trust, purchased 80,024 shares of Hahn common stock from David M. Appelbaum for
$660,203.50 at a price of $8.25 per share in a private transaction. This
represents a substantial premium over the price to be paid in the merger. This
transaction was in connection with the settlement of a dispute between Mr.
Appelbaum and Mr. Futerman. Also in connection with the transaction, Mr.
Futerman transferred to Mr. Appelbaum his interest in FCA Associates, a real
estate partnership, and Mr. Appelbaum resigned from his position with Hahn. In
the opinion of Mr. Futerman and Glick, this purchase price substantially
exceeded the fair value of the shares of common stock acquired. See "Interest
Of Certain Other Persons in the Merger and Hahn -- Certain Other Transactions".
The table below sets forth information regarding open-market purchases
by Mr. Futerman of common stock since April 30, 1999, including the number of
shares purchased, the range of prices paid and the average purchase price during
each quarterly period presented. We have not presented quarterly periods in
which no purchases were made.
PRICE AVERAGE
NAME DATE NO. OF SHARES RANGE PURCHASE PRICE
- ---- ---- ------------- ----- --------------
Eli N. Futerman 4th Quarter 2000 49,700(1) $2.70 - $3.75 $3.18
- -------------------------
(1) Shares purchased by the Michael Futerman Living Trust, of which Eli N.
Futerman is trustee, and over which shares Eli N. Futerman has sole
investment and voting control.
CONTRIBUTION AND VOTING AGREEMENT
Glick, Futerman, Chessin and certain other family members have entered
into a contribution and
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voting agreement dated as of May 11, 2001, in which they have agreed to vote
their respective shares of common stock in favor of the merger and the merger
agreement at the special meeting or any adjournment thereof. The agreement also
provides that the individual parties to the agreement will contribute their
shares of common stock to Glick in exchange for membership interests in Glick in
relative proportion to the shares they have contributed. The agreement further
provides that, until the merger is consummated or the merger agreement is
terminated in accordance with its terms the individual parties to the agreement
will not sell, transfer, pledge, assign or otherwise dispose of their shares to
any person other than to Glick or its designee.
INDEPENDENT AUDITORS
The consolidated balance sheets as of September 30, 1999 and September
30, 2000, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three fiscal years ending September 30,
1998, 1999 and 2000, appearing at the end of this proxy statement have been
audited by PricewaterhouseCoopers LLP, independent auditors, as stated in their
report. A representative of PricewaterhouseCoopers LLP will be at the special
meeting to answer appropriate questions from shareholders and will have the
opportunity to make a statement if so desired.
SHAREHOLDER PROPOSALS
Shareholder proposals for inclusion in the proxy statement and form of
proxy for the next special meeting of shareholders must be received by Hahn at
its executive offices on or before September 30, 2001.
Daniel J. Chessin,
Executive Vice President
and Secretary
Rochester, New York
June __, 2001
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INDEX TO FINANCIAL STATEMENTS
Page No.
--------
Condensed Consolidated Balance Sheets -
March 31, 2001 (unaudited) and September 30, 2000 (audited).....................................................F-2
Condensed Consolidated Statements of Income-
for the six months and three months ended March 31, 2001
and March 31, 2000 (unaudited)..................................................................................F-3
Condensed Consolidated Statements of Cash Flows -
for the six months ended March 31, 2001
and March 31, 2000 (unaudited)..................................................................................F-4
Condensed Consolidated Statements of Comprehensive
Income - for the six months and three months ended
March 31, 2001 and March 31, 2000 (unaudited)...................................................................F-5
Notes to Condensed Consolidated Financial Statements, March 31, 2001 (unaudited)................................F-6
Report of Independent Accountants...............................................................................F-9
Consolidated Balance Sheets at September 30, 2000 and 1999 (audited)...........................................F-10
Consolidated Statements of Operations for the Years Ended
September 30, 2000, 1999 and 1998 (audited)....................................................................F-11
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended September 30, 2000, 1999 and 1998 (audited)................................................F-12
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2000, 1999 and 1998 (audited)....................................................................F-13
Notes to Consolidated Financial Statements, September 30, 2000 (audited) ......................................F-14
F-1
81
HAHN AUTOMOTIVE WAREHOUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS 3/31/01 9/30/00
------- -------
(Unaudited)
Current Assets:
Cash $ 77 $ 80
Trade Accounts Receivable (Net of Allowance for Doubtful Accounts) 16,511 16,062
Inventory 43,523 46,192
Other Current Assets 1,883 1,799
------- -------
Total Current Assets 61,994 64,133
Property, Equipment and Leasehold Improvements, net 5,690 6,016
Other Assets 8,754 8,802
------- -------
$76,438 $78,951
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt and capital lease obligations $ 2,127 $ 1,253
Accounts payable 10,957 13,266
Compensation related liabilities 1,466 1,613
Discontinued operations 366 392
Other accrued expenses 4,023 3,925
------- -------
Total Current Liabilities 18,939 20,449
Obligations under credit facility 35,900 35,739
Notes payable - officers and affiliates 1,445 1,445
Long-term debt 840 1,896
Capital lease obligations 2,623 2,787
Other liabilities 2,164 2,176
------- -------
Total liabilities 61,911 64,492
Shareholders' Equity:
Common stock (par value $.01 per share; authorized 20,000,000 16 16
shares; issued and outstanding (1,581,671)
Additional paid-in capital 26,006 26,006
Retained earnings (11,495) (11,563)
------- -------
Total shareholders' equity 14,527 14,459
------- -------
$76,438 $78,951
======= =======
The accompanying notes are an integral part of the financial statements.
F-2
82
HAHN AUTOMOTIVE WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
(Unaudited)
For the 6 Months Ended For the 3 Months Ended
---------------------- ----------------------
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
---- ---- ---- ----
Net Sales $57,910 $60,425 $29,087 $30,927
Cost of Products Sold 34,785 37,129 17,443 19,065
------ ------ ------ ------
Gross Profit 23,125 23,296 11,644 11,862
Selling, General and Administrative Expense 20,353 20,929 10,286 10,486
Depreciation and Amortization 887 895 447 430
--- --- --- ---
Operating Income 1,885 1,472 911 946
Interest Expense (2,037) (1,920) (1,003) (979)
Interest and Service Charge Income 233 179 94 77
Income from Equity Investment 28 53 28 53
-- -- -- --
Income (Loss) Before Taxes 109 (216) 30 97
Income Taxes (Refundable) 41 (82) 11 38
-- ---- -- --
Net Income (Loss) $ 68 $ (134) $ 19 $ 59
--- ------ --- ---
Basic and Diluted Earnings Per Share:
Net Income (Loss) $ 0.04 $(0.08) $ 0.01 $ 0.04
----- ------- ----- -----
Basic and Diluted Weighted Average
Number of Shares 1,581,671 1,581,671 1,581,671 1,581,671
The accompanying notes are an integral part of the financial statements.
F-3
83
HAHN AUTOMOTIVE WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the 6 Months Ended
March 31, March 31,
2001 2000
---- ----
Cash flows from operating activities:
Net income (Loss) $ 68 $ (134)
Adjustments to reconcile net income
(Loss) to net cash provided by
operating activities:
Depreciation and amortization 887 895
Provision for doubtful accounts and notes 279 273
Change in assets and liabilities:
Trade receivables (728) 538
Inventory 2,669 1,934
Other assets (204) (222)
Accounts payable and other
accrued expenses (2,396) (1,786)
------- -------
Net cash provided by operating activities 575 1,498
--- -----
Cash flows from investing activities:
Additions to property, equipment and
leasehold improvements, net (393) (162)
----- -----
Net cash used in investing activities: (393) (162)
----- -----
Cash flows from financing activities:
Net borrowings under (payment of)
line of credit 161 (782)
Payments of long-term debt and
demand notes (146) (295)
Payments of notes payable-officers
and affiliates 0 (80)
Payment of capital lease obligations (200) (182)
Net cash used in financing activities (185) (1,339)
----- -------
Net decrease in cash (3) (3)
Cash at beginning of year 80 81
-- --
Cash at end of period $ 77 $ 78
Supplemental disclosures of cash
flow information
Cash paid during the quarter for:
Interest $ 1,905 $ 1,740
====== ======
Income taxes paid $ 86 $ 26
=== ===
The accompanying notes are an integral part of the financial statements.
F-4
84
HAHN AUTOMOTIVE WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
For the Six Months For the Three Months
ended March 31 ended March 31
2001 2000 2001 2000
---- ---- ---- ----
Net Income (Loss) $68 ($134) $19 $59
Unrealized Gain on Marketable 0 26 0 46
Securities, Net of Tax - -- - --
Comprehensive Net Income (Loss) $68 ($108) $19 $105
=== ====== === ====
F-5
85
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed interim consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. The interim financial
statements reflect all adjustments which are, in the opinion of management,
necessary to fairly present such information. Although the Company believes that
the disclosures included on the face of the interim consolidated financial
statements and in the footnotes herein are adequate to make the information
presented not misleading, certain information and footnote disclosures,
including significant accounting policies, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such rules and regulations. It is
suggested that all condensed consolidated financial statements contained herein
be read in conjunction with the financial statements and the notes thereto
included in the Company's Annual Report for the Fiscal Year ended September 30,
2000, on Form 10-K, filed with the Securities and Exchange Commission,
Washington, D.C. 20549. This information may be obtained through the web site of
the Securities and Exchange Commission, EDGAR Filing section, at
http://www.sec.gov.
Operating results for the six month period ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the entire fiscal
year.
2. EARNINGS PER SHARE
The Company presents earnings per share ("EPS") in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS No.
128 requires dual presentation of basic EPS and diluted EPS on the face of the
Statements of Operations. Basic EPS is computed using net income (loss) divided
by the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur from common shares
issuable through stock-based compensation including stock options. The Basic and
Diluted EPS, have been restated to reflect the 1-for-3 reverse common stock
split which was approved by the shareholders at the Company's Annual Meeting on
May 9, 2001. The effective date of the 1-for-3 reverse common stock split was
the close of business on May 10, 2001.
BASIC AND DILUTED EARNINGS PER SHARE
Six Months Three Months
Ended March 31 Ended March 31
2001 2000 2001 2000
---- ---- ---- ----
Basic and Diluted Shares Outstanding:
Weighted average number of
shares outstanding 1,581,671 1,581,671 1,581,671 1,581,671
Net income (loss) $ 68 ($134) $ 19 $ 59
Basic and Diluted EPS $. 04 ($.08) $.01 $.04
The exercise of outstanding stock options has not been included in the
calculation of diluted EPS since the effect would be antidilutive because all
outstanding options were out of the money as of March 31, 2001.
F-6
86
3. DEBT (IN THOUSANDS)
Long-term debt consists of the following:
3/31/01 9/30/00
------- -------
Credit Facility Agreement $36,400 $36,239
Notes Payable-Officers and Affiliates 1,445 1,445
Other Long-term Debt 2,094 2,240
Less Current Maturities (1,754) (844)
------- -----
38,185 $39,080
====== =======
The Company is subject to a Credit Facility Agreement that expires on October
22, 2002 and provides a revolving credit note, subject to a borrowing base, up
to a maximum of $50.0 million. Borrowings under the Credit Facility Agreement
bear interest at an annual rate equal to, at the Company's option, either (a)
LIBOR plus 1.75% to 2.5%, dependent upon the Company's financial performance, or
(b) the bank prime rate plus 0% to .75%, dependent upon the Company's financial
performance. LIBOR and prime were 5.1% and 8.00%, respectively, at March 31,
2001. The unused portion of the Credit Facility bears interest at an annual rate
of .25% to .375%.
As of May 11, 2001, the Company had an outstanding balance of $36.4 million
under the Credit Facility.
The Credit Facility is collateralized by substantially all of the Company's
assets and contains covenants and restrictions, including limitations on
indebtedness, liens, leases, mergers and sales of assets, investments,
dividends, stock purchases and other payments in accordance with capital stock
and cash flow coverage requirements. Restrictive covenants include maintenance
of a minimum tangible net worth and a minimum fixed charge coverage ratio. The
Company was in compliance with all covenants as of March 31, 2001.
The Company has outstanding promissory notes ("Notes") with the Estate of
Michael Futerman, the former Chairman of the Board of Directors, and with the
President and Chief Executive Officer of the Company. The Notes, which are due
in October, 2003, bear interest, which is payable monthly, at the annual rate of
12%. The Company is also subject to a number of other debt agreements, including
a mortgage, which comprise the balance of the long-term debt.
4. EQUITY INVESTMENT
The Company owns 100% of H.F.V., Inc. which in turn owns 37.5% of Autoworks
Ltd., an Israeli Corporation. The Company accounts for this investment under the
equity method. The Company's share of Autoworks Ltd.'s income for the six month
and three month periods ended March 31, 2001 and 2000 is presented separately in
the Condensed Consolidated Statements of Income.
5. BUSINESS SEGMENT INFORMATION
The Company reports segment information in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes annual and interim reporting standards for an enterprise's
operating segments and related disclosures about its products, services,
geographic areas and major customers. The Company reports its operating results
in two segments: direct distribution and full service distribution. Segment
selection was based on internal organizational structure, the way in which the
operations are managed and their performance evaluated by management and the
Company's Board of Directors, the availability of separate financial results and
materiality considerations. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies. The
Company evaluates performance based on operating profits of the respective
business units.
F-7
87
Information concerning the Company's Business Segments for the six months of
Fiscal Years 2001 and 2000, is as follows (dollars in thousands):
2001 2000
Net Sales
Full Service Distribution $ 50,512 $ 51,756
Direct Distribution 7,398 8,669
-------- --------
Total Net Sales $ 57,910 $ 60,425
======== ========
Operating Income
Full Service Distribution $ 2,035 $ 1,498
Direct Distribution (150) (26)
-------- --------
Total Operating Profit $ 1,885 $ 1,472
Interest Expense (2,037) (1,920)
Income from Equity Investment 28 53
Other Income 233 179
-------- --------
Income (Loss) Before Taxes $ 109 ($ 216)
======== ========
Identifiable Assets
Full Service Distribution $ 70,334 $ 70,397
Direct Distribution 6,104 6,108
-------- --------
Total Identifiable Assets $ 76,438 $ 76,505
======== ========
Capital Expenditures
Full Service Distribution $ 390 $ 158
Direct Distribution 3 4
-------- --------
Total Capital Expenditures $ 393 $ 162
======== ========
Depreciation and Amortization
Full Service Distribution $ 819 $ 815
Direct Distribution 68 80
-------- --------
Total Depreciation and Amortization $ 887 $ 895
======== ========
6. REVERSE COMMON STOCK SPLIT
As of the close of business on May 10, 2001, the Company effected a 1-for-3
reverse common stock split that had been approved by the shareholders at the
Company's 2001 annual shareholders' meeting on May 9, 2001. The data shown
relating to common shares has been retroactively adjusted to reflect the reverse
stock split. Also, the Company's shareholders' equity accounts have been
retroactively adjusted. There was no effect on total shareholders' equity as a
result of the reverse stock split.
F-8
88
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Hahn Automotive Warehouse, Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows present fairly, in all material respects, the financial position of Hahn
Automotive Warehouse, Inc. and Subsidiaries at September 30, 2000 and 1999, and
the results of their operations and their cash flows for the three fiscal years
ended September 30, 2000, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Rochester, New York
November 21, 2000, except as to the information presented in the first paragraph
of Note 10 for which the date is May 15, 2001.
F-9
89
HAHN AUTOMOTIVE WAREHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
September 30,
2000 1999
---- ----
ASSETS
Current Assets:
Cash $ 80 $ 81
Marketable securities -- 685
Trade receivables, net of allowance for doubtful
accounts of $2,197 in 2000 and $2,015 in 1999 16,062 17,577
Inventory 46,192 44,501
Other current assets 1,799 2,541
---------- ----------
Total current assets 64,133 65,385
Property, equipment and leasehold improvements, net 6,016 6,892
Other assets 8,802 7,446
---------- ----------
$ 78,951 $ 79,723
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt and capital lease obligations $1,253 $1,541
Accounts payable 13,266 12,377
Compensation related liabilities 1,613 1,673
Discontinued operations 392 604
Other accrued expenses 3,925 4,271
---------- ----------
Total current liabilities 20,449 20,466
Obligations under credit facility 35,739 36,611
Notes payable - officers and affiliates 1,445 1,445
Other long-term debt 1,896 1,995
Capital lease obligations 2,787 3,196
Other liabilities 2,176 2,237
Stockholders' equity:
Common stock (par value $.01 per share; authorized
20,000,000 shares; issued and outstanding
1,581,671 shares in 2000 and 1999) 16 16
Additional paid-in capital 26,006 26,006
Retained deficit (11,563) (12,339)
Accumulated other comprehensive income:
Unrealized gain on marketable securities, net of deferred taxes -- 90
---------- ----------
Total stockholders' equity 14,459 13,773
---------- ----------
$ 78,951 $ 79,723
========== ==========
The accompanying notes are an integral part of the financial statements.
F-10
90
HAHN AUTOMOTIVE WAREHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
For the Years Ended September 30,
2000 1999 1998
---- ---- ----
Net sales $ 125,575 $ 130,998 $ 133,503
Cost of product sold 77,071 82,002 82,778
----------- ----------- -----------
Gross profit 48,504 48,996 50,725
Selling, general and administrative expense 42,587 43,512 44,059
Depreciation and amortization expense 1,789 1,775 1,602
----------- ----------- -----------
Income from operations 4,128 3,709 5,064
Interest expense (3,796) (3,650) (3,771)
Service charge and other income 509 399 631
Gain on sale of marketable security 196 -- --
Income (loss) from equity investment 189 (27) (220)
----------- ----------- -----------
Income before provision for income taxes 1,226 431 1,704
Provision for income taxes 450 151 665
----------- ----------- -----------
Net income $ 776 $ 280 $ 1,039
=========== =========== ===========
Basic and diluted net income per share $ 0.49 $ 0.18 $ 0.66
=========== =========== ===========
Weighted average shares outstanding 1,581,671 1,581,671 1,581,671
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-11
91
HAHN AUTOMOTIVE WAREHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
Accumulated
Common Stock Additional Other
--------------------------- Paid-In Retained Comprehensive
Shares Amount Capital Earnings Income Total
---------------------------------------------------------------------------------------
Balance at September 30, 1997 1,581,671 $16 $26,006 ($13,658) $ -- $12,364
Components of Comprehensive
Income:
Net Income 1,039 1,039
Unrealized gain on investment $ 158 158
-----------------
Total Comprehensive Income 1,197
---------------------------------------------------------------------------------------
Balance at September 30, 1998 1,581,671 $16 $26,006 ($12,619) $ 158 $13,561
Components of Comprehensive
Income:
Net Income 280 280
Unrealized loss on investment (68) (68)
-----------------
Total Comprehensive Income 212
---------------------------------------------------------------------------------------
Balance at September 30, 1999 1,581,671 $16 $26,006 ($12,339) $ 90 $13,773
Components of Comprehensive
Income:
Net Income 776 776
Unrealized loss on investment (90) (90)
-----------------
Total Comprehensive Income 686
---------------------------------------------------------------------------------------
Balance at September 30, 2000 1,581,671 $16 $26,006 ($11,563) $ -- $14,459
=======================================================================================
The accompanying notes are an integral part of the financial statements.
F-12
92
HAHN AUTOMOTIVE WAREHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For the years ended September 30,
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income $ 776 $ 280 $ 1,039
Items to reconcile net income to cash provided by operating activities:
Depreciation and amortization 1,789 1,775 1,602
Provision for doubtful accounts 447 142 453
Change in assets and liabilities:
Trade receivables 1,068 (2,124) 947
Inventory (1,691) (464) (1,521)
Other assets (950) (260) 1,983
Accounts payable and other accruals 210 951 (2,058)
------- ------- -------
Net cash provided by operating activities 1,649 300 2,445
------- ------- -------
Cash flows from investing activities:
Additions to property, equipment and leasehold improvements, net: (577) (833) (279)
Sale of marketable security 595 -- --
------- ------- -------
Net cash provided by (used in) investing activities 18 (833) (279)
------- ------- -------
Cash flows from financing activities:
Net borrowings under line of credit (275) 1,965 (996)
Proceeds from long-term debt and demand notes 249 544 6,119
Payment of long-term debt and demand notes (1,193) (1,737) (6,555)
Payment of notes payable - officers and affiliates (77) (149) (711)
Payment of capital lease obligations (372) (338) (326)
------- ------- -------
Net cash (used in) provided by financing activities (1,668) 285 (2,469)
------- ------- -------
Net decrease in cash (1) (248) (303)
Cash at beginning of year 81 329 632
------- ------- -------
Cash at end of year $ 80 $ 81 $ 329
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3,961 $ 3,656 $ 3,916
======= ======= =======
Income taxes $ 43 $ 72 $ 95
======= ======= =======
Supplemental disclosure of non-cash investing activities:
Debt issued in connection with acquisitions $ 248 $ 137 --
======= ======= =======
Supplemental disclosure of non-cash financing activities:
In January, 1998 the company renewed capital lease agreements
relating to the Rental of Distribution Centers -- -- $ 3,768
======= ======= =======
The accompanying notes are an integral part of the financial statements.
F-13
93
HAHN AUTOMOTIVE WAREHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, 2000
1. SUMMARY OF ACCOUNTING POLICIES
THE COMPANY
The Company sells and distributes automotive aftermarket parts in the wholesale
market through its network of warehouses and jobber facilities along the Eastern
Seaboard and in the Midwest.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Hahn Automotive
Warehouse, Inc. and its wholly-owned subsidiaries (the "Company"). All
significant intercompany transactions have been eliminated.
MARKETABLE SECURITY
In Fiscal 1999, the Company classified its marketable security as
available-for-sale, as defined by the Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Prior to the sale of this security, unrealized holding gains
and losses, net of deferred income taxes, were reflected as a separate component
of stockholders' equity accordingly.
INVENTORY
Inventory consists primarily of automotive replacement parts and accessories and
is stated at the lower of cost, on a last-in, first-out ("LIFO") basis, or
market. The replacement cost of the inventory exceeded the LIFO value by
approximately $2,879 and $2,992 at September 30, 2000 and 1999, respectively.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are stated at cost and are
depreciated over their estimated useful lives using the straight-line method.
Major renewals and betterments are capitalized. Maintenance, repairs and minor
renewals are expensed as incurred. When properties are retired or otherwise
disposed of, the related cost and accumulated depreciation are removed from the
accounts.
ASSETS UNDER CAPITAL LEASES
Leases which meet the capital lease criteria of SFAS No. 13, "Accounting for
Leases", are recorded as assets and obligations at the lesser of the present
value of future rental payments or the fair market value of the leased property
at the inception of the lease. Amortization of capitalized leased property has
been provided using the straight-line method over the estimated useful lives of
the assets.
INTANGIBLE ASSETS
Goodwill is amortized using the straight-line method over lives ranging from 20
to 30 years. Deferred financing costs are being amortized using the
straight-line method over the term of the Credit Facility Agreement (see Note
5). The Company expenses pre-opening costs at new stores as they are incurred.
Included in Other assets at September 30, 2000 and 1999 was approximately $1,253
and $922, respectively, of accumulated amortization on goodwill and deferred
financing costs.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of product.
F-14
94
ADVERTISING
Advertising expenses are charged to operations during the year in which they are
incurred and were approximately $548, $702 and $786 for the years ended
September 30, 2000, 1999 and 1998, respectively.
COMPREHENSIVE INCOME
During Fiscal 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". This statement establishes rules for the reporting of comprehensive
income and its components. Comprehensive income consists of net income and
unrealized gains (losses) on an investment held as available-for-sale and is
presented in the Consolidated Statements of Changes in Stockholders' Equity.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes". This statement requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities.
NET INCOME PER SHARE
The Company calculates net income per share in accordance with SFAS No. 128,
"Earnings Per Share". Basic EPS is computed as net earnings divided by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur from common shares issuable
through stock-based compensation including stock options.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", the Company continually
evaluates the existence of impairment of long-lived assets based upon projected,
undiscounted net cash flows of the respective operation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Current Assets and Liabilities - The carrying amount of cash and
equivalents, other assets and accrued liabilities approximate fair value because
of the short maturity of those instruments.
Long-Term Debt - The carrying value of the Company's long-term debt
approximates fair value at the balance sheet date.
CONCENTRATION OF CREDIT RISK
The Company provides credit, in the normal course of business, to jobber
customers in the automotive aftermarket. The Company's customers are not
concentrated in any one geographic region nor does any single
F-15
95
customer account for a significant amount of sales or accounts receivable. The
Company performs credit evaluations of its customers and maintains allowances
for potential credit losses which, when realized, have been within the range of
management's expectations.
RECLASSIFICATIONS
The Fiscal 1999 and 1998 financial statements and related footnote amounts have
been made to conform to the Fiscal 2000 presentation.
2. MARKETABLE SECURITY
During Fiscal 2000, the Company sold its only marketable security, a zero coupon
bond purchased as collateral against liability claims for which the Company is
self-insured. The marketable security held at September 30, 1999 was classified
as available-for-sale and is summarized as follows:
MARKET UNREALIZED
COST VALUE GAIN
September 30, 1999
Debt security:
Zero Coupon Bond $ 550 $ 685 $ 135
=========== =========== ===========
3. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the following:
SEPTEMBER 30, USEFUL LIVES
2000 1999 (YEARS)
---- ----
Land $ 25 $ 25 -
Buildings 887 880 10 - 30
Buildings under capitalized leases 4,422 4,422 10
Leasehold improvements 2,175 2,251 10
Computer equipment 2,489 2,484 6
Furniture and fixtures 3,980 4,314 8
Vehicles 2,632 2,996 4 - 5
------------ ------------
16,610 17,372
Less - Accumulated depreciation
and amortization 10,594 10,480
------------ ------------
$ 6,016 $ 6,892
=========== ============
Depreciation and amortization expense related to property, equipment and
leasehold improvements for the years ended September 30, 2000, 1999 and 1998 was
approximately $1,453, $1,554 and $1,440, respectively. Included in accumulated
depreciation and amortization at September 30, 2000 and 1999 was approximately
$1,557 and $1,115, respectively, of accumulated amortization on capital leases.
F-16
96
4. INVESTMENT IN EQUITY AFFILIATE
The Company owns a 37.5 percent interest in Autoworks Ltd., a corporate joint
venture, which is located in Tel Aviv, Israel. The Company accounts for its
investment under the equity method of accounting because the Company is not able
to exercise effective control over the operations. The Company's proportionate
share of shareholder's equity as of September 30, 2000 and 1999 was $469 and $6,
respectively, and is included in Other assets.
In addition, the Company has issued debt to Autoworks Ltd. in the form
of a note receivable. The balance outstanding was $874 and $827, including
accrued interest, and is classified in Other assets as of September 30, 2000 and
1999, respectively.
Summarized financial information for Autoworks Ltd. is as follows:
SEPTEMBER 30,
2000 1999
----- ----
Current assets $4,142 $2,729
Noncurrent assets 114 113
--- ---
Total assets $4,256 $2,842
=========== ===========
Current liabilities $1,253 $1,602
Noncurrent liabilities 265 871
Shareholders loans and equity 2,738 369
----- ---
Total liabilities and equity $4,256 $2,842
=========== ===========
FISCAL YEARS ENDED SEPTEMBER 30,
2000 1999 1998
---- ---- ----
Revenues $5,422 $3,527 $2,643
Gross profit $1,608 $ 978 $ 624
Net income (loss) $ 378 ($72) ($587)
For the Fiscal Years ending September 30, 2000, 1999 and 1998,
respectively, Income (loss) from Equity Investment includes the Company's
proportionate share of Autoworks Ltd. net income (loss) of $142, ($27) and
($220), and interest income on the outstanding note receivable of $47 in Fiscal
2000.
5. LONG-TERM DEBT
Long-term debt includes the following:
SEPTEMBER 30,
2000 1999
---- ----
Credit Facility Agreement $36,239 $37,113
Notes payable-officers and affiliates 1,445 1,522
Other long-term debt 2,240 2,585
------------- ------------
39,924 41,220
LESS - Current portion 844 1,169
------------- ------------
Long-term portion $39,080 $40,051
------------- ------------
F-17
97
The Company is subject to a Credit Facility Agreement that expires on October
22, 2002 and provides a revolving credit note, subject to a borrowing base, up
to a maximum of $50,000. Borrowings under the Credit Facility Agreement bear
interest at an annual rate equal to, at the Company's option, either (a) LIBOR
plus 1.75% to 2.5%, dependent upon the Company's financial performance, or (b)
the bank prime rate plus 0% to .75%, dependent upon the Company's financial
performance. LIBOR and prime were 6.62% and 9.5%, respectively, at September 30,
2000.
The Credit Facility Agreement is collateralized by a first priority security
interest on substantially all present and future assets of the Company and is
guaranteed up to a maximum amount of $2.5 million by the Estate of Michael
Futerman. Mortgages on certain real estate were pledged as collateral for the
estate's guarantee. These obligations are now guaranteed by the Estate of
Michael Futerman. The Credit Facility Agreement contains covenants and
restrictions, including limitations on indebtedness, liens, leases, mergers and
sales of assets, investments, dividends, stock purchases and other payments in
accordance with capital stock and cash flow coverage requirements. Restrictive
covenants include maintenance of a minimum tangible net worth and a minimum
fixed charge coverage ratio. The Company was in compliance with all covenants or
appropriate waivers were obtained.
The Company has outstanding promissory notes ("Notes") with the former Chairman
of the Board of Directors and with the President and Chief Executive Officer of
the Company. The Notes which are due in October, 2003, bear interest which is
payable monthly, at the annual rate of 12%. The Company is also subject to a
number of other debt agreements, including mortgages, which comprise the balance
of long-term debt.
Annual maturities of long-term debt for subsequent fiscal years are
approximately: 2001 - $844; 2002 - $1,615; 2003 - $35,749; 2004 - $1,539; 2005 -
$86; and thereafter - $91.
6. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases facilities from unrelated and related parties. Certain of the
related party leases have been accounted for as capital leases under SFAS No.
13.
Payments made for capital leases amounted to $681, $683 and $540 for the Fiscal
Years ended September 30, 2000, 1999, and 1998, respectively.
The Company also leases warehouse and jobber facilities under noncancellable
operating lease agreements, which expire through 2008. Most of these operating
leases include provisions for rent escalations and increases in operating
expenses (real estate taxes, insurance and maintenance). Rent expense related to
all facility operating leases totaled approximately $2,775, $2,850 and $2,911,
which included approximately $1,835, $1,873, and $1,616 of payments to related
parties for the years ended September 30, 2000, 1999 and 1998, respectively.
In addition, the Company leases various equipment under noncancellable operating
lease agreements expiring through 2005. Rent expense related to all equipment
operating leases totaled approximately $189, $293 and $460, for the years ended
September 30, 2000, 1999 and 1998, respectively.
F-18
98
Future minimum rental payments under noncancellable leases for fiscal years
subsequent to September 30, 2000 are as follows:
CAPITAL
LEASES OPERATING LEASES
------------ --------------------------
RELATED RELATED
PARTIES PARTIES OTHER
2001 $ 681 $ 1,605 $ 1,296
2002 575 1,414 952
2003 575 1,236 743
2004 575 874 449
2005 575 598 47
Thereafter 1,383 1,365 4
------------ ----------- -------------
4,364 $ 7,092 $ 3,491
------------ ============ =============
LESS - Interest portion 1,168
------------
3,196
LESS - Current portion 409
------------
Long-term portion $ 2,787
============
CONTINGENCIES
The Company is a defendant in certain lawsuits which have arisen in the ordinary
course of business. Management is of the opinion that such lawsuits will not
result in any material liability to the Company. Accordingly, no provision for
loss has been made in the financial statements related to these matters.
UNCERTAINTIES RELATED TO THE BANKRUPTCY OF AUTOWORKS, INC.
On July 24, 1997, the Company's wholly owned subsidiary, Autoworks, Inc., filed
for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code.
On April 22, 1998, a Settlement Agreement and Release ("Settlement Agreement")
was negotiated between the Company and the Official Unsecured Creditors'
Committee ("Committee"). The Settlement Agreement was approved by the bankruptcy
court on June 18, 1998. Under the Settlement Agreement, as amended on November
18, 1999, the Company agreed to make certain payments in exchange for the
Committee's release of the Company from all claims. In Fiscal 2000, the Company
paid $353 to the Creditor Trust and is due to make payments of the same amount
in both fiscal 2001 and 2002. Such payments are appropriately reserved for by
the Company. The Company has also reserved for the present value of future
minimum rental payments of Autoworks, Inc. that were guaranteed by the Company.
The current portion of such reserves is presented on the Discontinued operations
line of current liabilities and the long-term portion in Other liabilities. The
combined reserve was $1,077 and $1,372 as of September 30, 2000 and 1999,
respectively. During Fiscal 2000 the bankruptcy court approved the Autoworks,
Inc. Plan of Reorganization which included establishing a Creditor Trust to make
distributions to creditors under the plan.
F-19
99
7. INCOME TAXES
Income tax expense (benefit) is comprised of the following for the years ended
September 30:
2000 1999 1998
---- ---- ----
Current:
Federal $ -- $ -- $ --
State 20 20 33
Deferred: 430 131 632
---------- ----------- ----------
Total provision for income taxes $ 450 $ 151 $ 665
====== ====== =====
Temporary differences which give rise to deferred tax assets and liabilities at
September 30 are as follows:
2000 1999
---- ----
Accounts receivable $ 522 $ 470
Inventory (1,034) (993)
Accrued liabilities 1,293 1,490
Deferred compensation 163 174
Other 68 98
Net operating loss carryforwards 2,402 2,679
---------- ----------
Net deferred tax asset $ 3,414 $ 3,918
========== ==========
The Company believes it will have adequate future income to offset all deferred
tax assets. The net operating loss carryforwards are available to use through
2019.
Actual tax expense differs from the expected tax expense computed by applying
the Federal statutory rate to income from continuing operations before income
taxes due principally to state income taxes.
8. EMPLOYEE RETIREMENT PLAN
The Company has a 401(k) profit sharing plan for all eligible employees. Under
the plan, employees are entitled to contribute up to 15% of their base salary,
and the Company will match up to 15% of the employee's contributions. The
Company may also make a discretionary contribution at year end. The Company's
matching contribution under the plan will be approximately $96 for the Fiscal
Year ended September 30, 2000, and was $105 and $99 for the years ended
September 30, 1999 and 1998, respectively.
9. NET INCOME PER SHARE
Net income per share was calculated as follows for the Fiscal Years ended
September 30:
2000 1999 1998
---- ---- ----
BASIC AND DILUTED EARNINGS PER SHARE
Basic and Diluted Shares Outstanding:
Weighted average number of shares outstanding 1,581,671 1,581,671 1,581,671
-------------- ------------- -------------
Net income $776 $280 $1,039
-------------- ------------- -------------
F-20
100
Basic and Diluted EPS $0.49 $0.18 $0.66
-------------- ------------- -------------
The potential exercise of outstanding stock options of 118,069, 139,753, and
183,484 at September 30, 2000, 1999 and 1998, respectively, has not been
included in the calculation of diluted EPS since the effect would be
antidilutive.
10. STOCKHOLDERS' EQUITY AND STOCK OPTIONS
On May 9, 2001 the Company's shareholders approved the Board of Directors
declaration of a 1-for-3 reverse stock split, which was completed the following
day. The reverse split had the effect of reducing the Company's outstanding
common stock form 4,745,014 to 1,581,671 shares. All share and per share data
amounts presented have been calculated as if the reverse split had occurred on
September 30, 1997.
The Company has two stock option plans which provide for the granting of options
of up to 250,000 shares of stock to officers and key employees of the Company
and an aggregate of 40,000 shares to non-employee directors at the fair value of
the common stock at the date of grant. The options have a maximum duration of
ten years and may be exercised in cumulative annual increments of 33 1/3%
commencing one year after the date of grant. During Fiscal 1998, the
stockholders of the Company approved a plan to reduce the exercise price of
67,593 outstanding options from the original exercise prices ranging from $24.00
to $37.50 to a range of $20.40 to $28.14. During Fiscal 1999 the plan related to
non-employee directors expired. Company management is in the process of
evaluating an amendment to the pre-existing plan or the creation of a new plan.
The following table summarizes the Company's stock option transactions:
OPTION PRICE RANGE
SHARES PER SHARE
Options outstanding - October 1, 1997 186,776 $22.50 to $92.07
Exercised - -
Expired (21,883) $18.00 to $45.75
Granted 18,590 $18.00 to $18.75
------------- --------------------------
Options outstanding - September 30, 1998 183,483 $18.00 to $92.07
Exercised - -
Expired (58,730) $18.00 to $92.07
Granted 15,000 $6.75 to $10.50
------------- --------------------------
Options outstanding - September 30, 1999 139,753 $6.75 to $41.25
Exercised - -
Expired (21,684) $6.75 to $38.25
Granted - -
------------- --------------------------
Options outstanding - September 30, 2000 118,069 $10.50 to $41.25
------------- --------------------------
Options exercisable - September 30, 2000 112,347 $10.50 to $41.25
------------- --------------------------
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SFAS No. 123, "Accounting for Stock Based Compensation", requires companies to
recognize compensation expense for grants of stock options, or provide pro forma
disclosures relative to what the effect of such accounting recognition would
have been. The Company has elected to continue using Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees". Therefore, in
accordance with SFAS No. 123, no compensation expense has been recorded, however
pro forma disclosures of net income and earnings per share have been provided
below as if SFAS No. 123 had been adopted.
Pro forma income and income per share information has been determined as if the
Company had accounted for employee stock options under SFAS No. 123's fair value
method. The fair value of these options was estimated at grant date using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 2000 and 1999, respectively:
2000 1999
---- ----
Dividend yields 0% 0%
Volatility factors of the expected
market price of the Company's common stock 75.34% 75.34%
Expected option life 5 years 5 years
Interest rate on the date of the grant,
with the maturity equal to the expected term 4.56% - 4.60% 4.56% - 4.60%
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period (3 years). The weighted
average exercise price of options outstanding was $25.38 and $22.32 at September
30, 2000 and 1999, respectively. There were no options granted in Fiscal 2000.
The weighted average fair value of options granted in Fiscal 1999 and Fiscal
1998 was $8.82 and $17.64, respectively, for options whose stock price on the
date of grant equaled the exercise price. The pro forma compensation expense the
Company would have recognized before applicable tax benefits was $64, $132 and
$274 in 2000, 1999 and 1998, respectively. The Company's pro forma information
is as follows:
2000 1999 1998
---- ---- ----
Pro forma net income $ 735 $ 194 $ 872
Pro forma basic and diluted net income per share $0.46 $0.12 $0.55
This disclosure is not likely to be representative of the effects on reported
income for future years, since options fully vest over three years and
additional options have historically been granted each year.
11. BUSINESS SEGMENT INFORMATION
Effective September 30, 1999, the Company has adopted the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." This
statement establishes annual and interim reporting standards for an enterprise's
operating segments and related disclosures about its products, services,
geographic areas and major customers. Adoption of this statement had no impact
on the Company's consolidated financial position, results of operations or cash
flows. Comparative information for earlier years has been restated. Restatement
of comparative information for interim periods in the initial year of adoption
is to be reported for interim periods in the second year of application. The
Company reports its operating results in two segments: direct distribution and
full service distribution. Segment selection was based on internal
organizational structure, the way in which the operations are managed and their
performance evaluated by management and the Company's Board of Directors, the
availability of separate financial results, and materiality considerations. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on operating profits of the respective business units.
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Information concerning the Company's Business Segments for fiscal 2000, 1999,
and 1998 is as follows:
2000 1999 1998
---- ---- ----
Net Sales to Customers
Full Service Distribution $ 107,653 $ 111,744 $ 113,584
Direct Distribution 17,922 19,254 19,919
--------- --------- ---------
Total Net Sales to Customers $ 125,575 $ 130,998 $ 133,503
========= ========= =========
Income from Operations
Full Service Distribution $ 4,085 $ 3,243 $ 4,388
Direct Distribution 43 466 676
--------- --------- ---------
Total Income from Operations $ 4,128 $ 3,709 $ 5,064
Interest Expense (3,796) (3,650) (3,771)
Other Income 894 372 411
--------- --------- ---------
Consolidated Pre Tax Income $ 1,226 $ 431 $ 1,704
========= ========= =========
Identifiable Assets
Full Service Distribution $ 72,434 $ 73,152 $ 72,383
Direct Distribution 6,517 6,571 5,928
--------- --------- ---------
Total Identifiable Assets $ 78,951 $ 79,723 $ 78,311
========= ========= =========
Capital Expenditures
Full Service Distribution $ 594 $ 846 $ 406
Direct Distribution 26 20 38
--------- --------- ---------
Total Capital Expenditures $ 620 $ 866 $ 444
========= ========= =========
Depreciation and Amortization
Full Service Distribution $ 1,632 $ 1,584 $ 1,417
Direct Distribution 157 191 185
--------- --------- ---------
Total Depreciation and Amortization $ 1,789 $ 1,775 $ 1,602
========= ========= =========
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12. QUARTERLY FINANCIAL DATA
The following tables set forth the unaudited quarterly results of continuing
operations for each of the fiscal quarters in the years ended September 30, 2000
and 1999:
DEC. 31 MAR. 31 JUNE 30 SEPT. 30 YEAR
------- ------- ------- -------- ----
FISCAL 2000
Net sales $29,498 $30,927 $33,464 $31,686 $125,575
------------- ------------- ------------- ------------- -------------
Gross profit $11,433 $11,862 $12,580 $12,629 $ 48,504
------------- ------------- ------------- ------------- -------------
Net income (loss) ($194) $ 59 $ 288 $ 623 $ 776
------------- ------------- ------------- ------------- -------------
Net income (loss) per share ($0.12) $ 0.04 $ 0.18 $ 0.39 $ 0.49
------------- ------------- ------------- ------------- -------------
FISCAL 1999
Net sales $29,869 $32,347 $35,044 $33,738 $130,998
------------- ------------- ------------- ------------- -------------
Gross profit $11,385 $11,914 $12,871 $12,826 $ 48,996
------------- ------------- ------------- ------------- -------------
Net income (loss) ($268) ($67) $ 293 $ 322 $ 280
------------- ------------- ------------- ------------- -------------
Net income (loss) per share ($0.17) ($0.04) $ 0.19 $ 0.20 $ 0.18
------------- ------------- ------------- ------------- -------------
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APPENDIX A
----------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
GLICK, LLC,
HAW ACQUISITION CORP.,
ELI N. FUTERMAN,
DANIEL J. CHESSIN
AND
HAHN AUTOMOTIVE WAREHOUSE, INC.
MAY 16, 2001
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TABLE OF CONTENTS
ARTICLE 1 - THE MERGER............................................................................................5
Section 1.1 The Merger.............................................................................5
Section 1.2 Closing and Effective Time.............................................................6
Section 1.3 Effects of the Merger..................................................................6
Section 1.4 Certificate of Incorporation and Bylaws of the Surviving
Corporation..........................................................................6
Section 1.5 Directors..............................................................................6
Section 1.6 Officers...............................................................................6
ARTICLE 2 - EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
COMPANY..................................................................................6
Section 2.1 Effect on Capital Stock................................................................6
(a) Conversion of Shares...................................................................6
(b) Cancellation of Treasury Stock.........................................................7
(c) Reverse Stock Split....................................................................7
Section 2.2 Options; Stock Plan....................................................................7
Section 2.3 Payment for Shares of Common Stock.....................................................8
Section 2.4 Payment for Dissenting Shares.........................................................10
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................................10
Section 3.1 Organization and Qualification; Subsidiaries; Investments.............................10
Section 3.2 Capitalization; Subsidiaries..........................................................11
Section 3.3 Authority Relative to this Agreement..................................................12
Section 3.4 No Violation..........................................................................12
Section 3.5 Information...........................................................................13
Section 3.6 Required Company Vote.................................................................14
Section 3.7 State Takeover Statutes...............................................................14
Section 3.8 Litigation............................................................................14
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF CONTINUING
SHAREHOLDERS............................................................................14
Section 4.1 Organization and Qualification........................................................14
Section 4.2 Authority Relative to this Agreement..................................................15
Section 4.3 No Violation..........................................................................16
Section 4.4 Information...........................................................................16
Section 4.5 Financing.............................................................................16
Section 4.6 Beneficial Ownership of Shares........................................................16
Section 4.7 Litigation............................................................................17
ARTICLE 5 - COVENANTS............................................................................................17
Section 5.1 Conduct of Business...................................................................17
Section 5.2 Access to Information.................................................................17
Section 5.3 Efforts...............................................................................18
Section 5.4 Public Announcements..................................................................19
Section 5.5 Indemnification; Directors' and Officers' Insurance...................................19
Section 5.6 Notification of Certain Matters.......................................................20
Section 5.7 State Takeover Laws...................................................................20
Section 5.8 Shareholders' Meeting.................................................................20
Section 5.9 Proxy Statement and Schedule 13E-3....................................................20
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Section 5.10 Contribution and Voting Agreement.....................................................22
Section 5.11 Conveyance Taxes......................................................................22
Section 5.12 Delisting.............................................................................22
ARTICLE 6 - CONDITIONS TO CONSUMMATION OF THE MERGER.............................................................23
Section 6.1 Conditions............................................................................23
(a) BCL Shareholder Approval..............................................................23
(b) Public Shareholder Approval...........................................................23
(c) Lender Approval.......................................................................23
(d) Consents..............................................................................23
(e) Illegality............................................................................23
Section 6.2 Conditions to Obligations of Acquisition Corp.........................................23
(a) Representations and Warranties........................................................23
(b) Performance of Obligations of the Company.............................................24
(c) No Injunction.........................................................................24
(d) Financing.............................................................................24
(e) No Material Adverse Effect............................................................24
(f) Options...............................................................................24
(g) Directors.............................................................................24
(h) Dissenting Shares.....................................................................24
(i) Opinion of the Company's Counsel......................................................24
Section 6.3 Conditions to Obligation of the Company...............................................25
(a) Representations and Warranties........................................................25
(b) Performance of Obligations of Acquirers...............................................25
(c) Opinion of Acquirer's Counsel.........................................................25
(d) No Injunction.........................................................................25
(e) Fairness Opinion......................................................................25
ARTICLE 7 - TERMINATION; AMENDMENTS; WAIVER......................................................................25
Section 7.1 Termination...........................................................................25
Section 7.2 Effect of Termination.................................................................26
Section 7.3 Fees and Expenses.....................................................................26
Section 7.4 Amendment; Special Committee Approval.................................................27
Section 7.5 Extension; Waiver.....................................................................27
ARTICLE 8 - MISCELLANEOUS........................................................................................28
Section 8.1 Non-Survival of Representations and Warranties........................................28
Section 8.2 Entire Agreement; Assignment..........................................................28
Section 8.3 Validity..............................................................................28
Section 8.4 Notices...............................................................................28
Section 8.5 Governing Law; Exclusive Jurisdiction.................................................29
Section 8.6 Descriptive Headings..................................................................29
Section 8.7 Counterparts..........................................................................30
Section 8.8 Parties in Interest...................................................................30
Section 8.9 Specific Performance..................................................................30
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"),
dated as of May 16, 2001, by and among HAHN AUTOMOTIVE WAREHOUSE, INC., a New
York corporation (the "COMPANY"), and GLICK, LLC, a Nevada limited liability
company (the "HOLDING CO."), HAW ACQUISITION CORP., a New York corporation (the
"ACQUISITION CORP."), ELI N. FUTERMAN and DANIEL J. CHESSIN (collectively the
"ACQUIRERS").
R E C I T A L S :
WHEREAS, Chessin, Futerman, and the other persons and entities listed
on Schedule A attached hereto (collectively the "CONTINUING SHAREHOLDERS") own
of record or beneficially 1,010,229 shares of the Company's common stock, par
value $.01 per share, (the "COMMON STOCK") following the consummation of the
reverse stock split described below;
WHEREAS, the Acquirers had, prior to consummation of the reverse stock
split, proposed to the Board of Directors of the Company (the "COMPANY BOARD")
that Acquisition Corp. merge with and into the Company (the "MERGER"), with the
holders of all of the outstanding shares of Common Stock) not currently owned by
the Continuing Shareholders receiving a cash payment of $1.00 per share in
exchange for their shares of Common Stock;
WHEREAS, a special committee of disinterested directors of the Company
Board (the "SPECIAL COMMITTEE") has determined that the Merger is fair to, and
in the best interests of the Company, and the Public Shareholders (as defined in
Section 2.1(a)), and has recommended the approval and adoption of this Agreement
to the Company Board;
WHEREAS, the Company Board believes it is in the best interests of the
Company and its shareholders to consummate the Merger upon the terms and subject
to the conditions set forth in this Agreement; and
WHEREAS, the Company Board, upon the recommendation of the Special
Committee, has, in light of and subject to the terms and conditions set forth
herein: (i) determined that (A) the consideration to be paid for each share of
Common Stock held by the Public Shareholders in the Merger is fair to such
shareholders from a financial point-of-view, and (B) the Merger is otherwise in
the best interests of the Company and its shareholders, and (ii) resolved to
approve and adopt the Merger, authorize the execution and delivery of this
Agreement and to recommend approval and adoption of the Merger by the
shareholders of the Company;
WHEREAS, the Merger requires approval of both (a) the vote of
two-thirds of all of the issued and outstanding Shares of Common Stock entitled
to vote for the approval thereof and (b) a majority of the votes cast by the
Public Shareholders at the shareholders meeting at which the Merger is
considered and voted on by the Company's shareholders (collectively, the
"COMPANY SHAREHOLDER APPROVAL");
WHEREAS, the Continuing Shareholders formed Holding Co. and Acquisition Corp. to
effect the Merger, with the Continuing Shareholders being or becoming all of the
members of Holding
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Co. and Holding Co. owning all of the capital stock of Acquisition Corp.;
WHEREAS, the parties hereto have previously entered into an Agreement
and Plan of Merger dated April 6, 2001 (the "EXISTING MERGER AGREEMENT") setting
forth their agreement with respect to the Merger, which included, among other
things, certain representations, warranties, covenants and agreements in
connection with the Merger, and prescribes various conditions to the Merger;
WHEREAS, on May 10, 2001, the Company effected a 1-for-3 reverse stock
split and under the terms of the Existing Merger Agreement, the $1.00 per share
merger price was proportionally adjusted to $3.00 per share (the "MERGER
CONSIDERATION") upon the effectiveness of the reverse stock split; and
WHEREAS, the parties desire to amend and restate the Existing Merger
Agreement in its entirety on the terms and conditions set forth herein,
P R O V I S I O N S :
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
Acquirers, jointly and severally, and the Company agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the
satisfaction or waiver of the conditions hereof, and in accordance with the
applicable provisions of this Agreement and the New York Business Corporation
Law (the "BCL"), at the Effective Time (as defined in Section 1.2), Acquisition
Corp. shall be merged with and into the Company. Following the Merger, the
separate corporate existence of Acquisition Corp. shall cease and the Company
shall continue as the surviving corporation (the "SURVIVING CORPORATION").
SECTION 1.2 CLOSING AND EFFECTIVE TIME. The closing of the Merger
(the "CLOSING") will take place at 10:00 a.m., local time, as promptly as
practicable following the satisfaction or waiver of the conditions set forth in
Article 6 hereof (other than conditions that are to be satisfied at the Closing,
which shall be satisfied or waived at the Closing) or such other date and time
as Acquisition Corp. and the Company may agree upon (the "CLOSING DATE"), at the
offices of Woods Oviatt Gilman LLP, Rochester, New York, and in accordance with
the provisions of this Agreement and the provisions of the BCL. Immediately
following the Closing, the parties hereto shall cause the Merger to become
effective by filing a Certificate of Merger with the New York Department of
State in accordance with the relevant provisions of the BCL, and the parties
shall take such other and further actions as may be required by law to make the
Merger effective. The time the Merger becomes effective in accordance with
applicable law is referred to herein as the "EFFECTIVE TIME."
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SECTION 1.3 EFFECTS OF THE MERGER. The Merger shall have the
effects set forth in the BCL. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time, all the properties, rights,
privileges, powers and franchises of the Company and Acquisition Corp. shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Acquisition Corp. shall become the debts, liabilities and duties of
the Surviving Corporation.
SECTION 1.4 CERTIFICATE OF INCORPORATION AND BYLAWS OF THE
SURVIVING CORPORATION.
(a) The Amended and Restated Certificate of
Incorporation, as amended, of the Company, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended in accordance with the provisions thereof
and hereof and applicable law.
(b) The By-Laws of the Acquisition Corp. in effect at the
Effective Time shall be the By-Laws of the Surviving Corporation until amended
in accordance with the provisions thereof and applicable law.
SECTION 1.5 DIRECTORS. Subject to applicable law, the directors
of Acquisition Corp. immediately prior to the Effective Time shall be the
initial directors of the Surviving Corporation and shall hold office until their
respective successors are duly elected and qualified, or their earlier death,
resignation or removal.
SECTION 1.6 OFFICERS. The officers of the Company immediately
prior to the Effective Time shall be the initial officers of the Surviving
Corporation and shall hold office until their respective successors are duly
elected and qualified, or their earlier death, resignation or removal.
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE COMPANY
SECTION 2.1 EFFECT ON CAPITAL STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Common Stock or any shares of capital stock of Acquisition Corp.:
(a) CONVERSION OF SHARES.
(i) Each share of Common Stock issued and
outstanding immediately prior to the Effective Time, except for (A) shares of
Common Stock then owned of record by the Acquirers or the Continuing
Shareholders (B) shares of Common Stock held in the Company's treasury, if any,
and (C) Dissenting Shares (as defined in Section 2.4 below), shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into the right to receive the Merger Consideration in cash, payable to
the holder thereof, without interest thereon, upon surrender of the certificate
formerly representing such share of Common Stock in the manner provided in, and
otherwise in accordance with, Section 2.3 hereof (the shares of Common Stock for
which the Merger Consideration is to be paid are referred to herein as the
"ACQUIRED SHARES"; and the holders thereof are referred to herein as the "PUBLIC
SHAREHOLDERS").
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At the Effective Time, all of the Acquired Shares, when so converted, shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each Public Shareholder holding a certificate representing
any such Acquired Shares shall cease to have any rights with respect thereto,
except the right to receive the Merger Consideration therefor upon the surrender
of such certificate in the manner provided in, and in accordance with, Section
2.3 hereof.
(ii) Each share of Common Stock issued and
outstanding immediately prior to the Effective Time that is then owned of record
by any of the Acquirers or the Continuing Shareholders shall, by virtue of the
Merger and without any action on the part of the holder thereof, be canceled and
retired and cease to exist, and no payment shall be made with respect thereto.
(iii) Each share of common stock, par value $.01
per share, of Acquisition Corp. issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into and become one validly issued, fully
paid and non-assessable share of common stock, par value $.01 per share, of the
Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK. At the Effective
Time, each share of Common Stock that is owned by the Company or by any wholly
owned subsidiary of the Company shall automatically be canceled and retired and
shall cease to exist, and no cash or other consideration shall be delivered or
deliverable in exchange therefor.
(c) ADJUSTMENT OF MERGER CONSIDERATION. The Merger
Consideration shall be subject to equitable adjustment in the event of any
reverse stock split or any stock split, stock dividend or other similar change
in the number of Acquired Shares outstanding between the date hereof and the
Effective Time.
SECTION 2.2 OPTIONS; STOCK PLAN. At the Effective Time, the
Company shall have taken all necessary action, including obtaining the consent
of its individual option holders, if required, to: (i) terminate the Company's
1992 Stock Option Plan and 1993 Non-Employee Directors Stock Option Plan, each
as amended through the date of this Agreement (the "STOCK OPTION PLANS") and,
(ii) cancel all outstanding options to purchase shares of Common Stock (a "STOCK
OPTION") granted under the Stock Option Plans, including those held by the
Continuing Shareholders. Notwithstanding such termination and cancellation,
promptly following the Effective Time, the Surviving Corporation shall, to the
extent permitted by the applicable Stock Option Plan or agreement between the
Company and the optionee related to the applicable Stock Option, pay to the
holder of each such Stock Option, in cash and as full settlement for such Stock
Option, whether or not then exercisable, a cash payment equal to the product of
(i) the total number of shares of Common Stock previously subject to such
Option, but only to the extent such Option is exercisable as of the Closing Date
and (ii) the excess, if any, of the Merger Consideration over the per share
exercise price of the Stock Option. The amounts payable pursuant to this Section
2.2 shall be paid as soon as reasonably practicable following the Closing Date
and shall be subject to and made net of all applicable withholding taxes.
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SECTION 2.3 PAYMENT FOR SHARES OF COMMON STOCK.
(a) Prior to the Effective Time, Acquisition Corp. and
the Company shall designate the Company's registrar and transfer agent or such
other bank or trust company as may be approved by Acquisition Corp. and the
Special Committee, to act as paying agent for the Public Shareholders in
connection with the Merger, pursuant to an agreement providing for the matters
set forth in this Section 2.3 and such other matters as may be appropriate and
the terms of which shall be reasonably satisfactory to the Company and
Acquisition Corp. (the "PAYING AGENT"), to receive the funds to which the Public
Shareholders shall become entitled pursuant to Section 2.1(a) hereof. At the
Effective Time, Acquisition Corp. shall deposit, or Acquisition Corp. shall
otherwise take all steps necessary to cause to be deposited, in trust with the
Paying Agent in an account for the benefit of the Public Shareholders (the
"EXCHANGE FUND") the aggregate Merger Consideration to which they shall be
entitled at the Effective Time pursuant to Section 2.1(a) hereof. The Paying
Agent shall invest the Exchange Fund, if so directed by the Surviving
Corporation, in obligations of the United States of America or any agency or
instrumentality thereof, obligations for which the full faith and credit of the
United States of America is pledged to provide for the payment of all principal
and interest or in obligations that are guaranteed or insured by the United
States government or an agency or instrumentality thereof. Any net profit
resulting from, or interest or income produced by, such investments shall be
payable to the Surviving Corporation on demand. The Exchange Fund shall not be
used for any other purpose except as provided in this Agreement.
(b) Promptly after the Effective Time, and in any event
not later than three (3) business days following the Effective Time, Acquisition
Corp. shall cause the Paying Agent to mail to each record holder of certificates
(the "CERTIFICATES") that immediately prior to the Effective Time represented
Acquired Shares a form of letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates or an Affidavit of Loss in
Lieu of Lost Certificate (as defined in Section 2.3(e)) to the Paying Agent and
instructions for use in surrendering such Certificates and receiving the Merger
Consideration in respect thereof.
(c) In effecting the payment of the Merger Consideration
in respect of the Acquired Shares represented by Certificates entitled to
payment of the Merger Consideration pursuant to Section 2.1(a)(i) hereof, upon
the surrender of each such Certificate, together with a letter of transmittal
duly executed, the Paying Agent shall promptly, and in any event not later than
three (3) business days following receipt of such Certificates and letter of
transmittal, pay the holder of such Certificate the Merger Consideration
multiplied by the number of Acquired Shares represented by such Certificate, in
consideration therefor. Upon such payment such Certificate shall forthwith be
canceled.
(d) Until surrendered in accordance with paragraph (c)
above, each Certificate formerly representing Acquired Shares shall represent
solely the right to receive the aggregate Merger Consideration relating thereto.
No interest or dividends shall be paid or accrued on the
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Merger Consideration. If the Merger Consideration (or any portion thereof) is to
be delivered to any person other than the person in whose name the Certificate
formerly representing Acquired Shares surrendered therefor is registered, it
shall be a condition to such right to receive such Merger Consideration that the
Certificate so surrendered shall be properly endorsed or otherwise be in proper
form for transfer and that the person surrendering such Acquired Shares shall
pay to the Paying Agent any transfer or other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
of the Certificate surrendered, or shall establish to the satisfaction of the
Paying Agent that such tax has been paid or is not applicable.
(e) In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
(who shall be the record owner of such Certificate) claiming such Certificate to
be lost, stolen or destroyed (an "AFFIDAVIT OF LOSS IN LIEU OF LOST
CERTIFICATE"), the Paying Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Merger Consideration deliverable in respect thereof,
provided that the Person to whom the Merger Consideration is paid may, as a
condition precedent to the payment thereof, be required to give the Surviving
Corporation a bond in such sum as it may direct or may otherwise be required to
indemnify the Surviving Corporation in a manner satisfactory to it against any
claim that may be made against the Surviving Corporation with respect to the
Certificate claimed to have been lost, stolen or destroyed.
(f) Promptly following the date which is one hundred
eighty (180) days after the Effective Time, the Paying Agent shall deliver to
the Surviving Corporation all cash, Certificates and other documents in its
possession relating to the transactions described in this Agreement, and the
Paying Agent's duties shall terminate. Thereafter, each holder of a Certificate
formerly representing an Acquired Share may surrender such Certificate to the
Surviving Corporation and (subject to applicable abandoned property, escheat and
similar laws) receive in consideration therefor the aggregate Merger
Consideration relating thereto, without any interest or dividends thereon.
(g) After the Effective Time, there shall be no transfers
on the stock transfer books of the Surviving Corporation of any Acquired Shares
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates formerly representing Acquired Shares are presented
to the Surviving Corporation or the Paying Agent, they shall be surrendered and
canceled in return for the payment of the aggregate Merger Consideration
relating thereto, as provided in this Article 2.
(h) None of the Acquirers, the Company or Paying Agent
shall be liable to any person in respect of any cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. If any Certificates shall not have been surrendered
prior to seven years after the Effective Time, any such shares, cash, dividends
or distributions in respect of such Certificate shall, to the extent permitted
by applicable law, become the property of the Surviving Corporation, free and
clear of all claims or interest of any person previously entitled thereto.
(i) The Surviving Corporation and the Paying Agent shall
be entitled to
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deduct and withhold from the amounts payable (including the Merger
Consideration) pursuant to this Agreement to any Public Shareholder or holder of
Stock Options such amounts as the Acquisition Corp., the Surviving Corporation
or the Paying Agent is required to deduct and withhold with respect to the
making of such payment under applicable tax law. To the extent that amounts are
so deducted and withheld by Acquisition Corp., the Surviving Corporation or the
Paying Agent, such amounts shall be treated for all purposes of this Agreement
as having been paid to the relevant Public Shareholder or holder of Stock
Options.
SECTION 2.4 PAYMENT FOR DISSENTING SHARES. Notwithstanding any
provision of this Agreement to the contrary, shares of Common Stock that are
outstanding immediately prior to the Effective Time and which are held by
shareholders who have not voted such shares in favor of the Merger or consented
thereto in writing and who shall have available to them and who shall have
demanded properly in writing appraisal for such shares of Common Stock in
accordance with Sections 623 and 910 of the BCL (collectively, the "DISSENTING
SHARES"), shall not be converted into or represent the right to receive the
Merger Consideration, but such shareholders shall be entitled only to such
rights as are granted by Sections 623 and 910 of the BCL. Such shareholders
shall be entitled to receive payment of the appraised value of such shares of
Common Stock held by them in accordance with the provisions of such Sections 623
and 910, except that all Dissenting Shares held by shareholders who shall have
failed to perfect or who effectively shall have withdrawn or lost their rights
to appraisal of such shares of Common Stock under such Sections 623 and 910
shall thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive the Merger
Consideration, without any interest thereon, upon surrender, in the manner
provided in Section 2.3, of the certificate or certificates that formerly
evidenced such shares. The Company shall give Holding Co. prompt notice of any
demands received by the Company for appraisal of Acquired Shares, and, prior to
the Effective Time, Holding Co. shall have the right to participate in all
negotiations and proceedings with respect to such demands. Prior to the
Effective Time, the Company shall not, except with the prior written consent of
Holding Co., make any payment with respect to, or settle or offer to settle, any
such demands.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Acquirers as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES;
INVESTMENTS.
(a) The Company and each of its Subsidiaries (as defined
in Section 3.1(c)) is a corporation duly organized, validly existing and in good
standing under the laws of its state or jurisdiction of incorporation and has
all requisite corporate power and corporate authority to own, lease and operate
its properties and to carry on its business as now being conducted and is in
good standing as a foreign corporation in each jurisdiction where the properties
owned, leased or operated, or the business conducted, by it require such
qualification and where failure to be in good standing or to so qualify would
have a Material Adverse Effect on the Company. The term "MATERIAL ADVERSE EFFECT
ON THE COMPANY," as used in this Agreement, means any effect, event,
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occurrence, change or state of facts that is, or when aggregated with other
effects, events, occurrences, changes or states of facts, is, or is reasonably
likely to be, materially adverse to (i) the assets, liabilities, business,
property, operations or financial condition of the Company and its Subsidiaries
taken as a whole, or (ii) the ability of the Company and its Subsidiaries, taken
as a whole, to perform their obligations under this Agreement.
(b) The Company has heretofore made available to the
Acquirers a complete and correct copy of its Amended and Restated Certificate of
Incorporation, as amended, and Amended and Restated By-Laws.
(c) Except as set forth in the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 2000 (the "2000 10-K") as
filed with the Securities and Exchange Commission (the "SEC") on December 19,
2000, there is no corporation, limited liability company, partnership or other
business organization or entity of which the Company owns, (a) more than 50% of
(i) the total combined voting power of all classes of voting securities of such
entity, (ii) the total combined equity interests therein, or (iii) the capital
or profit interests therein, in the case of a limited liability company or
partnership; or (b) otherwise has the power to vote or direct the voting of
sufficient securities to elect a majority of the board of directors or similar
governing body of such entity (the "SUBSIDIARIES") either directly or through
its Subsidiaries. Except as set forth in the 2000 10-K, neither the Company nor
any Subsidiary owns or holds the right to acquire any shares of stock or any
other security or interest in any other entity.
SECTION 3.2 CAPITALIZATION; SUBSIDIARIES.
(a) On May 9, 2001, the Company's shareholders duly
approved a 1-for-3 reverse stock split. The reverse stock split was completed on
May 10, 2001. Immediately following the reverse stock split, the Company had (i)
authorized capital stock in the amount of 20,000,000 shares of Common Stock and
(ii) 1,581,671 shares of Common Stock issued and outstanding, all of which are
entitled to vote on this Agreement. Additionally, immediately prior to the
1-for-3 reverse stock split, the Company had 362,040 shares of Common Stock
reserved for issuance pursuant to outstanding Stock Options. As a result of the
reverse stock split, the number of shares of Common Stock reserved for Stock
Options were proportionately reduced by a factor of three, with any fractional
shares resulting to an option holder being rounded up to a whole share. Except
for this number of shares of Common Stock reserved for issuance immediately
following the reverse stock split there were not and are not now, and at the
Effective Time there will not be, any other existing options, warrants, calls,
subscriptions, or other rights, or other agreements or commitments, obligating
the Company to issue, transfer or sell any shares of capital stock of the
Company or any of its Subsidiaries. As of May 11, 2001, no outstanding Stock
Options under the Stock Option Plans have an exercise price of less than $3.00
per share.
(b) All issued and outstanding shares of Common Stock
are, and all shares of Common Stock which may be issued pursuant to the exercise
of outstanding vested Options will be, when issued in accordance with the
respective terms thereof, validly issued, fully paid, nonassessable and free of
preemptive rights. All of the outstanding shares of capital stock of
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each of the Company's Subsidiaries have been validly issued and are fully paid
and non-assessable and are owned by either the Company or another of its
Subsidiaries free and clear of all liens, charges, claims or encumbrances,
except for pledges in favor of the Company's lender. There are no outstanding
options, warrants, calls, subscriptions, or other rights, or other agreements or
commitments, obligating any Subsidiary of the Company to issue, transfer or sell
any shares of its capital stock.
SECTION 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) The Company has all necessary corporate power and
authority to execute and deliver this Agreement and, except for the Company
Shareholder Approval, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized and
approved by the Company Board and, except for the Company Shareholder Approval,
no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by the Company,
and this Agreement constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.
(b) The Special Committee has received the updated
opinion of Empire Valuation Consultants, Inc. ("EMPIRE VALUATION") dated May 16,
2001, that, as of the date of such opinion, the Merger Consideration to be
received by the Public Shareholders pursuant to this Agreement is fair, from a
financial point of view, to the Public Shareholders ("FAIRNESS OPINION").
(c) The Special Committee (at a meeting duly called and
held at which a quorum was present) has determined that the Merger is fair to,
and in the best interests of, the Company and the Public Shareholders, and has
recommended approval of the Merger to the Company Board, subject to the right of
the Special Committee to withdraw, modify or amend such recommendation if the
Special Committee determines, in good faith after consultation with legal
counsel, that failure to take such action would be reasonably likely to result
in a breach of its fiduciary duties to the Company's shareholders under
applicable law.
(d) The Company Board (at a meeting duly called and held
at which a quorum was present) has determined that the Merger is fair to, and in
the best interests of, the Company and the shareholders of the Company,
authorized the execution and delivery of this Agreement and the consummation of
the transactions hereunder and has recommended the adoption of this Agreement by
the shareholders of the Company, subject to the right of the Company Board to
withdraw, modify or amend such recommendation to the extent that the Company
Board determines, in good faith after consultation with legal counsel, that
failure to take such action would be reasonably likely to result in a breach of
its fiduciary duties to the Company's shareholders under applicable law.
SECTION 3.4 NO VIOLATION.
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(a) Except as contemplated by Section 6.1(c), the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
of this Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of consent, termination, purchase, cancellation or acceleration of
any obligation or the loss of any property, rights or benefits under, result in
the imposition of any additional obligation under, or result in the creation of
any Lien (as defined below in this Section 3.4(a)) upon any of the properties or
assets of the Company or any of its Subsidiaries under or require the consent
from, or the giving of notice to, a third party pursuant to (i) the
organizational documents of the Company or any of its Subsidiaries, (ii) any
contract, instrument, permit, concession, franchise, license, loan or credit
agreement, note, bond, mortgage, indenture, lease or other property agreement,
partnership or joint venture agreement or other legally binding agreement or
obligation, whether oral or written (a "CONTRACT"), applicable to the Company or
any of its Subsidiaries or their respective properties or assets or (iii)
subject to the governmental filings and other matters referred to in the
following paragraph, any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to the Company or any of its Subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii) and
(iii), any such conflicts, violations or defaults that would not, individually
or in the aggregate, have a Material Adverse Effect on the Company, or those
rights that if exercised, Liens that if imposed, consents that if not obtained
or notices that if not given would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. For purposes of this Agreement, "LIEN"
shall mean, with respect to any asset, any imperfection of title, lien, lease,
pledge, encumbrance, mortgage, claim, option, voting trust, preemptive right,
attachment, encroachment or other charge or security interest in or on such
asset.
(b) Other than in connection with, or in compliance with,
the provisions of the BCL with respect to the transactions contemplated hereby,
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), blue sky
laws or takeover statutes and the delisting requirements of Nasdaq, no
authorization, consent or approval of, or filing with, any Governmental Entity
(as defined below in this Section 3.4(b)) is necessary for the consummation by
the Company of the transactions contemplated by this Agreement other than
authorizations, consents and approvals the failure to obtain, or filings the
failure to make, which would not, in the aggregate, have a Material Adverse
Effect on the Company. As used in this Agreement, the term "GOVERNMENTAL ENTITY"
means any government or subdivision thereof, domestic, foreign or supranational
or any administrative, governmental or regulatory authority, agency, commission,
tribunal or body, domestic, foreign or supranational.
SECTION 3.5 INFORMATION. None of the information supplied by the
Company in writing specifically for inclusion or incorporation by reference in
(a) the Proxy Statement (as defined in Section 5.10 below) or (b) any other
document to be filed with the SEC or any other Governmental Entity in connection
with the transactions contemplated by this Agreement (the "OTHER FILINGS") will,
at the respective times filed with the SEC or other Governmental Entity and, in
addition, in the case of the Proxy Statement, at the date it or any amendment or
supplement is mailed to shareholders, at the time of the Shareholders Meeting
(as defined in
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Section 5.9 below) and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading; provided that the
representations and warranties in this Section 3.5 do not apply to information
supplied by the Acquirers to the Company for inclusion in the Proxy Statement or
the Other Filings.
SECTION 3.6 REQUIRED COMPANY VOTE. The Company Shareholder
Approval is the only vote of the holders of any class or series of the Company's
securities necessary to approve this Agreement, the Merger and the other
transactions contemplated hereby.
SECTION 3.7 STATE TAKEOVER STATUTES. The Company Board has taken
such action so that no state takeover statute or similar statute or regulation
of the State of New York applies to this Agreement, the Merger, or any of the
other transactions contemplated hereby. Neither the Company nor any of its
Subsidiaries has any rights plan, preferred stock or similar arrangement which
have any of the aforementioned consequences in respect of the transactions
contemplated hereby.
SECTION 3.8 LITIGATION. There is no suit, claim, action,
proceeding or investigation pending or, to the Knowledge of the Company (as
defined below), threatened, at law or in equity, or before any Governmental
Entity, against the Company, which could prevent or materially delay the
consummation of the transactions contemplated by this Agreement. "KNOWLEDGE OF
THE COMPANY" or words of similar import means the actual knowledge of the
following member of the Company's senior management: Daniel R. McDonald, Esq.,
Vice-President and General Counsel of the Company.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ACQUIRERS
The Acquirers, jointly and severally, represent and warrant to the
Company as follows:
SECTION 4.1 ORGANIZATION AND QUALIFICATION.
(a) Holding Co. is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Nevada. Acquisition Corp. is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York. Each is in good
standing as a foreign business organization in each other jurisdiction where the
properties owned, leased or operated, or the business conducted, by it require
such qualification and where failure to be in good standing or to so qualify
would have a Material Adverse Effect on the Acquirers. The term "MATERIAL
ADVERSE EFFECT ON THE ACQUIRERS", as used in this Agreement, means any effect,
event, occurrence, change or state of facts that is, or when aggregated with
other effects, events, occurrences, changes or states of facts is, or is
reasonably likely to be materially adverse (i) to the assets, liabilities,
business, property, condition (financial or otherwise), or operations or
prospects of any of the Acquirers or (ii) the ability of any of the Acquirers to
perform any of their obligations under this Agreement, or to obtain the
Financing
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(as defined in Section 4.5 below). Except for Acquisition Corp., Holding Co. has
no Subsidiaries. Acquisition Corp. has no Subsidiaries.
(b) Holding Co. and Acquisition Corp. were formed solely
for the purpose of engaging in the transactions contemplated by this Agreement.
As of the date hereof and the Effective Time, except for (i) obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement, and (ii) this Agreement and any
other agreements or arrangements contemplated by this Agreement or in
furtherance of the transactions contemplated hereby, Acquisition Corp. has not
incurred, directly or indirectly, through any subsidiary or affiliate, any
obligations or liabilities, owned any assets or engaged in any business
activities of any type or kind whatsoever or entered into any agreements or
arrangements with any Person. The term "PERSON" or "person" shall include
individuals, corporations, partnerships, trusts, other entities and groups
(which term shall include a "group" as such term is defined in Section 13(d)(3)
of the Exchange Act).
(c) All of the outstanding membership interests of
Holding Co. are owned by the Continuing Shareholders. All of the outstanding
shares of capital stock of Acquisition Corp. are owned by Holding Co. There are
not now, and, at the Effective Time there will not be, any other outstanding
membership interests, capital stock or rights or other agreements or commitments
whatsoever obligating Holding Co. or Acquisition Corp. or any of their
respective Subsidiaries, if any, to issue, transfer, deliver or sell, or cause
to be issued, transferred, delivered or sold, to any other person any additional
shares of capital stock, or obligating either business organization to grant,
extend or enter into any such agreement or commitment.
SECTION 4.2 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) Holding Co. and Acquisition Corp. have full limited
liability company power and corporate power, respectively and the authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Managers and members of Holding Co., the Board of
Directors of Acquisition Corp. and by Holding Co. as the sole shareholder of
Acquisition Corp. and no other limited liability company or corporate
proceedings on the part of Holding Co. or Acquisition Corp., respectively, are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
the Acquirers and, assuming this Agreement constitutes a valid and binding
obligation of the Company, this Agreement constitutes a valid and binding
agreement of the Acquirers, enforceable against each of the Acquirers in
accordance with its terms.
(b) Other than in connection with, or in compliance with,
the provisions of the BCL with respect to the transactions contemplated hereby,
the Exchange Act, and the blue sky laws of the various states, no authorization,
consent or approval of, or filing with, any Governmental Entity is necessary for
the consummation by Holding Co. or Acquisition Corp. of the transactions
contemplated by this Agreement other than authorizations, consents and approvals
the failure to obtain, or filings the failure to make, which would not, in the
aggregate,
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have a Material Adverse Effect on the Acquirers.
SECTION 4.3 NO VIOLATION. Neither the execution or delivery of
this Agreement by Holding Co. or Acquisition Corp. nor the consummation by
Holding Co. or Acquisition Corp. of the transactions contemplated hereby will
(i) constitute a breach or violation of any provision of the Articles of
Organization, as amended, or Operating Agreement of Holding Co. or the
Certificate of Incorporation, as amended, or By-Laws of Acquisition Corp., (ii)
constitute a breach, violation or default (or any event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in the
creation of any Lien upon any of the properties or assets of Holding Co. or
Acquisition Corp. under, any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument to which Holding Co. or
Acquisition Corp. is a party or by which it or any of its properties or assets
are bound or (iii) constituted a breach or violation of any judgment, order,
decree, statute, law, ordinances, rule or regulation applicable to Holding Co.
or Acquisition Corp. or its properties or assets other than, with respect to
clauses (ii) and (iii), breaches, violations, defaults, terminations,
accelerations or creation of Liens which, in the aggregate would not have a
Material Adverse Effect on the Acquirers.
SECTION 4.4 INFORMATION. None of the information supplied by
Acquirers in writing (other than projections of future financial performance)
specifically for inclusion or incorporation by reference in (i) the Proxy
Statement or (ii) the Other Filings will, at the respective times filed with the
SEC or other Governmental Entity and, in addition, in the case of the Proxy
Statement, at the date it or any amendment or supplement is mailed to
shareholders, at the time of the Shareholders Meeting and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, no representation is made by
Acquirers with respect to statements made in any of the foregoing documents
based upon information supplied by the Company.
SECTION 4.5 FINANCING. The Continuing Shareholders have received
a commitment for financing, to be secured by their personal assets, pursuant to
a commitment letter from Manufacturers and Traders Trust Company (the
"COMMITMENT LETTER") dated April 27, 2001 (the "FINANCING"). The Continuing
Shareholders shall contribute or loan to the Holding Co. the cash proceeds from
the Financing to enable the Surviving Corporation to pay the aggregate Merger
Consideration due to all Public Shareholders, make any payments contemplated by
Sections 2.2, 2.3 and 2.4, and otherwise consummate the transactions
contemplated hereby, and to fund all costs and expenses of the Acquirers
incurred in connection with the Merger and the transaction contemplated hereby.
The Acquirers have provided the Company with a true and correct copy of the
fully executed Commitment Letter and the Continuing Shareholders have paid the
commitment fee called for thereunder.
SECTION 4.6 BENEFICIAL OWNERSHIP OF SHARES. As of the date
hereof, the Continuing Shareholders together with Holding Co. "beneficially own"
(as defined in Rule 13d-3 under the Exchange Act) 1,010,229 shares of Common
Stock, or approximately 64% of the issued and
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outstanding shares of Common Stock. All of the shares held by Continuing
Shareholders will be contributed to Holding Co. prior to the Effective Time.
None of the Acquirers or Continuing Shareholders will buy additional shares of
Common Stock between the date of this Agreement and the earlier of the Closing
or the termination of this Agreement.
SECTION 4.7 LITIGATION. There is no suit, claim, action,
proceeding or investigation pending or, to the knowledge of the Acquirers,
threatened, at law or in equity, or before any Governmental Entity, against any
of the Acquirers, which could prevent or delay the consummation of the
transactions contemplated by this Agreement.
ARTICLE 5
COVENANTS
SECTION 5.1 CONDUCT OF BUSINESS.
(a) Except as contemplated by this Agreement or as
expressly agreed to in writing by Acquisition Corp., during the period from the
date of this Agreement to the Effective Time, neither the Company nor any of its
Subsidiaries will (i) carry on their respective businesses other than in the
usual, regular and ordinary course of business, consistent with past practice;
(ii) issue any options to purchase shares of Common Stock or other capital stock
or issue any shares of Common Stock (other than pursuant to the exercise of
currently outstanding Stock Options) or other capital stock; (iii) declare, set
aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock, or equity
interest, as the case may be; or (iv) repurchase or agree to repurchase any
shares of its capital stock, or agree to do any of the foregoing; provided,
however, that, notwithstanding the foregoing, any of the Company's wholly-owned
direct or indirect Subsidiaries may declare, set aside or pay any dividend or
other distribution with respect to their capital stock.
(b) From the date of this Agreement to the Effective
Time, neither Holding Co. nor Acquisition Corp. will conduct any business or
engage in any activities of any nature other than activities in connection with
this Agreement or the transactions contemplated hereby.
SECTION 5.2 ACCESS TO INFORMATION. From the date of this
Agreement until the Effective Time, the Company will, and will cause its
Subsidiaries, and each of their respective officers, directors, employees,
agents or other representatives (including, without limitation, any investment
banker, attorney or accountant retained by the Company or its Subsidiaries) (the
"COMPANY REPRESENTATIVES") to, give Holding Co. and Acquisition Corp. and their
respective officers, employees, agents or other representatives (including,
without limitation, any attorney or accountant retained by the Acquirers) (the
"ACQUIRERS' REPRESENTATIVES") and representatives of financing sources
identified by the Acquirers ("LENDERS") reasonable access, upon reasonable
notice and during normal business hours, to the offices and other facilities and
to the books and records of the Company and its Subsidiaries and will cause the
Company Representatives and the Company's Subsidiaries to furnish the Acquirers
and the Acquirers' Representatives and Lenders with such financial and operating
data and such other information with respect to the Company and its Subsidiaries
as the Acquirers' Representatives and Lenders may from time to time
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reasonably request. The Acquirers shall take reasonable steps to insure that any
confidential information provided to it or the Acquirers' Representatives and
Lenders remains confidential and is used for no purpose other than the
transactions contemplated hereby.
SECTION 5.3 EFFORTS.
(a) Each of the Company and the Acquirers shall, and the
Company shall cause each of its Subsidiaries to, use commercially reasonable
efforts to take all actions and do all things necessary to consummate and make
effective the transactions contemplated by this Agreement (including the
satisfaction, but not waiver, of the closing conditions set forth in Article 6).
(b) Without limiting Section 5.3(a) hereof, each of the
Company and the Acquirers shall, and the Company shall cause each of its
Subsidiaries to, make all necessary filings with Governmental Entities as
promptly as practicable in order to facilitate prompt consummation of the
transactions contemplated by this Agreement. In addition, each of Acquisition
Corp. and the Company will use its commercially reasonable efforts (including,
without limitation, payment of any required fees) and will cooperate fully with
each other to (i) comply as promptly as practicable with all governmental
requirements applicable to the transactions contemplated by this Agreement,
including the making of all filings necessary or proper under applicable laws
and regulations to consummate and make effective the transactions contemplated
by this Agreement, including, but not limited to, the Proxy Statement or other
public filings and any amendments to any thereof and (ii) obtain promptly all
consents, waivers, approvals, authorizations or permits of, or registrations or
filings with or notifications to (any of the foregoing being a "CONSENT"), any
Governmental Entity necessary for the consummation of the transactions
contemplated by this Agreement (except for such Consents the failure of which to
obtain would not prevent or materially delay the consummation of the Merger).
(c) Without limiting Section 5.3 (a) hereof, commencing
on the date hereof, the Acquirers will, and will cause the other Continuing
Shareholders to, proceed in good faith and use their best efforts to close the
Financing or to otherwise obtain financing in the amount of not less than
$2,000,000 to pay the aggregate Merger Consideration due hereunder and the
related transaction expenses, on terms and conditions which are reasonably
satisfactory to the Acquirers. During the period preceding the Effective Time or
the termination of this Agreement, the Acquirers will keep the Company
reasonably informed with respect to the progress of closing the financing
contemplated by the Commitment Letter or the Acquirer's efforts to obtain
alternative financing.
(d) Without limiting Section 5.3(a) hereof, the Company
and the Acquirers shall each use their respective commercially reasonable best
efforts to avoid the entry of, or to have vacated or terminated, any decree,
order, or judgment that would restrain, prevent or delay the consummation of the
Merger, including, without limitation, defending through litigation on the
merits any claim asserted in any court by any third party. Each party hereto
shall promptly notify the other parties of any communication to that party from
any Governmental Entity with respect to the transactions contemplated by this
Agreement and permit the other parties to review
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in advance any proposed communication to any Governmental Entity. The Company
and the Acquirers shall not (and shall cause any Acquirers' Representatives not
to) agree to participate in any meeting with any Governmental Entity in respect
of any filings, investigation or other inquiry unless it consults with the other
party in advance and, to the extent permitted by such Governmental Entity, gives
the other party the opportunity to attend and participate thereat.
SECTION 5.4 PUBLIC ANNOUNCEMENTS. The Company, on the one hand,
and the Acquirers, on the other hand, agree to consult promptly with each other
prior to issuing any press release or announcement or otherwise making any
public statement with respect to the Merger and the other transactions
contemplated hereby, agree to provide to the other party for review a copy of
any such press release or statement, and shall not issue any such press release
or make any such public statement prior to such consultation and review, unless
required by applicable law or the Company's listing agreement with the Nasdaq
Stock Market, Inc.
SECTION 5.5 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) The Company and, from and after the Effective Time,
the Surviving Corporation, shall indemnify, defend and hold harmless the present
and former officers, directors, employees and agents of the Company and its
Subsidiaries (the "INDEMNIFIED PARTIES") against all judgments, fines, losses,
claims, damages, costs or expenses (including reasonable attorneys' fees) or
liabilities arising out of or related to matters, actions or omissions or
alleged actions or omissions occurring at or prior to the Effective Time whether
asserted or claimed prior to or after the Effective Time (i) to the full extent
permitted by New York law or, (ii) if the protections afforded thereby to an
Indemnified Party are greater, to the same extent and on the same terms and
conditions (including with respect to advancement of expenses) provided for in
the Company's Amended and Restated Certificate of Incorporation, and Amended and
Restated By-Laws and agreements in effect at the date hereof (to the extent
consistent with applicable law and notwithstanding the fact that the By-Laws of
Acquisition Corp. shall become the By-Laws of the Surviving Corporation at the
Effective Time), which provisions shall survive the Merger and continue in full
force and effect after the Effective Time. Without limiting the foregoing, (i)
Holding Co. shall, and shall cause the Surviving Corporation to, periodically
advance expenses (including attorney's fees) as incurred by an Indemnified
Person with respect to the foregoing to the full extent permitted under
applicable law, and (ii) any determination required to be made with respect to
whether an Indemnified Party shall be entitled to indemnification shall, if
requested by such Indemnified Party, be made by independent legal counsel
selected by the Surviving Corporation and reasonably satisfactory to such
Indemnified Party.
(b) The Acquirers agree that the Company, and, from and
after the Effective Time, the Surviving Corporation, shall cause to be
maintained in effect for not less than three years from the Effective Time the
policies of the directors' and officers' liability insurance maintained by the
Company and in effect as of the date hereof; provided that the Surviving
Corporation may substitute therefor other policies of at least the same coverage
amounts and which contain terms and conditions not less advantageous to the
beneficiaries of the current policies and, provided further, that such
substitution shall not result in any gaps or lapses in coverage with respect to
matters occurring on or prior to the Effective Time; and provided
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further, that the Surviving Corporation shall not be required to pay a premium
in excess of 200% of the last annual premium paid by the Company prior to the
date hereof and if the Surviving Corporation is unable to obtain the insurance
required by this Section 5.5(b) it shall obtain as much comparable insurance as
possible for a premium equal to such maximum amount.
(c) This Section 5.5 shall survive the consummation of
the Merger at the Effective Time, is intended to benefit the Company, the
Surviving Corporation and the Indemnified Parties, shall be binding on all
successors and assigns of the Acquirers and the Surviving Corporation, and shall
be enforceable by the Indemnified Parties.
SECTION 5.6 NOTIFICATION OF CERTAIN MATTERS. The Company, on the
one hand, and the Acquirers, on the other hand, shall promptly notify each other
of (i) the occurrence or non-occurrence of any fact or event which would be
reasonably likely (A) to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date hereof to the Effective Time or (B) to cause any covenant, condition or
agreement under this Agreement not to be complied with or satisfied and (ii) any
failure of the Company, on the one hand, or the Acquirers, on the other hand, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that no such notification shall
affect the representations or warranties of any party or the conditions to the
obligations of any party hereunder. Each party hereto shall give prompt notice
to the other parties hereto of any notice or other communication from any third
party alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement.
SECTION 5.7 STATE TAKEOVER LAWS. The Company shall, upon the
request of Acquisition Corp., take all reasonable steps to assist in any
challenge by Acquisition Corp. to the validity or applicability to the
transactions contemplated by this Agreement, including the Merger, of any state
takeover law.
SECTION 5.8 SHAREHOLDERS' MEETING. The Company, acting through
the Company Board, shall, in accordance with applicable law, subject to the
fiduciary duties of the Company Board, duly call, give notice of, convene and
hold an annual or special meeting of its shareholders (as same may be adjourned
or postponed from time to time, a "SHAREHOLDERS MEETING") as soon as practicable
following the execution of this Agreement for the purpose of considering and
taking action upon this Agreement. The notice of such meeting shall contain the
information required to be included therein pursuant to the BCL and the
Company's Amended and Restated By-Laws.
SECTION 5.9 PROXY STATEMENT AND SCHEDULE 13E-3.
(a) The Company will, as soon as practicable, prepare and
file with the SEC a proxy statement and a form of proxy, in connection with the
solicitation of votes of the Company's shareholders with respect to the Merger
(such proxy statement, together with any amendments thereof or supplements
thereto, in each case in the form or forms mailed to the Company's shareholders,
being the "PROXY STATEMENT"). The Company and the Acquirers shall
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together prepare and file a Transaction Statement on Schedule 13E-3 (the
"SCHEDULE 13E-3") under the Exchange Act. Each party hereto shall furnish all
information required to be included about such person in the Proxy Statement and
the Schedule 13E-3 pursuant to the SEC's rules and regulations and, after
consultation with each other, shall respond promptly to any comments made by the
SEC with respect to the Proxy Statement and any preliminary version thereof and
the Schedule 13E-3. The Company shall cause the Proxy Statement to be mailed to
its shareholders at the earliest practicable time. The Proxy Statement shall
include the recommendation of the Company Board to the shareholders of the
Company (and reflect that the Special Committee has made a similar
recommendation to the Company Board), subject to the fiduciary duties under
applicable law of such directors (including the directors constituting the
Special Committee), as determined by such directors in good faith after
consultation with counsel, in favor of the adoption of this Agreement. The
Company shall use its best efforts to obtain the necessary adoption of this
Agreement by its shareholders and, to that end, shall engage a proxy
solicitation firm to solicit proxies approving the Merger from the Public
Shareholders at the Company's sole cost and expense. Notwithstanding anything to
the contrary in this Agreement, if the Company Board or the Special Committee
determines, in good faith after consultation with counsel that, in the exercise
of its respective fiduciary duties, under applicable law it is required to
withdraw, modify or amend its recommendation in favor of the Merger, such
withdrawal, modification or amendment shall not constitute a breach of this
Agreement.
(b) The information supplied by the Company for inclusion
in the Proxy Statement or the Schedule 13E-3 shall not, at the time the Proxy
Statement is mailed, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading or, at the time of the Shareholders' Meeting, as then
amended or supplemented, omit to state any material fact necessary to correct
any statement originally supplied by the Company for inclusion in the Proxy
Statement or the Schedule 13E-3 which has become false or misleading. If, at any
time prior to the Effective Time, any event relating to the Company or any of
its affiliates, or relating to their respective officers, directors or
shareholders, should be discovered which should be set forth in an amendment of,
or a supplement to, such Proxy Statement or Schedule 13E-3, the Company shall
promptly so inform the Acquirers and will furnish all necessary information to
the Acquirers relating to such event. All documents that the Company is
responsible for filing with the SEC in connection with the transactions
contemplated by this Agreement shall comply in all material respects, both as to
form and otherwise, with the Exchange Act.
(c) The information supplied or to be supplied by the
Acquirers for inclusion in the Proxy Statement or the Schedule 13E-3 shall not,
at the time the Proxy Statement is mailed, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or, at the time of the
Shareholders' Meeting, as then amended or supplemented, omit to state any
material fact necessary to correct any statement originally supplied by the
Acquirers for inclusion in the Proxy Statement or the Schedule 13E-3 which has
become false or misleading. If, at any time prior to the Effective Time, any
event relating to the Acquirers or relating to their respective officers,
directors or
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shareholders or their respective affiliates, as the case may be, should be
discovered which should be set forth in an amendment of, or a supplement to,
such Proxy Statement or Schedule 13E-3, the Acquirers shall promptly so inform
the Company and will furnish all necessary information to the Company relating
to such event. All documents that the Acquirers are responsible for filing with
the SEC in connection with the transactions contemplated by this Agreement shall
comply in all material respects, both as to form and otherwise, with the
Exchange Act.
(d) The Acquirers agree (i) to vote at the Shareholders'
Meeting all of their shares of outstanding Common Stock owned of record, or over
which they have voting power, as of the date of this Agreement (the "CONTINUING
SHAREHOLDER SHARES") for adoption of this Agreement, (ii) not to grant a proxy
to vote any Continuing Shareholder Shares other than to any of the Acquirers or
to persons identified in a proxy card distributed on behalf of the Company Board
to vote such Continuing Shareholder Shares at the Shareholders' Meeting in the
manner provided in clause (i), and (iii) not to sell, transfer or otherwise
dispose of any Continuing Shareholder Shares (other than transfers of Continuing
Shareholder Shares to one of the Acquirers or any family members of either of
the Continuing Shareholders or trusts for the benefit of such Continuing
Shareholders or such family members), which shares may be so transferred only if
the transferee agrees in writing to be bound by the terms of the agreements
contained in this Section 5.9(d). In the event of any transfer of Continuing
Shareholder Shares after the date hereof, such shares shall remain Continuing
Shareholder Shares and be deemed to be owned of record by the Continuing
Shareholders for purposes of Article 2 of this Agreement and this Section
5.9(d).
SECTION 5.10 CONTRIBUTION AND VOTING AGREEMENT. The Continuing
Shareholders have entered into an agreement by and among the Continuing
Shareholders and the Holding Co. dated May 11, 2001, wherein they agree (i) to
vote at the Shareholders' Meeting all of their shares of Common Stock for the
adoption of this Agreement, and (ii) to contribute all of their shares of Common
Stock to the Holding Co. ("CONTRIBUTION AND VOTING AGREEMENT"). The Acquirers
shall provide the Company with a true and correct copy of the Contribution and
Voting Agreement promptly after it has been executed by Continuing Shareholders
owning at least 90% of the Continuing Shareholder's Shares of Common Stock. The
Acquirers agree not to amend or supplement the Contribution and Voting Agreement
after it has been executed and provided to the Company. The Acquirers further
agree to enforce the terms of the Contribution and Voting Agreement in
accordance with its terms.
SECTION 5.11 CONVEYANCE TAXES. Acquisition Corp. and the Company
shall cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any real property
transfer or gains, sales, use, transfer, value-added, stock transfer and stamp
taxes, any transfer, recording, registration and other fees or any similar taxes
which become payable by the Company or any of its Subsidiaries in connection
with the transactions contemplated by this Agreement that are required or
permitted to be filed on or before the Effective Time.
SECTION 5.12 DELISTING. Each of the parties agrees to cooperate
with each other in taking, or causing to be taken, all actions necessary to
delist the shares of Common Stock from
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NASDAQ and to terminate registration under the Exchange Act, provided that such
delisting and termination shall not be effective until after the Effective Time
of the Merger.
ARTICLE 6
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.1 CONDITIONS. The respective obligations of the
Acquirers and the Company to consummate the Merger are subject to the
satisfaction, at or before the Effective Time, of each of the following
conditions:
(a) BCL SHAREHOLDER APPROVAL. The proposal to adopt this
Agreement shall have been approved and adopted at the Shareholders Meeting by
the affirmative vote of at least two-thirds of the votes of all outstanding
shares of Common Stock entitled to vote thereon in accordance with the BCL;
(b) PUBLIC SHAREHOLDER APPROVAL. The proposal to adopt
this Agreement shall have been approved and adopted at the Shareholders Meeting
by the affirmative vote of at least a majority of the votes cast at the
Shareholders Meeting by the Public Shareholders excluding (i) abstentions and
(ii) broker non-votes;
(c) LENDER APPROVAL. The Merger and all related
transactions contemplated hereunder shall have been approved by the Company's
lender, Fleet Capital Corporation, so that the consummation thereof shall not
result in an event of default under the Company's Loan Agreement.
(d) CONSENTS. Other than the filing of the Certificate of
Merger as contemplated by Section 1.2, each of the Company and the Acquisition
Corp. shall have obtained such consents from third parties and approval from
Governmental Entities as shall be required for the consummation of the
transactions contemplated hereby, except for such consents the failure of which
to obtain would not have a Material Adverse Effect on the Company.
(e) ILLEGALITY. There shall not have been any United
States federal or state statute, rule or regulation enacted or promulgated after
the date of this Agreement that would result in the imposition of material
limitations on the ability of Acquisition Corp. effectively to acquire or hold
the business of the Company and its Subsidiaries taken as a whole.
SECTION 6.2 CONDITIONS TO OBLIGATIONS OF ACQUIRERS. The
obligations of the Acquirers to effect the Merger are further subject to the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company set forth in this Agreement shall be true and
correct as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date in all respects (except where the failure to
be true and correct does not have a Material Adverse Effect on the Company),
other than representations and warranties of the Company that relate to a
specific date which shall be true and correct in all respects as of such date.
Acquisition Corp.
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shall have received a certificate signed on behalf of the Company by the
vice-president and general counsel of the Company to the effect set forth in
this paragraph.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The
Company shall have performed the obligations required to be performed by it
under this Agreement prior to the Closing in all material respects.
(c) NO INJUNCTION. No court of competent jurisdiction in
the United States or other United States Governmental Entity shall have issued
any order, decree or ruling or taken any other action restraining, enjoining or
otherwise (i) prohibiting the consummation of the Merger or any of the other
transactions contemplated by this Agreement, (ii) prohibiting or limiting the
ownership or operation by the Company or any of its Subsidiaries of any material
portion of the business or assets of the Company or any of its Subsidiaries, or
requiring it to dispose of or hold separate any material portion of the business
or assets of the Company or any of its Subsidiaries, as a result of the Merger
or any of the other transactions contemplated by this Agreement or (iii)
imposing limitations on the ability of Acquisition Corp. (or any shareholder of
Acquisition Corp.), to acquire or hold, or exercise full rights of ownership of,
any Common Shares, including, without limitation, the right to vote Common
Shares on all matters properly presented to the shareholders of the Company.
(d) FINANCING. The Continuing Shareholders shall have
completed the Financing or Holding Co. and Acquisition Corp. shall have
otherwise obtained financing sufficient to pay the aggregate Merger
Consideration due hereunder and related transaction expenses on terms and
conditions satisfactory to the Acquirers.
(e) NO MATERIAL ADVERSE EFFECT. There shall not after the
execution hereof have occurred a Material Adverse Effect on the Company,
provided that the delisting of the Common Stock from the Nasdaq SmallCap Market
shall not constitute a Material Adverse Effect on the Company, for this
Agreement only.
(f) OPTIONS. Upon payment of the consideration of the
Stock Options pursuant to Section 2.2 hereof, or if no Option Consideration is
due, at the Effective Time, all Stock Options pursuant to the Stock Option Plans
shall have been canceled and there shall be no other plans, programs or
arrangements which obligate the Company or the Surviving Corporation to issue
any equity securities or any securities with equity-like features.
(g) DIRECTORS. All existing directors of the Company
shall have tendered resignations from the Board which shall be effective as of
the Effective Time.
(h) DISSENTING SHARES. The number of Dissenting Shares
shall not exceed 113,334 shares of Common Stock (subject to equitable adjustment
in the event of any of the events described in Section 2.1(c)).
(i) OPINION OF THE COMPANY'S COUNSEL. Acquisition Corp.
shall have received from Woods Oviatt Gilman LLP, counsel for the Company, an
opinion in form and substance
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satisfactory to Holding Co., addressed to Holding Co., dated as of the Closing
Date.
SECTION 6.3 CONDITIONS TO OBLIGATION OF THE COMPANY. The
obligation of the Company to effect the Merger is further subject to the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Acquirers set forth in this Agreement shall be true and
correct as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date in all respects (except where the failure to
be true and correct does not have a Material Adverse Effect on the Acquirers),
other than representations and warranties of the Acquirers that relate to a
specific date which shall be true and correct in all respects as of such date.
The Company shall have received a certificate signed on behalf of the Acquirers
by the chief executive officer and the secretary of the Holding Co. to the
effect set forth in this paragraph.
(b) PERFORMANCE OF OBLIGATIONS OF ACQUIRERS. The
Acquirers shall have performed the obligations required to be performed by it
under this Agreement in all material respects.
(c) OPINION OF ACQUIRER'S COUNSEL. The Company shall have
received from Boylan, Brown, Code, Vidgor & Wilson, LLP, counsel for the
Acquirers, an opinion in form and substance satisfactory to the Company,
addressed to the Company, dated as of the Closing Date.
(d) NO INJUNCTION. No court of competent jurisdiction in
the United States or other United States Governmental Entity shall have issued
any order, decree or ruling or taken any other action restraining, enjoining or
otherwise (i) prohibiting the consummation of the Merger or any of the other
transactions contemplated by this Agreement, (ii) prohibiting or limiting the
ownership or operation by the Company or any of its Subsidiaries of any material
portion of the business or assets of the Company or any of its Subsidiaries, or
requiring it to dispose of or hold separate any material portion of the business
or assets of the Company or any of its Subsidiaries, as a result of the Merger
or any of the other transactions contemplated by this Agreement or (iii)
imposing limitations on the ability of Acquisition Corp. (or any shareholder of
Acquisition Corp.), to acquire or hold, or exercise full rights of ownership of,
any shares of Common Stock, including, without limitation, the right to vote
shares of Common Stock on all matters properly presented to the shareholders of
the Company.
(e) FAIRNESS OPINION. The Fairness Opinion shall not have
been withdrawn or, in the alternative, modified or amended to such an extent
that it is no longer acceptable to the Special Committee.
ARTICLE 7
TERMINATION; AMENDMENTS; WAIVER
SECTION 7.1 TERMINATION. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time, notwithstanding Company Shareholder Approval:
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(a) by the mutual written consent of the Acquirers and
the Company, by action of the Company Board;
(b) by Acquisition Corp. or the Company if the Merger
shall not have been consummated on or before September 1, 2001; provided,
however, that neither Acquisition Corp. nor the Company may terminate this
Agreement pursuant to this Section 7.1(b) if such party shall have materially
breached this Agreement;
(c) by the Acquirers or the Company if any court of
competent jurisdiction in the United States or other United States Governmental
Entity has issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable;
provided, however, that the party seeking to terminate this Agreement shall have
used its commercially reasonable efforts to remove or lift such order, decree,
ruling or other action;
(d) by either the Acquirers or the Company if the Company
Board or Special Committee shall have (i) failed to recommend to the
shareholders of the Company that they give the Company Shareholder Approval,
(ii) withdrawn or modified in a manner adverse to the Acquirers its approval or
recommendation of this Agreement or the Merger, or (iii) resolved to effect any
of the foregoing;
(e) by either the Acquirers or the Company, if the
Company Shareholder Approval shall not have been obtained by reason of the
failure to obtain the required vote upon a vote held at a duly held meeting of
shareholders or at any adjournment thereof; or
(f) by either the Acquirers or the Company, if the other
party shall be in material breach of this Agreement, and such breach shall not
have been cured within twenty (20) days of receipt of written notice from the
non-breaching party of such breach.
SECTION 7.2 EFFECT OF TERMINATION. In the event of the
termination of this Agreement pursuant to Section 7.1 hereof, this Agreement
shall forthwith become void and have no effect, without any liability on the
part of any party or its directors, officers or shareholders and the provisions
of this Section 7.2 and Section 7.3 of this Agreement shall survive any such
termination. Nothing contained in this Section 7.2 shall relieve any party from
liability for any breach of any covenant of this Agreement or any breach of
warranty or misrepresentation; provided, however, that in no event shall the
Company be liable for any breach of Section 3.4 of this Agreement.
SECTION 7.3 FEES AND EXPENSES.
(a) Subject to (b) below, in the event that this
Agreement is terminated pursuant to Section 7.1(f) or is terminated pursuant to
Section 7.1(b) based upon a material breach of this Agreement by one of the
parties hereto (while the other party is not in material breach) and such breach
has not been previously waived by the non-breaching party, the
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breaching party shall promptly reimburse the non-breaching party for all
reasonable out-of-pocket expenses and fees (including, without limitation, fees
payable to all banks, investment banking firms and other financial institutions,
and their respective agents and counsel, and all fees of counsel, accountants,
financial printers, experts and consultants, collectively referred to as
"COSTS"), whether incurred prior to, on or after the date hereof (but prior to
the date this Agreement is terminated), in connection with the Merger and the
consummation of all transactions contemplated by this Agreement, and the
financing thereof.
(b) The prevailing party in any legal action undertaken
to enforce this Agreement or any provision hereof shall be entitled to recover
from the other party the costs and expenses (including attorneys' and expert
witness fees) incurred in connection with such action.
(c) In the event that this Agreement is terminated, in
whole or in part, due to the failure of the Acquirers to obtain necessary
financing for any reason whatsoever, the Acquirers shall promptly pay to the
Company the amount of seventy-five thousand dollars ($75,000), which amount the
parties have agreed shall reimburse the Company for all Costs, whether incurred
prior to, or on or after the date hereof (but prior to the date this Agreement
is terminated), in connection with the Merger and the consummation of all
transactions contemplated by this Agreement; provided, however, that the
Acquirers shall not be required to reimburse the Company for Costs pursuant to
this Section where (i) the Company Board or Special Committee have withdrawn
their recommendation to the shareholders of the Company to approve and adopt the
Merger; (ii) an event described in Section 6.2(c) of this Agreement occurs;
(iii) the Merger does not receive the Company Shareholder Approval; or (iv) the
Company shall be in material default of the obligations required to be performed
by it under this Agreement.
(d) Except as otherwise specifically provided for herein,
whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses.
SECTION 7.4 AMENDMENT; SPECIAL COMMITTEE APPROVAL. This Agreement
may be amended by the Company and the Acquirers at any time before or after any
approval of this Agreement by the shareholders of the Company but, after any
such approval, no amendment shall be made which decreases the Merger
Consideration or which adversely affects the rights of the Public Shareholders
hereunder without the approval of such shareholders in the same amount required
for the Company Shareholder Approval. This Agreement may not be amended except
by an instrument in writing signed on behalf of all the parties. The approval of
the Special Committee shall be required for any action that may be taken by the
Company Board pursuant to this Agreement, including, without limitation, any
determination to terminate this Agreement, any amendment or modification of this
Agreement, any extension by the Company of the time for performance of any
obligations or such other acts of the Acquirers and any waiver of the Company's
rights hereunder.
SECTION 7.5 EXTENSION; WAIVER. At any time prior to the Effective
Time, the Acquirers, on the one hand, and the Company, on the other hand, may
but shall not be obligated
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to (a) extend the time for the performance of any of the obligations or other
acts of the other, (b) waive any inaccuracies in the representations and
warranties contained herein of the other or in any document, certificate or
writing delivered pursuant hereto by the other or (c) waive compliance by the
other with any of the agreements or conditions. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made in this Agreement shall not survive beyond
the Effective Time.
SECTION 8.2 ENTIRE AGREEMENT; ASSIGNMENT.
(a) This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof and thereof, including, but
not limited to, a certain non-binding letter of intent dated as of March 27,
2001, and the Existing Merger Agreement.
(b) Neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written consent of
the other party (except that Acquisition Corp. may assign its rights, interest
and obligations to any affiliate or Subsidiary of Acquisition Corp. without the
consent of the Company, provided that such assignment shall not relieve
Acquisition Corp. of any liability for any breach by such assignee). Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
SECTION 8.3 VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, each of which shall remain in full force
and effect.
SECTION 8.4 NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered in person, by overnight courier or telecopier to
the respective parties as follows:
If to Acquirers: Eli N. Futerman and Daniel J. Chessin
c/o Hahn Automotive Warehouse, Inc.
415 West Main Street
Rochester, New York 14608
Facsimile No.: 235-3108
with a copy to: Boylan, Brown, Code, Vigdor & Wilson, LLP
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2400 Chase Square
Rochester, New York 14604
Attention: Alan S. Lockwood, Esq.
Facsimile No.: 232-3528
If to the Company: Hahn Automotive Warehouse, Inc.
Attention: Special Committee, Chairman
c/o Daniel McDonald, Vice President and
General Counsel
415 West Main Street
Rochester, New York 14608
Facsimile No.: 235-3108
with a copy to: Underberg & Kessler LLP
1800 Chase Square
Rochester, New York 14604
Attention: Steven R. Gersz, Esq.
Facsimile No.: 258-2821
and
Woods Oviatt Gilman LLP
700 Crossroads Building
Two State Street
Rochester, New York 14614
Attention: Gordon E. Forth, Esq.
Facsimile No.: 454-3968
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above;
provided that notice of any change of address shall be effective only upon
receipt thereof.
SECTION 8.5 GOVERNING LAW; EXCLUSIVE JURISDICTION. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York, regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof. The Acquirers and the Company each
hereby submit to the exclusive jurisdiction of the United States District Court
for the Western District of New York and the Supreme Court of the State of New
York, County of Monroe, for the purpose of all legal proceedings arising out of
or relating to this Agreement or the transactions contemplated hereby. The
Acquirers and the Company each irrevocably waive, to the fullest extent
permitted by law, any objection which either of them may now or hereafter have
to the laying of the venue of any such proceeding brought in such a court and
any claim that any such proceeding brought in such a court has been brought in
an inconvenient forum.
SECTION 8.6 DESCRIPTIVE HEADINGS. The descriptive headings herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
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SECTION 8.7 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
SECTION 8.8 PARTIES IN INTEREST. Except with respect to Sections
2.1, 2.2, 2.3, 2.4 and 5.5 hereof (which are intended to be for the benefit of
the persons identified therein, and may be enforced by such persons), this
Agreement shall be binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
SECTION 8.9 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement and
Plan of Merger to be executed on its behalf by its respective officer thereunto
duly authorized, all as of the day and year first above written.
HAHN AUTOMOTIVE WAREHOUSE, INC.
By: /s/ William A. Buckingham
-------------------------------------
Name: William A. Buckingham
Title: Chairman, Special Committee
HAW ACQUISITION CORP.
By: /s/ Eli N. Futerman
-------------------------------------
Name: Eli N. Futerman
Title: Co-President
By: /s/ Daniel J. Chessin
-------------------------------------
Name: Daniel J. Chessin
Title: Co-President
GLICK, LLC
By: /s/ Daniel J. Chessin
-------------------------------------
Name: Daniel J. Chessin
Title: Manager
By /s/ Eli N. Futerman
-------------------------------------
Name: Eli N. Futerman
Title: Manager
ELI N. FUTERMAN
/s/ Eli N. Futerman
-----------------------------------------
DANIEL J. CHESSIN
/s/ Daniel J. Chessin
-----------------------------------------
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SCHEDULE A
----------
THE CONTINUING SHAREHOLDERS
Eli N. Futerman
Daniel J. Chessin
The Estate of Michael Futerman,
Eli N. Futerman, Executor
The Michael Futerman Marital Trust,
Eli N. Futerman, Trustee
Sara Futerman
Rina Chessin and her minor children
Peggy Futerman and her minor children
Daphne Futerman and her minor children
Ira Jevotovsky
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APPENDIX B
----------
[EMPIRE VALUATION CONSULTANTS LOGO]
EMPIRE VALUATION OPINION
PRIVATE & CONFIDENTIAL
May 16, 2001
Board of Directors of Hahn Automotive Warehouse, Inc.
Attention: William Buckingham, Director
Hahn Automotive Warehouse, Inc.
415 West Main Street
Rochester, New York 14608
Dear Sirs:
You, as the Board of Directors ("Board") of Hahn Automotive Warehouse, Inc.
("HAHN" or the "Company"), have asked Empire Valuation Consultants, Inc.
("Empire") to render our opinion to the Board as to whether the $3.00 per share
cash consideration (the "Merger Consideration") to be paid by HAW Acquisition
Corp. ("Acquisition Corp.") upon its proposed merger into HAHN is fair from a
financial point of view to the holders of HAHN Common Stock not held by the
Continuing Shareholders. Capitalized terms defined in the proposed Agreement and
Plan of Merger dated April 6, 2001 ("Merger Agreement") and used herein shall
have the same meanings as set forth in the Merger Agreement unless otherwise
specifically defined herein. Acquisition Corp. is a wholly owned subsidiary of
Glick LLC ("Holding Corp."), successor in interest to PERD Holding Corp. This
opinion supersedes and replaces in its entirety the opinion dated April 6, 2001.
As a result of the Merger, the Acquisition Corp. will be merged with and into
the Company. Following the Merger the separate corporate existence of the
Acquisition Corp. shall cease and HAHN shall continue as the surviving
corporation as a wholly owned subsidiary of Holding Corp. The outstanding common
shares held by HAHN shareholders just prior to the Merger excluding the shares
held by the Continuing Shareholders ("Acquired Shares"), shall, by virtue of the
Merger, be converted into the right to receive the Merger Consideration.
Due Diligence Review Process
In conducting our investigation and analysis, we have considered such financial
and other factors, as we deemed appropriate under the circumstances. We have,
among other things, done the
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following:
(1) Reviewed the Company's Securities and Exchange Commission ("SEC")
filings for 1996 through the present date, sourced through the SEC
Edgar database over the Internet or received directly from the Company.
From this data, we analyzed its historical business and financial
information, selected lease agreements, stock option plan and credit
facility agreements, among others;
(2) Reviewed the Going Private Proposal, dated January 16, 2001, issued by
Eli N. Futerman and Daniel J. Chessin, President and Chief Executive
Officer and Executive Vice President of the Company, respectively, to
HAHN's Board, and the related SEC Form 8-K filing dated January 19,
2001;
(3) On February 14, 2001, Empire was engaged by the Special Committee of
Independent Directors of HAHN to express our opinion as to the "fair
value" of HAHN's common stock and to evaluate the Going Private
Proposal. Empire evaluated HAHN from a market value, investment value
and asset value perspective and on March 14, 2001 and March 20, 2001
made presentations of our analysis to HAHN's Special Committee of
Independent Directors.
(4) Reviewed the executed Letter of Intent, dated March 26, 2001, between
HAHN and Eli N. Futerman and Daniel J. Chessin, on behalf of themselves
and a group of related shareholders noted above as Continuing
Shareholders.
(5) Reviewed the Agreement and Plan of Merger by and between PERD HOLDING
CORP., HAW Acquisition Corp. and HAHN, dated April 6, 2001;
(6) Reviewed numerous internally prepared business and financial records,
documents, and memos of HAHN, including internal profit and loss
statements (plan versus actual) for the periods ended March 31, 2001
and April 30, 2001;
(7) Reviewed the Company's Restated Certificate of Incorporation, dated
January 19, 1993 and the Amended and Restated By-Laws attached to
HAHN's 10Q for the quarter ending March 31, 1994;
(8) Visited HAHN's corporate office and held discussions with Daniel R.
McDonald and Albert J. Van Erp, Vice President & General Counsel and
Vice President and Controller, respectively, regarding its past
financial performance, its current, and planned operations, its
financial condition, and business prospects;
(9) Reviewed the historical stock prices and trading volumes of the
Company's Common Stock before and after the announcement of the Going
Private Proposal; and
(10) Considered such other information, financial studies, and analyses as
we deemed relevant, and performed such analyses, studies, and
investigations as we deemed
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appropriate.
Limitations
In rendering our opinion, Empire has relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information obtained by us from HAHN, from its financial and legal
advisors, and from public sources.
This opinion is intended solely for the use of the Board relative to the Merger
Consideration to be paid for the Acquired Shares. Empire has authorized HAHN to
include, or refer to, this opinion in any documents to be provided to the
Company's Common shareholders. In addition, the Company may provide this opinion
to the SEC, or any other government agency reviewing the proposed transaction.
Any other publication of this opinion letter requires prior written permission
from Empire.
Our opinion is necessarily based upon economic, market, and other conditions as
in effect on, and the information made available to us as of, the date of this
letter. Our opinion is limited to the fairness of the Merger Consideration in
the Merger Agreement to the holders of Common Stock as of the date hereof, from
a financial point of view.
In arriving at our opinion, we did not physically inspect the Company's owned or
leased facilities nor were any current independent appraisals of these
facilities or the physical assets or liabilities of the Company obtained.
We have assumed that the final Merger Agreement and related documents will
contain text, terms, and data substantially similar to those upon which Empire
has relied.
Opinion
Based upon the foregoing, and in reliance thereon, it is our opinion, as
financial advisors to HAHN's Board, that the Merger Consideration in the Merger
Agreement is fair to the Non-Continuing Shareholders of HAHN's Common Stock,
from a financial point of view.
Respectfully submitted,
EMPIRE VALUATION CONSULTANTS, INC.
/s/ Terence L. Griswold
- --------------------------------------------
Terence L. Griswold, ASA
Principal
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APPENDIX C
----------
NEW YORK BUSINESS CORPORATION LAW
SECTION 623. PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR
SHARES
(a) A shareholder intending to enforce his right under a section of
this chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which
term as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any
shareholder from whom written objection was not required and who elects to
dissent shall file with the corporation a written notice of such election,
stating his name and residence address, the number and classes of shares as to
which he dissents and a demand for payment of the fair value of his shares. Any
shareholder who elects to dissent from a merger under section 905 (Merger of
subsidiary corporation) or paragraph (c) of section 907 (Merger or consolidation
of domestic and foreign corporations) or from a share exchange under paragraph
(g) of section 913 (Share exchanges) shall file a written notice of such
election to dissent within twenty days after the giving to him of a copy of the
plan of merger or exchange or an outline of the material features thereof under
section 905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as
to which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall
cease to have any of the rights of a shareholder except the right to be paid the
fair value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in
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paragraph (g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer is
made. Upon expiration of such time, withdrawal of a notice of election shall
require the written consent of the corporation. In order to be effective,
withdrawal of a notice of election must be accompanied by the return to the
corporation of any advance payment made to the shareholder as provided in
paragraph (g). If a notice of election is withdrawn, or the corporate action is
rescinded, or a court shall determine that the shareholder is not entitled to
receive payment for his shares, or the shareholder shall otherwise lose his
dissenters' rights, he shall not have the right to receive payment for his
shares and he shall be reinstated to all his rights as a shareholder as of the
consummation of the corporate action, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by the
board as of the time of such expiration or completion, but without prejudice
otherwise to any corporate proceedings that may have been taken in the interim.
(f) At the time of filing the notice of election to dissent or within
one month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f), of an amount equal to eighty
percent of the amount of such offer, or (2) as to each shareholder who has not
yet submitted his certificates a statement that advance payment to him of an
amount equal to eighty percent of the amount of such offer will be made by
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the corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements were previously furnished, nor if in
connection with obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates [fig 1] for any such
shares represented by certificates.
(h) The following procedure shall apply if the corporation fails to
make such offer within such period of fifteen days, or if it makes the offer and
any dissenting shareholder or shareholders fail to agree with it within the
period of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the
expiration of whichever is applicable of the two periods last mentioned,
institute a special proceeding in the supreme court in the judicial district in
which the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in the
case of merger or consolidation, the surviving or new corporation is a foreign
corporation without an office in this state, such proceeding shall be brought in
the county where the office of the domestic corporation, whose shares are to be
valued, was located.
(2) If the corporation fails to institute such proceeding
within such period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the expiration
of such twenty day period. If such proceeding is not instituted within such
thirty day period, all dissenter's rights shall be lost unless the supreme
court, for good cause shown, shall otherwise direct.
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(3) All dissenting shareholders, excepting those who, as
provided in paragraph (g), have agreed with the corporation upon the price to be
paid for their shares, shall be made parties to such proceeding, which shall
have the effect of an action quasi in rem against their shares. The corporation
shall serve a copy of the petition in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner provided by law for
the service of a summons, and upon each nonresident dissenting shareholder
either by registered mail and publication, or in such other manner as is
permitted by law. The jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting
shareholder, as to whom the corporation requests the court to make such
determination, is entitled to receive payment for his shares. If the corporation
does not request any such determination or if the court finds that any
dissenting shareholder is so entitled, it shall proceed to fix the value of the
shares, which, for the purposes of this section, shall be the fair value as of
the close of business on the day prior to the shareholders' authorization date.
In fixing the fair value of the shares, the court shall consider the nature of
the transaction giving rise to the shareholder's right to receive payment for
shares and its effects on the corporation and its shareholders, the concepts and
methods then customary in the relevant securities and financial markets for
determining fair value of shares of a corporation engaging in a similar
transaction under comparable circumstances and all other relevant factors. The
court shall determine the fair value of the shares without a jury and without
referral to an appraiser or referee. Upon application by the corporation or by
any shareholder who is a party to the proceeding, the court may, in its
discretion, permit pretrial disclosure, including, but not limited to,
disclosure of any expert's reports relating to the fair value of the shares
whether or not intended for use at the trial in the proceeding and
notwithstanding subdivision (d) of section 3101 of the civil practice law and
rules.
(5) The final order in the proceeding shall be entered against
the corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at
such rate as the court finds to be equitable, from the date the corporate action
was consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest which
the corporation would have had to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any shareholder to accept the
corporate offer of payment for his shares was arbitrary, vexatious or otherwise
not in good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs and
expenses, including the fees and expenses of its counsel and of any experts
employed by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees incurred by
the corporation against any or all of the dissenting shareholders who are
parties to the proceeding, including any who have withdrawn their notices of
election as provided in paragraph (e), if the court finds that their refusal to
accept
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the corporate offer was arbitrary, vexatious or otherwise not in good faith. The
court may, in its discretion, apportion and assess all or any part of the costs,
expenses and fees incurred by any or all of the dissenting shareholders who are
parties to the proceeding against the corporation if the court finds any of the
following: (A) that the fair value of the shares as determined materially
exceeds the amount which the corporation offered to pay; (B) that no offer or
required advance payment was made by the corporation; (C) that the corporation
failed to institute the special proceeding within the period specified therefor;
or (D) that the action of the corporation in complying with its obligations as
provided in this section was arbitrary, vexatious or otherwise not in good
faith. In making any determination as provided in clause (A), the court may
consider the dollar amount or the percentage, or both, by which the fair value
of the shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the
proceeding, the corporation shall pay to each dissenting shareholder the amount
found to be due him, upon surrender of the certificates [fig 1] for any such
shares represented by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed
value therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in Section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this
section at a time when the corporation is insolvent or when such payment would
make it insolvent. In such event, the dissenting shareholder shall, at his
option:
(1) Withdraw his notice of election, which shall in such event
be deemed withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation
and, if it is liquidated, be subordinated to the rights of creditors of the
corporation, but have rights superior to the non-dissenting shareholders, and if
it is not liquidated, retain his right to be paid for his shares, which right
the corporation shall be obliged to satisfy when the restrictions of this
paragraph do not apply.
(3) The dissenting shareholder shall exercise such option
under subparagraph (1) or (2) by written notice filed with the corporation
within thirty days after the corporation has given him written notice that
payment for his shares cannot be made because of the restrictions of this
paragraph. If the dissenting shareholder fails to exercise such option as
provided, the corporation shall exercise the option by written notice given to
him within twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment
for his shares in the manner provided herein shall exclude the enforcement by
such shareholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in
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paragraph (e), and except that this section shall not exclude the right of such
shareholder to bring or maintain an appropriate action to obtain relief on the
ground that such corporate action will be or is unlawful or fraudulent as to
him.
(l) Except as otherwise expressly provided in this section, any notice
to be given by a corporation to a shareholder under this section shall be given
in the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as
provided in subparagraph (e)(2) of section 907 (Merger or consolidation of
domestic and foreign corporations).
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