AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 5, 2002.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
HUFFY CORPORATION
(Exact name of Registrant as specified in its charter)
<Table>
OHIO 3751 31-0326270
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</Table>
---------------------
225 BYERS ROAD
MIAMISBURG, OH 45342
(937) 866-6251
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
NANCY A. MICHAUD
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
HUFFY CORPORATION
225 BYERS ROAD
MIAMISBURG, OH 45342
(937) 866-6251
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPY TO:
CHARLES F. HERTLEIN, JR.
DINSMORE & SHOHL LLP
1900 CHEMED CENTER
255 EAST FIFTH STREET
CINCINNATI, OH 45202
(513) 977-8315
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon the
completion of the merger described herein.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) FEE
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, $1.00 par value............... 5,000,000 $3.846 19,232,181 $1,769.36
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- --------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act. Pursuant to Rule 457(f)
under the Securities Act, the proposed maximum aggregate offering price of
the registrant's common stock was calculated in accordance with Rule 457(f)
under the Securities Act as the difference between (a) $24,789,095, which is
the estimated book value of the shares of Gen-X Sports Inc. common stock and
preferred stock to be received by the registrant as of May 31, 2002, and (b)
$5,556,914, which is the amount of cash to be paid by the registrant for the
shares of Gen-X Sports Inc. common stock and preferred stock pursuant to the
merger.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
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PROSPECTUS
[HUFFY LOGO] [GEN-X LOGO]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
Huffy Corporation and Gen-X Sports Inc. have agreed to the acquisition of
Gen-X by Huffy under the terms of a merger agreement. When the merger is
completed, Gen-X stockholders will receive the number of shares of Huffy common
stock and the amount of cash described in the section of this joint proxy
statement/prospectus entitled "The Merger Agreement -- Merger Consideration," on
page for each share of Gen-X common stock, series B junior participating
preferred stock and series C non-voting preferred stock that they own. Assuming
that all shares of Huffy common stock which are held back for adjustments are
ultimately issued, Huffy will issue up to 5,000,000 shares of common stock in
the merger and immediately after the merger, Gen-X stockholders will hold
approximately 32% of the then-outstanding shares of Huffy common stock, based on
the number of shares of Huffy and Gen-X common stock, series B junior
participating preferred stock and series C non-voting preferred stock
outstanding on June 30, 2002. Huffy common stock is traded on the New York Stock
Exchange under the trading symbol "HUF." Huffy shareholders will continue to own
their existing shares which will not be affected by the merger. After the
merger, Gen-X will be a wholly-owned subsidiary of Huffy.
The merger cannot be completed unless the Huffy shareholders approve the
issuance of shares of Huffy common stock in the merger and Gen-X stockholders
approve the merger agreement. The obligations of Huffy and Gen-X to complete the
merger are also subject to the satisfaction or waiver of several conditions,
including the simultaneous closing of the purchase by Huffy of Gen-X Sports,
Inc., a related Ontario corporation, and receipt of approvals from regulatory
agencies. More information about Huffy, Gen-X and the merger is contained in
this joint proxy statement/prospectus. WE ENCOURAGE YOU TO READ THIS JOINT PROXY
STATEMENT/PROSPECTUS, INCLUDING THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON
PAGE BEFORE VOTING.
THE HUFFY BOARD OF DIRECTORS HAS APPROVED AND UNANIMOUSLY RECOMMENDS THAT
HUFFY SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO APPROVE THE ISSUANCE OF UP TO
5,000,000 SHARES OF HUFFY COMMON STOCK IN THE MERGER. THE GEN-X BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT GEN-X STOCKHOLDERS VOTE "FOR" THE PROPOSAL
TO APPROVE THE MERGER AGREEMENT, AS AMENDED.
The proposals are being presented to the respective stockholders of each
company at their special meetings. The dates, times and places of the meetings
are as follows:
<Table>
FOR HUFFY SHAREHOLDERS: FOR GEN-X STOCKHOLDERS:
, 2002, [a.m./p.m.] , 2002, [a.m./p.m.]
Huffy Corporation Gen-X Sports Inc.
225 Byers Road 36 Dufflaw Road
Miamisburg, Ohio 45342 Toronto, Ontario M6A 2W1
</Table>
Your vote is very important. Whether or not you plan to attend your
respective company's special meeting, please take the time to vote by completing
and mailing to us the enclosed proxy card, or by submitting your voting
instructions over the Internet or by telephone if that option is available to
you.
<Table>
<Caption>
Sincerely,
Don R. Graber James J. Salter
Chairman of the Board Chief Executive Officer
Huffy Corporation Gen-X Sports Inc.
</Table>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS
JOINT PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated , 2002, and is first
being mailed to Huffy and Gen-X stockholders on or about , 2002.
[Huffy Logo]
---------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 2002
---------------------
To the shareholders of Huffy Corporation:
We will hold a special meeting of shareholders of Huffy Corporation at the
corporate offices of Huffy Corporation, 225 Byers Road, Miamisburg, Ohio 45342
on , 2002, at [a.m./p.m.], Eastern Daylight Time, for the
following purposes:
1. To approve the issuance of up to 5,000,000 shares of Huffy common
stock pursuant to the Agreement and Plan of Merger, as amended, dated as of
June 5, 2002, by and among Huffy, HSGC, Inc., which is a wholly-owned
subsidiary of Huffy, and Gen-X Sports Inc., and as may be amended.
2. To approve an amendment to the articles of incorporation of Huffy.
3. To transact any other business as may properly come before the
special meeting or any adjournments or postponements of the special
meeting.
These items of business are described in the attached joint proxy
statement/prospectus. Only Huffy shareholders of record at the close of business
on , 2002, the record date for the special meeting, are entitled to
notice of and to vote at the special meeting and any adjournments or
postponements of the special meeting.
THE BOARD OF DIRECTORS OF HUFFY UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF THE ISSUANCE OF UP TO 5,000,000 SHARES OF HUFFY COMMON STOCK
PURSUANT TO THE MERGER AGREEMENT AND AS MAY BE AMENDED AND "FOR" APPROVAL OF THE
AMENDMENT TO THE ARTICLES OF INCORPORATION.
By Order of the Board of Directors,
Nancy A. Michaud
Secretary
, 2002
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. WHETHER YOU
EXPECT TO ATTEND OR NOT, PLEASE VOTE, SIGN AND DATE THE ENCLOSED PROXY CARD AND
MAIL IT PROMPTLY IN THE ENCLOSED, POSTAGE PAID ENVELOPE OR VOTE ELECTRONICALLY
BY TELEPHONE OR VIA THE INTERNET WHICH ELIMINATES THE NEED TO RETURN THE PROXY
CARD.
TO VOTE BY TELEPHONE:
- Have your proxy card in hand when you call.
- On a touch-tone telephone, call TOLL-FREE 1-866-207-3912, 24 hours a day,
7 days a week.
- You will be prompted to enter your control number printed in the box
located near the top of your proxy card.
- Follow the recorded instructions.
TO VOTE VIA INTERNET:
- Have your proxy card in hand when you access the web page.
- Go to http://www.eproxyvote.com/huf/.
- Have your control number printed in the box located at the top of your
proxy card available when you access the web page.
- Follow the web page instructions.
[Gen-X Logo]
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2002
---------------------
To the stockholders of Gen-X Sports Inc.:
We will hold a special meeting of stockholders of Gen-X Sports Inc. at 36
Dufflaw Road, Toronto, Ontario M6A 2W1 on , 2002, at [a.m./p.m.],
Eastern Daylight Time, for the following purposes:
1. To approve the Agreement and Plan of Merger, dated as of June 5,
2002, by and among Huffy Corporation, HSGC, Inc., which is a wholly-owned
subsidiary of Huffy, and Gen-X.
2. To transact any other business as may properly come before the
special meeting or any adjournments or postponements of the special
meeting.
These items of business are described in the attached joint proxy
statement/prospectus. Only Gen-X stockholders of record at the close of business
on , 2002, the record date for the special meeting, are entitled to
notice of and to vote at the special meeting and any adjournments or
postponements of the special meeting.
The board of directors of Gen-X recommends that you vote "FOR" approval of
the merger agreement.
By Order of the Board of Directors,
Kenneth Finkelstein
Secretary
, 2002
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. WHETHER YOU
EXPECT TO ATTEND OR NOT, PLEASE VOTE, SIGN AND DATE THE ENCLOSED PROXY CARD AND
MAIL IT PROMPTLY IN THE ENCLOSED, POSTAGE PAID ENVELOPE.
ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about Huffy from other documents that are not included in
or delivered with this joint proxy statement/prospectus. For a listing of the
documents incorporated by reference into this joint proxy statement/prospectus,
please see the section entitled "Where You Can Find More Information" beginning
on page .
Huffy will provide you with copies of this information relating to Huffy,
without charge, upon written or oral request to:
Huffy Corporation
225 Byers Road
Miamisburg, Ohio 45342
(937) 866-6251
Attn: Nancy A. Michaud
In addition, you may obtain copies of the information relating to Huffy,
without charge, by sending an e-mail to joya.murr@huffy.com.
IN ORDER FOR YOU TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF
THE HUFFY SPECIAL MEETING, HUFFY SHOULD RECEIVE YOUR REQUEST NO LATER THAN
, 2002.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 6
The Companies............................................. 6
The Merger................................................ 6
Vote Required for Approval................................ 7
Shareholder Group Agreement............................... 8
Conditions to the Completion of the Merger................ 8
Termination of the Merger Agreement....................... 8
Directors and Executive Officers Following the Merger..... 9
Opinion of Huffy Financial Advisor........................ 9
Opinion of Gen-X Financial Advisor........................ 9
Canadian Federal Income Tax Consequences of the Merger.... 9
United States Federal Income Tax Consequences of the
Merger................................................. 9
Accounting Treatment...................................... 10
Regulatory Filings and Approvals.......................... 10
Interests of Gen-X Stockholders, Directors and Officers in
the Merger............................................. 10
Dissenters' and Appraisal Rights.......................... 10
Restrictions on the Ability to Sell Huffy Common Stock.... 10
Other Huffy Special Meeting Proposals..................... 11
Summary Selected Historical Financial Data................ 12
Summary Unaudited Pro Forma Condensed Combining Financial
Data................................................... 19
Comparative Per Share Information......................... 24
Comparative Per Share Market Price Data................... 25
RISK FACTORS................................................ 26
Risks Related to the Merger............................... 26
Risks Related to Huffy and Gen-X.......................... 27
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS................................................ 29
THE SPECIAL MEETING OF HUFFY SHAREHOLDERS................... 31
Date, Time and Place...................................... 31
Purpose................................................... 31
Recommendation of the Huffy Board of Directors............ 31
Record Date............................................... 31
Quorum and Voting......................................... 31
Proxies................................................... 32
Revocation of Proxies..................................... 32
Solicitation of Proxies................................... 32
Communications by Huffy Shareholders with Huffy........... 32
THE SPECIAL MEETING OF GEN-X STOCKHOLDERS................... 33
Date, Time and Place...................................... 33
Purpose................................................... 33
Recommendation of the Gen-X Board of Directors............ 33
Record Date............................................... 33
Quorum and Voting......................................... 33
Proxies................................................... 34
Revocation of Proxies..................................... 34
Solicitation of Proxies................................... 34
Communications by Gen-X Stockholders with Gen-X........... 34
THE MERGER.................................................. 35
General................................................... 35
Background of the Merger.................................. 35
Reasons for the Merger -- Huffy........................... 37
Reasons for the Merger -- Gen-X........................... 38
</Table>
i
<Table>
<Caption>
PAGE
----
Opinion of Financial Advisor -- Huffy..................... 40
Opinion of Financial Advisor -- Gen-X..................... 44
Interests of Gen-X Stockholders, Directors and Officers in
the Merger............................................. 48
Financing for the Merger.................................. 49
Canadian Federal Income Tax Consequences of the Merger.... 49
United States Federal Income Tax Consequences of the
Merger................................................. 51
Accounting Treatment of the Merger........................ 55
Regulatory Filings and Approvals Required to Complete the
Merger................................................. 55
Restrictions on Sales of Shares by Affiliates of Huffy and
Gen-X.................................................. 55
Listing on the New York Stock Exchange.................... 55
Operations After the Merger............................... 55
DISSENTERS' AND APPRAISAL RIGHTS............................ 56
Gen-X Stockholders........................................ 56
Huffy Shareholders........................................ 58
THE MERGER AGREEMENT........................................ 61
Structure of the Transaction.............................. 61
Completion and Effectiveness of the Merger................ 61
Merger Consideration...................................... 61
Fractional Shares......................................... 62
Exchange of Gen-X Stock Certificates for Huffy Stock
Certificates........................................... 62
Distributions with Respect to Unexchanged Shares.......... 63
Transfers of Ownership and Lost Stock Certificates........ 63
Stock Options............................................. 63
Redemption of Preferred Stock............................. 63
Representations and Warranties............................ 63
Conduct of Business by Gen-X Before Completion of the
Merger................................................. 65
Conduct of Business by Huffy Before Completion of the
Merger................................................. 66
Access and Information.................................... 66
No Solicitation by Gen-X.................................. 66
Approvals from Governmental Entities and Third Parties.... 66
Stockholder Meetings...................................... 67
Financial Statements...................................... 67
Financing................................................. 67
Gen-X Employee Benefit Plans.............................. 67
Notification of Certain Matters........................... 67
Further Assurances; Further Action........................ 68
Tax-Free Reorganization Treatment......................... 68
Board Representation...................................... 68
Sale of Huffy Common Stock................................ 68
Stockholder and Optionee List............................. 68
Operation of Surviving Corporation After Closing.......... 68
Insurance................................................. 68
Conditions to the Completion of the Merger................ 69
Termination of the Merger Agreement....................... 71
Amendment and Waiver...................................... 71
Indemnification........................................... 72
SHAREHOLDER GROUP AGREEMENT................................. 72
EMPLOYMENT AGREEMENTS....................................... 73
DESCRIPTION OF HUFFY CAPITAL STOCK.......................... 74
General................................................... 74
Common Stock.............................................. 74
Preferred Stock........................................... 74
Rights Agreement.......................................... 75
</Table>
ii
<Table>
<Caption>
PAGE
----
COMPARISON OF RIGHTS OF HUFFY SHAREHOLDERS AND GEN-X
STOCKHOLDERS.............................................. 75
Dividends................................................. 76
Preemptive Rights......................................... 76
Cumulative Voting......................................... 76
Number of Directors....................................... 76
Removal of Directors...................................... 76
Vacancies................................................. 77
Special Meetings.......................................... 77
Shareholder Action by Written Consent..................... 77
Advance Notice Provisions For Shareholder Nominations..... 77
Amendments to Charter Documents........................... 77
Certain Anti-takeover Provisions.......................... 78
Consideration of Other Constituencies..................... 82
Liability and Indemnification of Directors................ 82
OTHER SPECIAL MEETING PROPOSAL FOR HUFFY.................... 84
Amendment to Articles of Incorporation of Huffy........... 84
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF GEN-X....................................... 85
LEGAL MATTERS............................................... 87
EXPERTS..................................................... 87
SHAREHOLDER PROPOSALS....................................... 87
WHERE YOU CAN FIND MORE INFORMATION......................... 87
FINANCIAL STATEMENTS OF GEN-X SPORTS, INC................... FS-1
</Table>
<Table>
ANNEXES
- -------
Annex A Agreement and Plan of Merger, as amended
Annex B Shareholder Group Agreement
Annex C Opinion of A.G. Edwards & Sons, Inc.
Annex D Opinion of Sheffield Merchant Banking Group
Annex E Dissenters' Rights Under Section 262 of the Delaware General
Corporation Law
Annex F Dissenters' Rights Under Section 1701.85 of the Ohio Revised
Code
</Table>
iii
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY AM I RECEIVING THIS JOINT PROXY STATEMENT/PROSPECTUS?
A: Huffy has agreed to acquire Gen-X Sports under the terms of a merger
agreement and a share purchase agreement for up to 5,000,000 shares of Huffy
common stock and $19,000,000 in cash. Gen-X Sports is comprised of two
corporations with substantially the same ownership: Gen-X Sports Inc., a
Delaware corporation and Gen-X Sports, Inc., an Ontario corporation. For
convenience, we will refer to Gen-X Sports Inc., the Delaware corporation,
as "Gen-X" and we will refer to Gen-X Sports, Inc., the Ontario corporation,
as "Gen-X Ontario" in this joint proxy statement/prospectus.
Under the merger agreement described in this joint proxy
statement/prospectus, Gen-X will merge with and into HSGC, Inc., a
wholly-owned subsidiary of Huffy. Under the share purchase agreement, HSGC
Canada, Inc., a wholly-owned subsidiary of Huffy, will purchase the
outstanding capital stock of Gen-X Ontario. The merger and stock purchase
will be effected simultaneously and each is conditioned upon the closing of
the other transaction. As a result of the merger and stock purchase, Gen-X
and Gen-X Ontario will become wholly-owned subsidiaries of Huffy.
Huffy shareholders and Gen-X stockholders are being asked to consider and
vote only upon the merger in this joint proxy statement/prospectus. In order
to complete the merger, Huffy shareholders must vote to approve the issuance
of shares of Huffy common stock in the merger and Gen-X stockholders must
vote to approve the merger agreement.
Huffy and Gen-X will hold separate special meetings of their respective
stockholders to obtain these approvals. This joint proxy
statement/prospectus contains important information regarding the merger and
the special meetings. We encourage you to read carefully the entire joint
proxy statement/prospectus.
Q: WHAT ARE THE BUSINESSES OF HUFFY AND GEN-X?
A: Huffy is engaged in the design, manufacture and sale of wheeled products and
basketball backboards and accessories and the assembly and repair of a
variety of wheeled and other products and merchandising services to retail
customers. Gen-X is a designer, marketer and distributor of branded sports
equipment, including action sports products, winter sports products and golf
products, and is a purchaser and reseller of sporting goods and athletic
footwear inventories.
Q: WHY ARE THE COMPANIES PROPOSING TO MERGE?
A: Huffy and Gen-X are proposing to merge because we believe the resulting
combination will create a stronger, more competitive sporting goods company
capable of achieving greater financial strength, earnings power, operational
efficiencies and growth potential than either company would have on its own.
The combination of Huffy and Gen-X will also broaden each company's brand
portfolios and sporting goods product offerings and broaden and diversify
the customer base. Additionally, we believe that the combination has the
potential to decrease seasonal fluctuations in sales and earnings -- as an
example, Huffy's sales and earnings are historically lowest in the third
quarter, which is Gen-X's strongest quarter. To review the reasons for the
merger in greater detail, see pages to .
Q: WHAT WILL BE THE EFFECT OF THE MERGER ON THE STOCKHOLDERS OF HUFFY AND
GEN-X?
A: At the effective time of the merger, Gen-X will merge with and into HSGC,
which is a wholly-owned subsidiary of Huffy. HSGC will survive the merger as
a wholly-owned subsidiary of Huffy, and its name will be changed to Gen-X
Sports Inc. Assuming that all Huffy shares which are held back to provide
for adjustments are ultimately issued and based on the outstanding shares of
Huffy's common stock as of June 30, 2002, after the merger, the current
shareholders of Huffy will own approximately 68% of Huffy common stock
outstanding and the former stockholders of Gen-X will own approximately 32%
of Huffy common stock outstanding.
1
Q: WHAT WILL GEN-X STOCKHOLDERS RECEIVE IN THESE TRANSACTIONS?
A: There are two simultaneous transactions, the acquisition of Gen-X by merger
which is the specific subject of this joint proxy statement/prospectus, and
the acquisition of Gen-X Ontario by stock purchase.
Merger. Huffy has agreed to pay total merger consideration of $5,556,914
cash plus up to 5,000,000 shares of Huffy common stock. All currency
references in this document are expressed in U.S. dollars unless otherwise
stated. This total consideration will be payable, subject to certain
adjustment and holdback provisions, to the holders of Gen-X common stock,
series B junior participating preferred stock and series C non-voting
preferred stock, as well as to the holders of outstanding Gen-X stock
options, on a pro rata basis. Because the outcome of the price adjustment
mechanism cannot be predicted in advance, and because the exact numbers of
outstanding shares of Gen-X common stock and stock options are likely to
change between now and the closing, we are not able to specify the exact per
share consideration Gen-X stockholders will receive in the merger.
Stock Purchase. Huffy has agreed to purchase all of the outstanding shares
of Gen-X Ontario common stock for $13,443,086 and to purchase all of the
outstanding shares of Gen-X Ontario preferred stock for $2,000,000. As
described above, the Gen-X Ontario transaction is separate from the merger,
and neither the Huffy shareholders nor the Gen-X stockholders are being
asked to vote on the Canadian transaction. However, the closing of the
merger and the Gen-X Ontario stock purchase are mutually conditioned upon
one another.
Q: WILL PAYMENTS BE MADE TO HOLDERS OF ANY OTHER CLASSES OF GEN-X CAPITAL
STOCK?
A: Yes. Gen-X has outstanding a class of series A 7% redeemable preferred
stock, which, unlike the series B and series C preferred stock, is not
convertible into Gen-X common stock and is therefore not considered a common
stock equivalent. At the closing of the merger, the series A preferred stock
will be redeemed, in accordance with its terms, for $2,970,000 cash. This
amount is in addition to the total merger consideration described in the
preceding question and answer.
Q: WILL HUFFY ASSUME ANY DEBT AS A RESULT OF THE MERGER OR SHARE PURCHASE?
A: Yes. Huffy will assume all of the consolidated debt of Gen-X and Gen-X
Ontario through the merger and share purchase which ranged from a low of
approximately $16,902,721 to a high of approximately $54,719,730, averaging
approximately $38,447,258 during the year ended December 31, 2001.
Q: WHAT POTENTIAL ADJUSTMENTS MAY AFFECT THE TOTAL CASH MERGER CONSIDERATION
PAYABLE TO THE GEN-X STOCKHOLDERS?
A: The total cash consideration of $5,556,914 is subject to reduction by the
amount, if any, that the total fees Gen-X is required to pay its financial
advisors exceed a specified dollar amount.
Q: WHAT POTENTIAL ADJUSTMENTS MAY AFFECT THE TOTAL MERGER CONSIDERATION PAYABLE
IN THE FORM OF HUFFY COMMON STOCK?
A: The total stock consideration is subject to a maximum potential reduction of
838,710 Huffy shares which will not be distributed at the closing and will
serve as a reserve for two types of potential adjustments, the first of
which is based upon the actual 2002 financial performance of Gen-X which
will not be known at the time of closing, and the second of which is based
upon any breaches by Gen-X of its representations and warranties in the
merger agreement.
The amount of any financial performance-related adjustments will be
determined following the completion of the Huffy/Gen-X audit for the year
ending December 31, 2002 and following the completion of any dispute
resolution procedures after that. We anticipate that the 2002 audit will be
completed in mid-February 2003 and that any adjustment amounts would be
finally determined 30 to 60 days later. At that time, up to 580,645 of the
held back Huffy shares, minus the amount needed to
2
satisfy the financial adjustment, if any, will be released to the former
Gen-X stockholders. See pages to for a detailed discussion of the
financial adjustment provisions of the merger agreement.
Up to 258,065 remaining held back Huffy shares will continue to be held
until the first anniversary of the closing, at which time any shares not
required to satisfy Gen-X indemnification obligations relating to breached
representations and warranties, will be released to the former Gen-X
stockholders. See pages to for a discussion of the representations and
warranties and the related indemnification provisions of the merger
agreement.
Q: WHAT VOTE OF HUFFY SHAREHOLDERS IS REQUIRED TO APPROVE THE ISSUANCE OF HUFFY
COMMON STOCK IN THE MERGER?
A: The affirmative vote of the holders of two-thirds of the outstanding shares
of Huffy common stock entitled to vote at the Huffy special meeting is
required to approve the issuance of Huffy common stock to the Gen-X
stockholders in the merger.
Q: WHAT VOTE OF GEN-X STOCKHOLDERS IS REQUIRED TO APPROVE THE MERGER AGREEMENT?
A: The affirmative vote of the holders of a majority of the outstanding shares
of Gen-X common stock and preferred stock entitled to vote at the special
meeting is required to approve the merger agreement.
Q: DOES THE BOARD OF DIRECTORS OF HUFFY RECOMMEND VOTING IN FAVOR OF THE
ISSUANCE OF HUFFY SHARES IN THE MERGER?
A: Yes. After careful consideration, the board of directors of Huffy
unanimously recommends that Huffy shareholders vote in favor of the issuance
of Huffy common stock to the Gen-X stockholders in the merger.
Q: DOES THE BOARD OF DIRECTORS OF GEN-X RECOMMEND VOTING IN FAVOR OF THE
MERGER?
A: Yes. After careful consideration, the board of directors of Gen-X recommends
that Gen-X stockholders vote in favor of the adoption of the merger
agreement and the approval of the merger.
Q: HAVE ANY HUFFY SHAREHOLDERS AGREED TO VOTE IN FAVOR OF THE ISSUANCE OF HUFFY
COMMON STOCK IN THE MERGER?
A: No.
Q: HAVE ANY GEN-X STOCKHOLDERS AGREED TO VOTE IN FAVOR OF THE MERGER?
A: Yes. DMJ Financial, Inc., its two stockholders K&J Financial Holdings, Inc.
and DLS Financial, Inc., the sole stockholder of K&J, Kenneth Finkelstein
Family Trust, the sole stockholder of DLS, James Salter Family Trust,
Kenneth Finkelstein, James Salter and Osgoode Financial Inc. have agreed to
vote shares totaling approximately 57% of the outstanding shares of Gen-X
common stock, approximately 57% of the outstanding shares of the series C
non-voting preferred stock and 100% of the outstanding series A 7%
redeemable preferred stock in favor of adoption of the merger agreement and
approval of the merger.
Q: ARE THERE RISKS THAT I SHOULD CONSIDER IN DECIDING HOW TO VOTE?
A: Yes. In evaluating the merger, you should carefully consider the factors
discussed in the section entitled "Risk Factors."
Q: WHAT DO I NEED TO DO NOW?
A: You need to mail your signed proxy card in the enclosed return envelope as
soon as possible so that your shares may be represented at your stockholder
meeting or vote electronically by telephone or via the Internet if that
option is available to you. If you do not include instructions on how to
vote your
3
properly signed proxy card, your shares of capital stock will be voted "FOR"
approval of each of the proposals on the proxy card.
For Gen-X stockholders please do NOT send your Gen-X stock certificates at
this time.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Brokers cannot vote your shares without instructions from you on how to
vote. Therefore, it is important that you follow the directions provided by
your broker regarding how to instruct your broker to vote your shares.
Q: WHAT IF I DO NOT VOTE?
A: For both Gen-X and Huffy stockholders, if you sign, date and mail your proxy
card without indicating how you want to vote, your proxy will be voted in
favor of each of the proposals listed on the card. For Gen-X stockholders
only, if you fail to mail your proxy card, the effect will be the same as a
vote against the merger.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: If you want to change your vote, send the secretary of your company, a
later-dated, signed proxy card before your stockholder meeting or attend the
meeting and vote in person. You may also revoke your proxy by sending
written notice to the applicable secretary before the meeting or by
attending the meeting and voting in person.
Q: AS A GEN-X STOCKHOLDER, SHOULD I SEND IN MY GEN-X STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Huffy will send you written instructions
for exchanging your Gen-X stock certificates for Huffy stock certificates
and the cash consideration.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: Huffy and Gen-X are working toward completing the merger as quickly as
possible. We hope to complete the merger in the fourth calendar quarter of
2002. The merger agreement provides that we will not close the merger prior
to October 1, 2002.
Q: ARE GEN-X STOCKHOLDERS ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS?
A: Yes. Gen-X stockholders have the opportunity to assert dissenters' rights
relating to the merger. In order to claim these rights, Gen-X stockholders
must comply with the requirements of Delaware law. You should read the
section entitled "Dissenters' and Appraisal Rights."
Q: ARE HUFFY SHAREHOLDERS ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS?
A: Yes. Huffy shareholders have the right to assert dissenters' rights relating
to the merger. In order to claim those rights Huffy shareholders must comply
with the requirements of Ohio law. You should read the section entitled
"Dissenters' and Appraisal Rights."
Q: AS A HUFFY SHAREHOLDER, AM I BEING ASKED TO VOTE ON ANY OTHER PROPOSALS?
A: Yes. In addition to being asked to approve the issuance of Huffy shares in
the merger, Huffy shareholders will be asked to vote on an amendment to
Huffy's articles of incorporation to reduce the vote required by
shareholders to approve certain specified matters from a two-thirds vote to
a majority vote of outstanding shares.
This proposal is not related to the merger or share purchase, and the
completion of those transactions is not contingent on the receipt of
approval of the proposed amendment to Huffy's articles of incorporation.
4
The board of directors of Huffy recommends that Huffy shareholders vote in
favor of this proposal.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or how to submit your proxy, or
if you need additional copies of this joint proxy statement/prospectus or
the enclosed proxy card or voting instructions, you should contact:
- if you are a Huffy shareholder:
Huffy Corporation
225 Byers Road
Miamisburg, Ohio 45342
(937) 866-6251
Attn: Nancy A. Michaud
- if you are a Gen-X stockholder:
Gen-X Sports Inc.
36 Dufflaw Road
Toronto, Ontario
M6A 2W1
Canada
(416) 630-4996
Attn: Kenneth Finkelstein
5
SUMMARY
The following is a summary of information contained in this joint proxy
statement/prospectus. This summary may not contain all of the information about
the merger that is important to you. For a more complete description of the
merger, we encourage you to read carefully this entire joint proxy
statement/prospectus, including the attached annexes. In addition, we encourage
you to read the information incorporated by reference into this joint proxy
statement/prospectus, which includes important business and financial
information about Huffy which we have filed with the Securities and Exchange
Commission, or the SEC. You may obtain the information incorporated by reference
into this joint proxy statement/prospectus without charge by following the
instructions in the section entitled "Where You Can Find More Information."
THE COMPANIES
Huffy Corporation
225 Byers Road
Miamisburg, Ohio 45342
(937) 866-6251
Huffy Corporation and its subsidiaries are engaged in the design,
manufacture and sale of wheeled products and basketball backboards and
accessories and the assembly and repair of a variety of wheeled and other
products and merchandising services to retail customers. Huffy is traded on the
New York Stock Exchange under the symbol "HUF."
HSGC, Inc. is a wholly-owned subsidiary of Huffy that was formed solely for
the purpose of effecting the merger. HSGC has not conducted and will not conduct
any business during any period of its existence prior to the effective time of
the merger.
Gen-X Sports Inc.
36 Dufflaw Road
Toronto, Ontario
M6A 2W1
Canada
(416) 630-4996
Gen-X Sports Inc. designs, manufactures, markets and distributes various
branded sporting goods products across categories which include golf,
snowboards, various action sports equipment and skis. Gen-X brands include,
among others: for golf . . . Tommy Armour(R), Ram(R), TearDrop(R) and Zebra(R);
for snowboards . . . Limited(R), Lamar(R) and Sims(R); for action sports . . .
Oxygen(R), Rage(R) and Dukes(R); for skis . . . Volant(R); for hockey . . .
Hespeler(R); and for in-line skates . . . Ultra-Wheels(R) and Street Attack(R).
Gen-X also supports separate business units dedicated to the licensing and sale
of opportunity/excess inventory.
THE MERGER (See page )
In the merger, Gen-X will merge with and into HSGC, which is a wholly-owned
subsidiary of Huffy. HSGC will survive the merger as a wholly-owned subsidiary
of Huffy, and its name will be changed to Gen-X Sports Inc.
Huffy has agreed to pay total merger consideration of $5,556,914 cash plus
up to 5,000,000 shares of Huffy common stock. All currency references in this
document are expressed in U.S. dollars unless otherwise stated. This total
consideration will be payable, subject to certain adjustment and holdback
provisions, to the holders of Gen-X common stock, series B junior participating
preferred stock and series C non-voting preferred stock, as well as to the
holders of outstanding Gen-X stock options, on a pro rata basis. Because the
outcome of the price adjustment mechanism cannot be predicted in advance, and
because the exact numbers of outstanding shares of Gen-X common stock and stock
options are likely to change between now and the closing, we are not able to
specify the exact per share consideration Gen-X stockholders will receive in the
merger.
6
The total cash consideration of $5,556,914 is subject to reduction by the
amount, if any, that the total fees Gen-X is required to pay its financial
advisors exceed a specified amount.
The total stock consideration is subject to a maximum potential reduction
of 838,710 Huffy shares which will not be distributed at the closing and will
serve as a reserve for two types of potential adjustments, the first of which is
based upon the actual 2002 financial performance of Gen-X which will not be
known at the time of closing, and the second of which is based upon any breaches
by Gen-X of its representations and warranties in the merger agreement.
The amount of any financial performance-related adjustments will be
determined following the completion of the corresponding Huffy/Gen-X audit for
the year ending December 31, 2002 and following the completion of any dispute
resolution procedures after that. We anticipate that the 2002 audit will be
completed in mid-February 2003 and that any adjustment amounts would be finally
determined 30 to 60 days later. At that time, up to 580,645 of the held back
Huffy shares, minus the amount needed to satisfy the financial adjustment, if
any, will be released to the former Gen-X stockholders.
The remaining 258,065 held back Huffy shares will continue to be held until
the first anniversary of the closing, at which time any shares not required to
satisfy Gen-X indemnification obligations relating to breached representations
and warranties, will be released to the former Gen-X stockholders.
In addition to the merger consideration described above, at the closing
Huffy will redeem all outstanding shares of Gen-X series A 7% redeemable
preferred stock, for aggregate consideration of $2,970,000, and in the share
purchase, purchase all of the outstanding Gen-X Ontario class A redeemable
preference shares for aggregate consideration of $2,000,000. All of the shares
of Gen-X series A 7% redeemable preferred stock are owned by DMJ Financial,
Inc., a principal stockholder of Gen-X and all of the shares of Gen-X Ontario
class A redeemable preference shares are owned by Osgoode Financial Inc., which
is an affiliate of James Salter and Kenneth Finkelstein.
The merger will be effected simultaneously with, and conditioned upon, the
stock purchase of Gen-X Ontario by HSGC Canada, which is a wholly-owned
subsidiary of Huffy. The aggregate consideration payable to the stockholders of
Gen-X Ontario for their shares of common stock will be $13,443,086. Following
consummation of the merger and the stock purchase, both Gen-X and Gen-X Ontario
will be wholly-owned subsidiaries of Huffy.
VOTE REQUIRED FOR APPROVAL (See pages and )
The holders of two-thirds of the outstanding shares of Huffy common stock
must approve the issuance of Huffy common stock in the merger. Huffy
shareholders are entitled to cast one vote per share of Huffy common stock owned
as of Huffy's record date. As of the record date, Huffy's directors and
executive officers directly or indirectly held shares of Huffy common
stock, which represented approximately % of all outstanding shares of Huffy
common stock entitled to vote at Huffy's special meeting.
The holders of a majority of the outstanding shares of Gen-X common stock
and series B junior participating preferred stock, voting together as a single
class, and the holders of a majority of the outstanding shares of Gen-X series A
7% redeemable preferred stock and series C non-voting preferred stock, voting as
separate classes, must adopt the merger agreement and approve the merger. Gen-X
stockholders are entitled to cast one vote per share of Gen-X common stock,
series A 7% redeemable preferred stock, series B junior participating preferred
stock and series C non-voting preferred stock owned as of the Gen-X record date.
As of the record date, Gen-X directors and executive officers directly or
indirectly held shares of Gen-X common stock, shares of series A 7%
redeemable preferred stock, and shares of series C non-voting preferred
stock, which represented approximately %, % and % of all
outstanding shares of Gen-X common stock and series B junior participating
preferred stock, series A 7% redeemable preferred stock and series C non-voting
preferred stock, respectively, entitled to vote on the merger.
DMJ Financial, Inc., a Gen-X stockholder, its two stockholders, K&J
Financial Holdings, Inc. and DLS Financial, Inc., the sole stockholder of K&J,
Kenneth Finkelstein Family Trust, the sole stockholder of DLS, James Salter
Family Trust, Kenneth Finkelstein, James Salter and Osgoode Financial Inc. have
agreed to vote
7
their shares of Gen-X common stock, series A 7% redeemable preferred stock, and
series C non-voting preferred stock, representing 57%, 100%, and 57% of the
outstanding shares of each such class of Gen-X capital stock, in favor of
adoption of the merger agreement and approval of the merger. As a result of this
agreement, the merger will be approved at the Gen-X special meeting.
SHAREHOLDER GROUP AGREEMENT (See page )
In connection with the merger agreement, Huffy, HSGC and HSGC Canada will
enter into a shareholder group agreement with DMJ Financial, Inc., its two
stockholders K&J Financial Holdings, Inc. and DLS Financial, Inc., the sole
stockholder of K&J, Kenneth Finkelstein Family Trust, the sole stockholder of
DLS, James Salter Family Trust, Osgoode Financial Inc., Kenneth Finkelstein and
James Salter.
The shareholder group agreement (i) restricts the acquisition and transfer
of voting securities of Huffy by members of the shareholder group for four years
after the closing of the merger or until the parties terminate the agreement and
(ii) provides that each member of the shareholder group will vote its voting
securities of Huffy in accordance with the voting recommendation of Huffy's
management for four years after the closing of the merger or until the parties
terminate the agreement; however, the transfer restrictions will cease to apply
to certain members of the shareholder group if their employment is terminated
after the second anniversary of the closing.
CONDITIONS TO THE COMPLETION OF THE MERGER (See page )
Huffy and Gen-X will complete the merger only if a number of conditions are
satisfied or waived, including, but not limited to, the following:
- the merger agreement must have been adopted and the merger must have been
approved by the Gen-X stockholders;
- the issuance of Huffy common stock in connection with the merger must
have been approved by the Huffy shareholders;
- Huffy and Gen-X must have obtained all legally required permits and
approvals;
- Huffy and Gen-X must have received their respective tax, legal and
fairness opinions;
- no events or circumstances have occurred after the date of the merger
agreement that have had, or are reasonably expected to have, a material
adverse effect on Huffy or Gen-X;
- no law, regulation or order prohibits the completion of the merger;
- Huffy must have secured the consent of its lender to the merger, the
stock purchase and the financing of such transactions on terms and
conditions that are acceptable to Huffy or has arranged for alternative
financing on terms and conditions that are acceptable to Huffy; and
- the stock purchase of Gen-X Ontario by HSGC Canada must be consummated
simultaneously with the merger.
TERMINATION OF THE MERGER AGREEMENT (See page )
Huffy and Gen-X mutually may agree to terminate the merger agreement at any
time. In addition, either party may terminate the merger agreement if, among
other things:
- certain conditions set forth in the merger agreement become incapable of
fulfillment (other than because the terminating party breached the merger
agreement);
- the merger is not completed on or before December 5, 2002 (other than
because the terminating party breached the merger agreement);
- the other party is in material breach of any of its covenants contained
in the merger agreement and the breach is not cured within 20 business
days;
- the other party is in breach of any of its representations or warranties
contained in the merger agreement, and the breach is reasonably expected
to have a material adverse effect on the party and is not cured within 20
business days; or
- a court or other governmental entity issues a final order or ruling that
restrains or prohibits the merger.
8
DIRECTORS AND EXECUTIVE OFFICERS FOLLOWING THE MERGER (See page )
Following the merger, the current directors and executive officers of Huffy
will continue to serve as its directors and executive officers. After the
merger, the directors of HSGC will serve as the directors of the surviving
corporation and certain executive officers of Gen-X will become officers of
HSGC.
OPINION OF HUFFY FINANCIAL ADVISOR (See page )
On June 4, 2002, A.G. Edwards & Sons, Inc., financial advisor to Huffy,
delivered to the Huffy board of directors its oral opinion, which was confirmed
by delivery of a written opinion dated May 31, 2002, that, as of May 31, 2002,
and based upon and subject to the factors and assumptions set forth in the
opinion, the merger and the stock purchase is fair to Huffy, from a financial
point of view. The full text of the written opinion of A.G. Edwards is attached
to this joint proxy statement/prospectus as Annex C and should be read carefully
in its entirety to understand the procedures followed, the assumptions made, the
matters considered and the limitation on the review undertaken in providing the
opinion. The opinion of A.G. Edwards is directed to the Huffy board of directors
and does not constitute a recommendation to any shareholder as to how to vote
with respect to any matter relating to the proposed merger and the stock
purchase.
OPINION OF GEN-X FINANCIAL ADVISOR (See page )
On May 9, 2002, Sheffield Merchant Banking Group, financial advisor to
Gen-X, delivered an oral opinion, subsequently confirmed in writing June 27,
2002, that, based upon and subject to the assumptions, limitations and
qualifications set forth in the opinion, the aggregate consideration to be
received by Gen-X and Gen-X Ontario pursuant to the merger and share purchase is
fair to such holders from a financial point of view. Sheffield Merchant Banking
Group rendered this opinion with respect to all Gen-X stockholders other than
James J. Salter and Kenneth J. Finkelstein and their affiliates. The full text
of the written opinion of Sheffield Merchant Banking Group is attached to this
joint proxy statement/prospectus as Annex D and should be read carefully in its
entirety to understand the procedures followed, the assumptions made, the
matters considered and the limitation on the review undertaken in providing the
opinion. The opinion of Sheffield Merchant Banking Group is directed to the
Gen-X and Gen-X Ontario boards of directors and does not constitute a
recommendation to any stockholder as to how to vote with respect to any matter
relating to the proposed merger.
CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (See page )
On the merger of Gen-X and HSGC as contemplated by the Agreement and Plan
of Merger, as amended, dated as of June 5, 2002, Canadian resident holders of
Gen-X common stock, series B junior participating preferred stock and series C
non-voting preferred stock should realize gain or loss. In addition, Canadian
resident holders of Gen-X series A 7% redeemable preferred stock should realize
gain or loss on the redemption of that stock immediately after the merger.
Canadian resident Gen-X optionholders should incur taxable income on the
disposition of their Gen-X options for Huffy stock and cash.
See "Canadian Federal Income Tax Consequences of the Merger" for a more
detailed description of the above matters.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (See page )
It is a condition to the completion of the merger that both Huffy and Gen-X
receive an opinion from KPMG LLP to the effect that the merger will be treated
as a reorganization described in Section 368(a) of the Internal Revenue Code.
9
If the merger is treated as a reorganization under the Internal Revenue
Code, in general, for federal income tax purposes:
- no gain or loss will be recognized by the holders of Huffy common stock;
- a gain, if any, but not a loss, will be recognized by the Gen-X
stockholders to the extent of the lesser of (i) the fair market value of
Huffy common stock as of the closing, plus the amount of cash received,
less such stockholder's tax basis in the Gen-X common stock, series B
junior participating preferred stock or series C non-voting preferred
stock surrendered and (ii) the amount of cash received. In most cases
gain will be a capital gain; and
- Gen-X stockholders also may recognize a gain or loss by reason of cash
received in lieu of fractional shares or upon the exercise of dissenters'
rights.
See "United States Federal Income Tax Consequences of the Merger" for a
more detailed description of the above matters and for information with respect
to certain taxpayers subject to special treatment under the Internal Revenue
Code.
ACCOUNTING TREATMENT (See page )
Huffy will account for the merger under the purchase method of accounting
for business combinations under United States generally accepted accounting
principles.
REGULATORY FILINGS AND APPROVALS (See page )
We believe the merger is not subject to the report filing requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. However,
the Department of Justice or the Federal Trade Commission, as well as a state
agency, a government agency or private persons, could still challenge the
merger.
INTERESTS OF GEN-X STOCKHOLDERS, DIRECTORS AND OFFICERS IN THE MERGER (See page
)
When considering the recommendations of the Gen-X board of directors, you
should be aware that certain Gen-X directors, executive officers and
stockholders have interests in the merger that are different from, or are in
addition to, yours. These interests include employment arrangements between
Huffy and certain Gen-X executive officers that take effect after the merger,
the redemption of series A redeemable preferred stock concurrent with the
effectiveness of the merger, the acceleration of stock option vesting and the
possible creation of an additional seat on Huffy's board of directors after the
merger to be filled by a new outside director recommended by certain Gen-X
stockholders.
DISSENTERS' AND APPRAISAL RIGHTS (See page )
Under Delaware law, stockholders of Gen-X are entitled to dissenters'
rights in connection with the merger, provided that they follow the proper
procedures to perfect their dissenters' rights. Section 262 of the Delaware
General Corporation Law is reprinted in its entirety and attached to this joint
proxy statement/prospectus as Annex E.
Under Ohio law, shareholders of Huffy are entitled to dissenters' rights in
connection with the issuance of Huffy common stock in the merger, provided that
they follow the proper procedures to perfect their dissenters' rights. Section
1701.85 of the Ohio Revised Code is reprinted in its entirety and attached to
this joint proxy statement/prospectus as Annex F.
RESTRICTIONS ON THE ABILITY TO SELL HUFFY COMMON STOCK (See page )
All Huffy common stock received by Gen-X stockholders in connection with
the merger will be freely transferable unless the holder is considered an
affiliate of either Gen-X or Huffy under the Securities Act of 1933, as amended.
Shares of Huffy common stock held by affiliates may be sold only pursuant to a
registration statement or an exemption from the registration requirements of the
Securities Act.
10
Pursuant to the shareholder group agreement, DMJ Financial, Inc., its two
stockholders K&J Financial Holdings, Inc. and DLS Financial, Inc., the sole
stockholder of K&J, Kenneth Finkelstein Family Trust, the sole stockholder of
DLS, James Salter Family Trust, Osgoode Financial Inc., Kenneth Finkelstein and
James Salter have agreed to certain restrictions on the sale or transfer of
voting securities of Huffy for four years after the closing of the merger or
until the parties terminate the agreement; provided, however, the transfer
restrictions will cease to apply to certain members of the shareholder group if
their employment is terminated by Huffy after the second anniversary of the date
of the closing.
OTHER HUFFY SPECIAL MEETING PROPOSALS (See page )
At the Huffy special meeting, Huffy is also asking its shareholders to
approve an amendment to its articles of incorporation to reduce the vote
required by shareholders to approve certain specified matters from a two-thirds
vote to a majority vote of the outstanding shares. Approval by Huffy
shareholders of this proposal is not a condition to completion of the merger.
Approval of the issuance of shares of Huffy common stock in the merger is not a
condition to approval of the amendment to Huffy's articles of incorporation. The
Huffy board of directors recommends that you vote "FOR" this proposal.
11
SUMMARY SELECTED HISTORICAL FINANCIAL DATA
We are providing the following information to aid you in your analysis of
the financial aspects of the merger. We derived this information for Huffy from
its audited financial statements for the years ended December 31, 1997 through
2001 and for Gen-X from its audited financial statements for the year ended
December 31, 2001 and unaudited financial statements for the other years
presented. This information is only a summary, and you should read it together
with our historical financial statements and related notes contained in the
annual report and other information that we have filed with the SEC and
incorporated by reference into this joint proxy statement/prospectus. See "Where
You Can Find More Information."
HUFFY CORPORATION
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
SUMMARY OF OPERATIONS
Net sales......................................... $331,138 $488,181 $422,866 $468,351 $481,534
Gross profit...................................... 39,950 81,342 36,723 76,178 74,038
Selling, general, and administrative expenses... 47,607 53,763 56,158 59,723 61,825
Operating income (loss)........................... (11,370) 26,865 (57,994) (4,865) 12,213
Other expense (income), net..................... 303 1,342 333 (3) 1,376
Interest expense, net........................... 1,128 8,428 1,816 2,542 533
Earnings (loss) before income taxes............... (12,801) 17,095 (60,143) (7,404) 10,304
Income tax expense (benefit).................... (4,391) 6,429 (20,788) (2,904) 2,715
Earnings (loss) from continuing operations........ (8,410) 10,666 (39,355) (4,500) 7,589
Discontinued operations......................... -- 25,318 6,067 2,335 1,368
Extraordinary loss.............................. -- (998) -- -- --
Net earnings (loss)............................... (8,410) 34,986 (33,288) (2,165) 8,957
-------- -------- -------- -------- --------
Earnings (loss) per common share:
Basic Continuing operations................ (0.82) 1.05 (3.70) (0.37) 0.59
Net earnings (loss).................. (0.82) 3.43 (3.13) (0.18) 0.70
Diluted Continuing operations................ (0.82) 1.03 (3.70) (0.37) 0.58
Net earnings (loss).................. (0.82) 3.39 (3.13) (0.18) 0.69
Common dividends declared......................... -- -- 2,869 4,092 4,365
Common dividends per share........................ -- -- 0.26 0.34 0.34
Weighted average common share outstanding:
Basic........................................... 10,298 10,187 10,642 12,122 12,895
Diluted......................................... 10,298 10,320 10,642 12,122 13,062
-------- -------- -------- -------- --------
FINANCIAL POSITION AT YEAR END
Total assets...................................... 145,485 180,493 214,283 324,068 307,501
Working capital................................... 44,376 57,642 56,636 85,730 116,122
Net investment in plant and equipment............. 9,267 12,680 19,028 53,476 51,305
Notes payable..................................... -- 17,656 21,902 99,240 43,000
Long-term obligations............................. -- -- 51,348 29,110 35,482
Shareholders' equity.............................. 65,602 73,131 37,482 95,390 116,578
</Table>
12
HUFFY CORPORATION
SUMMARY UNAUDITED SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
THREE MONTHS ENDED
-------------------------------
MARCH 30, 2002 MARCH 30, 2001
-------------- --------------
SUMMARY OF OPERATIONS
Net Sales................................................... $ 70,385 $ 81,243
Gross Profit................................................ 12,001 11,635
Selling, general, and administrative expenses............. 10,528 10,043
-------- --------
Operating income............................................ 1,473 1,592
Other expense (income).................................... 204 (417)
Interest expense, net..................................... 302 406
-------- --------
Earnings before income taxes................................ 967 1,603
Income tax expense........................................ 343 609
-------- --------
Earnings from continuing operations......................... 624 994
Discontinued operations................................... -- --
Extraordinary loss........................................ -- --
-------- --------
Net earnings................................................ $ 624 $ 994
======== ========
Earnings per common share
Basic:
Net earnings per common share................ $ 0.06 $ 0.10
Diluted:
Net earnings per common share................ $ 0.06 $ 0.10
Common dividends declared................................... -- --
Common dividends per share.................................. $ -- $ --
Weighted average common share outstanding
Basic..................................................... 10,389 10,232
Diluted................................................... 10,618 10,369
FINANCIAL POSITION
Total Assets.............................................. 150,271 167,605
Working Capital........................................... 41,098 67,163
Net investment in plant and equipment..................... 9,095 11,908
Notes Payable............................................. -- --
Long-term obligations..................................... -- --
Shareholders' equity...................................... 66,415 74,141
</Table>
13
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
SUMMARY UNAUDITED SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
PREPARED IN ACCORDANCE WITH CANADIAN GAAP
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
2001 2000 1999 1998 1997
-------- -------- ------- ------- -------
SUMMARY OF OPERATIONS
Net Sales.................................. $107,468 $113,091 $54,437 $45,277 $30,591
Gross profit............................... 27,723 23,671 11,198 9,608 6,111
Selling, general, and administrative
expenses.............................. 18,217 12,746 6,487 5,669 4,568
Operating income........................... 9,506 10,925 4,711 3,939 1,542
Other expense (income), net.............. -- -- -- -- --
Interest expense, net.................... 3,025 1,756 1,108 898 176
Earnings before income taxes............... 6,481 9,169 3,603 3,041 1,366
Income tax expense (benefit)............. 954 (835) 871 669 (291)
Earnings from continuing operations........ 5,527 10,004 2,732 2,372 1,657
Discontinued operations.................. -- -- -- -- --
Extraordinary loss....................... -- -- -- -- --
Net earnings............................... 5,527 10,004 2,732 2,372 1,657
-------- -------- ------- ------- -------
Common dividends declared.................. 1,587 898 -- -- --
Common dividends per share................. 0.30 0.18 -- -- --
FINANCIAL POSITION AT YEAR END
Total assets............................... 94,212 51,076 33,579 31,132 14,261
Working capital............................ 8,196 9,801 5,227 4,300 3,175
Net investment in plant and equipment...... 10,807 430 821 819 1,220
Notes payable.............................. 43,244 24,538 16,247 15,707 433
Long-term obligations (mortgage etc.)...... 13,169 1,051 1,974 3,794 3,393
Shareholders' equity....................... 24,202 16,533 8,351 5,618 3,246
</Table>
14
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
SUMMARY UNAUDITED SELECTED HISTORICAL COMBINED FINANCIAL DATA
PREPARED IN ACCORDANCE WITH CANADIAN GAAP
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
THREE MONTHS ENDED
-------------------------------
MARCH 31, 2002 MARCH 31, 2001
-------------- --------------
SUMMARY OF OPERATIONS
Net Sales................................................... $26,399 $14,790
Gross Profit................................................ 7,027 4,731
Selling, general, and administrative expenses............. 7,120 3,349
------- -------
Operating income (loss)..................................... (93) 1,382
Other expense (income).................................... -- --
Interest expense, net..................................... 723 452
------- -------
Earnings (loss) before income taxes......................... (816) 930
Income tax expense (benefit).............................. (240) 214
------- -------
Earnings (loss) from continuing operations.................. (576) 716
Discontinued operations................................... -- --
Extraordinary loss........................................ -- --
------- -------
Net earnings (loss)......................................... $ (576) $ 716
======= =======
Common dividends declared................................... $ 414 $ 391
Common dividends per share.................................. $ 0.08 $ 0.08
FINANCIAL POSITION
Total Assets.............................................. 83,789 60,722
Working Capital........................................... 4,024 11,316
Net investment in plant and equipment..................... 10,781 935
Notes Payable............................................. 30,997 17,268
Long-term obligations..................................... 11,007 10,951
Shareholder's equity...................................... 19,283 18,778
</Table>
15
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
RESULTS OF OPERATIONS
2001 YEAR COMPARED TO 2000 YEAR
Revenues. Revenues in 2001 were $107.5 million, a $5.6 million or 5%
reduction from $113.1 million in 2000. The reduction was a result of the end of
the scooter fad which had produced approximately $35.0 million in sales in 2000
compared to approximately $2.0 million in 2001. The year was positively impacted
by new golf sales in the amount of $21.6 million due to the acquisition of the
assets of Teardrop Golf Company including the Tommy Armour and Ram brands out of
bankruptcy on March 12, 2001. Revenue also increased in the year due to the
acquisition of the shares of First Team Sports Inc. on October 12, 2001, which
included the Ultrawheels in-line skate division and the Hespeler Hockey
Division. 2001 sales for these divisions was $1.5 and $1.4 million respectively.
Gen-X also acquired the assets of Volant Ski Company on September 13, 2001.
Sales from Volant skis amounted to approximately $1.0 million for the year.
Cost of Sales. Cost of Sales reduced by $9.7 million from $89.4 million to
$79.7 million. The gross profit percentage increased to 25.8% from 21.0%. This
was a result of the acquisitions of the golf, inline, ski and hockey businesses
which have much higher gross margins than the Gen-X's and Gen-X Ontario's other
business units.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $18.2 million compared to $12.7 million in 2000.
The increase of $5.5 million is primarily related to an increase in salaries of
$2.6 million which is a result of a significant increase in staff required to
service the new business units acquired in the year; an increase in advertising
and marketing related to the new acquisitions in the amount of $0.6 million;
approximately $0.7 million in increased depreciation and amortization relating
to the amortization of goodwill and deferred financing costs relating to the
golf acquisition; an increase of $0.3 million in rents, leases and occupancy
costs relating to the move to a larger facility in Toronto and the short term
occupancy of rented facilities in Morton Grove, Illinois; an increase of $0.3
million in travel and trade shows relating to the new business units acquired;
an increase of about $0.2 million in telephone and fax and the expenditure of
$0.3 million on tour contracts for professional golfers relating to the golf
acquisition.
Interest Expense. Gen-X and Gen-X Ontario incurred $3.0 million in
interest compared to $1.8 million in 2000. The increase in interest expense was
a result of a new subordinated debt facility in the amount of $10.0 million from
HSBC Capital relating to the financing of the acquisition of the assets of
Teardrop Golf Company. The effective interest cost on this facility was
approximately 12% for the year.
Income Tax Expense. Gen-X and Gen-X Ontario recorded income tax expense of
$0.9 million for the year compared to a recovery of $0.8 million in the previous
year. The current tax rate of approximately 15% is a result of a significant
volume of business generated by a foreign subsidiary at a lower tax rate. The
reason for the income tax benefit in 2000 was due to the fact that the Gen-X
companies were owned by Global Sports Inc., from January 1, 2000 to May 26,
2000. Global Sports Inc. was responsible for the United States income taxes
owing during this period and therefore, these taxes do not appear as a liability
in the 2000 Financial Statements.
Net Earnings. Net earnings for 2001 was $5.5 million compared to $10.0
million which is mainly a result of increased income taxes and selling, general
and administrative expenses in 2001.
16
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
RESULTS OF OPERATIONS
2000 YEAR COMPARED TO 1999 YEAR
Revenues. Revenues in 2000 were $113.1 million, a $58.7 million, or 107.7%
increase from $54.4 million in 1999. The increase was primarily the result of
increased sales of off-price footwear and apparel mainly resulting from a
special transaction involving the liquidation of a large sporting goods retailer
and the sale of approximately $35.0 million of scooters through the Action
Sports Division.
Cost of Sales. Cost of Sales increased by $46.2 million or 106.8%, to
$89.4 million from $43.2 million in 1999. Gen-X's and Gen-X Ontario's gross
margin increased by $12.5 million but only increased to 21.0% from 20.6% as a
percentage of sales. The margin percentage was relatively consistent amongst the
product lines.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $12.7 million in 2000 compared to $6.5 million in
1999. The increase of $6.2 million is represented primarily by a $2.3 million
increase in variable expenses; specifically sales commissions and credit
insurance, a $1.5 million increase in salaries necessary to service the
increased level of business, approximately $0.3 million in additional
advertising and marketing expenses, $0.6 million in additional travel and trade
show expenses required to obtain the additional business, $0.3 million in
additional professional and consulting fees and $0.3 million in warranty costs
relating primarily to scooter issues. As a percentage of sales, selling, general
and administrative expenses decreased from 11.9% in 1999 to 11.2% in 2000.
Interest Expense. Gen-X and Gen-X Ontario incurred $1.8 million in bank
charges and interest in 2000, an increase of approximately $0.7 million from
1999. The increase in interest expense was a result of increased bank charges of
about $0.1 million relating to letter of credit charges necessitated by the
scooter production and increased bank lines provided by HSBC that were needed to
fund the increased business.
Income Tax Expense. Gen-X and Gen-X Ontario recorded an income tax benefit
of $0.8 million in 2000 compared to income tax expense of $0.9 million in 1999.
The reason for the recovery in 2000 was due to the fact that the company was
owned by Global Sports Inc. in that year, from January 1, 2000 to May 26, 2000
and Global Sports Inc. was responsible for US income taxes up to and including
May 26, 2000. The company was extremely profitable during this period due to the
completion of the special liquidation transaction for a large sporting goods
retailer. The tax that would have been paid had Global Sports Inc. not been
responsible for the tax during this period would have amounted to $2.0 million.
The rate of tax was also impacted by a significant volume of business being
generated in the second half of the year by a foreign subsidiary that is taxed
at a lower rate.
Net Earnings. Net earnings for 2000 was $10.0 million compared to $2.7
million for 1999. This was a result of the increased volume of business in 2000
versus 1999.
17
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL DATA
The table below presents selected financial data from the Huffy and Gen-X
unaudited pro forma condensed combining statements of operations for the year
ended December 31, 2001 and the three months ended March 30, 2002 and from the
unaudited pro forma condensed combining balance sheet as of March 30, 2002
included in this joint proxy statement/prospectus. The unaudited pro forma
condensed combining statements of operations are presented as if the merger had
occurred on January 1, 2001. The unaudited pro forma condensed combining balance
sheet presents the combined financial position of Huffy and Gen-X as of March
30, 2002 assuming that the acquisition had occurred as of that date. The
unaudited pro forma condensed combining financial data are based on the
estimates and assumptions set forth in the notes to such statements, which are
preliminary and have been made solely for the purposes of developing such pro
forma information. The unaudited pro forma condensed combining financial data
are not necessarily indicative of the financial position or operating results
that would have been achieved had the transaction been consummated as of the
dates indicated, nor are they necessarily indicative of future financial
position or operating results. This information should be read in conjunction
with the unaudited pro forma condensed combining financial statements and
related notes and the historical financial statements and related notes of Huffy
and Gen-X included in or incorporated by reference into this joint proxy
statement/prospectus.
HUFFY CORPORATION, GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
PRO FORMA YEAR ENDED DECEMBER 31, 2001
----------------------------------------------------------------------------
PRO FORMA
GEN-X AND ADJUSTMENTS RELATED
HUFFY CORPORATION GEN-X ONTARIO TO THE ACQUISITION PRO FORMA COMBINED
----------------- ------------- ------------------- ------------------
Net Sales...................... $331,138 $107,468 $ -- $438,606
Gross Profit................... 39,950 27,723 27(4) 67,700
Selling, general, and
administrative expenses... 47,607 18,275 (329)(5) 65,501
(52)(6)
Operating income (loss)........ (11,370) 9,448 408 (1,514)
Other expense................ 303 -- -- 303
Interest expense, net........ 1,128 3,805 329(5) 4,238
(1,024)(7)
-------- -------- ------- --------
Earnings (loss) before income
taxes........................ (12,801) 5,643 1,103 (6,055)
Income tax expense
(benefit)................. (4,391) 954 1,469(8) (1,968)
-------- -------- ------- --------
Earnings (loss) from continuing
operations................... (8,410) 4,689 (366) (4,087)
======== ======== ======= ========
Earnings (loss) from continuing
operations per common share
Basic........................ $ (0.82) $ (0.27)
Diluted...................... $ (0.82) $ (0.27)
Shares used in calculation of
earnings per share
Basic........................ 10,298 5,000 15,298
Diluted...................... 10,298 5,000 15,298
</Table>
See accompanying notes to Unaudited Pro Forma Condensed Combining Financial
Statements.
18
HUFFY CORPORATION, GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
PRO FORMA THREE MONTHS ENDED MARCH 30, 2002
------------------------------------------------------------------------------
PRO FORMA ADJUSTMENTS
GEN-X AND RELATED TO THE
HUFFY CORPORATION GEN-X ONTARIO ACQUISITION PRO FORMA COMBINED
----------------- ------------- --------------------- ------------------
Net Sales................... $70,385 $26,399 $ -- $96,784
Gross Profit................ 12,001 7,027 25(4) 19,053
Selling, general, and
administrative
expenses............... 10,528 7,120 31(6) 17,679
Operating income............ 1,473 (93) (6) 1,374
Other expense............. 204 -- -- 204
Interest expense, net..... 302 758 157(7) 1,217
------- ------- -------- -------
Earnings (loss) before
income taxes.............. 967 (851) (163) (47)
Income tax expense
(benefit).............. 343 (240) (118)(8) (15)
------- ------- -------- -------
Earnings (loss) from
continuing operations..... 624 (611) (45) (32)
------- ------- -------- -------
Earnings from continuing
operations per common
share
Basic..................... $ 0.06 $ 0.00
Diluted................... $ 0.06 $ 0.00
Shares used in calculation
of earnings per share
Basic..................... 10,389 5,000 15,389
Diluted................... 10,618 5,000 15,618(16)
</Table>
See accompanying notes to Unaudited Pro Forma Condensed Combining Financial
Statements
19
HUFFY CORPORATION, GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
PRO FORMA AS OF MARCH 30, 2002
------------------------------------------------------------------------------
PRO FORMA ADJUSTMENTS
GEN-X AND RELATED TO THE
HUFFY CORPORATION GEN-X ONTARIO ACQUISITION PRO FORMA COMBINED
----------------- ------------- --------------------- ------------------
Current Assets
Cash and cash
equivalents............ $ 13,907 $ -- $(13,907)(2) $ --
Accounts and notes
receivable, net........ 55,834 34,886 -- 90,720
Inventories............... 16,394 13,266 -- 29,660
Prepaid expenses and
federal income taxes... 20,132 4,402 118(9) 24,652
-------- ------- -------- --------
Total current assets... 106,267 52,554 (13,789) 145,032
Net property, plant and
equipment................. 9,095 10,781 (2,468)(10) 17,408
Goodwill and other
intangible assets, net.... 13,127 20,454 43,738(3) 77,319
Other assets, net........... 21,782 -- 1,252(9) 23,334
300(11)
======== ======= ======== ========
150,271 83,789 29,033 263,093
======== ======= ======== ========
Current Liabilities
Notes payable............. -- 30,997 26,334(12) 57,331
Current installments of
long-term
obligations............ -- 2,976 (2,250)(12) 726
Accounts payable.......... 34,512 11,215 -- 45,727
Accrued liabilities and
other current
liabilities............ 30,657 3,342 1,447(13) 35,446
-------- ------- -------- --------
Total current
liabilities.......... 65,169 48,530 25,531 139,230
Long-term obligations, less
current installments...... -- 11,007 (10,681)(12) 326
Other long-term
liabilities............... 18,687 -- -- 18,687
Preferred stock............. -- 4,814 (4,814)(14) --
-------- ------- -------- --------
Total liabilities...... 83,856 64,351 10,036 158,243
Shareholder's equity........ 66,415 19,438 18,997(15) 104,850
======== ======= ======== ========
150,271 83,789 29,033 263,093
======== ======= ======== ========
</Table>
See accompanying notes to Unaudited Pro Forma Condensed Combining Financial
Statements.
20
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
(1) Basis of presentation
Gen-X and Gen-X Ontario historical financial statements included on page
FS-1 have been prepared in accordance with Canadian Generally Accepted
Accounting Principles (Canadian GAAP). The financial statements for Gen-X
and Gen-X Ontario included in the in the Summary Unaudited Pro Forma
Condensed Combining Financial Data on page have been adjusted to be in
accordance with United States Generally Accepted Accounting Principles (U.
S. GAAP). A reconciliation of Canadian GAAP to U.S. GAAP for December 31,
2001 for March 31, 2002, are found on pages and , respectively.
<Table>
<Caption>
DECEMBER 31, MARCH 31,
2001 2002
------------ ---------
The significant adjustments incorporated into the pro forma
statements are:
Selling General and Administrative Expense................ $ 58 $ --
Interest Expense.......................................... 780 35
Preferred stock........................................... N/A (156)
Shareholders' equity...................................... N/A 156
</Table>
(2) Sources and Uses of Funds for the acquisition of Gen-X and Gen-X Ontario
<Table>
<Caption>
Uses of Funds
Cash paid to common Gen-X and Gen-X Ontario
stockholders........................................... $ 19,000
Class A Common Shares Issued, 5,000,000 shares issued
assuming a market rate of $7.687....................... 38,435
--------
Total funds received by common Gen-X and Gen-X Ontario
stockholders.............................................. 57,435
Cash paid to preferred Gen-X and Gen-X Ontario
stockholders........................................... 4,970
Cash paid to retire Gen-X debt............................ 43,928
--------
Consideration received by Gen-X and Gen-X Ontario
stockholders and lenders.................................. 106,333
Transaction fees and expenses............................. 3,040
Bank financing fees....................................... 300
--------
Total Uses of Funds......................................... 109,673
Sources of Funds
Available cash balance at March 30, 2002.................. $ 13,907
Revolving credit facility borrowings...................... 57,331
Class A Common Shares Issued.............................. 38,435
--------
Total Sources of Funds...................................... $109,673
</Table>
(3) The purchase price of Gen-X and Gen-X Ontario is allocated to the assets
and liabilities acquired on a fair market value basis. Management is in the
process of obtaining appraisals, which may change the amount of the
allocations. In management's opinion, the preliminary estimate of fair
market value, as presented below, is not expected to differ materially from
the final appraisal.
21
<Table>
<Caption>
Tangible assets acquired at fair market value
Accounts and notes receivable............................. $ 34,886
Inventories............................................... 13,266
Prepaid expenses.......................................... 4,402
Current deferred federal income tax benefit............... 118
Property, plant and equipment............................. 8,313
Bank financing fees....................................... 300
Long-term deferred federal income tax benefit............. 1,252
--------
Total fair value of tangible assets......................... 62,537
Less: Liabilities assumed
Loans Payable............................................. 1,052
Accounts payable.......................................... 11,215
Accrued liabilities and other current liabilities......... 4,789
--------
17,056
--------
Net assets acquired......................................... 45,481
Consideration............................................... 109,673
--------
Goodwill and other intangibles acquired..................... $ 64,192
</Table>
(4) To adjust depreciation expense as a result of recording to the fair value
of property, plant and equipment.
(5) To reclass Gen-X and Gen-X Ontario 2001 amortization of financing costs of
$329 from selling, general and administrative expense to interest expense.
(6) To record $125 and $31 of additional amortization related to identifiable
intangible assets for the periods ended December 31, 2001 and March 30,
2002, respectively, and to eliminate $177 of goodwill, amortization, in
accordance with Statement of Financial Accounting Standards No. 142,
recorded in the period ended December 31, 2001.
(7) To record the change in interest expense from the use of Huffy's cash and
borrowing lines to finance the acquisition purchase price of $19,000, to
repay Gen-X and Gen-X Ontario debt, and to redeem and purchase outstanding
preferred stock for $4,970. The incremental interest on the weighted
average borrowing of $42,449 for 2001 and $51,870 for the first quarter of
2002 is recorded at Huffy's weighted average borrowing rate of 6.3% and
4.0% for the periods ended December 31, 2001 and March 30, 2002,
respectively.
(8) To record the income tax expense adjusting the effective tax rate for the
combined entity to the expected blended tax rate of 32.5%.
(9) To record deferred federal income tax benefits of $118 and $1,252 related
to entries 10 and 13.
(10) To record the write-down of property, plant and equipment by $2,468 to
their fair market value of $8,313.
(11) To record $300 of bank financing fees for the modification of Huffy's
existing revolving credit facility to include the working capital and
borrowing needs of Gen-X and Gen-X Ontario.
(12) To retire Gen-X and Gen-X Ontario borrowings of $30,997 related to notes
payable, $2,250 of current maturities and $10,681 of long-term debt, and to
finance $57,331 via Huffy's revolving credit facility.
(13) To record an accrual for Gen-X and Gen-X Ontario employee severance of $338
and facility closure related actions of $1,109.
(14) To redeem Gen-X preferred stock and purchase Gen-X Ontario preferred stock
at face value.
(15) To record the issuance of 5,000,000 of Huffy Class A common shares assuming
a market value of $7.687 per share, and to eliminate the Gen-X and Gen-X
Ontario common stockholder's equity.
22
(16) Huffy used basic shares outstanding of 15,389 to compute diluted earnings
per share for the period ended March 30, 2002 pro forma combined, as
dilution would not be appropriate if the combined entity has a net loss
from continuing operations.
23
COMPARATIVE PER SHARE INFORMATION
The following table presents (a) the unaudited basic and diluted earnings
per share and book value per share data for each of Huffy and Gen-X on a
historical basis, and (b) the unaudited basic and diluted earnings per share
data for the combined company on a pro forma basis. The unaudited pro forma
combined financial data are not necessarily indicative of the financial position
had the transaction occurred on December 31, 2001 or operating results that
would have been achieved had the transaction been in effect as of the beginning
of the period presented and should not be construed as representative of future
financial position or operating results. Huffy neither declared nor paid any
cash dividends for the fiscal year ended December 31, 2001. Gen-X declared and
paid a dividend of $0.30 per share of Common Stock and $0.07 per share of Class
A Preferred Stock for the fiscal year ended December 31, 2001. The pro forma
combined net earnings (loss), pro forma stockholders' equity and the pro forma
number of shares of Huffy common stock outstanding used in determining the
amounts presented below have been derived from unaudited pro forma financial
statements included in this joint proxy statement/prospectus.
This information is only a summary and should be read in conjunction with
the selected historical financial data of Huffy and Gen-X, the Huffy and Gen-X
unaudited pro forma condensed combining financial statements, and the separate
historical financial statements of Huffy and Gen-X and related notes included in
or incorporated by reference into this joint proxy statement/prospectus.
<Table>
<Caption>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 2001 MARCH 30, 2002
----------------- ------------------
HISTORICAL -- HUFFY:
Earnings per share:
Basic................................................ $(0.82) $ 0.06
Diluted.............................................. $(0.82) $ 0.06
Book value per share (1)................................ $ 6.32 $ 6.39
HISTORICAL-GEN-X:
Earnings per share:
Basic................................................ $ 1.05 $(0.03)
Diluted (2).......................................... -- $ --
Book value per share (1)................................ $ 4.56 $ 4.30
</Table>
<Table>
<Caption>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 2001 MARCH 30, 2002
----------------- ------------------
PRO FORMA COMBINED -- HUFFY AND GEN-X:
Earnings per share:
Basic................................................. $(0.27) $ 0.00
Diluted............................................... $(0.27) $ 0.00
</Table>
- ---------------
(1) The historical book value per share is calculated by dividing stockholders'
equity by the number of shares outstanding as of December 31, 2001.
(2) The combined Gen-X and Gen-X Ontario earnings per share are presented at
basic only as Gen-X and Gen-X Ontario common stock are not publicly traded,
therefore no market pricing is available on which to base dilution.
24
COMPARATIVE PER SHARE MARKET PRICE DATA
Huffy common stock trades on the New York Stock Exchange under the symbol
"HUF." Gen-X common stock is not publicly traded. The table below sets forth,
for the periods indicated, the range of high and low per share sales prices for
Huffy common stock as reported on the New York Stock Exchange.
<Table>
<Caption>
HUFFY
COMMON STOCK
---------------
HIGH LOW
----- -----
FISCAL YEAR 2000
First quarter............................................. $6.31 $4.50
Second quarter............................................ 4.69 3.00
Third quarter............................................. 13.69 4.13
Fourth quarter............................................ 11.75 6.06
FISCAL YEAR 2001
First quarter............................................. 7.74 6.08
Second quarter............................................ 10.50 6.14
Third quarter............................................. 9.81 6.25
Fourth quarter............................................ 6.62 5.41
FISCAL YEAR 2002
First quarter............................................. 7.05 5.95
Second quarter............................................ 8.90 6.98
</Table>
On June 17, 2002, the last trading day before we announced the merger, the
closing price of Huffy common stock on the New York Stock Exchange was $7.17 per
share. On , 2002, the last trading day prior to the date of this
joint proxy statement/prospectus, the closing price of Huffy common stock on the
New York Stock Exchange was $ . Huffy neither declared nor paid any cash
dividends for the fiscal year ended December 31, 2001. Gen-X declared and paid a
dividend of $0.30 per share of Common Stock and $0.07 per share of series A 7%
redeemable preferred stock for the fiscal year ended December 31, 2001.
The market value of the shares of Huffy common stock that will be issued in
exchange for shares of Gen-X common stock and preferred stock upon the
completion of the merger will not be known at the time Gen-X stockholders vote
on the approval of the merger agreement, or at the time Huffy shareholders vote
on the approval of the issuance of shares of Huffy common stock in the merger,
because the merger will not be completed by then.
The above table shows only historical comparisons. Because the market
prices of Huffy common stock will likely fluctuate prior to the merger, these
comparisons may not provide meaningful information to Huffy shareholders in
determining whether to approve the issuance of shares of Huffy common stock in
the merger or to Gen-X stockholders in determining whether to approve the merger
agreement. Huffy and Gen-X stockholders are encouraged to obtain current market
quotations for Huffy common stock and to review carefully the other information
contained in this joint proxy statement/prospectus or incorporated by reference
into this joint proxy statement/prospectus in considering whether to approve
their respective proposal. See the section entitled "Where You Can Find More
Information."
25
RISK FACTORS
Both the merger and an investment in Huffy common stock involve a high
degree of risk. By voting in favor of the merger, current Gen-X stockholders
will be choosing to invest in Huffy common stock, and current Huffy shareholders
will be choosing to combine Gen-X's business with Huffy's business and to dilute
their percentage ownership interest in Huffy. In addition to the other
information contained in, or incorporated by reference into, this joint proxy
statement/prospectus, you should consider carefully the following risk factors
in deciding whether to vote in favor of the merger or the related issuance of
shares of Huffy common stock.
RISKS RELATED TO THE MERGER
THE VALUE OF HUFFY COMMON STOCK TO BE RECEIVED IN THE MERGER WILL
FLUCTUATE.
In the merger, Gen-X stockholders will receive shares of Huffy common stock
and cash for each share of Gen-X common stock, series B junior participating
preferred stock and series C non-voting preferred stock they own as described in
the section entitled "The Merger Agreement-Merger Consideration." As a result of
Gen-X stockholders receiving a portion of the merger consideration in shares of
Huffy common stock, the value of the merger consideration to be received by
Gen-X stockholders will depend on the market price of Huffy common stock at the
time the merger is completed. The market price of Huffy common stock at the
closing of the merger will likely vary from its market prices at the date of
this joint proxy statement/prospectus and at the date of the Huffy and Gen-X
special meetings. These variations may be caused by a number of factors,
including changes in the businesses, operations or prospects of Huffy or Gen-X,
the timing of the merger, regulatory considerations and general market and
economic conditions. The merger consideration will not be adjusted for any
increase or decrease in the market price of Huffy common stock. Accordingly, if
the market value of Huffy common stock declines prior to the time the merger is
completed, the value of the merger consideration to be received by Gen-X
stockholders will decline and if the market value of the Huffy common stock
increases prior to the time the merger is completed, the value of the merger
consideration to be received by Gen-X stockholders will increase. In addition,
because the date that the merger is completed will be later than the date of the
special meetings, Huffy and Gen-X stockholders will not know the exact value of
the Huffy common stock that will be issued in the merger at the time they vote
on the merger proposals. We encourage you to obtain current market quotations
for Huffy shares before you vote your shares.
THE TOTAL CONSIDERATION PAYABLE TO THE GEN-X STOCKHOLDERS UNDER THE MERGER
AGREEMENT IS SUBJECT TO POTENTIAL REDUCTION.
Huffy has agreed to pay total merger consideration of $5,556,914 cash plus
up to 5,000,000 shares of Huffy common stock. This total consideration will be
payable, subject to certain adjustment and holdback provisions, to the holders
of Gen-X common stock, series B junior participating preferred stock and series
C non-voting preferred stock, as well as to the holders of outstanding Gen-X
stock options, on a pro rata basis. The total cash consideration of $5,556,914
is subject to reduction by the amount, if any, that the total fees Gen-X is
required to pay its financial advisors exceed a specified amount. All currency
references in this document are expressed in U.S. dollars unless otherwise
stated. The total stock consideration is subject to a maximum potential
reduction of 838,710 Huffy shares which will not be distributed at the closing
and will serve as a reserve for two types of potential adjustments, the first of
which is based upon the actual 2002 financial performance of Gen-X which will
not be known at the time of closing, and the second of which is based upon any
breaches by Gen-X and Gen-X Ontario of their respective representations and
warranties or covenants in the merger and stock purchase.
HUFFY MAY FAIL TO REALIZE THE ANTICIPATED BENEFITS OF THE MERGER.
The merger will combine two companies that have previously operated
separately. Huffy and Gen-X expect to realize, but at the time of the filing of
this proxy statement have not quantified, cost savings and other financial and
operating benefits as a result of tax efficiencies, net operating loss
carry-forwards and the integration of financial, information and distribution
systems. However, Huffy and Gen-X cannot predict with
26
certainty when these cost benefits/savings will occur or the extent to which
they will actually be achieved. The integration of Gen-X will require
substantial attention from management. The diversion of management attention and
any difficulties associated with integrating Gen-X with Huffy could have an
adverse effect on the combined company's results and the value of the Huffy
common stock.
GEN-X DIRECTORS AND OFFICERS HAVE CONFLICTS OF INTEREST THAT MAY INFLUENCE
THEM TO SUPPORT OR APPROVE THE MERGER.
Certain officers and directors of Gen-X have interests in the merger that
are different from, or in addition to, those of other Gen-X stockholders,
including the following:
- the redemption of the shares of Gen-X series A 7% redeemable preferred
stock held by them concurrent with the effectiveness of the merger;
- the vesting of stock options to acquire shares of Gen-X common stock will
be accelerated as a result of the merger;
- Huffy has agreed to enter into employment agreements with certain
executive officers and key employees of Gen-X that will take effect upon
the completion of the merger; and
- Huffy has agreed to consider the creation of an additional seat on its
board of directors after the merger to be filled by a new outside
director recommended by certain Gen-X stockholders.
Accordingly, the directors and officers of Gen-X may have been more likely
to vote to adopt the merger agreement and to approve the merger than if they did
not have these interests. Gen-X stockholders should consider whether these
interests may have influenced these directors and officers to support or
recommend the merger. You should read more about these interests under "The
Merger -- Interests of Gen-X Stockholders, Directors and Officers in the
Merger."
UNCERTAINTIES ASSOCIATED WITH THE MERGER MAY CAUSE GEN-X TO LOSE KEY
PERSONNEL.
Current Gen-X employees have experienced, and may experience in the future,
uncertainty about their future roles with Huffy. This uncertainty may adversely
affect Gen-X's ability to attract and retain key personnel. In addition, Huffy's
ability to successfully integrate the companies may be adversely affected if a
significant number of key Gen-X personnel depart prior to the completion of the
merger, which would adversely affect the business and results of operations of
the combined company.
RISKS RELATED TO HUFFY AND GEN-X
Except as otherwise specified, the following risk factors relate to the
businesses of Huffy and Gen-X prior to the merger. If the merger is not
completed for any reason, each company expects to continue to be subject to such
risks. If the merger is completed, the combined company will be subject to the
risks of each of Huffy and Gen-X.
INTENSE COMPETITION IN THE SPORTING GOODS INDUSTRY COULD LIMIT THE GROWTH
OF HUFFY AND GEN-X AND REDUCE THEIR PROFITABILITY.
Our industries are highly competitive. We face competition in:
- designing and developing new products;
- obtaining licenses;
- improving existing products; and
- marketing and distribution.
Competition has in the past and may in the future force Huffy and Gen-X to
reduce their selling prices which could adversely affect their operating results
and financial condition.
27
RAPIDLY CHANGING CONSUMER PREFERENCES MAY ADVERSELY AFFECT THE BUSINESSES
OF HUFFY AND GEN-X.
Our industries are subject to rapidly changing consumer preferences, a high
level of seasonality and competition and a constant need for creating and
marketing new products. Demand for Huffy and Gen-X products and services are
influenced by:
- cultural and demographic trends;
- marketing and advertising expenditures;
- popularity of certain themes;
- design and technological developments; and
- general economic conditions.
Because these factors can change rapidly, consumer demand and preference
can also shift quickly. Huffy and Gen-X may not always be able to respond to
changes in consumer demand and preferences because of the significant amount of
time and financial resources needed to bring new products to market. If Huffy
and Gen-X are unable to respond to such changes quickly, there could be an
adverse impact on their businesses.
THE LOSS OF CERTAIN CUSTOMERS COULD ADVERSELY AFFECT HUFFY'S BUSINESS.
Certain of Huffy's customers account for a disproportionately large share
of its net sales. In 2001, the ten largest customers of Huffy accounted for
approximately 83% of its net sales in the aggregate. If certain of these
customers cease doing business with Huffy, or significantly reduce the amount of
their purchases from Huffy, its business could be adversely affected. In
particular, sales to two customers, Kmart and Wal*Mart, are each substantially
in excess of 10% of Huffy's consolidated revenues for the year ended December
31, 2001, and the loss of either of these customers could have a material
adverse effect on Huffy and its subsidiaries as a whole. In addition, we note
that on January 22, 2002 Kmart filed for bankruptcy under Chapter 11 of the U.S.
Bankruptcy Code and is in the process of reorganizing its business under the
protection of the bankruptcy court. We cannot predict what impact Kmart's
bankruptcy will have on Huffy's business. Also, pressures on Huffy to provide
financial incentives to its customers or pressures to reduce prices or change
the terms of sale of its products could also adversely affect its business.
THE LOSS OF CERTAIN LICENSE AGREEMENTS COULD ADVERSELY AFFECT HUFFY'S
BUSINESS.
Huffy markets its products under a variety of trademarks, including some
owned by third parties and covered by license agreements. Some license
agreements require minimum guaranteed royalty payments regardless of the actual
sales of the products licensed. In addition, Huffy's ability to retain sales
could be adversely affected by the termination or non-renewal of a particular
license.
HUFFY'S CURRENT CREDIT FACILITIES RESTRICT ITS ABILITY TO PAY DIVIDENDS.
Huffy has not authorized the payment of dividends but will continue to
assess whether it can and should pay dividends. The terms of Huffy's current
credit facilities allow it to pay dividends on Huffy common stock only in
certain circumstances. Huffy is permitted by its lenders to pay dividends only
if there are no defaults under the loan agreement and if certain financial
conditions are met. The total amount of dividends paid in any fiscal year is
also capped by the loan agreement.
GENERAL ECONOMIC FACTORS IN THE REGIONS IN WHICH HUFFY AND GEN-X OPERATE
COULD ADVERSELY AFFECT THEIR BUSINESSES.
These economic factors include:
- interest rates and inflation;
- the impact of an economic recession;
- consumer credit availability;
- consumer debt levels;
28
- tax rates and tax policy;
- unemployment trends; and
- other matters that influence consumer confidence and spending.
Increasing volatility in financial markets may cause the above factors to
change with an even greater degree of frequency and magnitude.
DISRUPTIONS OR INSTABILITY IN THE INTERNATIONAL ECONOMY COULD NEGATIVELY
AFFECT THE BUSINESSES OF HUFFY AND GEN-X.
Huffy and Gen-X use manufacturing facilities in several foreign countries.
Therefore, they could be affected by political, economic or legal disruptions
affecting businesses in or trade with such countries including, but not limited
to the following:
- exposure to foreign currency fluctuations and devaluation caused by
either general economic forces or government intervention;
- restrictions imposed by domestic export laws and regulations and foreign
import laws and regulations;
- import/export quotas and taxes or tariffs;
- the inherent instability associated with political and economic events
beyond our control, including the status of the relationship between the
United States and China; and
- the general difficulty of administering a business organization at long
distances across national borders.
ANTI-TAKEOVER PROVISIONS IN HUFFY'S ORGANIZATIONAL DOCUMENTS AND OHIO LAW
MAY PREVENT HUFFY SHAREHOLDERS FROM REALIZING A PREMIUM RETURN.
Anti-takeover provisions in Huffy's articles of incorporation and
regulations and Ohio law may deter unfriendly offers or other efforts to obtain
control over Huffy. This could make Huffy less attractive to a potential
acquirer and deprive Huffy shareholders of the opportunity to sell their common
stock at a premium price.
GEN-X HAS NOT OBTAINED THE CONSENT OF ARTHUR ANDERSEN LLP TO BE NAMED IN
THIS JOINT PROXY STATEMENT/PROSPECTUS AS HAVING CERTIFIED ITS COMBINED FINANCIAL
STATEMENTS. THIS MAY LIMIT YOUR ABILITY TO ASSERT CLAIMS AGAINST ARTHUR ANDERSEN
LLP.
The Securities and Exchange Commission issued temporary and final rules for
Arthur Andersen LLP auditing clients on March 18, 2002. The Arthur Andersen
situation affects numerous companies, such as Gen-X, that have used Arthur
Andersen as their auditor. To address these issues, Huffy and Gen-X have
complied with these rules. For example, in compliance with these rules, Gen-X
has not been able to obtain, after reasonable efforts, the written consent of
Arthur Andersen LLP to its being named in this prospectus as having certified
the combined financial statements of Gen-X for the year ended December 31, 2001,
as required by Section 7 of the Securities Act. Accordingly, you will not be
able to sue Arthur Andersen pursuant to Section 11(a)(4) of the Securities Act
and therefore your right of recovery under that section may be limited as a
result of the lack of consent.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus and the other documents incorporated
by reference into this joint proxy statement/prospectus may contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 with respect to the financial condition, results
of operations, business strategies, operating efficiencies or synergies,
competitive positions, growth opportunities for existing products, plans and
objectives of management, and markets for the stock of Huffy and Gen-X and other
matters. Statements in this joint proxy statement/prospectus and the other
documents incorporated by reference that are not historical facts are hereby
identified as "forward-looking statements" for the purpose of
29
the safe harbor provided by Section 21E of the Securities Exchange Act of 1934
and Section 27A of the Securities Act of 1933. These forward-looking statements,
including, without limitation, those relating to future business prospects,
revenues and income, in each case relating to Huffy or Gen-X, respectively,
wherever they occur in this joint proxy statement/prospectus or the other
documents incorporated by reference, are necessarily estimates reflecting the
best judgment of the respective management of Huffy and Gen-X and involve a
number of risks and uncertainties that could cause actual results to differ
materially from those suggested by the forward-looking statements. These
forward-looking statements should, therefore, be considered in light of various
important factors, including those set forth in this joint proxy
statement/prospectus and incorporated by reference into this joint proxy
statement/prospectus. In addition to the risk factors identified elsewhere,
important factors that could cause actual results to differ materially from
estimates or projections contained in the forward-looking statements include
without limitation:
- the ability to integrate the operations of Huffy and Gen-X, including
their financial, information and distribution systems;
- the ability to achieve the anticipated synergies and cost savings;
- timing and success of product development and market acceptance of
developed products;
- regulatory approvals and restrictions;
- intellectual property positions;
- competition in the industries and in the specific markets in which Huffy
and Gen-X, respectively, operate;
- unanticipated manufacturing disruptions, delays in regulatory approvals
of new manufacturing facilities or the inability to meet demand for
products;
- fluctuations in operating results;
- risks associated with importing merchandise from abroad;
- loss of a significant vendor, prolonged disruption of material supply
chain, or significant increases in the cost of raw materials, supplies,
fuel, utilities and other related energy costs;
- changes in the cost or availability of labor sufficient to support
operations;
- changes in the general business and economic conditions in our operating
regions;
- loss or bankruptcy of one or more key customers and the failure of Kmart
to successfully reorganize following its bankruptcy; and
- costs and other effects of legal and administrative cases and
proceedings, settlements, investigations and claims.
Words such as "estimate," "project," "plan," "intend," "expect,"
"anticipate," "believe" and similar expressions are intended to identify
forward-looking statements. These forward-looking statements are found at
various places throughout this joint proxy statement/prospectus and the other
documents incorporated by reference. You are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this joint proxy statement/prospectus, or in the case of documents incorporated
by reference, as of the date of those documents. Neither Huffy nor Gen-X
undertakes any obligation to publicly update or release any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this joint proxy statement/prospectus or to reflect the occurrence of
unanticipated events, except as required by law.
30
THE SPECIAL MEETING OF HUFFY SHAREHOLDERS
DATE, TIME AND PLACE
This joint proxy statement/prospectus is furnished in connection with the
solicitation of the enclosed proxy by the board of directors of Huffy for use at
the special meeting of shareholders of Huffy to be held at the corporate offices
of Huffy Corporation, 225 Byers Road, Miamisburg, Ohio 45342 on ,
2002, beginning at [a.m./p.m.], Eastern Daylight Time, and at any
adjournment or postponement of the meeting.
PURPOSE
The special meeting will be held for the following purposes:
- To approve the issuance of up to 5,000,000 shares of Huffy common stock
in the proposed merger of Gen-X with and into HSGC, a wholly-owned
subsidiary of Huffy, as contemplated by the Agreement and Plan of Merger,
as amended, dated as of June 5, 2002, by and among Huffy, HSGC and Gen-X
and as it may be amended. A copy of the agreement is attached as Annex A
to this joint proxy statement/prospectus. We encourage you to read this
document in its entirety;
- To approve an amendment to Huffy's articles of incorporation to reduce
the vote required by shareholders to approve certain specified matters
from a two-thirds vote to a majority vote of the outstanding shares; and
- To transact any other business that properly comes before the special
meeting or any adjournments or postponements of the meeting.
RECOMMENDATION OF THE HUFFY BOARD OF DIRECTORS
The Huffy board of directors has adopted the merger agreement and
unanimously recommends that Huffy shareholders vote "FOR" approval of the
issuance of up to 5,000,000 shares of Huffy common stock to Gen-X stockholders
pursuant to the merger agreement and as it may be amended. The Huffy board of
directors believes that the amendment to the articles of incorporation of Huffy
is in the best interest of Huffy and its shareholders, and, accordingly,
recommends a vote "FOR" approval of the amendment to the articles of
incorporation.
RECORD DATE
Huffy's board of directors has fixed the close of business on ,
2002, as the record date. Only shareholders of record of Huffy common stock on
the books of Huffy as of the close of business on the record date will be
entitled to notice of, and to vote at, the special meeting and any postponements
or adjournments of the meeting. On , 2002, Huffy had shares of
Huffy common stock issued and outstanding and shareholders of record. Each
share of Huffy common stock outstanding on the record date is entitled to one
vote at Huffy's special meeting on each matter to be voted on.
QUORUM AND VOTING
A majority of all shares of Huffy common stock outstanding on the record
date, represented in person or by proxy, constitutes a quorum for the
transaction of business at Huffy's special meeting. Abstentions and broker
non-votes count as present for establishing a quorum.
Pursuant to Section 1701.83 of the Ohio Revised Code, the affirmative vote
of the holders of two-thirds of the outstanding shares of Huffy common stock
entitled to vote at the Huffy special meeting is required to approve the
issuance of shares of Huffy common stock pursuant to the merger agreement. The
affirmative vote of the holders of two-thirds of the outstanding shares of Huffy
common stock entitled to vote is also required to approve the amendment to
Huffy's articles of incorporation. Abstentions and broker non-votes will not be
counted as cast at the Huffy special meeting for purposes of determining whether
shareholder approval
31
of the issuance of up to 5,000,000 shares of Huffy common stock pursuant to the
merger agreement as it may be amended or the amendment to the articles of
incorporation has been obtained.
As of the record date of the special meeting, the directors and officers of
Huffy as a group directly or indirectly own and were entitled to vote
approximately shares of Huffy common stock, or approximately % of the
outstanding shares of Huffy on that date.
PROXIES
Shares of Huffy common stock represented by proxies properly executed and
received by Huffy in time to be voted at Huffy's special meeting will be voted
in accordance with the instructions indicated on the proxies. If no instructions
are indicated, the shares will be voted:
- "FOR" the approval of the issuance of Huffy common stock in the merger;
and
- "FOR" the approval of the amendment to Huffy's articles of incorporation.
All proxies voted in favor of the approval of the issuance of Huffy common
stock in the merger and the amendment to Huffy's articles of incorporation may,
at the discretion of the proxy holder, be voted "FOR" a motion to adjourn or
postpone Huffy's special meeting to another time and/or place for the purpose of
soliciting additional proxies or otherwise.
Huffy's board of directors currently is not aware of any business to be
acted upon at the special meeting other than as described in this joint proxy
statement/prospectus. If, however, other matters are properly brought before the
special meeting, in the absence of instructions to the contrary, persons
appointed as proxies will have discretion to vote or act on the matters in their
best judgment.
REVOCATION OF PROXIES
The presence of a Huffy shareholder at the special meeting, or at any
adjournment or postponement, will not automatically revoke the shareholder's
proxy. However, a Huffy shareholder may revoke a proxy at any time prior to its
exercise by:
- delivering to the Secretary of Huffy a written notice of revocation
bearing a date later than the date of the proxy;
- delivering to the Secretary of Huffy prior to the special meeting a duly
executed proxy bearing a later date; or
- attending the special meeting and voting in person at the special
meeting.
SOLICITATION OF PROXIES
Huffy is soliciting proxies for the Huffy special meeting from Huffy
shareholders. Proxies may be solicited by mail, personal interview, telephone
and telecopy by directors, officers and employees of Huffy and its subsidiaries
on a part-time basis and for no additional compensation. Huffy will bear the
costs it incurs in the solicitation of proxies under this joint proxy
statement/prospectus, including amounts paid in reimbursement to banks,
brokerage firms, custodians, nominees and others for its expenses in forwarding
soliciting material to the beneficial owners of Huffy common stock. Huffy has
also made arrangements with Morrow & Co. to assist in the solicitation of
proxies and has agreed to pay a fee of $8,000 for those services.
COMMUNICATIONS BY HUFFY SHAREHOLDERS WITH HUFFY
Any written revocation of proxy or other communications in connection with
this joint proxy statement/prospectus and requests for additional copies of this
joint proxy statement/prospectus or the proxy card should be sent to Huffy
Corporation, 225 Byers Road, Miamisburg, Ohio 45342, Attention: Nancy A.
Michaud, Secretary. If you have any questions or need further assistance in
voting your shares, please call (937) 866-6251.
32
THE SPECIAL MEETING OF GEN-X STOCKHOLDERS
DATE, TIME AND PLACE
This joint proxy statement/prospectus is furnished in connection with the
solicitation of the enclosed proxy by the board of directors of Gen-X for use at
the special meeting of stockholders of Gen-X to be held at on , 2002,
beginning at [a.m./p.m.], Eastern Daylight Time, and at any adjournment or
postponement of the meeting.
PURPOSE
The special meeting will be held for the following purpose:
- To adopt the Agreement and Plan of Merger, as amended, dated as of June
5, 2002, by and among Gen-X, Huffy and HSGC, and approve the merger
contemplated thereby. A copy of the agreement is attached as Annex A to
this joint proxy statement/prospectus. We encourage you to read this
document in its entirety; and
- To transact any other business that properly comes before the meeting or
any adjournments or postponements of the meeting.
RECOMMENDATION OF THE GEN-X BOARD OF DIRECTORS
The Gen-X board of directors has adopted the merger agreement and
recommends that Gen-X stockholders vote "FOR" approval of the merger agreement.
RECORD DATE
The Gen-X board of directors has fixed the close of business on , 2002, as
the record date. Only stockholders of record of Gen-X common stock, series A 7%
redeemable preferred stock, series B junior participating preferred stock and
series C non-voting preferred stock on the books of Gen-X as of the close of
business on the record date will be entitled to notice of, and to vote at, the
special meeting and any postponements or adjournments of the meeting. On
, 2002, Gen-X had issued and outstanding shares of Gen-X common stock
held by holders of record, shares of series A 7% redeemable preferred
stock held by one holder of record, shares of series B junior participating
preferred stock held by holders of record and shares of series C
non-voting preferred stock held by voters of record. Each share of Gen-X
capital stock outstanding on the record date is entitled to one vote at Gen-X's
special meeting on each matter to be voted on.
QUORUM AND VOTING
A majority of all shares of Gen-X capital stock outstanding on the record
date, represented in person or proxy, constitutes a quorum for the purpose of
voting on the merger. Abstentions and broker non-votes count as present for
establishing a quorum.
The holders of a majority of the outstanding shares of Gen-X common stock
and series B junior participating preferred stock, voting together as a single
class, and the holders of a majority of the outstanding shares of Gen-X series A
7% redeemable preferred stock and series C non-voting preferred stock, voting as
separate classes, must adopt the merger agreement and approve the merger. Gen-X
stockholders are entitled to cast one vote per share of Gen-X common stock,
series A 7% redeemable preferred stock, series B junior participating preferred
stock and series C non-voting preferred stock owned as of the Gen-X record date.
Abstentions and broker non-votes will not be counted as cast for purposes of
determining whether stockholder approval of the merger agreement has been
obtained.
As of the record date, Gen-X directors and executive officers directly or
indirectly held shares of Gen-X common stock, shares of series A 7%
redeemable preferred stock, and shares of series C non-voting preferred
stock, which represented approximately %, % and % of all
outstanding
33
shares of Gen-X common stock and series B junior participating preferred stock,
series A 7% redeemable preferred stock and series C non-voting preferred stock,
respectively, entitled to vote at Gen-X's special meeting.
DMJ Financial, Inc., a Gen-X stockholder, its two stockholders, K&J
Financial Holdings, Inc. and DLS Financial, Inc., the sole stockholder of K&J,
Kenneth Finkelstein Family Trust, the sole stockholder of DLS, James Salter
Family Trust, Kenneth Finkelstein, James Salter and Osgoode Financial Inc. have
agreed to vote their shares of Gen-X common stock, series A 7% redeemable
preferred stock, and series C non-voting preferred stock, representing 57%,
100%, and 57% of the outstanding shares of each such class of Gen-X capital
stock, in favor of adoption of the merger agreement and approval of the merger.
As a result this of agreement, the merger will be approved at Gen-X's special
meeting.
PROXIES
Shares of Gen-X capital stock represented by proxies properly executed and
received by Gen-X in time to be voted at Gen-X's special meeting will be voted
in accordance with the instructions indicated on the proxies. If no instructions
are indicated, the shares will be voted "FOR" the adoption of the merger
agreement and the approval of the merger contemplated thereby.
All proxies voted in favor of the merger may, at the discretion of the
proxy holder, be voted "FOR" a motion to adjourn or postpone Gen-X's special
meeting to another time and/or place for the purpose of soliciting additional
proxies or otherwise.
Gen-X's board of directors currently is not aware of any business to be
acted upon at the special meeting other than as described in this joint proxy
statement/prospectus. If, however, other matters are properly brought before the
special meeting, in the absence of instructions to the contrary, persons
appointed as proxies will have discretion to vote or act on the matters in their
best judgment.
REVOCATION OF PROXIES
The presence of a Gen-X stockholder at the special meeting, or at any
adjournment or postponement, will not automatically revoke the stockholder's
proxy. However, a Gen-X stockholder may revoke a proxy at any time prior to its
exercise by:
- delivering to the Secretary of Gen-X a written notice of revocation
bearing a date later than the date of the proxy;
- delivering to the Secretary of Gen-X prior to the special meeting a duly
executed proxy bearing a later date; or
- attending the special meeting and voting in person at the special
meeting.
SOLICITATION OF PROXIES
Gen-X is soliciting proxies for the Gen-X special meeting from Gen-X
stockholders. Proxies may be solicited by mail, personal interview, telephone
and telecopy by directors, officers and employees of Gen-X and its subsidiaries
on a part-time basis and for no additional compensation. Gen-X will bear the
costs it incurs in the solicitation of proxies under this joint proxy
statement/prospectus.
COMMUNICATIONS BY GEN-X STOCKHOLDERS WITH GEN-X
Any written revocation of a proxy or other communications in connection
with this joint proxy statement/prospectus and requests for additional copies of
this joint proxy statement/prospectus or the proxy card should be sent to Gen-X
Sports Inc., 36 Dufflaw Road, Toronto, Ontario M6A 2W1 Canada, Attention:
Kenneth Finkelstein. If you have any questions or need further assistance in
voting your shares, please call Kenneth Finkelstein.
34
THE MERGER
The following is a description of the material aspects of the merger. While
we believe that the following description covers the material terms of the
merger, the description may not contain all of the information that is important
to you. You should read carefully this entire joint proxy statement/ prospectus
and the other documents we refer to for a more complete understanding of the
merger.
GENERAL
Each of the Huffy board of directors and the Gen-X board of directors has
approved the merger agreement. At the effective time of the merger, Gen-X will
merge with and into HSGC. HSGC will survive the merger as a wholly-owned
subsidiary of Huffy, and its name will be changed to Gen-X Sports Inc. The
merger will be effected simultaneously with the share purchase of Gen-X Ontario
by HSGC Canada, which is a wholly-owned subsidiary of Huffy.
BACKGROUND OF THE MERGER
On June 4, 2001, Gen-X and Gen-X Ontario engaged Sheffield Merchant Banking
Group to act as their exclusive financial advisor with respect to the raising of
capital or sale, merger, consolidation or other business combination of Gen-X
and Gen-X Ontario. Between June and August, 2001, Sheffield Merchant Banking
Group conducted a business and financial review of Gen-X and Gen-X Ontario, and
in September and October 2001, Sheffield Merchant Banking Group approached a
limited number of potential purchasers and investors on behalf of Gen-X and
Gen-X Ontario.
Prior to August 2001, Huffy had a customer relationship with Gen-X. From
time to time, Huffy sold Gen-X excess bicycle inventory which Gen-X then
distributed to sporting goods retailers worldwide.
In August 2001, Huffy competed for the acquisition of Schwinn/GT Bicycles
out of bankruptcy. In connection with such proposed acquisition, Gen-X contacted
Huffy and discussed the possibility of selling certain excess bicycle inventory
of Schwinn/GT Bicycles to Gen-X after the acquisition. Because Huffy did not
acquire Schwinn/GT Bicycles, Huffy and Gen-X never entered into any agreement.
Gen-X contacted Huffy in September 2001 regarding excess microscooter
inventory that Gen-X was interested in purchasing.
Gen-X completed its acquisition of First Team Sports in October 2001. As a
result of the acquisition, Gen-X acquired its in-line and hockey business
segments. Shortly after the acquisition, Gen-X contacted Huffy and inquired as
to whether Huffy would be interested in acquiring Gen-X and its operations. On
October 1, 2001, Huffy and Gen-X executed a confidentiality agreement, amended
on February 28, 2002.
Huffy management attended meetings with Gen-X management in Toronto on
October 11 and 31, 2001. During these meetings, Gen-X management made a
presentation to Huffy management and the parties began preliminary discussions
regarding a potential transaction. Huffy also received operational and financial
information with respect to Gen-X during such meetings.
Huffy and Gen-X continued discussions regarding the terms of a possible
transaction, including the amount and form of consideration to be paid,
throughout the rest of October and November.
Huffy and Gen-X management discussed their respective businesses and
explored potential alternatives for joint sales and marketing of a variety of
products during a dinner meeting at the Sporting Goods Manufacturers Association
"Super Show" on January 21, 2002.
On March 6, 2002, the chief executive officers of Huffy and Gen-X met in
Dayton, Ohio to discuss the terms of an acquisition of Gen-X and Gen-X Ontario
by Huffy. These discussions resulted in a tentative agreement on an acceptable
form and amount of consideration, subject to further due diligence, negotiation
and approval by Huffy's board of directors, now formalized in the plan of merger
and the share purchase agreement.
35
Also on March 6, 2002, the manager of Gen-X's opportunity/excess inventory
business and the president of Huffy Bicycle Company discussed the possibility of
a partnership between the companies to increase Huffy's sales of bicycles in
Canada.
Huffy and Gen-X management met in Dayton on March 20, 2002 to negotiate the
proposed structure of the acquisition of Gen-X and Gen-X Ontario by Huffy. These
discussions identified the need to structure the proposed acquisition as two
separate, but interdependent transactions, as described in the plan of merger
for Gen-X and the share purchase agreement for Gen-X Ontario.
On April 11, 2002, Huffy and Gen-X executed a non-binding letter of intent
pursuant to which Huffy would acquire Gen-X and Gen-X Ontario. During April,
2002, Huffy interviewed a number of investment banking firms to serve as Huffy's
financial advisor. After completing these interviews, Huffy selected A.G.
Edwards & Sons on April 16, 2001 to issue to the Huffy board of directors an
opinion as to the fairness of the proposed transaction from a financial point of
view to Huffy.
Huffy and its advisors traveled to Toronto and met with Gen-X senior
management and its advisors on April 16-19. During the visit, Gen-X senior
management made a presentation to Huffy which addressed business, financial,
accounting, tax, operational, legal, human resources, environmental and other
matters. Huffy and its advisors also conducted due diligence with respect to
Gen-X and Gen-X Ontario. Similarly, over this time period, Gen-X and its
financial advisors conducted due diligence with respect to Huffy.
Throughout April and May 2002, both parties and their advisors continued
their due diligence with respect to each other and further negotiated the terms
of the merger agreement and share purchase agreement.
Gen-X management presented its business overview to Huffy's board of
directors on April 25, 2002. Huffy's advisors made an oral presentation to the
board of directors, describing the process and the analysis to be used in
delivering a fairness opinion. The president of Gen-X reviewed the Gen-X
sporting goods business, including brands, sales and margin for actual 2002
compared to the latest 2002 estimate and 2003 projection, commenting on growth
drivers, sales by division in 2001, the latest 2002 estimate and 2003
projection. He also reviewed the top ten accounts for 2001 and for 2002
year-to-date, and he presented detailed reviews of golf products, board sports,
snowboards and action sports, inline skates, snow skis, hockey and the
opportunity/excess inventory business. The chairman and chief financial officer
of Gen-X discussed the potential synergies and opportunities that could be
achieved through the combination of Huffy and Gen-X. The chief executive officer
of Gen-X discussed the leverage utilized by Gen-X through its opportunity/excess
inventory business and how it could be used along with the portfolio of Gen-X
brand names to add incremental value to the combined company. The officers of
Gen-X also responded to the questions of Huffy's board of directors.
On April 30, 2002, Sheffield Merchant Banking Group conducted additional
due diligence on Huffy on a conference call with Huffy senior management. The
discussion focused on Huffy's year-to-date results, outlook and projections.
On May 3, 2002 Huffy engaged KPMG Transaction Services to perform
additional due diligence with respect to Gen-X and Gen-X Ontario. KPMG conducted
field work and due diligence through the second and third weeks of May, issuing
their report to Huffy on May 30, 2002.
On May 9, 2002, the Gen-X board of directors met to review the proposed
transaction. At that time, Sheffield Merchant Banking Group delivered its oral
opinion to the Gen-X and Gen-X Ontario boards of director that, as of the date
of such opinion, the aggregate consideration to be received by the Gen-X and
Gen-X Ontario stockholders pursuant to the merger agreement and the share
purchase agreement was fair to such holders, from a financial point of view.
Sheffield Merchant Banking Group rendered this opinion with respect to all Gen-X
stockholders other than James J. Salter and Kenneth J. Finkelstein and their
affiliates.
On May 23, 2002, A.G. Edwards conducted additional due diligence on Huffy
on a conference call with Huffy senior management. Discussion focused on Huffy's
strategic rationale for the proposed acquisition, the outlook and performance of
Huffy's business operations and Huffy's views of the potential synergies arising
from the combination of Huffy with Gen-X.
36
On June 4, 2002, the Huffy board of directors met to review the proposed
transaction. A.G. Edwards answered questions related to its written opinion and
presentation to the Board of Directors regarding the acquisition, and delivered
its oral opinion to the Huffy board that as of May 31, 2002 the transaction was
fair from a financial point of view to Huffy. The Huffy board approved the
merger and stock purchase on June 4, 2002, and on June 5, 2002 Huffy and Gen-X
executed the merger agreement and share purchase agreement.
REASONS FOR THE MERGER -- HUFFY
The Huffy board of directors has approved the merger agreement and the
transactions contemplated by the merger agreement and unanimously recommends
that Huffy shareholders vote "FOR" approval of the issuance of Huffy common
stock in the merger.
In reaching its decision to approve the merger agreement, the Huffy board
of directors consulted with senior members of Huffy's management team regarding
the strategic and operational aspects of the merger and the results of the due
diligence efforts undertaken by management and Huffy's legal advisors. In
addition, the Huffy board of directors consulted with A.G. Edwards as to the
fairness, from a financial point of view to Huffy, of the merger and stock
purchase. The Huffy board of directors also consulted with Huffy's internal
counsel and with representatives of its outside counsel, Dinsmore & Shohl LLP,
regarding legal due diligence matters and the terms of the merger agreement and
related agreements. In evaluating the merger, the Huffy board of directors
considered a variety of factors, including the following:
- the strategic fit between Huffy and Gen-X and the opportunity to enhance
and expand Huffy's sporting goods business and product line;
- Huffy's ability to enjoy significant future expansion and growth as a
result of the combination with Gen-X;
- Huffy's ability to enjoy an expanded brand portfolio, sporting goods
product offerings, a broader, more diversified customer base and an
enhanced North American and international presence;
- Huffy's ability to access the greater resources of the combined company
after the merger;
- the opportunity to realize potential operating synergies and cost
savings, including increased purchasing power with its vendors, reduced
corporate overhead as a percentage of sales, the consolidation of sales
and marketing organization, and the integration of the financial,
information and distribution systems;
- the increased growth potential that may result from a combination of
Huffy and Gen-X, including as a result of the combined company's superior
asset base, portfolio of growth opportunities, operating skills,
financial stability and strength;
- the opportunity for Huffy's shareholders to participate in the potential
for growth of the combined company after the merger;
- the opinion of A.G. Edwards that, as of the date of the opinion, and
based upon and subject to the considerations described in the opinion,
the merger and stock purchase were fair from a financial point of view to
Huffy;
- the terms and conditions of the merger agreement, including:
- the fact that the fixed merger consideration provides certainty as to
the number of shares of Huffy common stock to be issued to Gen-X
stockholders and the percentage of the total shares of Huffy common
stock that current Gen-X stockholders will own after the merger;
- the conditions to consummation of the merger, in particular the
likelihood of obtaining the necessary regulatory approvals and
stockholder approvals; and
- the provisions that restrict the ability of Gen-X to enter into
transactions with other potential acquirors.
- the expected qualification of the merger as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code resulting in the
common stock portion of the merger consideration being received by Gen-X
stockholders free of U.S. federal income tax;
37
- the agreement of certain Gen-X stockholders owning approximately 57% of
the outstanding shares of Gen-X common stock to vote for approval of the
merger agreement; and
- the terms and conditions of the shareholder group agreement which places
certain transfer and voting restrictions on voting securities of Huffy
held by certain Gen-X stockholders.
The Huffy board of directors also identified and considered a variety of
potentially negative factors concerning the merger, including the following:
- the risk that the potential benefits sought in the merger might not be
fully realized;
- the potential adverse effects on Huffy's business, operations and
financial condition if the merger is not completed following public
announcement of the merger agreement;
- the costs associated with the merger, including the potential costs of
integrating the businesses of Huffy and Gen-X and transaction expenses;
- the difficulties of integrating Huffy with Gen-X and the management
effort required to complete the integration following the merger; and
- various other risks associated with the merger and the businesses of
Huffy, Gen-X and the combined company described in this joint proxy
statement/prospectus under "Risk Factors."
Huffy's board considered these negative factors as well as the continued
operation of Huffy as an independent company, and concluded that, on balance,
the potential benefits to Huffy and its shareholders of the merger outweighed
the risks associated with the merger.
The discussion of the factors above is not intended to be exhaustive, but
Huffy believes that it includes all significant factors considered by Huffy's
board of directors in connection with its evaluation of the merger. In light of
the number of factors and the variety of information that Huffy's board of
directors considered, the board did not find it practicable to, and did not,
assign any specific or relative weights to the factors listed above. Rather, the
Huffy board of directors made its recommendation based on the totality of
information presented to, and the investigation conducted by, it. In considering
the factors discussed above, individual directors may have given different
weights to different factors.
THE HUFFY BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HUFFY SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE ISSUANCE OF HUFFY COMMON STOCK IN THE MERGER.
REASONS FOR THE MERGER -- GEN-X
At a meeting held on May 9, 2002, the Gen-X board of directors adopted the
merger agreement and resolved to recommend that Gen-X stockholders vote "FOR"
the approval of the merger agreement.
In making its determination to adopt the merger agreement, the Gen-X board
of directors consulted with senior members of the Gen-X management team
regarding various matters, including the strategic and operational aspects of
the merger and the results of the due diligence efforts undertaken by management
and advisors of Gen-X. In addition, the Gen-X board of directors consulted with
Sheffield Merchant Banking Group as to the fairness, from a financial point of
view, to Gen-X and Gen-X Ontario stockholders of the consideration to be
received by such holders. Sheffield Merchant Banking Group rendered this opinion
with respect to all Gen-X stockholders other than to James J. Salter and Kenneth
J. Finkelstein and their affiliates. In reaching its decision, the Gen-X board
of directors considered a variety of factors, including the following material
factors:
- the strategic fit between Gen-X and Huffy and the opportunity to enhance
and expand Gen-X's business and product line;
- the ability of Gen-X to have access to the greater resources of the
combined company after the merger;
38
- the increased growth potential that may result from a combination of
Gen-X and Huffy, including as a result of the combined company's superior
asset base, portfolio of growth opportunities, operating skills,
financial stability and strength;
- the opportunity for Gen-X stockholders to participate in the potential
for growth of the combined company after the merger;
- the opportunity for cost savings and operation synergies that would
result from the merger;
- the financial performance and financial condition, business and prospects
of Gen-X and Huffy;
- the opportunity to be part of a publicly traded, New York Stock Exchange
company;
- the recent and historical stock price performance of Huffy common stock;
- the fixed nature of the stock portion of the merger consideration and
that an increase or decrease in the market value of Huffy common stock
will increase or decrease from current levels the market value of the
stock portion of the merger consideration to be received by Gen-X
stockholders at the time of the closing of the merger;
- possible alternatives to the merger, including continuing as an
independent entity or pursuing a business combination with a company
other than Huffy;
- the expected qualification of the merger as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code resulting in the
common stock portion of the merger consideration being received by Gen-X
stockholders free of U.S. federal income tax;
- the agreement of certain Gen-X stockholders owning approximately 57% of
the outstanding shares of Gen-X common stock, approximately 57% of the
outstanding shares of series C non-voting preferred stock and 100% of the
outstanding shares of series A 7% redeemable preferred stock to vote for
approval of the merger agreement; and
- the opinion of Sheffield Merchant Banking Group to Gen-X's board of
directors as to the fairness, from a financial point of view, of the
aggregate consideration to be received by Gen-X and Gen-X Ontario
stockholders. Sheffield Merchant Banking Group rendered this opinion with
respect to all Gen-X stockholders other than James J. Salter and Kenneth
J. Finkelstein and their affiliates.
Gen-X's board of directors also identified a variety of potentially
negative factors concerning the merger, including the following:
- the risk that the potential benefits sought in the merger might not be
fully realized;
- the possibility that if the market price of Huffy common stock declines,
as a result of the fixed nature of the stock portion of the merger
consideration, the value of the merger consideration to be received by
Gen-X stockholders at the time of the closing of the merger would
decline;
- the possibility of disruption to Gen-X operations and a loss of key
employees as a result of the merger;
- the potential adverse effects on Gen-X's business, operations and
financial condition if the merger is not completed following public
announcement of the merger agreement; and
- the risks described under the section entitled "Risk Factors."
In reaching its determination, the Gen-X board of directors was aware of
the interests that some executive officers and directors of Gen-X may have with
respect to the merger in addition to their interests as stockholders of Gen-X
generally. The board considered these negative factors but concluded that such
negative factors were outweighed by the potential benefits of the merger.
The discussion of the factors above is not intended to be exhaustive, but
Gen-X believes that it includes all significant factors considered by the Gen-X
board of directors in connection with its evaluation of the merger. In light of
the number of factors and the variety of information that the Gen-X board of
directors
39
considered, the board did not find it practicable to, and did not, assign any
specific or relative weights to the factors listed above. In addition,
individual directors may have given different weights to different factors.
OPINION OF FINANCIAL ADVISOR -- HUFFY
Huffy engaged A.G. Edwards & Sons to act as its financial advisor in
connection with the proposed transaction and to render an opinion to the Huffy
board as to the fairness, from a financial point of view, to Huffy of the
proposed merger and stock purchase. Huffy selected A.G. Edwards to be its
financial advisor in connection with the transaction because A.G. Edwards is a
prominent investment banking and financial advisory firm and A.G. Edwards, as
part of its investment banking business, is regularly engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. A.G. Edwards was not aware of any present or
contemplated relationship between A.G. Edwards, Huffy, Huffy's directors and
officers or its shareholders, or between A.G. Edwards, Gen-X, Gen-X Ontario, or
Gen-X's directors and officers or shareholders, which in its opinion would
affect its ability to render a fair and independent opinion in connection with
the transaction. On May 31, 2002, A.G. Edwards delivered its written opinion to
the Huffy board that, as of the date of such opinion, the merger and stock
purchase were fair, from a financial point of view, to Huffy.
The full text of the written opinion of A.G. Edwards, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached to this joint proxy
statement/prospectus as Annex C and is incorporated herein by reference. A.G.
Edwards' opinion is addressed to the Huffy board of directors and relates only
to the fairness of the merger and stock purchase from a financial point of view.
THE OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED MERGER AND STOCK
PURCHASE AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW
TO VOTE ON ANY MATTERS RELATING TO THE MERGER OR THE STOCK PURCHASE. The summary
of A.G. Edwards' opinion described below is qualified in its entirety by
reference to the full text of its opinion. Huffy shareholders are urged to read
the opinion carefully in its entirety.
In arriving at its opinion, A.G. Edwards reviewed and analyzed such
materials and considered such financial and other factors that it deemed
relevant under the circumstances, including the following:
- drafts of the merger agreement and share purchase agreement and
discussions about the drafts with the management of Huffy;
- conversations with the management of Huffy regarding the nature and
extent of development of the terms of the merger and stock purchase;
- certain public filings and certain audited financial statements,
financial analyses and forecasts for Huffy;
- certain audited financial statements, unaudited financial statements,
financial analyses and forecasts for Gen-X and Gen-X Ontario;
- selected past and current data relating to the operations, financial
condition and future prospects of Huffy, Gen-X and Gen-X Ontario, which
data was obtained through, among other things, interviews with the
members of management of Huffy, Gen-X and Gen-X Ontario, respectively;
- certain market data for the stock of Huffy and for stocks of public
companies in the same or similar lines of business as Huffy, Gen-X and
Gen-X Ontario;
- the financial terms of certain acquisitions which A.G. Edwards deemed
relevant for analytical purposes;
- the implied valuation of Gen-X and Gen-X Ontario based on the discounted
value of their combined projected cash flows;
40
- certain pro forma financial statements of Huffy giving effect to the
merger and stock purchase as estimated by Huffy's management; and
- other information, financial studies, analyses and investigations, and
financial, economic and market criteria that A.G. Edwards considered
relevant.
In preparing its opinion, A.G. Edwards has assumed and relied upon the
accuracy and completeness of all financial and other information that was
publicly available, or supplied or otherwise made available to it by Huffy,
Gen-X and Gen-X Ontario and their advisors. A.G. Edwards has not verified the
accuracy or completeness of any of such information. A.G. Edwards has relied
upon the assurances of the management of Huffy that they are not aware of any
facts that would make any financial or other information inaccurate or
misleading. A.G. Edwards has been informed and assumed that financial
projections supplied to, discussed with or otherwise made available to it
reflect the best currently available estimates and judgments of the management
of Huffy as to the expected future financial performance of Huffy, Gen-X and
Gen-X Ontario, each on a stand-alone basis and having given effect to the merger
and stock purchase. A.G. Edwards has not independently verified such information
or assumptions nor does it express any opinion with respect thereto. A.G.
Edwards has not made any independent valuation or appraisal of the assets or
liabilities of Huffy, Gen-X or Gen-X Ontario, nor has A.G. Edwards been
furnished with any such valuations or appraisals. A.G. Edwards also did not
independently attempt to assess or value any of the intangible assets of Huffy,
Gen-X and Gen-X Ontario (including goodwill) nor did it make any independent
assumptions with respect to their application in the merger and stock purchase.
A.G. Edwards' opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to it as of, the
date of its opinion. A.G. Edwards does not have any obligation to update, revise
or reaffirm its opinion. Its opinion is limited to the fairness to Huffy, from a
financial point of view, of the merger and stock purchase.
For purposes of rendering its opinion A.G. Edwards assumed in all respects
that the representations and warranties of each party contained in the merger
agreement and share purchase agreement are true and correct, that each party
will perform all of the covenants and agreements required to be performed by it
under the agreements and that all conditions to the consummation of the merger
and stock purchase will be satisfied without waiver thereof. A.G. Edwards also
assumed that all governmental, regulatory and other consents and approvals
contemplated by the agreements will be obtained and that in the course of
obtaining any of those consents, no restrictions will be imposed or waivers made
that would have an adverse effect on the contemplated benefits of the merger and
stock purchase. In rendering its opinion, A.G. Edwards also assumed that the
merger and stock purchase will be consummated on the terms contained in the
agreements without any waiver or modification of any terms or conditions.
The summary set forth below describes the material analyses performed by
A.G. Edwards in connection with providing its written opinion to the board of
Huffy on May 31, 2002. It does not purport to be a complete description of the
analyses underlying A.G. Edwards' opinion or the presentation made by A.G.
Edwards to the board of Huffy and is qualified in its entirety by reference to
the full text of the opinion. The preparation of a fairness opinion is a complex
process involving various determinations as to the most appropriate and relevant
methods of financial analyses and the application of those methods to the
particular circumstances and, therefore, such an opinion is not necessarily
susceptible to partial analysis or summary description. A.G. Edwards may have
given various analyses more or less weight than other analyses and may have
deemed various assumptions more or less probable than other assumptions.
Accordingly, A.G. Edwards believes its analyses must be considered as a whole
and that selecting portions of its analyses, without considering all analyses,
would create an incomplete view of the process underlying the A.G. Edwards
opinion. The assumptions made, and the judgments applied, by A.G. Edwards in
rendering its opinion are not readily susceptible to description beyond that set
forth in the written text of the fairness opinion itself.
In performing its analyses, A.G. Edwards considered industry performance,
general business, economic, market and financial conditions and other matters
existing as of the date of its opinion, many of which are beyond Gen-X's and
Huffy's control. No company, transaction or business used in the analyses as a
comparison is identical to Gen-X, Huffy or the merger and stock purchase, and an
evaluation of the results of
41
those analyses is not entirely mathematical. Rather, the analyses involve
complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
analyzed. The estimates contained in A.G. Edwards' analyses and the ranges of
valuations resulting from any particular analysis are not necessarily indicative
of actual values or future results, which may be significantly more or less
favorable than those suggested by its analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, A.G. Edwards' analyses and estimates are inherently subject to
substantial uncertainty.
The type and amount of consideration payable in the merger and stock
purchase was determined through negotiation between Gen-X and Huffy and their
respective advisers and the decision to enter into the merger and stock purchase
was solely that of the Huffy board. A.G. Edwards' opinion and financial analyses
were only one of many factors considered by the Huffy board in its evaluation of
the merger and stock purchase and should not be viewed as determinative of the
views of the Huffy board or management with respect to the merger and stock
purchase or the consideration provided for in the merger and stock purchase.
The following is a summary of the material financial analyses underlying
A.G. Edwards' opinion to the Huffy board in connection with the merger and stock
purchase.
Comparable Precedent Transaction Analysis
Using publicly available information, A.G. Edwards evaluated 24 comparable
precedent sporting goods manufacturing company transactions to provide reference
points for the application of market multiples for the merger and the stock
purchase. Emphasis was given to the following transactions: Schwinn Holding
Corps/GT Bicycles Inc; HB Acquisition Corp./Bell Sports Corp; Callaway Golf
Co./Odyssey Sports Inc.; American Brands, Inc./Cobra Golf, Inc.; and Bushnell
Performance Optics/Serengeti Eyewear Inc.
Among other things, A.G. Edwards analyzed with respect to each comparable
transaction, as available: (i) the equity transaction price as a multiple of
earnings and book value for the most recent four fiscal quarters (such four
fiscal quarters being referred to below as "LTM"); (ii) the aggregate purchase
price (common equity value, plus the book value of debt and preferred stock less
cash and marketable securities) to LTM sales, LTM earnings before interest
expense and taxes ("EBIT") and LTM earnings before interest expense, taxes,
depreciation and amortization ("EBITDA"); and (iii) the similarity of such
transactions to the Huffy/Gen-X merger and stock purchase. Based on such
analyses, A.G. Edwards derived the median aggregate transaction valuations for
such precedent transactions. Applying the results of these analyses of median
aggregate transaction valuations to the relevant consolidated Gen-X and Gen-X
Ontario financial results yielded implied market values for Gen-X and Gen-X
Ontario ranging from $96,900,000 to $155,000,000. A.G. Edwards compared these
implied values to the aggregate consideration to be paid by Huffy in the merger
and the stock purchase.
No transaction used in A.G. Edwards' analysis was identical to the
Huffy/Gen-X merger and stock purchase. A.G. Edwards' analysis involved complex
considerations and judgments concerning differences in acquisition values of the
comparable transactions.
Comparable Company Analysis
Using publicly available information, A.G. Edwards reviewed and compared
the consolidated financial and operating information of Gen-X and Gen-X Ontario
with financial and operating information of six publicly traded consumer
products companies (the "Comparable Companies"): Brunswick Corporation; Callaway
Golf Company; Cannondale Corporation; K2 Inc.; Oakley, Inc.; and Rawlings
Sporting Goods, Inc. A.G. Edwards considered, among other things: (i) the
Comparable Companies' market equity value to LTM earnings and 2002 estimated
earnings, with such estimated earnings being based on FirstCall Research
estimates as of May 30, 2002; (ii) the Comparable Companies' market
capitalization (common equity value, plus the book value of debt and preferred
stock less cash and marketable securities) to LTM sales, LTM EBIT and LTM
EBITDA; and (iii) the similarity of such companies to Gen-X and Gen-X Ontario.
Based on the results of these analyses, A.G. Edwards derived the aggregate
median valuation multiples for such
42
Comparable Companies. Applying the results of these analyses (and using the
aggregate median valuation multiples for such Comparable Companies) to the
relevant Gen-X and Gen-X Ontario financial results and Huffy's management
projections yielded implied market values for Gen-X and Gen-X Ontario ranging
from $87,100,000 to $139,500,000. A.G. Edwards compared these implied values to
the aggregate consideration to be paid by Huffy in the merger and the stock
purchase.
No company used in A.G. Edwards' analysis was identical to Gen-X and Gen-X
Ontario. A.G. Edwards' analysis involved complex considerations and judgments
concerning differences in the potential financial and operating characteristics
of the Comparable Companies and other factors regarding the trading values of
the Comparable Companies.
Discounted Cash Flow Analysis
A.G. Edwards used a discounted cash flow analysis to establish a current
value for the consolidated future economic capabilities and projections of Gen-X
and Gen-X Ontario. Value indications were developed by discounting expected
operating cash flows to their present value at a range of appropriate discount
rates. This analysis was highly dependent on Gen-X, Gen-X Ontario and Huffy
management's financial projections for Gen-X and Gen-X Ontario and a calculated
terminal value at the end of 2006, the last period of forecasted financial
statements. A.G. Edwards calculated terminal values for Gen-X and Gen-X Ontario
by applying a range of EBITDA multiples from 5.0x to 9.0x. The operating cash
flow amounts and terminal values were then discounted to the present using a
range of discount rates from 12.0% to 18.0%. Using financial information and
forecasts provided by management of Huffy, A.G. Edwards derived an implied
equity value range for Gen-X and Gen-X Ontario combined. This analysis, which
did not consider any benefits derived from combining Gen-X, Gen-X Ontario and
Huffy, indicated that the implied equity value of Gen-X and Gen-X Ontario ranged
from $113,000,000 to $268,000,000.
Pro Forma Financial Analysis
A.G. Edwards analyzed the pro forma effects of the transaction on the
earnings per share of Huffy in calendar years 2002 and 2003, based on the
financial projections provided by Huffy management and a range of Huffy share
prices. A.G. Edwards observed that if the Gen-X and Gen-X Ontario 2002 and 2003
financial projections were realized assuming a $7.86 share price for Huffy
common stock, the merger and stock purchase would have an accretive effect on
pro forma 2002 and 2003 earnings per share ("EPS") of approximately 27.9% and
86.3% respectively. A.G. Edwards analyzed the impact the merger and stock
purchase would have on EPS at sensitivities between 75% and 100% of projected
2002 and 2003 EBIT achievement. A.G. Edwards observed that at a $7.86 per share
price for Huffy common stock the merger and stock purchase would have an
accretive effect at 75% of EBIT achievement on pro forma 2002 and 2003 EPS of
approximately 11.0% and 40.6% respectively.
A.G. Edwards also performed sensitivity analyses on the pro forma effects
of the merger and stock purchase on the EPS of Huffy in the calendar years 2002
and 2003 as a result of the possible fluctuation of Huffy's share price
adjustment. At all price ranges reviewed (ranging between $6.38 to $9.36 per
share), the merger and stock purchase had an accretive effect on pro forma 2002
and 2003 EPS.
Other Analyses
A.G. Edwards conducted other analyses as it deemed necessary.
Fee Arrangements
The terms of the engagement of A.G. Edwards by Huffy are set forth in a
letter agreement between A.G. Edwards and Huffy (the "Engagement Letter").
Pursuant to the terms of the Engagement Letter, as compensation for rendering
its opinion to the Board of Directors of Huffy, Huffy agreed to pay A.G. Edwards
a fee of $350,000. In addition, Huffy agreed to reimburse A.G. Edwards for the
reasonable travel and out-of-pocket expenses incurred in connection with its
engagement. Huffy has agreed to indemnify A.G. Edwards against certain
liabilities in connection with the engagement of A.G. Edwards.
43
OPINION OF FINANCIAL ADVISOR -- GEN-X
Gen-X and Gen-X Ontario asked Sheffield Merchant Banking Group in its role
as financial advisor to Gen-X and Gen-X Ontario, to render an opinion to the
Gen-X and Gen-X Ontario boards of directors as to the fairness, from a financial
point of view, to Gen-X and Gen-X Ontario stockholders of the aggregate
consideration to be received by such stockholders under the merger agreement and
share purchase agreement other than James J. Salter and Kenneth J. Finkelstein
and their affiliates. On May 9, 2002, Sheffield Merchant Banking Group delivered
an oral opinion, subsequently confirmed in writing, as of June 27, 2002, that
based upon and subject to the assumptions, limitations and qualifications set
forth in the opinion, the aggregate consideration to be received by the Gen-X
and Gen-X Ontario stockholders pursuant to the merger agreement and share
purchase agreement is fair to such holders from a financial point of view. As
requested, Sheffield Merchant Banking Group rendered this opinion with respect
to all Gen-X stockholders other than James J. Salter and Kenneth J. Finkelstein
and their affiliates.
THE FULL TEXT OF SHEFFIELD MERCHANT BANKING GROUP'S OPINION IS ATTACHED AS
ANNEX D TO THIS JOINT PROXY STATEMENT/PROSPECTUS. THE SUMMARY OF SHEFFIELD
MERCHANT BANKING GROUP'S OPINION SET FORTH IN THIS PROSPECTUS IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SHEFFIELD MERCHANT BANKING GROUP'S
OPINION. GEN-X STOCKHOLDERS ARE URGED TO READ SHEFFIELD MERCHANT BANKING GROUP'S
OPINION CAREFULLY AND IN ITS ENTIRETY FOR THE PROCEDURES FOLLOWED, ASSUMPTIONS
MADE, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY SHEFFIELD MERCHANT
BANKING GROUP IN CONNECTION WITH ITS OPINION.
Sheffield Merchant Banking Group's opinion is addressed to the Gen-X and
Gen-X Ontario boards of directors and relates to the fairness of the aggregate
consideration from a financial point of view to Gen-X and Gen-X Ontario
stockholders to be received by such stockholders under the merger agreement and
the share purchase agreement. Sheffield Merchant Banking Group rendered this
opinion with respect to all Gen-X stockholders other than James J. Salter and
Kenneth J. Finkelstein and their affiliates. The opinion does not address any
other aspect of the proposed merger and does not constitute a recommendation to
any stockholder as to any matters relating to the merger.
Gen-X selected Sheffield Merchant Banking Group to be its financial advisor
in connection with the merger because Sheffield Merchant Banking Group has
substantial experience and expertise in providing strategic advisory services.
Sheffield Merchant Banking Group was not retained as an adviser or agent to the
stockholders of Gen-X, Gen-X Ontario or any other person. As part of its
investment banking services, Sheffield Merchant Banking Group and its affiliates
are regularly engaged in the valuation of businesses and securities in
connection with mergers, acquisitions, sales and trading of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
In arriving at its opinion, Sheffield Merchant Banking Group:
- reviewed the merger agreement and share purchase agreement;
- reviewed financial and other information that was publicly available or
furnished to Sheffield Merchant Banking Group by Gen-X, Gen-X Ontario and
Huffy, including information provided during discussions with their
respective managements. Included in the information provided during
discussions with the respective managements were certain financial
projections of Gen-X and Gen-X Ontario for the period beginning January
1, 2002 and ending December 31, 2005 prepared by the management of Gen-X
and Gen-X Ontario, and certain financial projections of Huffy for the
period beginning January 1, 2002 and ending December 31, 2004 prepared by
the management of Huffy;
- compared certain financial data of Gen-X, Gen-X Ontario and Huffy, and
certain securities data of Huffy with various other companies whose
securities are traded in public markets;
- reviewed the historical stock prices and trading volumes of the Huffy
common stock;
- reviewed prices paid in certain other business combinations; and
44
- conducted such other financial studies, analyses and investigations as
Sheffield Merchant Banking Group deemed appropriate for purposes of its
opinion.
Prior to Gen-X, Gen-X Ontario and Huffy entering into a letter of intent
concerning the merger and share purchase, Sheffield Merchant Banking Group was
asked by the Gen-X and Gen-X Ontario boards of directors to solicit indications
of interest from a limited number of third parties regarding a transaction with
the Gen-X and Gen-X Ontario, and Sheffield Merchant Banking Group considered
such results when rendering its fairness opinion.
In rendering its opinion, Sheffield Merchant Banking Group relied upon and
assumed, without independent verification, the accuracy and completeness of all
of the financial and other information that was available to it from public
sources, that was provided to it by Gen-X, Gen-X Ontario and Huffy or their
respective representatives or that was otherwise reviewed by it, and assumed
that Gen-X and Gen-X Ontario was not aware of any information prepared by Gen-X
and Gen-X Ontario or their advisors that might be material to Sheffield Merchant
Banking Group's opinion that had not been available to Sheffield Merchant
Banking Group. With respect to the financial projections supplied to it,
Sheffield Merchant Banking Group assumed that they were reasonably prepared on
the basis reflecting the best then currently available estimates and judgments
of the management of Gen-X, Gen-X Ontario and Huffy as to the future operating
and financial performance of Gen-X, Gen-X Ontario and Huffy respectively.
Sheffield Merchant Banking Group did not assume any responsibility for making an
independent evaluation of any assets or liabilities or for making any
independent verification of any of the information reviewed by it. In addition,
Sheffield Merchant Banking Group did not assume any obligation to conduct and
Sheffield Merchant Banking Group did not conduct, any physical inspection of the
properties or facilities of Gen-X, Gen-X Ontario or Huffy.
Sheffield Merchant Banking Group's opinion is necessarily based on
economic, market, financial and other conditions as they existed on, and on the
information made available to Sheffield Merchant Banking Group as of, the date
of its opinion. The Sheffield Merchant Banking Group opinion states that,
although subsequent developments may affect its opinion, Sheffield Merchant
Banking Group does not have any obligation to update, revise or reaffirm its
opinion. Sheffield Merchant Banking Group expressed no opinion as to the prices
at which the Huffy common stock would actually trade at any time. The Sheffield
Merchant Banking Group opinion did not address the relative merits of the merger
or share purchase agreement and other business strategies being considered by
the Gen-X and Gen-X Ontario boards of directors, nor did it address the boards'
decision to proceed with the merger and share purchase agreement. In addition,
the Sheffield Merchant Banking Group opinion does not address the relative
merits of the merger as compared to alternative business transactions that might
be available to Gen-X and Gen-X Ontario. The Sheffield Merchant Banking Group
opinion did not constitute a recommendation to any Gen-X stockholder as to how
that stockholder should vote on the merger. Further, Sheffield Merchant Banking
Group was not requested to, and the Sheffield Merchant Banking Group opinion
does not address, the fairness of the allocation of the aggregate merger and
share purchase consideration between Gen-X and Gen-X Ontario.
Summary of Financial Analyses Performed by Sheffield Merchant Banking Group
The following is a summary of the financial analyses provided by Sheffield
Merchant Banking Group to the Gen-X and Gen-X Ontario boards of directors on
June 27, 2002 in connection with the preparation of Sheffield Merchant Banking
Group's opinion. No company or transaction used in the analyses below is
directly comparable to Gen-X and Gen-X Ontario or the contemplated transaction.
In addition, mathematical analysis such as determining the mean or median is not
in itself a meaningful method of using selected company or transaction data. The
analyses performed by Sheffield Merchant Banking Group are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by these analyses.
Selected Precedent Transaction Analysis
Sheffield Merchant Banking Group reviewed and analyzed certain
publicly-available information relating to selected precedent transactions
involving sporting goods manufacturers and distributors since
45
December 1995, which are referred to as the "selected precedent transactions,"
and compared the financial terms of such transactions to those of the merger.
The selected precedent transactions include:
- Nautilus Group's acquisition of Schwinn/GT's fitness assets;
- Gilde Investment Management's acquisition of Derby Cycle's Gazelle
assets;
- Lincolnshire Management's acquisition of Riddell Sports' Group Division;
and
- Chartwell Investments' acquisition of Bell Sports.
Sheffield Merchant Banking Group's analysis was based on the closing price
of Huffy's common stock on June 24, 2002 and indicated that for the selected
precedent transactions:
- the enterprise value as a multiple of latest twelve months ("LTM") sales
ranged from 0.59x to 1.39x with a median multiple of 0.86x, as compared
to 0.92x for the enterprise value of the merger as a multiple of Gen-X's
and Gen-X Ontario's LTM sales; and
- the enterprise value as a multiple of LTM earnings before interest and
taxes ("EBIT") ranged from 3.8x to 10.0x with a median multiple of 8.3x,
as compared to 13.0x for the enterprise value of the merger as a multiple
of Gen-X's and Gen-X Ontario's LTM EBIT.
Comparable Company Analysis
Sheffield Merchant Banking Group reviewed and compared selected historical,
financial and operating data, projections of future financial performance that
reflected a composite of equity research analysts' estimates and stock market
performance data to the corresponding data of selected publicly-traded companies
that, for purposes of this analysis, may be considered comparable to Gen-X and
Gen-X Ontario together, which are referred to as the "selected comparable
companies." The multiples and ratios for Gen-X and Gen-X Ontario were based on
information provided by Gen-X's and Gen-X Ontario's management and the multiples
and ratios of each of the selected comparable companies were based on the most
recent publicly-available information. The selected precedent transactions were
chosen because they have operations, for the purpose of this analysis, that may
be considered reasonably similar to the operations of Huffy. The selected
comparable companies included Cannondale, Groupe Rossignol, Head, K2, Rawlings
Sporting Goods and The Hockey Company.
Sheffield Merchant Banking Group's analysis was based on the closing price
of Huffy's common stock on June 24, 2002 and indicated that for the selected
comparable companies:
- the enterprise value as a multiple of LTM sales ranged from 0.23x to
0.99x with a median multiple of 0.58x, as compared to 0.92x for the
enterprise value of the merger and share purchase as a multiple of
Gen-X's and Gen-X Ontario's aggregate LTM sales;
- the enterprise value as a multiple of LTM EBITDA ranged from 4.9x to
14.3x with a median multiple of 7.6x, as compared to 11.5x for the
enterprise value of the merger and share purchase as a multiple of
Gen-X's and Gen-X Ontario's aggregate LTM EBITDA;
- the enterprise value as a multiple of LTM EBIT ranged from 9.7x to 19.4x
with a median multiple of 11.4x, as compared to 13.0x for the enterprise
value of the merger and share purchase as a multiple of Gen-X's and Gen-X
Ontario's aggregate LTM EBIT;
- the equity value as a multiple of LTM net income ranged from 15.8x to
35.4x with a median multiple of 23.9x, as compared to 12.7x for the
equity value of the merger and share purchase as a multiple of Gen-X's
and Gen-X Ontario's aggregate LTM net income excluding, on an after-tax
basis, extraordinary and non-recurring items; and
- the equity value as a multiple of projected calendar 2002 net income
ranged from 9.8x to 16.7x with a median multiple of 10.0x, as compared to
6.1x for the equity value of the merger and share purchase as a multiple
of Gen-X's and Gen-X Ontario's aggregate projected calendar 2002 net
income excluding, on an after-tax basis, extraordinary and non-recurring
items.
46
Discounted Cash Flow Analysis
Sheffield Merchant Banking Group performed a discounted cash flow analysis
of the aggregate projected unlevered free cash flows of Gen-X and Gen-X Ontario
together for the fiscal years 2002 to 2005. Sheffield Merchant Banking Group
calculated enterprise values utilizing discount rates reflecting a weighted
average cost of capital ranging from 11% to 17% and Gen-X's terminal value
multiples of projected fiscal year 2005 EBITDA of 5.5x to 7.0x. This discounted
cash flow analysis resulted in aggregate Gen-X and Gen-X Ontario enterprise
values ranging from $144,700,000 to $223,500,000 and values for the equity of
Gen-X and Gen-X Ontario ranging from $94,200,000 to $173,100,000.
Sheffield Merchant Banking Group also performed a discounted cash flow
analysis of the projected unlevered free cash flows of the merged entity for the
fiscal years 2002 to 2004, determined the fraction of such aggregate free cash
flows that would accrue to the benefit of the Gen-X and Gen-X Ontario
stockholders based on their ownership of up to 5,000,000 shares of Huffy common
stock and combined this value with the $19,000,000 in cash to be received by the
Gen-X and Gen-X Ontario stockholders in conjunction with the merger and the
share purchase in order to arrive at an implied value for the Gen-X merger and
Gen-X Ontario share purchase consideration. Sheffield Merchant Banking Group
calculated such implied values utilizing discount rates reflecting a weighted
average cost of capital ranging from 11% to 17% and merged entity terminal value
multiples of projected fiscal year 2004 EBITDA of 5.5x to 7.0x. This discounted
cash flow analysis resulted in implied present values for the aggregate Gen-X
merger and Gen-X Ontario share purchase consideration ranging from $75,600,000
to $107,500,000.
The summary set forth above does not purport to be a complete description
of the analyses performed by Sheffield Merchant Banking Group but describes the
material elements of the materials that Sheffield Merchant Banking Group
provided to the Gen-X and Gen-X Ontario boards of directors on June 27, 2002 in
connection with the preparation of its written fairness opinion, dated June 27,
2002. The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances, and, therefore,
such an opinion is not readily susceptible to summary description. Sheffield
Merchant Banking Group conducted each of the analyses in order to provide a
different perspective on the transaction and to add to the total mix of
information available. Sheffield Merchant Banking Group did not form a
conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to fairness from a financial point
of view. Rather, in reaching its conclusion, Sheffield Merchant Banking Group
considered the results of the analyses in light of each other and ultimately
reached its opinion based on the results of all analyses taken as a whole.
Sheffield Merchant Banking Group did not place any particular reliance or weight
on any individual analysis, but instead concluded that its analyses, taken as a
whole, supported its determination. Accordingly, notwithstanding the separate
factors summarized above, Sheffield Merchant Banking Group has indicated to
Gen-X and Gen-X Ontario that it believes that its analyses must be considered as
a whole and that selecting portions of its analyses and the factors considered
by it, without considering all analyses and factors, could create an incomplete
view of the evaluation process underlying its opinion. The analyses Sheffield
Merchant Banking Group performed are not necessarily indicative of actual values
or future results, which may be significantly more or less favorable than
suggested by these analyses.
The terms of the merger agreement were determined through negotiations
among Gen-X and Huffy and were approved by the Gen-X board of directors.
Although Sheffield Merchant Banking Group provided advice to the Gen-X board of
directors during the course of these negotiations, the decision to enter into
the merger agreement was solely that of the Gen-X board of directors. The
opinion of Sheffield Merchant Banking Group was only one of a number of factors
taken into consideration by the Gen-X board of directors in making its
determination to approve the merger. Sheffield Merchant Banking Group's opinion
was provided to the Gen-X and Gen-X Ontario boards of directors to assist them
in connection with their respective consideration of the merger agreement and
does not constitute a recommendation to any holder of Gen-X common stock as to
how to vote with respect to the merger.
47
Fee Arrangements
Pursuant to an engagement letter dated June 4, 2001, Gen-X and Gen-X
Ontario have agreed to pay Sheffield Merchant Banking Group a transaction fee in
connection with the merger and share purchase of $1,000,000 plus 5% of any
transaction value in excess of $75,000,000, all of which is contingent upon the
consummation of the merger and share purchase. Gen-X and Gen-X Ontario have also
agreed to reimburse Sheffield Merchant Banking Group for its out-of-pocket
expenses, including the fees and expenses of legal counsel and other advisors.
In addition, Gen-X and Gen-X Ontario have agreed to indemnify Sheffield Merchant
Banking Group and certain related persons against certain liabilities in
connection with its engagement, including liabilities under U.S. federal
securities laws.
Other Relationships
In the ordinary course of business, Sheffield Merchant Banking Group and
its affiliates may own or trade the securities of Huffy for their own accounts
and for the accounts of their customers and, accordingly, may at any time hold a
long or short position in such securities. Sheffield Merchant Banking Group and
its affiliates have performed investment banking and other services for Huffy in
the past and continue to do so and have received, and may receive, fees for
rendering such services.
INTERESTS OF GEN-X STOCKHOLDERS, DIRECTORS AND OFFICERS IN THE MERGER
Some Gen-X directors and executive officers may be deemed to have interests
in the merger that are different from or in addition to the interests of Gen-X
stockholders. The Gen-X board of directors recognized these interests and
determined that these interests did not detract from the fairness of the merger
to Gen-X stockholders.
These interests relate to or arise from, among other things:
- the redemption of the series A 7% redeemable preferred stock;
- the acceleration of stock options;
- employment agreements; and
- board representation.
Redemption of Series A 7% Redeemable Preferred Stock. DMJ Financial, Inc.,
which is beneficially owned by James A. Salter and Kenneth Finkelstein, is the
holder of all of the outstanding shares of Gen-X series A 7% redeemable
preferred stock. Under the merger agreement, at the effective time of the merger
Huffy will cause HSGC to redeem the shares of series A 7% redeemable preferred
stock for a cash payment to DMJ Financial, Inc. of $2,970,000.
Stock Option Plans. Gen-X has issued and outstanding options to purchase a
unit consisting of one share of Gen-X common stock, one share of Gen-X series C
non-voting preferred stock and one common share of Gen-X Ontario. At the
effective time of the merger, each such option, whether or not vested, that has
an exercise price that is equal to or greater than $8.88 per unit will be
cancelled without any payment. All other options, whether or not vested, will be
cancelled and each holder of such options will receive cash in an amount equal
to 33% of the difference between (i) $8.88 multiplied by the number of units
subject to such options less (ii) the aggregate exercise price with respect to
such options. The holder of such options will also receive a grant of a number
of restricted shares of Huffy common stock equal to 67% of the difference
described in the preceding sentence, divided by $7.75. Certain employee option
holders may sell 23% of the restricted shares of Huffy common stock received to
cover the option holder's taxes. Certain employee option holders forfeit their
restricted shares of Huffy common stock if they terminate their employment
within two years of the date of closing. Approximately 17% of the shares of
Huffy common stock issuable pursuant to such grants will be retained by Huffy
and distributed after the closing in accordance with the merger agreement. As of
the date of this joint proxy statement/prospectus, Gen-X directors and officers
together hold options to acquire units. Such directors and officers will be
entitled to receive cash and grants of approximately shares of Huffy common
stock.
48
Employment Agreements. Kenneth Finkelstein, James Salter and John Collins
each have agreed with Huffy to enter into an employment agreement following the
completion of the merger and their termination of employment with Gen-X. See the
section entitled "Employment Agreements" for a discussion of the terms of such
employment agreements.
Board Representation. Huffy has agreed to consider the creation of an
additional seat on Huffy's board of directors after the effective time of the
merger to be filled by a new outside director recommended by DMJ Financial,
Inc., a Gen-X stockholder, its two stockholders K&J Financial Holdings, Inc. and
DLS Financial, Inc., the sole stockholder of K&J, Kenneth Finkelstein Family
Trust, the sole stockholder of DLS, James Salter Family Trust, Kenneth
Finkelstein, James Salter and Osgoode Financial Inc. Huffy's chief executive
officer and the nominating and governance committee of Huffy's board of
directors will interview and consider board candidates recommended by such
stockholder group.
Shareholder Group Agreement. In connection with the merger agreement,
Huffy, HSGC and HSGC Canada have entered into a shareholder group agreement with
DMJ Financial, Inc., its two stockholders K&J Financial Holdings, Inc. and DLS
Financial, Inc., the sole stockholder of K&J, Kenneth Finkelstein Family Trust,
the sole stockholder of DLS, James Salter Family Trust, Kenneth Finkelstein,
James Salter and Osgoode Financial Inc. The shareholder group agreement (i)
restricts the acquisition and transfer of voting securities of Huffy by members
of the shareholder group for four years after the closing of the merger or until
the parties terminate the agreement and (ii) provides that each member of the
shareholder group will vote its voting securities of Huffy in accordance with
the voting recommendation of Huffy's management for four years after the closing
of the merger or until the parties terminate the agreement; however, the
transfer restrictions will cease to apply to certain members of the shareholder
group if their employment is terminated after the second anniversary of the
closing. For a more complete description of the shareholder group agreement, see
the section entitled "Shareholder Group Agreement".
FINANCING FOR THE MERGER
The consummation of the merger is subject to the condition that Huffy has
obtained consent from Huffy's current lender, Congress Financial Corporation
(Central), for the merger, the share purchase and the financing of such
transactions on terms and conditions that are acceptable to Huffy in its sole
and absolute discretion or arranged for alternative financing for such
transactions on terms and conditions that are acceptable to Huffy in its sole
and absolute discretion. Huffy will use its best efforts to obtain such consent
or financing.
CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of the principal Canadian federal income tax
consequences under the Income Tax Act (Canada) RSC 1985, c.1 (5th Supp.), as
amended (the "Act") and the associated regulations generally applicable to Gen-X
stockholders resident in Canada who dispose of their Gen-X common stock, series
B junior participating preferred stock, series C non-voting preferred stock,
series A preferred stock and Gen-X options pursuant to the merger. This summary
is based on the current provisions of the Act, the regulations, applicable
judicial decisions reported prior to the date of this proxy statement/prospectus
and our understanding of the current administrative practice published by the
Canada Customs and Revenue Agency. This summary takes into account the specific
proposals to amend the Act and the proposed regulations publicly announced prior
to the date of this proxy statement/prospectus, and assumes that all of these
tax proposals will be enacted in the form proposed. Except for the foregoing,
this summary does not take into account or anticipate any changes in law or
administrative practice, whether as a result of judicial, administrative or
legislative action or decision.
The following summary is applicable to a Gen-X stockholder who, for the
purposes of the Act and at all relevant times, is resident in Canada, holds its
shares of Gen-X capital stock, and will hold its shares of Huffy common stock,
as capital property, deals at arm's length with Huffy and Gen-X, is not
affiliated with Huffy or Gen-X, is not a "specified financial institution" or
"financial institution" as defined in the Act, and for whom Gen-X is not a
"foreign affiliate." If Gen-X was a foreign affiliate of a Canadian resident
49
corporate stockholder, consideration should be given to making an election in
respect of the disposition of the Gen-X capital stock under the provisions of
the Act. Shares of Gen-X capital stock should generally be considered to be
capital property of a Gen-X stockholder unless the shares of Gen-X capital stock
are held in the course of carrying on a business of buying and selling
securities or in the course of an adventure in the nature of trade. In addition,
the following summary is applicable to Gen-X optionholders who acquired their
Gen-X options in the course of, or by virtue of, employment with Gen-X, or a
person that does not deal at arm's length with Gen-X within the meaning of the
Act and who did not give any consideration for the acquisition of their Gen-X
options.
TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO
A GEN-X STOCKHOLDER AND GEN-X OPTIONHOLDER WILL DEPEND ON SUCH HOLDER'S
PARTICULAR TAX SITUATION. GEN-X STOCKHOLDERS AND OPTIONHOLDERS ARE ENCOURAGED TO
CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY OF
FEDERAL, AND PROVINCIAL TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGE IN THE
TAX LAWS.
Merger of Gen-X with HSGC, Payment of the Merger Consideration, and Redemption
of the Gen-X Series A Preferred Stock
Under the Act, Gen-X stockholders who exchange their shares of Gen-X
capital stock for consideration which consists of shares of Huffy common stock
and cash, or whose shares are redeemed solely for cash consideration, should
realize a capital gain (or capital loss) to the extent that the aggregate of the
fair market value of the shares of Huffy common stock received, plus the fair
market value of any cash or other non-share consideration received, all
expressed in Canadian dollars, exceeds (or is less than) the aggregate of the
adjusted cost base of the shares of Gen-X capital stock to the Gen-X
stockholder, expressed in Canadian dollars, and any reasonable costs of
disposition.
One-half of any such capital gain should generally be included as a taxable
capital gain in computing the Gen-X stockholder's income for the taxation year
of disposition, and one-half of any such capital loss may generally be deducted
from the Gen-X stockholder's taxable capital gains in accordance with the rules
in the Act. Taxable capital gains realized upon the disposition of shares of
Gen-X by a Gen-X stockholder that is a Canadian-controlled private corporation
(as defined in the Act) may be subject to an additional refundable tax at a rate
of 6 2/3%. In certain circumstances, capital gains realized by an individual or
certain trusts may result in such person being liable to pay alternative minimum
tax under the Act.
Under the Act, Gen-X employee optionholders who exchange their Gen-X
options for consideration which consists of shares of Huffy common stock and
cash, should be deemed to have received a benefit, in the year of disposition of
the options, because of their employment. The amount of the benefit should be
equal to the fair market value of the shares of Huffy common stock, plus the
fair market value of any cash or other non-share consideration received, all
expressed in Canadian dollars. If certain other conditions are met, Gen-X
optionholders may be entitled to deduct 50% of this employment benefit in
computing their Canadian taxable income.
The cost, and adjusted cost base to the Gen-X stockholders and Gen-X
optionholders of the shares of Huffy common stock received should be equal to
the fair market value of such shares of Huffy common stock on receipt, expressed
in Canadian dollars. In computing the adjusted cost base to a Gen-X stockholder
and a Gen-X optionholder of a share of Huffy common stock, the cost of each
share of Huffy common stock acquired pursuant to the merger must generally be
averaged with the adjusted cost base of all other shares of Huffy common stock
owned by such Gen-X stockholder immediately before such acquisition as capital
property.
Dissent Rights
Gen-X stockholders who exercise their dissent rights under the proposed
merger and as a result exchange their shares of Gen-X capital stock for cash
should realize a capital gain (or capital loss) to the extent that the fair
market value of such cash consideration received, expressed in Canadian dollars,
exceeds (or is less
50
than) the aggregate of the adjusted cost base of the shares of Gen-X capital
stock to the Gen-X stockholder, expressed in Canadian dollars, and any
reasonable costs of disposition.
Foreign Reporting
If the cost to a Gen-X stockholder and Gen-X optionholder of the shares of
Huffy common stock received from Huffy exceeds CN$100,000 in any particular
taxation year, such person will be required to file a prescribed form with the
Minister of National Revenue on or before that person's income tax filing due
date for that particular year.
Foreign Investment Entity Draft Legislation
On August 2, 2001, the Minister of Finance (Canada) released draft
legislation to amend the Act to implement a proposal concerning the taxation of
holdings in "foreign investment entities." In general terms, if Huffy were a
"foreign investment entity" and if the shares of Huffy common stock did not
constitute an "exempt interest" of a Canadian resident, the Canadian resident
would be required to take into account in computing income, on an annual basis,
any increase (or decrease) in the value of the shares of Huffy common stock
during each taxation year, or the relevant share of such holder in Huffy's
underlying income, calculated in accordance with Canadian tax rules (whether or
not cash distributions were received by the Canadian resident).
Even if Huffy were a "foreign investment entity," the proposed new rules
would not apply to a Canadian resident whose shares of Huffy common stock
constitute an "exempt interest." Because the shares of Huffy common stock will
be listed on the New York Stock Exchange and will be "widely held" and "actively
traded" (as such terms are proposed to be defined in the Act), the shares of
Huffy common stock should constitute an "exempt interest" to a Canadian
resident, unless it is reasonable to conclude that the Canadian resident has a
tax avoidance motive for the acquisition of the shares.
On December 17, 2001, the Minister of Finance (Canada) announced that the
implementation of the proposed new rules would be delayed to take effect for
taxation years beginning after 2002. This delay is intended to facilitate the
consideration of submissions received by the Minister of Finance (Canada) in
respect of the proposed rules. It is, therefore, possible that the rules
ultimately implemented may differ from the rules described herein.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material United States federal
income tax considerations relevant to the merger that apply to certain holders
of Gen-X common stock or preferred stock and Huffy common stock. This discussion
is based upon provisions of the Internal Revenue Code, Treasury regulations, and
administrative rulings and court decisions in effect as of the date of this
document, all of which are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences to holders of Gen-X common
stock or preferred stock or Huffy common stock as described in this joint proxy
statement/prospectus.
This summary does not discuss all United States federal income tax
considerations that may be relevant to particular Gen-X stockholders or Huffy
shareholders in light of their individual circumstances. Factors that could
alter the tax consequences of the merger to individual stockholders include:
- if a stockholder is a dealer in securities, foreign person or entity,
partnership, tax-exempt organization, financial institution, or insurance
company;
- if a stockholder is subject to the alternative minimum tax provisions of
the Internal Revenue Code;
- if a stockholder does not hold his, her or its shares as capital assets;
- if a stockholder acquired his, her or its shares in connection with stock
option or stock purchase plans or in other compensatory transactions;
51
- if a stockholder holds stock as part of an integrated investment,
including a "straddle," "hedge," or "conversion transaction" comprised of
shares of Gen-X or Huffy common stock and one or more other positions;
- if a stockholder holds Gen-X common stock or preferred stock subject to
the constructive sale provisions of Section 1259 of the Internal Revenue
Code; or
- if a stockholder holds Gen-X common stock or preferred stock and, in
addition, holds Huffy common stock, actually or constructively within the
meaning of the Internal Revenue Code, at the time of the merger.
In addition, this summary does not describe the tax consequences of the
merger under foreign, state or local tax laws, the tax consequences of
transactions effectuated prior or subsequent to, or concurrently with, the
merger, whether or not any such transactions are undertaken in connection with
the merger, including, without limitation, any transaction in which shares of
Gen-X common stock or preferred stock are acquired or shares of Huffy common
stock are disposed of, or the tax consequences to holders of options, warrants
or similar rights to acquire Gen-X common stock. ACCORDINGLY, HUFFY AND GEN-X
URGE EACH STOCKHOLDER TO CONSULT THE STOCKHOLDER'S OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.
The completion of the merger is conditioned upon receipt by Huffy and Gen-X
of an opinion from Huffy's accountants, KPMG LLP, to the effect that the merger
will be treated as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code. The tax opinion will be rendered on the basis of facts,
representations and assumptions set forth or referred to in the opinions,
including factual representations contained in certificates of officers of Huffy
and Gen-X. The tax opinion also will be based upon the Internal Revenue Code,
Treasury regulations and administrative rulings and court decisions in effect on
the date of the opinions, all of which are subject to change.
Exchange of Gen-X Common Stock, Series B Junior Participating Preferred Stock
and Series C Non-Voting Preferred Stock for a Combination of Huffy Common
Stock and Cash
Assuming that the merger is treated as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code, the below-listed bullet points
will apply. In general, tax consequences described for a Gen-X stockholder only
apply if the Gen-X stockholder is subject to U.S. federal income tax:
- A Gen-X US stockholder will recognize gain equal to the lesser of the (a)
the cash received by the stockholder in the merger or (b) an amount equal
to the excess, if any, of (i) the sum of the amount of cash and the fair
market value of the Huffy common stock, as of the closing, received by
the stockholder in the merger over (ii) the stockholder's adjusted tax
basis in the Gen-X common stock, series B junior participating preferred
stock or series C non-voting preferred stock exchanged by the stockholder
in the merger. For this purpose, a Gen-X US stockholder must calculate
gain or loss separately with respect to each class of Gen-X stock (common
stock, series B junior participating preferred stock and series C
non-voting preferred stock), and for each identifiable block of Gen-X
stock within each class, exchanged by the stockholder in the merger and
cannot utilize a loss realized on one block of Gen-X stock to offset a
gain realized on another block of Gen-X stock;
- A Gen-X stockholder who is not a US citizen or resident or a company
incorporated in the US will realize (but not recognize) the amount of
gain described in the preceding paragraph;
- Except as discussed below under "Tax Character of Cash Consideration,"
the gain recognized by a Gen-X US stockholder (or realized by a Gen-X
stockholder other than a Gen-X US stockholder) in the merger will be
treated as capital gain;
- A Gen-X stockholder will not recognize any loss in the merger (except,
possibly, in connection with cash received instead of a fractional share,
as discussed below);
- The aggregate tax basis of the shares of Huffy common stock received by a
Gen-X stockholder in the merger (before reduction for the basis in any
fractional share of Huffy common stock for which cash
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is received) will be the same as the aggregate tax basis for the
stockholder's Gen-X common stock, series B junior participating preferred
stock or series C non-voting preferred stock, decreased by the amount of
cash received by the stockholder in the merger (excluding any cash
received instead of a fractional share) and increased by the amount of
gain recognized by the stockholder in the merger (including any portion
of the gain that is treated as a dividend but excluding any gain
recognized as a result of cash received instead of a fractional share);
- A Gen-X stockholder's holding period with respect to the shares of Huffy
common stock received in the merger will include the holding period of
the Gen-X common stock, series B junior participating preferred stock or
series C non-voting preferred stock exchanged for Huffy common stock;
- Huffy will not recognize gain or loss in the merger; and
- Huffy shareholders will not recognize gain or loss in the merger.
Redemption of Gen-X Series A 7% Redeemable Preferred Stock
If a Gen-X stockholder owns Gen-X common stock, series B junior
participating preferred stock or series C non-voting preferred stock and Gen-X
series A preferred stock, then in addition to the tax consequences described
above, the Gen-X stockholder will realize (and, in the case of a Gen-X US
stockholder, recognize) gain to the extent the cash received for the series A 7%
redeemable preferred stock exceeds the stockholder's basis in that stock.
A Gen-X stockholder who owns only Gen-X series A 7% redeemable preferred
stock will be treated as having received a distribution in full payment in
exchange for the stock if the redemption is (a) not essentially equivalent to a
dividend, (b) substantially disproportionate with respect to that stockholder or
(c) in complete redemption of all of the stock of the corporation that is owned,
or by attribution treated as owned, by the stockholder. Therefore the Gen-X
stockholder will realize (and, in the case of a Gen-X US stockholder, recognize)
capital gain or loss. Otherwise, the Gen-X stockholder will be treated as having
received a distribution, all or a portion of which could be treated as a
dividend.
Tax Character of Cash Consideration
In the case of most Gen-X stockholders having no direct or indirect control
over Huffy's corporate affairs, any gain will be treated as capital gain for
United States federal income tax purposes. However, there are circumstances
under which all or a part of any gain that a Gen-X stockholder realizes (and, in
the case of a Gen-X US stockholder, recognizes) in the merger could be treated
as a dividend distribution instead of capital gain. The amount of gain treated
as a dividend distribution will be limited to the stockholder's ratable share of
the undistributed accumulated earnings and profits of the corporation treated as
having made the distribution. Due to the inherently factual nature of this
determination, Gen-X stockholders are encouraged to consult their tax advisors
to determine whether any cash received in exchange for their Gen-X stock in the
merger will be treated as a distribution of a dividend.
Cash Received Instead of a Fractional Share
Huffy will not issue any fractional shares of Huffy common stock in the
merger. Instead, each holder of Gen-X common stock or preferred stock exchanged
in the merger who would otherwise be entitled to receive a fraction of a share
of Huffy common stock will receive cash, without interest, in lieu of a
fractional share. A Gen-X stockholder who receives cash instead of a fractional
share of Huffy common stock will generally realize (and, in the case of a Gen-X
US stockholder, recognize) capital gain or loss based on the difference between
the amount of the cash received instead of a fractional share and the
stockholder's tax basis in such fractional share.
Tax Consequences of Dissenters' Rights
A Gen-X or Huffy stockholder, who is a United States citizen or resident or
a United States incorporated company and who is subject to U.S. federal income
tax, who dissents to the merger will generally recognize
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capital gain or loss in an aggregate amount equal to the difference between the
amount of cash received and the stockholder's tax basis in the dissenting
shares. To the extent Huffy is required to file information returns with respect
to amounts paid to a Gen-X or Huffy stockholder who dissents to the merger,
Huffy intends to report such payments as taxable income to the Gen-X or Huffy
stockholder when paid to the holder. However, there is no authority directly on
point, and it is possible that a stockholder will be required to recognize gain
or loss at the effective time of the merger, and in advance of the receipt of
any cash payment, in an amount generally equal to the market price of Gen-X or
Huffy common stock at the effective time of the merger. In this event, capital
gain or loss would also be recognized by the stockholder at the time the
appraised fair cash value is received, to the extent that such payment exceeds
or is less than the amount realized at the effective time of the merger, and a
portion of such payment may be characterized as interest income.
Capital Gain
Any capital gain recognized by an individual holder of Gen-X common stock
or preferred stock, who is a United States citizen or resident, in connection
with the transfer of his or her Gen-X common stock or preferred stock in the
merger will be subject to a maximum United States federal income tax rate of 20%
if the individual's holding period for his or her Gen-X common stock or
preferred stock is more than 12 months at the effective time of the merger.
In general, any capital gain realized by a holder of Gen-X common or
preferred stock, who is not a United States citizen or resident or a United
States incorporated company, in connection with the transfer of his or her Gen-X
common or preferred stock in the merger will not be subject to United States
federal income tax. This general rule does not apply where:
- The gain is derived by a stockholder in connection with the conduct of an
active trade or business in the United States; or
- The gain arises from the disposition of a United States real property
interest, which includes the stock of a United States incorporated
company that holds a preponderance of United States real property
interests among its assets. Gen-X does not believe that the preponderance
of its assets consist of United States real property.
As discussed above, there are circumstances under which all or part of any
gain that a Gen-X stockholder realizes in the merger could be treated as a
dividend distribution instead of a capital gain, to the extent of the
stockholder's ratable share of the undistributed accumulated earnings and
profits of Huffy and Gen-X. To the extent that all or a part of the gain that a
Gen-X stockholder realizes in the merger is treated as a dividend for United
States federal income tax purposes, that portion would be taxed at ordinary
rates to a stockholder who is a United States citizen or resident and will be
subject to United States federal withholding tax at a 30% or lower application
treaty rate, if the stockholder is not United States citizen or resident or a
non United States incorporated company.
ACCORDINGLY, GEN-X'S STOCKHOLDERS ARE ENCOURAGED TO CONSULT THEIR ADVISORS
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.
Backup Withholding
Noncorporate holders of Gen-X common stock or preferred stock may be
subject to backup withholding on any cash payments received in the merger. A
Gen-X stockholder will not be subject to backup withholding, however, if the
holder (i) furnishes a correct taxpayer identification number and certifies that
such holder is not subject to backup withholding on the substitute Internal
Revenue Service Form W-9 or successor form included in the letter of transmittal
to be delivered to such holder following the completion of the merger; (ii)
provides a certification of foreign status on Internal Revenue Service Form
W-8BEN or a successor form; or (iii) is otherwise exempt from backup
withholding.
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Any amounts withheld under the backup withholding rules will be allowed as
a refund or credit against a holder's United States federal income tax
liability, provided the holder furnishes the required information to the
Internal Revenue Service.
TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO
A GEN-X STOCKHOLDER WILL DEPEND ON SUCH HOLDER'S PARTICULAR TAX SITUATION. GEN-X
STOCKHOLDERS ARE ENCOURAGED TO CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE
APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS AND THE EFFECT OF
ANY PROPOSED CHANGE IN THE TAX LAWS.
ACCOUNTING TREATMENT OF THE MERGER
Huffy and Gen-X intend to account for the merger using the purchase method
of accounting.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
We believe that the merger is not subject to the report filing requirements
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
However, the Federal Trade Commission or the Department of Justice could
nevertheless challenge the merger on antitrust grounds. Accordingly, at any time
before or after the completion of the merger, either the Federal Trade
Commission or the Department of Justice could take action under the antitrust
laws as it deems necessary or desirable in the public interest. In addition,
state antitrust authorities or private persons or entities could take certain
actions, including seeking to enjoin the merger under the antitrust laws at any
time prior to the completion of the merger or compelling rescission or
divestiture subsequent to the merger. There can be no assurance that a challenge
to the merger will not be made or that, if a challenge is made, Huffy and Gen-X
will prevail and the merger will be completed.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF HUFFY AND GEN-X
The shares of Huffy common stock to be issued in connection with the merger
will be registered under the Securities Act of 1933 and will be freely
transferable under the Securities Act, except for shares of Huffy common stock
issued to any person who is deemed to be an "affiliate" of either Huffy or
Gen-X. Persons who may be deemed to be affiliates include individuals or
entities that control, are controlled by, or are under common control of either
Huffy or Gen-X and may include some of their respective officers and directors
as well as the principal stockholders of Huffy and Gen-X. Affiliates may not
sell their shares of Huffy common stock acquired in connection with the merger
except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act; or
- any other applicable exemption under the Securities Act.
In addition, the members of the shareholder group and all option holders
who receive restricted stock are subject to restrictions on the sale of their
Huffy common stock in accordance with the terms of the merger.
Huffy's registration statement on Form S-4, of which this joint proxy
statement/prospectus is a part, does not cover the resale of shares of Huffy
common stock to be received by affiliates of Huffy or Gen-X in the merger.
LISTING ON THE NEW YORK STOCK EXCHANGE
Huffy has agreed to cause the shares of Huffy common stock to be issued in
the merger to be listed on the New York Stock Exchange before the completion of
the merger.
OPERATIONS AFTER THE MERGER
At the effective time of the merger, Gen-X will merge with and into HSGC.
HSGC will continue Gen-X operations as a wholly-owned subsidiary of Huffy, and
the name of HSGC will be changed to Gen-X Sports
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Inc. Following the merger, the current directors and officers of Huffy will
continue to serve in their positions with Huffy. After the merger, the directors
of HSGC will serve as the directors of the surviving corporation, and certain
executive officers of Gen-X will become officers of the surviving corporation.
In addition, Huffy has agreed to consider the creation of an additional seat on
Huffy's board of directors after the effective date of the merger to be filled
by an outside director recommended by certain Gen-X stockholders.
The stockholders of Gen-X will become shareholders of Huffy, and their
rights as shareholders of Huffy will be governed by Huffy's articles of
incorporation, Huffy's regulations, and the laws of the State of Ohio. See
"Comparison of Rights of Holders of Huffy Common Stock and Gen-X Common Stock."
DISSENTERS' AND APPRAISAL RIGHTS
GEN-X STOCKHOLDERS
The following summary of Section 262 of the Delaware General Corporation
Law is qualified in its entirety by Section 262, which is reprinted as Annex E
to this joint proxy statement/prospectus. While we believe that the following
summary describes the material aspects of Section 262 and the law relating to
dissenters' and appraisal rights, the summary may not contain all of the
information that is important to Gen-X stockholders. Gen-X stockholders should
read carefully this summary and the attached Section 262 for a more complete
understanding of dissenters' and appraisal rights.
Under the Delaware General Corporation Law, holders of Gen-X common stock
and preferred stock will be entitled to assert appraisal rights (sometimes
referred to as "dissenters' rights") in connection with the proposed merger.
Gen-X stockholders who elect to exercise appraisal rights must comply with the
procedures described in Section 262 of the Delaware General Corporation Law. Any
Gen-X stockholder who is eligible to exercise appraisal rights and properly does
so will be paid in cash the "fair value" of the stockholder's shares of Gen-X
common stock and preferred stock. Fair value takes into account all relevant
factors but excludes any appreciation or depreciation in anticipation of the
merger.
If a Gen-X stockholder elects to exercise appraisal rights under Section
262, the stockholder must comply with the following procedures:
- Prior to the vote on the merger, the Gen-X stockholder must deliver to
Gen-X a written demand for appraisal of the shares of Gen-X common stock
or preferred stock held by the stockholder. The written demand must (i)
identify the Gen-X stockholder as a stockholder of record and (ii) state
the stockholder's intention to demand appraisal of the shares of Gen-X
common stock or preferred stock held by the stockholder. Merely voting
against adoption of the merger agreement, abstaining from voting or
failing to vote with respect to adoption of the merger agreement will not
constitute a demand for appraisal within the meaning of Section 262. A
demand for appraisal must be executed by or for the Gen-X stockholder as
a holder of record, fully and correctly, as the stockholder's name
appears on the stock certificate(s) representing shares of Gen-X common
stock or preferred stock. If a Gen-X stockholder owns Gen-X common stock
or preferred stock in a fiduciary capacity, such as a trustee, guardian
or custodian, the stockholder must disclose the fact that the stockholder
is signing the demand in that capacity. If a Gen-X stockholder owns Gen-X
common stock or preferred stock jointly with one or more persons, all of
the joint owners must sign the demand for appraisal. The written demand
for appraisal by a Gen-X stockholder should be delivered to: Gen-X Sports
Inc., 36 Dufflaw Road, Toronto, Ontario M6A 2WI, Canada, Attention:
Kenneth Finkelstein.
- The Gen-X stockholder must refrain from voting for the adoption of the
merger agreement and the approval of the merger. If a Gen-X stockholder
votes in favor of the adoption of the merger agreement and the approval
of the merger, the stockholder's right to appraisal will terminate. In
addition, the right to appraisal of a Gen-X stockholder will terminate if
the stockholder returns a signed proxy and (i) fails to vote against the
adoption of the merger agreement and the approval of the merger or (ii)
fails to note that the stockholder is abstaining from voting. With
respect to items (i) and (ii), the
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appraisal rights of a Gen-X stockholder will be terminated even if the
stockholder previously filed a written demand for appraisal.
- The Gen-X stockholder must continuously hold the stockholder's shares of
Gen-X common stock or preferred stock from the date on which the Gen-X
stockholder makes the demand for appraisal through the completion of the
merger. If a stockholder is the record holder of Gen-X common stock or
preferred stock on the date on which the stockholder makes the written
demand for appraisal, but prior to the merger the stockholder transfers
the shares owned by the stockholder, the stockholder will lose any right
to appraisal with respect to those shares.
Any beneficial owner who is not a record owner and who intends to exercise
appraisal rights should instruct the applicable record owner to comply with the
statutory requirements with respect to the exercise of appraisal rights before
the date of the Gen-X special meeting.
Shares of Gen-X common stock and preferred stock that are outstanding
immediately prior to the effective time of the merger, with respect to which
appraisal shall have been properly demanded in accordance with Section 262, will
not be converted into the right to receive shares of Huffy common stock in the
merger unless and until the holder of the shares withdraws the demand for
appraisal or the shares become ineligible for appraisal.
Within ten days after the effective time of the merger, HSGC, the surviving
corporation in the merger, is required to send notice of the effectiveness of
the merger to each stockholder of Gen-X that, prior to the completion of the
merger, has complied with the requirements of Section 262.
Within 120 days after the effective date of the merger, HSGC or any Gen-X
stockholder that has complied with the requirements of Section 262 may file a
petition in the Delaware Court of Chancery demanding a determination of the fair
value of the shares of Gen-X common stock or preferred stock held by all Gen-X
stockholders seeking appraisal. A dissenting Gen-X stockholder must serve a copy
of the petition on HSGC. If no petition is filed by either HSGC or any
dissenting Gen-X stockholder within the 120-day period after the effective date
of the merger, the rights of all dissenting Gen-X stockholders to appraisal will
cease. Gen-X stockholders seeking to exercise appraisal rights should not assume
that HSGC will file a petition with respect to the appraisal of the fair value
of their shares or that HSGC will initiate any negotiations with respect to the
fair value of those shares. HSGC is under no obligation, and has no present
intention, to take any action in this regard. Accordingly, Gen-X stockholders
that wish to seek appraisal of their shares should initiate all necessary action
with respect to the perfection of their appraisal rights within the time periods
and in the manner prescribed in Section 262. Failure to file the petition with
the Delaware Court of Chancery on a timely basis will cause the right to an
appraisal of a Gen-X stockholder to cease.
Within 120 days after the effective time of the merger, any Gen-X
stockholder who has complied with subsections (a) and (d) of Section 262 is
entitled, upon written request, to receive from HSGC a statement setting forth
(i) the total number of shares of Gen-X common stock and preferred stock not
voted in favor of the merger with respect to which demands for appraisal have
been received and (ii) the number of holders of those shares. The statement must
be mailed within ten days after Gen-X has received the written request for the
statement or within ten days after the time for delivery of demands for
appraisal under subsection (d) of Section 262 has expired, whichever is later.
If a petition for an appraisal is filed in a timely manner, at the hearing
on that petition, the Delaware Court of Chancery will determine which Gen-X
stockholders are entitled to appraisal rights and will appraise the shares of
Gen-X common stock and preferred stock owned by those stockholders. The court
will determine the fair value of the shares of Gen-X common stock and preferred
stock, exclusive of any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of interest, if any, to be
paid upon the fair value. The Delaware Court of Chancery may require Gen-X
stockholders that have demanded appraisal rights for their shares of Gen-X
common stock or preferred stock and that hold certificates representing the
shares to submit the certificates to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings. The Delaware Court of
Chancery may dismiss the proceedings as to any Gen-X stockholder that fails to
comply with any such directions.
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Gen-X stockholders that consider seeking appraisal should consider that the
fair value of their shares under Section 262 could be more than, the same as, or
less than, the value of the consideration provided for in the merger agreement
without the exercise of appraisal rights. The Delaware Court of Chancery may
determine the cost of the appraisal proceeding and assess it against the parties
as the court deems equitable. Upon application of a dissenting Gen-X
stockholder, the Delaware Court of Chancery may order that all or a portion of
the expenses incurred by any dissenting Gen-X stockholder in connection with the
appraisal proceeding, including reasonable attorneys' fees and the fees and
expenses of experts, be charged pro rata against the value of all shares of
Gen-X common stock and preferred stock entitled to appraisal. In the absence of
a court determination or assessment, each party will bear its own expenses.
Any Gen-X stockholder who has demanded appraisal in compliance with Section
262 will not, after the effective date of the merger, be entitled to vote the
stock for any purpose or to receive payment of dividends or other distributions,
if any, on the Gen-X common stock or preferred stock, except for dividends or
distributions, if any, payable to Gen-X stockholders of record on a date prior
to the effective date of the merger.
A Gen-X stockholder may withdraw a demand for appraisal and accept the
merger consideration in accordance with the merger agreement at any time within
60 days after the effective date of the merger. After this 60-day period, a
Gen-X stockholder may withdraw a demand for appraisal only with the written
approval of HSGC. If an appraisal proceeding is properly instituted, it may not
be dismissed as to any Gen-X stockholder without the approval of the Delaware
Court of Chancery, and this approval may be conditioned on the court's deeming
the terms to be just. If, after the completion of the merger, a holder of Gen-X
common stock that had demanded appraisal for its shares fails to perfect or
loses its right to appraisal, then those shares will be treated under the merger
agreement as if they were converted into the right to receive the merger
consideration at the effective time of the merger.
BECAUSE OF THE COMPLEXITY OF THESE PROVISIONS OF SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW, ANY GEN-X STOCKHOLDER THAT IS CONSIDERING
EXERCISING APPRAISAL RIGHTS SHOULD CONSULT A LEGAL ADVISOR.
HUFFY SHAREHOLDERS
Under Ohio law, Huffy shareholders have the right to dissent from the
issuance of Huffy common stock in the merger and receive the fair cash value of
their Huffy common stock. Huffy shareholders that elect to exercise their
dissenters' rights must comply with the provisions of Section 1701.85 of the
Ohio Revised Code, a copy of which is attached as Annex F.
Below are the steps which a Huffy shareholder must take to exercise
dissenters' rights with respect to the merger. FAILURE TO TAKE ANY ONE OF THE
REQUIRED STEPS MAY RESULT IN TERMINATION OF A HUFFY SHAREHOLDER'S DISSENTERS'
RIGHTS. Any Huffy shareholder considering dissenting should consult a legal
advisor.
- Must be a shareholder of record. To be entitled to dissenters' rights,
the Huffy shareholder must be the record holder of the dissenting shares
as of , 2002. A beneficial owner of Huffy common stock must act
promptly to cause the shareholder of record to follow the steps described
below.
- Do not vote in favor of the issuance of Huffy common stock in the merger.
At the special meeting, the Huffy shareholder must not vote shares as to
which such shareholder seeks fair cash value in favor of the issuance of
Huffy common stock in the merger. This requirement will be satisfied:
- if a properly executed proxy is submitted with instructions to vote
"against" the merger or to "abstain" from this vote;
- if no proxy is returned and no vote is cast at the special meeting in
favor of the merger; or
- if the Huffy shareholder revokes a proxy and later "abstains" from or
votes "against" the merger.
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A VOTE "FOR" THE ISSUANCE OF HUFFY COMMON STOCK IN THE MERGER IS A WAIVER OF
DISSENTERS' RIGHTS. A proxy that is returned signed but on which no voting
preference is indicated will be voted in favor of the issuance of Huffy common
stock in the merger and will constitute a waiver of dissenters' rights. Failure
to vote does not constitute a waiver of dissenters' rights.
- Filing a written demand. The Huffy shareholder must serve a written
demand for the fair cash value of the dissenting shares upon Huffy on or
before the tenth day after the shareholder vote approving the merger
agreement and the merger. We will not inform Huffy shareholders of the
expiration of the ten-day period, and therefore, you are advised to
retain this document. The required written demand must specify the Huffy
shareholder's name and address, the number of dissenting shares of Huffy
common stock held of record on the record date of the meeting and the
amount claimed as the fair cash value of the dissenting shares. Voting
against the merger is not a written demand as required by Section 1701.85
of the Ohio Revised Code. The written demand for the fair cash value of
the dissenting shares should be delivered to: Huffy Corporation, 225
Byers Road, Miamisburg, Ohio 45342, Attention: Nancy A. Michaud.
- Delivery of certificates for legending. If requested by Huffy, the Huffy
shareholder must submit its certificates for dissenting shares to Huffy
within 15 days after Huffy sends its request for endorsement on the
certificates by Huffy of a legend that a demand for fair cash value has
been made. The certificates will be returned promptly to the Huffy
shareholder by Huffy.
- Petitions to be filed in court. If the Huffy shareholder and Huffy cannot
agree on the fair cash value of the dissenting shares, the Huffy
shareholder must, within three months after service of the demand for
fair cash value, file a complaint in the Court of Common Pleas of
Montgomery County, Ohio, for a determination of the fair cash value of
the dissenting shares. Huffy is also permitted to file a complaint. The
court, if it determines that the Huffy shareholder is entitled, will
order that the Huffy shareholder be paid the fair cash value per share.
The costs of the proceeding, including reasonable compensation to the
appraisers, will be assessed as the court considers equitable. "Fair cash
value" is the amount that a willing seller, under no compulsion to sell
would be willing to accept, and that a willing buyer, under no compulsion
to purchase, would be willing to pay. In no event will the fair cash
value be in excess of the amount specified in the dissenting Huffy
shareholder's demand. Fair cash value is determined as of the day before
the special meeting. The amount of the fair cash value excludes any
appreciation or depreciation in market value of the Huffy shareholder's
shares resulting from the merger. The fair cash value of the Huffy
shareholder's shares may be higher, the same or lower than the market
value of the shares on the date of the merger.
The right to be paid the fair cash value of the dissenting shares of Huffy
common stock will terminate if:
- for any reason the merger does not become effective;
- the Huffy shareholder fails to make a timely written demand on Huffy;
- the Huffy shareholder does not, upon request by Huffy, timely surrender
certificates for an endorsement of a legend that a demand for the fair
cash value of the dissenting shares has been made;
- the Huffy shareholder withdraws the demand, with the consent of the board
of directors; or
- Huffy and the Huffy shareholder have not come to an agreement as to the
fair cash value of the dissenting shares and the Huffy shareholder has
not filed a complaint within three months after service of the demand for
fair cash value.
From the time the Huffy shareholder makes the demand, the Huffy
shareholder's rights as a shareholder will be suspended. If Huffy pays cash
dividends during the suspension, dissenting shareholders will be paid any such
dividend as a credit upon the fair cash value of the shares. If the right to
receive fair cash value is terminated, all rights with respect to the dissenting
shares will be restored to the Huffy shareholder. Any distribution that would
have been made to the Huffy shareholder had the Huffy shareholder not made a
demand will be made at the time of the termination.
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TO BE EFFECTIVE, A DEMAND FOR FAIR CASH VALUE BY A HUFFY SHAREHOLDER MUST
BE MADE BY OR IN THE NAME OF THE RECORD HOLDER, FULLY AND CORRECTLY, AS THE
SHAREHOLDER'S NAME APPEARS ON HIS OR HER STOCK CERTIFICATE(S) AND CANNOT BE MADE
BY THE BENEFICIAL OWNER IF HE OR SHE DOES NOT ALSO HOLD THE SHARES OF RECORD.
THE BENEFICIAL OWNER MUST, IN SUCH CASES, HAVE THE RECORD HOLDER SUBMIT THE
REQUIRED DEMAND IN RESPECT OF SUCH SHARES. If the Huffy shareholder holds shares
of Huffy common stock in a brokerage account or in other nominee form and the
Huffy shareholder wishes to exercise dissenters' rights, the Huffy shareholder
should consult with the broker or such other nominee. A record owner, such as a
broker, who holds shares as a nominee for others, may exercise his or her right
of appraisal with respect to the shares held for one or more beneficial owners,
while not exercising this right for other beneficial owners. In such case, the
written demand should state the number of shares as to which appraisal is
sought. Where no number of shares is expressly mentioned, the demand will be
presumed to cover all shares held in the name of such record owner.
The foregoing constitutes a brief description of the rights of dissenting
shareholders and does not purport to be a complete statement of such rights or
the procedures to be followed by Huffy shareholders desiring to receive the fair
cash value of their shares. Each Huffy shareholder who may desire to receive the
value of his or her shares should consult Section 1701.85 of the Ohio Revised
Code and strictly adhere to all of the provisions thereof. A copy of that
section is attached hereto as Annex F and this discussion concerning the rights
of dissenting Huffy shareholders is qualified in its entirety by reference to
that section.
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THE MERGER AGREEMENT
The following summary describes certain material provisions of the merger
agreement, which is included in this joint proxy statement/prospectus as Annex A
and is incorporated by reference into this joint proxy statement/prospectus.
This summary may not contain all of the information about the merger agreement
that is important to you. We encourage you to read the merger agreement
carefully in its entirety.
STRUCTURE OF THE TRANSACTION
Huffy has agreed to acquire Gen-X Sports under the terms of a merger
agreement and share purchase agreement. Gen-X Sports consists of two
corporations with substantially the same ownership: Gen-X Sports Inc., a
Delaware corporation and Gen-X Sports, Inc., an Ontario corporation. For
convenience, we have referred to Gen-X Sports Inc., the Delaware corporation as
"Gen-X" and Gen-X Sports, Inc., the Ontario corporation as "Gen-X Ontario"
throughout this joint proxy statement/prospectus.
Pursuant to the merger agreement described below, Gen-X will merge with and
into HSGC, a wholly-owned subsidiary of Huffy. Pursuant to the share purchase
agreement, HSGC Canada will purchase the outstanding capital stock of Gen-X
Ontario. The merger and stock purchase will be effected simultaneously and each
is conditioned upon the closing of the other transaction. As a result of the
merger and stock purchase, Gen-X and Gen-X Ontario will become wholly-owned
subsidiaries of Huffy.
The total consideration to be paid by Huffy in the merger and stock
purchase is $19,000,000 in cash and up to 5,000,000 shares of Huffy common
stock, subject to adjustments described below. All currency references in this
document are expressed in U.S. dollars unless otherwise stated. In addition,
Huffy will redeem the Gen-X series A 7% redeemable preferred stock for
$2,970,000 and the purchase Gen-X Ontario series A preferred stock for
$2,000,000. The consideration payable to the stockholders of Gen-X Ontario for
their shares of common stock pursuant to the share purchase agreement will be
$13,443,086. The consideration payable to Gen-X stockholders in connection with
the merger and the possible adjustments to the merger consideration are
described below in the section entitled "The Merger Agreement -- Merger
Consideration."
Huffy shareholders and Gen-X stockholders are only being asked to consider
and vote upon the merger in this joint proxy statement/prospectus.
COMPLETION AND EFFECTIVENESS OF THE MERGER
Huffy and Gen-X will complete the merger when all of the conditions to the
completion of the merger are satisfied or waived, including approval of the
merger agreement by Gen-X stockholders and approval of the issuance of Huffy
common stock in connection with the merger by Huffy shareholders. The merger
will become effective upon the filing of a certificate of merger with the State
of Delaware.
Huffy and Gen-X are working towards completing the merger as quickly as
possible, but not prior to October 1, 2002. Huffy and Gen-X currently plan to
complete the merger in the fourth calendar quarter of 2002.
MERGER CONSIDERATION
At the effective time of the merger, each share of Gen-X common stock,
series B junior participating preferred stock and series C non-voting preferred
stock issued and outstanding immediately prior to the effective time of the
merger (except for shares held in Gen-X treasury or shares held by stockholders
who have properly perfected their rights as dissenting stockholders under
Delaware law) will be cancelled and automatically converted into the right to
receive (i) an amount of cash, without interest, equal to the cash
consideration, as described below, divided by the total number of shares of
Gen-X common stock, series B junior participating preferred stock and series C
non-voting preferred stock issued and outstanding immediately prior to the
effective time of the merger, (ii) a number of whole shares of Huffy common
stock equal to the stock consideration, as described below, divided by the total
number of shares of Gen-X common stock, series B junior participating preferred
stock and series C non-voting preferred stock issued
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and outstanding immediately prior to the effective time of the merger, and (iii)
838,710 shares of Huffy common stock (payable after the effective date of the
merger) minus (a) the number of such shares Huffy retains for merger
consideration adjustments, minus (b) the number of shares Huffy retains as
payment for indemnification obligations of Gen-X stockholders and option holders
and minus (c) the number of such shares payable to option holders, divided by
the total number of shares of Gen-X common stock, series B junior participating
preferred stock and series C non-voting preferred stock issued and outstanding
immediately prior to the effective time of the merger.
The cash consideration will equal $5,556,914 minus (i) any cash paid to
option holders pursuant to the merger agreement, and minus (ii) the amount, if
any, by which the fees payable by Gen-X to its financial advisors exceed a
specified dollar amount. The stock consideration will equal up to 5,000,000
shares of Huffy common stock minus (i) the number of shares of Huffy common
stock issuable to option holders pursuant to the merger agreement, minus (ii)
the number of shares of Huffy common stock issuable to option holders of Gen-X
Ontario, minus (iii) the aggregate number of shares of Huffy common stock,
rounded to the nearest whole number, that would be issuable to Gen-X
stockholders but for the prohibition against the issuance of fractional shares
and (iv) 838,710 shares of Huffy common stock which Huffy will retain and
distribute to Gen-X stockholders and certain option holders after the closing of
the merger. Huffy will distribute a portion of the 838,710 shares to Gen-X
stockholders and option holders after certain adjustments to the merger
consideration as described below have been determined pursuant to the merger
agreement. Huffy is entitled to retain the number of shares equal to such
adjustments. The remaining shares will be distributed one year after the closing
of the merger or upon resolution of any outstanding indemnity claims, whichever
is later. However, some shares may be retained by Huffy as payment for amounts
due pursuant to the indemnification obligations of Gen-X stockholders and option
holders which amount may not exceed approximately 258,000 shares.
The merger consideration will be subject to certain adjustments after the
closing of the merger. If the combined earnings before interest, taxes,
depreciation and amortization of Gen-X and Gen-X Ontario for the year ended
December 31, 2002 is less than $15,529,825, then the adjustment for the
deficiency will equal $15,529,825 minus the combined earnings before interest,
taxes, depreciation and amortization and then multiplied by 3.7. If the average
combined third party debt of Gen-X and Gen-X Ontario, other than a certain
mortgage, trade payables or accrued liabilities, for the year ended December 31,
2002 is in excess of $41,000,000, then the adjustment for the excess will equal
the average combined third party debt minus $41,000,000 and then multiplied by
17.5%. The total adjustments described above may not exceed $5,000,000. Huffy
will divide the total adjustments by $7.75 to determine the number of shares
that Huffy will retain.
FRACTIONAL SHARES
Huffy will not issue any fractional shares of Huffy common stock in the
merger. Instead, each Gen-X stockholder who would otherwise be entitled to
receive a fraction of a share of Huffy common stock will receive cash, without
interest, in lieu of a fractional share.
EXCHANGE OF GEN-X STOCK CERTIFICATES FOR HUFFY STOCK CERTIFICATES
When the merger is completed, the exchange agent will mail to Gen-X
stockholders that do not deliver their stock certificates to Huffy at the
closing a letter of transmittal and instructions for surrendering their Gen-X
stock certificates in exchange for Huffy stock certificates. When Gen-X
stockholders deliver their Gen-X stock certificates to the exchange agent along
with any required documents, the Gen-X stock certificates will be cancelled and
the stockholders will receive (i) Huffy stock certificates representing the
number of whole shares of Huffy common stock to which they are entitled under
the merger agreement, (ii) the cash consideration and (iii) cash in lieu of any
fractional share of Huffy common stock. After the effective time of the merger,
each certificate representing shares of Gen-X common stock or preferred stock
that has not been surrendered will represent only the right to receive upon
surrender of that certificate the merger consideration.
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Gen-X stockholders should not submit their Gen-X stock certificates for
exchange until they receive instructions from the exchange agent.
DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES
Gen-X stockholders are not entitled to receive any dividends or other
distributions on Huffy common stock until the merger is completed and they have
surrendered their Gen-X stock certificates in exchange for Huffy stock
certificates. Gen-X stockholders will receive payment for any dividend or other
distribution on Huffy common stock with a record date after the merger and a
payment date prior to the date they surrender their Gen-X stock certificates
promptly after their Huffy stock certificates are issued.
TRANSFERS OF OWNERSHIP AND LOST STOCK CERTIFICATES
Huffy will only issue a Huffy stock certificate, the cash consideration or
cash in lieu of a fractional share in a name other than the name in which a
surrendered Gen-X stock certificate is registered if the person requesting such
exchange presents the exchange agent with all documents required to show and
effect the unrecorded transfer of ownership and to show that such person paid
any applicable stock transfer taxes. If a Gen-X stock certificate has been lost,
stolen or destroyed, the stockholder may need to deliver an affidavit or bond
prior to receiving the items listed in the preceding sentence.
STOCK OPTIONS
At the effective time of the merger, each option to purchase units
consisting of capital stock of Gen-X and Gen-X Ontario, whether or not vested,
that has an exercise price that is equal to or greater than $8.88 per unit will
be cancelled without any payment. All other options, whether or not vested, will
be cancelled and each holder of such options who so elects in writing on or
before the closing will receive cash in an amount equal to 33% of the difference
between (i) $8.88 multiplied by the number of units of Gen-X common stock or
preferred stock subject to such options less (ii) the aggregate exercise price
with respect to such options. The holder of such options will also receive a
grant of a number of shares of Huffy common stock equal to 67% of the difference
described in the preceding sentence, divided by $7.75. Certain employee option
holders may sell 23% of the restricted shares of Huffy common stock received to
cover the option holder's taxes. Certain employee option holders forfeit their
restricted shares of Huffy common stock if they terminate their employment
within two years of the date of closing. Approximately 17% of the shares of
Huffy common stock issuable pursuant to such grants will be retained by Huffy
and distributed after the closing in accordance with the merger agreement.
REDEMPTION OF PREFERRED STOCK
At the effective time of the merger, the surviving corporation will redeem
each share of Gen-X series A 7% redeemable preferred stock issued and
outstanding immediately prior to the effective time for $2,970,000 cash. Payment
for shares of Gen-X series A 7% redeemable preferred stock will be made at the
closing of the merger.
REPRESENTATIONS AND WARRANTIES
Huffy and Gen-X made a number of representations and warranties in the
merger agreement regarding aspects of their respective businesses, financial
condition, structure and other facts pertinent to the merger.
Gen-X Representations and Warranties
The merger agreement contains representations and warranties of Gen-X
relating to, among other things:
- corporate organization and qualification to do business;
- certificate of incorporation and bylaws;
- capitalization;
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- subsidiaries;
- authorization of the merger agreement by Gen-X;
- compliance with applicable laws;
- the effect of the merger on obligations of Gen-X and under applicable
laws;
- governmental approvals and consents required to complete the merger;
- Gen-X financial statements;
- absence of undisclosed liabilities;
- changes in Gen-X's business since January 1, 2002;
- litigation involving Gen-X;
- material contracts;
- tax matters;
- title to the properties owned and leased by Gen-X;
- intellectual property used by Gen-X;
- information supplied by Gen-X for filings with the SEC;
- employee benefit plans;
- environmental matters;
- labor matters;
- transactions between Gen-X and related parties;
- real estate owned or leased by Gen-X;
- insurance coverage;
- customers of Gen-X;
- the accuracy of the representations and warranties made by Gen-X;
- the inapplicability of state takeover statutes;
- payments, if any, required to be made by Gen-X to brokers on account of
the merger; and
- ownership of Huffy securities prior to the effective time of the merger.
The representations and warranties of Gen-X expire on the first anniversary
of the completion of the merger.
Huffy's Representations and Warranties
The merger agreement contains representations and warranties of Huffy and
HSGC relating to among other things:
- corporate organization and qualification to do business;
- articles of incorporation and regulations;
- capitalization;
- authorization of the merger agreement by Huffy and HSGC;
- compliance with applicable laws;
- the effect of the merger on obligations of Huffy and under applicable
laws;
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- governmental approvals and consents required to complete the merger;
- filings and reports with the SEC;
- absence of undisclosed liabilities;
- conduct of the business since January 1, 2002;
- litigation involving Huffy;
- title to the properties owned and leased by Huffy;
- information supplied by Huffy for filings with the SEC;
- the accuracy of the representations and warranties made by Huffy;
- payments, if any, required to be made by Huffy to brokers on account of
the merger; and
- activities of HSGC.
The representations and warranties of Huffy and HSGC expire on the first
anniversary of the completion of the merger.
The representations and warranties in the merger agreement are complicated
and are not easily summarized. You are urged to read carefully the sections of
the merger agreement entitled "Representations and Warranties of Gen-X" and
"Representations and Warranties of Huffy and MergerSub."
CONDUCT OF BUSINESS BY GEN-X BEFORE COMPLETION OF THE MERGER
Gen-X has agreed that, until the completion of the merger, unless Huffy
consents in writing, Gen-X will carry on its business in the ordinary and usual
course of business and consistent with past practices and will use its
commercially best efforts to:
- preserve intact its present business organization;
- maintain in effect all material permits required to carry on its
business;
- keep available the services of its present employees and consultants; and
- preserve its present relationships with its employees, consultants,
customers, lenders, suppliers, licensors, licensees, landlords and others
having significant business relationships with it.
Gen-X also has agreed that, until the completion of the merger, unless
Huffy consents in writing, Gen-X will conduct its business in compliance with
some specific restrictions relating to the following:
- the modification of its certificate of incorporation or bylaws;
- the acquisition of assets or other entities;
- the incurrence of indebtedness;
- the incurrence of obligations to make certain expenditures;
- capital expenditures;
- the entrance into or modification of contracts or leases;
- the sale, lease, assignment or disposition of its real property;
- the taking of an action that would render a representation or warranty
made by Gen-X untrue;
- the payment of dividends or other distributions;
- the redemption of securities;
- employees and employee benefits, including severance and termination
payments;
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- the revaluation of assets;
- the payment or settlement of liabilities;
- the making of tax elections;
- changes in accounting policies and procedures;
- the issuance or sale of stock and stock options;
- the liquidation or dissolution of Gen-X or its subsidiaries;
- changes to Gen-X's corporate structure;
- permits; and
- intellectual property.
The agreements related to the conduct of Gen-X's business in the merger
agreement are complicated and are not easily summarized. You are urged to read
carefully the section of the merger agreement entitled "Conduct of Business by
Gen-X Pending the Merger."
CONDUCT OF BUSINESS BY HUFFY BEFORE COMPLETION OF THE MERGER
Huffy has agreed that, until the completion of the merger, Huffy will carry
on its business in the ordinary and usual course of business and consistent with
past practices and will use its best efforts to preserve intact its present
business organization.
ACCESS AND INFORMATION
Each of Huffy and Gen-X has agreed that it will, and it will cause its
officers, directors, employees, auditors and agents to, afford to the other
party and to the other party's officers, employees and representatives
reasonable access during normal business hours to all of its books and records
and its properties, plants and personnel. This access will be afforded until the
effective time of the merger and will be subject to certain limitations.
NO SOLICITATION BY GEN-X
Gen-X has agreed that it, its subsidiaries and affiliates, and the
respective directors, executive officers, agents and representatives of any of
the foregoing, will cease and terminate, as of the date of the merger agreement,
any existing activities, discussions or negotiations with any parties conducted
prior to that date with respect to any transaction involving a merger,
consolidation or other business combination involving Gen-X or the acquisition
of all or any significant part of the assets or capital stock of Gen-X.
Gen-X has further agreed that neither it nor any of its subsidiaries or
affiliates, nor any of the respective directors, executive officers, agents or
representatives of any of the foregoing, will, directly or indirectly:
- solicit, initiate or encourage any inquiries or the making of any
proposals relating to any such transaction;
- negotiate or otherwise engage in discussions with any party with respect
to any such transaction, or that may reasonably be expected to lead to a
proposal for any such transaction; or
- enter into an agreement, arrangement or understanding relating to any
such transaction.
APPROVALS FROM GOVERNMENTAL ENTITIES AND THIRD PARTIES
Each of Huffy and Gen-X has agreed to use its best efforts to take all
actions necessary under applicable laws and regulations to complete the merger
as soon as practicable. This includes using reasonable best efforts to obtain
all necessary consents and approvals from all applicable governmental entities,
effecting all necessary registrations, applications and filings, and obtaining
any required regulatory approvals and consents.
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In addition, Gen-X has agreed to use its best efforts to secure waivers
and/or consents from such third parties as may be necessary in the judgment of
Gen-X or Huffy in order to complete the merger, subject to certain limitations.
STOCKHOLDER MEETINGS
Huffy and Gen-X have agreed to hold meetings of their respective
stockholders as soon as practicable following the date of effectiveness of the
registration statement, of which this joint proxy statement/prospectus is a
part, for the purpose of voting (i) in the case of Gen-X, to adopt the merger
agreement and to approve the merger; and (ii) in the case of Huffy, to approve
the issuance of Huffy common stock in the merger. Huffy and Gen-X have agreed
that their respective boards of directors will recommend, subject to the
exercise of their fiduciary duties, that the stockholders of the respective
companies approve the proposal presented to them.
FINANCIAL STATEMENTS
Gen-X has agreed to provide to Huffy its monthly financial statements until
the effective date of the merger.
FINANCING
Huffy and HSGC have agreed to use best efforts to obtain consent from its
current lender Congress Financial Corporation (Central) for the merger, the
stock purchase of Gen-X Ontario by HSGC Canada and the financing of such
transactions on terms and conditions that are acceptable to Huffy in its sole
and absolute discretion or arranged for alternative financing for such
transactions on terms and conditions that are acceptable to Huffy in its sole
and absolute discretion. Huffy will use its best efforts to obtain such consent
or financing.
GEN-X EMPLOYEE BENEFIT PLANS
The merger agreement provides that, following the effective time of the
merger, Huffy and the surviving corporation will grant options for an aggregate
amount not to exceed 165,000 shares of Huffy common stock to certain Gen-X
employees as mutually agreed upon by the chief executive officers of Huffy and
Gen-X and approved by the compensation committee of Huffy's board of directors
in accordance with the terms of any Huffy stock option plan under which such
options are granted. Such grant will be in lieu of any regular annual option
grants by Huffy that such employees might be entitled to in 2002. Such employees
will not be eligible for additional Huffy option grants prior to December 2003.
Huffy and the surviving corporation and its affiliates will credit Gen-X
employees who Gen-X employed immediately preceding the effective time of the
merger with any amounts paid for the 2002 calendar year under Gen-X's medical
and dental plans prior to the transition to a new medical or dental program
toward satisfaction of the applicable deductible amounts and co-payment and
deductible maximums under any new medical or dental program. With respect to
each such employee, Huffy and the surviving corporation and its affiliates will
treat service considered by Gen-X as service with Gen-X as service with each of
Huffy and the surviving corporation for purposes of Gen-X employee benefits and
fringe benefits, including vacation benefits, waiting periods, vesting
requirements and pre-existing conditions limitations.
NOTIFICATION OF CERTAIN MATTERS
Huffy and Gen-X have agreed to provide notice to the other party of (i) any
notice or other communication received by such party relating to a default under
a material contract; or (ii) any material adverse change in the condition,
properties, assets, business, results of operations, or prospects of such party.
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FURTHER ASSURANCES; FURTHER ACTION
Huffy and Gen-X have agreed that, at and after the effective time of the
merger, the officers, and directors of the surviving corporation in the merger
will be authorized to (i) execute and deliver, in the name and on behalf of
Huffy, Gen-X or HSGC, any deeds, bills of sale, assignments or assurances; and
(ii) take any other actions to vest, perfect or confirm of record or otherwise
in the surviving corporation all right, title and interest in, to and under any
of the rights, properties or assets of Gen-X that are acquired by the surviving
corporation in the merger. In addition, each of Huffy, Gen-X and HSGC has agreed
to use its reasonable commercial efforts to take all appropriate action, and to
do all things necessary under applicable laws, to complete the merger.
TAX-FREE REORGANIZATION TREATMENT
Huffy, Gen-X and HSGC have agreed not to take any action, whether before or
after the effective date of the merger, that would reasonably be expected to
cause the merger to fail to qualify as a reorganization, which is tax-free
either in whole or in part within the meaning of Section 368 of the Internal
Revenue Code.
BOARD REPRESENTATION
Huffy has agreed to consider the creation of an additional seat on Huffy's
board of directors after the effective time of the merger to be filled by a new
outside director recommended by DMJ Financial, Inc., its two stockholders K&J
Financial, Inc. and DLS Financial, Inc., the sole stockholder of K&J, Kenneth
Finkelstein Family Trust, the sole stockholder of DLS, James Salter Family
Trust, Osgoode Financial Inc., Kenneth Finkelstein and James Salter. Huffy's
chief executive officer and the nominating and governance committee of Huffy's
board of directors will interview and consider board candidates recommended by
such stockholder group.
SALE OF HUFFY COMMON STOCK
Until the effective time of the merger, Huffy has agreed not to sell to any
person Huffy common stock for less than $7.75 per share, except for issuances of
Huffy common stock pursuant to Huffy's current stock option plans or restricted
stock grant plans.
STOCKHOLDER AND OPTIONEE LIST
Gen-X has agreed to deliver to Huffy no later than 14 days prior to the
effective date of the merger a listing of all Gen-X stockholders and option
holders. Gen-X also has agreed, as of the date of such list, to close its books
and not to issue any Gen-X common stock or preferred stock, grant any options or
permit the transfer of any Gen-X common stock or preferred stock.
OPERATION OF SURVIVING CORPORATION AFTER CLOSING
From the closing of the merger through December 31, 2002, Huffy has agreed
to allow management of the surviving corporation to operate its business in the
normal course of business, consistent with past practices of Gen-X, subject to
certain reporting requirements.
INSURANCE
Until the closing of the merger, the assets of Gen-X will remain at the
risk of Gen-X. If a material part of the assets of Gen-X are destroyed or
damaged prior to the closing, Huffy and HSGC will have the option to complete
the closing without reduction of the merger consideration or to terminate the
merger agreement.
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CONDITIONS TO THE COMPLETION OF THE MERGER
The obligations of Huffy and Gen-X to complete the merger and the related
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following conditions before the effective
date of the merger:
- no law, regulation or order has been enacted or issued that has the
effect of prohibiting the completion of the transactions contemplated by
the merger agreement;
- all applicable waiting periods under the antitrust laws have expired or
terminated;
- no proceedings by any governmental entity to restrain or prohibit the
transactions contemplated by the merger agreement have been initiated;
- the share purchase of Gen-X Ontario by HSGC Canada has been consummated
simultaneously with the merger;
- the merger agreement has been adopted and the merger has been approved by
the requisite vote of the holders of Gen-X common stock;
- the issuance of Huffy common stock in connection with the merger has been
approved by the requisite vote of the holders of Huffy common stock;
- the registration statement, of which this joint proxy
statement/prospectus is a part, has become effective, no stop order
suspending its effectiveness has been issued and no proceedings for
suspension of its effectiveness have been initiated by the SEC;
- all regulatory approvals necessary to complete the merger have been
obtained unless the failure to obtain the approval would not have a
material adverse effect on Huffy or Gen-X;
- Huffy and Gen-X have obtained all permits and approvals legally required
for completion of the transactions contemplated by the merger agreement;
and
- Huffy has secured the consent of Congress Financial Corporation (Central)
to the merger, the stock purchase and the financing of such transactions
on terms and conditions that are acceptable to Huffy or has arranged for
alternative financing on terms and conditions that are acceptable to
Huffy.
Gen-X's obligations to complete the merger and the related transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before the effective date of the
merger:
- the representations and warranties of Huffy and HSGC contained in the
merger agreement are true and correct as of the date of the merger
agreement and at the effective time of the merger;
- Huffy and HSGC have performed or complied in all material respects with
all of the covenants contained in the merger agreement or in any
agreement, certificate or instrument to be executed by Huffy or HSGC, as
applicable, pursuant to the merger agreement, either at or prior to the
completion of the merger;
- Huffy and HSGC have delivered the documents set forth in the merger
agreement;
- events or circumstances have not occurred after the date of the merger
agreement that have had or are reasonably expected to have a material
adverse effect on Huffy;
- Gen-X has received from Huffy's counsel an opinion with respect to the
matters set forth in the merger agreement;
- Gen-X has received from and is permitted to rely upon an opinion to Huffy
substantially to the effect that the merger should be treated as a
reorganization, which is tax-free either whole or in part within the
meaning of Section 368(a) of the Internal Revenue Code;
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- Huffy has received all consents from third parties, and has delivered in
a timely manner all notices to third parties, that, if not so received or
delivered, as applicable, prior to the completion of the merger, would be
reasonably likely to have a material adverse effect on Huffy or the
surviving corporation in the merger; and
- Gen-X has received from its financial advisor an opinion to the effect
that the merger is fair, from a financial point of view, to Gen-X
stockholders.
The obligations of Huffy and HSGC to complete the merger and the related
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following additional conditions before the
effective date of the merger:
- the representations and warranties of Gen-X contained in the merger
agreement are true and correct as of the date of the merger agreement and
at the effective time of the merger;
- Gen-X has performed or complied in all material respects with all of the
covenants contained in the merger agreement or in any agreement,
certificate or instrument to be executed by Gen-X pursuant to the merger
agreement either at or prior to the completion of the merger;
- Gen-X has delivered the documents and agreements set forth in the merger
agreement;
- events or circumstances have not occurred after the date of the merger
agreement that have had or are reasonably expected to have a material
adverse effect on Gen-X;
- Huffy's chief financial officer has not determined that there is a
substantial likelihood that the combined earnings before interest, taxes,
depreciation and amortization of Gen-X and Gen-X Ontario for the calendar
year December 31, 2002, subject to certain adjustments, will be less than
$15,529,825;
- Huffy has received from its accounting firm an opinion to the effect that
the merger should be treated as a reorganization, which is tax-free
either in whole or in part within the meaning of Section 368(a) of the
Internal Revenue Code;
- Huffy has received from Gen-X's counsel an opinion with respect to the
matters set forth in the merger agreement;
- Gen-X has received all consents from third parties, and has delivered in
a timely manner all notices to third parties, that, if not so received or
delivered, as applicable, prior to the completion of the merger, would be
reasonably likely to have a material adverse effect on Gen-X;
- the aggregate number of shares of Gen-X common stock and preferred stock
with respect to which Gen-X stockholders have effectively exercised their
rights as dissenting stockholders in accordance with the Delaware General
Corporation Law is not equal to 10% or more of the outstanding shares of
Gen-X common stock and preferred stock as of the record date of the
special meeting of Gen-X stockholders or as of the effective time of the
merger;
- Gen-X has obtained the cancellation of options to purchase Gen-X common
stock or preferred stock in accordance with the merger agreement and has
received any necessary agreements, approvals or consents from the holders
of the options;
- Huffy is satisfied that all assets of Gen-X are free from all liens,
except for permitted liens or liens that Huffy agrees may remain in
existence after the closing;
- Huffy has received from its financial advisor an opinion to the effect
that the merger is fair, from a financial point of view, to Huffy's
shareholders;
- Gen-X has delivered to Huffy proof of delivery to option holders of
notice of the merger no later than 30 days prior to the closing;
- Gen-X has converted Gen-X Sports AG to a GmbH;
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- Gen-X has taken all measures that Huffy reasonably requests concerning
the transfer of Gen-X's trademarks and patents to Gen-X Sports AG or its
successor;
- Gen-X has paid all accrued dividends to the holders of Gen-X preferred
stock;
- A physical inventory has been taken of Gen-X's and Gen-X Ontario's
inventories on or about the last day of the calendar month preceding the
closing, which physical inventory is satisfactory in result to Huffy's
lender; and
- Huffy has met with representatives of the combined five largest customers
of Gen-X and Gen-X Ontario and has been satisfied with the results of
such meetings.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated and the transactions contemplated by
the merger agreement may be abandoned at any time prior to the effective time of
the merger, whether before or after stockholder approval, as follows:
- by mutual written consent of Huffy, HSGC and Gen-X;
- by Huffy, if certain conditions set forth in the merger agreement become
incapable of fulfillment (other than as a result of a breach of the
merger agreement by Huffy or HSGC);
- by Gen-X, if certain conditions set forth in the merger agreement become
incapable of fulfillment (other than as a result of a breach of the
merger agreement by Gen-X);
- by Huffy or Gen-X, if the transactions contemplated by the merger
agreement are not completed on or before December 5, 2002, but only if
the failure to complete the transactions did not result from the breach
of any representation, warranty or agreement in the merger agreement by
the party seeking termination;
- by Huffy or Gen-X, if the other party is in material breach of any of its
covenants contained in the merger agreement and the breach either is
incapable of cure or is not cured within 20 business days after notice
from the party wishing to terminate, but only if the party seeking
termination is not also in material breach of the merger agreement;
- by Huffy or Gen-X, if the other party is in breach of any of its
representations or warranties contained in the merger agreement, which
breach, individually or together with all other breaches, is reasonably
expected to have a material adverse effect on the breaching party and
either is incapable of cure or is not cured within 20 business days after
notice from the party wishing to terminate, but only if the party seeking
termination is not also in material breach of the merger agreement; or
- by Huffy or Gen-X, if any governmental entity issues a non-appealable
final order or takes any other action having the effect of permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by the merger agreement, subject to certain conditions.
AMENDMENT AND WAIVER
Huffy, HSGC and Gen-X may amend the merger agreement prior to the effective
time of the merger by written agreement, unless the amendment requires the
approval of the stockholders of Huffy, HSGC or Gen-X, in which case the
applicable stockholder approval must be obtained prior to amending the merger
agreement.
Huffy and HSGC, on the one hand, and Gen-X, on the other, may extend the
time for the performance of any of the other party's obligations or other acts
under the merger agreement, waive any inaccuracies in the other party's
representations and warranties, and waive compliance by the other party with any
of the agreements or conditions contained in the merger agreement that legally
may be waived.
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INDEMNIFICATION
Gen-X stockholders and option holders have agreed to indemnify and hold
Huffy, HSGC, HSGC Canada and their respective successors and assigns, officers,
shareholders, attorneys and agents harmless from claims, liabilities and damages
incurred by such parties arising from the following:
- a breach by Gen-X or Gen-X Ontario of any representation, warranty or
covenant in the merger agreement, the share purchase agreement or any
other agreement in connection with the merger or stock purchase;
- taxes arising out of the operation of the business of Gen-X or Gen-X
Ontario prior to the closing;
- certain environmental matters; and
- fraud or willful misconduct committed by Gen-X, Gen-X Ontario, their
respective affiliates, officers, directors, employees and agents or any
Gen-X stockholder related to the completion of the merger or stock
purchase.
The indemnification obligations of Gen-X stockholders and option holders
are subject to limitations pursuant to the merger agreement. The Gen-X
stockholders and option holders will not be obligated to pay claims for damages
until the aggregate amount of such claims exceed $1,000,000, at which point
Gen-X stockholders and option holders will be obligated to indemnify the parties
against such amounts to the extent they exceed $500,000. Huffy is only permitted
to satisfy the indemnification obligations by retaining such number of the
838,710 shares of Huffy common stock valued at $7.75 equal to the
indemnification obligation. The Gen-X stockholders and option holders will not
become obligated to pay any claims that were previously adjusted through the
merger consideration adjustments. The preceding limitations will not apply to
indemnification arising out of fraud or willful misconduct. However, the
liability of Gen-X stockholders and option holders, except for certain principal
stockholders, for any indemnification arising out of fraud or misconduct will
not exceed the merger consideration such stockholder or option holder is
entitled to receive.
The indemnification obligations of Gen-X stockholders and option holders
will terminate on the first anniversary of the closing, except that those
obligations arising out of fraud or misconduct will terminate on the expiration
of the applicable statute of limitations.
SHAREHOLDER GROUP AGREEMENT
In connection with the merger agreement, Huffy, HSGC and HSGC Canada have
entered into a shareholder group agreement with DMJ Financial, Inc., its two
stockholders K&J Financial Holdings, Inc. and DLS Financial, Inc., the sole
stockholder of K&J, Kenneth Finkelstein Family Trust, the sole stockholder of
DLS, James Salter Family Trust, Osgoode Financial Inc., Kenneth Finkelstein and
James Salter.
The shareholder group agreement provides that the members of the
shareholder group will not, and will cause their affiliates not to, do any of
the following:
- acquire or agree to acquire beneficial ownership of any voting securities
of Huffy, except in certain circumstances;
- acquire or agree to acquire any business or material assets of Huffy or
its subsidiaries;
- initiate any offer by a third party to acquire beneficial ownership of
voting securities of Huffy;
- initiate any merger, business combination or similar transaction
involving Huffy or its subsidiaries;
- seek to influence the control of the board or management of Huffy or the
business or operations of Huffy;
- subject any voting securities of Huffy to any proxy, arrangement or
agreement with respect to the voting of such securities;
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- initiate any shareholder proposal or participate in any solicitation of
proxies to vote any voting securities of Huffy;
- enter into any discussion or arrangements with, or provide any
confidential information to, any third party with respect to the
foregoing;
- make any statement inconsistent with the foregoing; or
- seek an amendment or waiver of the foregoing.
Each member of the shareholder group agrees to vote its voting securities
of Huffy in accordance with the management voting recommendation to all
shareholders and to be present in person or represented by proxy at all meetings
of Huffy shareholders. Each member of the shareholder group also agrees to sell
or transfer any voting securities of Huffy in compliance with the restrictions
set forth in the shareholder group agreement. The shareholder group agreement
will terminate on the earlier of the fourth anniversary of the closing of the
merger or the mutual agreement of the parties. The transfer restrictions,
however, will cease to apply to certain members of the shareholder group if
their employment is terminated after the second anniversary of the closing.
For a more complete description of this agreement, you should refer to the
form of agreement attached to the merger agreement and as Annex B to this joint
proxy statement/prospectus.
EMPLOYMENT AGREEMENTS
Certain executive officers of Gen-X and Gen-X Ontario have existing
employment arrangements with Gen-X and Gen-X Ontario. At or before the closing,
these executive officers of Gen-X and Gen-X Ontario will enter into amended and
restated employment agreements with Gen-X Ontario on substantially the same
terms as their current employment arrangements. The executive officers include
James Salter, Kenneth Finkelstein and John Collins. The employment agreements
include the following terms:
- During the term of employment, the employee will not be an investor,
shareholder or partner in any enterprise, corporation or partnership if
the investment (i) conflicts with the interests of Gen-X Ontario or is in
competition with the business of Gen-X Ontario, (ii) requires the
employee's involvement in management or (iii) interferes with the
performance of the employee's duties.
- For a period of 12 months after the termination of employment, the
employee will not solicit or divert the business of any person away from
Gen-X Ontario or solicit any person to resign from Gen-X Ontario,
terminate a contractual relationship with Gen-X Ontario or engage in
activities competitive with Gen-X Ontario.
- For a period of 24 months after the termination of employment, the
employee will not compete with Gen-X Ontario in any way described in the
employment agreements in Canada, Japan, Switzerland and the United
States.
- The employee will be paid a base salary and will be entitled to
participate in the Huffy Corporation Annual Performance Incentive Plan
for Gen-X Sports Inc. and the Huffy Corporation Special Deferred
Compensation Plan. Under the Annual Performance Incentive Plan, for the
2003 calendar year, the employee's target bonus will be 25%-30% of the
base salary and the maximum bonus entitlement will be 50%-60% of the base
salary.
- The employee will continue to participate in all group benefit plans and
certain members of management will receive an automobile allowance and
reimbursement for country club dues. The reimbursement for country club
dues will be eliminated by the end of 2004.
- Gen-X Ontario may terminate the employee at any time for cause. Gen-X
Ontario may terminate the employee without cause by providing the greater
of (i) six months notice of termination or pay in lieu of notice equal to
six months of base salary or (ii) the period of notice (or pay in lieu of
notice) required by the Employment Standards Act of Ontario, plus the
amount of severance pay required by
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such act, plus one additional week of notice, or pay in lieu thereof, for
every completed year of employment, up to a maximum of six weeks.
The employment agreements of James Salter and Kenneth Finkelstein provide
that Gen-X Ontario may not terminate their employment for any reason other than
cause for a period of two years from the effective date of the agreements. Mr.
Salter and Mr. Finkelstein also are entitled to receive a new grant of stock
options for shares of Huffy common stock under new option grants under Huffy's
1998 Key Employee Non-Qualified Stock Plan at the then fair market value equal,
on a combined basis, to the number of options granted under Huffy employee stock
incentive plans that are forfeited by certain employees of Gen-X Ontario during
the two year period after the effective date of the employment agreements.
DESCRIPTION OF HUFFY CAPITAL STOCK
The following is a summary of the material terms of Huffy's capital stock.
Because it is only a summary, it does not contain all the information that may
be important to you. Accordingly, you should read carefully the more detailed
provisions of the articles of incorporation of Huffy and the regulations of
Huffy, each of which has been filed with the SEC, as well as applicable Ohio
law. See "Comparison of Rights of Huffy Shareholders and Gen-X Stockholders."
GENERAL
Huffy's articles of incorporation authorize the issuance of up to
60,000,000 shares of common stock, $1.00 par value per share, and 1,000,000
shares of preferred stock, $1.00 par value per share, the rights and preferences
of which may be established by Huffy's board of directors. As of June 30, 2002,
10,461,965 shares of Huffy common stock were issued and outstanding and no
shares of preferred stock were issued and outstanding.
COMMON STOCK
The holders of Huffy common stock are entitled to one vote for each share
of Huffy common stock and are entitled to vote for the election of directors and
on all other matters requiring shareholder action. Subject to the rights of the
preferred stock, Huffy's board of directors may declare dividends on Huffy
common stock out of any assets or funds legally available for dividend payments.
If Huffy liquidates, dissolves or winds up, the holders of Huffy common stock
will be entitled to share ratably, in accordance with their rights and
interests, in the net assets of Huffy. Holders of Huffy common stock have no
preemptive rights or rights to convert their shares of Huffy common stock into
any other securities. All outstanding shares of Huffy common stock are fully
paid and nonassessable.
For a summary of the provisions contained in Huffy's articles of
incorporation that would have an effect of delaying, deferring or preventing a
change in control of Huffy and that would operate only with respect to
extraordinary corporate transactions, such as a merger, reorganization, tender
offer, or sale or transfer of substantially all of Huffy's assets or
liquidation, see "Comparison of Rights of Huffy Shareholders and Gen-X
Stockholders -- Certain Anti-takeover Provisions."
PREFERRED STOCK
Huffy's board of directors is authorized to issue, in one or more series,
up to an aggregate of 1,000,000 shares of preferred stock. Subject to any
limitations prescribed by law, Huffy's board of directors is authorized to fix
the designation of each series of preferred stock and the powers, preferences,
and rights of the series, including, but not limited to, voting rights, dividend
rights, conversion rights, redemption rights, liquidation preferences and
sinking fund provisions, as well as to fix the limitations or restrictions of
the series.
The rights of Huffy common stock will be subject to, and may be adversely
affected by, the rights of holders of any preferred stock that may be issued in
the future. Issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the
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effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of Huffy's
outstanding voting stock. Huffy has no present plans to issue any shares of
preferred stock.
RIGHTS AGREEMENT
Under Huffy's articles of incorporation, there are 1,000,000 authorized,
unissued shares of cumulative preferred stock, $1.00 par value. As stated above,
subject to certain limitations, the articles provide that the board of directors
may fix the conditions of each series of preferred stock.
Huffy entered into a rights agreement with its transfer agent in 1988, as
amended in 1991, 1994 and 2002, and the board of directors declared a dividend
of one preferred share purchase right for each outstanding share of Huffy common
stock. Upon the occurrence of certain events, preferred share purchase rights
entitle the holder to purchase at a price of $60.00, one one-hundredth of a
share of series C cumulative preferred stock, subject to adjustment. The rights
become exercisable only if a person or group acquired 15% or more of the Huffy
common stock, or announces a tender offer for 15% or more of the Huffy common
stock. Under certain circumstances all rights holders, except the person or
group holding 15% or more of the Huffy common stock, will be entitled to
purchase a number of shares of the Huffy common stock having a market value of
twice the right's current exercise price. Alternatively, if Huffy is acquired in
a merger of other business combination, after the rights become exercisable, the
rights will entitle the holder to buy a number of the acquiring company's common
shares having a market value at that time of twice each right's current exercise
price.
Further, after a person or group acquires 15% or more (but less than 50%)
of the outstanding Huffy common stock, Huffy's board of directors may exchange
part or all of the rights (other than the rights held by the acquiring person or
group) for shares of common stock. The rights expire December 9, 2004 and may be
redeemed by Huffy for $0.01 per right at any time prior to the acquisition by a
person or group of 15% or more of the Huffy common stock.
In connection with the merger, Huffy amended the rights agreement to
provide that, among other things, none of the members of the Gen-X shareholder
group will become an acquiring person, therefore triggering the events described
above, by the approval, execution or consummation of the merger or by the
acquisition of the shares of Huffy common stock under the merger.
COMPARISON OF RIGHTS OF HUFFY SHAREHOLDERS AND GEN-X STOCKHOLDERS
Huffy is incorporated under the laws of the State of Ohio, while Gen-X is
incorporated under the laws of the State of Delaware. The rights of Huffy
shareholders currently are governed by Huffy's amended articles of
incorporation, amended and restated code of regulations and rights agreement.
The rights of Gen-X stockholders currently are governed by Gen-X's certificate
of incorporation, as amended, and by-laws. Upon the completion of the merger,
the rights of Gen-X stockholders who become shareholders of Huffy in the merger
will be governed by Ohio corporate law, Huffy's amended articles of
incorporation and Huffy's amended and restated code of regulations.
The following description summarizes the material differences between the
rights of Huffy shareholders and the rights of Gen-X stockholders. The
description, however, is not a complete statement of all those differences, nor
is it a complete description of the specific provisions referred to in this
summary. The identification of specific differences is not intended to indicate
that other equally or more significant differences do not exist. Stockholders
should read carefully the relevant provisions of Ohio corporate law, Huffy's
amended articles of incorporation, Huffy's amended and restated code of
regulations, Huffy's rights agreement, Gen-X's certificate of incorporation, and
Gen-X's by-laws.
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DIVIDENDS
Under Ohio corporate law, dividends may be declared by Huffy, at its
discretion, and paid from its surplus. However, no dividend may be paid at any
time that Huffy is insolvent or when there is reasonable ground to believe that
by such payment it would be rendered insolvent.
Under Delaware corporate law, Gen-X may declare and pay dividends from
surplus, or, if there is no surplus, from net profits for the fiscal year
(and/or the preceding fiscal year) in which the dividend is declared.
Following the merger, no stockholder whose shares of Gen-X common stock or
preferred stock have been converted into shares of Huffy common stock by reason
of the merger will be entitled to receive any dividends or other distributions
with respect to such Huffy shares until his or her Gen-X stock certificates are
exchanged for Huffy stock certificates. However, when the exchange of
certificates is made, the dividends or other distributions previously withheld
will be paid without interest. Within a reasonable period of time after the
consummation of the merger, materials will be furnished to assist stockholders
in effecting the exchange.
PREEMPTIVE RIGHTS
Under Ohio corporate law, the Huffy shareholders have preemptive rights
unless Huffy's articles of incorporation provide otherwise. Huffy's articles of
incorporation provide that no preemptive rights will exist with respect to Huffy
common stock.
Delaware corporate law provides that no stockholder will have any
preemptive rights to purchase additional securities of the corporation unless
the certificate of incorporation expressly grants such rights. Gen-X's
certificate of incorporation does not grant any preemptive rights.
CUMULATIVE VOTING
The articles of incorporation of Huffy do not prohibit cumulative voting,
and therefore, under Ohio corporate law, shareholders may elect to cumulate
votes in the election of directors. The certificate of incorporation of Gen-X
does not provide for cumulative voting, and therefore, under Delaware corporate
law, stockholders are not entitled to cumulate votes in the election of
directors.
If cumulative voting is elected, a shareholder may cast as many votes in
the election of directors as the number of directors to be elected multiplied by
the number of shares held. The votes may be distributed to one nominee or among
as many nominees as the shareholder desires.
NUMBER OF DIRECTORS
The Huffy code of regulations provides that the number of directors may not
be less than four nor more than 14. The Huffy board of directors currently
consists of seven directors and is divided into two classes. The number of
directors is determined by resolution of a majority of the Huffy board of
directors or by resolution of the Huffy shareholders at any annual or special
meeting. The term of office of the members of each class is three years.
According to the Gen-X by-laws, the number of directors that constitute the
board will be not less than one nor more than seven. The number of directors is
determined by resolution of the board of directors. The current Gen-X board of
directors has six members. The directors are elected at the annual meeting of
stockholders and hold office until their successors are elected and qualified or
until death, resignation or removal.
REMOVAL OF DIRECTORS
The Huffy articles of incorporation and regulations do not address the
removal of directors, and therefore, removal is governed by Ohio corporate law.
Ohio corporate law provides that all of the directors or any individual director
may be removed from office by a majority vote of the shareholders of a
corporation, except that, unless all of the directors are removed, no individual
director may be removed if the votes of a
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sufficient number of shares are cast against removal that, if cumulatively voted
at an election of all the directors, would be sufficient to elect at least one
director. The Huffy code of regulations provides that a non-employee director
will retire from the board once he or she reaches the age of 70 and an employee
director, other than the President or Chairman of the Board, will retire as a
director upon termination of his or her employment with Huffy. A director who
has served as President and/or Chairman of the Board at the time of retirement
from active employment will not be nominated for a term of office as director,
the election for which would be held after he or she has attained the age of 70.
The board of directors has the discretion to waive the foregoing age limit and
allow a director to continue to serve as a director once he or she has reached
the age of 70.
Removal of directors is not discussed in the Gen-X certificate of
incorporation and by-laws. Accordingly, removal of directors is governed by
Delaware corporate law which provides that any director or the entire board may
be removed, with or without cause, by the holders of a majority of the shares of
a corporation entitled to vote at an election of directors.
VACANCIES
The code of regulations of Huffy and the by-laws of Gen-X both provide that
a vacancy in the board of directors may be filled by the vote of a majority of
the remaining directors. Any director so elected shall serve for the remainder
of the unexpired term.
SPECIAL MEETINGS
The code of regulations of Huffy provides that a special meeting of
shareholders may be called by the chairman of the board of directors, the
president, the vice president authorized to exercise the authority of the
president in case of the latter's absence, death or disability, the directors
acting at a meeting, a majority of the directors acting without a meeting or by
shareholders owning, in the aggregate, not less than 50% of the stock of the
corporation.
The by-laws of Gen-X provide that a special meeting of the stockholders may
be called by the chief executive officer, the board of directors or stockholders
owning at least a majority of all of the shares of Gen-X entitled to vote at the
meeting.
SHAREHOLDER ACTION BY WRITTEN CONSENT
The code of regulations of Huffy permits the taking of action by
shareholders by written consent of the holders of shares entitling them to
exercise a majority of the voting power of the corporation. The by-laws of Gen-X
provide that the stockholders may take action without a meeting if a consent in
writing sets forth the action so taken and is signed by the holders of shares
having not less than the minimum number of votes necessary to take such action
at a meeting.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS
The code of regulations of Huffy permits shareholders to nominate persons
for election to the board of directors at a meeting of shareholders if the
nominating shareholder is entitled to vote for the election of directors at the
meeting and complies with certain notice procedures. A shareholder may nominate
a director by giving timely notice in writing to the secretary of the
corporation. To be timely, a notice must be received at the principal executive
offices of the corporation not less than 50 days nor more than 90 days prior to
the meeting. However, if less than 60 days notice or prior public disclosure of
the date of the meeting is given or made to shareholders, notice by the
shareholder must be received no later than the tenth day following the day on
which notice of the date of the meeting was mailed or such public disclosure was
made.
AMENDMENTS TO CHARTER DOCUMENTS
Ohio corporate law permits shareholders of a corporation to amend the
corporation's articles of incorporation by a two-thirds vote of the outstanding
shares. The articles of incorporation of Huffy do not
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alter this provision of Ohio corporate law. The regulations of Huffy may be
amended or repealed at any meeting of shareholders by a two-thirds vote of the
shareholders or without a meeting by the unanimous written consent of all of the
shareholders of the corporation.
Under Delaware corporate law, an amendment to the certificate of
incorporation of a corporation must be approved by the board of directors and
the holders of a majority of the outstanding stock of the corporation entitled
to vote on such amendment. The certificate of incorporation of Gen-X does not
alter this requirement. According to Gen-X's certificate of incorporation, the
by-laws of Gen-X may be altered or repealed by its board of directors.
CERTAIN ANTI-TAKEOVER PROVISIONS
The following is a brief discussion of the reasons for, and the operation
and effects of, certain provisions of the Huffy articles of incorporation and
the Huffy rights agreement which may have certain anti-takeover effects. This
discussion also summarizes certain provisions of Ohio law and Delaware law which
may have anti-takeover effects for the respective companies.
The provisions described below for both Huffy and Gen-X have the general
effect of discouraging, or rendering more difficult, unfriendly takeover or
acquisition attempts. Consequently, such provisions are beneficial to current
management in an unfriendly takeover attempt but would have an adverse effect on
shareholders who might wish to participate in such a transaction. However, such
provisions are advantageous to shareholders in that they require a higher level
of shareholder participation and therefore are anticipated to increase the
discussion and understanding of the shareholders of any such proposal. The
following description of certain of these provisions is necessarily general and
reference should be made in each case to the Huffy articles of incorporation,
the Huffy rights agreement, Ohio corporate law and Delaware corporate law.
Huffy
Vote Required to Approve Certain Business Combinations. The Huffy articles
of incorporation provide for a special "supermajority" voting requirement,
subject to certain exceptions, with respect to:
- any merger or consolidation of Huffy with or into any other corporation,
person or entity;
- the sale or lease of all or substantially all of the assets of Huffy to,
or any sale or lease to Huffy or any subsidiary in exchange for
securities of Huffy of any assets (except assets having a fair market
value of less than $5,000,000) of, any other entity; or
- any reclassification or recapitalization of the outstanding shares of any
class of stock of Huffy.
Any of the above transactions must be approved by the vote of shareholders
owning at least 80% of the outstanding shares of Huffy common stock entitled to
vote in the election of directors, if the other party is the beneficial owner of
10% or more of the outstanding shares of Huffy common stock. However, there are
certain exceptions to the applicability of this supermajority voting
requirement. Specifically, the voting requirement does not apply if a majority
of the Huffy board of directors approved a definitive agreement with the other
party at a time when the other party did not beneficially own, directly or
indirectly, such 10% interest.
It also does not apply if all the following conditions are satisfied:
- the cash or fair market value of other consideration to be received per
share by Huffy shareholders in such business combination bears the same
or a greater percentage relationship to the market price of Huffy common
stock immediately prior to the announcement of such business combination
as the highest per share price which such other entity has paid for any
Huffy common stock already owned by it bears to the market price of Huffy
common stock prior to the commencement of acquisition of Huffy common
stock by such other entity; and
- the cash or fair market value of other consideration to be received per
share by Huffy shareholders in such business combination (i) is not less
than the highest per share price paid by such other entity in
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acquiring any of its holdings of Huffy common stock, and (ii) is not less
than the earnings per share of Huffy common stock for the four full
consecutive fiscal quarters immediately preceding the record date for
solicitation of votes on business combination, multiplied by the then
price/earnings multiple of such other entity as customarily computed and
reported in the financing community; and
- after such other entity has acquired 10% of the shares of Huffy common
stock and prior to the consummation of such business combination (i) such
other entity shall not have acquired any newly issued shares of stock,
directly or indirectly, from the corporation and (ii) such other entity
shall not have acquired any additional shares of Huffy common stock or
securities convertible into Huffy common stock except as a part of the
transaction which results in such other entity acquiring its 10% or
greater interest; and
- such other entity shall not have (i) received the benefit, directly or
indirectly, of any loans, advances, guarantees, pledges or other
financial assistance or tax credits provided by Huffy, or (ii) made any
major change in the corporation's business or equity capital structure
prior to consummation of such business combination.
The Huffy board of directors is expressly authorized to determine, for the
purpose of applying the supermajority voting requirement, on the basis of
information then known to it, whether:
- any other corporation, person or other entity beneficially owns 10% or
more of the outstanding shares of Huffy common stock entitled to vote in
the election of directors;
- an other entity is an affiliate or associate of another; and
- an other entity has an agreement, arrangement or understanding with
another.
Board of Directors. The classified board of directors of Huffy is intended
to provide for continuity of the board and to make it more difficult and time
consuming for a shareholder group to fully use its voting power to gain control
of the board of directors without the consent of the incumbent board of
directors of Huffy.
Rights Agreement. Under Huffy's articles of incorporation, there are
1,000,000 authorized, unissued shares of cumulative preferred stock, $1.00 par
value. Subject to certain limitations, the articles provide that the board of
directors may fix the conditions of each series of preferred stock.
Huffy entered into a rights agreement with its transfer agent in 1988, as
amended in 1991, 1994 and 2002, and the board of directors declared a dividend
of one preferred share purchase right for each outstanding share of Huffy common
stock. Upon the occurrence of certain events, preferred share purchase rights
entitle the holder to purchase at a price of $60.00, one one-hundredth of a
share of series C cumulative preferred stock, subject to adjustment. The rights
become exercisable only if a person or group acquired 15% or more of the Huffy
common stock, or announces a tender offer for 15% or more of the Huffy common
stock. Under certain circumstances all rights holders, except the person or
group holding 15% or more of the Huffy common stock, will be entitled to
purchase a number of shares of the Huffy common stock having a market value of
twice the right's current exercise price. Alternatively, if Huffy is acquired in
a merger of other business combination, after the rights become exercisable, the
rights will entitle the holder to buy a number of the acquiring company's common
shares having a market value at that time of twice each right's current exercise
price.
Further, after a person or group acquires 15% or more (but less than 50%)
of the outstanding Huffy common stock, Huffy's board of directors may exchange
part or all of the rights (other than the rights held by the acquiring person or
group) for shares of common stock. The rights expire December 9, 2004 and may be
redeemed by Huffy for $0.01 per right at any time prior to the acquisition by a
person or group of 15% or more of the Huffy common stock.
In connection with the merger, Huffy amended the rights agreement to
provide that, among other things, none of the members of the Gen-X shareholder
group will become an acquiring person, therefore triggering
79
the events described above, by the approval, execution or consummation of the
merger or by the acquisition of the shares of Huffy common stock under the
merger.
Merger Moratorium Statute. Chapter 1704 of the Ohio Revised Code, the Ohio
Merger Moratorium Statute, applies to Huffy. The Ohio Merger Moratorium Statute
governs business combinations and other transactions between an Ohio public
company and an interested shareholder. An interested shareholder is a person who
beneficially owns or has the right to vote 10% or more of a company's
outstanding shares and who acquired the shares or voting rights without the
prior approval of its board of directors.
For three years after a person becomes an interested shareholder, the
following transactions between the company and the interested shareholder or
persons related to that shareholder are prohibited:
- the sale or acquisition of any interest in assets;
- mergers and similar transactions;
- a voluntary dissolution;
- the issuance or transfer of shares or any rights to acquire shares in
excess of 5% of the company's outstanding shares;
- a transaction that increases the interested shareholder's proportionate
ownership of the company; and
- any other benefit that is not shared proportionately by all shareholders.
After three years, transactions between the company and an interested
shareholder generally require:
- approval by at least two-thirds majority shareholder vote, including a
majority of shares not owned or controlled by the interested shareholder;
or
- satisfaction of the statutory fair price requirements that apply to
shares held by persons other than the interested shareholder.
Combination or Majority Share Acquisition Act. Section 1701.83 of the Ohio
Revised Code, the Combination or Majority Share Acquisition Act, applies to
Huffy. A combination is a transaction, other than a merger or consolidation, in
which the voting shares of a corporation are issued or transferred in exchange
in whole or in part for the transfer to such corporation or its subsidiaries of
all or substantially all the assets of one or more corporations. A majority
share acquisition involves the acquisition of shares of a corporation entitling
the holder of the shares to exercise a majority of the voting power in the
election of directors of such corporation by another corporation in exchange in
whole or in part for the issuance or transfer of its voting shares.
The Combination or Majority Share Acquisition Act requires the shareholders
of an acquiring corporation to approve a combination or majority share
acquisition if:
- the articles of incorporation or regulations of the acquiring corporation
require such transaction to be authorized by its shareholders; or
- such transaction involves the issuance or transfer by the acquiring
corporation of such number of its shares as entitle the holders to
exercise one-sixth or more of the voting power of the corporation in the
election of directors immediately after the consummation of the
transaction.
The combination or majority share acquisition must be approved at a
shareholders meeting by the affirmative vote of the holders of two-thirds of the
shares of the acquiring corporation entitled to vote on such proposal or such
different proportion as the articles of incorporation provide, but not less than
a majority. Huffy's articles of incorporation do not provide for a different
proportion. Notice of the shareholders meeting must be given to all shareholders
and must be accompanied by a summary of the terms of the proposed combination or
majority share acquisition.
Ohio Control Share Acquisition Act. Section 1701.831 of the Ohio Revised
Code, the Ohio Control Share Acquisition Act, applies to Huffy.
80
The Ohio Control Share Acquisition Act prohibits a person from acquiring
specific percentages of the voting power of an Ohio company, beginning at 20%,
unless that person delivers a disclosure statement to the company. The company
must then call a shareholders meeting within ten days after delivery of the
statement, which meeting must generally be held within 50 days after delivery of
the disclosure statement.
The person may make the acquisition within 360 days if it is approved at
the shareholders meeting by a majority of:
- the voting power present; and
- the voting power present excluding interested shares which are defined as
shares held by the person, officers or inside directors of the company.
A quorum must be present at the meeting, meaning a majority of the voting
power of the company in the election of directors.
A company's articles or regulations may provide that the section does not
apply. Huffy has not opted out of Section 1701.831 of the Ohio Revised Code.
Profit Recapture Provision. Section 1707.043 of the Ohio Revised Code
applies to Huffy. This section provides that:
- if a shareholder disposes of an Ohio company's stock for a profit of more
than $250,000 within 18 months after announcing an intention to make a
proposal to acquire control of the company;
- then, the company may recover the profit unless the shareholder proves in
court that:
- its sole purpose in making the proposal was to acquire control of the
company and it had reasonable grounds to believe it would succeed;
- it did not make the proposal for the purpose of manipulating the
market, increasing its profit or decreasing its loss; and
- the proposal did not have a material adverse effect on the price or
trading volume of the shares.
Gen-X
Delaware Corporate Law. The state of Delaware has a statute designed to
provide Delaware corporations with additional protection against hostile
takeovers. The takeover statute, which is codified in Section 203 of the
Delaware General Corporate Law, is intended to discourage certain takeover
practices by impeding the ability of a hostile acquiror to engage in certain
transactions with the target. In general, Section 203 provides that a "person"
(as defined therein) who owns 15% or more of the outstanding voting stock of a
Delaware corporation, an interested shareholder, may not consummate a merger or
other business combination transaction with such corporation at any time during
the three-year period following the date such "person" became an interested
shareholder. The term "business combination" is defined broadly to cover a wide
range of corporate transactions including mergers, sales of assets, issuances of
stock, transactions with subsidiaries and the receipt of disproportionate
financial benefits. The statute exempts the following transactions from the
requirements of Section 203:
- any business combination if, prior to the date a person became an
interested shareholder, the board of directors approved either the
business combination or the transaction which resulted in the shareholder
becoming an interested shareholder;
- any business combination involving a person who acquired at least 85% of
the outstanding voting stock in the transaction in which he became an
interested shareholder, with the number of shares outstanding calculated
without regard to those shares owned by the corporation's directors who
are also officers and by certain employee stock plans;
- any business combination with an interested shareholder that is approved
by the board of directors and by a two-thirds vote of the outstanding
voting stock not owned by the interested shareholder; and
81
- certain business combinations that are proposed after the corporation had
received other acquisition proposals and which are approved or not
opposed by a majority of certain continuing members of the board of
directors.
A corporation may exempt itself from the requirements of the statute by
adopting an amendment to its certificate of incorporation or by-laws electing
not to be governed by Section 203. At the present time, the Gen-X board of
directors has not adopted such an amendment.
CONSIDERATION OF OTHER CONSTITUENCIES
Ohio corporate law provides that in determining what a director reasonably
believes to be in the best interests of the corporation, a director must
consider the interests of the corporation's shareholders. A director also may
consider the interests of the corporation's employees, suppliers, creditors and
customers, the economy of the State of Ohio and the U.S., community and societal
considerations and the long-term as well as the short-term interests of the
corporation and its shareholders, including the possibility that these interests
may be best served by the continued independence of the corporation.
The Gen-X certificate of incorporation does not contain any provision
specifically authorizing or requiring the Gen-X board of directors to consider
the interests of any constituencies of Gen-X other than its stockholders in
considering whether to approve or oppose any corporate action. Pursuant to case
law interpreting statutory provisions of Delaware law, the board of directors of
a Delaware corporation such as Gen-X generally may consider the impact of such a
transaction on Gen-X's other constituencies, provided that doing so bears some
reasonable relationship to general shareholder interests.
LIABILITY AND INDEMNIFICATION OF DIRECTORS
Huffy. Ohio corporate law provides, with limited exceptions, that a
director may be held liable in damages for acts or omissions as a director only
if it is proven by clear and convincing evidence that the director undertook the
act or omission with deliberate intent to cause injury to the corporation or
with reckless disregard for its best interests.
The indemnification provisions of Ohio corporate law require
indemnification of a director who has been successful on the merits or otherwise
in defense of any action that he or she was a party to because he or she is or
was a director of the corporation. Ohio corporate law also permits corporations
to indemnify officers and directors in certain situations. The indemnification
authorized by Ohio corporate law is not exclusive and is in addition to any
other rights granted to directors.
The Huffy code of regulations and indemnification agreements with our
officers and directors provide for indemnification of present and past
directors, officers, employees and agents to the full extent permitted by Ohio
corporate law. This indemnity covers all liabilities and expenses incurred by
that person in connection with any claim, action, suit or proceeding (whether
threatened, pending or completed and whether civil, criminal, administrative or
investigative) by reason of any act or omission to act as a director, officer,
employee or agent.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Huffy
pursuant to the foregoing provisions, Huffy has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
Gen-X. The Gen-X certificate of incorporation provides for indemnification
of past and present directors and officers and such other individuals serving at
the request of Gen-X as a director, officer, employee or agent to the full
extent permitted by the Delaware General Corporation Law, as the same exists or
may hereafter be amended. This indemnity covers all expenses, liabilities and
loss, including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement, reasonably incurred or suffered by
such person in connection therewith. However, Gen-X will indemnify such person
in connection with proceedings initiated by such person only if such proceeding
was authorized by its board of directors. This right to indemnification also
includes the right to be paid for expenses in advance of any final
82
disposition. However, such advance will only be made if such person delivers an
undertaking to Gen-X specifying that such person will repay all amounts so
advanced if it is ultimately determined that such person is not entitled to be
indemnified for such expenses. The right to indemnification is a contractual
right and shall continue to cover even those persons who have ceased to be
directors, officers, employees or agents.
If a claim is not paid in full by Gen-X within 30 days after a written
claim has been received, the claimant may at any time after such initial period
bring suit against Gen-X to recover the unpaid amount of the claim. If
successful in whole or in part in such suit, the claimant will be entitled to be
paid also for the expenses arising from prosecuting such a suit. In any suit
brought by the claimant to enforce a right of indemnification or to an
advancement of expenses, or by Gen-X to recover an advancement for expenses
pursuant to the terms of an undertaking, the burden of proving that the claimant
is not entitled to indemnification shall be borne by Gen-X.
A director is not personally liable to Gen-X for monetary damages for
breach of fiduciary duty. A director is liable, however, for:
- any breach of the director's duty of loyalty to the corporation;
- for acts or omissions not in good faith which involve intentional
misconduct or a knowing violation of the law;
- liability under Section 174 of the Delaware General Corporation Law; and
- any transaction from which a director derived an improper personal
benefit.
To the extent the Delaware General Corporation Law is amended to further
eliminate or limit personal liability of directors, then the liability of the
director shall be limited to the full extent provided by the Delaware General
Corporation Law, as amended.
83
OTHER SPECIAL MEETING PROPOSAL FOR HUFFY
AMENDMENT TO ARTICLES OF INCORPORATION OF HUFFY
On June 4, 2002, the board of directors of Huffy approved a proposal to
amend the articles of incorporation of Huffy to add Article Seventh to reduce
the vote required by shareholders to approve certain specified matters from a
two-thirds vote to a majority vote of outstanding shares. The text of the
proposed Article Seventh will read as follows:
The approval of any action on any matter at any shareholders' meeting
regarding matters set forth in Sections 1701.71(A), 1701.76(A),
1701.78(F) and 1701.83(A) of the Ohio Revised Code (as may be amended
or any successor statute thereto) shall only require the affirmative
vote of the holders of a majority of shares entitled to vote thereon.
THE HUFFY BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO ADOPT
AN AMENDMENT TO THE ARTICLES OF INCORPORATION OF HUFFY.
Adoption of this proposal will accomplish the following changes. The
articles of incorporation will be amended to reduce the vote required by
shareholders to approve the following actions from a two-thirds vote to a
majority vote of outstanding shares:
- an amendment to the articles of incorporation of Huffy pursuant to
Section 1701.71(A) of the Ohio Revised Code;
- the lease, sale or other transfer of all or substantially all of Huffy's
assets pursuant to Section 1701.76(A) of the Ohio Revised Code;
- a merger or consolidation involving Huffy pursuant to Section 1701.78(F)
of the Ohio Revised Code; and
- a majority share acquisition involving the issuance or transfer by Huffy
of at least one-sixth of its voting shares pursuant to Section 1701.83(A)
of the Ohio Revised Code.
THE HUFFY BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL. Adoption
of the proposal requires the affirmative vote of the holders of at least
two-thirds of Huffy common stock. Proxies received in response to this
solicitation will be voted in favor of the proposal unless the shareholder
otherwise instructs.
84
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF GEN-X
Under Section 13(d) of the Securities Exchange Act of 1934 and the rules
promulgated thereunder, a beneficial owner of a security is any person who
directly or indirectly has or shares voting power or investment power over such
security or who has the right to acquire beneficial ownership of such security
within 60 days. Such beneficial owner under this definition need not enjoy the
economic benefit of such securities. The following table sets forth information
with respect to the beneficial ownership of shares of Gen-X common stock, series
A 7% redeemable preferred stock, series B junior participating preferred stock
and series C non-voting preferred stock as of June 30, 2002 of each executive
officer, each director, and each stockholder known to be the beneficial owner of
5% or more of Gen-X common stock, series A 7% redeemable preferred stock, series
B junior participating preferred stock or series C non-voting preferred stock,
and all officers and directors as a group.
<Table>
<Caption>
BENEFICIAL
OWNSHIP OF PERCENT OF
BENEFICIAL SERIES B SERIES B
BENEFICIAL OWNSHIP OF PERCENT OF JUNIOR JUNIOR
OWNSHIP OF PERCENT OF SERIES A 7% SERIES A 7% PARTICIPATING PARTICIPATING
NAME AND ADDRESS OF BENEFICIAL COMMON COMMON REDEEMABLE REDEEMABLE PREFERRED PREFERRED
OWNER STOCK STOCK PREFERRED STOCK PREFERRED STOCK STOCK STOCK
- ------------------------------ ------------ ----------- --------------- --------------- ------------- ---------------
James J. Salter(1)............ 6,481,335 73% 2,970,000 100% -- --
Chief Executive Officer, (2) (2)
Director
Kenneth J. Finkelstein
Chairman, Chief
Financial Officer,
Director
DMJ Financial Inc.
Building No. 2
Chelston Park
Collymore Rock
St. Michael, Barbados
HSBC Capital (Canada) Inc. ... 740,000 12% -- -- -- --
Suite 5300 (4) (4)
Box 67 Toronto-Dominion Centre
Toronto-Dominion Bank Tower
Toronto, Ontario, M5K 1E7
Canada
John Forzani(5)............... 691,667 12% -- -- -- --
Director (6) (6)
The Forzani Group Ltd.
824 41st Avenue North East
Calgary, Alberta, T2E 3R3
Canada
John Collins.................. 446,668 8% -- -- -- --
President, Director (8) (8)
C/o Gen-X Sports Inc.
36 Dufflaw Road
Toronto, Ontario, M6A 2W1
Canada
Gerald B. Wasserman........... 25,000 * -- -- -- --
Director (9) (9)
3610 Serra Road
Malibu, CA 90265
John Douglas Morton........... 25,000 * -- -- -- --
Director (10) (10)
Gart Sports
1050 West Hampden Avenue
Englewood, CO 80110
Gary Glassman................. 41,667 * -- -- 41,667 50%
Medical Arts Building (11) (11)
170 St. George Street
Suite 1001
Toronto, Ontario M5R 2M8
<Caption>
BENEFICIAL
OWNSHIP OF
SERIES C PERCENT OF
NON-VOTING SERIES C
NAME AND ADDRESS OF BENEFICIAL PREFERRED NON-VOTING
OWNER STOCK PREFERRED STOCK
- ------------------------------ ------------ ---------------
James J. Salter(1)............ 3,390,668 69%
Chief Executive Officer, (3) (3)
Director
Kenneth J. Finkelstein
Chairman, Chief
Financial Officer,
Director
DMJ Financial Inc.
Building No. 2
Chelston Park
Collymore Rock
St. Michael, Barbados
HSBC Capital (Canada) Inc. ... 570,000 7%
Suite 5300
Box 67 Toronto-Dominion Centre
Toronto-Dominion Bank Tower
Toronto, Ontario, M5K 1E7
Canada
John Forzani(5)............... 358,334 7%
Director (7) (7)
The Forzani Group Ltd.
824 41st Avenue North East
Calgary, Alberta, T2E 3R3
Canada
John Collins.................. 183,334 3%
President, Director (8) (8)
C/o Gen-X Sports Inc.
36 Dufflaw Road
Toronto, Ontario, M6A 2W1
Canada
Gerald B. Wasserman........... -- --
Director
3610 Serra Road
Malibu, CA 90265
John Douglas Morton........... -- --
Director
Gart Sports
1050 West Hampden Avenue
Englewood, CO 80110
Gary Glassman................. -- --
Medical Arts Building
170 St. George Street
Suite 1001
Toronto, Ontario M5R 2M8
</Table>
85
<Table>
<Caption>
BENEFICIAL
OWNSHIP OF PERCENT OF
BENEFICIAL SERIES B SERIES B
BENEFICIAL OWNSHIP OF PERCENT OF JUNIOR JUNIOR
OWNSHIP OF PERCENT OF SERIES A 7% SERIES A 7% PARTICIPATING PARTICIPATING
NAME AND ADDRESS OF BENEFICIAL COMMON COMMON REDEEMABLE REDEEMABLE PREFERRED PREFERRED
OWNER STOCK STOCK PREFERRED STOCK PREFERRED STOCK STOCK STOCK
- ------------------------------ ------------ ----------- --------------- --------------- ------------- ---------------
Phil Shedletzky............... 41,667 * -- -- 41,667 50%
JJM Investments Inc. (12) (12)
Royal Bank of Canada Trust
Company (Bahamas) Limited
Royal Bank House
East Hill Street
Nassau, N.P., Bahamas
All Directors and Officers as
a Group (6 persons)......... 8,409,670 86% 2,970,000 100% -- --
(13) (13)
<Caption>
BENEFICIAL
OWNSHIP OF
SERIES C PERCENT OF
NON-VOTING SERIES C
NAME AND ADDRESS OF BENEFICIAL PREFERRED NON-VOTING
OWNER STOCK PREFERRED STOCK
- ------------------------------ ------------ ---------------
Phil Shedletzky............... -- --
JJM Investments Inc.
Royal Bank of Canada Trust
Company (Bahamas) Limited
Royal Bank House
East Hill Street
Nassau, N.P., Bahamas
All Directors and Officers as
a Group (6 persons)......... 3,932,336 68%
(14) (14)
</Table>
- ---------------
* Represents less than 1%.
(1) Shares are held of record by DMJ Financial Inc. ("DMJ"). Under the SEC's
rules, shares that are owned by DMJ are deemed to be beneficially owned by
James J. Salter and Kenneth J. Finkelstein.
(2) Represents 3,090,667 shares of common stock that are issued and
outstanding, 3,090,668 shares of common stock that are issuable upon
conversion of outstanding shares of series C non-voting preferred stock,
and 300,000 shares of common stock that may be issued upon the exercise of
stock options that are exercisable within 60 days.
(3) Represents 3,090,668 shares of series C non-voting preferred stock that are
issued and outstanding and 300,000 shares of series C non-voting preferred
stock that may be issued upon the exercise of stock options that are
exercisable within 60 days.
(4) Represents 370,000 shares of common stock that are issued and outstanding
and 370,000 shares of common stock that are issuable upon conversion of
outstanding shares of series C non-voting preferred stock.
(5) Shares are held of record by The Forzani Group, Ltd. Mr. Forzani is the
Chairman of The Forzani Group, Ltd. Under the SEC's rules, shares that are
owned by The Forzani Group, Ltd. are deemed to be beneficially owned by Mr.
Forzani. Mr. Forzani disclaims such beneficial ownership.
(6) Represents 333,334 shares of common stock that are issued and outstanding,
333,334 shares of common stock that are issuable upon conversion of
outstanding shares of series C non-voting preferred stock, and 25,000
shares of common stock that may be issued upon the exercise of stock
options that are exercisable within 60 days.
(7) Represents 333,334 shares of series C non-voting preferred stock that are
issued and outstanding and 25,000 shares of series C non-voting preferred
stock that may be issued upon the exercise of stock options that are
exercisable within 60 days.
(8) Represents 183,334 shares of common stock that are issued and outstanding,
183,334 shares of common stock that are issuable upon conversion of
outstanding shares of series C non-voting preferred stock, and 80,000
shares of common stock that may be issued upon the exercise of stock
options that are exercisable within 60 days.
(9) Represents 25,000 shares of common stock that may be issued upon the
exercise of stock options that are exercisable within 60 days.
(10) Represents 25,000 shares of common stock that may be issued upon the
exercise of stock options that are exercisable within 60 days.
(11) Represents 41,667 shares of common stock that are issuable upon conversion
of outstanding shares of series B junior participating preferred stock.
(12) Represents 41,667 shares of common stock that are issuable upon conversion
of outstanding shares of series B junior participating preferred stock.
(13) Represents 3,997,335 shares of common stock that are issued and
outstanding, 3,977,336 shares of common stock that are issuable upon
conversion of outstanding shares of series C non-voting preferred stock,
and 405,000 shares of common stock that may be issued upon the exercise of
stock options that are exercisable within 60 days.
(14) Represents 3,607,336 shares of series C non-voting preferred stock that are
issued and outstanding and 325,000 shares of series C non-voting preferred
stock that may be issued upon the exercise of stock options that are
exercisable within 60 days.
86
LEGAL MATTERS
The legality of Huffy common stock offered by this joint proxy
statement/prospectus will be passed upon for Huffy by its counsel, Dinsmore &
Shohl LLP. Certain United States and Canadian federal income tax consequences of
the merger will be passed upon by KPMG LLP.
EXPERTS
The consolidated financial statements and schedules of Huffy Corporation as
of December 31, 2001 and 2000, and for each of the years in the three-year
period ended December 31, 2001, have been incorporated by reference herein in
reliance upon the reports of KPMG LLP, independent accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The combined financial statements and schedule of Gen-X Sports Inc. for the
year ended December 31, 2001 attached hereto, have been audited by Arthur
Andersen LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such combined financial
statements and schedule are incorporated herein by reference in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
Gen-X has not been able to obtain, after reasonable efforts, the written
consent of Arthur Andersen LLP to Gen-X's naming it in this joint proxy
statement/prospectus as having certified Gen-X's combined financial statements,
as required by Section 7 of the Securities Act. Accordingly, you will not be
able to sue Arthur Andersen LLP pursuant to Section 11(a)(4) of the Securities
Act and therefore your right to recovery under that section may be limited as a
result of the lack of consent.
Representatives of KPMG LLP, independent auditors, are expected to be
present at the Huffy special meeting, where they will have the opportunity to
make a statement if they desire to do so and are expected to be available to
respond to appropriate questions.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2003 annual
meeting of shareholders must be received by Huffy by November 7, 2002 for
inclusion in Huffy's proxy statement and proxy relating to the 2003 annual
meeting of shareholders.
Huffy may use its discretion in voting proxies with respect to shareholder
proposals not included in the proxy statement for the fiscal year ended December
31, 2002, unless Huffy receives notice of such proposals prior to January 21,
2003.
WHERE YOU CAN FIND MORE INFORMATION
Huffy files annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy these reports, statements
or other information filed by Huffy at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. The SEC
filings of Huffy are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
http://www.sec.gov. You may also access Huffy's SEC filings and other
information about Huffy free of charge at Huffy's web site at
http://www.huffy.com.
Huffy has filed a registration statement on Form S-4 to register with the
SEC the Huffy common stock to be issued to Gen-X stockholders in the merger.
This joint proxy statement/prospectus is a part of that registration statement
and constitutes a proxy statement and a prospectus of Huffy, in addition to
being a proxy statement of Gen-X for the Gen-X special meeting. The registration
statement, including the attached exhibits and schedules, contains additional
relevant information about Huffy and Gen-X and Huffy common stock. As allowed by
SEC rules, this joint proxy statement/prospectus does not contain all the
information you can find in the registration statement or the exhibits to the
registration statement.
87
The SEC allows Huffy to "incorporate by reference" information into this
joint proxy statement/ prospectus. This means that Huffy can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be a part of
this joint proxy statement/prospectus, except for any information that is
superseded by information that is included directly in this joint proxy
statement/prospectus or incorporated by reference subsequent to the date of this
joint proxy statement/prospectus.
This joint proxy statement/prospectus incorporates by reference the
documents listed below that Huffy has previously filed with the SEC. They
contain important information about Huffy and its financial condition. The
following documents, which were filed by Huffy with the SEC, are incorporated by
reference into this joint proxy statement/prospectus:
- annual report of Huffy on Form 10-K for the fiscal year ended December
31, 2001, filed with the SEC on February 21, 2002;
- quarterly report of Huffy on Form 10-Q for the quarter ended March 30,
2002 filed with the SEC on May 7, 2002;
- description of the Huffy common stock contained in Registration Statement
on Form S-3, filed on August 18, 1989; and
- current report of Huffy on Forms 8-K filed with the SEC on April 25, 2002
and June 17, 2002.
In addition, Huffy incorporates by reference additional documents that it
may file with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 between the date of this joint proxy
statement/prospectus and the date of the Huffy special meeting. These documents
include periodic reports, such as annual reports on Form 10-K, quarterly reports
on Form 10-Q and current reports on Form 8-K, as well as proxy statements.
Huffy and Gen-X also incorporate by reference the following additional
documents:
- the agreement and plan of merger attached to this joint proxy
statement/prospectus as Annex A;
- the shareholder group agreement attached to this joint proxy
statement/prospectus as Annex B;
Huffy has supplied all information contained or incorporated by reference
into this joint proxy statement/prospectus relating to Huffy, and Gen-X has
supplied all the information relating to Gen-X.
You can obtain any of the documents incorporated by reference into this
joint proxy statement/prospectus through Huffy or from the SEC through the SEC's
Internet web site at the address described above. Documents incorporated by
reference are available from Huffy without charge, excluding any exhibits to
those documents, unless the exhibit is specifically incorporated by reference as
an exhibit in this joint proxy statement/prospectus.
Huffy shareholders may request a copy of information incorporated by
reference into this joint proxy statement/prospectus by contacting Huffy:
Huffy Corporation
225 Byers Road
Miamisburg, Ohio 45342
(937) 866-6251
Attn: Nancy A. Michaud
In addition, you may obtain copies of the information relating to Huffy,
without charge, by sending an e-mail to joya.murr@huffy.com.
IN ORDER FOR YOU TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF
THE HUFFY SPECIAL MEETING, HUFFY SHOULD RECEIVE YOUR REQUEST NO LATER THAN
, 2002.
88
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ABOUT THE MERGER OR OUR COMPANIES THAT IS DIFFERENT FROM, OR IN
ADDITION TO, THAT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR IN ANY
OF THE MATERIALS THAT WE HAVE INCORPORATED INTO THIS JOINT PROXY
STATEMENT/PROSPECTUS. THEREFORE, IF ANYONE DOES GIVE YOU INFORMATION OF THIS
SORT, YOU SHOULD NOT RELY ON IT. IF YOU ARE IN A JURISDICTION WHERE OFFERS TO
EXCHANGE OR SELL, OR SOLICITATIONS OF OFFERS TO EXCHANGE OR PURCHASE, THE
SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS OR THE SOLICITATION
OF PROXIES IS UNLAWFUL, OR IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL TO DIRECT
THESE TYPES OF ACTIVITIES, THEN THE OFFER PRESENTED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT EXTEND TO YOU. THE INFORMATION CONTAINED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
DOCUMENT UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE
APPLIES.
89
INDEX TO FINANCIAL STATEMENTS
OF
GEN-X SPORTS INC. AND
GEN-X SPORTS, INC.
<Table>
I. Reconciliation of Canadian GAAP to U.S. GAAP for Three Month
Periods Ended March 31, 2002 and 2001....................... FS-2
II. Reconciliation of Canadian GAAP to U.S. GAAP for Years Ended
December 31, 2001, 2000 and 1999............................ FS-4
III. Gen-X Sports Inc. and Gen-X Sports, Inc. Combined Financial
Statements for the Three Months Ended March 31, 2002 and
2000 (Unaudited)............................................ FS-6
IV. Gen-X Sports Inc. and Gen-X Sports, Inc. Combined Financial
Statements for December 31, 2001 and 2000, together with
Auditor's Report............................................ FS-19
V. Gen-X Sports Inc. and Gen-X Sports, Inc. Combined Financial
Statements for the Years Ended December 31, 2000 and 1999
(Unaudited)................................................. FS-34
</Table>
FS-1
FINANCIAL STATEMENTS OF GEN-X SPORTS INC.
RECONCILIATION OF CANADIAN GAAP TO U.S. GAAP FOR THREE MONTH PERIODS ENDED MARCH
31, 2002 AND 2001
Gen-X's and Gen-X Ontario's combined financial statements have been
prepared in accordance with Canadian GAAP, which differs, in some respects, from
U.S. GAAP. Any differences in accounting principles as they pertain to Gen-X's
and Gen-X Ontario's combined financial statements were immaterial except as
follows:
NET EARNINGS (LOSS) RECONCILIATION
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31
--------------------
2002 2001
--------- --------
Net earnings (loss) as reported............................. $(575,612) $637,254
Description of items having the effect of increasing
(decreasing) reported income:
Financing charges - accretion to Class A preferred share
stated value (a)....................................... (34,667) (17,333)
Net earnings (loss) under U.S. GAAP......................... (610,279) 619,921
</Table>
BALANCE SHEET RECONCILIATION
<Table>
<Caption>
MARCH 31
2002
-----------
Total assets per Canadian GAAP.............................. $83,789,174
Total assets per U.S. GAAP.................................. 83,789,174
-----------
Total liabilities, excluding preferred share liability, per
Canadian GAAP............................................. 59,536,610
Total liabilities, excluding preferred share liability, per
U.S. GAAP................................................. 59,536,610
Preferred share liability per Canadian GAAP................. 4,970,000
Preferred share liability per U.S. GAAP (a)................. 4,814,000
-----------
Shareholders' equity per Canadian GAAP...................... 19,282,564
Share Capital
Common shares (a)......................................... 312,000
Retained Earnings
Financing charges - accretion to Class A preferred share
stated value (a)....................................... (156,000)
-----------
Shareholders' equity per U.S. GAAP.......................... 19,438,564
===========
</Table>
- ---------------
(a) In connection with the Class A preferred shares issuance, Gen-X and Gen-X
Ontario issued 52,000 common shares of both Gen-X Sports Inc. and Gen-X
Sports, Inc. Under Canadian GAAP and prior to the adoption of the Canadian
Institute of Chartered Accountants Handbook Section 3860 "Financial
Instruments" in fiscal 2002, Gen-X and Gen-X Ontario had accounted for these
common shares as a reduction to shareholders' equity. Under U.S. GAAP Gen-X
and Gen-X Ontario have valued these common shares and Class A preferred
shares at $312,000 and $1,688,000, respectively. The accretion of the Class
A preferred shares to their redemption value of $2,000,000 is being
recognized over the expected term of the preferred shares.
Gen-X's and Gen-X Ontario's comprehensive income as determined under SFAS
No. 130 would not differ from net income as above for all periods.
There are no differences in cash used in operating, investing and financing
activities as reported and as per U.S. GAAP.
FS-2
FINANCIAL STATEMENTS OF GEN-X SPORTS INC. -- CONTINUED
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations," which requires business combinations initiated
after June 30, 2001, to be accounted for using the purchase method of accounting
and broadens the criteria for recording intangible assets separate from
goodwill. Recorded goodwill and intangible assets will be evaluated against
these new criteria and may result in intangible assets with indefinite lives
being subsumed into goodwill, or alternatively, amounts initially recorded as
goodwill may be separately identified and recognized apart from goodwill.
Effective July 1, 2001, Gen-X and Gen-X Ontario adopted the provisions of SFAS
No. 141 that apply to business combinations initiated after June 30, 2001. Gen-X
and Gen-X Ontario adopted all remaining provisions of SFAS No. 141 effective
January 1, 2002. The adoption of SFAS No. 141 did not change the method of
accounting used in previous business combinations accounted for under the
purchase method.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," that requires the use of a non-amortization approach to account for
purchased goodwill and certain intangible assets. Under a non-amortization
approach, goodwill and certain intangible assets will not be amortized as a cost
of operations, but instead would be reviewed for impairment and written down and
charged to operations only in the periods in which the recorded value of
goodwill and certain intangible assets exceed their fair values. This Statement
is effective for fiscal years beginning after December 15, 2001. Gen-X and Gen-X
Ontario have adopted SFAS No. 142 effective January 1, 2002. Transitional
impairments, if any, are not expected to be material, however, impairment
reviews may result in future periodic write-downs.
In October 2001, the FASB issued SFAS No. 144,"Accounting for the
Impairment or Disposal of Long-Lived Assets," that develops one accounting model
for long-lived assets that are to be disposed of by sale and expands the scope
of discontinued operations. This Statement is effective for fiscal years
beginning after December 15, 2001. Gen-X and Gen-X Ontario have adopted SFAS No.
144 effective January 1, 2002, and are currently evaluating the effect that
adoption of this Statement will have on its financial position, results of
operations, and cash flows. Transitional impairments, if any, are not expected
to be material, however, impairment reviews may result in future periodic
write-downs.
FS-3
FINANCIAL STATEMENTS OF GEN-X SPORTS INC. -- CONTINUED
RECONCILIATION OF CANADIAN GAAP TO U.S. GAAP FOR YEARS ENDED DECEMBER 31, 2001,
2000 AND 1999
Gen-X's and Gen-X Ontario's combined financial statements have been
prepared in accordance with Canadian GAAP, which differs, in some respects, from
U.S. GAAP. Any differences in accounting principles as they pertain to Gen-X's
and Gen-X Ontario's combined financial statements were immaterial except as
follows:
NET EARNINGS (LOSS) RECONCILIATION
<Table>
<Caption>
DECEMBER 31,
-------------------------------------
2001 2000 1999
---------- ----------- ----------
Net earnings (loss) as reported......................... $5,526,657 $10,004,074 $2,732,467
Description of items having the effect of increasing
(decreasing) reported income:
Interest expense - Series A Shares (a)................ (207,900) (145,740) --
Interest expense - Class A Shares (a)................. (450,232) -- --
Financing charges - accretion to Class A preferred
share stated value (c)............................. (121,333) -- --
Stock based charges-non employee (b).................. (58,088) -- --
---------- ----------- ----------
Net earnings (loss) under U.S. GAAP..................... 4,689,104 9,858,334 2,732,467
</Table>
BALANCE SHEET RECONCILIATION
<Table>
<Caption>
DECEMBER 31,
-------------------------
2001 2000
----------- -----------
Total assets per Canadian GAAP.............................. $94,212,467 $51,075,519
Total assets per U.S. GAAP.................................. 94,212,467 51,075,519
----------- -----------
Total liabilities, excluding preferred share liability, per
Canadian GAAP............................................. 70,010,314 34,542,835
Total liabilities, excluding preferred share liability, per
U.S. GAAP................................................. 70,010,314 34,542,835
----------- -----------
Preferred share liability per Canadian GAAP................. -- --
Preferred share liability per U.S. GAAP (a)................. 4,779,333 2,970,000
----------- -----------
Shareholders' equity per Canadian GAAP...................... 24,202,153 16,532,684
Share Capital
Reclassification of Series A redeemable preferred shares
(a).................................................... (2,970,000) (2,970,000)
Reclassification of Class A preferred shares (a).......... (2,000,000) --
Stock Options issued to non-employees (b)................. 58,088 --
Common shares (c)......................................... 312,000 --
Retained Earnings
Reclassification of Series A redeemable preferred share
dividends (a).......................................... 207,900 145,740
Reclassification of Class A preferred share dividends
(a).................................................... 450,232 --
Interest expense from Series A redeemable preferred shares
(a).................................................... (207,900) (145,740)
Interest expense from Class A preferred shares (a)........ (450,232) --
Financing charges - accretion to Class A preferred share
stated value (c)....................................... (121,333) --
Stock-based charges-non employees (b)..................... (58,088) --
----------- -----------
Shareholders' equity per U.S. GAAP.......................... 19,422,820 13,562,684
=========== ===========
</Table>
- ---------------
(a) The series A 7% redeemable preferred shares of Gen-X and class A preferred
shares of Gen-X Ontario are redeemable at the option of the holder. Under
Canadian GAAP, it is appropriate to present redeemable preferred shares as
equity as Gen-X and Gen-X Ontario are privately held. Under U.S. GAAP,
preferred shares that are redeemable at the option of the holder must be
classified outside of shareholders' equity and classified as a liability
based on the stated redemption dates. The dividends
FS-4
FINANCIAL STATEMENTS OF GEN-X SPORTS INC. -- CONTINUED
accrued and paid on the series A 7% redeemable preferred shares of Gen-X and
class A preferred shares of Gen-X Ontario have been reclassified from equity
to interest expense in determining net earnings under U.S. GAAP.
(b) Under U.S. GAAP, Gen-X and Gen-X Ontario account for their Stock Option
Plans under APB Opinion No. 25, "Accounting for Stock Issued to Employees"
under which no compensation expense has been recognized as the grant price
equaled the fair market value at date of grant. Gen-X and Gen-X Ontario also
issue options to consultants and other non-employees. Stock options issued
to consultants and other non-employees are valued under the provisions of
SFAS No. 123. The stock based compensation expense related to these options
was $58,099 for the year ended December 31, 2001 (2000, 1999 - nil).
(c) In connection with the class A preferred shares issuance, Gen-X and Gen-X
Ontario issued 52,000 common shares of both Gen-X Sports Inc. and Gen-X
Sports, Inc. Under Canadian GAAP and prior to the adoption of the Canadian
Institute of Chartered Accountants Handbook Section 3860 "Financial
Instruments" in fiscal 2002, Gen-X and Gen-X Ontario had accounted for these
common shares as a reduction to shareholders' equity. Under U.S. GAAP Gen-X
and Gen-X Ontario has valued these common shares and Class A preferred
shares at $312,000 and $1,688,000, respectively. The accretion of the Class
A preferred shares to their redemption value of $2,000,000 is being
recognized over the expected term of the preferred shares.
Gen-X's and Gen-X Ontario's comprehensive income as determined under SFAS
No. 130 would not differ from net income as above for all periods.
There are no differences in cash used in operating, investing and financing
activities as reported and as per U.S. GAAP.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations," which requires business combinations initiated
after June 30,2001, to be accounted for using the purchase method of accounting
and broadens the criteria for recording intangible assets separate from
goodwill. Recorded goodwill and intangible assets will be evaluated against
these new criteria and may result in intangible assets with indefinite lives
being subsumed into goodwill, or alternatively, amounts initially recorded as
goodwill may be separately identified and recognized apart from goodwill.
Effective July 1, 2001, Gen-X and Gen-X Ontario adopted the provisions of SFAS
No. 141 that apply to business combinations initiated after June 30, 2001. Gen-X
and Gen-X Ontario adopted all remaining provisions of SFAS No. 141 effective
January 1, 2002. The adoption of SFAS No. 141 did not change the method of
accounting used in previous business combinations accounted for under the
purchase method.
In July 2001, the FASB issued SFAS No. 142,"Goodwill and Other Intangible
Assets," that requires the use of a non-amortization approach to account for
purchased goodwill and certain intangible assets. Under a non-amortization
approach, goodwill and certain intangible assets will not be amortized as a cost
of operations, but instead would be reviewed for impairment and written down and
charged to operations only in the periods in which the recorded value of
goodwill and certain intangible assets exceed their fair values. This Statement
is effective for fiscal years beginning after December 15, 2001. Gen-X and Gen-X
Ontario have adopted SFAS No. 142 effective January 1,2002. Transitional
impairments, if any, are not expected to be material, however, impairment
reviews may result in future periodic write-downs.
In October 2001, the FASB issued SFAS No. 144,"Accounting for the
Impairment or Disposal of Long-Lived Assets," that develops one accounting model
for long-lived assets that are to be disposed of by sale and expands the scope
of discontinued operations. This Statement is effective for fiscal years
beginning after December 15, 2001. Gen-X and Gen-X Ontario have adopted SFAS No.
144 effective January 1, 2002, and are currently evaluating the effect that
adoption of this Statement will have on its financial position, results of
operations, and cash flows. Transitional impairments, if any, are not expected
to be material, however, impairment reviews may result in future periodic
write-downs.
FS-5
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
Combined Financial Statements
For the Three Months Ended March 31, 2002 and 2001
(Unaudited)
FS-6
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
COMBINED BALANCE SHEET
<Table>
<Caption>
AS AT
MARCH 31
2002
-------------
(EXPRESSED IN
U.S. DOLLARS)
UNAUDITED
ASSETS
Current assets
Accounts receivable....................................... 34,885,919
Inventories............................................... 13,265,779
Prepaid expenses and deposits............................. 1,603,568
Income taxes receivable................................... 2,798,149
-----------
52,553,415
Capital assets (Note 4)..................................... 10,781,350
Other assets................................................ 13,674,771
Goodwill (Note 3)........................................... 6,779,638
-----------
Total assets........................................... 83,789,174
-----------
LIABILITIES
Current liabilities
Bank indebtedness (Note 5)................................ 30,996,509
Accounts payable and accrued liabilities.................. 14,557,560
Current portion of long-term debt (Note 6)................ 2,975,680
48,529,749
-----------
Long-term debt (Note 6)..................................... 11,006,861
Preferred shares (Note 7)................................... 4,970,000
SHAREHOLDERS EQUITY
Share capital (Note 8).................................... 13,428,686
Retained earnings......................................... 5,853,878
-----------
19,282,564
-----------
Total liabilities and equity........................... 83,789,174
===========
</Table>
The accompanying notes are an integral part of this combined balance sheet.
FS-7
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
COMBINED STATEMENT OF INCOME
<Table>
<Caption>
FOR THE THREE MONTHS
ENDED MARCH 31
---------------------------
2002 2001
------------ ------------
(EXPRESSED IN U.S. DOLLARS)
UNAUDITED
Revenue..................................................... $26,399,262 $14,853,830
Cost of sales............................................... 19,372,314 10,123,036
----------- -----------
Gross profit................................................ 7,026,948 4,730,794
Operating expenses.......................................... 7,842,560 3,879,540
----------- -----------
Income before income taxes.................................. (815,612) 851,254
Provision for (recovery of) income taxes.................... (240,000) 214,000
Net income (loss)........................................... (575,612) 637,254
Retained earnings, beginning of period...................... 6,843,627 3,561,023
Dividends................................................... 414,137 390,807
----------- -----------
Retained earnings, end of period............................ 5,853,878 3,807,470
=========== ===========
</Table>
The accompanying notes are an integral part of this combined statement of
income.
FS-8
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
COMBINED STATEMENT OF CASH FLOWS
<Table>
<Caption>
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------
2002 2001
----------- -----------
(EXPRESSED IN US DOLLARS)
UNAUDITED
OPERATING ACTIVITIES
Net Income................................................ (575,612) 637,254
Items not affecting cash
Depreciation and amortization.......................... 399,543 130,472
----------- -----------
(176,069) 767,726
Net change in non-cash working capital...................... 12,243,754 8,614,473
----------- -----------
12,067,685 9,382,199
----------- -----------
INVESTING ACTIVITIES
(Expenditures for) proceeds of dispositions of capital
assets................................................. (219,418) (29,819)
Acquisitions.............................................. -- (16,612,000)
----------- -----------
Total investing........................................ (219,418) (16,641,819)
----------- -----------
FINANCING ACTIVITIES
Proceeds (Repayment) of long-term debt.................... (162,500) (425,680)
Proceeds from HSBC subdebt................................ -- 10,000,000
Proceeds from issuance of common shares................... -- 37
Proceeds from issuance of preferred shares................ -- 2,000,000
Proceeds from bank indebtedness........................... (11,271,630) (723,930)
Capital loan.............................................. -- (3,200,000)
Dividends................................................. (414,137) (390,807)
----------- -----------
Total financing........................................ (11,848,267) 7,259,620
----------- -----------
CASH, beginning and end of period........................... -- --
=========== ===========
</Table>
The accompanying notes are an integral part of this combined statement of cash
flows.
FS-9
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
(EXPRESSED IN US DOLLARS)
1. BASIS OF PRESENTATION
These combined financial statements include the consolidated financial
statements of Gen-X Sports Inc. (a Delaware corporation) and the financial
statements of Gen-X Sports, Inc. (an Ontario corporation) (collectively the
"Company") which are companies under common control.
These combined financial statements are prepared in U.S. dollars as the
Company conducts a majority of its business in that currency. Intercompany
transactions and balances have been eliminated in this combined statement of
income.
Gen-X Sports Inc. and Gen-X Sports, Inc. were incorporated on December 13,
1999 and September 15, 1999, respectively, for the purpose of the acquisition,
as described in Note 3. The financial statements of Gen-X Sports Inc. includes
the accounts of its wholly-owned subsidiaries: Gen-X Sports, Ltd., Gen-X Sports
AG, and Lamar Snowboards, Inc.
NATURE OF BUSINESS
The Company is a leading distributor of excess inventories of sports
equipment and accessories and specializes in acquiring excess inventories of
snowboards, snowboard boots and bindings, in-line skates, premium sunglasses and
sports goggles, skateboards, mountain bikes, wakeboards and specialty footwear
from manufacturers and other suppliers and reselling these products to sporting
goods retailers worldwide. The Company also markets its own branded products in
the snowboard and accessories business under the Lamar and Limited brand names,
as well as aluminum scooters marketed under the Company's Rage brand and under
the Company's licensed Oxygen name.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared by management in accordance
with Canadian generally accepted accounting principles ("GAAP"). The more
significant accounting policies are summarized as follows:
REVENUE RECOGNITION
The Company recognizes revenue from the sale of its products when the
products are shipped to customers.
CONCENTRATION OF CREDIT RISK
The Company performs ongoing credit evaluations of its customers. Based on
the Company's assessment of credit risk, sales in the United States and Canada
are made on open credit, CO.D., cash in advance or by post-dated cheque
International sales are generally made on a cash in advance or on a letter of
credit basis. The majority of accounts are credit insured with the Export
Development Corporation of Canada
FS-10
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- CONTINUED
MARCH 31, 2002 AND 2001
(EXPRESSED IN US DOLLARS)
INVENTORIES
Inventories are carried at the lower of cost and market using the first-in,
first-out method.
CAPITAL ASSETS DEPRECIATION
Capital assets are recorded at cost and depreciation is computed using the
straight-line method over the estimated useful lives of the assets as follows:
<Table>
Furniture and fixtures..................................... 5 years
Computer equipment......................................... 3 years
</Table>
OTHER ASSETS AMORTIZATION
Other assets include patents and trademarks, incorporation, other
organization costs and deferred financing costs. Patents and trademarks were
amortized over 40 years and effective January 1, 2002, the Company adopted
Section 3062, "Goodwill and Other Intangible Assets", and as a result, patents
and trademarks will no longer be amortized after December 31, 2001. The
Company's patents and trademarks have been assessed as having indefinite lives.
These patents and trademarks will be reviewed at least annually for impairment
and written down for impairment losses as deemed necessary. Incorporation and
other organization costs are amortized over 20 years. Deferred financing costs
are amortized, on a straight-line basis, over the expected term of the related
financing.
GOODWILL AMORTIZATION
In July 2001, the Canadian Institute of Chartered Accountants ("CICA")
issued new CICA Handbook Section 1581, "Business Combinations" and Section 3062,
"Goodwill and Other Intangible Assets".
The Company has adopted these standards effective January 1, 2002. The
impact of adopting Section 1581, is not material for the Company, as it does not
expect to reclassify any amounts from goodwill.
As a result of adopting Section 3062, goodwill will no longer be amortized
after December 31, 2001, but rather will be reviewed at least annually for
impairment and written down for impairment losses as deemed necessary.
FOREIGN CURRENCY
Accounts receivable and accounts payable denominated in foreign currencies
are translated into U.S. dollars at the exchange rate as of the balance sheet
date. Revenues, costs of sales and expenses are translated at the prevailing
exchange rate at the time the transaction occurs. Adjustments resulting from
foreign exchange transactions are recorded in the combined statement of income.
USE OF ESTIMATES
The preparation of financial statements in accordance with Canadian
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined statement of
income and accompanying notes. Actual results could differ from those estimates.
FS-11
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- CONTINUED
MARCH 31, 2002 AND 2001
(EXPRESSED IN US DOLLARS)
FINANCIAL INSTRUMENTS
The estimated fair value of accounts receivable, prepaid expenses and
deposit, income taxes receivable, bank indebtedness, capital loan, accounts
payable and accrued liabilities and current portion of long-term debt
approximate their carrying amounts in the combined financial statements due to
the relatively short period to maturity of these instruments.
The estimated fair value of long-term debt approximates its carrying amount
in the combined financial statements as its stated interest rate approximates
market interest rates.
3. ACQUISITION
(i) On October 15, 2001, Gen-X Sports Inc. purchased 100 percent of the
outstanding shares of First Team Sports, Inc., a public company in the United
States, and the owner of the Ultra Wheels and Hespeler Hockey brands, for total
cash consideration of approximately $10,645,000. The allocation of the purchase
consideration is described below. The purchase transaction was accounted for
using the purchase method of accounting as follows:
<Table>
<Caption>
2001
-----------
Assets acquired at fair market value
Cash........................................................ $ 92,000
Accounts receivable......................................... 7,077,000
Inventory................................................... 1,847,000
Prepaids.................................................... 689,000
Capital assets.............................................. 8,809,000
Income taxes recoverable.................................... 2,250,000
Other assets................................................ 1,100,000
-----------
21,864,000
-----------
Less: Liabilities assumed
Bank indebtedness........................................... 950,000
Accounts payable and accrued liabilities.................... 5,129,000
Long-term debt.............................................. 4,031,000
-----------
10,119,000
-----------
Net assets acquired......................................... $11,745,000
===========
</Table>
The consideration for the acquisition of First Team Sports, Inc. is
represented as follows:
<Table>
<Caption>
TOTAL
-----------
(a) Cash from normal working capital........................ $10,645,000
(b) Issuance of 8,333 common shares and 98,039 options to
purchase common shares of Gen-X Sports Inc.............. 1,100,000
(c) Issuance of 103,000 options to purchase common shares of
Gen-X Sports Inc. at an exercise price of $12.00........ --
-----------
$11,745,000
===========
</Table>
FS-12
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- CONTINUED
MARCH 31, 2002 AND 2001
(EXPRESSED IN US DOLLARS)
(ii) Effective September 13, 2001, Gen-X Sports Inc. purchased the assets
of the Volant Ski Company, the owner of the Volant snow ski brand, for total
cash consideration of approximately $1,000,000. The allocation of the purchase
consideration is described below. The purchase transaction was accounted for
using the purchase method of accounting as follows:
<Table>
<Caption>
2001
----------
Assets acquired at fair market value
Inventory................................................... $ 495,000
Capital assets.............................................. 505,000
----------
$1,000,000
==========
</Table>
The consideration for the acquisition of the assets of the Volant Ski
Company is represented as follows:
<Table>
<Caption>
TOTAL
----------
Cash from normal working capital............................ $1,000,000
==========
</Table>
(iii) Effective March 12, 2001, Gen-X Sports Inc. purchased the assets of
the Teardrop Golf Company, the owner of the Tommy Armour, Ram and Teardrop
Putter golf brands, for total cash consideration of approximately $16,612,000.
The allocation of the purchase consideration is described below. The purchase
transaction was accounted for using the purchase method of accounting as
follows:
<Table>
<Caption>
2001
-----------
Assets acquired at fair market value
Accounts receivable......................................... $ 2,511,000
Inventory................................................... 4,751,000
Capital assets.............................................. 500,000
Other assets................................................ 8,850,000
-----------
$16,612,000
===========
</Table>
The consideration for the acquisition of the assets of the Teardrop Golf
Company is represented as follows:
<Table>
<Caption>
TOTAL
-----------
(a) Cash in the amount of $10,000,000 representing proceeds
from a note payable from bank (see Note 7).............. $10,000,000
(b) Cash in the amount of $2,000,000 representing proceeds
from issuance of Gen-X Sports, Inc. Class A preferred
shares (see Note 8)..................................... 2,000,000
(c) Cash from normal working capital........................ 4,612,000
-----------
$16,612,000
===========
</Table>
FS-13
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- CONTINUED
MARCH 31, 2002 AND 2001
(EXPRESSED IN US DOLLARS)
4. CAPITAL ASSETS
<Table>
<Caption>
2002
----------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
----------- ------------ -----------
Furniture and Fixtures........................ $ 1,844,466 $ 654,108 $ 1,190,358
Computer Equipment............................ 715,887 258,507 457,380
Machinery & Equipment......................... 771,795 51,385 720,410
Moulds........................................ 93,218 32,255 60,963
Leasehold Improvements........................ 413,732 22,873 390,859
Building...................................... 6,500,000 41,667 6,458,333
Land.......................................... 1,500,000 -- 1,500,000
Vehicles...................................... 3,324 277 3,047
----------- ---------- -----------
11,842,422 1,061,072 10,781,350
=========== ========== ===========
</Table>
5. BANK INDEBTEDNESS
Gen-X Sports, Inc. has a demand revolving line of credit available with the
HSBC Bank Canada ("the Bank") in the amount of CDN $55,000,000 subject to
certain margin requirements. The line of credit is available to Gen-X Sports,
Inc., and Gen-X Sports Inc. and each of its wholly owned subsidiaries. As of
March 31, 2002, $23,490,995 of this facility was utilized by the Company. The
line is available in either U.S. or Canadian dollar currency by way of either
direct advances, bankers acceptances or by import letters of credit. The line
bears interest primarily at either the U.S. base rate or the Bank's prime rate
of interest plus one-half percent.
Gen-X Sports, Inc. has a demand revolving line of credit with HSBC Bank USA
(the "Bank") in the amount of US $9,000,000 subject to certain margin
requirements. The line of credit is available to Gen-X Sports, Inc. As of March
31, 2002, $7,505,514 of this facility was utilized by the Company. The line is
available in U.S. Dollar currency by way of direct advances, and includes a US
$5,000,000 Sub Limit for issuance of Documentary trade Letters of credit. The
line bears interest primarily at the Bank's prime rate of interest plus
three-quarters percent or LIBOR plus 1.90% (up to 180 days).
The credit facilities are secured by:
(a) general security agreement covering all of the Company's assets;
(b) unlimited guarantees from all companies in the group;
(c) subordination agreements relating to other long-term debt;
(d) general assignment of book debts;
(e) assignment of accounts receivable credit and general insurance.
As at March 31, 2002, the Company had an obligation under import letters of
credit in the amount of $300,678.
FS-14
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- CONTINUED
MARCH 31, 2002 AND 2001
(EXPRESSED IN US DOLLARS)
6. LONG-TERM DEBT
<Table>
<Caption>
2002
----------
Loans payable to Ride, Inc., bearing interest at U.S. prime
rate per annum, secured by a pledge of the shares of Gen-X
Sports, Inc., and Gen-X Sports Ltd. The loan is repayable
in equal quarterly principal installments in the amount of
$100,000 plus accrued interest............................ 400,000
Promissory notes payable to former Lamar shareholders,
bearing interest at 6% per annum, $400,000 is payable in
fiscal 2001 and $200,000 thereafter in each year through
to 2003 plus accrued interest............................. 400,000
Promissory notes payable to former Lamar shareholders,
bearing interest at 6% per annum, $251,361 is payable in
fiscal 2001 and $125,680 thereafter in each year through
to 2003 plus accrued interest............................. 251,360
Subordinated note payable to the bank, bearing interest at
banker's acceptance plus 125 basis points plus 9% per
annum, secured by third charge on all assets of the
Company. The note is repayable $2,000,000 on each of
February 15, 2002 and 2003 and the remainder on May 15,
2003...................................................... 8,000,000
Mortgage note payable to bank bearing interest at U.S. prime
rate per annum, due in monthly installments of $20,833
plus interest through October 2006, secured by land and
building.................................................. 4,931,181
----------
13,982,541
Less: Current portion of long-term debt..................... 2,975,680
----------
11,006,861
==========
</Table>
Long-term debt is repayable as follows:
<Table>
<Caption>
2002
-----------
2002................................................... $ 813,180
2003................................................... 8,675,680
2004................................................... 250,000
2005................................................... 250,000
2006................................................... 3,993,681
-----------
13,982,541
===========
</Table>
FS-15
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- CONTINUED
MARCH 31, 2002 AND 2001
(EXPRESSED IN US DOLLARS)
7. PREFERRED SHARES
<Table>
<Caption>
2002
---------
Authorized
Gen-X Sports Inc.
3,960,000 Series A redeemable preferred shares
Gen-X Sports, Inc.
Unlimited number of Class A preference shares
Issued and outstanding
Gen-X Sports Inc.
2,970,000 Series A redeemable preferred shares............ 2,970,000
Gen-X Sports, Inc.
2,000,000 Class A preference shares....................... 2,000,000
---------
4,970,000
---------
</Table>
Preferred shares are represented by redeemable, retractable Series A
preferred shares of Gen-X Sports Inc., and Class A preferred shares of Gen-X
Sports, Inc. as described following:
(i) The Series A redeemable preferred ("Series A Shares") are non-voting,
entitled to a cumulative dividend at a rate of 7%, and non-participating except
to the extent of this aggregate redemption value of $2,970,000 plus any accrued
unpaid dividends. Dividends are payable on the 15th day of April, July, October
and January of each year.
Any or all of the Series A Shares are redeemable at any time at the
Company's option at a redemption price of $1.00 per share plus accrued interest.
In addition, the Series A Shares have a mandatory redemption requirement, at a
redemption price of $1.00 per share and are required to be redeemed as follows:
<Table>
<Caption>
2002
----------
May 1, 2002................................................. $1,980,000
May 1, 2003................................................. 990,000
----------
$2,970,000
----------
</Table>
On May 1, 2001, Gen-X Sports Inc. was required to redeem 990,000 shares of
the Series A Shares. The shareholders of the Series A Shares have elected to
defer the 2001 retraction to any subsequent year.
(ii) The Class A preferred shares ("Class A" Shares) of Gen-X Sports, Inc.
are voting, entitled to a cumulative preferential dividend at a rate of Bankers'
Acceptance rate plus 10.25%, with a redemption value of $2,000,000 plus any
accrued unpaid dividends. Dividends are paid on a monthly basis.
FS-16
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- CONTINUED
MARCH 31, 2002 AND 2001
(EXPRESSED IN US DOLLARS)
8. SHARE CAPITAL
<Table>
<Caption>
2002
----------
Authorized
Gen-X Sports Inc.
250,001 Series B Junior participating preferred
shares................................................
50,000,000 Common shares...............................
Gen-X Sports, Inc.
Unlimited number of common shares......................
Issued and outstanding
Gen-X Sports Inc.
83,334 Series B Junior participating preferred
shares................................................ --
5,477,363 Series C non-voting preferred shares......... 11,188,193
5,394,029 Common shares................................ 1,240,160
Gen-X Sports, Inc.
5,477,362 Common shares................................ 333
----------
12,428,686
Options granted (Gen-X Sports Inc.)......................... 1,000,000
----------
13,428,686
----------
</Table>
- ---------------
(i) The holders of the common shares in Gen-X Sports Inc. are entitled to a
5% per annum cash dividend based on a share value of $6 for the issued and
outstanding common shares.
(ii) The Series B Junior participating preferred shares ("Series B Shares")
are convertible into common shares on a one-to-one basis at any time at the
option of the holders. Each of the Series B Shares have voting rights equal to
the number of common shares they are convertible into. In the event that
dividends are paid to the holders of common shares, a dividend is payable to the
holders of the Series B Shares equal to the dividends that would have been paid
in respect of common shares into which the Series B Shares are convertible.
(iii) The Series C non-voting preferred shares ("Series C Shares") are
entitled to non-cumulative dividends, if declared. On February 15, 2001, Gen-X
Sports Inc. declared a stock dividend whereby each holder of common shares and
Series B Shares received one Series C Share. This transaction resulted in the
equity value of the common shares and Series B Shares being transferred to the
Series C Shares issued.
(iv) On February 15, 2001, Gen-X Sports Inc. issued 260,000 common shares
and 110,000 Series C Shares to HSBC Capital (Canada) Inc. ("HSBC") as
consideration for the provision of a credit enhancement guarantee in favour of
the Bank to a maximum principal amount of $10,000,000 effectively guaranteeing
the additional capital loan undertaken by Gen-X Sports, Inc. from the Bank under
the terms of the bank facility as described in Note 6. The common shares were
valued at $3.80 per share by the Company and recorded as other assets. HSBC
would have no rights on these additional shares, including the entitlement of
dividends, until February 15, 2002. Additionally, Gen-X Sports Inc. issued
52,000 common shares in consideration of subscription for the 2,000,000 Class A
preferred shares in Gen-X Sports, Inc. and a further 8,333 common shares as
consideration for the purchase of First Team Sports, Inc. shares (Note 3).
FS-17
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- CONTINUED
MARCH 31, 2002 AND 2001
(EXPRESSED IN US DOLLARS)
(v) The Class A preferred shares ("Class A Shares") of Gen-X Sports, Inc.
are voting, entitled to a cumulative preferential dividend at a rate of Bankers'
Acceptance rate plus 10.25%, with a redemption value of $2,000,000 plus any
accrued unpaid dividends. Dividends are paid on a monthly basis.
(vi) Gen-X Sports, Inc. issued 52,000 common shares in consideration of
subscription for the 2,000,000 Class A Shares.
(vii) During the year, dividends were declared and paid in the amount of
$414,137 to the holders of the issued and outstanding common shares and Series A
Shares of Gen-X Sports Inc.
STOCK OPTIONS
During 2001, a total of 1,199,289 options were issued and remain
outstanding at year end as follows:
(a) 953,000 shares at an exercise price of $6.00
(b) 148,250 shares at an exercise price of $12.00
(c) 98,039 shares at an exercise price of $1.80
These options vest either over a three or four year period. Of the
1,199,289 shares, 125,039 are fully vested.
9. COMMITMENTS
The Company is committed under certain operating leases. Total future
minimum lease payments related to these operating leases are approximately as
follows:
<Table>
<Caption>
2002
----------
2002.................................................... $ 390,000
2003.................................................... 423,000
2004.................................................... 423,000
2005.................................................... 423,000
2006.................................................... 427,000
2007 and thereafter..................................... 1,050,000
----------
3,136,000
==========
</Table>
FS-18
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
Combined Financial Statements
December 31, 2001 and 2000
Together With Auditors' Report
(Expressed in U.S. dollars)
FS-19
AUDITORS' REPORT
To the Shareholders of
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.,
We have audited the combined balance sheets of GEN-X SPORTS INC. AND GEN-X
SPORTS, INC. as at December 31, 2001 and 2000 and the combined statements of
income and retained earnings and cash flows for the year ended December 31, 2001
and for the period from May 26, 2000 (date of acquisition) to December 31, 2000.
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 in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these combined financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2001
and 2000 and the results of its operations and its cash flows for the year ended
December 31, 2001 and for the period from May 26, 2000 (date of acquisition) to
December 31, 2000 in accordance with Canadian generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Toronto, Canada
March 15, 2002
FS-20
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
COMBINED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31,
---------------------------
2001 2000
------------ ------------
(EXPRESSED IN U.S. DOLLARS)
ASSETS
Current assets
Accounts receivable....................................... $49,834,600 $39,161,807
Inventories............................................... 11,338,861 2,722,688
Prepaid expenses and deposit.............................. 1,384,868 728,862
Income taxes recoverable.................................. 2,478,416 678,680
----------- -----------
65,036,745 43,292,037
Capital assets (Note 4)..................................... 10,807,242 430,612
Other assets (Note 5)....................................... 11,588,842 396,731
Goodwill (Note 3)........................................... 6,779,638 6,956,139
----------- -----------
94,212,467 51,075,519
----------- -----------
LIABILITIES
Current liabilities
Bank indebtedness (Note 6)................................ 40,268,138 20,286,961
Capital loan (Note 3)..................................... -- 3,200,000
Accounts payable and accrued liabilities.................. 13,597,135 8,953,153
Current portion of long-term debt (Note 7)................ 2,975,680 1,051,361
----------- -----------
56,840,953 33,491,475
----------- -----------
Long-term debt (Note 7)..................................... 13,169,361 1,051,360
----------- -----------
SHAREHOLDERS' EQUITY
Share capital (Notes 3 and 8)............................. 17,358,526 12,970,489
Retained earnings......................................... 6,843,627 3,562,195
----------- -----------
24,202,153 16,532,684
----------- -----------
94,212,467 51,075,519
=========== ===========
</Table>
Approved on behalf of the Board:
/s/ , Director
- ----------------------------
/s/ , Director
- ----------------------------
The accompanying notes are an integral part of these combined financial
statements.
FS-21
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<Table>
<Caption>
FOR THE PERIOD FROM
YEAR ENDED MAY 26, 2000 TO
DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- -----------------
(EXPRESSED IN U.S. DOLLARS)
Revenue..................................................... $107,467,926 $76,911,183
Cost of sales............................................... 79,745,036 63,198,115
------------ -----------
Gross profit................................................ 27,722,890 13,713,068
Operating expenses (Note 9)................................. 21,242,233 9,597,509
------------ -----------
Income before income taxes.................................. 6,480,657 4,115,559
Provision for (recovery of) income taxes.................... 954,000 (466,107)
------------ -----------
Net income.................................................. 5,526,657 4,581,666
Retained earnings, beginning of period...................... 3,562,195 --
Dividends (Note 8).......................................... 2,245,225 1,019,471
------------ -----------
Retained earnings, end of period............................ 6,843,627 3,562,195
============ ===========
</Table>
The accompanying notes are an integral part of these combined financial
statements.
FS-22
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
FOR THE PERIOD FROM
YEAR ENDED MAY 26, 2000 TO
DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- -----------------
(EXPRESSED IN U.S. DOLLARS)
OPERATING ACTIVITIES
Net income................................................ $ 5,526,657 $ 4,581,666
Item not affecting cash
Depreciation and amortization.......................... 1,050,275 215,906
------------ ------------
6,576,932 4,797,572
Net change in non-cash working capital items................ (3,384,381) (3,600,787)
------------ ------------
3,192,551 1,196,785
------------ ------------
INVESTING ACTIVITIES
Net purchases of capital assets........................... (933,860) --
Proceeds on sale of capital assets, net................... -- 318,167
Acquisitions (Note 3)..................................... (28,257,000) (16,170,000)
------------ ------------
(29,190,860) (15,851,833)
------------ ------------
FINANCING ACTIVITIES
Net proceeds from bank indebtedness....................... 19,132,177 --
Proceeds from issuance of long-term debt.................. 10,962,681 --
Repayment of long-term debt............................... (951,361) (495,970)
Proceeds from issuance of common shares................... 300,026 9,500,485
Proceeds from issuance of preferred shares................ 2,000,011 3,470,004
Capital loan.............................................. (3,200,000) 3,200,000
Dividends................................................. (2,245,225) (1,019,471)
------------ ------------
25,998,309 14,655,048
------------ ------------
CASH, beginning and end of period........................... -- --
------------ ------------
Cash flows include the following elements:
Cash paid for income taxes.................................. 504,000 227,000
Cash paid for interest...................................... 2,985,000 1,058,000
</Table>
The accompanying notes are an integral part of these combined financial
statements.
FS-23
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These combined financial statements include the consolidated financial
statements of Gen-X Sports Inc. (a Delaware corporation) and the financial
statements of Gen-X Sports, Inc. (an Ontario corporation) (collectively the
"Company"). These combined financial statements include the operations of the
Company for the year ended December 31, 2001 and for the period from May 26,
2000 (date of acquisition as described in Note 3) to December 31, 2000 and have
been prepared in connection with the banking agreement, as described in Note 6.
These combined financial statements are prepared in U.S. dollars as the Company
conducts a majority of its business in that currency. Intercompany transactions
and balances have been eliminated in these combined financial statements.
Gen-X Sports Inc. and Gen-X Sports, Inc. were incorporated on December 13,
1999 and September 15, 1999, respectively, for the purpose of the acquisition,
as described in Note 3. The financial statements of Gen-X Sports Inc. include
the accounts of its wholly-owned subsidiaries: Gen-X Sports Ltd., Gen-X Sports
AG, Lamar Snowboards, Inc. ("Lamar"), Tommy Armour Golf Company and First Team
Sports, Inc.
NATURE OF BUSINESS
The Company markets its own branded products in the golf, in-line skate,
ice hockey, snowboard and accessories business under the Tommy Armour, Teardrop,
Ram, Ultra Wheels, Hespeler, Lamar and Limited brand names, as well as aluminum
scooters marketed under the Company's Rage brand and under the Company's
licensed Oxygen name.
The Company is also a leading distributor of excess inventories of sports
equipment and accessories and specializes in acquiring excess inventories of
snowboards, snowboard boots and bindings, in-line skates, premium sunglasses and
sports goggles, skateboards, mountain bikes, wakeboards and specialty footwear
from manufacturers and other suppliers and reselling these products to sporting
goods retailers worldwide.
2. SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are carried at the lower of cost and net realizable value.
CAPITAL ASSETS
Capital assets are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as follows:
<Table>
Building................................................. 40 years
Leasehold improvements................................... Term of the lease
Production equipment..................................... 1 to 10 years
Furniture and fixtures................................... 5 years
Computer equipment....................................... 3 years
</Table>
FS-24
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
OTHER ASSETS
Other assets include patents and trademarks, incorporation and other
organization costs. Patents and trademarks are amortized over 40 years.
Incorporation and other organization costs are amortized over 20 years.
GOODWILL
Goodwill is amortized using the straight-line method over 40 years.
Goodwill is written down when there has been a permanent impairment in the value
of unamortized goodwill. A permanent impairment in goodwill is determined by
comparison of the carrying value of unamortized goodwill with undiscounted
future earnings of the related business.
REVENUE RECOGNITION
The Company recognizes revenue from the sale of its products when the
products are shipped to customers.
CONCENTRATION OF CREDIT RISK
The Company performs ongoing credit evaluations of its customers. Based on
the Company's assessment of credit risk, sales in the United States and Canada
are made on open credit, C.O.D., cash in advance or by post-dated cheque.
International sales are generally made on a cash in advance or on a letter of
credit basis. The majority of accounts are credit insured with the Export
Development Corporation of Canada.
FOREIGN CURRENCY
Assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at the exchange rate as of the balance sheet date.
Transactions denominated in foreign currencies have been translated into U.S.
dollars at the rate of exchange prevailing at the time of the transaction.
Adjustments resulting from foreign exchange transactions are recorded in the
combined statements of income.
USE OF ESTIMATES
The preparation of financial statements in accordance with Canadian
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The estimated fair values of accounts receivable, bank indebtedness and
accounts payable and accrued liabilities approximate their carrying amounts in
the combined financial statements due to the relatively short period to maturity
of these instruments.
The estimated fair value of long-term debt approximates its carrying amount
in the combined financial statements as its stated interest rate approximates
market interest rates.
3. ACQUISITIONS
(i) On October 15, 2001, Gen-X Sports Inc. purchased 100 percent of the
outstanding shares of First Team Sports, Inc., a public company in the United
States, and the owner of the Ultra Wheels and Hespeler Hockey brands, for total
cash consideration of approximately $10,645,000. The allocation of the purchase
FS-25
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
consideration is described below. The purchase transaction was accounted for
using the purchase method of accounting as follows:
<Table>
<Caption>
2001
-----------
ASSETS ACQUIRED AT FAIR MARKET VALUE
Cash...................................................... $ 92,000
Accounts receivable....................................... 7,077,000
Inventory................................................. 1,847,000
Prepaids.................................................. 689,000
Capital assets............................................ 8,809,000
Income taxes recoverable.................................. 2,250,000
Other assets.............................................. 1,100,000
-----------
21,864,000
-----------
LESS: LIABILITIES ASSUMED
Bank indebtedness......................................... 959,000
Accounts payable and accrued liabilities.................. 5,129,000
Long-term debt............................................ 4,031,000
-----------
10,119,000
-----------
Net assets acquired......................................... 11,745,000
===========
</Table>
The consideration for the acquisition of First Team Sports, Inc. is
represented as follows:
<Table>
<Caption>
TOTAL
-----------
(a) Cash from normal working capital........................ $10,645,000
(b) Issuance of 8,333 common shares and 98,039 options to
purchase common shares of Gen-X Sports Inc.............. 1,100,00
(c) Issuance of 103,000 options to purchase common shares of
Gen-X Sports Inc. at an exercise price of $12.00........ --
11,745,000
===========
</Table>
(ii) Effective September 13, 2001, Gen-X Sports Inc. purchased the assets
of the Volant Ski Company, the owner of the Volant snow ski brand, for total
cash consideration of approximately $1,000,000. The allocation of the purchase
consideration is described below. The purchase transaction was accounted for
using the purchase method of accounting as follows:
<Table>
<Caption>
2001
----------
Assets acquired at fair market value
Inventory................................................. $ 495,000
Capital assets............................................ 505,000
----------
1,000,000
==========
</Table>
The consideration for the acquisition of the assets of the Volant Ski
Company is represented as follows:
<Table>
<Caption>
TOTAL
----------
Cash from normal working capital............................ $1,000,000
==========
</Table>
FS-26
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(iii) Effective March 12, 2001, Gen-X Sports Inc. purchased the assets of
the Teardrop Golf Company, the owner of the Tommy Armour, Ram and Teardrop
Putter golf brands, for total cash consideration of approximately $16,612,000.
The allocation of the purchase consideration is described below. The purchase
transaction was accounted for using the purchase method of accounting as
follows:
<Table>
<Caption>
2001
-----------
Assets acquired at fair market value
Accounts receivable....................................... $ 2,511,000
Inventory................................................. 4,751,000
Capital assets............................................ 500,000
Other assets.............................................. 8,850,000
-----------
16,612,000
===========
</Table>
The consideration for the acquisition of the assets of the Teardrop Golf
Company is represented as follows:
<Table>
<Caption>
TOTAL
-----------
(a) Cash in the amount of $10,000,000 representing proceeds
from a note payable from bank (see Note 7).............. $10,000,000
(b) Cash in the amount of $2,000,000 representing proceeds
from issuance of Gen-X Sports, Inc. Class A preferred
shares (See Note 8)..................................... 2,000,000
(c) Cash from normal working capital........................ 4,612,000
-----------
16,612,000
===========
</Table>
(iv) Effective May 26, 2000, the Company purchased the share capital of
each of Gen-X Holdings, Inc. and Gen-X Equipment Inc., (collectively the
"Subsidiaries") from Global Sports, Inc. ("Global"), a public company in the
United States, for total consideration of $16,170,000. Consideration was
represented by total cash of $13,200,000 and the assumption of certain notes
payable in the amount of $2,970,000 which were converted to redeemable
preference shares concurrent with the acquisition transaction. The allocation of
the
FS-27
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
purchase consideration for each of the purchased Subsidiaries is described
below. The purchase transaction was accounted for using the purchase method of
accounting as follows:
<Table>
<Caption>
2000
-----------
Assets acquired at fair market value
Accounts receivable....................................... $27,475,112
Inventories............................................... 1,371,957
Prepaid expenses and other assets......................... 500,911
Capital assets............................................ 860,797
-----------
30,208,777
-----------
Less: Liabilities assumed
Bank indebtedness......................................... 9,801,691
Accounts payable and accrued liabilities.................. 8,698,422
Long-term debt............................................ 2,598,691
-----------
21,098,804
-----------
Net assets acquired......................................... 9,109,973
===========
Consideration............................................... 16,170,000
Net assets acquired......................................... 9,109,973
-----------
Goodwill acquired........................................... 7,060,027
===========
</Table>
<Table>
<Caption>
2001 2000
---------- ----------
Goodwill.................................................... $7,060,027 $7,060,027
Accumulated amortization.................................... (280,389) (103,888)
---------- ----------
6,779,638 6,956,139
========== ==========
</Table>
During the year, the Company amortized goodwill relating to this
acquisition in the amount of $176,501 (2000 -- $103,888).
(iv) The consideration for the acquisition of Gen-X Equipment Inc. by Gen-X
Sports, Inc. and Gen-X Holdings, Inc. by Gen-X Sports Inc. is represented as
follows:
<Table>
<Caption>
GEN-X GEN-X
EQUIPMENT INC. HOLDINGS, INC. TOTAL
-------------- -------------- -----------
(a) Cash in the amount of $10,000,000
representing proceeds from the issuance
of common shares and Series B preferred
shares of the Company.................... $ 400,000 $ 9,600,000 $10,000,000
(b) Cash in the amount of $3,200,000
representing proceeds from a capital loan
with the Bank, restricted for the purpose
of purchasing the issued and outstanding
share capital of the Subsidiaries........ 3,200,000 -- 3,200,000
(c) The assumption of Global notes payable in
the amount of $2,970,000, which were
converted to Series A redeemable
preferred shares concurrent with the
purchase transaction..................... -- 2,970,000 2,970,000
---------- ----------- -----------
3,600,000 12,570,000 16,170,000
========== =========== ===========
</Table>
FS-28
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
4. CAPITAL ASSETS
<Table>
<Caption>
2001
----------------------------------------
ACCUMULATED
DEPRECIATION
AND NET BOOK
COST AMORTIZATION VALUE
----------- ------------ -----------
Land........................................... $ 1,500,000 $ -- $ 1,500,000
Building....................................... 6,500,000 16,667 6,483,333
Leasehold improvements......................... 407,584 12,683 394,901
Production equipment........................... 934,993 32,126 902,867
Furniture and fixtures......................... 1,659,820 597,847 1,061,973
Computer equipment............................. 670,390 206,222 464,168
----------- -------- -----------
11,672,787 865,545 10,807,242
=========== ======== ===========
</Table>
<Table>
<Caption>
2000
----------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
-------- ------------ --------
Furniture and fixtures............................. $597,370 $416,928 $180,442
Computer equipment................................. 324,234 74,064 250,170
-------- -------- --------
921,604 490,992 430,612
======== ======== ========
</Table>
5. OTHER ASSETS
<Table>
<Caption>
2001
----------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
----------- ------------ -----------
Patents and trademarks........................ $10,174,408 $160,278 $10,014,130
Other......................................... 1,925,790 351,078 1,574,712
----------- -------- -----------
12,100,198 511,356 11,588,842
=========== ======== ===========
</Table>
<Table>
<Caption>
2000
----------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
-------- ------------ --------
Patents and trademarks.............................. $ 80,419 $ 5,251 $ 75,168
Other............................................... 328,448 6,885 321,563
-------- ------- --------
408,867 12,136 396,731
======== ======= ========
</Table>
6. BANK INDEBTEDNESS
Gen-X Sports, Inc. has a demand revolving line of credit with the HSBC Bank
Canada ("the Bank") in the amount of CDN $55,000,000 subject to certain margin
requirements. The line of credit is available to Gen-X Sports, Inc., and Gen-X
Sports Inc. and each of its wholly owned subsidiaries. As of December 31, 2001,
$29,000,000 (2000 -- $20,000,000) of this facility was utilized by the Company.
The line is available in either U.S. or Canadian dollar currency by way of
either direct advances, bankers acceptances or by import letters of credit. The
line bears interest primarily at either the U.S. base rate or the Bank's prime
rate of interest plus one-half percent.
FS-29
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Gen-X Sports, Inc. has a demand revolving line of credit with the HSBC Bank
USA (the "Bank") in the amount of US $9,000,000 subject to certain margin
requirements. The line of credit is available to Gen-X Sports Inc. As of
December 31, 2001, $8,975,514 (2000 -- Nil) of this facility was utilized by the
Company. The line is available in U.S. dollar currency by way of direct
advances, and includes a US $5,000,000 Sub Limit for issuance of Documentary
Trade Letters of Credit. The line bears interest primarily at the Bank's prime
rate of interest plus three-quarters percent or LIBOR plus 1.90% (up to 180
days).
The credit facilities are secured by:
(a) general security agreement covering all of the Company's assets;
(b) unlimited guarantees from all companies in the group;
(c) subordination agreements relating to other long-term debt;
(d) general assignment of book debts;
(e) assignment of accounts receivable credit and general insurance.
As at December 31, 2001, the Company had an obligation under import letters
of credit in the amount of $2,099,733 (2000 -- $4,418,467).
7. LONG-TERM DEBT
<Table>
<Caption>
2001 2000
----------- -----------
Mortgage note payable to bank bearing interest at U.S.
prime rate per annum, due in monthly installments of
$20,833 plus interest through October 2006, secured by
land and building........................................ $ 4,993,681 $ --
Subordinated note payable to bank, bearing interest at
banker's acceptance plus 125 basis points plus 9% per
annum, secured by third charge on all of the assets of
the Company. The note is repayable $2,000,000 on each of
February 15, 2002 and 2003 and the remainder on May 15,
2003..................................................... 10,000,000 --
Loans payable to Ride, Inc., bearing interest at U.S. prime
rate per annum, secured by a pledge of the shares of
Gen-X Sports, Inc., and Gen-X Sports Ltd. The loan is
repayable in equal quarterly principal installments in
the amount of $100,000 plus accrued interest............. 500,000 800,000
Promissory notes payable to former Lamar shareholders,
bearing interest at 6% per annum, $400,000 is payable in
fiscal 2001 and $200,000 thereafter in each year through
to 2003 plus accrued interest............................ 400,000 800,000
Promissory notes payable to former Lamar shareholders,
bearing interest at 6% per annum, $251,361 is payable in
fiscal 2001 and $125,680 thereafter in each year through
to 2003 plus accrued interest............................ 251,360 502,721
----------- -----------
16,145,041 2,102,721
Less: Current portion of long-term debt.................... 2,975,680 1,051,361
----------- -----------
13,169,361 1,051,360
=========== ===========
</Table>
FS-30
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Long-term debt is repayable as follows:
<Table>
<Caption>
2001
-----------
2002................................................... $ 2,975,680
2003................................................... 8,675,680
2004................................................... 250,000
2005................................................... 250,000
2006................................................... 3,993,681
-----------
16,145,041
===========
</Table>
8. SHARE CAPITAL
<Table>
<Caption>
2001 2000
----------- -----------
Authorized
GEN-X SPORTS INC.
3,960,000 Series A redeemable preferred shares
250,001 Series B Junior participating preferred shares
6,000,000 Series C non-voting preferred shares
50,000,000 Common shares
GEN-X SPORTS, INC.
Unlimited number of Class A preferred shares
Unlimited number of Common shares
Issued and outstanding
GEN-X SPORTS INC.
2,970,000 Series A redeemable preferred shares........ 2,970,000 2,970,000
83,334 Series B Junior participating preferred
shares.............................................. -- 500,004
5,455,363 Series C non-voting preferred shares (2000
-- Nil)............................................. 11,188,193 --
5,262,029 Common shares (2000 -- 4,916,692)........... 200,000 9,500,152
GEN-X SPORTS, INC.
2,000,000 Class A preferred shares (2000 -- Nil).... 2,000,000 --
5,052,029 Common shares (2000 -- 5,000,029)......... 333 333
----------- -----------
16,358,526 12,970,489
Options granted (Gen-X Sports Inc.)........................ 1,000,000 --
----------- -----------
17,358,526 12,970,489
=========== ===========
</Table>
- ---------------
(i) The holders of the common shares in Gen-X Sports Inc. are entitled to a 5%
per annum cash dividend based on a share value of $6 for the issued and
outstanding common shares.
(ii) The Series A redeemable preferred shares ("Series A Shares") are
non-voting, entitled to a cumulative dividend at a rate of 7%, and
non-participating except to the extent of this aggregate redemption value
of $2,970,000 plus any accrued unpaid dividends. Dividends are payable on
the 15th day of April, July, October and January of each year.
FS-31
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Any or all of the Series A Shares are redeemable at any time at the
Company's option at a redemption price of $1.00 per share plus accrued interest.
In addition, the Series A Shares have mandatory redemption requirement, at a
redemption price of $1.00 per share and are required to be redeemed as follows:
<Table>
<Caption>
2001
----------
May 1, 2001............................................. $ 990,000
May 1, 2002............................................. 990,000
May 1, 2003............................................. 990,000
----------
2,970,000
==========
</Table>
On May 1, 2001, Gen-X Sports Inc. was required to redeem 990,000 shares of
the Series A Shares. The shareholders of the Series A Shares have elected to
defer the 2001 retraction to any subsequent year.
(iii) The Series B Junior participating preferred shares ("Series B
Shares") are convertible into common shares on a one-to-one basis at any time at
the option of the holders. Each of the Series B Shares have voting rights equal
to the number of common shares they are convertible into. In the event that
dividends are paid to the holders of common shares, a dividend is payable to the
holders of the Series B Shares equal to the dividends that would have been paid
in respect of common shares into which the Series B Shares are convertible.
(iv) The Series C non-voting preferred shares ("Series C Shares") are
entitled to non-cumulative dividends, if declared.
On February 15, 2001, Gen-X Sports Inc. declared a stock dividend whereby
each holder of common shares and Series B Shares received one Series C Share.
This transaction resulted in the equity value of the common shares and Series B
Shares being transferred to the Series C Shares issued.
(v) On February 15, 2001, Gen-X Sports Inc. issued 260,000 common shares
and 110,000 Series C Shares to HSBC Capital (Canada) Inc. ("HSBC") as
consideration for the provision of a credit enhancement guarantee in favour of
the Bank to a maximum principal amount of $10,000,000 effectively guaranteeing
the additional capital loan undertaken by Gen-X Sports, Inc. from the Bank under
the terms of the bank facility as described in Note 6. The common shares were
valued at $3.80 per share by the Company and recorded as other assets. HSBC
would have no rights on these additional shares, including the entitlement of
dividends, until February 15, 2002.
Additionally, Gen-X Sports Inc. issued 52,000 common shares in
consideration of subscription for the 2,000,000 Class A preferred shares in
Gen-X Sports, Inc. and a further 8,333 common shares as consideration for the
purchase of First Team Sports, Inc. shares (Note 3).
(vi) The Class A preferred shares ("Class A" Shares) of Gen-X Sports, Inc.
are voting, entitled to a cumulative preferential dividend at a rate of Bankers'
Acceptance rate plus 10.25%, with a redemption value of $2,000,000 plus any
accrued unpaid dividends. Dividends are paid on a monthly basis.
(vii) Gen-X Sports, Inc. issued 52,000 common shares in consideration of
subscription for the 2,000,000 Class A Shares.
(viii) During the year, dividends were declared and paid in the amount of
$1,794,993 (2000 -- $1,019,471) to the holders of the issued and outstanding
common shares and Series A Shares of Gen-X Sports Inc.
During the year, dividends were declared and paid in the amount of $450,232
(2000 -- Nil) to the holders of the issued and outstanding Class A Shares of
Gen-X Sports, Inc.
FS-32
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
STOCK OPTIONS
During 2001, a total of 1,199,289 options were issued and remain
outstanding at year end as follows:
(a) 953,000 shares at an exercise price of $6.00
(b) 148,250 shares at an exercise price of $12.00
(c) 98,039 shares at an exercise price of $1.80
These options vest either over a three or four year period. Of the
1,199,289 shares, 125,039 are fully vested. The value of the options were
determined based upon fair market valuation of the company at the date of
issuance of the options.
9. RELATED PARTY TRANSACTIONS
On September 12, 2000, the Company sold land and building in the amount of
CDN $678,000 to a related party at fair market value, which was approximately
equal to the net book value of the property. As consideration for the sale, the
Company took back a receivable due from a related party which was subsequently
forgiven by the Company. Included in operating expenses is a loss of $189,000
relating to the forgiveness of the receivable due from this related party. The
Company now rents its premises from this related party at rates approximating
fair market value. The related expense is included in operating expenses.
10. COMMITMENTS
The Company is committed under certain operating leases. Total future
minimum lease payments related to these operating leases are approximately as
follows:
<Table>
<Caption>
2001
----------
2002.................................................... $ 390,000
2003.................................................... 423,000
2004.................................................... 423,000
2005.................................................... 423,000
2006.................................................... 427,000
2007 and thereafter..................................... 1,050,000
----------
3,136,000
==========
</Table>
FS-33
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
Unaudited Combined Financial Statements
For the Years Ended December 31, 2000 and 1999
(Unaudited)
FS-34
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
COMBINED BALANCE SHEET
<Table>
<Caption>
AS AT
DECEMBER 31,
-------------
2000
-------------
(EXPRESSED IN
U.S. DOLLARS)
UNAUDITED
ASSETS
Current assets
Accounts receivable....................................... 39,161,807
Inventories............................................... 2,722,688
Prepaid expenses and deposits............................. 728,862
Income taxes receivable................................... 678,680
----------
43,292,037
Capital assets.............................................. 430,612
Other assets................................................ 396,731
Goodwill.................................................... 6,956,139
----------
Total assets........................................... 51,075,519
----------
LIABILITIES
Current liabilities
Bank indebtedness (Note 5)................................ 20,286,961
Capital loan (Note 5)..................................... 3,200,000
Accounts payable and accrued liabilities.................. 8,953,153
Current portion of long-term debt......................... 1,051,361
Income taxes payable...................................... --
Due to parent............................................. --
----------
33,491,475
----------
Long-term debt (Note 6)..................................... 1,051,360
SHAREHOLDERS EQUITY
Share capital............................................. 12,970,489
Retained earnings......................................... 3,562,195
----------
16,532,684
----------
Total liabilities and equity........................... 51,075,519
==========
</Table>
The accompanying notes are an integral part of this combined balance sheet.
FS-35
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
COMBINED STATEMENT OF INCOME
<Table>
<Caption>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------
2000 1999
------------- ------------
(EXPRESSED IN U.S. DOLLARS)
UNAUDITED
Revenue..................................................... $113,090,912 $54,437,729
Cost of sales............................................... 89,419,625 43,239,566
------------ -----------
Gross profit................................................ 23,671,287 11,198,163
Operating expenses.......................................... 14,501,978 7,593,976
------------ -----------
Income before recovery of income taxes...................... 9,169,309 3,604,187
Provision for income taxes.................................. 1,160,235 871,720
Recovery of income taxes on acquisition (Note 3)............ (1,995,000) --
------------ -----------
Net income.................................................. 10,004,074 2,732,467
============ ===========
</Table>
The accompanying notes are an integral part of this combined statement of
income.
FS-36
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
COMBINED STATEMENT OF CASH FLOWS
<Table>
<Caption>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
2000 1999
------------ -----------
(EXPRESSED IN US DOLLARS)
UNAUDITED
OPERATING ACTIVITIES
Net Income................................................ 10,004,074 2,732,467
Items not affecting cash
Depreciation and amortization.......................... 354,675 313,383
----------- ----------
Net change in non-cash working capital.................... 10,358,749 3,045,850
----------- ----------
(2,348,786) 2,443,825
----------- ----------
INVESTING ACTIVITIES
(Expenditures for) proceeds of dispositions of capital
assets, net............................................ 181,334 (299,655)
Acquisition............................................... (16,170,000) --
Total investing............................................. (15,988,666) (299,655)
----------- ----------
FINANCING ACTIVITIES
Repayment of long-term debt............................... (579,183) (2,323,713)
Proceeds from issuance of common shares................... 9,500,485
Proceeds from issuance of preferred shares................ 3,470,004
Proceeds from bank indebtedness........................... 4,772,440 1,014,520
Capital loan.............................................. 3,200,000
Advances from parent company.............................. (1,006,823 1,006,823
Dividends................................................. (1,019,471)
----------- ----------
Total financing............................................. 18,337,452 (302,370)
----------- ----------
CASH, beginning and end of period........................... -- --
=========== ==========
</Table>
The accompanying notes are an integral part of this combined statement of cash
flows.
FS-37
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
(EXPRESSED IN US DOLLARS)
1. BASIS OF PRESENTATION
These combined financial statements include the consolidated financial
statements of Gen-X Sports Inc. (a Delaware corporation) and the financial
statements of Gen-X Sports, Inc. (an Ontario corporation) (collectively the
"Company") which are companies under common control. On May 26, 2000, Gen-X
Sports Inc. purchased Gen-X Holdings, Inc. and Gen-X Sports, Inc. purchased
Gen-X Equipment Inc. (collectively purchased the "Subsidiaries') from Global
Sports, Inc. as described in Note 3. These combined financial statements have
been prepared on a combined basis for the year ended December 31, 2000.
These combined financial statements are prepared in U.S. dollars as the
Company conducts a majority of its business in that currency. Intercompany
transactions and balances have been eliminated in this combined statement of
income.
Gen-X Sports Inc. and Gen-X Sports, Inc. were incorporated on December 13,
1999 and September 15, 1999, respectively, for the purpose of the acquisition,
as described in Note 3. The financial statements of Gen-X Sports Inc. includes
the accounts of its wholly-owned subsidiaries: Gen-X Sports, Ltd., Gen-X Sports
AG, and Lamar Snowboards, Inc.
NATURE OF BUSINESS
The Company is a leading distributor of excess inventories of sports
equipment and accessories and specializes in acquiring excess inventories of
snowboards, snowboard boots and bindings, in-line skates, premium sunglasses and
sports goggles, skateboards, mountain bikes, wakeboards and specialty footwear
from manufacturers and other suppliers and reselling these products to sporting
goods retailers worldwide. The Company also markets its own branded products in
the snowboard and accessories business under the Lamar and Limited brand names,
as well as aluminum scooters marketed under the Company's Rage brand and under
the Company's licensed Oxygen name.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company recognizes revenue from the sale of its products when the
products are shipped to customers.
CONCENTRATION OF CREDIT RISK
The Company performs ongoing credit evaluations of its customers. Based on
the Company's assessment of credit risk, sales in the United States and Canada
are made on open credit, CO.D., cash in advance or by post-dated cheque
International sales are generally made on a cash in advance or on a letter of
credit basis. The majority of accounts are credit insured with the Export
Development Corporation of Canada
FS-38
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
(EXPRESSED IN US DOLLARS)
INVENTORIES
Inventories are carried at the lower of cost and market using the first-in,
first-out method.
CAPITAL ASSETS DEPRECIATION
Capital assets are recorded at cost and depreciation is computed using the
straight-line method over the estimated useful lives of the assets as follows:
<Table>
<Caption>
Furniture and fixtures...................................... 5 years
Computer equipment.......................................... 3 years
</Table>
OTHER ASSETS AMORTIZATION
Other assets include incorporation and organization costs capitalized which
are being amortized over 20 years.
GOODWILL AMORTIZATION
Goodwill is amortized using the straight-line method over 40 years.
Goodwill is written down when there has been a permanent impairment in the value
of unamortized goodwill. A permanent impairment in goodwill is determined by
comparison of the carrying value of unamortized goodwill with undiscounted
future earnings of the related business.
FOREIGN CURRENCY
Accounts receivable and accounts payable denominated in foreign currencies
are translated into U.S. dollars at the exchange rate as of the balance sheet
date. Revenues, costs of sales and expenses are translated at the prevailing
exchange rate at the time the transaction occurs. Adjustments resulting from
foreign exchange transactions are recorded in the combined statement of income.
USE OF ESTIMATES
The preparation of financial statements in accordance with Canadian
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined statement of
income and accompanying notes. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The estimated fair value of accounts receivable, prepaid expenses and
deposit, income taxes receivable, bank indebtedness, capital loan, accounts
payable and accrued liabilities and current portion of long-term debt
approximate their carrying amounts in the combined financial statements due to
the relatively short period to maturity of these instruments.
The estimated fair value of long-term debt approximates its carrying amount
in the combined financial statements as its stated interest rate approximates
market interest rates.
3. ACQUISITION
Effective May 26, 2000, the Company purchased the share capital of each of
Gen-X Holdings, Inc. and Gen-X Equipment Inc., (collectively the "Subsidiaries')
from Global Sports, Inc. ("Global"), a public
FS-39
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
(EXPRESSED IN US DOLLARS)
company in the United States, for total consideration of $16,170,000.
Consideration was represented by total cash of $13,200,000 and the assumption of
certain notes payable in the amount of $2,970,000 which were converted to
redeemable preference shares concurrent with the acquisition transaction. The
allocation of the purchase consideration for each of the purchased Subsidiaries
is described below. The purchase transaction was accounted for using the
purchase method of accounting as follows:
<Table>
<Caption>
2000
----------
ASSETS ACQUIRED AT FAIR MARKET VALUE
Accounts receivable....................................... 27,475,112
Inventories............................................... 1,371,957
Prepaid expenses and other assets......................... 500,911
Capital assets............................................ 860,797
----------
30,208,777
----------
LESS: LIABILITIES ASSUMED
Bank indebtedness......................................... 9,801,691
Accounts payable and accrued liabilities.................. 8,698,422
Long-tern debt............................................ 2,598,691
----------
21,098,804
----------
Net assets acquired......................................... 9,109,973
==========
Consideration............................................... 16,170,000
Net assets acquired......................................... 9,109,973
----------
Goodwill acquired........................................... 7,060,027
==========
</Table>
During the period, the company amortized goodwill relating to this
acquisition in the amount of $103,888
The consideration for the acquisition of Gen-X Equipment Inc. by Gen-X
Sports, Inc. and Gen-X Holdings, Inc. by Gen-X Sports Inc. is represented as
follows:
<Table>
<Caption>
GEN-X GEN-X
EQUIPMENT INC. HOLDINGS INC. TOTAL
-------------- ------------- ----------
(a) Cash in the amount of $10,000,000
representing proceeds from the issuance of
common shares and Series B preferred shares
of the Company............................. 400,000 9,600,000 10,000,000
(b) Cash in the amount of $3,200,000
representing proceeds of a capital loan
with the Bank, restricted for the purpose
of purchasing the issued and outstanding
share capital of the Subsidiaries.......... 3,200,000 -- 3,200,000
(c) The assumption of Global notes payable in
the amount of $2,970,000, which were
converted to Series A redeemable preferred
shares concurrent with the purchase
transaction,............................... 2,970,000 -- 2,970,000
--------- ---------- ----------
3,600,000 12,570,000 16,170,000
========= ========== ==========
</Table>
FS-40
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
(EXPRESSED IN US DOLLARS)
4. CAPITAL ASSETS
<Table>
<Caption>
2000
----------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
-------- ------------ --------
Furniture and fixtures.............................. $597,370 $416,928 $180,442
Computer equipment.................................. 324,234 74,064 250,170
-------- -------- --------
921,604 490,992 430,612
======== ======== ========
</Table>
5. BANK INDEBTEDNESS
Gen-X Sports, Inc. has a demand revolving line of credit available with the
HSBC Bank Canada ("the Bank") in the amount of CDN $50,000,000 subject to
certain margin requirements. The line of credit is available to Gen-X Sports,
Inc., and Gen-X Sports Inc. and each of its wholly owned subsidiaries. As of
December 31, 2000, $20,000,000 of this facility was utilized by the Company. The
line is available in either U.S. or Canadian dollar currency by way of either
direct advances, bankers acceptances or by import letters of credit. The line
bears interest primarily at either the U.S. base rate or the Bank's prime rate
of interest plus one-half percent.
In addition, Gen-X Sports, Inc. has two capital loans with the Bank. An
initial capital loan in the amount of $3,200,000 was undertaken to assist in the
financing of the acquisition as described in Note 3. The loan is a demand
non-revolving loan and bears interest at the Bank's U.S. base rate or the Bank's
prime rate per annum. Subsequent to year-end, an additional capital loan in the
amount of $10,000,000 was made available to assist the Company in the financing
of the acquisition of certain assets of the Teardrop Golf Company. The loan is a
demand non-revolving loan and bears interest at the Bank's US. Base rate or the
Bank's prime rate per annum.
The credit facilities are secured by:
(a) general security agreement covering all of the Company's assets;
(b) unlimited guarantees from all companies in the group;
(c) subordination agreements relating to other long-term debt;
(d) general assignment of book debts;
(e) assignment of accounts receivable credit and general insurance
As at December 31, 2000, the Company had an obligation under import letters
of credit in the amount of $4,418,467.
FS-41
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
(EXPRESSED IN US DOLLARS)
6. LONG-TERM DEBT
<Table>
<Caption>
2000
---------
Loans payable to Ride, Inc., bearing interest at U.S. prime
rate per annum, secured by a pledge of the shares of Gen-X
Sports, Inc., and Gen-X Sports Ltd. The loan is repayable
in equal quarterly principal installments in the amount of
$100,000 plus accrued interest............................ 800,000
Promissory notes payable to former Lamar shareholders,
bearing interest at 6% per annum, $400,000 is payable in
fiscal 2001 and $200,000 thereafter in each year through
to 2003 plus accrued interest............................. 800,000
Promissory notes payable to former Lamar shareholders,
bearing interest at 6% per annum, $251,361 is payable in
fiscal 2001 and $125,680 thereafter in each year through
to 2003 plus accrued interest............................. 502,721
---------
2,102,721
Less: Current portion of long-term debt..................... 1,051,361
---------
1,051,360
=========
</Table>
Long-term debt is repayable as follows:
<Table>
<Caption>
2000
----------
2001........................................................ $1,051,361
2002........................................................ 725,680
2003........................................................ 325,680
----------
2,102,721
----------
</Table>
FS-42
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
(EXPRESSED IN US DOLLARS)
7. SHARE CAPITAL
<Table>
<Caption>
2000
----------
Authorized
GEN-X SPORTS INC.
3,960,000 Series A redeemable preferred shares
250,001 Series B Junior participating preferred shares
50,000,000 Common shares
GEN-X SPORTS, INC.
Unlimited number of common shares
Unlimited number of Class A preference shares
Issued and outstanding
GEN-X SPORTS INC.
2,970,000 Series A redeemable preferred shares......... 2,970,000
83,334 Series B Junior participating preferred
shares................................................ 500,004
4,916,692 Common shares................................ 9,500,152
GEN-X SPORTS, INC.
5,000,029 Common shares................................ 333
----------
12,970,489
==========
</Table>
The holders of the common shares in Gen-X Sports Inc. are entitled to a 5%
per annum cash dividend based on a share value of $6 for the issued and
outstanding common shares.
The Series A redeemable preferred ("Series A Shares") are non-voting,
entitled to a cumulative dividend at a rate of 7%, and non-participating except
to the extent of this aggregate redemption value of $2,970,000 plus any accrued
unpaid dividends. Dividends are payable on the 15th day of April, July, October
and January of each year.
Any or all of the Series A Shares are redeemable at any time at the
Company's option at a redemption price of $1.00 per share plus accrued interest.
In addition, the Series A Shares have a mandatory redemption requirement, at a
redemption price of $1.00 per share and are required to be redeemed as follows:
<Table>
<Caption>
2000
----------
May 1, 2001............................................. $ 990,000
May 1, 2002............................................. 990,000
May 1, 2003............................................. 990,000
----------
2,970,000
==========
</Table>
The Series B Junior participating preferred shares ("Series B Shares") are
convertible into common shares on a one-to-one basis at any time at the option
of the holders. Each of the Series B Shares have voting rights equal to the
number of common shares they are convertible into. In the event that dividends
are paid to the holders of common shares, a dividend is payable to the holders
of the Series B Shares equal to the dividends that would have been paid in
respect of common shares into which the Series B Shares are convertible.
FS-43
GEN-X SPORTS INC. AND GEN-X SPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
(EXPRESSED IN US DOLLARS)
During the year, dividends were declared and paid in the amount of
$1,019,471 to the holders of the issued and outstanding common shares, Series A
Shares and Series B Shares of Gen-X Sports Inc.
On February 14, 2001, the Gen-X Sports Inc. authorized for issuance
5,312,030 shares with a par value of $0.0001 per share to be designated as
Series C non-voting preferred shares.
8. RELATED PARTY TRANSACTIONS
On September 12, 2000, the Company sold land and building in the amount of
CDN $678,000 to a related party at fair market value, which was approximately
equal to the net book value of the property. As consideration for the sale, the
Company took back a receivable due from a related party which was subsequently
forgiven by the Company. Included in operating expenses is a loss of $189,000
relating to the forgiveness of the receivable due from this related party. The
Company now rents its premises from this related party at rates approximating
fair market value. The related expense is included in operating expenses.
9. SUBSEQUENT EVENTS
On December 1, 2000, the Company entered into an asset purchase agreement
to purchase certain assets of Teardrop Golf Company out of Bankruptcy Court for
total consideration of $18,000,000. As part of the purchase agreement the
Company was required to advance a security deposit of $500,000, which is
included in prepaid expenses and deposit on the combined balance sheet.
Subsequent to year end, the Company assigned its purchase rights under the
purchase transaction to a related company and the asset purchase transaction
closed in March 2001.
On February 15, 2001, the Company issued 260,000 common shares to HSBC
Capital (Canada) Inc. as consideration for the provision of a credit enhancement
guarantee in favour of the Bank to a maximum principal amount of $10,000,000
effectively guaranteeing the additional capital loan undertaken by Gen-X Sports,
Inc. from the Bank under the terms of the bank facility as described in Note 5.
10. COMMITMENTS
The Company is committed under certain operating leases. Total future
minimum lease payments related to these operating leases are approximately as
follows:
<Table>
<Caption>
2000
--------
2001..................................................... $116,000
2002..................................................... 91,000
2003..................................................... 94,000
2004..................................................... 81,000
2005..................................................... 55,000
--------
437,000
========
</Table>
FS-44
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
HUFFY CORPORATION
HSGC, INC.
AND
GEN-X SPORTS INC.
TABLE OF CONTENTS
<Table>
ARTICLE I DEFINITIONS................................................ A-1
1.1 Certain Terms............................................... A-1
1.2 Definitions................................................. A-2
ARTICLE II THE MERGER................................................ A-9
2.1 The Merger.................................................. A-9
2.2 Merger Consideration........................................ A-9
2.3 Merger Consideration Adjustments............................ A-10
2.4 Dissenting Shares........................................... A-11
2.5 Stock Options............................................... A-12
2.6 Conversion of Shares; Payment Procedures.................... A-12
2.7 Redemption of Gen-X Preferred Stock......................... A-15
ARTICLE III CLOSING.................................................. A-15
3.1 Closing..................................................... A-15
ARTICLE IV THE SURVIVING CORPORATION................................. A-15
4.1 Certificate of Incorporation................................ A-15
4.2 By-Laws..................................................... A-15
4.3 Directors and Officers...................................... A-15
ARTICLE V REPRESENTATIONS AND WARRANTIES OF GEN-X.................... A-15
5.1 Organization and Good Standing.............................. A-15
5.2 Certificate of Incorporation and By-Laws.................... A-16
5.3 Capitalization.............................................. A-16
5.4 Gen-X Subsidiaries.......................................... A-16
5.5 Corporate Authority......................................... A-17
5.6 Compliance With Applicable Law.............................. A-17
5.7 Non-Contravention........................................... A-18
5.8 Government Approvals and Consents........................... A-18
5.9 Financial Statements........................................ A-18
5.10 Absence of Undisclosed Liabilities.......................... A-18
5.11 Absence of Certain Changes or Events........................ A-19
5.12 Gen-X Litigation............................................ A-21
5.13 Contracts................................................... A-21
5.14 Taxes....................................................... A-21
5.15 Title to Properties; Encumbrances........................... A-23
5.16 Intellectual Property....................................... A-23
5.17 Provided Information........................................ A-24
5.18 Gen-X Plans; ERISA.......................................... A-24
5.19 Environmental Matters....................................... A-26
5.20 Labor Matters............................................... A-27
5.21 Related Party Transactions.................................. A-27
5.22 Real Estate................................................. A-27
5.23 Insurance................................................... A-29
5.24 EDC Insurance............................................... A-29
5.25 Customers................................................... A-30
</Table>
A-i
<Table>
5.26 Disclosure.................................................. A-30
5.27 Takeover Statutes........................................... A-30
5.28 Brokers..................................................... A-30
5.29 Ownership of Huffy Securities............................... A-30
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF HUFFY AND MERGERSUB..... A-30
6.1 Organization and Good Standing.............................. A-30
6.2 Certificate of Incorporation and By-Laws.................... A-31
6.3 Capitalization.............................................. A-31
6.4 Corporate Authority......................................... A-31
6.5 Board Recommendation and Shareholder Vote................... A-32
6.6 Compliance With Applicable Law.............................. A-32
6.7 Non-Contravention........................................... A-32
6.8 Government Approvals and Consents........................... A-32
6.9 SEC Documents and Other Reports............................. A-32
6.10 Absence of Undisclosed Liabilities.......................... A-33
6.11 Absence of Certain Changes or Events........................ A-33
6.12 Huffy Litigation............................................ A-33
6.13 Title to Properties; Encumbrances........................... A-33
6.14 Provided Information........................................ A-34
6.15 Disclosure.................................................. A-34
6.16 Brokers..................................................... A-34
6.17 No Prior Activities......................................... A-34
ARTICLE VII COVENANTS................................................ A-34
7.1 Conduct of Business by Gen-X Pending the Merger............. A-34
7.2 Conduct of Business by Huffy Pending the Merger............. A-37
7.3 Access and Information...................................... A-37
7.4 No Solicitation............................................. A-37
7.5 Governmental Entities....................................... A-37
7.6 Best Efforts................................................ A-38
7.7 Certain Filings Under Securities Laws....................... A-38
7.8 Stockholders Meetings....................................... A-38
7.9 HSR Notification............................................ A-38
7.10 Financial Statement Deliveries.............................. A-39
7.11 Financing................................................... A-39
7.12 Employee Benefits........................................... A-39
7.13 Antitakeover Statutes....................................... A-40
7.14 Notification of Certain Matters............................. A-40
7.15 Further Assurances.......................................... A-40
7.16 Further Action; Reasonable Commercial Efforts............... A-40
7.17 Tax-Free Reorganization Treatment........................... A-40
7.18 Delivery of Opinion of Financial Advisors................... A-41
7.19 Public Announcements........................................ A-41
7.20 Amendment of Schedules...................................... A-41
7.21 Board Representation........................................ A-41
7.22 Funding of MergerSub........................................ A-41
</Table>
A-ii
<Table>
7.23 Sale of Huffy Common Stock.................................. A-41
7.24 Final Stockholder and Optionee List......................... A-41
7.25 Operation of Surviving Corporation After Closing Through
December 31, 2002........................................... A-41
7.26 Insurance................................................... A-42
ARTICLE VIII CONDITIONS OF MERGER.................................... A-42
8.1 General Conditions.......................................... A-42
8.2 Conditions Precedent to the Obligations of Gen-X............ A-43
8.3 Conditions Precedent to the Obligations of Huffy and
MergerSub................................................... A-44
ARTICLE IX TERMINATION............................................... A-46
9.1 Termination................................................. A-46
9.2 Manner and Effect of Termination............................ A-47
ARTICLE X INDEMNIFICATION............................................ A-48
10.1 Indemnification Obligation of the Gen-X Stockholders........ A-48
10.2 Limitations on Indemnification.............................. A-48
10.3 Expiration.................................................. A-49
10.4 Procedure for Indemnification............................... A-49
ARTICLE XI MISCELLANEOUS............................................. A-50
11.1 Confidentiality............................................. A-50
11.2 Expenses.................................................... A-50
11.3 Notices..................................................... A-50
11.4 Entire Agreement............................................ A-51
11.5 Counterparts................................................ A-51
11.6 Huffy and Indemnified Party Knowledge....................... A-51
11.7 Invalid Provisions.......................................... A-51
11.8 Third Party Beneficiaries................................... A-52
11.9 No Assignment; Binding Effect............................... A-52
11.10 Headings.................................................... A-52
11.11 Governing Law............................................... A-52
11.12 Construction................................................ A-52
11.13 Specific Performance........................................ A-52
11.14 Amendment and Modification.................................. A-52
11.15 Waiver...................................................... A-52
11.16 Survival of Representations and Warranties.................. A-52
</Table>
A-iii
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER is effective as of June 5, 2002, by and
among Huffy Corporation, an Ohio corporation, HSGC, Inc., a Delaware corporation
("MergerSub"), and Gen-X Sports Inc., a Delaware corporation.
BACKGROUND:
The Board of Directors of Gen-X and the Boards of Directors of Huffy and
MergerSub, a wholly owned subsidiary of Huffy Corporation, have each determined
that it is advisable and in the best interests of their respective stockholders
to effect a Merger of Gen-X with and into MergerSub, with MergerSub as the
surviving corporation, pursuant to the Certificate of Merger and upon the terms
and subject to the conditions set forth herein, such transaction to be effected
simultaneously with, and conditioned upon, the Stock Purchase of Gen-X Sports,
Inc., an Ontario corporation having substantially the same owners as Gen-X, by
HSGC Canada, Inc., a New Brunswick corporation ("Huffy Canadian Sub") (the
"Stock Purchase"), which is a wholly-owned subsidiary of Huffy Corporation
pursuant to a Stock Purchase Agreement dated of even date herewith (the "SPA").
For U.S. federal income tax purposes it is intended that the Merger shall
qualify as a tax-free reorganization under the provisions of Section 368 of the
Code.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants contained herein and intending to be
legally bound, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Terms. For all purposes of this Agreement, except as
otherwise expressly provided:
1.1.1 the terms defined in this ARTICLE I have the meanings assigned
to them in this ARTICLE I and include the plural as well as the singular;
1.1.2 all accounting terms not otherwise defined herein have the
meanings assigned under GAAP;
1.1.3 all references in this Agreement to "Articles," "Sections,"
"Exhibits" and "Schedules" shall be deemed to be references to Articles and
Sections of, and Exhibits and Schedules to, this Agreement, unless the
context shall otherwise require;
1.1.4 pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms;
1.1.5 the words "include," "includes" and "including" shall be deemed
in each case to be followed by the words "without limitation";
1.1.6 the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision;
1.1.7 the terms "party" or "parties" when used herein refer to Huffy,
Gen-X and MergerSub; and
1.1.8 unless otherwise expressly provided herein, any agreement,
plan, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
plan, instrument or statute as may be from time to time amended, modified
or supplemented, including (in the case of agreements, plans or
instruments) by waiver or consent and (in the case of statutes) by
succession of comparable successor statutes.
A-1
1.2 Definitions. As used in this Agreement and the Exhibits and Schedules
delivered pursuant to this Agreement, the following initially capitalized terms
have the meanings set forth below:
1.2.1 "Accounting Referee" has the meaning set forth in Section
2.3.1(a).
1.2.2 "Acquisition Transaction" has the meaning set forth in Section
7.4.1.
1.2.3 "Action" means any action, complaint, petition, investigation,
suit, audit, arbitration, litigation or other proceeding, whether civil,
administrative or criminal, in law or in equity, before any arbitrator or
Governmental Entity.
1.2.4 "Affiliate" means, as applied to any Person, (i) any other
Person directly or indirectly controlling, controlled by, or under common
control with, that Person, (ii) any other Person that owns or controls 10%
or more of any class of equity securities (including any equity securities
issuable upon the exercise of any option or convertible security) of that
Person or any of its Affiliates, or (iii) as to a corporation, each
director and executive officer thereof, and, as to a partnership, each
general partner thereof, and, as to a limited liability company, each
managing member or similarly authorized person thereof (including officers
or managers), and, as to any other entity, each Person exercising similar
authority to that of a director or officer of a corporation. For the
purposes of this definition, the term "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under
common control with") as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of
the management or policies of that Person, whether through ownership of
voting securities, by Contract or otherwise.
1.2.5 "Agreement" means this Agreement, including (unless the context
otherwise requires) all Exhibits and Schedules attached or incorporated by
reference, as the same may be amended or supplemented from time to time in
accordance with the terms hereof.
1.2.6 "Business Day" means a day other than Saturday, Sunday or any
day on which banks located in the State of Delaware or the Province of
Ontario are authorized or obligated to close.
1.2.7 "Cash Consideration" has the meaning set forth in Section
2.2.1.
1.2.8 "Cash In Lieu" has the meaning set forth in Section 2.6.4.
1.2.9 "Certificate of Merger" has the meaning set forth in Section
2.1.2.
1.2.10 "CIBC" has the meaning set forth in Section 5.11.1.
1.2.11 "Closing" has the meaning set forth in Section 3.1.
1.2.12 "Closing Date" means the date and time of the Closing.
1.2.13 "Code" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
1.2.14 "Confidentiality Agreement" has the meaning set forth in
Section 11.1.
1.2.15 "Consolidated Gen-X 2002 EBITDA" means the combined earnings
before interest, taxes, depreciation and amortization ("EBITDA") of Gen-X
and Gen-X Ontario as a single unit for the calendar year ending December
31, 2002, including for the period after the Closing, the combined EBITDA
of the Surviving Corporation and any successor to Gen-X Ontario, except
that such computation shall be adjusted to eliminate (i) any intercompany
charges after Closing for overhead that Huffy charges the Surviving
Corporation, Gen-X Ontario or any successor to Gen-X Ontario but only to
the extent that the net effect of such charges increases the total expenses
of such entity over that which Gen-X and Gen-X Ontario would have incurred
if the Merger and Stock Purchase had not occurred, (ii) any expenses
directly related to the consummation of the transactions contemplated in
this Agreement and the SPA, such as legal, accounting and investment
banking fees, and (iii) any expenses incurred by Surviving Corporation,
Gen-X Ontario or any successor to Gen-X Ontario after Closing that are over
and above the amount of such costs that such entity would have incurred in
the ordinary course
A-2
of its business, consistent with past practices had Gen-X and Gen-X Ontario
not been acquired by Huffy (other than expenses necessary to comply with
applicable laws and regulations).
1.2.16 "Consolidated Gen-X EBITDA" means the combined earnings before
interest taxes, depreciation and amortization of Gen-X and Gen-X Ontario as
a single unit for the period referenced ending on the date of measurement.
1.2.17 "Consolidated Gen-X Debt" means the combined total third party
debt of Gen-X and Gen-X Ontario, including all notes payable to HSBC, CIBC
or other principal lender, Ride, Inc., Bert LaMar, Jerome Sheldon, Eric
Sheldon, Jeffrey Sheldon or any other third party, but excluding the Wells
Fargo Bank mortgage, any trade payables or accrued liabilities.
1.2.18 "Consolidated Gen-X 2002 Average Debt" means the sum of the
actual Consolidated Gen-X Debt as at the end of each month in 2002
(including months before and after the Closing) divided by 12.
1.2.19 "Contract" means any loan, note, bond, mortgage, indenture,
lease, agreement, contract, instrument, concession, guarantee of
indebtedness or credit agreement, franchise, right or license that is in
writing (unless otherwise specified).
1.2.20 "DGCL" means the Delaware General Corporation Law and all
amendments and additions thereto.
1.2.21 "Damages" has the meaning set forth in Section 10.1.
1.2.22 "Dissenting Shares" has the meaning set forth in Section 2.4.
1.2.23 "EBITDA MAE" means with respect to Gen-X and Gen-X Ontario, a
determination by Huffy's Chief Financial Officer, made reasonably and in
good faith based on his review of the Consolidated Gen-X EBITDA for the
period from January 1, 2002 through the end of the month preceding the
Closing Date and any other available financial information concerning Gen-X
and Gen-X Ontario, that there is a substantial likelihood that the
Consolidated Gen-X 2002 EBITDA will be less than US$15,529,825 (which is
92.5% of Gen-X's forecasted Consolidated Gen-X 2002 EBITDA).
1.2.24 "EBITDA Multiplier" is 3.7, which is the factor that Huffy
used internally to determine the combined consideration for the Merger and
the Stock Purchase.
1.2.25 "EBITDA Report" has the meaning as set forth in Section
2.3.1(a).
1.2.26 "EDC Insurance Policy" has the meaning set forth in Section
5.24.
1.2.27 "Effective Time" means the date and time that the Secretary of
State of the State of Delaware accepts for filing the Certificate of Merger
or at such later time to which the parties agree and is specified in the
Certificate of Merger.
1.2.28 "Electing Optionholders" has the meaning set forth in Section
2.5.
1.2.29 "Deemed Per Share Merger Value" has the meaning set forth in
Section 2.5.1.
1.2.30 "Employee" means any individual employed by Gen-X whether as
an active or inactive employee, officer or director thereof.
1.2.31 "Employee Retention Agreement" has the meaning set forth in
Section 2.5.
1.2.32 "Environmental Law" means any federal, state, local or foreign
environmental, health and safety, or other Law, in each case in existence
as of the Closing Date, relating to Hazardous Materials, including the
Comprehensive Environmental Response Compensation and Liability Act, the
Clean Air Act, the Federal Water Pollution Control Act, the Solid Waste
Disposal Act, the Federal Insecticide, Fungicide and Rodenticide Act, and
the California Safe Drinking Water and Toxic Enforcement Act.
A-3
1.2.33 "Environmental Permit" means any permit, license, approval,
consent or authorization required under, or in connection with, any
Environmental Law and includes any and all orders, consent orders or
binding agreements issued by or entered into with a Governmental Entity.
1.2.34 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
1.2.35 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC thereunder.
1.2.36 "Exchange Agent" has the meaning set forth in Section 2.6.5.
1.2.37 "Exchange Fund" has the meaning set forth in Section 2.6.5.
1.2.38 "First Release Date" has the meaning set forth in Section
2.2.2.
1.2.39 "GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time, consistently applied.
1.2.40 "Gen-X" means Gen-X Sports Inc. and all of its Subsidiaries,
except that in Sections 5.1, 5.2, 5.3, 5.4, 5.5, and 7.8 it shall only mean
Gen-X Sports Inc.
1.2.41 "Gen-X Common Stock Equivalents" means the common stock, par
value US$.0001 per share of Gen-X, the Series B Junior Participating
Preferred Stock, par value US$.0001 per share of Gen-X, and the Series C
Non-Voting Preferred Stock, par value US$.0001 per share of Gen-X.
1.2.42 "Gen-X Disclosure Schedule" means the Schedules delivered to
Huffy by, or on behalf of, Gen-X (concurrently with entering into this
Agreement) as may be supplemented from time to time, containing all lists,
descriptions, exceptions, and other information and materials that are
required to be included therein in connection with the representations and
warranties made by Gen-X in ARTICLE V or that are otherwise required to be
included therein.
1.2.43 "Gen-X Employee Stock Plan" means that certain Gen-X Sports
Inc. 2001 Stock Incentive Plan.
1.2.44 "Gen-X ERISA Affiliate" means Gen-X or any member of the same
controlled group of businesses of Gen-X, within the meaning of Section
4001(a)(14) of ERISA.
1.2.45 "Gen-X Financial Statements" has the meaning set forth in
Section 5.9.
1.2.46 "Gen-X Improvements" has the meaning set forth in Section
5.22.7.
1.2.47 "Gen-X Intellectual Property Rights" has the meaning set forth
in Section 5.16.
1.2.48 "Gen-X Interim Financial Statements" has the meaning set forth
in Section 5.9.
1.2.49 "Gen-X Leased Real Property" has the meaning set forth in
Section 5.22.2.
1.2.50 "Gen-X Leases" has the meaning set forth in Section 5.22.2.
1.2.51 "Gen-X Non-Employee Stock Plan" means that certain Gen-X
Sports Inc. Stock Compensation Plan which provides for the issuance of
stock options to persons who are not employees of Gen-X.
1.2.52 "Gen-X Ontario" means Gen-X Sports, Inc., an Ontario
corporation, having substantially similar ownership as Gen-X and all of its
Subsidiaries.
1.2.53 "Gen-X Owned Real Property" has the meaning set forth in
Section 5.22.1.
1.2.54 "Gen-X Plan" means (a) each of the "employee benefit plans"
(as such term is defined in Section 3(3) of ERISA), of which a Gen-X ERISA
Affiliate is or ever was a sponsor or participating employer or as to which
Gen-X or any Gen-X ERISA Affiliate makes contributions or is required to
make contributions, and (b) any similar employment, severance or other
arrangement or policy of Gen-X,
A-4
or any Gen-X ERISA Affiliate (whether written or oral) providing for
health, life, vision or dental insurance coverage (including self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits or retirement benefits, fringe
benefits, or for profit sharing, deferred compensation, bonuses, stock
options, stock appreciation or other forms of incentive compensation or
post-retirement insurance, compensation or benefits.
1.2.55 "Gen-X Preferred Stock" means the Series A 7% Redeemable
Preferred Stock, par value US$.0001 per share of Gen-X.
1.2.56 "Gen-X Real Property" has the meaning set forth in Section
5.22.3.
1.2.57 "Gen-X Stockholders" means the holders of the Gen-X Common
Stock Equivalents.
1.2.58 "Gen-X Stockholders Meeting" means the Stockholders meeting of
Gen-X to be held for the purpose of adopting this Agreement and approving
the Merger.
1.2.59 "Governmental Entity" means any government or any agency,
public or regulatory authority, instrumentality, ministry, bureau, board,
arbitrator, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether foreign or
domestic and whether national, federal, tribal, provincial, state,
regional, local or municipal, and shall include any stock exchange, any
quotation service and the National Association of Securities Dealers.
1.2.60 "Hazardous Material" means (a) any chemical, material,
substance or waste including, containing or constituting petroleum or
petroleum products, solvents (including chlorinated solvents), nuclear or
radioactive materials, asbestos in any form that is or could become
friable, radon, lead-based paint, urea formaldehyde foam insulation or
polychlorinated biphenyls, and (b) any other chemical, material, substance
or waste that is now defined as, or included in the definition of,
"hazardous substance(s)," "hazardous waste(s)," "hazardous material(s),"
"extremely hazardous waste(s)," "restricted hazardous waste(s)," "toxic
substance(s)," "toxic pollutant(s)" or words of similar import under or
pursuant to any Environmental Law.
1.2.61 "Holdback Shares" means 838,710 shares of Huffy Common Stock
that Huffy shall retain from the Stock Consideration for distribution to
Gen-X Stockholders and Electing Optionholders pursuant to Sections 2.2.2
and 2.2.3.
1.2.62 "HSBC" has the meaning set forth in Section 5.11.1.
1.2.63 "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
1.2.64 "Huffy" means Huffy Corporation and its Subsidiaries, except
that in Sections 6.1, 6.2, 6.3, 6.4 and 7.8, it shall only mean Huffy
Corporation.
1.2.65 "Huffy Canadian Sub" has the meaning as set forth in the
preamble to this Agreement.
1.2.66 "Huffy Common Stock" means the common stock, par value US$1.00
per share, of Huffy Corporation.
1.2.67 "Huffy Disclosure Schedule" means the Schedules delivered to
Gen-X by, or on behalf of, Huffy and MergerSub (concurrently with entering
into this Agreement) as may be supplemented from time to time, containing
all lists, descriptions, exceptions, and other information and materials
that are required to be included therein in connection with the
representations and warranties made by Huffy and MergerSub in ARTICLE VI or
that are otherwise required to be included therein.
1.2.68 "Huffy Financial Statements" has the meaning set forth in
Section 6.9.
1.2.69 "Huffy Preferred Stock" means the preferred stock, par value
US$1.00 per share, of Huffy.
1.2.70 "Huffy SEC Documents" has the meaning set forth in Section
6.9.
1.2.71 "Huffy Shareholders Meeting" means the meeting of holders of
Huffy Common Stock to be held for the purpose of approving the issuance of
Huffy Common Stock contemplated hereby.
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1.2.72 "IRS" means the United States Internal Revenue Service or any
successor entity.
1.2.73 "Income Tax" means (a) any income, alternative or add-on
minimum tax, gross income, gross receipts, franchise, profits, including
estimated taxes relating to any of the foregoing, or other similar tax or
other like assessment or charge of similar kind whatsoever, excluding any
Other Tax, together with any interest and any penalty, addition to tax or
additional amount imposed by any Taxing Authority responsible for the
imposition of any such Tax (domestic or foreign); or (b) any liability of a
Person for the payment of any taxes, interest, penalty, addition to tax or
like additional amount resulting from the application of Treasury
Regulations (S)1.1502-6 or comparable provisions of any Taxing Authority in
respect of a Tax Return of a Relevant Gen-X Group or Huffy, as applicable,
or any Contract.
1.2.74 "Indemnified Parties" means Huffy, MergerSub, Huffy Canadian
Sub and their respective successors and assigns, officers, shareholders,
attorneys and agents.
1.2.75 "Indemnity Period" means the period from the Closing Date to
the later of (i) the first anniversary of the Closing, or (ii) resolution
of any indemnity claim that remains outstanding after the first anniversary
of the Closing pursuant to Section 10.4.1.
1.2.76 "Intellectual Property Rights" means all trademarks, trademark
registrations, trademark applications, service marks, service mark
registrations, service mark applications, trade names, trade dress, logos
and corporate names, all such existing worldwide, together with all
renewals, translations, adoptions, derivatives and combinations thereof and
including all goodwill associated therewith (collectively, "Trademark
Rights"), all worldwide patents, patent applications, and patent
disclosures together with all reissues, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof,
material confidential business information, whether patentable or
unpatentable and whether or not reduced to practice (collectively, "Patent
Rights"), all know how and trade secrets, all computer software, all
copyrights, copyright registrations and applications for the registration
of copyrights and all other material proprietary rights used by or held by
a party or any other third Person whether or not currently used thereby and
all Contracts and arrangements for licensing the same to or from third
parties.
1.2.77 "Knowledge," "Known to" or any similar phrase means, with
respect to any matter in question, that, with respect to Gen-X, a Gen-X
Executive Officer, or, with respect to Huffy, a Huffy Executive Officer:
(a) has actual knowledge of such fact or other matter, or (b) could be
expected to discover or otherwise become aware of such fact or other matter
in the course of conducting a reasonably comprehensive investigation
concerning the existence of such fact or other matter. For purposes of this
Section 1.2.77 (i) a Gen-X Executive Officer shall mean any of James
Salter, Kenneth Finkelstein and John Collins and (ii) a Huffy Executive
Officer shall mean any of Don R. Graber, Robert W. Lafferty, Timothy G.
Howard and Nancy A. Michaud.
1.2.78 "Law" or "Laws" means any law, statute, order, decree, consent
decree, judgment, rule, regulation, ordinance or other pronouncement having
the effect of law whether in the United States, Canada, any other country,
or any domestic or foreign state, county, city or other political
subdivision or of any Governmental Entity.
1.2.79 "Liabilities" means all indebtedness, obligations and other
liabilities of a Person, whether absolute, accrued, contingent (or based
upon any contingency), known or unknown, fixed or otherwise, or whether due
or to become due.
1.2.80 "Liens" means any mortgage, deed of trust, pledge, assessment,
security interest, lease, lien, easement, license, covenant, condition,
adverse claim, levy, charge, option, equity, adverse restriction, or other
encumbrance of any kind, or any conditional sale Contract, title retention
Contract or other Contract to give any of the foregoing, except for any
restrictions on transfer generally arising under any applicable federal or
state securities law.
1.2.81 "Material Adverse Effect" means, with respect to any Person,
any event, circumstance, change, condition, development or occurrence
either individually or in the aggregate with all other
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events, circumstances, changes, conditions, developments or occurrences,
resulting in or reasonably likely to result in a material adverse effect on
(a) the business (as now conducted or as now proposed by such Person to be
conducted), results of operations, condition (financial or otherwise),
properties, value, assets or Liabilities (contingent or otherwise), or of
such Person and its Subsidiaries, taken as a whole, (b) the legality or
enforceability of this Agreement, or (c) the ability of such Person to
perform its obligations and to consummate the transactions under this
Agreement. Where the defined term "Material Adverse Effect" is used in a
particular representation or warranty in ARTICLE V or ARTICLE VI, the
reference to "all other events, circumstances, changes, conditions,
developments or occurrences" in the foregoing definition shall be deemed to
refer to all other events, circumstances, changes, conditions, developments
or occurrences that are within the same subject matter coverage as that
particular representation or warranty (i.e., excluding matters unrelated to
that particular representation or warranty); the foregoing convention shall
not apply where the defined term "Material Adverse Effect" is otherwise
used in this Agreement. In determining whether a "Material Adverse Effect"
has occurred with respect to a party's results of operations,
extraordinary, non-recurring income items will be disregarded. For the
purposes of analyzing whether any event, circumstance, change, condition,
development or occurrence constitutes a "Material Adverse Effect" under
this definition, the parties agree that with respect to Gen-X (A)
materiality shall be analyzed from the viewpoint of whether there is a
likelihood that the disclosure of such event, circumstance, change,
condition, development or occurrence would be viewed by a reasonable
investor as having materially altered the total mix of information
available to such investor if the total mix of information had consisted
solely of the representations and warranties of Gen-X contained in this
Agreement (other than Section 5.11) and the Gen-X Disclosure Schedule, (B)
the analysis of materiality shall not be limited to the viewpoint of a
long-term investor, and (C) each of the terms contained in subclause (a)
above are intended to be separate and distinct. Notwithstanding the
foregoing, the parties hereto agree that any adverse effect resulting from
the following shall not be considered to be a Material Adverse Effect: (I)
this Agreement or the transactions contemplated hereby or the public
announcement of this Agreement and the Merger; (II) the economy or
securities markets in general; or (III) Gen-X's or Huffy's industry in
general and not in whole or in any part significantly related specifically
to Gen-X or Huffy, as applicable.
1.2.82 "Merger" has the meaning set forth in Section 2.1.1.
1.2.83 "Merger Consideration" means the Cash Consideration, any Cash
in Lieu, the Stock Consideration and the number of Holdback Shares
distributed to the Gen-X Stockholders pursuant to Sections 2.2.2 and 2.2.3.
1.2.84 "MergerSub" has the meaning set forth in the preamble hereof.
1.2.85 "MergerSub Common Stock" means the common stock, par value
US$1.00 per share, of MergerSub.
1.2.86 "NYSE" means the New York Stock Exchange.
1.2.87 "Option Satisfaction Agreement" has the meaning as set forth
in Section 2.5.
1.2.88 "Options" means all options, warrants and similar securities
or rights enabling the holder thereof to purchase or acquire shares of any
capital stock of either Gen-X or Gen-X Ontario (including, without
limitation, all such Options issued pursuant to the Stock Option Plans).
1.2.89 "Options Spread Value" has the meaning set forth in Section
2.5.
1.2.90 "Order" means any decree, judgment, ruling, arbitration award,
assessment, writ, injunction or similar order of any Governmental Entity
(in each such case whether preliminary or final).
1.2.91 "Other Tax" means any sales, use, ad valorem, business
license, withholding, payroll, employment, excise, stamp, transfer,
recording, occupation, premium, property, unclaimed property, value added,
custom duty, severance, windfall profit or license tax, governmental fee or
other similar assessment or charge, together with any interest and any
penalty, addition to tax or additional amount imposed by any Taxing
Authority responsible for the imposition of any such tax (domestic or
foreign).
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1.2.92 "PBGC" means the Pension Benefit Guaranty Corporation
established under ERISA.
1.2.93 "Permit" means any license, permit, approval, consent,
exemption, franchise or authorization, and includes any Environmental
Permit.
1.2.94 "Permitted Liens" means: (a) liens, encumbrances or
imperfections of title that do not materially detract from the value of, or
materially interfere with, the present use or, in the case of Gen-X Owned
Real Property, the marketability of the property affected thereby; (b)
liens for taxes and assessments, governmental charges, levies, mechanics
liens or other statutory liens, both special and general that are not yet
due and payable or are being contested in good faith pursuant to
appropriate proceedings; (c) liens that are reserved on the financial
statements as required by GAAP, which such financial statements were
received prior to the date hereof by Huffy (in the case of Gen-X's liens)
or by Gen-X (in the case of Huffy's liens); (d) zoning, building, use and
other governmental ordinances, if any; or (e) any liens that arise as a
matter of law, such as a purchase money security interest or warehouseman's
lien, that Gen-X incurs in the ordinary course of business, consistent with
past practices.
1.2.95 "Person" means any natural person, corporation, general
partnership, limited partnership, limited liability company or partnership,
proprietorship, other business organization, trust, union, association or
Governmental Entity.
1.2.96 "Principal Stockholders" means DMJ Financial, Inc., a Barbados
corporation, its two stockholders K&J Financial Holdings, Inc. ("K&J") a
Barbados corporation and DLS Financial, Inc. ("DLS"), a Barbados
corporation, the sole stockholder of K&J, Kenneth Finkelstein Family Trust,
the sole stockholder of DLS, James Salter Family Trust, Kenneth
Finkelstein, James Salter and Osgoode Financial Inc., an Ontario
corporation.
1.2.97 "Proxy Statement" has the meaning set forth in Section 5.17.
1.2.98 "Registration Statement" has the meaning set forth in Section
5.17.
1.2.99 "Representative" has the meaning set forth in Section 10.4.6.
1.2.100 "SEC" means the United States Securities and Exchange
Commission or any successor entity.
1.2.101 "Second Release Date" has the meaning set forth in Section
2.2.3.
1.2.102 "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations of the SEC thereunder.
1.2.103 "SPA" has the meaning as set forth in the preamble to this
Agreement.
1.2.104 "Stock Option Plans" means, collectively, the Gen-X Employee
Stock Plan and the Gen-X Non-Employee Stock Plan.
1.2.105 "Stock Purchase" has the meaning as set forth in the preamble
to this Agreement.
1.2.106 "Stockholders Meetings" means the Gen-X Stockholders Meeting
and the Huffy Shareholders Meeting.
1.2.107 "Subsidiary" of a party means any Person in which such party,
directly or indirectly through Subsidiaries or otherwise, beneficially owns
or owned at least 50% of either the equity interest in, or the voting
control of, such Person, whether or not existing on the date hereof.
1.2.108 "Surviving Corporation" has the meaning set forth in Section
2.1.1.
1.2.109 "Surviving Corporation Common Stock" means the common stock,
par value US$1.00 per share, of the Surviving Corporation.
1.2.110 "Takeover Statute" has the meaning set forth in Section 7.13.
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1.2.111 "Tax" or "Taxes" means Income Taxes and/or Other Taxes, as
the context requires.
1.2.112 "Tax Returns" means any return, report, information return,
schedule, certificate, statement or other document (including any related
or supporting information) filed or required to be filed with, or, where
none is required to be filed with a Taxing Authority, the statement or
other document issued by, a Taxing Authority in connection with any Tax.
1.2.113 "Taxing Authority" means any governmental agency, board,
bureau, body, department or authority of any United States federal, state
or local jurisdiction or any foreign jurisdiction, having or purporting to
exercise jurisdiction with respect to any Tax.
1.2.114 "Total Merger Adjustment" has the meaning set forth in
Section 2.3.3.
1.2.115 "Trademark Rights" has the meaning set forth in Section
1.2.76.
ARTICLE II
THE MERGER
2.1 The Merger.
2.1.1 At the Effective Time, Gen-X shall be merged with and into
MergerSub in accordance with the DGCL and the terms and conditions hereof
and the Certificate of Merger (the "Merger"). Upon consummation of the
Merger, the separate existence of Gen-X shall cease and MergerSub shall be
the surviving corporation (the "Surviving Corporation").
2.1.2 As soon as practicable after satisfaction (or, to the extent
permitted hereunder, waiver) of all conditions to the Merger, MergerSub
will file a certificate of merger substantially in the form attached hereto
as Exhibit 2.1.2 (the "Certificate of Merger") with the Secretary of State
of the State of Delaware in accordance with the DGCL and will make all
other filings or recordings required by applicable Law in connection with
the Merger. The Merger shall become effective as of the Effective Time.
2.2 Merger Consideration.
2.2.1 Merger Consideration Payable at Closing. On the Closing Date,
Huffy shall pay to the Gen-X Stockholders in accordance with the terms of
this Agreement the following: (i) a number of shares of Huffy Common Stock
(the "Stock Consideration") equal to 5,000,000 minus (A) the number of
shares of Huffy Common Stock issuable to holders of Options pursuant to
Section 2.5, minus (B) the number of shares of Huffy Common Stock issuable
to holders of stock options of Gen-X Ontario, minus (C) the aggregate
number of shares of Huffy Common Stock, rounded to the nearest whole
number, that would be issuable to Gen-X stockholders but for the
application of Section 2.6.4 below, minus (D) the Holdback Shares (except
those Holdback Shares that have already been subtracted as part of the
shares of Huffy Common Stock issuable to holders of Options), plus (ii) an
amount of cash (the "Cash Consideration") equal to US$5,556,914 minus (A)
any cash paid out to holders of Options as Options Spread Value pursuant to
Section 2.5, and minus (B) the amount, if any, by which the total fees paid
or payable by Gen-X and/or Gen-X Ontario to Sheffield Merchant Banking
Group exceeds US$1,000,000.
2.2.2 First Release of Holdback Shares. Within five Business Days of
the final determination of the Consolidated Gen-X 2002 EBITDA pursuant to
Section 2.3.1(a) (the "First Release Date"), Huffy shall take such steps as
necessary to cause the distribution of the Holdback Shares to the Gen-X
Stockholders and Electing Optionholders minus the amount of Holdback
Shares, if any, that Huffy is entitled to retain for the Total Adjustment
Amount minus up to an additional 258,065 of the Holdback Shares. The
distribution of the Holdback Shares on the First Release Date to the Gen-X
Stockholders and Electing Optionholders shall be on a pro rata basis based
upon their percentage ownership of Gen-X Common Stock Equivalents
immediately prior to the Effective Time (assuming, only for purposes of
this calculation, that 67% of the Gen-X Stock Equivalents that would have
been issuable to the Electing Optionholders had they exercised their
Options as of the Closing Date, were actually issued to them).
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2.2.3 Second Release of Holdback Shares. No later than five Business
Days after the expiration of the Indemnity Period ("Second Release Date"),
Huffy shall take such steps as necessary to cause the distribution of the
Holdback Shares that remain after the First Release Date to the Gen-X
Stockholders and Electing Optionholders minus the number of Holdback Shares
that Huffy is entitled to retain as payment for any amounts due the
Indemnified Parties pursuant to the indemnification obligation of the Gen-X
Stockholders and Electing Optionholders under ARTICLE X of this Agreement.
The distribution of such remaining Holdback Shares to the Gen-X
Stockholders and Electing Optionholders shall be on a pro rata basis based
upon their percentage ownership of Gen-X Common Stock Equivalents
immediately prior to the Effective Time (assuming, only for purposes of
this calculation, that 67% of the Gen-X Stock Equivalents that would have
been issuable to the Electing Optionholders had they exercised their
Options as of the Closing Date, were actually issued to them).
2.3 Merger Consideration Adjustments.
2.3.1 2002 EBITDA
(a) Calculation of Consolidated Gen-X 2002 EBITDA. Huffy shall
determine the Consolidated Gen-X 2002 EBITDA as soon as reasonably
practicable after Huffy's annual report for 2002 as reported on Form
10-K is approved by Huffy's Board of Directors for filing with the SEC
(which Huffy expects to occur on or about February 14, 2003). Once Huffy
determines the Consolidated Gen-X 2002 EBITDA, it shall deliver to the
Representative a written report setting forth the Consolidated Gen-X
2002 EBITDA together with the related calculations, all in accordance
with GAAP consistently applied (the "EBITDA Report"). The Representative
shall have 30 Business Days following its receipt of the EBITDA Report
during which to notify Huffy of any dispute of any item contained in the
EBITDA Report, which notice shall set forth in reasonable detail the
basis for such dispute (a "EBITDA Dispute Notice"). If the
Representative does not notify Huffy of any dispute within the above
referenced time period, the Gen-X Stockholders and Electing
Optionholders shall be deemed to have accepted the EBITDA Report and it
shall be final. Huffy and the Representative shall, during the 30
Business Days following Huffy's receipt of the EBITDA Dispute Notice use
their best efforts to reach agreement on the disputed items or amounts
in order to determine the Consolidated Gen-X 2002 EBITDA. If, during
such period, Huffy and the Representative are unable to reach agreement,
they shall promptly thereafter cause BDO Siedman or such other
independent accounting firm upon whom the parties mutually agree that
has no existing relationship with Huffy, Gen-X or the Principal
Stockholders (the "Accounting Referee") to promptly review this
Agreement and the disputed items or amounts for the purpose of
calculating the Consolidated Gen-X 2002 EBITDA. In making such
calculation, the Accounting Referee shall consider only those items or
amounts in the EBITDA Report as to which Huffy and the Representative
have disagreed. The Accounting Referee shall deliver to Huffy and the
Representative, as promptly as practicable, a long form report setting
forth its calculation of Consolidated Gen-X 2002 EBITDA. The Accounting
Referee's calculation of Consolidated Gen-X 2002 EBITDA shall be final
and binding on the parties. In the event that the Accounting Referee
determines that such Consolidated Gen-X 2002 EBITDA is at least
US$100,000 more than what Huffy determined in its calculation of
Consolidated Gen-X 2002 EBITDA, then all expenses of and for the
Accounting Referee shall be borne by Huffy; otherwise all expenses of
and for the Accounting Referee shall be borne by the Gen-X Stockholders
and Electing Optionholders and shall be paid to Huffy through Huffy's
retention of the appropriate amount of Holdback Shares.
(b) Consolidated Gen-X 2002 EBITDA Adjustment. If the final
determination of the Consolidated Gen-X 2002 EBITDA as set forth in
Section 2.3.1(a) is less than US$15,529,825, then
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the adjustment for the deficiency in Consolidated Gen-X 2002 EBITDA (the
"EBITDA Adjustment") shall be calculated in accordance with the
following formula:
EBITDA Adjustment = (US$15,529,825 minus Consolidated Gen-X 2002
EBITDA) times the EBITDA Multiplier
2.3.2 Consolidated Gen-X Debt
(a) Calculation of Consolidated Gen-X Debt. Huffy shall determine
the Consolidated Gen-X 2002 Average Debt as soon as reasonably
practicable after Huffy's annual report for 2002 as filed on Form 10-K
is approved by Huffy's Board of Directors for filing with the SEC (which
Huffy expects to occur on or about February 14, 2003). Once Huffy
determines the Consolidated Gen-X 2002 Average Debt, it shall send a
written report to the Representative setting forth the Consolidated
Gen-X 2002 Average Debt calculated in accordance with GAAP.
(b) Consolidated Gen-X Debt Adjustment. If the Consolidated Gen-X
2002 Average Debt is in excess of US$41,000,000 then the adjustment for
the excess in Consolidated Gen-X 2002 Average Debt (the "Debt
Adjustment") shall be calculated in accordance with the following
formula:
Debt Adjustment = (Consolidated Gen-X 2002 Average Debt minus
US$41,000,000) times 17.5%
2.3.3 Total Adjustment Amount.
(a) The sum of the adjustments, if any, resulting from the
procedures set forth in Sections 2.3.1 and 2.3.2 above shall be the
"Total Adjustment Amount;" provided that, the Total Adjustment Amount
shall not exceed US$5,000,000.
(b) Conversion of Total Adjustment Amount into Shares. Huffy shall
divide the Total Adjustment Amount by US$7.75 and round to the nearest
whole number in order to determine the amount of Holdback Shares that
Huffy shall retain as the Total Adjustment Amount.
2.4 Dissenting Shares. Notwithstanding any other provisions of this
Agreement, shares of Gen-X Common Stock Equivalents that are issued and
outstanding immediately prior to the Effective Time and that are held by a
holder who has not voted such shares of Gen-X Common Stock Equivalents in favor
of the Merger and who has delivered a written demand in the manner provided by
Section 262 of the DGCL and who, as of the Effective Time, shall not have
effectively withdrawn or lost such right to relief as a dissenting stockholder
("Dissenting Shares") shall not be converted into the right to receive the
Merger Consideration. The holders of such Dissenting Shares shall be entitled
only to such rights as are granted by Section 262 of the DGCL. Each holder of
Dissenting Shares who becomes entitled to payment for such Dissenting Shares
pursuant to Section 262 of the DGCL shall receive payment therefor from the
Surviving Corporation in accordance with the DGCL; provided, however, that if
any such holder of Dissenting Shares (a) shall have failed to establish such
holder's entitlement to relief as a dissenting stockholder as provided in
Section 262 of the DGCL, (b) shall have effectively withdrawn such holder's
demand for relief as a dissenting stockholder with respect to such Dissenting
Shares, (c) shall have lost such holder's right to relief as a dissenting
stockholder and payment under Section 262 of the DGCL, or (d) shall have failed
to file a complaint with the appropriate court seeking relief as to
determination of the value of all Dissenting Shares within the time provided in
Section 262 of the DGCL, such holder shall forfeit the right to relief as a
dissenting stockholder with respect to such Dissenting Shares and each such
Dissenting Share shall be converted into the right to receive the Merger
Consideration, without interest thereon, from the Surviving Corporation as
provided in Section 2.2.1. Gen-X shall give Huffy prompt notice of any demands
made under Section 262 of the DGCL received by Gen-X prior to the Effective
Time, and Huffy shall have the right to participate in all negotiations and
proceedings with respect to such demands. Gen-X shall not, except with the prior
written consent of Huffy, make any payment with respect to, or settle or offer
to settle, any such demands.
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2.5 Stock Options.
2.5.1 Consideration in Lieu of Exercise. At the Effective Time,
each Option, whether or not vested, that has an exercise price that is
equal to or greater than US$8.88 per share (the "Deemed Per Share Merger
Value") shall be cancelled, without any payment or other consideration
therefor. At the Effective Time, all other unexercised Options, whether or
not vested, shall be cancelled and, as soon as reasonably practicable after
the Effective Time, each holder of such other unexercised Options who so
elects in writing on or before the Closing Date (the "Electing
Optionholders") shall be entitled to receive the following in lieu of such
Options: (i) for Options under the Gen-X Employee Stock Plan (A) an amount
in cash, without interest, equal to 33% of such holder's Options Spread
Value and (B) a grant, pursuant to either an Employee Retention Agreement
in the form appended hereto as Exhibit 2.5.1(i)(A) ("Employee Retention
Agreement") or Employee Option Satisfaction Agreement in the form appended
thereto as Exhibit 2.5.1(i)(B) ("Employee Option Satisfaction Agreement"),
of a number of shares of Huffy Common Stock equal to 67% of such holder's
Options Spread Value, divided by US$7.75; and (ii) for Options under the
Gen-X Non-Employee Stock Plan (A) an amount in cash, without interest,
equal to 33% of such holder's Options Spread Value and (B) a grant of a
number of shares of Huffy Common Stock equal to 67% of such holder's
Options Spread Value, divided by US$7.75 upon receipt of an Option
Satisfaction Agreement in the form appended hereto as Exhibit 2.5.1(ii)
(the "Option Satisfaction Agreement") executed by such holder. For any
holder of such Options, the "Options Spread Value" shall be equal to, with
respect to such Options, the difference, if positive, between (i) the
product of the Deemed Per Share Merger Value multiplied by the number of
shares of Gen-X Common Stock Equivalents subject to such Options less (ii)
the aggregate exercise price with respect to such Options. From and after
the Effective Time, no holder of Options shall have any rights in respect
of such Options, other than to receive consideration in such manner. The
parties shall mutually agree prior to Closing upon which holders of Options
under the Gen-X Employee Stock Plan shall be offered an Employee Retention
Agreement or an Employee Option Satisfaction Agreement. 16.8% of the shares
of Huffy Common Stock issuable under each Employee Retention Agreement,
Employee Option Satisfaction Agreement and the Option Satisfaction
Agreement shall constitute Holdback Shares and shall be withheld pending
their eventual distribution or permanent retention by Huffy as contemplated
in this Agreement.
2.5.2 Amendments to Stock Option Plans. Prior to the Effective Time,
Gen-X (a) shall take all reasonable steps necessary to make any amendments
to the terms of the Stock Option Plans, the individual Option agreements or
the Options that are necessary to give effect to the transactions
contemplated by this Agreement, and (b) shall take reasonable steps
necessary to obtain at the earliest practicable date all applicable
Employee Retention Agreements, Employee Option Satisfaction Agreements or
Option Satisfaction Agreements as contemplated in Section 2.5.1 and written
releases (if necessary) from any holders of Options who will not be
entitled to receive any consideration under Section 2.5.1, to effect the
cancellation of such holders' Options at the Effective Time in accordance
with this Section 2.5.
2.6 Conversion of Shares; Payment Procedures.
2.6.1 Conversion of Gen-X Common Stock Equivalents. Each share of
Gen-X Common Stock Equivalents issued and outstanding immediately prior to
the Effective Time (other than any Dissenting Shares and shares to be
cancelled pursuant to Section 2.6.2) shall be cancelled and shall be
converted automatically into the right to receive the following, payable to
the holder thereof upon surrender of the certificate formerly representing
such share of Gen-X Common Stock Equivalents in the manner provided in this
Section 2.6: (i) an amount of cash, without interest, equal to the Cash
Consideration divided by the total number of shares of Gen-X Common Stock
Equivalents issued and outstanding immediately prior to the Effective Time,
and (ii) a number of whole shares of Huffy Common Stock equal to the Stock
Consideration divided by the total number of shares of Gen-X Common Stock
Equivalents issued and outstanding immediately prior to the Effective Time,
and (iii) a whole number of Holdback Shares (payable on the First Release
Date and Second Release Date as set forth in Sections 2.2.2 and 2.2.3)
minus (A) the amount of Holdback Shares that Huffy retains for the Total
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Adjustment Amount, minus (B) the number of Holdback Shares that Huffy
retains as payment for any amounts due the Indemnified Parties pursuant to
the indemnification obligation of the Gen-X Stockholders and Electing
Optionholders under this Agreement, and minus (C) the amount of Holdback
Shares payable to the Electing Optionholders, divided by the total number
of shares of Gen-X Common Stock Equivalents issued and outstanding
immediately prior to the Effective Time.
2.6.2 Gen-X Treasury Shares. Each share of Gen-X Common Stock
Equivalents or Gen-X Preferred Stock held in the treasury of Gen-X, if any,
immediately prior to the Effective Time, shall be cancelled without any
conversion thereof and no payment or distribution shall be made with
respect thereto.
2.6.3 MergerSub Common Stock. Each share of MergerSub Common Stock
that is issued and outstanding immediately prior to the Effective Time
shall be converted into one share of Surviving Corporation Common Stock.
2.6.4 Fractional Shares. No fractional shares of Huffy Common Stock
shall be issued pursuant to this Agreement. All shares of Huffy Common
Stock to which a holder of shares of Gen-X Common Stock Equivalents is
entitled in connection with the Merger shall be aggregated. If a fractional
share results from such aggregation, in lieu of the issuance of any such
fractional share of Huffy Common Stock, a cash adjustment ("Cash in Lieu")
shall be paid to a Person in respect of any such fractional share that
otherwise would be issuable to such Person pursuant to Section 2.2.1.
2.6.5 Appointment of Exchange Agent. LaSalle Bank, N.A. shall act as
exchange agent hereunder (the "Exchange Agent"). At the Effective Time,
Huffy shall deliver or cause to be delivered, in trust, to the Exchange
Agent, for the benefit of the former holders of shares of Gen-X Common
Stock Equivalents, for exchange in accordance with the provisions in this
ARTICLE II, through the Exchange Agent, the Merger Consideration, except
for any amounts paid directly to the holders of the Common Stock
Equivalents at the Closing and the Holdback Shares (such Merger
Consideration, together with any dividends or distributions with respect
thereto, being hereinafter referred to as the "Exchange Fund") to be paid
pursuant to Section 2.6.1 and to be deposited pursuant to this Section
2.6.5 in exchange for shares of Gen-X Common Stock Equivalents. Pending
distribution pursuant to Section 2.6 of the Exchange Fund deposited with
the Exchange Agent, all cash so deposited shall be held in trust for the
benefit of the former holders of Gen-X Common Stock Equivalents and such
cash shall not be used for any other purposes; provided, however, that the
Surviving Corporation may direct the Exchange Agent to invest such cash,
provided that such investments (a) shall be (i) obligations of, or
guaranteed by, the federal governments of either the United States of
America or Canada, (ii) in commercial paper obligations receiving the
highest rating from either Moody's Investors Services, Inc. or Standard &
Poor's Corporation, or (iii) in certificates of deposit, bank repurchase
agreements or bankers acceptances of domestic commercial banks with capital
exceeding US$250,000,000 (collectively, "Permitted Investments") or shall
be in money market funds that are invested solely in Permitted Investments
and (b) shall have maturities that will not prevent or delay payments to be
made pursuant to Section 2.6.
2.6.6 Exchange Procedures. For those holders of Gen-X Common Stock
Equivalents that do not deliver to Huffy at the Closing their Share
Certificates, the following exchange procedure shall apply. As soon as
reasonably practicable after the Effective Time, the Exchange Agent shall
mail to each Person who was, at the Effective Time, a holder of record of
Gen-X Common Stock Equivalents, (i) a form of letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title
to the certificates evidencing the Gen-X Common Stock Equivalents (the
"Share Certificates") shall pass, only upon proper delivery of a Share
Certificate to the Exchange Agent, and which shall be in such form and have
such other provisions as Huffy and Gen-X may reasonably specify prior to
the Effective Time) and (ii) instructions for use in effecting the
surrender of Share Certificates pursuant to such letter of transmittal.
Upon surrender to the Exchange Agent of a Share Certificate, together with
such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, and such other documents as may
be required pursuant to such instructions, the holder of such Share
Certificate, or such holder's written designee(s), shall be entitled to
receive in exchange therefor the Merger
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Consideration for each share of Gen-X Common Stock Equivalents formerly
represented by such Share Certificate. No interest shall accrue or be paid
on the Cash Consideration or the Cash In Lieu upon the surrender of any
Share Certificate for the benefit of the holder of such Share Certificate.
Until surrendered as contemplated by this Section 2.6.6, each Share
Certificate or other instrument shall, from and after the Effective Time,
be deemed to represent only the right to receive the Merger Consideration,
and, until such surrender, no cash or other consideration or payment of any
kind shall be paid to the holder of such outstanding Share Certificate or
other instrument in respect thereof. This Section 2.6 shall apply to Gen-X
Stockholders that deliver their Share Certificates to Huffy at Closing
except that delivery shall be made to Huffy (instead of the Exchange Agent)
and delivery of the letter of transmittal shall not be required.
2.6.7 Payments to Transferees of Gen-X Common Stock Equivalents. If
payment is to be made to a Person other than the registered holder of the
Gen-X Common Stock Equivalents represented by the Share Certificate or
other instrument so surrendered in exchange therefor, it shall be a
condition to such payment that the Share Certificate or other instrument so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the Person requesting such payment shall pay to the
Exchange Agent any transfer or other taxes required as a result of such
payment to a Person other than the registered holder of such Gen-X Common
Stock Equivalents or establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not payable. Huffy, the Surviving
Corporation or the Exchange Agent shall be entitled to deduct and withhold
from the Merger Consideration otherwise payable pursuant to this Agreement
to any holder of Gen-X Common Stock Equivalents such amounts as Huffy, the
Surviving Corporation or the Exchange Agent are required to deduct and
withhold under the Code or any provision of any applicable Law, with
respect to the making of such payment. To the extent that amounts are so
withheld by Huffy, the Surviving Corporation or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of Gen-X Common Stock Equivalents in respect
of whom such deduction and withholding was made by Huffy, the Surviving
Corporation or the Exchange Agent.
2.6.8 Lost Certificates. In the event that any Share Certificate or
other instrument representing shares of Gen-X Common Stock Equivalents
shall have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the Person claiming such Share Certificate or other
instrument to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such holder of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Share
Certificate or other instrument, the Exchange Agent will issue in exchange
for and in lieu of such lost, stolen or destroyed Share Certificate or
other instrument representing the Gen-X Common Stock Equivalents, the
Merger Consideration.
2.6.9 Unclaimed Merger Consideration. If any portion of the Exchange
Fund deposited with the Exchange Agent for purposes of payment in exchange
for Gen-X Common Stock Equivalents remains unclaimed six months after the
Effective Time, such portion of the Exchange Fund shall be returned to the
Surviving Corporation, upon demand, and any such holder who has not
surrendered such holder's Share Certificates in compliance with this
ARTICLE II prior to that time shall thereafter look only to the Surviving
Corporation for payment of the Merger Consideration. Notwithstanding the
foregoing, the Surviving Corporation shall not be liable to any holder of
Gen-X Common Stock Equivalents for any amount paid to a public official
pursuant to applicable unclaimed property Laws. Any amounts remaining
unclaimed by holders of Gen-X Common Stock Equivalents six years after the
Effective Time (or such earlier date immediately prior to such time as such
amounts would otherwise escheat to or become property of any Governmental
Entity) shall, to the extent permitted by applicable Law, become the
property of the Surviving Corporation, free and clear of any claims or
interest of any Person previously entitled thereto.
2.6.10 Merger Consideration Attributable to Dissenting Shares. Any
portion of the Merger Consideration, together with all interest and
earnings thereon, made available to the Exchange Agent pursuant to this
Section 2.6.10 to pay for shares of Gen-X Common Stock Equivalents for
which
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dissenters' rights have been perfected as provided in Section 2.4 shall be
returned to the Surviving Corporation upon demand.
2.7 Redemption of Gen-X Preferred Stock. Each share of Gen-X Preferred
Stock issued and outstanding immediately prior to the Effective Time shall be
redeemed as if still in existence by the Surviving Corporation at the Effective
Time for US$1.00 cash per share (which will be an aggregate of US$2,970,000 if
all shares of Gen-X Preferred Stock outstanding as of the date of this Agreement
are outstanding as at the Effective Time). Payment for shares of Gen-X Preferred
Stock shall be made at the Closing and Gen-X shall obtain a release of DMJ
Financial, Inc. of its Liens against Gen-X's assets upon the redemption of DMJ
Financial, Inc.'s Preferred Stock.
ARTICLE III
CLOSING
3.1 Closing. The closing of the Merger (the "Closing") shall take place
(i) at the offices of Dinsmore & Shohl LLP, 255 East Fifth Street, Cincinnati,
Ohio 45202 at 9:00 A.M. (Eastern time) on the Business Day that the parties
hereto designate as the closing date, which such date shall be a day that
securities are traded on the New York Stock Exchange and shall be no later than
five Business Days following the fulfillment or waiver of the conditions set
forth in ARTICLE VIII in accordance with this Agreement; provided that, the
Closing shall occur no earlier than October 1, 2002, or (ii) at such other place
and time and/or on such other date as Gen-X and Huffy may agree.
ARTICLE IV
THE SURVIVING CORPORATION
4.1 Certificate of Incorporation. At the Effective Time, the Certificate
of Incorporation of MergerSub shall be the Certificate of Incorporation of the
Surviving Corporation except that it shall be amended to provide that the name
of the Surviving Corporation shall be Gen-X Sports Inc., or such other name as
may be determined by Huffy and/or MergerSub, until thereafter amended in
accordance with Delaware Law and such Certificate of Incorporation.
4.2 By-Laws. The bylaws of MergerSub, as in effect immediately prior to
the Effective Time, shall be, at the Effective Time, the bylaws of the Surviving
Corporation until thereafter amended.
4.3 Directors and Officers. From and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable Law, the directors and officers of MergerSub shall be the persons
specified in Exhibit 4.3 appended hereto, in each case to hold office in
accordance with the certificate of incorporation and the by-laws of the
Surviving Corporation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GEN-X
Gen-X represents and warrants to Huffy and to MergerSub that, except as set
forth in the Gen-X Disclosure Schedule (provided, however, that each disclosure
set forth in each Section of the Gen-X Disclosure Schedule shall be deemed to be
made in all sections of the Gen-X Disclosure Schedule):
5.1 Organization and Good Standing. Gen-X is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power and authority to carry on its business as
it is now being conducted. Gen-X is duly qualified as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned or held under lease or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
or in good standing would not have a Material Adverse Effect. Without limiting
the generality of the foregoing, Gen-X is qualified to do business in the states
set forth on Section 5.1 of the Gen-X Disclosure Schedule.
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5.2 Certificate of Incorporation and By-Laws. True, complete and correct
copies of the certificates of incorporation and by-laws or equivalent
organizational documents, each as amended as of the date hereof, of Gen-X have
been made available to Huffy. The certificates of incorporation, by-laws and
equivalent organizational documents of Gen-X are in full force and effect. Gen-X
is not in violation of any provision of its certificate of incorporation,
by-laws or equivalent organizational documents.
5.3 Capitalization.
5.3.1 Equity Securities. As of the date hereof, the authorized
capital stock of Gen-X consists of 3,960,000 shares of Gen-X Preferred
Stock, 50,000,000 shares of Common Stock, 250,001 shares of Series B Junior
Participating Preferred Stock, and 6,000,000 shares of Series C Non-Voting
Preferred Stock. As of the date of this Agreement, (a) 2,970,000 shares of
Gen-X Preferred Stock were outstanding, (b) 5,369,029 shares of Gen-X
Common Stock were outstanding, (c) 83,334 shares of Series B Junior
Participating Preferred Stock were outstanding, and (d) 5,452,363 shares of
Series C Non-Voting Preferred Stock were outstanding. Section 5.3.1 of the
Gen-X Disclosure Schedule contains a true, complete and correct list as of
such date of all outstanding Options, warrants, rights and other securities
of Gen-X convertible into, or exercisable for, shares of capital stock of
Gen-X, the holders of such Options, warrants, rights and other securities,
the exercise prices with respect to such Options, warrants, rights and
other securities and the state, province and country of domicile of each
holder of such options, warrants, rights and other securities. Section
5.3.1 of the Gen-X Disclosure Schedule contains a true, complete and
correct list of all stockholders of Gen-X, the amount (and type) of shares
of Gen-X capital stock each stockholder owns and the state, province and
country of domicile for each such stockholder and the Principal
Stockholders. The holders of Gen-X Preferred Stock do not have any voting
rights. All outstanding shares of Gen-X Common Stock Equivalents and Gen-X
Preferred Stock have been duly authorized and validly issued and are fully
paid, non-assessable and free of preemptive rights. No shares of Gen-X
Common Stock Equivalents or Gen-X Preferred Stock are owned by any direct
or indirect Subsidiary of Gen-X. No shares of Gen-X's capital stock or
Options, warrants, rights, or other securities convertible into or
exercisable for, shares of capital stock of Gen-X have been issued or
disposed of in violation of the preemptive rights, rights of first refusal
or similar rights of any of Gen-X's stockholders.
5.3.2 Preferred Stock Dividends. Gen-X has paid (and will continue
through the Closing to pay as they accrue) all accrued dividends to the
holders of the Gen-X Preferred Stock.
5.3.3 Commitments to Issue or Purchase Securities. Except as
described in this Section 5.3, set forth on Section 5.3.1 of the Gen-X
Disclosure Schedule and as contemplated by this Agreement, (a) no shares of
capital stock or other equity interests of Gen-X or its Subsidiaries are
authorized, issued or outstanding, or reserved for issuance, and there are
no Options, warrants or other rights (including registration rights),
agreements, arrangements or commitments of any character to which Gen-X or
its Subsidiaries are a party relating to the issued or unissued capital
stock or other equity interests of Gen-X or any of its Subsidiaries that
requires Gen-X or its Subsidiaries to grant, issue or sell any shares of
the capital stock or other equity interests of Gen-X or any of its
Subsidiaries by sale, lease, license or otherwise; (b) Gen-X and its
Subsidiaries do not have any obligation, contingent or otherwise, to
repurchase, redeem or otherwise acquire any shares of the capital stock or
other equity interests of Gen-X or any of its Subsidiaries; (c) Gen-X and
its Subsidiaries do not, directly or indirectly, own, or have agreed to
purchase or otherwise acquire, the capital stock or other equity interests
of, or any interest convertible into or exchangeable or exercisable for
such capital stock or such equity interests of, any corporation,
partnership, joint venture or other entity that would be material in value
to Gen-X; and (d) there are no voting trusts, proxies or other agreements
or understandings to which Gen-X, its Subsidiaries or any of their
respective stockholders is a party with respect to the voting of any shares
of capital stock or other equity interests of Gen-X.
5.4 Gen-X Subsidiaries. Section 5.4 of the Gen-X Disclosure Schedule
contains a list of the following information for each current Subsidiary of
Gen-X: (a) the name of such Subsidiary; (b) its authorized, issued and
outstanding capital stock or other equity interests, and the percentage of such
capital stock or other
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equity interests owned by Gen-X or any Subsidiary of Gen-X, and the identity of
such owner; and (c) any capital stock reserved for future issuance pursuant to
outstanding options or other agreements, and the identity of all parties to any
such option or other agreement. Each current Subsidiary of Gen-X is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization. Each current Subsidiary of
Gen-X has all requisite corporate power and authority to carry on its business
as it is now being conducted. Each current Subsidiary of Gen-X is duly qualified
as a foreign corporation or organization authorized to do business, and is in
good standing, in each jurisdiction where the character of its properties owned
or held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified or in good standing would
not have a Material Adverse Effect on Gen-X. Without limiting the generality of
the foregoing, the current Subsidiaries of Gen-X are qualified to do business in
the states set forth on Section 5.4 of the Gen-X Disclosure Schedule listed by
each such Subsidiary. All of the outstanding shares of capital stock or other
ownership interests in each of Gen-X's current Subsidiaries have been duly
authorized and validly issued, are fully paid and non-assessable, and are owned
entirely by Gen-X or another Subsidiary of Gen-X free and clear of all Liens,
and are not subject to preemptive rights created by statute, such Subsidiary's
certificate of incorporation, by-laws or equivalent organizational documents, or
any agreement to which such Subsidiary is a party. No shares of capital stock of
each current Subsidiary of Gen-X or options, warrants, rights, or other
securities convertible into or exercisable for, shares of such capital stock has
been issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any stockholders of such Subsidiary.
5.5 Corporate Authority.
5.5.1 General Authority and Enforceability. Gen-X has the requisite
corporate power and authority to execute and deliver this Agreement and,
subject to the adoption of this Agreement and the approval of the Merger by
Gen-X's stockholders, to consummate the transactions contemplated hereby.
The execution and delivery by Gen-X of this Agreement and the consummation
by Gen-X of the transactions contemplated hereby have been duly authorized
by its board of directors and, except for the adoption of this Agreement
and the approval of the Merger by Gen-X's stockholders, no other corporate
action on the part of Gen-X is necessary to authorize the execution and
delivery by Gen-X of this Agreement and the consummation by it of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Gen-X and constitutes a valid and binding agreement of Gen-X
and is enforceable against Gen-X in accordance with its terms, except to
the extent that (a) such enforcement may be subject to any bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other laws,
now or hereafter in effect, relating to or limiting creditors' rights
generally and (b) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought. The preparation of the Proxy Statement has been or will be prior
to the Effective Time duly authorized by the Board of Directors of Gen-X.
The corporate records and minute books or other applicable records of Gen-X
reflect all material action taken and authorizations made at meetings of
such companies' Boards of Directors or any committees thereof and at any
stockholders meetings thereof.
5.5.2 Board Recommendation and Stockholder Vote. Prior to execution
and delivery of this Agreement, Gen-X's board of directors (at a meeting
duly called and held) has (a) approved this Agreement and the transactions
contemplated hereby, (b) determined that this Agreement and the
transactions contemplated hereby are fair to, advisable and in the best
interests of Gen-X and the holders of Gen-X Common Stock Equivalents and
Gen-X Preferred Stock and (c) determined to recommend the adoption of this
Agreement and the approval of the Merger to Gen-X's stockholders at the
Gen-X Stockholders Meeting. The affirmative vote of the holders of a
majority of the outstanding shares of Gen-X Common Stock Equivalents and
Gen-X Preferred Stock (to the extent required by Delaware Law) are the only
vote of the holders of any class or series of Gen-X's capital stock
necessary to adopt this Agreement and to approve the Merger.
5.6 Compliance With Applicable Law. Gen-X holds, and is in compliance
with the terms of, all Permits that are required for the operation of the
business of Gen-X, except for a failure to hold or to comply with such Permits
that does not and is not reasonably likely to, individually or in the aggregate,
cause a
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Material Adverse Effect on Gen-X. Section 5.6 of the Gen-X Disclosure Schedule
contains a true, complete and correct list of all Permits that Gen-X currently
holds and Gen-X is in compliance with all terms of such Permits, except for
where failure to comply with such Permits does not and is not reasonably likely
to, individually or in the aggregate, cause a Material Adverse Effect on Gen-X.
With respect to the Permits of Gen-X set forth on Section 5.6 of the Gen-X
Disclosure Schedules, no action or proceeding is pending or, to the Knowledge of
Gen-X, threatened that would reasonably be expected to have a Material Adverse
Effect on Gen-X. The business of Gen-X is being conducted in all material
respects in compliance with all applicable material Laws of any Governmental
Entity. No material investigation or review by any Governmental Entity with
respect to Gen-X is pending or, to the Knowledge of Gen-X, threatened.
5.7 Non-Contravention. Except as set forth in Section 5.7 of the Gen-X
Disclosure Schedule, the execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, (a) result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
benefit under, or require the consent of or notice to any Person that is a party
to, any Gen-X Lease or any other Contract (including any oral Contracts) to
which Gen-X is a party, or result in the creation of any Lien (other than any
Permitted Lien) upon any of the properties or assets of Gen-X, (b) conflict with
or result in any violation of any provision of the certificate of incorporation
or the by-laws or other equivalent organizational document, in each case as
amended, of Gen-X, or (c) subject to the governmental filings referenced in
clause (a) of Section 5.8, conflict with or violate any Order or, to the
Knowledge of Gen-X, any Law applicable to Gen-X or any of its properties or
assets, other than, in the case of clauses (a) and (c), any such conflicts or
violations that, individually or in the aggregate, would not have a Material
Adverse Effect on Gen-X.
5.8 Government Approvals and Consents. No filing or registration with,
notice to or authorization, consent or approval of, any Governmental Entity is
required by or with respect to Gen-X in connection with the execution and
delivery of this Agreement by Gen-X or is necessary for the consummation of the
transactions contemplated hereby (including, without limitation, the Merger)
except: (a) in connection, or in compliance, with the provisions of the HSR Act,
the Securities Act, the Exchange Act and any state securities or blue sky law,
(b) for the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware, and (c) such consents, approvals, authorizations,
permits, filings and notifications listed in Section 5.8 of the Gen-X Disclosure
Schedule.
5.9 Financial Statements. Section 5.9 of the Gen-X Disclosure Schedule
sets forth Gen-X's audited consolidated balance sheets as of December 31, 2001
and December 31, 2000 and the related audited consolidated statements of income
and cash flow for the twelve-month periods ended December 31, 2001 and December
31, 2000 (the "Year-End Financial Statements") and Gen-X's unaudited balance
sheets as of March 31, 2002 and March 31, 2001 and related unaudited
consolidated statements of income and cash flow for the three-month period ended
March 31, 2002 and March 31, 2001 (the "Gen-X Interim Financial Statements").
The Year-End Financial Statements and the Gen-X Interim Financial Statements
have been prepared in accordance with GAAP applied on a basis consistent
throughout the periods indicated and consistent with each other (except that the
Gen-X Interim Financial Statements do not contain the footnotes required by
GAAP). The Year-End Financial Statements and Gen-X Interim Financial Statements
(together referred to as the "Gen-X Financial Statements") present fairly the
consolidated financial condition and consolidated operating results of Gen-X and
any consolidated subsidiaries as of the dates and during the periods indicated
therein, subject in the case of the Gen-X Interim Financial Statements to normal
year-end adjustments, which will not be material in amount or significance.
5.10 Absence of Undisclosed Liabilities. There are no Liabilities of
Gen-X of any kind whatsoever that would be required by GAAP to be reflected on a
consolidated balance sheet of Gen-X (including the notes thereto), other than:
5.10.1 Liabilities incurred since January 1, 2002 in the ordinary
course of business consistent with past practices;
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5.10.2 reasonable and customary fees and expenses incurred in
connection with the consummation of the transactions contemplated by this
Agreement, which shall include up to US$1,000,000 in total fees that Gen-X
pays to Sheffield Merchant Banking Group; and
5.10.3 payments required as a result of the consummation of the
Merger under the terms of any Gen-X Plans, as identified in Section 5.10.3
of the Gen-X Disclosure Schedule.
5.11 Absence of Certain Changes or Events.
5.11.1 No Adverse Effects. Except as expressly contemplated or
permitted by this Agreement, and other than the reasonable and customary
fees and expenses incurred in connection with the transactions contemplated
by this Agreement, since January 1, 2002, the business of Gen-X has been
and will continue to be through the Effective Time conducted in all
material respects in the ordinary course of business consistent with past
practices (other than the potential change of principal lenders from HSBC
Bank Canada and HSBC Bank USA (collectively, "HSBC") to Canadian Imperial
Bank of Commerce "CIBC") on substantially the same terms as Gen-X disclosed
to Huffy), Gen-X has not engaged in any transaction or series of related
transactions material to Gen-X taken as a whole other than in the ordinary
course of business consistent with past practices, and there has not been
any event, occurrence or development that, individually or in the
aggregate, constitutes or would constitute a Material Adverse Effect on
Gen-X.
5.11.2 Specific Liabilities or Changes. Without limiting the
generality of the foregoing Section 5.11.1, since January 1, 2002, except
as set forth in Section 5.11.2 of the Gen-X Disclosure Schedule, there has
not been:
(a) any damage, destruction or loss to any of the assets or
properties of Gen-X that, individually or in the aggregate, constitutes
a Material Adverse Effect on Gen-X;
(b) any termination or expiration of a Contract with any supplier
of Gen-X or any change in its relationship with any supplier of Gen-X
that, individually or in the aggregate, resulted in or may result in a
Material Adverse Effect on Gen-X;
(c) other than payment of required dividends to the holders of
Gen-X Preferred Stock and holders of the Series C Non-Voting Preferred
Stock pursuant to Gen-X's certificate of incorporation and certificates
of designation, any declaration, setting aside or payment of any
dividend or distribution (whether in cash, capital stock or property) or
capital return in respect of any shares of Gen-X's capital stock or any
redemption, purchase or other acquisition by Gen-X of any shares of
Gen-X's capital stock, or any repurchase, redemption or other purchase
by Gen-X of any outstanding shares of capital stock or other securities
of, or other ownership interests in, Gen-X, or any amendment of any
material term of any outstanding security of Gen-X;
(d) any sale, assignment, transfer, lease or other disposition, or
agreement to sell, assign, transfer, lease or otherwise dispose of, any
of the assets of Gen-X taken as a whole other than in the ordinary
course of business consistent with past practices;
(e) any acquisition (by merger, consolidation, or acquisition of
stock or assets) by Gen-X of any corporation, partnership or other
business organization or division thereof or any equity interest therein
for consideration;
(f) any (i) incurrence of, (ii) guarantee with respect to, or
(iii) provision of credit support for, any indebtedness by Gen-X other
than pursuant to (A) Gen-X's current credit facility with HSBC in the
ordinary course of business, (B) lease financings for equipment used in
the operation of the business of Gen-X in the ordinary course of
business or (C) the potential change of principal lenders from HSBC to
CIBC on substantially the same terms as Gen-X disclosed to Huffy; or any
creation or assumption by Gen-X of any Lien, other than any Permitted
Lien, on any material asset;
(g) any material change in any method of accounting or accounting
practice (whether for financial accounting or Tax purposes) used by
Gen-X;
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(h) (i) any employment, deferred compensation, or similar
agreement entered into or amended by Gen-X and any employee, (ii) any
increase in the compensation payable, or to become payable by it, to any
of its directors or officers or generally applicable to all or any
category of Gen-X's employees, (iii) any increase in the coverage or
benefits available under any vacation pay, Gen-X awards, salary
continuation or disability, sick leave, deferred compensation, bonus or
other incentive compensation, insurance, pension or other employee
benefit plan, payment or arrangement made to, for or with any of the
directors or officers of Gen-X or generally applicable to all or any
category of Gen-X's employees, or (iv) severance pay arrangements made
to, for, or with such directors, officers or employees other than, in
the case of (i), (ii) and (iii) above and only with respect to employees
who are not officers or directors of Gen-X, increases in the ordinary
course of business consistent with past practices and that, in the
aggregate, have not resulted in a material increase in the benefits or
compensation expense of Gen-X taken as a whole;
(i) any revaluing in any material respect of any of the assets of
Gen-X on Gen-X Financial Statements, including, without limitation,
writing down the value of any assets or inventory or writing off notes
or accounts receivable other than in the ordinary course of business
consistent with past practices or as required by GAAP;
(j) any loan, advance or capital contribution made by Gen-X to, or
investment in, any Person other than loans, advances or capital
contributions, or investments of Gen-X made in the ordinary course of
business consistent with past practices;
(k) any adoption of or amendment to any Gen-X Plan other than as
required by Law or this Agreement;
(l) any waiver, direct or indirect, by Gen-X of (i) any right or
rights of value or (ii) any payment of any debt, Liabilities or other
obligation owed to Gen-X, except for waivers individually or in the
aggregate that do not have a Material Adverse Effect on Gen-X;
(m) any change in or amendment to Gen-X's certificate of
incorporation, by-laws or other organizational documents;
(n) any payment, loan or advance of any amount to or in respect of,
or the sale, transfer or lease of any properties or assets (whether
real, personal or mixed, tangible or intangible) to, or entering into of
any agreement, arrangement or transaction with or on behalf of, any
officer, director, or employee of Gen-X, or any Affiliate of Gen-X, or
any business or entity in which Gen-X or any Affiliate of Gen-X, or
relative of any such Person, has any material, direct or indirect,
interest, except for (i) directors' fees paid to non-Employee directors,
(ii) compensation to the officers and employees of Gen-X (including
benefits received by such officers and employees as a result of their
participation in Gen-X Plans) in the ordinary course of business
consistent with past practices, and (iii) advancement or reimbursement
of expenses in the ordinary course of business consistent with past
practices;
(o) any modification or change in any material Gen-X Insurance
Policy that would result in a diminishment of coverage under such Gen-X
Insurance Policy;
(p) any acquisition of a fee simple interest or a leasehold or
subleasehold interest in, or any sale, assignment, disposition,
transfer, pledge, mortgage or lease of, any real property owned or
leased by Gen-X;
(q) any issuance, sale or disposition of any capital stock or other
equity interest in Gen-X, except upon the valid exercise of Options in
accordance with the terms thereof, or any issuance or grant of any
options, warrants or other rights to purchase any such capital stock or
equity interest, or any securities convertible into or exchangeable for
such capital stock or equity interest, or any other change in the issued
and outstanding capitalization of Gen-X;
(r) except as required by this Agreement, any amendment, alteration
or modification in the terms of any currently outstanding Options,
warrants or other rights to purchase any capital stock or equity
interest in Gen-X or any securities convertible into or exchangeable for
such capital stock or equity interest, including, without limitation,
any reduction in the exercise or conversion price of
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any such rights or securities, any change to the vesting or acceleration
terms of any such rights or securities, or any change to terms relating
to the grant of any such rights or securities;
(s) any closure, shut down or other elimination of any of Gen-X's
factories, facilities or offices or any material change in the basic
character of its business, properties or assets;
(t) any action that, if it had been taken after the date hereof,
would have required the consent of Huffy under Section 7.1; and
(u) any agreement to take any actions specified in this Section
5.11.2, except for this Agreement and the SPA.
5.12 Gen-X Litigation. Section 5.12 of the Gen-X Disclosure Schedule sets
forth a brief description of all actual litigation (including all matters
resolved through alternative dispute resolution processes, including arbitration
and mediation) concerning Gen-X or in which Gen-X was a party for the past three
years. There are no outstanding Orders of any Governmental Entity against Gen-X,
any of their properties, assets or businesses, or any of Gen-X's current or
former directors or officers or any other Person whom Gen-X has agreed to
indemnify that would reasonably be expected to have a Material Adverse Effect on
Gen-X. Except as set forth in Section 5.12 of the Gen-X Disclosure Schedule,
there are no Actions pending or, to the Knowledge of Gen-X, threatened against
Gen-X any of its properties, assets or business, or, to the Knowledge of Gen-X,
any of Gen-X's current or former directors or officers or any other Person whom
Gen-X has agreed to indemnify that would reasonably be expected to have a
Material Adverse Effect on Gen-X. To Gen-X's Knowledge, there are no facts or
circumstances specific to Gen-X that, if known to a third party, would
reasonably be expected to result in such an Action that could have a Material
Adverse Effect on Gen-X.
5.13 Contracts. Each Contract to which Gen-X is a party is valid, binding
and enforceable and in full force and effect in accordance with its terms,
except where the failure to be so valid, binding and enforceable and in full
force and effect would not reasonably be expected to have a Material Adverse
Effect on Gen-X, and there are no defaults by Gen-X or, to the Knowledge of
Gen-X, another party thereto thereunder, except any default that would not
reasonably be expected to have a Material Adverse Effect on Gen-X. Except as set
forth in Section 5.13 of the Gen-X Disclosure Schedule, Gen-X is not a party to,
or is bound by, any non-competition agreement or any other agreement or
obligation that purports to limit in any material respect the manner in which,
or the localities in which, Gen-X is entitled to conduct all or any material
portion of the business of Gen-X taken as a whole. Section 5.13 of the Gen-X
Disclosure Schedule lists: (a) each Contract (including any oral Contracts) to
which Gen-X is a party that is material to the business, financial condition,
results of operations or prospects of Gen-X taken as a whole, and Gen-X has
delivered to Huffy true, complete and correct copies of each such Contract (and
for all such oral Contracts, written summaries thereof); and (b) each Contract
that is material to the business, financial condition, results of operations or
prospects of Gen-X taken as a whole and to which Gen-X is a party with respect
to which a consent of any of the other parties thereto will be required in
connection with the transactions contemplated by this Agreement.
5.14 Taxes. Since January 1, 1997:
5.14.1 All Tax Returns required to have been filed by, or with
respect to, Gen-X or any affiliated, consolidated, combined, unitary or
similar group of which Gen-X is or was a member (a "Relevant Gen-X Group")
have been duly and timely filed (including any extensions), except for such
Tax Returns where the failure to file such Tax Returns would not have a
Material Adverse Effect on Gen-X. All such Tax Returns are true, complete
and correct in all material respects. All material Taxes due and payable by
Gen-X or any member of a Relevant Gen-X Group, whether or not shown on any
Tax Return, or claimed to be due by any Taxing Authority, for periods (or
portions of periods) covered by the Gen-X Financial Statements, have been
paid or accrued on the balance sheet included in the Gen-X Financial
Statements.
5.14.2 Gen-X has not incurred any material liability for Taxes in the
period after the date of the Gen-X Interim Financial Statements. The unpaid
Taxes of Gen-X (a) did not, as of the most recent fiscal
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quarter end, exceed by the reserve for liability for Income Tax (other than
the reserve for deferred taxes established to reflect timing differences
between book and tax income) or Other Tax set forth on the face of the
balance sheet included in the Gen-X Interim Financial Statements and (b)
will not exceed such reserve as adjusted for operations and transactions in
the ordinary course of business through the Closing Date.
5.14.3 Except as set forth on Section 5.14.3 of the Gen-X Disclosure
Schedule, Gen-X is not a party to any agreement extending the time within
which to file any Tax Return. Except for those claims listed in Section
5.14.3 of the Gen-X Disclosure Schedule, no claim has ever been made by a
Taxing Authority of any jurisdiction in which Gen-X or any member of any
Relevant Gen-X Group does not file Tax Returns that Gen-X or such member is
or may be subject to taxation by that jurisdiction.
5.14.4 Gen-X and each member of any Relevant Gen-X Group has withheld
and paid all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, creditor or independent
contractor.
5.14.5 Gen-X does not have Knowledge of any actions by any Taxing
Authority in connection with assessing additional Taxes against, or in
respect of, it, or any Relevant Gen-X Group for any past period. There is
no dispute or claim concerning any Tax Liability of Gen-X either (a) to
Gen-X's Knowledge threatened, or otherwise claimed or raised by any Taxing
Authority or (b) of which Gen-X is otherwise aware. There are no Liens for
Taxes upon the assets and properties of Gen-X other than Liens for Taxes
not yet due. Section 5.14.5of the Gen-X Disclosure Schedule indicates those
Tax Returns, if any, of Gen-X, and each member of any Relevant Gen-X Group
that have been audited or examined by Taxing Authorities, and indicates
those Tax Returns of Gen-X and each member of any Relevant Gen-X Group that
currently are the subject of audit or examination. Gen-X has delivered to
Huffy true, complete and correct copies of all federal, state, local and
foreign income Tax Returns filed by, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, Gen-X and each
member of any Relevant Gen-X Group.
5.14.6 There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Returns required to be
filed by, or that include or are treated as including, Gen-X or with
respect to any Tax assessment or deficiency affecting Gen-X or any Relevant
Gen-X Group.
5.14.7 Except for rulings and agreements listed in Section 5.14.7 of
the Gen-X Disclosure Schedule, Gen-X has not received any written ruling
related to Taxes or entered into any agreement with a Taxing Authority
relating to Taxes.
5.14.8 Gen-X has no Liability for the Taxes of any Person other than
the Relevant Gen-X Group of which Gen-X is the parent (a) under Section
1.1502-6 of the U.S. Treasury regulations (or any similar provision of
state, local or foreign law), (b) as a transferee or successor, (c) by
Contract or (d) otherwise.
5.14.9 Gen-X (a) has not agreed to make or is required to make any
adjustment under Section 481 of the Code by reason of a change in
accounting method or (b) is not a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code.
5.14.10 Gen-X is not a party to, or bound by, any obligations under
any tax sharing, tax allocation, tax indemnity, or similar agreement or
arrangement.
5.14.11 Gen-X is not a partner in any joint venture, partnership,
Contract or other arrangement that is treated as a partnership for federal,
state, local or foreign Income Tax purposes.
5.14.12 Gen-X was not included, nor is it includible in, the Tax
Return of any Relevant Gen-X Group with any corporation other than such a
return of which Gen-X is the common parent corporation.
5.14.13 Gen-X has not been the subject of an ownership change within
the meaning of Section 382(g) of the Code.
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5.14.14 Each material election with respect to Income Taxes affecting
Gen-X is set forth in Section 5.14.14 of the Gen-X Disclosure Schedule.
5.14.15 No interest in Gen-X is a United States real property
interest within the meaning of Section 897(c) of the Code.
5.14.16 None of the assets of Gen-X or any member of any Relevant
Gen-X Group are tax exempt use property within the meaning of Section
168(h) of the Code.
5.14.17 Neither Gen-X nor any member of any Relevant Gen-X Group has
distributed the stock of any corporation in a transaction satisfying the
requirements of Section 355 of the Code. None of the capital stock of Gen-X
or any member of any Relevant Gen-X Group has been distributed in a
transaction satisfying the requirements of Section 355 of the Code.
5.14.18 The mind and management of Gen-X Sports AG is located in
Switzerland, and Gen-X Sports AG's principal place of business is located
in Switzerland.
5.15 Title to Properties; Encumbrances. Except as described in the
following sentence, Gen-X has good, valid and, in the case of real property,
marketable title to, or a valid leasehold interest in, all of its properties and
assets (real, personal, tangible and intangible), including, without limitation,
all such properties and assets reflected in the Gen-X Interim Financial
Statements (except for properties and assets disposed of in the ordinary course
of business and consistent with past practices since such date), except for such
title or interest the failure of which to have would not have, individually or
in the aggregate, a Material Adverse Effect on Gen-X. Except as described in
Section 5.15 of the Gen-X Disclosure Schedule, none of such properties or assets
are subject to any Liens (whether absolute, accrued, contingent or otherwise)
other than Permitted Liens.
5.16 Intellectual Property. Section 5.16 of the Gen-X Disclosure
Schedule sets forth a true, correct and complete list of all Intellectual
Property Rights (other than third-party software generally commercially
available on a "shrink wrap" license or similar basis) now used or presently
proposed to be used in the business of Gen-X (the "Gen-X Intellectual Property
Rights"). Gen-X has delivered to Huffy true, correct and complete copies of all
written documentation evidencing its ownership in, rights to use or prosecution
(if applicable) of all of the Gen-X Intellectual Property Rights. With respect
to each item of Gen-X Intellectual Property Rights that Gen-X licenses or has
rights to use through a Contract, such license or Contract covering the item is
legal, valid, binding, enforceable and in full force and effect and no party to
such license or Contract (including Gen-X) is in breach, and no event has
occurred which with notice or lapse of time would constitute a breach of such
license or Contract. Gen-X owns or has the right to use (without the making of
any payment to others or the obligation to grant rights to others in exchange,
except as set forth in Section 5.16 of the Gen-X Disclosure Schedule) all
Intellectual Property Rights necessary to conduct its business as presently
being conducted, including, without limitation, all improvements that were
developed by third parties to products that Gen-X markets and sells. Except as
disclosed in Section 5.16 of the Gen-X Disclosure Schedule, all Employees,
former Employees and independent contractors have executed written Contracts
with Gen-X that assign to Gen-X all rights to any works of authorship,
inventions, improvements, discoveries or information relating to the business of
Gen-X; and waive for the benefit of Gen-X all moral rights in any works of
authorship relating to the business of Gen-X, including but not limited to the
right to the integrity of the work, the right to be associated with the work as
its author, by name or under a pseudonym and the right to remain anonymous.
Gen-X has no limitation by Contract or imposed by any court on its ability to
use Gen-X Intellectual Property Rights in any jurisdiction inside or outside the
United States in which Gen-X is engaged in material business activities. Except
as set forth in Section 5.16 of the Gen-X Disclosure Schedule, no charges,
complaints, actions, suits, proceedings, hearings, claims or demands have been
instituted, pending, or to the Knowledge of Gen-X, threatened that challenges
the validity of Gen-X Intellectual Property Rights, the title thereto of Gen-X,
or the authority of Gen-X to use Gen-X Intellectual Property Rights as it is
presently using such Gen-X Intellectual Property Rights. The conduct of the
business of Gen-X as now conducted and the Gen-X Intellectual Property rights do
not infringe or conflict in any material respect with (a) the Trademark Rights
or Patent Rights of any Person, or (b) any other Intellectual Property Rights of
any Person. Gen-X has, as of the date hereof, and will have as of the Effective
Time,
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satisfied all current requirements necessary to maintain the validity of all
Intellectual Property Rights, and the right to use such Intellectual Property
Rights necessary to conduct Gen-X's business as presently being conducted,
including without limitation, all improvements that were developed by third
parties to products that Gen-X markets and sells. No Person is using any of the
Gen-X Intellectual Property Rights owned by or licensed to Gen-X, except (i)
Gen-X or (ii) any Person duly licensed by it to use the same under a Contract as
described in Section 5.16 of the Gen-X Disclosure Schedule. Except as set forth
in Section 5.16 of the Gen-X Disclosure Schedule, Gen-X has no Knowledge of any
infringement by others of any Gen-X Intellectual Property Rights. All licenses
and other agreements pertaining to Gen-X Intellectual Property Rights are in
compliance in all material respects with all applicable Laws in all
jurisdictions in which Gen-X conducts any business operations, including,
without limitation, those pertaining to remittance of foreign exchange and
taxation, except where such lack of compliance does not and is not reasonably
likely to, individually or in the aggregate, cause a Material Adverse Effect on
Gen-X. The consummation of the transactions contemplated hereby will not alter
or impair the rights and interests of Gen-X in Gen-X Intellectual Property
Rights, and Surviving Corporation will have the same rights and interests in
Gen-X Intellectual Property Rights immediately after the Closing as it will have
immediately prior to the Closing.
5.17 Provided Information. The information supplied, or to be supplied in
writing, by Gen-X for inclusion in (a) the Registration Statement to be filed
with the SEC on Form S-4 under the Securities Act (the "Registration Statement")
for the purpose of registering the shares of Huffy Common Stock to be issued in
connection with the Merger, (b) the joint proxy statement/prospectus to be
distributed in connection with the Stockholders Meetings to vote upon, as
applicable, the adoption of this Agreement, the approval of the Merger and the
issuance of Huffy Common Stock contemplated hereby (the "Proxy Statement"), or
(c) any other filing required to be filed with the SEC as a result of the
transactions contemplated herein, will not, (i) in the case of the Registration
Statement or such other required filing, as applicable, on the date it is filed
with the SEC, on the date each amendment or supplement thereto is filed with the
SEC, on the date it becomes effective, and as of the Effective Time, and (ii) in
the case of the Proxy Statement, on the dates of the mailing of the Proxy
Statement by Gen-X and Huffy or on the dates of the Stockholders Meetings,
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 are made, not
misleading. The Proxy Statement and any amendments or supplements thereto, on
their respective dates of mailing, and any other filing required to be filed
with the SEC, as of the date thereof, insofar as they relate to or are filed or
are deemed to be filed by Gen-X or any of its Affiliates, will comply in all
material respects with all applicable requirements of the Exchange Act.
Notwithstanding the foregoing, Gen-X makes no representations with respect to
any statement in the foregoing documents based upon, and conforming to,
information supplied by Huffy or MergerSub for inclusion therein.
5.18 Gen-X Plans; ERISA.
5.18.1 Except as disclosed in Section 5.18.1 of the Gen-X Disclosure
Schedule, during the six-year period ending on the Closing Date, (a)
neither Gen-X nor any of Gen-X ERISA Affiliates maintains or sponsors (or
maintained or sponsored), or is or was required to make contributions to,
any Gen-X Plans, (b) none of the Gen-X Plans is or was a "multi-employer
plan", as defined in Section 3(37) of ERISA, (c) none of the Gen-X Plans is
or was a "defined benefit pension plan" within the meaning of Section 3(35)
of ERISA, (d) none of the Gen-X Plans provides or provided post-retirement
medical or health benefits, (e) none of the Gen-X Plans is or was a
"welfare benefit fund," as defined in Section 419(e) of the Code, or an
organization described in Sections 501(c)(9) or 501(c)(20) of the Code, (f)
neither the Gen-X nor any of the Gen-X ERISA Affiliates is or was a party
to any collective bargaining agreement, and (g) neither the Gen-X nor any
of the Gen-X ERISA Affiliates have announced or otherwise made any
commitment to create or amend any Gen-X Plan. Except as disclosed in
Section 5.18.1 of the Gen-X Disclosure Schedule, notwithstanding any
statement or indication in this Agreement to the contrary, there are no
Gen-X Plans (i) as to which Huffy or MergerSub will be required solely as a
result of the execution of this Agreement or the consummation of the
transactions contemplated hereby to make any contributions or with respect
to which Huffy or MergerSub shall have any obligation or liability
whatsoever, whether on behalf of any of the current employees of Gen-X or
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on behalf of any other Person, after the Closing, or (ii) that Huffy or the
Surviving Corporation will not be able to terminate immediately after the
Closing in accordance with their terms and ERISA. With respect to each of
such Gen-X Plans, at the Closing there will be no unrecorded material
liabilities with respect to the establishment, implementation, operation,
administration or termination of any such Gen-X Plan, or the termination of
the participation in any such Gen-X Plan by Gen-X or any of the Gen-X ERISA
Affiliates. Gen-X has delivered or made available to Huffy true and
complete copies of: (A) each of the Gen-X Plans and any related funding
agreements thereto (including insurance Contracts) including all
amendments, and, to the best Knowledge of Gen-X, all of the documents are
legally valid and binding and in full force and effect and there are no
defaults thereunder, (B) the currently effective summary plan description
pertaining to each of the Gen-X Plans that are required to provide such
summaries, (C) all annual reports for each of the Gen-X Plans (including
all related Schedules) that are required to file such reports, (D) the most
recently filed PBGC Form 1 (if applicable), (E) the most recent IRS
determination letter, opinion, notification or advisory letter (as the case
may be) issued with respect to each Gen-X Plan that is intended to
constitute a qualified plan under Section 401 of the Code, and (F) for each
unfunded Gen-X Plan, any financial statements that are available as of the
Closing Date and that pertain to the most recently ended plan year and
consist of (1) the consolidated statement of assets and liabilities of such
Gen-X Plan as of the last day of its recently ended plan year, and (2) the
statement of changes in fund balance and in financial position or the
statement of changes in net assets available for benefits under such Gen-X
Plan for the most recently-ended plan year, which such financial statements
shall fairly present the financial condition and the results of operations
of such Gen-X Plan in accordance with GAAP, consistently applied, as of
such dates.
5.18.2 During the six-year period ending on the Closing Date, neither
Gen-X nor any of the Gen-X ERISA Affiliates sponsored, maintained or
contributed to (or had an obligation to contribute to) any defined benefit
plan described in Section 3(35) of ERISA or Section 414(j) of the Code, or
any other pension benefit plan that is or was subject to (a) the minimum
funding standards of Section 302 of ERISA or Section 412 of the Code or (b)
Title IV of ERISA.
5.18.3 Neither Gen-X nor any of the Gen-X ERISA Affiliates is subject
to any material liability, Tax or penalty whatsoever to any person or
agency whomsoever as a result of engaging in a prohibited transaction under
ERISA or the Code, and neither Gen-X nor any of the Gen-X ERISA Affiliates
has any Knowledge of any circumstances that reasonably might result in any
material liability, Tax or penalty, including a penalty under Section 502
of ERISA, as a result of a breach of any duty under ERISA or under other
applicable Laws. During the six-year period ending on the Closing Date, no
event has occurred that could subject any Gen-X Plan to tax under Section
511 of the Code.
5.18.4 Neither Gen-X nor any of the Gen-X ERISA Affiliates has any
material unfunded liability under ERISA in respect of any of the Gen-X
Plans. Each of the Gen-X Plans that is intended to be a qualified plan
under Section 401(a) of the Code has received a favorable determination
letter, opinion, notification or advisory letter from the IRS, and, during
the six-year period ending on the Closing Date, has been operated in all
material respects in accordance with its terms and with the provisions of
the Code. During the six-year period ending on the Closing Date, all of the
Gen-X Plans have been administered and maintained in substantial compliance
with ERISA, the Code and all other applicable Laws. To the best Knowledge
of Gen-X, during the six-year period ending on the Closing Date, all
contributions required to be made to each of the Gen-X Plans under the
terms of that Gen-X Plan, ERISA, the Code or any other applicable Laws have
been timely made. Each Gen-X Plan intended to meet the requirements for
tax-favored treatment under Subchapter B of Chapter 1 of the Code is in all
material respects in compliance with such requirements. The Gen-X Interim
Financial Statements properly reflect all amounts required to be accrued as
liabilities to date under each of the Gen-X Plans.
5.18.5 Except as disclosed in Section 5.18.5 of the Gen-X Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of any of the transactions contemplated hereby (whether alone
or upon the occurrence of any additional or further acts or events) will
(a) result in any obligation or liability (with respect to accrued benefits
or otherwise) on the part of Gen-X, Huffy, the Surviving Corporation, or
any of their respective Subsidiaries, to any Gen-X Plan, or to any present
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or former employee, director, officer, stockholder, contractor or
consultant (or any of their dependents) of Gen-X, Huffy, the Surviving
Corporation, or any of their respective Subsidiaries, (b) be a trigger
event under any Gen-X Plan that will result in any payment (whether of
severance pay or otherwise) becoming due to any such present or former
employee, officer, director, stockholder, contractor, or consultant, or any
of their dependents, or (c) accelerate the time of payment or vesting, or
increase the amount, of any compensation theretofore or thereafter due or
granted to any employee, officer, director, stockholder, contractor, or
consultant of Gen-X or any of their dependents. With respect to any
insurance policy that provides, or has provided, funding for benefits under
any Gen-X Plan, (i) there is and will be no Liability of Gen-X, Huffy, the
Surviving Corporation or any of their respective Subsidiaries in the nature
of a retroactive or retrospective rate adjustment, loss sharing
arrangement, or actual or contingent liability as of the Closing Date, nor
would there be any such Liability if such insurance policy were terminated
as of the Closing Date, and (ii) no insurance company issuing any such
policy is in receivership, conservatorship, bankruptcy, liquidation, or
similar proceeding, and, to the Knowledge of Gen-X, no such proceedings
with respect to any insurer are imminent.
5.18.6 With respect to each Gen-X Plan that provides health care
coverage, during the six-year period ending on the Closing Date, Gen-X and
each Gen-X ERISA Affiliate have complied in all material respects with (a)
the applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), and the applicable COBRA regulations and (b) the applicable
requirements of the Health Insurance Portability and Accountability Act of
1996 and the regulations thereunder, and neither Gen-X nor any Gen-X ERISA
Affiliate has incurred any material liability under Section 4980B or
Section 4980C of the Code.
5.18.7 Other than routine claims for benefits under the Gen-X Plans,
there are no pending, or, to the Knowledge of Gen-X, threatened, Actions or
proceedings involving the Gen-X Plans, or the fiduciaries, administrators,
or trustees of any of the Gen-X Plans, Gen-X or any Gen-X ERISA Affiliates
as the employer or sponsor under any Gen-X Plan, with any of the IRS, the
Department of Labor, the PBGC, any participant in or beneficiary of any
Gen-X Plan or any other person whomsoever. Gen-X knows of no reasonable
basis for any such claim, lawsuit, dispute or Action or proceeding.
5.18.8 As of the date hereof, Section 5.18.8 of the Gen-X Disclosure
Schedule completely and accurately identifies (by individual, in the case
of benefits to "key executives," "executives" and "key employees," as those
terms are used in Gen-X's severance plans, and in an aggregate amount in
the case of benefits to other employees), the amount of all severance
and/or "stay bonus" benefits that may become payable as a result of the
consummation of the transactions contemplated by this Agreement.
5.19 Environmental Matters. Gen-X is and at all times has been, and all
real property currently or previously owned, leased, occupied, used by or under
the control of Gen-X and all operations or activities of Gen-X (including,
without limitation, those conducted on or taking place at any of such Gen-X Real
Property) are and have been, in compliance with and not subject to any Liability
or obligation under any applicable Environmental Law or Environmental Permit
except where any of the foregoing would not have a Material Adverse Effect on
Gen-X. There is no condition or circumstance regarding Gen-X or its business or
any such Gen-X Real Property or the operations or activities conducted thereon,
that could reasonably be expected to give rise to a violation of, or Liability
or obligation under, any applicable Environmental Law or Environmental Permit
which would have a Material Adverse Effect on Gen-X. Neither Gen-X nor, to the
Knowledge of Gen-X, any Person, the acts or omissions of which may be
attributable to, the responsibility of, or be the basis of a Liability to,
Gen-X, has, or has arranged to have, any Hazardous Material generated, released,
treated, stored or disposed of at, or transported to, any facility or property
the remediation or cleanup of which, or the response costs related thereto,
could reasonably be expected to become or result in a Material Adverse Effect on
Gen-X. Gen-X has not received notice of any allegations, claims, demands,
citations, notices of violation, or orders of noncompliance made against Gen-X
relating or pursuant to any Environmental Law or Environmental Permit except
those that have been corrected or complied with or that would not result in a
Material Adverse Effect on Gen-X, and, to the Knowledge of Gen-X, no such
allegation, claim, demand, citation, notice of violation or order of
noncompliance is threatened.
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5.20 Labor Matters. With respect to employees of Gen-X: (a) there are no
pending or, to the Knowledge of Gen-X, threatened unfair labor practice charges
or employee grievance charges; (b) there is no request for union representation,
labor strike, dispute, slowdown or stoppage actually pending or, to the
Knowledge of Gen-X, threatened against Gen-X, and there has been no such event
during the 36 months preceding the date hereof; (c) Gen-X is not a party to any
collective bargaining agreements; and (d) except as set forth in Section 5.20 of
the Gen-X Disclosure Schedule, the employment of each of Gen-X's employees is
terminable at will (in accordance with Gen-X policy, irrespective of the effect
of any applicable Laws of any state) without cost to Gen-X except for payments
required under the Gen-X Plans and the payment of accrued salaries or wages and
vacation pay. No employee or former employee has any contractual right pursuant
to any oral or written agreement to be rehired by Gen-X. Gen-X is, and since
January 1, 1997 has been, in compliance in all material respects with all
applicable Laws respecting employment and employment practices and the terms and
conditions of employment, wages and hours, including, without limitation, any
such Laws respecting employment discrimination, occupational safety and health,
and unfair labor practices, except where such failure to comply would not have a
Material Adverse Effect on Gen-X. Gen-X is not delinquent in any material
respect in payments to its employees for any wages, salaries, commissions,
bonuses or other direct compensation for any services performed by them or any
amounts required to be reimbursed to such employees. Section 5.20 of the Gen-X
Disclosure Schedule contains an accurate list of all employment Contracts
(including all oral Contracts) between Gen-X and any employee of Gen-X, and
Gen-X has delivered true, correct and complete copies of all such employment
Contracts to Huffy (and for each oral employment Contract a written summary of
such Contract).
5.21 Related Party Transactions. Except as set forth in Section 5.21 of
the Gen-X Disclosure Schedule or as contemplated by the transactions
contemplated hereby, no (a) beneficial owner of 10% or more of Gen-X's
outstanding capital stock, (b) officer or director of Gen-X or (c) any Person
(other than Gen-X) in which any such beneficial owner, officer or director owns
any beneficial interest (other than a publicly held corporation whose stock is
traded on a national securities exchange or in the over-the-counter market and
less than 1% of the stock of which is beneficially owned by all such Persons)
has any interest in: (i) any Contract, arrangement or understanding with, or
relating to, the business or operations of, Gen-X; (ii) any loan, Contract,
arrangement, understanding or agreement for, or relating to, indebtedness of
Gen-X; or (iii) any property (real, personal or mixed), tangible or intangible,
used in the business or operations of Gen-X, excluding any such Contract,
arrangement or understanding constituting a Gen-X Plan.
5.22 Real Estate.
5.22.1 Section 5.22.1 of the Gen-X Disclosure Schedule sets forth a
true, correct and complete list of all real property (including
improvements thereon) owned in fee simple by Gen-X (collectively, the
"Gen-X Owned Real Property"). With respect to each such parcel of Gen-X
Owned Real Property: (a) Gen-X owns fee simple marketable title to such
parcel, subject to no Liens other than any Permitted Liens or any Liens set
forth in Section 5.22.1 of the Gen-X Disclosure Schedule; (b) there are no
leases, subleases, licenses, concessions or other agreements, written or
oral, granting to any person the right of use or occupancy of any portion
of such parcel; and (c) there are no outstanding actions, rights of first
refusal or options to purchase such parcel.
5.22.2 Section 5.22.2 of the Gen-X Disclosure Schedule sets forth a
true, correct and complete list of all of the leases and subleases ("Gen-X
Leases") and each leased and subleased parcel of real property in which
Gen-X is a tenant, subtenant, landlord or sublandlord (collectively, the
"Gen-X Leased Real Property") and for each Gen-X Lease indicates: (a)
whether or not the consent of and/or notice to the landlord thereunder or
any other Person will be required in connection with the transactions
contemplated by this Agreement; (b) whether any third party or Gen-X is the
guarantor of the obligations of any Subsidiary of Gen-X under the Gen-X
Leases and the identity of any such guarantor; (c) its term and any options
to extend the term; and (d) the current rent payable as set forth on the
rent roll report (it being understood that such amount reported on the rent
roll report may not include percentage rent, common area maintenance, tax
and insurance amounts payable by Gen-X under the Gen-X Lease). Gen-X holds
a valid and existing leasehold or subleasehold interest or landlord or
sublandlord interest as applicable in the Gen-X Leased Real Property, under
each of the Gen-X Leases
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described in Section 5.22.2 of the Gen-X Disclosure Schedule. Except as
noted in Section 5.22.2 of the Gen-X Disclosure Schedule, Gen-X has
delivered to Huffy true, correct and complete copies of each of the Gen-X
Leases, including, without limitation, all amendments, modifications, side
agreements, consents, subordination agreements and guarantees. With respect
to each Gen-X Lease: (a) the Gen-X Lease is legal, valid, binding,
enforceable and in full force and effect; (b) the Gen-X Lease will continue
to be legal, valid, binding, enforceable and in full force and effect on
the same terms and conditions following the Effective Time; (c) neither
Gen-X, nor, to the Knowledge of Gen-X, any other party to the Gen-X Lease,
is in any material respect in breach or default under the Gen-X Lease, and
no event has occurred that, with notice or lapse of time, would constitute
a breach or default in any material respect by Gen-X or permit termination,
modification or acceleration under the Gen-X Lease by any other party
thereto; (d) Gen-X has performed and will continue to perform all of its
obligations in all material respects under the Gen-X Lease; (e) Gen-X has
not, and, to the Knowledge of Gen-X, no third party has, repudiated any
provision of the Gen-X Lease; (f) there are no disputes, oral agreements or
forbearance programs in effect as to the Gen-X Lease other than those that,
individually or in the aggregate, do not constitute a Material Adverse
Effect on Gen-X; (g) the Gen-X Lease has not been modified in any respect,
except to the extent that such modifications are set forth in the documents
previously delivered or made available to Huffy; (h) Gen-X has not
assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered
any interest in the Gen-X Lease; and (i) each guaranty by Gen-X is in full
force and effect and no default has occurred thereunder.
5.22.3 The Gen-X Owned Real Property and the Gen-X Leased Real
Property are referred to collectively herein as the "Gen-X Real Property."
Except as disclosed on Section 5.22.1 or Section 5.22.2 of the Gen-X
Disclosure Schedule, there is no Gen-X Real Property used by Gen-X in its
business. Each parcel of Gen-X Real Property is in material compliance with
all existing applicable Laws, including, without limitation, (a) the
Americans with Disabilities Act, 42 U.S.C. Section 12102 et seq., together
with all rules, regulations and official interpretations promulgated
pursuant thereto, and (b) all Laws with respect to zoning, building, fire,
life safety, health codes and sanitation, except where failure to comply
with such Laws does not and is not reasonably likely to, individually or in
the aggregate, cause a Material Adverse Effect on Gen-X. Gen-X has received
no notice of, and has no Knowledge of, any condition currently or
previously existing on the Gen-X Real Property or any portion thereof that
may give rise to any violation of, or require any remediation under, any
existing Law applicable to Gen-X Real Property if it were disclosed to the
authorities having jurisdiction over such Gen-X Real Property other than
those that do not constitute, individually or in the aggregate, a Material
Adverse Effect on Gen-X.
5.22.4 Gen-X has not received written notice of any proceedings in
eminent domain, condemnation or other similar proceedings that are pending,
and, to the Knowledge of Gen-X, there are no such proceedings threatened,
affecting any portion of Gen-X Real Property. Gen-X has not received
written notice of the existence of any outstanding writ, injunction,
decree, Order or judgment or of any pending proceeding, and, to the
Knowledge of Gen-X, there is no such writ, injunction, decree, Order,
judgment or proceeding threatened, relating to the ownership, lease, use,
occupancy or operation by any person of Gen-X Real Property.
5.22.5 The current use of Gen-X Real Property does not violate in any
material respect any instrument of record or agreement affecting such Gen-X
Real Property. There are no violations of any covenants, conditions,
restrictions, easements, agreements or Orders of any Governmental Entity
having jurisdiction over any of Gen-X Real Property that affect such Gen-X
Real Property or the use or occupancy thereof other than those that do not,
individually or in the aggregate, constitute a Material Adverse Effect on
Gen-X. No damage or destruction has occurred with respect to any Gen-X Real
Property that, individually or in the aggregate, has had or resulted in, or
is reasonably likely to have or result in, a Material Adverse Effect on
Gen-X.
5.22.6 There are currently in effect such insurance policies for
Gen-X Real Property as are customarily maintained with respect to similar
properties. True, correct and complete copies of all insurance policies
maintained by Gen-X with respect to Gen-X Real Property have been delivered
to
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Huffy. All premiums due on such insurance policies have been paid by Gen-X,
and Gen-X will maintain such insurance policies from the date hereof
through the Effective Time or earlier termination of this Agreement. Gen-X
has not received, and has no Knowledge of, any notice or request from any
insurance company requesting the performance of, any work or alteration
with respect to Gen-X Real Property or any portion thereof. Gen-X has
received no notice from any insurance company concerning, nor does Gen-X
have any Knowledge of, any defects or inadequacies in Gen-X Real Property
that, if not corrected, would result in the termination of insurance
coverage or would increase its cost.
5.22.7 All buildings and other improvements included within Gen-X
Real Property (the "Gen-X Improvements") are, in all material respects,
adequate to operate such facilities as currently used and are in good
condition and repair, and, to Gen-X's Knowledge, there are no facts or
conditions affecting any Gen-X Improvements that would, individually or in
the aggregate, interfere in any respect with the current use, occupancy or
operation thereof, which interference would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Gen-X. With respect to Gen-X Improvements, Gen-X has all rights of access
that are necessary for the operation of its business.
5.22.8 All required or appropriate certificates of occupancy,
permits, licenses, franchises, approvals and authorizations (collectively,
the "Gen-X Real Property Permits") of all Governmental Entities having
jurisdiction over Gen-X Real Property, the absence of which would be
reasonably likely to cause a Gen-X facility to cease its operations, have
been issued to Gen-X to enable Gen-X Real Property to be lawfully occupied
and used for all of the purposes for which it is currently occupied and
used have been lawfully issued and are, as of the date hereof, in full
force and effect. Gen-X has not received, or been informed by a third party
of the receipt by it of, any notice that would be reasonably likely to
cause a Gen-X facility to cease its operations from any Governmental Entity
having jurisdiction over Gen-X Real Property threatening a suspension,
revocation, modification or cancellation of any Gen-X Real Property Permit
or requiring any remediation in connection with maintaining any Gen-X Real
Property Permit, and, to the Knowledge of Gen-X, there is no basis for the
issuance of any such notice or the taking of any such action.
5.23 Insurance. Gen-X maintains insurance policies (the "Gen-X Insurance
Policies") against all risks of a character and in such amounts as are usually
insured against by similarly situated companies in the same or similar
businesses. Section 5.23 of the Gen-X Disclosure Schedule contains a true,
complete and correct list of all Gen-X Insurance Policies. Each Gen-X Insurance
Policy is in full force and effect and is valid, outstanding and enforceable,
and all premiums due thereon have been paid in full. None of the Gen-X Insurance
Policies will terminate or lapse (or be affected in any other manner that would
have a Material Adverse Effect on Gen-X) prior to the Effective Time by reason
of the transactions contemplated by this Agreement. Gen-X has complied in all
material respects with the provisions of each Gen-X Insurance Policy under which
it is the insured party. No insurer under any Gen-X Insurance Policy has
cancelled or generally disclaimed Liability under any such policy or, to Gen-X's
Knowledge, indicated any intent to do so or not to renew any such policy. All
material claims under Gen-X Insurance Policies have been filed in a timely
fashion. Since January 1, 1997, there have been no historical gaps in insurance
coverage of Gen-X. Section 5.23 of the Gen-X Disclosure Schedule contains
Gen-X's general liability loss history for Gen-X's last three fiscal years and
Gen-X's workers' compensation loss history for Gen-X's last three fiscal years.
Gen-X has delivered to Huffy true, complete and correct copies of the Gen-X
Insurance Policies.
5.24 EDC Insurance. Gen-X maintains an insurance policy on all of its
accounts receivable (the "EDC Insurance Policy") through the Export Development
Corporation ("EDC"). The EDC Insurance Policy is in full force and effect and is
valid, outstanding and enforceable, and all premiums due thereon have been paid
in full. The EDC Insurance Policy covers at least 90% of the aggregate amount of
Gen-X's accounts receivable. The EDC Insurance Policy will not terminate or
lapse (or be affected in any other manner that would have a Material Adverse
Effect on Gen-X) prior to the Effective Time by reason of the transactions
contemplated by this Agreement. Gen-X has complied in all material respects with
the provisions of the EDC Insurance Policy. EDC has not cancelled or generally
disclaimed Liability at any time under the EDC Insurance Policy or, to Gen-X's
Knowledge, indicated any intent to do so or not to renew the policy. Gen-X has
delivered to Huffy a true, complete, correct and copy of the current EDC
Insurance Policy.
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5.25 Customers. Section 5.25 of the Gen-X Disclosure Schedule lists for
each of calendar year 2000 and 2001 and the three month period ended March 31,
2002, the 25 largest customers of Gen-X based on the aggregate value of goods
and services that Gen-X provided to such customers during each such period
("Principal Customers"). No Principal Customer or any other significant customer
of Gen-X has (i) ceased or, to the Knowledge of Gen-X, intends to cease to use
Gen-X's services or purchase Gen-X's products or (ii) has reduced or, to the
Knowledge of Gen-X, intends to reduce its use of Gen-X's services or purchases
of Gen-X's products, which cessation or reduction has resulted in or could
reasonably be expected to result in a Material Adverse Effect to Gen-X.
5.26 Disclosure. Each representation and warranty made by Gen-X contained
in this Agreement, and the Gen-X Disclosure Schedule and each certificate
prepared or delivered by, or on behalf of, Gen-X and provided, or to be
provided, to Huffy in connection herewith, do not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading.
5.27 Takeover Statutes. The board of directors of Gen-X has approved the
Merger and this Agreement and such approval is sufficient to render inapplicable
to the Merger, this Agreement and the transactions contemplated hereby, the
restrictions on business combinations set forth in Section 203 of the DGCL. To
Gen-X's Knowledge, no other Takeover Statute applicable to Gen-X is applicable
to the Merger or any of the other transactions contemplated hereby.
5.28 Brokers. Except for fees, commissions and expenses payable to its
financial advisor, Sheffield Merchant Banking Group no broker, finder or
financial advisor retained by Gen-X is entitled to any brokerage, finder's or
other fee or commission from Gen-X in connection with the transactions
contemplated by this Agreement.
5.29 Ownership of Huffy Securities. Neither Gen-X nor the Principal
Stockholders own (beneficially or otherwise), or at anytime before the Effective
Time will own, any Huffy Common Stock.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF HUFFY AND MERGERSUB
Huffy and MergerSub hereby represent and warrant to Gen-X that, except as
set forth in the Huffy Disclosure Schedule or the Huffy SEC Documents (provided,
however, that each disclosure set forth in each Section of the Huffy Disclosure
Schedule shall be deemed to be made in all sections of the Huffy Disclosure
Schedule):
6.1 Organization and Good Standing.
6.1.1 Huffy. Huffy is a corporation duly organized, validly existing
and in good standing under the laws of the State of Ohio and has the
corporate power and authority to carry on its business as it is now being
conducted. Huffy is duly qualified as a foreign corporation to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned or held under lease or the nature of its activities makes
such qualification necessary, except where the failure to be so qualified
or in good standing would not have a Material Adverse Effect, individually
or in the aggregate. Without limiting the generality of the foregoing,
Huffy is qualified to do business in the states set forth on Section 6.1.1
of the Huffy Disclosure Schedule.
6.1.2 MergerSub. MergerSub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
has the corporate power and authority to carry on its business as it is now
being conducted. MergerSub is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character
of its properties owned or held under lease or the nature of its activities
makes such qualification necessary, except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect,
individually or in the aggregate. Without limiting the generality of the
foregoing, MergerSub is qualified to do business in the states set forth on
Section 6.1.2 of the Huffy Disclosure Schedule.
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6.2 Certificate of Incorporation and By-Laws. True, complete and correct
copies of the certificates of incorporation, by-laws, code of regulations or
equivalent organizational documents, each as amended as of the date hereof, of
Huffy and MergerSub have been made available to Gen-X. The certificates of
incorporation, by-laws, code of regulations and equivalent organizational
documents of Huffy and MergerSub are in full force and effect. Neither Huffy nor
MergerSub is in violation of any provision of its certificate of incorporation,
by-laws, code of regulations or equivalent organizational documents.
6.3 Capitalization.
6.3.1 Equity Securities. As of the date hereof, the authorized
capital stock of Huffy consists of 1,000,000 shares of Huffy Preferred
Stock, and 60,000,000 shares of Huffy Common Stock. At the close of
business on March 31, 2002, (a) no shares of Huffy Preferred Stock were
outstanding and (b) 10,390,422 shares of Huffy Common Stock were
outstanding. Section 6.3.1 of the Huffy Disclosure Schedule sets forth the
aggregate number (by type) as of March 31, 2002 of all outstanding options,
warrants, rights and other securities of Huffy convertible into, or
exercisable for, shares of capital stock of Huffy. All outstanding shares
of Huffy Common Stock have been duly authorized and validly issued and are
fully paid, non-assessable and free of preemptive rights. No shares of
Huffy Common Stock are owned by any direct or indirect Subsidiary of Huffy.
All of the shares of MergerSub Common Stock, upon their issuance, will be
owned by Huffy or an Affiliate of Huffy. No shares of Huffy's capital stock
or options, warrants, rights or other securities convertible into or
exercisable for, shares of capital stock of Huffy have been issued or
disposed of in violation of the preemptive rights, rights of first refusal
or similar rights of any of Huffy's shareholders.
6.3.2 Commitments to Issue or Purchase Securities. Except as
described in this Section 6.3, set forth on Section 6.3.2 of the Huffy
Disclosure Schedule and as contemplated by this Agreement, (a) no shares of
capital stock or other equity interests of Huffy or its Subsidiaries are
authorized, issued or outstanding, or reserved for issuance, and there are
no options, warrants or other rights (including registration rights),
agreements, arrangements or commitments of any character to which Huffy or
its Subsidiaries are a party relating to the issued or unissued capital
stock or other equity interests of Huffy or its Subsidiaries that requires
Huffy or its Subsidiaries to grant, issue or sell any shares of the capital
stock or other equity interests of Huffy by sale, lease, license or
otherwise; (b) Huffy and its Subsidiaries do not have any obligation,
contingent or otherwise, to repurchase, redeem or otherwise acquire any
shares of the capital stock or other equity interests of Huffy or any of
its Subsidiaries; (c) Huffy and its Subsidiaries do not, directly or
indirectly, own, or have agreed to purchase or otherwise acquire, the
capital stock or other equity interests of, or any interest convertible
into or exchangeable or exercisable for such capital stock or such equity
interests of, any corporation, partnership, joint venture or other entity
that would be material in value to Huffy; and (d) there are no voting
trusts, proxies or other agreements or understandings to which Huffy or its
Subsidiaries are a party with respect to the voting of any shares of
capital stock or other equity interests of Huffy or any of its
Subsidiaries.
6.4 Corporate Authority.
6.4.1 General Authority and Enforceability. Each of Huffy and
MergerSub has the requisite corporate power and authority to execute and
deliver this Agreement and, subject to the approval of Huffy's shareholders
with respect to the issuance of Huffy Common Stock contemplated hereby, to
consummate the transactions contemplated hereby. The execution and delivery
by each of Huffy and MergerSub of this Agreement and the consummation by
each of Huffy and MergerSub of the transactions contemplated hereby have
been duly authorized by its respective board of directors and, except for
the approval and adoption of Huffy's shareholders with respect to the
issuance of Huffy Common Stock contemplated hereby, no other corporate
action on the part of Huffy or MergerSub is necessary to authorize the
execution and delivery by Huffy and MergerSub, respectively, of this
Agreement and the consummation by it of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by each of
Huffy and MergerSub and constitutes a valid and binding agreement of each
of Huffy and MergerSub and is enforceable against Huffy and MergerSub in
accordance with its terms, except to the extent that (a) such enforcement
may be subject to any
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bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other laws, now or hereafter in effect, relating to or limiting creditors'
rights generally and (b) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding therefor may
be brought. The preparation of the Registration Statement and the Proxy
Statement has been or will be prior to the Effective Time duly authorized
by the Board of Directors of Huffy. The corporate records and minute books
or other applicable records of Huffy and MergerSub reflect all material
action taken and authorizations made at meetings of such companies' boards
of directors or any committees thereof and at any stockholders' meetings
thereof.
6.5 Board Recommendation and Shareholder Vote. Prior to execution and
delivery of this Agreement, Huffy's Board of Directors (at a meeting duly called
and held) has (a) approved this Agreement and the transactions contemplated
hereby, (b) determined that this Agreement and the transactions contemplated
hereby are fair to, advisable and in the best interest of Huffy and the holders
of Huffy Common Stock and (c) determined to recommend to Huffy shareholders that
they approve the issuance of Huffy Common Stock pursuant to the Merger to
Huffy's shareholders at the Huffy Shareholders Meeting. The affirmative vote of
the holders of two-thirds of the outstanding shares of Huffy Common Stock is the
only vote of the holder of any class or series of Huffy's capital stock
necessary to approve the issuance of Huffy Common Stock pursuant to the Merger.
6.6 Compliance With Applicable Law. Huffy holds, and is in compliance
with the terms of, all Permits that are required for the operation of the
business of Huffy, except for a failure to hold or to comply with such Permits
that does not and is not likely to, individually or in the aggregate, cause a
Material Adverse Effect on Huffy. With respect to the Permits that Huffy holds,
no action or proceeding is pending or, to the Knowledge of Huffy, threatened
that would reasonably be expected to have a Material Adverse Effect on Huffy.
The business of Huffy is being conducted in all material respects in compliance
with all applicable material Laws of any Governmental Entity. No material
investigation or review by any Governmental Entity with respect to Huffy is
pending or, to the Knowledge of Huffy, threatened.
6.7 Non-Contravention. Except as set forth in Section 6.7 of the Huffy
Disclosure Schedule, the execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, (a) result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
benefit under, or require the consent of any Person that is a party to, any
lease or any other Contract to which Huffy is a party, or result in the creation
of any Lien (other than any Permitted Lien) upon any of the properties or assets
of Huffy, (b) conflict with or result in any violation of any provision of the
certificate of incorporation, code of regulations or the by-laws or other
equivalent organizational document, in each case as amended, of Huffy, or (c)
subject to the governmental filings referenced in clause (a) of Section 6.8,
conflict with or violate any Order, or to the Knowledge of Huffy, any Law
applicable to Huffy or its properties or assets, other than, in the case of
clauses (a) and (c), any such conflicts or violations that, individually or in
the aggregate, would not have a Material Adverse Effect on Huffy.
6.8 Government Approvals and Consents. No filing or registration with, or
authorization, consent or approval of, any Governmental Entity is required by or
with respect to Huffy in connection with the execution and delivery of this
Agreement by Huffy or MergerSub or is necessary for the consummation of the
transactions contemplated hereby (including, without limitation, the Merger)
except: (a) in connection, or in compliance, with the rules of the NYSE, the
provisions of the HSR Act, the Securities Act, the Exchange Act, and any state
or provincial securities or blue sky law, (b) for the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware, and (c) such
consents, approvals, authorizations, permits, filings and notifications listed
in Section 6.8 of the Huffy Disclosure Schedule.
6.9 SEC Documents and Other Reports. Huffy has filed on a timely basis
all documents required to be filed by it with the SEC since January 1, 1997 (all
such documents filed since January 1, 1997 and prior to the date hereof are
referred to as the "Huffy SEC Documents"). Complete and correct copies of the
Huffy SEC Documents have been made available to Gen-X. As of their respective
dates, or if amended as of the
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date of the last such amendment, the Huffy SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be (including all applicable rules and regulations
promulgated by the SEC relating to Huffy's audit committee), and none of the
Huffy SEC Documents as of the date thereof contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Complete and accurate
copies of the unaudited consolidated balance sheet, consolidated statements of
operations, consolidated statements of stockholders' equity and consolidated
statements of cash flows (together with any supplementary information thereto)
of Huffy, all as of and for the three-month period ended March 30, 2002 (the
"Huffy Interim Financial Information") have been (or will be, when available)
provided to Gen-X. The consolidated financial statements of Huffy included in
the Huffy SEC Documents and the Huffy Interim Financial Information
(collectively, the "Huffy Financial Statements") fairly present, in all material
respects, the consolidated financial position of Huffy, as of and for the
respective dates thereof, and the consolidated results of its operations and its
consolidated cash flows for the respective periods then ended (subject, in the
case of the Huffy Interim Financial Information, to normal year-end audit
adjustments and to any other adjustments described therein) in conformity with
GAAP during the periods involved (except as may be indicated therein or in the
notes thereto and the Huffy Interim Financial Information do not contain the
footnotes required by GAAP). Since March 30, 2002, Huffy has not made any change
in the accounting practices or policies applied in the preparation of its
financial statements, except as may be required by GAAP.
6.10 Absence of Undisclosed Liabilities. There are no Liabilities of
Huffy of any kind whatsoever that would be required by GAAP to be reflected on a
consolidated balance sheet of Huffy (including the notes thereto), other than:
6.10.1 liabilities incurred since January 1, 2002 in the ordinary
course of business consistent with past practices;
6.10.2 reasonable and customary fees and expenses incurred in
connection with the consummation of the transactions contemplated by this
Agreement, which shall include the fees that Huffy pays to A.G. Edwards &
Sons;
6.10.3 liabilities disclosed in the Huffy SEC Documents filed prior
to the date hereof or reserved against on Huffy's most recent balance sheet
delivered to Gen-X prior to the date hereof.
6.11 Absence of Certain Changes or Events.
6.11.1 No Adverse Effects. Except as expressly contemplated or
permitted by this Agreement, and other than the reasonable and customary
fees and expenses incurred in connection with the transactions contemplated
by this Agreement, since January 1, 2002, the business of Huffy has been
and will continue to be through the Effective Time conducted in all
material respects in the ordinary course of business consistent with past
practices, Huffy has not engaged in any transaction or series of related
transactions material to Huffy taken as a whole other than in the ordinary
course of business consistent with past practices, and there has not been
any event, occurrence or development that, individually or in the
aggregate, constitutes or would constitute a Material Adverse Effect on
Huffy.
6.12 Huffy Litigation. Except as set forth in Section 6.12 of the Huffy
Disclosure Schedule on or after January 1, 2002 there have been no Orders of any
Governmental Entity issued or Actions filed and pending against Huffy, any of
its properties, assets or businesses, or, to the Knowledge of Huffy, any of
Huffy's current or former directors or officers or any other Person whom Huffy
has agreed to indemnify that would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on Huffy. To the Knowledge of
Huffy, there are no facts or circumstances specific to Huffy that, if known to a
third party, would reasonably be expected to result in an Action that could have
a Material Adverse Effect on Huffy.
6.13 Title to Properties; Encumbrances. Except as described in the
following sentence, Huffy has good, valid and, in the case of real property,
marketable title to, or a valid leasehold interest in, all of its material
properties and assets (real, personal, tangible and intangible), including,
without limitation, all such properties and assets reflected in the most recent
consolidated balance sheet of Huffy included in the Huffy
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SEC Documents (except for properties and assets disposed of in the ordinary
course of business and consistent with past practices since such date), except
for such title or interest the failure of which to have would not have,
individually or in the aggregate, a Material Adverse Effect on Huffy. Except as
described in Section 6.13 of the Huffy Disclosure Schedule, none of such
properties or assets are subject to any Liens (whether absolute, accrued,
contingent or otherwise) other than Permitted Liens.
6.14 Provided Information. The information supplied, or to be supplied,
by Huffy or MergerSub for inclusion in the Registration Statement, the Proxy
Statement or any other filing required to be filed with the SEC as a result of
the transactions contemplated herein will not, (i) in the case of the
Registration Statement or such other required filing, as applicable, on the date
it is filed with the SEC, on the date each amendment or supplement thereto is
filed with the SEC, on the date it becomes effective, and as of the Effective
Time, and (ii) in the case of the Proxy Statement, on the dates of the mailing
of the Proxy Statement by Gen-X and Huffy or on the dates of the Stockholders
Meetings, 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 are made, not
misleading. Each of (A) the Registration Statement, on the date it becomes
effective, (B) the Proxy Statement and any amendments or supplements thereto, on
their respective dates of mailing, and (C) any other filing required to be filed
with the SEC, as of the date thereof, insofar as they relate to or are filed or
are deemed to be filed by Huffy or any of its Affiliates, will comply in all
material respects with all applicable requirements of the Exchange Act.
Notwithstanding the foregoing, Huffy and MergerSub make no representations with
respect to any statement in the foregoing documents based upon, and conforming
to, information supplied by Gen-X for inclusion therein.
6.15 Disclosure. Each representation and warranty made by Huffy or
MergerSub contained in this Agreement, and the Huffy Disclosure Schedule and
each certificate prepared or delivered by, or on behalf of, Huffy or MergerSub
and provided, or to be provided, to Gen-X in connection herewith, do not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading.
6.16 Brokers. Except as set forth in Section 6.16 of the Huffy Disclosure
Schedule and fees, commissions and expenses payable to its financial advisor,
A.G. Edwards & Sons, Inc., no broker, finder or financial advisor retained by
Huffy or MergerSub is entitled to any brokerage, finder's or other fee or
commission from Huffy or MergerSub in connection with the transactions
contemplated by this Agreement.
6.17 No Prior Activities. MergerSub has not incurred, directly or
indirectly, any material Liabilities or obligations except those incurred in
connection with its organization or with the negotiation and execution of this
Agreement and the performance of the transactions contemplated hereby. Except as
contemplated by this Agreement or in connection with the transactions
contemplated hereby, MergerSub has not engaged, directly or indirectly, in any
business or activity of any type or kind, or entered into any agreement or
arrangement with any person or entity, and is not subject to or bound by any
material obligation or undertaking.
ARTICLE VII
COVENANTS
7.1 Conduct of Business by Gen-X Pending the Merger. Except as otherwise
specifically contemplated by this Agreement, without the prior written consent
of Huffy, from the date hereof to the Effective Time, Gen-X shall carry on its
business in the ordinary and usual course of business and consistent with past
practices and shall use its best efforts to (a) preserve intact its present
business organization, (b) maintain in effect all material federal, state and
local Permits that are required for Gen-X to carry on its business, (c) keep
available the services of its present employees and consultants, and (d)
preserve its present relationships with its employees, consultants, customers,
lenders, suppliers, licensors, licensees, landlords and others having
significant business relationships with it. Without limiting the generality of
the foregoing, except as otherwise specifically contemplated by this Agreement
or the Gen-X Disclosure Schedule, without
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the prior written consent of Huffy (with respect to which the determination by
Huffy whether to provide such consent shall not be unreasonably withheld or
delayed), prior to the Effective Time, Gen-X shall not:
7.1.1 propose or adopt any change in its certificate of incorporation
or by-laws or comparable organizational documents;
7.1.2 merge with or acquire a direct or indirect ownership interest
or investment in (by merger, consolidation, acquisition of stock or assets,
joint venture or otherwise) any corporation, partnership or other business
organization or division or business operation thereof or purchase all or
substantially all of the assets of such corporation, partnership or other
business organization or division or business operation thereof; (b) sell,
lease or otherwise dispose of a material amount of assets (excluding sales
of inventory or other assets in the ordinary course of business consistent
with past practices) or securities; (c) waive, release, grant, or transfer
any rights of value that are, individually or in the aggregate, material to
Gen-X taken as a whole; (d) modify or change in any material respect any
material Permit; (e) incur, assume or prepay any indebtedness for borrowed
money except in the ordinary course of business consistent with past
practices; (f) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for any
indebtedness of any other Person, except in the ordinary course of business
consistent with past practices; (g) mortgage, pledge or subject to any Lien
(other than any Permitted Lien), charge or other encumbrance any of Gen-X's
material assets, properties or business, whether tangible or intangible;
(h) make any loans, advances or capital contributions to, or investments
in, any other Person, except in the ordinary course of business consistent
with past practices; (i) authorize any capital expenditure or expenditures
not in the ordinary course of business consistent with past practices; (j)
pledge or otherwise encumber shares of capital stock of Gen-X; (k) enter
into any Contract other than in the ordinary course of business consistent
with past practices that would be material to Gen-X taken as a whole; or
(l) amend, modify or waive any material right under any material Contract
of Gen-X, except as otherwise permitted by this Agreement;
7.1.3 enter into any new lease, sublease, assignment or other
agreement (other than any service or maintenance agreement entered into by
Gen-X in the ordinary course of business consistent with past practices) in
respect of Gen-X Real Property without Huffy's prior written consent (which
consent may be withheld in Huffy's reasonable discretion), except as
described in Section 7.1 of the Gen-X Disclosure Schedule;
7.1.4 extend, renew, replace, amend, modify or alter any existing
Gen-X Lease (other than in the ordinary course of business and consistent
with past practices and this Agreement, provided, that Gen-X shall provide
Huffy with 10 days' advance written notice of such proposed action and the
opportunity to discuss such proposed action with Gen-X) in respect of Gen-X
Real Property, except as described in Section 7.1 of the Gen-X Disclosure
Schedule;
7.1.5 sell, contribute, assign or create any right, title or interest
whatsoever in or to Gen-X Real Property, or create or permit to exist
thereon any Lien (other than any Permitted Lien), charge or encumbrance, or
enter into any agreement to do any of the foregoing, without the prior
written consent of Huffy;
7.1.6 knowingly take any action that would result in any
representation or warranty of Gen-X contained in this Agreement that is
qualified as to materiality becoming untrue as of the Effective Time or any
representation or warranty not so qualified becoming untrue in any material
respect as of the Effective Time;
7.1.7 other than payment of required dividends to the holders of
Gen-X Preferred Stock and holders of the Series C Non-Voting Preferred
Stock pursuant to Gen-X's certificate of incorporation and certificates of
designation, split, combine or reclassify any shares of, or declare, set
aside or pay any dividend (including, without limitation, an extraordinary
dividend) or other distribution (whether in cash, stock or property or any
combination thereof) in respect of, any capital stock of Gen-X, or redeem,
repurchase or otherwise acquire, or offer to redeem, repurchase or
otherwise acquire, any capital stock of Gen-X;
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7.1.8 adopt or amend any bonus, profit sharing, compensation,
severance, termination, stock option, pension, retirement, deferred
compensation, employment or employee benefit plan, agreement, trust, fund
or other arrangement for the benefit and welfare of any director, officer,
employee, agent or consultant or increase in any manner the compensation or
fringe benefits of any director, officer or any class of employees or pay
any benefit not required by any existing plan or arrangement (including,
without limitation, the granting of stock options or stock appreciation
rights or the removal of existing restrictions in any benefit plans or
agreements); make any loans to any of its officers, directors, employees,
Affiliates, agents or consultants or make any change in its existing
borrowing or lending arrangements for or on behalf of any of such Persons,
whether pursuant to a Gen-X Plan or otherwise; or grant, issue, accelerate,
pay or accrue, or agree to pay or make any accrual or arrangement for
payment of, salary or other payments or benefits pursuant to, or adopt or
amend, any new or existing Gen-X Plan; provided, however, that,
notwithstanding the foregoing, Gen-X shall be entitled to increase the
compensation of employees, directors and officers, make arrangements with
new employees that are not material, and make modifications in incentive
programs and personnel policies and procedures for employees, officers and
directors that are not material, in each case in the ordinary course of
business consistent in type and amount with past practices; and provided,
further, that, notwithstanding the foregoing, Gen-X shall be entitled to
commit to or provide for (a) severance and/or "stay bonus" benefits to
employees who are hired after the date hereof and prior to the Effective
Time, or (b) increases in benefits to existing employees of Gen-X as of the
date hereof (other than any such employees who have the rank of a
corporate-level vice president or a more senior rank), provided that (i)
the aggregate amount of all such benefits committed to or provided for the
employees under clauses (a) and (b) does not exceed US$50,000, (ii) Gen-X
shall commit to or provide for only such benefits as it determines are
reasonably necessary to obtain the services of each such employee, and
(iii) in the case of increases in benefits to employees under clause (b),
Gen-X shall use commercially reasonable efforts to implement other methods
to retain such employees before committing to or providing for such
increases.
7.1.9 except in the ordinary course of business consistent with past
practices or as required by applicable Law or GAAP, revalue in any material
respect any of its assets on the Gen-X Financial Statements, including
writing down the value of inventory in any material manner or writing off
notes or accounts receivable in any material manner;
7.1.10 pay, discharge or satisfy any material claims, Liabilities or
obligations (whether absolute, accrued, asserted or unasserted, contingent
or otherwise) other than the payment, discharge or satisfaction in the
ordinary course of business consistent with past practices;
7.1.11 make any material Tax election, or settle or compromise any
material Tax Liabilities, except those in the ordinary course of business
consistent with past practices;
7.1.12 make any change in accounting methods, principles or practices
materially affecting the reported consolidated assets, Liabilities or
results of operations of Gen-X;
7.1.13 except for the issuance of Common Stock Equivalents to holders
of Options who exercise their Options, authorize for issuance, issue, sell
or deliver, or agree or commit to issue, sell or deliver (whether through
the issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase or otherwise), any capital stock of Gen-X or equity
equivalents;
7.1.14 adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of Gen-X;
7.1.15 alter through merger, liquidation, reorganization,
restructuring or any other fashion the corporate structure or ownership of
any Subsidiary;
7.1.16 permit to lapse any material Permits;
7.1.17 permit to lapse any registrations or applications for material
Gen-X Intellectual Property Rights owned, licensed, or used by Gen-X
(provided, that Gen-X shall use commercially reasonable
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efforts to provide Huffy with at least 10 days' advance notice of such
event and the opportunity to discuss such matter with Gen-X); or
7.1.18 agree or commit to do any of the foregoing.
7.2 Conduct of Business by Huffy Pending the Merger. Except as otherwise
specifically contemplated by this Agreement from the date hereof to the
Effective Time, Huffy shall carry on its business in the ordinary and usual
course of business and consistent with past practices and shall use its best
efforts to preserve intact its present business organization.
7.3 Access and Information. Each of Huffy and Gen-X shall (and shall
cause their respective officers, directors, employees, auditors and agents to)
afford to the other party and to such other party's officers, employees,
financial advisors, legal counsel, accountants, consultants and other
representatives (except to the extent not permitted under applicable Law as
advised by counsel and except as may be limited by any confidentiality
obligation contained in any Contract with a third party) reasonable access
during normal business hours throughout the period prior to the Effective Time
to all of its books and records and its properties, plants and personnel and,
during such period, shall furnish promptly to the other party a copy of each
report, schedule and other document filed or received by it pursuant to the
requirements of federal securities laws. Such access may include reasonable
access to employees, books, records and properties necessary to conduct Phase I
environmental studies and surveys on Gen-X Owned Real Property. Gen-X agrees to
cooperate reasonably with Huffy with respect to transition activities prior to
the Effective Time, provided that such activities (i) do not cause any
unreasonable interference with the operation of Gen-X's business and (ii) do not
violate any applicable Laws. Gen-X shall have provided to Huffy prior to the
date hereof a true, correct and complete list, as of a current date, of all
employees who are employed by Gen-X, such list to include such employees'
salaries, wages, other significant compensation (other than benefits under the
Gen-X Plans), dates of employment and positions.
7.4 No Solicitation.
7.4.1 Gen-X agrees that neither it, nor any of its Affiliates, nor
any of the respective directors, executive officers, agents or
representatives will, directly or indirectly, (a) solicit, initiate or
encourage (including by way of furnishing information) any inquiries or the
making of any proposal with respect to any merger, consolidation or other
business combination involving Gen-X or the acquisition of all or any
significant part of the assets or capital stock (including, but not limited
to, a control position voting interest) of Gen-X (an "Acquisition
Transaction"), (b) negotiate or otherwise engage in discussions with any
Person with respect to any Acquisition Transaction, or that may reasonably
be expected to lead to a proposal for an Acquisition Transaction, or (c)
enter into any agreement, arrangement or understanding (including any
letter of intent, agreement in principle or similar agreement) with respect
to any such Acquisition Transaction, in the case of each clauses (a), (b)
and (c) other than in connection with the transactions with Huffy and
MergerSub contemplated by this Agreement.
7.4.2 Gen-X agrees that, as of the date hereof, it and its
Affiliates, and their respective directors, executive officers, agents and
representatives shall immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any Person (other
than Huffy and its representatives) conducted heretofore with respect to
any Acquisition Transaction. Gen-X agrees to promptly advise Huffy of any
inquiries or proposals received by, any information requested from, or any
negotiations or discussions sought to be initiated or continued with, Gen-X
or its Affiliates, or any of their respective directors, executive
officers, agents or representatives, in each case from a Person (other than
Huffy, MergerSub and their representatives) with respect to an Acquisition
Transaction, and, concurrently with such advisement, to provide to Huffy a
reasonable summary of the terms of such Acquisition Transaction (including
the terms of any financing arrangement or commitment in connection
therewith) and the identity of such third Person.
7.5 Governmental Entities. Subject to the terms and conditions provided
herein, each of the parties hereto agrees to use its best efforts to take
promptly, or to cause to be taken promptly, all actions and to do promptly, or
to cause to be done promptly, all things necessary, proper or advisable under
applicable Laws
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and regulations to consummate and make effective the transactions contemplated
by this Agreement as soon as practicable, including using reasonable best
efforts to obtain all necessary actions or non-actions, extensions, waivers,
consents and approvals from all applicable Governmental Entities, effecting all
necessary registrations, applications and filings (including, without
limitation, filings under any applicable state securities laws) and obtaining
any required regulatory approvals and consents.
7.6 Best Efforts. Subject to the terms and conditions provided herein,
Gen-X agrees that it shall use its best efforts to secure waivers and/or
consents from such third parties as may be necessary in the judgment of Gen-X or
Huffy in order to consummate the transactions contemplated hereby; provided,
however, that, unless requested by Huffy, Gen-X shall not make any payment (or
provide any similar non-monetary benefit) to a third party (other than any such
payment or benefit that is de minimis in amount) in connection with securing any
waiver or consent from such third party without the prior written approval of
Huffy.
7.7 Certain Filings Under Securities Laws.
7.7.1 Filings. As soon as reasonably practicable after the date
hereof, Gen-X and Huffy shall prepare and file with the SEC the
Registration Statement (including the Proxy Statement in preliminary form)
and any other filing required to be filed with the SEC. Gen-X and Huffy
shall each use its best efforts to have the Proxy Statement and any other
such required filing cleared by the SEC and the Registration Statement
declared effective as soon as practicable. Gen-X and Huffy shall, as
promptly as practicable (or at such other time as may be mutually agreed by
Gen-X and Huffy), cause the Proxy Statement in definitive form to be mailed
to its respective stockholders. Gen-X shall furnish Huffy with all
information concerning Gen-X and the holders of its capital stock and shall
take such other action as Huffy may reasonably request in connection with
the Registration Statement, the Proxy Statement and any other filing
required to be filed with the SEC. If, at any time prior to the Effective
Time, any event or circumstance relating to Gen-X (including any of the
officers or directors of Gen-X) or to Huffy (including any of the officers
or directors of Huffy) should be discovered by such party that should be
set forth in an amendment or a supplement to the Registration Statement,
the Proxy Statement or any other filing required to be filed with the SEC,
such party shall promptly inform the other party thereof and shall take
appropriate action in respect thereof.
7.7.2 Certification. Prior to filing of the Registration Statement
and again prior to the date the Registration Statement becomes effective,
Gen-X shall deliver to Huffy a written certification from an executive
officer of Gen-X Sports Inc. that all information regarding Gen-X appearing
in the Registration Statement, Proxy Statement or any other filing that
Huffy or Gen-X is required to file with the SEC as a result of the
transactions contemplated in this Agreement or the SPA is true and correct
in all material respects.
7.8 Stockholders Meetings. Each of Huffy and Gen-X, acting through its
board of directors, shall, subject to and in accordance with applicable Law and
its certificate of incorporation and by-laws, promptly and duly call, give
notice of, convene and hold as soon as practicable following the date on which
the Registration Statement becomes effective a Stockholders Meeting for the
purpose of voting (i) in the case of Gen-X, to adopt this Agreement and approve
the Merger and (ii) in the case of Huffy, to approve the issuance of Huffy
Common Stock in connection with the Merger. Except to the extent required for
the discharge by the board of directors of Gen-X of its fiduciary duties under
applicable Law and subject to Section 7.4, the board of directors of Gen-X shall
recommend the adoption of this Agreement and the approval of the Merger by
Gen-X's stockholders at Gen-X Stockholders Meeting and the board of directors of
Huffy shall recommend the approval of the issuance of Huffy Common Stock
contemplated hereby by Huffy's shareholders at the Huffy Shareholders Meeting.
7.9 HSR Notification.
7.9.1 Filings. As soon as reasonably practicable and if applicable,
each of Gen-X and Huffy shall file, or cause its Ultimate Parent Entity (as
defined in the HSR Act) to file, with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice pursuant to
the HSR
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Act, the notification and documentary material required in connection with
the transactions contemplated hereby.
7.9.2 Cooperation. Gen-X and Huffy shall use their best efforts to
obtain early termination of the applicable waiting period under the HSR
Act, if any. If required, Gen-X and Huffy shall promptly file, or cause to
be filed, any additional information requested as soon as reasonably
practicable after receipt of a request for additional information. The
parties hereto will coordinate and cooperate with one another in exchanging
such information and providing such reasonable assistance as may be
requested in connection with such filings, if any. Notwithstanding any
provision in this Agreement to the contrary, neither MergerSub nor Huffy
shall be required to agree to any divestiture by Huffy or Gen-X (or any
Affiliate of Huffy or Gen-X) of shares of capital stock or of any business,
assets or property of Huffy or Gen-X (or any Affiliate of Huffy or Gen-X),
or to the imposition of any material limitation on the ability of any of
them to conduct its business or to own or exercise control of its assets,
properties or capital stock.
7.10 Financial Statement Deliveries. As soon as is reasonably practicable
and in no event later than ten Business Days from the last day of each fiscal
month between the date hereof and the Closing Date, Gen-X shall prepare and
provide to Huffy the monthly financial reports routinely prepared for management
of such party and a calculation of Consolidated Gen-X EBITDA for the year to
date, utilizing the same format and methodology used in preparing such reports
as are provided internally to management of such party (provided, however, that,
if the end of the fiscal quarter of Gen-X occurs in such fiscal month, then
Gen-X shall provide to Huffy such reports no later than 30 days from the last
day of such fiscal month for quarterly reports).
7.11 Financing. Each of Huffy and MergerSub shall use best efforts to
obtain consent from its current lender Congress Financial Corporation (Central)
for the Merger, the Stock Purchase of Gen-X Ontario by Huffy Canadian Sub and
the financing of such transactions on terms and conditions that are acceptable
to Huffy in its sole and absolute discretion. Gen-X agrees to provide, and shall
cause its officers, employees, representatives and advisors (including legal and
accounting advisors) to provide, all cooperation reasonably requested by Huffy
in connection with obtaining such consent.
7.12 Employee Benefits. Following the Effective Time, Huffy and the
Surviving Corporation shall grant options for an aggregate amount not to exceed
165,000 shares of Huffy Common Stock to certain Gen-X employees as mutually
agreed upon by Don R. Graber and James Salter and approved by the compensation
committee of Huffy's Board of Directors all in accordance with the terms of any
Huffy stock option plan under which such options are granted. Such grant shall
be in lieu of any regular annual option grants by Huffy that such employees
might otherwise be entitled to in 2002, and accordingly such employees will not
again be eligible for additional Huffy option grants prior to December 2003.
Each of Huffy and the Surviving Corporation and its Affiliates shall credit
Gen-X employees who Gen-X employed immediately before the Effective Time (the
"Employees") with any amounts paid for the calendar year under Gen-X's medical
and dental plans prior to the transition to a new medical or dental program
toward satisfaction of the applicable deductible amounts and co-payment and
deductible maximums under any new medical or dental program. With respect to
each Employee, each of Huffy and the Surviving Corporation and its Affiliates
shall treat service considered by Gen-X as service with Gen-X as service with
each of Huffy and the Surviving Corporation or its Affiliates for purposes of
employee benefits and fringe benefits, including, without limitation, vacation
benefits, waiting periods, vesting requirements and pre-existing conditions
limitations. Notwithstanding anything in the foregoing to the contrary, unless
required by applicable Law: (a) none of Huffy, the Surviving Corporation and any
Affiliate thereof shall be required under the terms of this Agreement to provide
(i) severance benefits or other benefits related to termination of employment,
or "stay bonuses" or similar benefits (except that the Surviving Corporation
shall pay the benefits to be provided pursuant to plans adopted by Gen-X prior
to the date hereof and disclosed in Section 5.18.8 of Gen-X Disclosure
Schedule), (ii) sick leave or similar benefits, or (iii) benefits under equity
incentive plans, consistent with or otherwise with reference to any preexisting
Gen-X Plan or Gen-X benefit plan (i.e., benefits, if any, in these categories
shall be governed exclusively by plans made available by Huffy and its
Affiliates); (b) none of Huffy, the Surviving Corporation and any Affiliate
thereof shall be obligated to
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continue any particular Gen-X Plan or Gen-X benefit plan (except as set forth in
Section 7.12 of the Gen-X Disclosure Schedule); and (c) the requirements of this
Section 7.12 shall remain in effect for a period of twelve months following the
Effective Time and then shall expire. The parties hereto agree and acknowledge
that this Section 7.12 does not constitute an agreement to continue the
employment of any particular Employee or Employees of Gen-X; rather, all
Employees will be subject to generally applicable Huffy policies concerning
employment (including the status of employment as "at will" for any Employees in
the United States). For the avoidance of doubt, the parties agree that the
provisions of Section 11.8 are expressly intended to be applicable to this
Section 7.12.
7.13 Antitakeover Statutes. If any Takeover Statute (as defined below) is
or may become applicable to the transactions contemplated hereby, the Board of
Directors of Gen-X will grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and will otherwise act
to eliminate the effects of any Takeover Statute on any of the transactions
contemplated hereby. For purposes of this Agreement, a "Takeover Statute" means
a "fair price," "moratorium," "control share acquisition" or other similar
antitakeover statute or regulation enacted under state or federal laws in the
United States, including Section 203 of the DGCL.
7.14 Notification of Certain Matters. Each of Huffy and Gen-X shall give
prompt notice to the other of: (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by it or any of its Subsidiaries subsequent to
the date hereof and prior to the Effective Time, under any Contract material to
the financial condition, properties, business or results of operations of such
party taken as a whole to which such party, or any Subsidiary of such party, is
a party or is subject; and (b) any material adverse change in the condition
(financial or other), properties, assets, business, results of operations or
prospects of it and its Subsidiaries taken as a whole, or the occurrence of any
event that, so far as reasonably can be foreseen at the time of its occurrence,
is reasonably likely to result in any such change. Each of Huffy and Gen-X shall
give prompt notice to the other party 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 hereby. In the event
that, at any time prior to the Closing, Gen-X becomes aware of any matter that,
if existing or known as of the date hereof, would have been required to be set
forth or described in the Gen-X Disclosure Schedule or would otherwise have
rendered any representation or warranty of Gen-X set forth herein false or
misleading, Gen-X shall promptly provide written notice of such matters to
Huffy. In the event that, at any time prior to the Closing, Huffy becomes aware
of any matter that, if existing or known as of the date hereof, would have been
required to be set forth or described in the Huffy Disclosure Schedule or would
otherwise have rendered any representation or warranty of Huffy set forth herein
false or misleading, Huffy shall promptly provide written notice of such matters
to Gen-X. However, no such notice provided under this Section 7.14 shall be
deemed to cure any breach of any representation or warranty made herein, whether
for purposes of determining whether or not the conditions set forth in ARTICLE
VIII have been satisfied or otherwise.
7.15 Further Assurances. At and after the Effective Time, the officers
and directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of Gen-X, Huffy or MergerSub, any deeds,
bills of sale, assignments or assurances and to take and do, in the name and on
behalf of Gen-X, Huffy or MergerSub, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets of Gen-X acquired, or to be acquired, by the Surviving Corporation as a
result of, or in connection with, the transactions contemplated hereby.
7.16 Further Action; Reasonable Commercial Efforts. Subject to the terms
and conditions hereof, each party hereto shall use its reasonable commercial
efforts to take, or to cause to be taken, all appropriate action, and to do, or
to cause to be done, all things necessary, proper or advisable under applicable
Laws to consummate and make effective the transactions contemplated hereby.
7.17 Tax-Free Reorganization Treatment. None of Huffy, MergerSub and
Gen-X shall take, or cause to be taken, any action, whether before or after the
Effective Time, that would reasonably be expected to
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cause the Merger to fail to qualify as a "reorganization" within the meaning of
Section 368 of the Code. Each of Gen-X and Huffy agrees to vigorously and in
good faith defend all challenges to the treatment of the reorganization as
described in this Section 7.17.
7.18 Delivery of Opinion of Financial Advisors. Huffy and Gen-X shall
each request, from their respective financial advisors, a written opinion to the
effect that the Merger is fair, from a financial point of view, to their
respective stockholders, which opinions will be included as exhibits to the
joint prospectus/proxy statement to be distributed in connection with the
Stockholder meetings.
7.19 Public Announcements. Each of Huffy and Gen-X agrees that, except as
may be required by applicable Law as advised by its respective counsel, it will
not issue any press release or otherwise make any public statement with respect
to this Agreement (including the Exhibits hereto) or the transactions
contemplated hereby without obtaining the approval of the other party (which
approval shall not be unreasonably withheld).
7.20 Amendment of Schedules. The parties shall have the continuing
obligation until the Closing Date to supplement or amend promptly the Gen-X
Disclosure Schedule (as to Gen-X) and the Huffy Disclosure Schedule (as to
Huffy) with respect to any matter that would have been or would be required to
be set forth or described in such Schedules in order to not breach any
representation, warranty or covenant of such party contained herein; provided
that, no amendment or supplement to a Schedule that constitutes or reflects a
Material Adverse Effect to the disclosing party may be made unless the other
party consents to such amendment or supplement. For all purposes of this
Agreement, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant hereto. In the event that a party seeks to amend or
supplement its Schedule pursuant hereto with any amendment or supplement that in
the other party's reasonable judgment constitutes or reflects a Material Adverse
Effect and the other party does not consent to such amendment or supplement,
this Agreement shall be deemed terminated by mutual consent as set forth in
Section 9.1.1 hereof.
7.21 Board Representation. The Principal Stockholders have requested, and
Huffy has agreed to consider, the creation of an additional seat on Huffy
Corporation's Board of Directors after the Effective Time to be filled by a new
outside director recommended by the Principal Stockholders. Although the
creation of such position will not be a condition precedent to the Closing of
the transactions contemplated herein, Huffy Corporation's Chairman, President
and Chief Executive Officer and the Nominating and Governance Committee of Huffy
Corporation's Board of Directors will interview and consider Board candidates
recommended by the Principal Stockholders.
7.22 Funding of MergerSub. Huffy shall cause MergerSub to have sufficient
funds on or before Closing to redeem the Gen-X Preferred Stock issued and
outstanding immediately prior to the Effective Time in accordance with the
provisions of Section 2.7.
7.23 Sale of Huffy Common Stock. From the date of the execution of this
Agreement through the Effective Time, Huffy shall not sell to any Person the
Huffy Common Stock for less than US$7.75 per share, except for any issuances of
Huffy Common Stock and/or grants of options to purchase Huffy Common Stock
pursuant to Huffy's current stock option plans or restricted stock grant plans.
7.24 Final Stockholder and Optionee List. Gen-X shall deliver to Huffy no
later than 14 days before the Closing Date, a final, true and complete listing
of all Gen-X Stockholders and holders of all Options. Gen-X shall also, as of
the same date of such list, close its Stockholder and optionee record books and
thereafter not issue any Gen-X Common Stock Equivalents, through exercise of any
Options or otherwise, or Gen-X Preferred Stock or grant any Options or permit
the transfer or other disposition of any outstanding Gen-X Common Stock
Equivalents.
7.25 Operation of Surviving Corporation After Closing Through December 31,
2002. After Closing through December 31, 2002, Huffy shall allow the management
team and officers of Surviving Corporation to operate its business in the normal
course of business, consistent with the past practices of Gen-X, subject to the
normal reporting requirements to the executive officers of Huffy and consistent
with standard Huffy policy.
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7.26 Insurance. Until the Closing, the assets of Gen-X shall be and
remain at the risk of Gen-X. If, prior to Closing, all or any material part of
the assets of Gen-X are destroyed or damaged by fire or any other casualty,
Huffy and MergerSub, shall have the option, exercisable by notice in writing:
(a) to complete the Closing without reduction of the Merger Consideration, in
which event all proceeds of insurance shall be payable to Gen-X and all right
and claim of Gen-X to any such proceeds not paid by the Closing shall be
transferred by Gen-X to MergerSub pursuant to the Merger; or (b) to terminate
this Agreement, in which case Section 9.2 will apply.
ARTICLE VIII
CONDITIONS OF MERGER
8.1 General Conditions. The respective obligations of each party to
effect the transactions contemplated hereby shall be subject to the satisfaction
or written waiver on or prior to the Closing Date of the following conditions:
8.1.1 No Law or Orders. No Law or Order shall have been enacted,
entered, issued or promulgated by any Governmental Entity (and be in
effect) that prohibits the consummation of the transactions contemplated
hereby.
8.1.2 HSR ACT. Any applicable waiting period under the HSR Act shall
have expired or shall have been terminated with respect to the transactions
contemplated hereby.
8.1.3 Legal Proceedings. No Governmental Entity shall have initiated
proceedings to restrain or prohibit the transactions contemplated hereby or
to force rescission, unless such Governmental Entity shall have withdrawn
and abandoned any such proceedings prior to the time that otherwise would
have been the Closing Date.
8.1.4 Simultaneous Closing of Canadian Transaction. The Stock
Purchase of Gen-X Ontario by Huffy Canadian Sub pursuant to the SPA
executed concurrently with the execution of this Agreement, shall be
simultaneously consummated with the Merger.
8.1.5 Stockholder Approval
(a) This Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the requisite vote of
the holders of the outstanding capital stock of Gen-X entitled to vote
thereon at the Gen-X Stockholders Meeting.
(b) The issuance of Huffy Common Stock contemplated hereby shall
have been approved by the requisite vote of the holders of the
outstanding capital stock of Huffy entitled to vote thereon at the Huffy
Shareholders Meeting.
8.1.6 Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act.
No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose shall
have been initiated by the SEC.
8.1.7 Regulatory Approval. All regulatory approvals or waivers
required to consummate the transactions contemplated hereby shall have been
obtained and shall remain in full force and effect and all statutory
waiting periods in respect thereof shall have expired, other than those the
failure of which to be obtained or maintained would not have, or reasonably
be expected to have, a Material Adverse Effect on Gen-X or Huffy, and no
such approvals or waivers shall contain any conditions, restrictions or
requirements that would, following the Effective Time, have a Material
Adverse Effect on Huffy or the Surviving Corporation.
8.1.8 Permits and Approvals. Each party hereto shall have obtained
all Permits and approvals that are legally required to be obtained by such
party or its Subsidiaries from any Governmental Entity prior to
consummation of the transactions contemplated hereby, which if not
obtained, individually or in
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the aggregate, would have a Material Adverse Effect on the Surviving
Corporation and its Subsidiaries, taken as a whole.
8.1.9 Financing. Huffy shall have secured (i) the consent of
Congress Financial Corporation (Central) ("Congress") to the Merger, the
Stock Purchase of Gen-X Ontario by Huffy Canadian Sub and the financing of
such transactions on terms and conditions that are acceptable to Huffy in
its sole and absolute discretion, or (ii) arranged for alternative
financing for such transactions on terms and conditions that are acceptable
to Huffy in its sole and absolute discretion.
8.2 Conditions Precedent to the Obligations of Gen-X. The obligations of
Gen-X to effect the transactions contemplated hereby shall be subject to the
satisfaction on or prior to the Closing Date of each of the following additional
conditions, unless waived in writing by Gen-X:
8.2.1 Accuracy of Representations and Warranties. The
representations and warranties of Huffy and MergerSub contained in this
Agreement shall be true and correct except where the failure to be true and
correct would not have a Material Adverse Effect on Huffy taken as a whole
(it being understood that, notwithstanding anything to the contrary
contained in this Agreement, for the sole purpose of determining whether
there has been a Material Adverse Effect as a result of any inaccuracy of a
representation or warranty of Huffy or MergerSub, such representation or
warranty shall be read as if it were not qualified by "material" or
"Material Adverse Effect"), in each case on the date hereof and at the
Effective Time (unless the representations and warranties address matters
as of a particular date, in which case they shall remain true and correct
in all respects as of such date).
8.2.2 Performance of Obligations. Each of Huffy and MergerSub shall
have performed or complied in all material respects with all covenants
contained in this Agreement or in any agreement, certificate or instrument
to be executed by such party pursuant hereto required to be performed or
complied with by such party either at or prior to the Closing.
8.2.3 Deliveries. Each of Huffy and MergerSub shall have delivered,
or shall have caused to be delivered, to Gen-X at or prior to the Closing
the following:
(a) certified copies of the resolutions duly adopted by (i) the
board of directors of Huffy approving the Merger and the issuance of
Huffy Common Stock contemplated hereby and (ii) the holders of Huffy
Common Stock approving the issuance of Huffy Common Stock contemplated
hereby;
(b) such other documents, instruments or certificates as shall be
reasonably requested by Gen-X or its counsel; and
(c) a certificate of (i) the chief executive officer, the
president or any vice president of such party and (ii) the secretary or
any assistant secretary of such party, certifying to the matters set
forth in Sections 8.2.1 and 8.2.2 above with respect to such party.
8.2.4 Huffy Adverse Changes. There shall not have occurred after the
date hereof any events or circumstances that, individually or in the
aggregate, have had or are reasonably expected to have a Material Adverse
Effect on Huffy.
8.2.5 Tax Opinions. Gen-X shall have received from and permitted to
rely upon an opinion of KPMG to Huffy, dated as of the Closing Date,
substantially to the effect that the Merger should be treated as a
reorganization within the meaning of Section 368(a) of the Code.
8.2.6 Legal Opinion. Gen-X shall have received from Dinsmore & Shohl
LLP, counsel for Huffy, an opinion with respect to the matters set forth in
Exhibit 8.2.6 attached hereto, addressed to Gen-X and dated as of the
Closing Date.
8.2.7 Comfort Letters. Gen-X shall have received from Huffy's
independent certified public accountants customary comfort letters dated
(a) the date of the effectiveness of the Registration Statement and (b)
shortly prior to the Closing Date, in each case with respect to certain
financial
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information regarding Huffy and in the form customarily issued by such
accountants at such time in transactions of this type.
8.2.8 Third Party Consents. Huffy shall have received all consents
from third parties, and shall have delivered in a timely manner all notices
to third parties, that, if not so received or delivered, as applicable,
prior to the consummation of the transactions contemplated hereby, would be
reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on Huffy or the Surviving Corporation.
8.2.9 Financial Fairness Opinion. Gen-X shall have received from its
financial advisor a written opinion, dated as of the date its Board of
Directors meets to approve the transactions contemplated in this Agreement,
to the effect that the Merger is fair, from a financial point of view, to
Gen-X's stockholders.
8.3 Conditions Precedent to the Obligations of Huffy and MergerSub. The
obligations of Huffy and MergerSub to effect the transactions contemplated
hereby shall be subject to the satisfaction on or prior to the Closing Date of
each of the following additional conditions, unless waived in writing by Huffy:
8.3.1 Accuracy of Representations and Warranties; Performance of
Obligations. The representations and warranties of Gen-X contained in this
Agreement shall be true and correct except where the failure to be true and
correct would not have a Material Adverse Effect on Gen-X taken as a whole
(it being understood that, notwithstanding anything to the contrary
contained in this Agreement, for the sole purpose of determining whether
there has been a Material Adverse Effect as a result of any inaccuracy of a
representation or warranty of Gen-X, such representation or warranty shall
be read as if it were not qualified by "material" or "Material Adverse
Effect"), in each case on the date hereof and at the Effective Time (unless
the representations and warranties address matters as of a particular date,
in which case they shall remain true and correct in all respects as of such
date).
8.3.2 Performance of Obligations. Gen-X shall have performed or
complied in all material respects with all covenants contained in this
Agreement or in any agreement, certificate or instrument to be executed by
Gen-X pursuant hereto required to be performed or complied with by Gen-X
either at or prior to the Closing.
8.3.3 EDC Insurance. Huffy shall be satisfied that the EDC Insurance
Policy covers at least 90% of the aggregate amount of Gen-X's accounts
receivable and such coverage will continue after the Closing.
8.3.4 Deliveries. Gen-X shall have delivered, or shall have caused
to be delivered, to Huffy at or prior to the Closing the following:
(a) certified copies of the resolutions duly adopted by the board
of directors of Gen-X and by the holders of Gen-X Common Stock
Equivalents adopting this Agreement and approving the Merger;
(b) such other documents, instruments or certificates as shall be
reasonably requested by Huffy or its counsel;
(c) a certificate of (i) the chief executive officer, the
president or any vice president of Gen-X and (ii) the secretary or any
assistant secretary of Gen-X, certifying to the matters set forth in
Sections 8.3.1 and 8.3.2 above;
(d) a Shareholder Group Agreement in the form appended hereto as
Exhibit 8.3.4(d), duly executed by the Principal Stockholders;
(e) an Employee Retention Agreement substantially in the form
appended hereto as Exhibit 2.5.1(i)(A) and reasonably acceptable to
Huffy, an Employee Option Satisfaction Agreement in substantially the
form of Exhibit 2.5.1(i)(B) and reasonably acceptable to Huffy, an
Option Satisfaction Agreement in the form appended hereto as Exhibit
2.5.1(ii) or a release agreement in a
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form reasonably acceptable to Huffy, executed by every holder of Options
all in accordance with Section 2.4; and
(f) a Non-Competition Agreement in form appended hereto as Exhibit
8.3.4(f) duly executed by the Principal Stockholders and John Collins,
except that the period of the non-competition provision for Mr. Collins
shall be limited to two years.
(g) the unaudited consolidated balance sheet of Gen-X and Gen-X
Ontario dated as of the last day of the month preceding Closing and the
related unaudited consolidated statements of income and cash flow of
Gen-X and Gen-X Ontario for the 12-month period ending as of the last
day of the month preceding the Closing and interim sales and gross
margin reports of Gen-X and Gen-X Ontario for the month in which the
Closing occurs through the Closing Date in the form that is consistent
with the same type of reports that are routinely prepared for management
of Gen-X and Gen-X Ontario.
(h) Huffy shall have received (A) proof of the termination of that
certain Share Issuance and Shareholder Agreement by and between Gen-X
Sports Inc. and HSBC Capital Inc. ("HSBC Capital") dated February 14,
2001 and that certain Share Issuance and Shareholder Agreement by and
between Gen-X Sports, Inc. and HSBC Capital dated February 14, 2001, and
(B) a release from HSBC Capital concerning any claims it may have or had
related to any capital stock or other securities of Gen-X, Gen-X Ontario
or their respective Affiliates in a form reasonably acceptable to Huffy.
(i) an Employment Agreement in substantially the form as Huffy
delivers to Gen-X upon execution of this Agreement executed by those
Gen-X employees who will receive options for Huffy Common Stock and key
managerial and other employees as mutually determined by the parties .
(j) all original (non-cancelled) stock certificates issued to
Gen-X Sports Inc. or its Subsidiaries from each of its Subsidiaries
representing 100% ownership of such Subsidiaries.
(k) subject to the redemption of the Preferred Stock pursuant to
Section 2.7, a release of Gen-X, Gen-X Ontario and Huffy from all
holders of Preferred Stock of Gen-X in form and substance acceptable to
Huffy.
8.3.5 Gen-X Adverse Changes. There shall not have occurred after the
date hereof any events or circumstances that, individually or in the
aggregate, have had or are reasonably expected to have a Material Adverse
Effect on Gen-X.
8.3.6 EBITDA MAE. There shall not have occurred after the date
hereof an EBITDA MAE.
8.3.7 Tax Opinions. Huffy shall have received an opinion in form and
substance reasonably satisfactory to it from KPMG, dated as of the Closing
Date, substantially to the effect that the Merger should be treated as a
reorganization within the meaning of Section 368(a) of the Code.
8.3.8 Legal Opinion. Huffy shall have received from Hodgson Russ,
LLP, counsel to Gen-X, an opinion with respect to the matters set forth in
Exhibit 8.3.8 attached hereto, addressed to Huffy and dated as of the
Closing Date.
8.3.9 Comfort Letters. Huffy shall have received from Gen-X's
independent certified public accountants customary comfort letters dated
(a) the date of the effectiveness of the Registration Statement and (b)
shortly prior to the Closing Date, in each case with respect to certain
financial information regarding Gen-X and in the form customarily issued by
such accountants at such time in transactions of this type.
8.3.10 Third Party Consents. Gen-X shall have received all consents
from any Person or Governmental Entity, and shall have delivered in a
timely manner all notices to such Persons or Governmental Entities, (i)
that are identified as required pursuant to Section 5.7 and Section 5.8 of
the Gen-X Disclosure Schedule, and (ii) (with respect to any consent or
notice not so identified pursuant to
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clause (i) above) that, if not so received or delivered, as applicable,
prior to the consummation of the transactions contemplated hereby, would be
reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on Huffy or the Surviving Corporation.
8.3.11 Dissenting Shares. The aggregate number of Dissenting Shares
shall not equal 10% or more of the shares of Gen-X Common Stock Equivalents
outstanding as of the record date for the Gen-X Stockholders Meeting or at
the Effective Time.
8.3.12 Cancellation of Options. Gen-X shall have obtained the
cancellation of the Options as set forth in Section 2.5 and received any
necessary agreements, approvals or consents from the holders thereof.
8.3.13 Release of Liens. Huffy shall be satisfied that all assets of
Gen-X, including without limitation any trademarks and patents, are free
from any and all Liens, except for any Permitted Liens or Liens that Huffy
agrees may remain in existence post-closing.
8.3.14 Financial Fairness Opinion. Huffy shall have received from
its financial advisor a written opinion, dated as of the date its Board of
Directors meets to approve the transactions contemplated in this Agreement,
to the effect that the Merger is fair, from a financial point of view, to
Huffy's shareholders.
8.3.15 Notice To Optionees. Gen-X shall deliver to Huffy proof of
delivery to each holder of an Option no later than 30 days prior to Closing
of notice of the Merger as required under the Gen-X Employee Stock Option
Plan and the Gen-X Non-Employee Stock Option Plan.
8.3.16 Conversion of Gen-X Sports AG. Gen-X, at the cost of Huffy,
shall have converted Gen-X Sports AG to a GmbH, with the formation and
organization of the GmbH in a manner that is acceptable to Huffy.
8.3.17 Transfer of Trademarks. Gen-X shall have taken all measures
that Huffy reasonably requests concerning the transfer of Gen-X's
trademarks and patents to Gen-X Sports AG (or its successor GmbH).
8.3.18 Gen-X Preferred Stock Dividends. Gen-X shall have paid all
accrued dividends to the holders of Gen-X Preferred Stock.
8.3.19 Physical Inventory. A physical inventory, observed by Huffy's
auditors, shall have been taken of Gen-X's and Gen-X Ontario's inventories
on or about the last day of the calendar month preceding the Closing Date,
satisfactory in result to Congress Financial Corporation (Central) (or such
other lender that may provide financing to Huffy in connection with the
transactions contemplated in this Agreement).
8.3.20 Customer Visits. No later than 30 days after execution of
this Agreement, Huffy shall have met with representatives of the combined
five largest customers of Gen-X and Gen-X Ontario based on aggregate value
of goods and services that Gen-X provided to such customers year-to-date,
and shall have been satisfied, in its sole discretion, with the results of
such meetings.
8.3.21 Gen-X Sports AG as Importer of Record. Gen-X shall have
caused Gen-X Sports AG or its successor to be named and identified as the
importer and importer of record to the Canada Revenue & Customs Agency for
Customs & Goods & Services Tax purposes.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Effective Time
(notwithstanding any adoption of this Agreement or
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approval of the Merger by the stockholders of Gen-X or any approval of the
issuance of Huffy Common Stock contemplated hereby by the shareholders of
Huffy):
9.1.1 Mutual Consent. By mutual written consent of Huffy, MergerSub
and Gen-X;
9.1.2 By Huffy. By Huffy, if any of the conditions set forth in
Section 8.1 or 8.3 shall have become incapable of fulfillment (other than
as a result of a breach of this Agreement by Huffy or MergerSub);
9.1.3 By Gen-X. By Gen-X, if (a) any of the conditions set forth in
Section 8.1 or 8.2 shall have become incapable of fulfillment (other than
as a result of a breach of this Agreement by Gen-X);
9.1.4 Termination Date. By either Huffy or Gen-X, if the
transactions contemplated hereby are not consummated on or before the date
that is six months after the date hereof, but only if the failure to
consummate such transactions on or before such date did not result from the
breach of any representation, warranty or agreement herein of the party
seeking termination (or any of its Subsidiaries);
9.1.5 Breach of Covenant. By either Huffy or Gen-X, if the other
party (or any of such other party's Subsidiaries) shall be in material
breach of any of its covenants contained in this Agreement and such breach
either is incapable of cure or is not cured within 20 Business Days after
notice from the party wishing to terminate; provided, that the party
seeking such termination (or any of such party's Subsidiaries) shall not
also then be in material breach of this Agreement; and, provided, further,
that any material breach of the provisions of Section 7.4 shall entitle
Huffy to an immediate right to termination without any notice or cure
requirement;
9.1.6 Breach of Representations and Warranties. By either Huffy or
Gen-X, if the other party (or any of such other party's Subsidiaries) shall
be in breach of any of its representations or warranties contained in this
Agreement, which breach, individually or together with all other breaches,
is reasonably expected to have a Material Adverse Effect on such party, and
such breach either is incapable of cure or is not cured within 20 Business
Days after notice from the party wishing to terminate; provided, that the
party seeking such termination (or any of its Subsidiaries) shall not also
then be in material breach of this Agreement; or
9.1.7 Order or Action by Governmental Entity. By either Huffy or
Gen-X, if a Governmental Entity shall have issued a non-appealable final
Order or shall have taken any other action having the effect of permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby (provided, that, (a) if the party seeking to terminate
this Agreement (or any of its Subsidiaries) pursuant to this Section 9.1.7
is subject to such Order, it shall have used commercially reasonable
efforts to have such Order removed, and (b) the right to terminate this
Agreement under this Section 9.1.7 shall not be available to a party if
such party (or any of such party's Subsidiaries) has not complied with its
obligations under Section 7.5 and such noncompliance materially contributed
to the issuance of any such Order or the taking of any such action).
9.2 Manner and Effect of Termination. Termination shall be effected by
the giving of written notice to that effect by the party seeking termination. If
this Agreement is validly terminated and the transactions contemplated hereby
are not consummated, then this Agreement shall become null and void and of no
further force and effect and no party shall be obligated to any other party
hereunder; provided, however, that termination shall not affect (a) the rights
and remedies available to a party as a result of the breach by the other party
or parties hereunder or (b) the provisions of Sections 5.28, 6.16, 7.19, 11.1,
11.2, 11.4, and 11.13, or this Section 9.2. Gen-X and Huffy further agree that,
for a period of two years from the date of any termination of this Agreement in
accordance with this Article IX, neither party will offer employment to, or
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hire any of, the employees of the other party (or any Subsidiary thereof) with
whom it has had contact or who became known to the party in connection with the
transactions contemplated hereby.
ARTICLE X
INDEMNIFICATION
10.1 Indemnification Obligation of the Gen-X Stockholders. Each Gen-X
Stockholder and Electing Optionholder shall severally on a pro rata basis based
on the percentage of the Holdback Shares that each of them are entitled to
receive, indemnify, defend and hold the Indemnified Parties harmless from and
against any claim, cost, loss, liability, penalty, settlement, judgment, charge,
fee, expense, or other damage, including, but not limited to reasonable
attorneys' fees (collectively, "Damages") as incurred or sustained by the
Indemnified Parties caused by, arising from or related to any of the following:
10.1.1 Breach of Representation, Warranty or Covenant. Any
inaccuracy or breach by Gen-X or Gen-X Ontario of any representation,
warranty or covenant (except for Sections 5.18, 5.19, or 5.20 of the
Agreement and Sections 4.17, 4.18 or 4.19 of the SPA, which are covered
below) made by Gen-X in the Agreement or Gen-X Ontario in the SPA, or under
any other agreement executed and delivered by Gen-X or Gen-X Ontario in
furtherance of the transactions described in the Agreement or the SPA.
10.1.2 Taxes. Any Taxes arising at anytime out of the operation of
the business of Gen-X or Gen-X Ontario or their respective Affiliates prior
to the close of business on the Closing Date or the failure of Gen-X, Gen-X
Ontario or their respective Affiliates to have filed any Tax Return in any
state, province or other jurisdiction.
10.1.3 Environmental. Any inaccuracy or breach of any representation
or warranty by Gen-X of its representations made in Section 5.19 of the
Agreement or Section 4.18 of the SPA or Damages required by any Person to
be paid by the Indemnified Parties arising from or related to any
Environmental Matters, Environmental Law or Environmental Permit and caused
by the activities of Gen-X, Gen-X Ontario, their respective Affiliates or
their predecessors in interest prior to the Closing.
10.1.4 Fraud. Any fraud or willful misconduct committed by Gen-X,
Gen-X Ontario, their respective Affiliates, officers, directors, employees
and agents or any of the Gen-X Stockholders related to or arising from the
consummation of the Merger or Stock Purchase.
10.2 Limitations on Indemnification. The obligations of the Gen-X
Stockholders and Electing Optionholders under Section 10.1 are subject to the
following limitations: (i) the Gen-X Stockholders and Electing Optionholders
shall not become obligated to pay any asserted claims for Damages under Section
10.1 unless and until the aggregate, cumulative amount of all such claims exceed
a US$1,000,000 threshold, at which point the Gen-X Stockholders and Electing
Optionholders will be obligated to indemnify the Indemnified Parties from and
against all such cumulative amounts to the extent they exceed US$500,000; (ii)
Huffy shall only satisfy such indemnification obligations by retaining such
number of the Holdback Shares valued at US$7.75, equal to the indemnification
obligation; and (iii) the Gen-X Stockholders and Electing Optionholders shall
not become obligated to pay any asserted claims that were previously adjusted
through the Total Adjustment Amount, including without limitation, any breach of
a representation or warranty as a result of purchase price accounting matters,
goodwill errors, customer chargebacks, inventory adjustments or other items that
reduce Consolidated Gen-X 2002 EBITDA; provided, however, that the provisions of
clauses (i), (ii) and (iii) shall not apply to indemnification arising out of
any indemnity claims pursuant to Section 10.1.4 of this Agreement, in which case
the Indemnified Parties may seek full recovery of its Damages (including
exercising its rights against the Holdback Shares); provided further that, the
liability of all Gen-X Stockholders and Electing Optionholders, except for the
Principal Stockholders, for any indemnification obligation pursuant to Section
10.1.4 shall not exceed the Merger Consideration that such Gen-X Stockholder or
Electing Optionholder is entitled to receive pursuant to this Agreement.
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10.3 Expiration. The indemnification obligations of the Gen-X
Stockholders and Electing Optionholders set forth in this ARTICLE X shall
terminate, be null and void and of no further force and effect as follows:
10.3.1 Upon the close of business on the first anniversary of the
Closing for all indemnification obligations set forth in Sections 10.1.1,
10.1.2, and 10.1.3; and
10.3.2 On the expiration of the applicable statute of limitations for
fraud or willful misconduct for indemnification obligations set forth in
Section 10.1.4.
10.4 Procedure for Indemnification. In connection with any claim for
indemnification by the Indemnified Parties hereunder, the procedure set forth
below shall be followed:
10.4.1 Notice of Claim. An Indemnified Party shall give to the
Representative (as such term is defined below) prompt written notice of any
claim, suit, judgment or matter for which indemnity may be sought at any
time, or in the case of a third party claim, after the Indemnified Party
receives written notice thereof. The indemnification period provided for
herein shall be tolled for a particular claim for the period beginning on
the date the Representative receives written notice of that claim until the
final resolution of such claim. If, in the good faith opinion of the
Indemnified Party, a specific occurrence may reasonably give rise to a
claim in the future, the Indemnified Party may give notice thereof to the
Representative and such notice shall be sufficient and the right to make a
claim for indemnification arising thereunder shall, for a period of
eighteen months from the date of such notice, survive any prior termination
of the indemnification period hereunder until the final resolution of such
claim.
10.4.2 Disputed Claims. If the Representative disagrees with any
indemnity amount claimed by an Indemnified Party, the Representative shall
send, within 10 Business Days following delivery of the notice of claim to
the Representative, written notice that the Representative disagrees with
the matters set forth in the notice of claim (a "Notice of Disagreement")
which notice shall specify with reasonable particularity the basis for the
Representative's disagreement with the matters described in such notice of
claim and shall also specify the dollar amount as to which the
Representative agrees that the Indemnified Party has an undisputed right to
indemnification (the "Undisputed Amount") (all other amounts set forth in
such notice of claim being hereinafter referred to as the "Disputed
Amount"). The Representative's failure to provide a Notice of Disagreement
within the required time period shall be deemed a waiver of the
Representative's right to dispute the indemnity claim, and the entire
indemnity claim shall be considered an Undisputed Amount. The Indemnified
Party may immediately exercise its rights against the Holdback Shares as
set forth in this Agreement as payment for any Undisputed Amount (including
all interest thereon from the date of the notice of claim) without any
further notice to the Gen-X Stockholders, Electing Optionholders or
Representative or receive other payment for the Undisputed Amount
(including all interest thereon from the date of the notice of claim) as
mutually agreed upon between the parties.
10.4.3 Disagreements. The Indemnified Party and the Representative
shall each use their respective good faith efforts to resolve within ten
Business Days following receipt of the Notice of Disagreement the
disagreements between them regarding the Disputed Amount. In the event they
are successful in so doing, the Indemnified Party may immediately exercise
its rights against the Holdback Shares as set forth in this Agreement as
payment for any Disputed Amount (including all interest thereon from the
date of the notice of claim) without any further notice to the Gen-X
Stockholders, Electing Optionholders or Representative or receive other
payment for the Disputed Amount (including all interest thereon from the
date of the notice of claim) as mutually agreed upon between the parties.
In the event that the Indemnified Party and the Representative cannot reach
an agreement as to the Disputed Amount within such ten Business Day period,
either party may request that a court of competent jurisdiction make a
determination as to the Disputed Amount. The parties each agree to be bound
by the final determination or final judgment of such court and/or any
appellate courts in which such dispute may be litigated.
A-49
10.4.4 Settlement of Claims. The Representative shall have the right
to adjust or settle any third party claim, suit or judgment coming within
the scope of this indemnity obligation (provided, in any such case, that
the Indemnified Party consents in writing to such settlement, which consent
shall not be unreasonably withheld, and the Indemnified Party receives an
unconditional release of all liabilities as part of such settlement) and
shall have the right to control any litigation related thereto (at the cost
and expense of the Gen-X Stockholders and Electing Optionholders);
provided, however, if there is a reasonable probability that a claim may
adversely affect the business or property of the Indemnified Party despite
the indemnity of the Gen-X Stockholders and Electing Optionholders, the
Indemnified Party shall have the right at its option to defend, at its own
cost and expense, and to compromise or settle such claim, which compromise
or settlement (with respect to amounts to be paid by the Gen-X Stockholders
and Electing Optionholders) shall be made only with the written consent of
the Representative, such consent not to be unreasonably withheld, provided
the Gen-X Stockholders and Electing Optionholders receive a complete
release of all obligations and liabilities in any manner related to such
claim. Any party hereto desiring to participate in the handling of any such
claim, suit or judgment being handled by the other party shall have the
right, at its expense and with its counsel, to join with the other party
and participate fully in the defense of any such claim or interest.
10.4.5 Cooperation. The Indemnified Parties and the Representative
shall cooperate in the defense of any such claim or litigation and each
shall make available all books and records which are relevant in connection
with such claim or litigation.
10.4.6 Designation of Representative. Huffy and Gen-X hereby
mutually appoint Kenneth Finkelstein to act as the representative of the
Gen-X Stockholders and Electing Optionholders for purposes of this Article
(the "Representative").
10.4.7 Interest. Any interest that is owed on any indemnity claim
shall accrue at 8% per annum.
ARTICLE XI
MISCELLANEOUS
11.1 Confidentiality. Each of Huffy and Gen-X agrees and acknowledges
that it will continue to be bound by the confidentiality agreements, dated
October 1, 2001 and February 28, 2002, between Huffy and Gen-X (as such
agreements may be amended, collectively, the "Confidentiality Agreement").
11.2 Expenses. Except as otherwise specifically provided for herein
(including, without limitation, under ARTICLE IX), each of Gen-X, on the one
hand, and Huffy and MergerSub, on the other, shall pay all of its costs and
expenses (including attorneys', accountants' and investment bankers' fees)
incurred in connection with this Agreement and the transactions contemplated
hereby.
11.3 Notices. All notices, requests, claims, demands and other
communications hereunder must be in writing and will be deemed to have been duly
given only if delivered personally against written receipt or by facsimile
transmission against facsimile confirmation or mailed by a nationally recognized
overnight courier prepaid, to the parties at the following addresses or
facsimile numbers:
To Gen-X:
Gen-X Sports Inc.
36 Dufflaw Road
Toronto, Ontario M6A 2W1
Attn: Kenneth Finkelstein
With a copy to:
Fogler Rubinoff LLP
Suite 4400, P.O. Box 95
Royal Trust Tower
A-50
Toronto Dominion Centre
Toronto, Ontario
M5K 1G8
Attn: Daniel F. Hirsh
To Huffy or MergerSub:
Huffy Corporation
225 Byers Road
Miamisburg, Ohio 45342-3614
Attn: Nancy A. Michaud
With a copy to:
Dinsmore & Shohl LLP
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
Attn: Charles F. Hertlein, Jr.
All such notices, requests, claims, demands and other communications will (a) if
delivered personally to the address as provided in this Section 11.3, be deemed
given upon delivery, (b) if delivered by facsimile transmission to the facsimile
number as provided for in this Section 11.3, be deemed given upon facsimile
confirmation, and (c) if delivered by overnight courier to the address as
provided in this Section 11.3, be deemed given on the earlier of the first
Business Day following the date sent by such overnight courier or upon receipt
(in each case, regardless of whether such notice, request, claim, demand or
other communication is received by any other Person to whom a copy of such
notice is to be delivered pursuant to this Section 11.3). Any party hereto from
time to time may change its address, facsimile number or other information for
the purpose of notices to that party by giving notice specifying such change to
the other parties hereto.
11.4 Entire Agreement. This Agreement and the Exhibits and Schedules
hereto (which are incorporated herein by this reference), including the Gen-X
Disclosure Schedule and the Huffy Disclosure Schedule, constitute the entire
Agreement among the parties hereto with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties hereto with respect to the subject matter hereof, except for the
Confidentiality Agreement, which shall continue in full force and effect and
shall survive any termination of this Agreement or the Closing in accordance
with its terms.
11.5 Counterparts. This Agreement may be executed in any number of
counterparts and may be executed and delivered by facsimile, each of which
counterparts and facsimiles will be deemed an original, but all of which
together will constitute one and the same instrument.
11.6 Huffy and Indemnified Party Knowledge. The right of Huffy or an
Indemnified Party to any remedy set forth in this Agreement, in law or in equity
shall not be affected by any investigation it conducts with respect to, or any
Knowledge it acquires (or capable of being acquired) at any time, whether before
or after the Closing, closing of the Stock Purchase, or execution of the
Agreement or SPA, with respect to the accuracy or inaccuracy of or compliance
with, any representation, warranty, covenant, obligation or claim which may give
rise to a remedy based on such representation, warranty, covenant, obligation or
claim. The waiver of any condition based on the accuracy of any representation
or warranty, or on the performance of or compliance with any covenant or
obligation of Gen-X or Gen-X Ontario as set forth in the Agreement or SPA, shall
not affect an Indemnified Party's right to indemnification, payment of Damages
or other remedy as set forth in this Agreement or SPA based on such
representations, warranties, covenants or obligations.
11.7 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this
A-51
Agreement will not be materially and adversely affected thereby, (a) such
provision will be fully severable, (b) this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, (c) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected by the illegal, invalid
or unenforceable provision or by its severance herefrom, and (d) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically
as a part of this Agreement a legal, valid and enforceable provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible.
11.8 Third Party Beneficiaries. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties hereto to confer third party beneficiary rights, and this Agreement does
not confer any such rights, upon any other Person.
11.9 No Assignment; Binding Effect. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned (by operation of law or
otherwise) by any party hereto without the prior written consent of the other
parties hereto and any attempt to do so will be void. Subject to the preceding
sentence, this Agreement is binding upon, inures to the benefit of, and is
enforceable by the parties hereto and their respective successors and assigns.
11.10 Headings. The headings used in this Agreement have been inserted
for convenience of reference only and do not define or limit the provisions
hereof.
11.11 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to that
State's conflict of laws principles.
11.12 Construction. The parties hereto agree that this Agreement is the
product of negotiation between sophisticated parties and individuals, all of
whom were represented by counsel, and each of whom had an opportunity to
participate in, and did participate in, the drafting of each provision hereof.
Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto but rather shall be given a
fair and reasonable construction without regard to the rule of contra
proferentem.
11.13 Specific Performance. The parties hereto agree that, if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist, and damages would be difficult to determine.
It is agreed that the parties hereto 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.
11.14 Amendment and Modification. At any time prior to the Effective
Time, this Agreement may be amended, modified or supplemented only by written
agreement (referring specifically to this Agreement) of Huffy, MergerSub and
Gen-X with respect to any of the terms contained herein; provided, however, that
no such amendment, modification or supplementation shall be made that, under
applicable Law, requires the approval of stockholders of Gen-X or Huffy, without
the further approval of such stockholders.
11.15 Waiver. At any time prior to the Effective Time, Huffy and
MergerSub, on the one hand, and Gen-X, on the other, may (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 of the other contained
herein or in any documents delivered pursuant hereto, and (c) waive compliance
by the other with any of the agreements or conditions contained herein that may
legally be waived. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
specifically referring to this Agreement and signed on behalf of such party.
11.16 Survival of Representations and Warranties. The representations and
warranties contained herein and in any certificate or other writing delivered
pursuant hereto shall survive until the first anniversary of the Closing Date;
provided that, this provision shall in no way limit an Indemnified Party's
rights to indemnification pursuant to Section 10.1.4.
A-52
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first
written above.
GEN-X SPORTS INC.
By: /s/ KENNETH FINKELSTEIN
------------------------------------
Name: Kenneth Finkelstein
Title: Chairman/CFO
HUFFY CORPORATION
By: /s/ ROBERT W. LAFFERTY
------------------------------------
Name: Robert W. Lafferty
Title: V.P. Finance
HSGC, INC.
By: /s/ NANCY A. MICHAUD
------------------------------------
Name: Nancy A. Michaud
Title: Secretary
A-53
EXHIBITS AND SCHEDULES
<Table>
<Caption>
Exhibit 2.1.2 Form of Certificate of Merger
Exhibit 2.5.1(i)(A) Employee Retention Agreement
Exhibit 2.5.1(i)(B) Employee Option Satisfaction Agreement
Exhibit 2.5.1(ii) Option Satisfaction Agreement
Exhibit 4.3 Directors and Officers of MergerSub
Exhibit 8.2.6 Dinsmore & Shohl LLP Legal Opinion
Exhibit 8.3.4(d) Shareholder Group Agreement
Exhibit 8.3.4(f) Non-Competition Agreement
Exhibit 8.3.8 Gen-X Counsel Legal Opinion
Gen-X Disclosure Schedules
Section 5.1 Organization and Good Standing
Section 5.3.1 Equity Securities
Section 5.4 Subsidiaries
Section 5.6 Compliance with Applicable Law
Section 5.7 Non-Contravention/Consents
Section 5.8 Government Approvals and Consent
Section 5.9 Financial Statements
Section 5.10.3 Gen-X Plan Payments
Section 5.11.2 Specific Liabilities or Changes
Section 5.12 Litigation
Section 5.13 Contracts
Section 5.14.3 Tax Claims
Section 5.14.5 Audited Tax Returns
Section 5.14.7 Taxing Authority Rulings and Agreements
Section 5.14.14 Elections Affecting Income Taxes
Section 5.15 Titles to Properties; Encumbrances
Section 5.16 Intellectual Property
Section 5.18.1 Gen-X Employee Benefit Plans
Section 5.18.5 Employee Benefits Liabilities
Section 5.18.8 Employee Severance and/or Stay Bonus Benefits
Section 5.20 Labor Matters
Section 5.21 Related Party Transactions
Section 5.22.1 Gen-X Owned Real Property
Section 5.22.2 Gen-X Leased Real Property
Section 5.23 Insurance Policies
Section 5.25 Customers
Section 7.1 Conduct of Business Pending Merger
Section 7.12 Employee Benefits
Huffy Disclosure Schedules
Section 6.1.1 Organization and Good Standing
Section 6.1.2 MergerSub Organization and Good Standing
Section 6.3.1 Equity Securities
Section 6.3.2 Commitments to Issue or Purchase Securities
Section 6.7 Non-Contravention/Consents
Section 6.8 Government Approvals and Consents
Section 6.12 Litigation
Section 6.13 Titles to Properties; Encumbrances
Section 6.16 Broker
</Table>
AGREEMENT OF PRINCIPAL STOCKHOLDERS
In order to induce Huffy to enter into the above Agreement and in
consideration of the benefits that each of the Principal Stockholders will
receive as equity holders (either directly or indirectly) of Gen-X Sports, Inc,
each of the Principal Stockholders does hereby agree that it shall or shall
cause all of its shares of Gen-X Common Stock Equivalents (whether owned
directly or indirectly) to be voted for the approval of this Agreement, the
Merger and all other transactions contemplated in this Agreement and take all
other actions necessary to ratify, confirm and approve this Agreement, the
Merger and the transactions contemplated in this Agreement. Each of the
Principal Stockholders further agree to be bound by the terms and conditions of
ARTICLE X to the Agreement.
All capitalized terms not defined herein shall have the same meaning as in
the Agreement and Plan of Merger above. Each of the Principal Stockholders
represents and warrants to Huffy that the execution and delivery by each of the
Principal Stockholders of this agreement has been duly authorized and no other
action on the part of each of the Principal Stockholders is necessary to
authorize the execution and delivery by each of the Principal Stockholders of
this agreement and consummation by each of the Principal Stockholders of the
transactions contemplated hereby. Each of the Principal Stockholders further
represents and warrants to Huffy that this agreement constitutes a valid and
binding agreement of each of the Principal Stockholders and is enforceable
against each of them in accordance with its terms. Each of the Principal
Stockholders further represents and warrants that immediately following the
Closing, the Stock Consideration issued to the Principal Stockholders will not
be owned directly or indirectly by any resident of Canada.
IN WITNESS WHEREOF, the authorized officers of the undersigned have
executed this agreement as of the date set forth below their respective names.
DMJ FINANCIAL, INC.
ROYAL BANK OF CANADA (CARIBBEAN)
CORPORATION
AS DIRECTOR
By: /s/ A.D. ALLEYNE
------------------------------------
Name: A.D. Alleyne
Title: Senior Manager
Date: June 4, 2002
K&J FINANCIAL HOLDINGS, INC.
ROYAL BANK OF CANADA (CARIBBEAN)
CORPORATION
AS DIRECTOR
By: /s/ A.D. ALLEYNE
------------------------------------
Name: A.D. Alleyne
Title: Senior Manager
Date: June 4, 2002
OSGOODE FINANCIAL INC.
By: /s/ KENNETH FINKELSTEIN
----------------------------------
Name: Kenneth Finkelstein
Title: Director
Date: June 4, 2002
By: /s/ KENNETH FINKELSTEIN
------------------------------------
Name: Kenneth Finkelstein
Date: June 4, 2002
DLS FINANCIAL, INC.
By: /s/ A.D. ALLEYNE
------------------------------------
Name: A.D. Alleyne
Title: Senior Manager
Date: June 4, 2002
By: /s/ JAMES SALTER
------------------------------------
Name: James Salter
Date: June 4, 2002
KENNETH FINKELSTEIN FAMILY TRUST
ROYAL BANK OF CANADA (CARIBBEAN)
CORPORATION
AS TRUSTEE
By: /s/ ARNITA K. STEWART
------------------------------------
Name: Arnita K. Stewart
Title: Trustee
Date: June 4, 2002
JAMES SALTER FAMILY TRUST
ROYAL BANK OF CANADA (CARIBBEAN)
CORPORATION
AS TRUSTEE
By: /s/ ARNITA K. STEWART
------------------------------------
Name: Arnita K. Stewart
Title: Trustee
Date: June 4, 2002
AMENDMENT NO. 1 TO THE
AGREEMENT AND PLAN OF MERGER
This Amendment No. 1 to that certain Agreement and Plan of Merger by and
among Huffy Corporation, HSGC, Inc. and Gen-X Sports Inc. (the "Agreement") is
entered into on July 1, 2002, by and among Huffy Corporation HSGC, Inc. and
Gen-X Sports, Inc. to amend the Agreement.
In consideration of the mutual covenants and agreements contained herein
and other good and valuable consideration, the receipt, sufficiency and adequacy
of which are hereby acknowledged, the parties hereby covenant and agree as
follows:
1. AMENDMENT TO AGREEMENT. The parties agree to amend the Agreement as follows:
a. NEW ARTICLE XII. A new Article XII to the Agreement is hereby added and
shall read as follows:
ARTICLE XII
THREE WHEEL PRODUCTION AND LICENSE
12.1 Huffy Production of Three Wheel Product. Huffy has developed a
tricycle with an oversized front wheel that is to be marketed under Huffy
trademarks and logos (a "Three Wheel Product"). Huffy agrees to use its
commercial efforts to negotiate the best per unit price from a contract
manufacturer ("Huffy's Supplier") to manufacture the Three Wheel Product in
accordance with Huffy's design requirements and to obtain the right of
Gen-X to purchase all of Gen-X's requirements for Three Wheel Products from
Huffy's Supplier at Huffy's negotiated price. Huffy agrees to sell its
branded Three Wheel Product to its current customers. If a channel conflict
for the sale of Three Wheel Products arises, the parties agree in good
faith to resolve the conflict.
12.2 License to Gen-X. Huffy hereby grants Gen-X and Gen-X Ontario a
non-exclusive, non-assignable license (with no right to sublicense) to use
Huffy's Three Wheel Product design solely for the purposes set forth in
this Article XII.
12.3 Gen-X Sale of Three Wheel Product. Gen-X agrees that from the
date of this Amendment through the termination of this Article XII, it
shall sell the Three Wheel Product bearing Gen-X's trademarks and logos to
its current customers. Gen-X shall not use any of Huffy's trademarks and
logos in marketing or selling the Three Wheel Products or affix such
trademarks and logos to any Three Wheel Product that it sells or markets.
Gen-X shall not design, manufacture, market or sell any products similar to
the Three Wheel Product except as set forth in this Article XII and
immediately shall cease its current design and implementation of a product
that is similar to the Three Wheel Product.
12.4 Gen-X Purchase From Huffy's Supplier. Gen-X shall purchase all
of its requirements for Three Wheel Products solely from Huffy's Supplier.
12.5 License Fee.
12.5.1 Gen-X shall pay a fee (the "License Fee") to Huffy that
equals the Gross Sales Margin of all of Gen-X's sales of Three Wheel
Products. For purposes of this Article XII, "Gross Sales Margin" shall
mean the gross revenues that Gen-X receives from the sales of Three
Wheel Products less the cost of goods on such sales, any deductions for
discounts, rebates or returns, freight, insurance and any other direct
costs associated with such sales.
12.5.2 Gen-X shall pay the License Fee to Huffy monthly no later
than on the 15th day of the following month based on collected Gross
Sales Margin of Gen-X's sales of Three Wheel Products for the preceding
month. Simultaneously with the payment of the License Fee, Gen-X shall
submit to Huffy a corresponding monthly report of its sales of the Three
Wheel Products and calculation of License Fee due in a form and content
reasonably acceptable to Huffy. Huffy shall have the right to inspect
the books and records of Gen-X concerning its sales and marketing of the
A-A-1
Three Wheel Products during normal business hours after reasonable
notice to verify the License Fee amount that Gen-X has paid to Huffy.
12.5.3 If this Agreement terminates for any reason prior to
consummation of the Merger, then: (i) Huffy promptly shall reimburse
Gen-X all License Fees that Gen-X has paid to Huffy; and (ii) each party
will source its own Three Wheel Product, based on its own design, from a
manufacturer of its choice and sell the products to any customer of its
choice.
12.6 Warranty and Product Liability. Huffy shall be responsible for
all warranty and product liability claims that may arise solely from the
Huffy design (unchanged by any party) of any Three Wheel Products that
Huffy or Gen-X sells, and Gen-X shall be responsible for any other claims,
including without limitation, trademark infringement, warnings, etc., that
may arise from any Three Wheel Products that Gen-X sells. In the event
License Fees are reimbursed under Section 12.5.3 above, notwithstanding the
preceding provisions of Section 12.6, Gen-X solely shall be responsible for
all warranty and product liability claims that arise from any Three Wheel
Products that Gen-X sold or sells.
12.7 Adjustment to Consolidated Gen-X EBITDA and Consolidated Gen-X
2002 EBITDA Calculation. Notwithstanding anything to the contrary in this
Agreement, all Licence Fees that Gen-X actually pays Huffy will not be
deducted when calculating the Consolidated Gen-X EBITDA and Consolidated
Gen-X 2002 EBITDA of Gen-X and Gen-X Ontario. To the extent that Gen-X
working capital is affected by the transactions contemplated in this
Section 12, Consolidated Gen-X Debt under Section 2.3.2 above shall not be
so affected.
12.8 Termination of this Article. The rights and obligations of the
parties set forth in this Article XII automatically shall terminate upon
the termination of this Agreement for any reason. However, except for the
rights and obligations set forth in Sections 12.5.3 and 12.6, which shall
survive termination of this Agreement or this Article XII, all rights and
obligations of Gen-X and Huffy shall survive the Merger and terminate on
December 31, 2002, unless the parties mutually agree otherwise.
b. AMENDMENT TO SECTION 8.2.9. Section 8.2.9 of the Agreement is amended
as follows: the words "dated as of the date its Board of Directors meets to
approve the transactions contemplated in this Agreement," are hereby deleted and
replaced with the words " dated as of a date on or before the Closing Date,".
2. CAPITALIZED TERMS. All capitalized terms not defined herein shall have the
same meaning as in the Agreement.
3. NO OTHER AMENDMENT. Other than as expressly provided herein, the parties
intend no other amendment to the Agreement.
[SIGNATURE PAGE TO FOLLOW]
A-A-2
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first
written above.
GEN-X SPORTS INC.
By: /s/ KENNETH FINKELSTEIN
------------------------------------
Name: Kenneth Finkelstein
Title: Chairman/CFO
HUFFY CORPORATION
By: /s/ ROBERT W. LAFFERTY
------------------------------------
Name: Robert W. Lafferty
Title: V.P. Finance
HSGC, INC.
By: /s/ NANCY A. MICHAUD
------------------------------------
Name: Nancy A. Michaud
Title: Secretary
A-A-3
ANNEX B
SHAREHOLDER GROUP AGREEMENT
THIS SHAREHOLDER GROUP AGREEMENT, dated as of , 2002 (this
"Agreement"), by and among Huffy Corporation, an Ohio corporation (the
"Company"), HSGC, Inc., a Delaware corporation ("HSGC"), HSGC Canada, Inc., a
New Brunswick corporation ("Huffy Canada"), DMJ Financial, Inc., a Barbados
corporation ("DMJ"), its two stockholders K&J Financial Holdings, Inc. ("K&J"),
a Barbados corporation and DLS Financial, Inc. ("DLS") a Barbados corporation,
the sole stockholder of K&J, Kenneth Finkelstein Family Trust, the sole
stockholder of DLS, James Salter Family Trust, Osgoode Financial Inc., an
Ontario corporation ("Osgoode") Kenneth Finkelstein and James Salter (DMJ, K&J,
DLS, Osgoode, Kenneth Finkelstein, James Salter Kenneth Finkelstein Family Trust
and James Salter Family Trust are sometimes collectively referred to as, the
"Shareholder Group").
BACKGROUND
The Company, HSGC, a wholly-owned subsidiary of the Company and Gen-X
Sports Inc., a Delaware corporation ("Gen-X") have entered into an Agreement and
Plan of Merger, effective as of June 5, 2002 (as it may be amended from time to
time, the "Merger Agreement"), pursuant to which, among other things, Gen-X will
merge with and into HSGC, with HSGC as the surviving corporation, and shares of
Gen-X held by DMJ Financial Inc. will be converted into a right to receive cash
and shares of Common Stock, par value $1.00 per share (the "Common Stock"), of
the Company (the "Merger"). In addition, Huffy, Huffy-Canada, a wholly-owned
subsidiary of the Company, Gen-X Sports, Inc., a Canadian corporation ("Gen-X
Ontario") and all or substantially all of Gen-X Ontario's stockholders have
entered into a Stock Purchase Agreement, effective as of June 5, 2002 (as it may
be amended from time to time, the "SPA"), pursuant to which, among other things,
Huffy Canada will purchase all or substantially all of the outstanding capital
stock of Gen-X Ontario (the "Stock Purchase"). The execution of this Agreement
is a condition to the obligation of the parties to consummate the Merger and the
Stock Purchase, which shall occur simultaneously (the "Closing"). The Company,
HSGC and Huffy Canada and the Shareholder Group desire to establish in this
Agreement certain terms and conditions concerning the voting and disposition of
the shares of Common Stock issued to the Shareholder Group pursuant to the
Merger Agreement and related provisions concerning the Shareholder Group's
relationship with and investment in the Company following the Closing.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.1 Certain Definitions. In addition to other terms defined
elsewhere in this Agreement, as used in this Agreement, the following terms
shall have the meanings ascribed to them below:
"Affiliate" shall mean, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such first Person. As used in
this definition, "control" (including, with correlative meanings, "controlled
by" and "under common control with") shall mean possession, directly or
indirectly, of power to direct or cause the direction of management or policies
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise).
"Beneficially Own" shall mean, with respect to any securities, having
"beneficial ownership" of such securities for purposes of Rule 13d-3 or 13d-5
under the Exchange Act as in effect on the date hereof, and "Beneficial
Ownership" shall have the corresponding meaning.
B-1
"Board" shall mean the Board of Directors of the Company in office at the
applicable time.
"Business Day" shall mean any day that is not a Saturday, Sunday or other
day on which the commercial banks in the State of Ohio are authorized or
required by law to remain closed.
"Director" shall mean any member of the Board.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Person" shall mean any individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shareholder Group" shall have the meaning assigned in the preamble hereto,
it being understood that such term shall also include any transferee pursuant to
a Transfer pursuant to Section 4.1 hereof.
"Shareholder Group Shares" shall mean, at any time, the shares of Common
Stock issued pursuant to the Merger to any member of the Shareholder Group,
Voting Securities issued upon exercise of any options or warrants granted now or
hereafter to any member of the Shareholder Group, or any Voting Securities
granted pursuant to any restricted stock grant agreement or plan to any member
of the Shareholder Group, and into which such shares of equity securities of the
Company shall be converted in connection with stock splits, reverse stock
splits, stock dividends or distributions, or combinations or any similar
recapitalization, on or after the date hereof, that are Beneficially Owned by
the Shareholder Group.
"Subsidiary" means, with respect to any Person, any other entity of which
securities or other ownership interests having ordinary power to elect a
majority of the board of directors or other persons performing similar functions
are at any time directly or indirectly owned by such Person.
"Votes" shall mean votes entitled to be cast generally in the election of
Directors, assuming the conversion of any securities of the Company then
convertible into Common Stock or shares of any other class of capital stock of
the Company then entitled to vote generally in the election of Directors.
"Voting Securities" shall mean (i) the Common Stock, (ii) shares of any
other class of capital stock of the Company then entitled to vote generally in
the election of Directors and (iii) any securities of the Company then
convertible into shares of any class of capital stock of the Company then
entitled to vote generally in the election of Directors.
All other capitalized terms not defined in this Agreement shall have the
same meaning as in the Merger Agreement or SPA, as the case may be.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1 Representations and Warranties of the Company. The Company
represents and warrants to the Shareholder Group as of the date hereof as
follows:
(a) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Ohio and has
all necessary corporate power and authority to enter into this Agreement
and to carry out its obligations hereunder.
(b) This Agreement has been duly and validly authorized by the Company
and all necessary and appropriate action has been taken by the Company to
execute and deliver this Agreement and to perform its obligations
hereunder.
(c) This Agreement has been duly executed and delivered by the Company
and, assuming due authorization and valid execution and delivery by the
members of the Shareholder Group, is a valid and
B-2
binding obligation of the Company, enforceable against it in accordance
with its terms, except to the extent that (a) such enforcement may be
subject to any bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other laws, now or hereafter in effect, relating to
or limiting creditors' rights generally and (b) the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
SECTION 2.2 Representations and Warranties of the Shareholder Group. Each
member of the Shareholder Group represents and warrants to the Company as of the
date hereof as follows:
(a) With respect to corporations, such member (i) has been duly
incorporated and is validly existing and in good standing under the laws of
the jurisdiction of its organization and (ii) has all necessary corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder.
(b) This Agreement has been duly and validly authorized by each such
member and all necessary and appropriate action has been taken by such
member to execute and deliver this Agreement and to perform its obligations
hereunder.
(c) This Agreement has been duly executed and delivered by such member
and, assuming due authorization and valid execution and delivery by the
Company, is a valid and binding obligation of such member, enforceable
against it in accordance with its terms, except to the extent that (a) such
enforcement may be subject to any bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other laws, now or hereafter in effect,
relating to or limiting creditors' rights generally and (b) the remedy of
specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(d) It acknowledges and understands that such member's ownership,
transfer and purchase of Common Stock or securities convertible into Common
Stock shall be subject to the provisions of Ohio Revised Code Section
1701.831 and Chapter 1704 of the Ohio Revised Code.
(e) The attached Exhibit A is a true, complete and accurate list of
all shares of Common Stock, options for Common Stock (and the amount of
shares of Common Stock issuable upon exercise of such options) and shares
of restricted Common Stock that each member of the Shareholder Group owns,
and each member of the Shareholder Group does not Beneficially Own any
other interest in Voting Securities or other securities of Huffy (other
than those securities identified on Exhibit A.
ARTICLE III
STANDSTILL; VOTING
SECTION 3.1 Standstill Restrictions. The members of the Shareholder Group
shall not, and shall cause each of their respective Affiliates not to, directly
or indirectly:
(a) acquire, offer to acquire or agree to acquire Beneficial Ownership
of any Voting Securities, except pursuant to stock splits, reverse stock
splits, stock dividends or distributions, or combinations or any similar
recapitalization or exercise of stock options or grants of restricted stock
pursuant to a Company stock option plan, on or after the date hereof;
(b) acquire, offer to acquire or agree to acquire any business or
material assets of the Company or any of its Subsidiaries;
(c) initiate or propose any offer by any third party to acquire
Beneficial Ownership of Voting Securities, other than an acquisition of
Shareholder Group Shares permitted in accordance with Section 4.1;
(d) initiate or propose any merger, tender offer, business combination
or other extraordinary transaction involving the Company or any of its
Subsidiaries;
B-3
(e) act, alone or in concert with others, to seek to affect or
influence the control of the Board or the management of the Company, or the
business, operations, affairs or policies of the Company; provided that
this subsection shall not be deemed to restrict any member of the
Shareholder Group or such member's representative from participating as a
member of the Board in his or her capacity as such;
(f) deposit any Voting Securities in a voting trust or subject any
Voting Securities to any proxy, arrangement or agreement with respect to
the voting of such securities or other agreement having a similar effect,
except as provided in Section 3.2;
(g) initiate or propose any shareholder proposal or make, or in any
way participate in, directly or indirectly, any "solicitation" of "proxies"
to vote, or seek to influence any Person with respect to the voting of, any
Voting Securities, or become a "participant" in a "solicitation" (as such
terms are defined in Regulation 14A under the Exchange Act) with respect to
Voting Securities;
(h) form, join or in any way participate in a group (other than a
group comprised exclusively of the members of the Shareholder Group) of
Persons acquiring, holding, voting or disposing of any Voting Securities
which would be required under Section 13(d) of the Exchange Act and the
rules and regulations thereunder to file a statement on Schedule 13D with
the SEC as a "person" within the meaning of Section 13(d)(3) of the
Exchange Act (or any successor statute or regulation);
(i) propose, or agree to, or enter into any discussions, negotiations
or arrangements with, or provide any confidential information to, any third
party with respect to any of the foregoing;
(j) make any statement or disclosure inconsistent with the foregoing;
or
(k) propose or seek an amendment or waiver of any of the provisions of
this Section 3.1.
SECTION 3.2 Voting. Each member of the Shareholder Group shall (i) vote at
any shareholder meeting or in connection with any action by written consent at
or in which Voting Securities are entitled to vote, on any matter that may be
presented, all of its Shareholder Group Shares in accordance with the management
voting recommendation to all shareholders on any and all matters submitted to
the shareholders of the Company and (ii) be present in person or represented by
proxy, at all meetings of shareholders of the Company so that all Shareholder
Group Shares shall be counted for the purpose of determining the presence of a
quorum at such meetings.
ARTICLE IV
TRANSFER RESTRICTIONS; LIQUIDITY
SECTION 4.1 Transfer Restrictions.
(a) Each member of the Shareholder Group shall not, directly or
indirectly, except as otherwise provided herein, sell, offer to sell,
contract to sell, grant any option to purchase or otherwise transfer or
dispose of any of the Shareholder Group Shares, including, without
limitation any short sales, any kind of hedging transaction or upon
exercise of any warrants that a member of the Shareholder Group may grant
to any third party for the member's Shareholder Group Shares (collectively,
a "Transfer"), without the prior written consent of the Company; provided,
however, that each of the undersigned shall be permitted to Transfer 25% of
his or its Shareholder Group Shares from the date hereof through the first
anniversary of the Closing, and an additional 25% thereafter during each
one year period from each subsequent anniversary of the Closing until the
next anniversary of the Closing; provided, further, that in no event shall
any member of the Shareholder Group Transfer more than 10% of his or its
Shareholder Group Shares during any three month period. The foregoing shall
not restrict any Transfer by will or pursuant to the laws of descent and
distribution or to a trust for the benefit of any member of the Shareholder
Group or, if applicable, any member of his family so long as each and every
such Transfer, as a condition to the effectiveness of such transfer,
executes and delivers to the Company an acknowledgement of this Agreement,
agreeing to be bound by the terms hereof. The Transfer restrictions
B-4
set forth in this Section 4.1 shall not apply to any restricted Common
Stock that a member of the Shareholder Group received pursuant to the
Merger Agreement.
(b) Notwithstanding anything to the contrary in this Section 4.1, in
the event that the Company terminates the employment of Kenneth Finkelstein
for any reason on or after the second anniversary of this Agreement, then
the restrictions on Transfer set forth in this Section 4.1 shall no longer
apply to Kenneth Finkelstein, the Kenneth Finkelstein Family Trust or K&J
Financial Holdings, Inc.
(c) Notwithstanding anything to the contrary in this Section 4.1, in
the event that the Company terminates the employment of James Salter for
any reason on or after the second anniversary of this Agreement, then the
restrictions on Transfer set forth in this Section 4.1 shall no longer
apply to James Salter, the James Salter Family Trust or DLS Financial, Inc.
(d) No Shareholder Group member nor any of their respective directors
and officers shall, and each Shareholder Group member shall use its
reasonable best efforts to cause its and its Subsidiaries' employees,
agents and representatives, including any investment banker, attorney or
accountant retained by it or any of its Subsidiaries not to, make any
public statement or announcement regarding, or cause to be known by the
public or the investment community generally, any plan or intention of any
Shareholder Group member to sell or otherwise dispose of any Common Stock
to the public or any third party.
ARTICLE V
EFFECTIVENESS AND TERMINATION
SECTION 5.1 Effectiveness. This Agreement shall take effect immediately
upon the Closing and shall remain in effect until it is terminated pursuant to
Section 5.2 hereof.
SECTION 5.2 Termination. This Agreement shall terminate upon the earliest
to occur of the following:
(a) The fourth anniversary of the Closing; or
(b) Mutual written agreement of the Company and the Shareholder Group,
at any time to terminate this Agreement.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Injunctive Relief. Each party hereto acknowledges that it
would be impossible to determine the amount of damages that would result from
any breach of any of the provisions of this Agreement and that the remedy at law
for any breach, or threatened breach, of any of such provisions would likely be
inadequate and, accordingly, agrees that each other party shall, in addition to
any other rights or remedies which it may have, be entitled to seek such
equitable and injunctive relief as may be available from any court of competent
jurisdiction to compel specific performance of, or restrain any party from
violating, any of such provisions. In connection with any action or proceeding
for injunctive relief, each party hereto hereby waives the claim or defense that
a remedy at law alone is adequate and agrees, to the maximum extent permitted by
law, to have each provision of this Agreement specifically enforced against it,
without the necessity of posting bond or other security against it, and consents
to the entry of injunctive relief against it enjoining or restraining any breach
or threatened breach of such provisions of this Agreement.
SECTION 6.2 Successors And Assigns. This Agreement shall be binding upon,
shall inure to the benefit of and shall be enforceable by the Company and the
members of the Shareholder Group and their respective successors and permitted
assigns, and no such term or provision is for the benefit of, or intended to
create any obligations to, any other Person, except as otherwise specifically
provided in this Agreement. Neither this Agreement nor any rights or obligations
hereunder shall be assignable by any member of the Shareholder Group without the
prior written consent of the Company.
B-5
SECTION 6.3 Remedies Not Exclusive. The remedies provided in this
Agreement shall not be exclusive of any other rights or remedies available to
one party against the other, either at law or in equity.
SECTION 6.4 Amendments; Waiver. This Agreement may be amended only by an
agreement in writing executed by the parties hereto. Either party may waive in
whole or in part any benefit or right provided to it under this Agreement, such
waiver being effective only if contained in a writing executed by the waiving
party. No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon breach thereof shall constitute a waiver of any
such breach or of any other covenant, duty, agreement or condition, nor shall
any delay or omission of either party to exercise any right hereunder in any
manner impair the exercise of any such right accruing to it thereafter.
SECTION 6.5 Notices. Except as otherwise provided in this Agreement, all
notices, requests, claims, demands, waivers and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
by hand, when delivered personally or by courier, three days after being
deposited in the U.S. mail (registered or certified mail, postage prepaid,
return receipt requested), or when received by facsimile transmission if
promptly confirmed by telephone, as follows:
If to any member of the Shareholder Group:
Gen-X Sports Inc.
36 Dufflaw Road
Toronto, Ontario
M6A 2W1
Attention: Kenneth Finkelstein
Fax: (416) 630-6091
with a copy to:
Fogler Rubinoff LLP
Suite 4400, P.O. Box 95
Royal Trust Tower
Toronto Dominion Centre
Toronto, Ontario
M5K 1G8
Attention: Daniel F. Hirsh
Fax: (416) 941-8852
If to the Company:
Huffy Corporation
225 Byers Road
Miamisburg, Ohio 45342
Attention: Nancy A. Michaud, General Counsel
Fax: (937) 865-5414
with a copy to:
Dinsmore & Shohl LLP
255 East Fifth Street
Cincinnati, Ohio 45202
Attention: Charles F. Hertlein, Jr., Esq.
Fax: (513) 977-8141
or to such other address, facsimile number or telephone as either party may,
from time to time, designate in a written notice given in a like manner.
B-6
SECTION 6.6 Endorsement on Stock Certificates. Each certificate
representing the Stockholder Group Shares now held by each member of the
Stockholder Group or to be issued to them shall bear a legend in substantially
the form as follows:
The right to transfer, sell, exchange, give, pledge, encumber or
otherwise dispose of the shares of stock represented by this
certificate and vote such shares is restricted in accordance with a
certain Shareholder Group Agreement, dated , 2002, as the
same may be amended from time to time, among the Company and certain
of its shareholders. The Company will mail to any shareholder a copy
of such Agreement without charge within five days after receipt of
written request therefor.
SECTION 6.7 Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Ohio without
giving effect to principles of conflicts of law.
SECTION 6.8 Headings. The descriptive headings of the several sections in
this Agreement are for convenience only and do not constitute a part of this
Agreement and shall not be deemed to limit or affect in any way the meaning or
interpretation of this Agreement.
SECTION 6.9 Integration. This Agreement and the other writings referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to its subject matter.
SECTION 6.10 Severability. If any term or provision of this Agreement or
any application thereof shall be declared or held invalid, illegal or
unenforceable, in whole or in part, whether generally or in any particular
jurisdiction, such provision shall be deemed amended to the extent, but only to
the extent, necessary to cure such invalidity, illegality or unenforceability,
and the validity, legality and enforceability of the remaining provisions, both
generally and in every other jurisdiction, shall not in any way be affected or
impaired thereby.
SECTION 6.11 Consent to Jurisdiction. In connection with any suit, claim,
action or proceeding arising out of this Agreement, the parties each hereby
consent to the in personam jurisdiction of the United States federal courts and
state courts located in the State of Ohio; the Company agrees that service in
the manner set forth in Section 6.5 hereof shall be valid and sufficient for all
purposes; and the parties each agree to, and irrevocably waive any objection
based on forum non conveniens or venue to, appear in any United States federal
court or state court located in the State of Ohio.
SECTION 6.12 Counterparts. This Agreement may be executed by the parties
hereto in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
B-7
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective authorized officers as of the date set forth at the
head of this Agreement.
HUFFY CORPORATION
By:
--------------------------------------
Name:
Title:
HSGC, INC.
By:
--------------------------------------
Name:
Title:
[HSGC CANADA, INC.]
By:
--------------------------------------
Name:
Title:
DMJ FINANCIAL, INC.
By:
--------------------------------------
Name:
Title:
K&J FINANCIAL HOLDINGS, INC.
By:
--------------------------------------
Name:
Title:
B-8
KENNETH FINKELSTEIN FAMILY TRUST
By:
--------------------------------------
Name:
Title:
JAMES SALTER FAMILY TRUST
By:
--------------------------------------
Name:
Title:
DLS FINANCIAL, INC.
By:
--------------------------------------
Name:
Title:
OSGOODE FINANCIAL INC.
By:
--------------------------------------
Name:
Title:
--------------------------------------
Kenneth Finkelstein
--------------------------------------
James Salter
B-9
EXHIBIT A
<Table>
<Caption>
SHARES OF
COMMON STOCK OPTIONS RESTRICTED STOCK
------------ -------- ----------------
DMJ Financial, Inc.
K&J Financial Holdings,
Inc.
DLS Financial, Inc.
Osgoode Financial [INC.]
Kenneth Finkelstein
James Salter
</Table>
B-10
ANNEX C
May 31, 2002
Board of Directors
Huffy Corporation
225 Byers Road
Miamisburg, OH 45342
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to Huffy Corporation (the "Company"), of the proposed transactions
(collectively the transactions referred to as the "Transaction") pursuant to the
terms of (i) the Agreement and Plan of Merger (the "Merger Agreement") by and
among the Company, HSGC, Inc. ("MergerSub"), and Gen-X Sports Inc. ("Gen-X"),
whereby Gen-X will be merged into MergerSub and (ii) the Share Purchase
Agreement (the "Share Purchase Agreement") by and among the Company, HSGC Canada
Inc. ("Buyer"), Gen-X Sports, Inc. ("Gen-X Ontario"), and the shareholders of
Gen-X Ontario (the "Sellers"), whereby the Sellers will sell and transfer all of
the outstanding shares of Gen-X Ontario (the "Shares") to Buyer and Buyer will
purchase the Shares from Sellers, each of which are expected to be signed on or
around June 5, 2002. The Merger Agreement and the Share Purchase Agreement are
hereafter referred to as the "Agreements". The consideration to be paid in the
Transaction is currently anticipated to be in the range of approximately
$105-$115 million in the form of cash, Company common shares and the assumption
and repayment of Gen-X and Gen-X Ontario indebtedness, subject to certain
adjustments and holdbacks. The complete terms of the Transaction may be found in
the Agreements.
A.G. Edwards & Sons, Inc. ("A.G. Edwards"), as part of its investment
banking business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate or
other purposes. We are not aware of any present or contemplated relationship
among A.G. Edwards, the Company, the Company's directors and officers or its
shareholders, or among A.G. Edwards, Gen-X, Gen-X Ontario, their directors and
officers or shareholders, which in our opinion would affect our ability to
render a fair and independent opinion in this matter.
We are acting as exclusive financial advisor to the Board of Directors of
the Company (the "Board") in connection with the Transaction and will receive a
fee from the Company for our services pursuant to the terms of our engagement
letter with the Company dated as of April 11, 2002.
In connection with this opinion, we have reviewed and considered such
financial and other matters as we have deemed relevant, including, among other
things:
i. draft Agreements dated May 30, 2002 (the "Draft Agreements") to be
executed at the closing of the Transaction and discussions about the drafts
with the management of the Company;
ii. conversations with the management of the Company regarding the
nature and extent of development of the terms of the Transaction;
iii. certain public filings and certain audited financial statements,
financial analyses and forecasts for the Company;
iv. certain audited financial statements, unaudited financial
statements, financial analyses and forecasts for Gen-X and Gen-X Ontario;
v. selected past and current data relating to the operations,
financial condition and future prospects of the Company, Gen-X and Gen-X
Ontario, which data was obtained through, among other things, interviews
with the members of management of the Company, Gen-X and Gen-X Ontario,
respectively;
vi. certain market data for the stock of the Company and for stocks of
public companies in the same or similar lines of business as the Company,
Gen-X and Gen-X Ontario;
C-1
vii. the financial terms of certain acquisitions which A.G. Edwards
deemed relevant for analytical purposes;
viii. the implied valuation of Gen-X and Gen-X Ontario based on the
discounted value of their combined projected cash flows;
ix. certain pro forma financial statements of the Company giving
effect to the Transaction (as proposed) as estimated by the Company's
management; and
x. other information, financial studies, analyses and investigations,
and financial, economic and market criteria that A.G. Edwards considered
relevant.
In preparing our opinion, A.G. Edwards has assumed and relied upon the
accuracy and completeness of all financial and other information that was
publicly available, or supplied or otherwise made available to us by the Company
and Gen-X and Gen-X Ontario and their advisors. We have not been engaged to, and
therefore we have not, verified the accuracy or completeness of any of such
information. A.G. Edwards has relied upon the assurances of the management of
the Company that they are not aware of any facts that would make any financial
or other information inaccurate or misleading. A.G. Edwards has been informed
and assumed that financial projections supplied to, discussed with or otherwise
made available to us reflect the best currently available estimates and
judgments of the management of the Company as to the expected future financial
performance of the Company, Gen-X and Gen-X Ontario, each on a stand-alone basis
and having given effect to the Transaction. A.G. Edwards has not independently
verified such information or assumptions nor do we express any opinion with
respect thereto.
A.G. Edwards has not made any independent valuation or appraisal of the
assets or liabilities of the Company, Gen-X or Gen-X Ontario, nor have we been
furnished with any such valuations or appraisals. A.G. Edwards also did not
independently attempt to assess or value any of the intangible assets of the
Company, Gen-X and Gen-X Ontario (including goodwill) nor did it make any
independent assumptions with respect to their application in the Transaction.
A.G. Edwards' opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. The analyses performed by A.G. Edwards are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. It should be understood
that, although subsequent developments may affect our opinion, A.G. Edwards does
not have any obligation to update, revise or reaffirm our opinion and it
expressly disclaims any responsibility to do so. Our opinion as expressed
herein, in any event, is limited to the fairness to the Company, from a
financial point of view, of the Transaction pursuant to the Agreements.
For purposes of rendering our opinion we have assumed in all respects that
the representations and warranties of each party contained in the Draft
Agreements are true and correct, that each party will perform all of the
covenants and agreements required to be performed by it under the Draft
Agreements and that all conditions to the consummation of the Transaction will
be satisfied without waiver thereof. We have also assumed that all governmental,
regulatory and other consents and approvals contemplated by the Draft Agreements
will be obtained and that in the course of obtaining any of those consents, no
restrictions will be imposed or waivers made that would have an adverse effect
on the contemplated benefits of the Transaction. In rendering its opinion, A.G.
Edwards also assumed that the Transaction will be consummated on the terms
contained in the Draft Agreements without any waiver or modification of any
terms or conditions.
It is understood that this letter is only for the information of the Board
and does not constitute a recommendation as to how any member of the Board
should vote with respect to the Transaction. This opinion may not be reproduced,
summarized, excerpted from or otherwise publicly referred to without our prior
written consent.
C-2
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Transaction pursuant to the Agreements is fair, from a
financial point of view, to the Company.
Very truly yours,
A.G. EDWARDS & SONS, INC.
By: /s/ PATRICK G. DOHERTY
------------------------------------------
Patrick G. Doherty
Managing Director
C-3
ANNEX D
June 27, 2002
Members of the Boards of Directors
Gen-X Sports Inc. and Gen-X Sports, Inc.
36 Dufflaw Road
Toronto, Ontario
M6A 2W1
Members of the Boards of Directors:
You have requested our opinion as to the fairness from a financial point of
view to the holders of common stock, par value $0.0001 per share ("Gen-X U.S.
Common Stock"), of Gen-X Sports Inc. a Delaware corporation ("Gen-X U.S.") and
to the holders of common stock, no par value per share ("Gen-X Canada Common
Stock", and together with the Gen-X U.S. Common Stock, the "Company Common
Stock"), of Gen-X Sports, Inc. an Ontario corporation ("Gen-X Canada", and
together with Gen-X U.S., the "Company"), other than to James J. Salter and
Kenneth J. Finkelstein (the "Majority Shareholders"), of the Merger
Consideration (as defined herein) to be received by (a) the holders of Gen-X
U.S. Common Stock pursuant to the terms of the Agreement and Plan of Merger,
dated as of June 5, 2002 (the "U.S. Agreement"), by and among Huffy Corporation,
an Ohio corporation ("Huffy"), HSGC, Inc., a Delaware corporation ("HSGC"), and
Gen-X U.S., pursuant to which Gen-X U.S. will be merged (the "U.S. Merger") with
and into HSGC, and (b) the holders of Gen-X Canada Common Stock, pursuant to the
terms of the Share Purchase Agreement, dated as of June 5, 2002 (the "Canadian
Agreement" and together with the U.S. Agreement the "Merger Agreement"), by and
among Huffy, HSGC Canada, Inc., an Ontario corporation ("HSGC Canada") and Gen-X
Canada, pursuant to which Gen-X Canada will become a wholly-owned subsidiary
(the "Canadian Transaction" and together with the U.S. Merger, the "Merger") of
HSGC Canada. All holders of Company Common Stock hold Gen-X U.S. Common Stock
and Gen-X Canada Common Stock in the same proportions.
Pursuant to the Merger Agreement, holders of Company Common Stock will in
the aggregate be entitled to receive (i) cash in the amount equal to
US$19,000,000 (the "Cash Portion") and (ii) 5,000,000 fully paid and
nonassessable shares of common stock, par value of $1.00 per share, of Huffy
(the "Huffy Common Stock") (the "Stock Portion", and together with the Cash
Portion, the "Merger Consideration").
In arriving at our opinion, we have reviewed the Merger Agreement. We also
have reviewed financial and other information that was publicly available or
furnished to us by the Company and Huffy including information provided during
discussions with their respective managements. Included in the information
provided during discussions with the respective managements were certain
financial projections of the Company for the period beginning January 1, 2002
and ending December 31, 2005 prepared by management of the Company and certain
financial projections of Huffy for the period beginning January 1, 2002 and
ending December 31, 2004 prepared by the management of Huffy. In addition, we
have compared certain financial data of the Company and Huffy, and certain
securities data of Huffy with various other companies whose securities are
traded in public markets, reviewed the historical stock price and trading volume
of the Huffy Common Stock, reviewed prices paid in certain other business
combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion. During the
course of our engagement, we were asked by you to solicit indications of
interest from a limited number of third parties regarding a transaction with the
Company, and we have considered the results of such solicitation in rendering
our opinion.
In rendering our opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all of the financial
and other information that was available to us from public sources, that was
provided to us by the Company and Huffy or their respective representatives, or
that was otherwise reviewed by us and have assumed that the Company is not aware
of any information prepared by it or its advisors that might be material to our
opinion that has not been made available to us. With respect to the financial
projections supplied to us, we have assumed that they have been reasonably
prepared on the
D-1
basis reflecting the best currently available estimates and judgments of the
management of the Company and Huffy as to the future operating and financial
performance of the Company and Huffy, respectively. We have not assumed any
responsibility for making an independent evaluation of any assets or liabilities
or for making any independent verification of any of the information reviewed by
us. In addition, we have not assumed any obligation to conduct, nor have we
conducted, any physical inspection of the properties or facilities of the
Company or Huffy.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which Huffy Common Stock will actually trade at any time. Our opinion
does not address the relative merits of the Merger and the other business
strategies being considered by the Company's Boards of Directors, nor does it
address the Boards' decision to proceed with the Merger. In addition, our
opinion does not address the relative merits of the Merger as compared to any
alternative business transaction that might be available to the Company. Our
opinion does not constitute a recommendation to any holder of Company Common
Stock as to whether or not such holder should vote on the proposed transaction.
Further, we were not requested to, and our opinion does not address, the
fairness of the allocation of the aggregate Merger Consideration between Gen-X
U.S. and Gen-X Canada.
Sheffield Merchant Banking Group ("SMBG") is a business group of CRT
Capital Group LLC ("CRT"). CRT is a full-service securities firm engaged in
securities trading and brokerage activities, as well as investment banking,
financing and financial advisory services. As part of its investment banking
services, CRT is regularly engaged in the valuation of businesses and securities
in connection with mergers, acquisitions, sales and trading of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. SMBG is acting as financial advisor to the Company in connection with
the Merger and will receive a fee from the Company for our services, all of
which is contingent upon the consummation of the Merger. In addition, the
Company has agreed to indemnify us for certain liabilities arising out of our
engagement. SMBG and its affiliates have performed investment banking and other
services for Huffy in the past and continue to do so and have received, and may
receive, fees for the rendering of such services. In the ordinary course of our
business, we may actively trade Huffy Common Stock as well as other securities
of Huffy for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing and such other factors as we deem
relevant, we are of the opinion that the aggregate Merger Consideration to be
received by the holders of the Company Common Stock, other than to the Majority
Shareholders, pursuant to the Merger Agreement is fair to such holders from a
financial point of view.
Very truly yours,
Sheffield Merchant Banking Group,
a business group of CRT Capital Group
LLC
/s/ BENOIT JAMAR
--------------------------------------
By: Benoit Jamar
Managing Director
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ANNEX E
DISSENTERS' RIGHTS UNDER SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SEC. 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec.
264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to secs.
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, then either a constituent corporation before the
effective date of the merger or consolidation or the surviving or resulting
corporation within 10 days thereafter shall notify each of the holders of
any class or series of stock of such constituent corporation who are
entitled to appraisal rights of the approval of the merger or consolidation
and that appraisal rights are available for any or all shares of such class
or series of stock of such constituent corporation, and shall include in
such notice a copy of this section. Such notice may, and, if given on or
after the effective date of the merger or consolidation, shall, also notify
such stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
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(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced
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as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
(8 Del. C. 1953, sec. 262; 56 Del. Laws, c. 50; 56 Del. Laws, c. 186, sec. 24;
57 Del. Laws, c. 148, secs. 27-29; 59 Del. Laws, c. 106, sec. 12; 60 Del. Laws,
c. 371, secs. 3-12; 63 Del. Laws, c. 25, sec. 14; 63 Del. Laws, c. 152, secs. 1,
2; 64 Del. Laws, c. 112, secs. 46-54; 66 Del. Laws, c. 136, secs. 30-32; 66 Del.
Laws, c. 352, sec. 9; 67 Del. Laws, c. 376, secs. 19, 20; 68 Del. Laws, c. 337,
secs. 3, 4; 69 Del. Laws, c. 61, sec. 10; 69 Del. Laws, c. 262, secs. 1-9; 70
Del. Laws, c. 79, sec. 16; 70 Del. Laws, c. 186, sec. 1; 70 Del. Laws, c. 299,
secs. 2, 3; 70 Del. Laws, c. 349, sec. 22; 71 Del. Laws, c. 120, sec. 15; 71
Del. Laws, c. 339, secs. 49-52; 73 Del. Laws, c. 82, sec. 21.)
E-4
ANNEX F
DISSENTERS' RIGHTS UNDER SECTION 1701.85 OF THE OHIO REVISED CODE
SEC. 1701.85 DISSENTING SHAREHOLDER'S DEMAND FOR FAIR CASH VALUE OF SHARES.
(A)(1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 [1701.80.1] of the Revised Code shall be a
record holder of the shares of the corporation as to which he seeks relief as of
the date on which the agreement of merger was adopted by the directors of that
corporation. Within twenty days after he has been sent the notice provided in
section 1701.80 or 1701.801 [1701.80.1] of the Revised Code, the dissenting
shareholder shall deliver to the corporation a written demand for payment with
the same information as that provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
issued for them shall bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of
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common pleas of the county in which the principal office of the corporation that
issued the shares is located or was located when the proposal was adopted by the
shareholders of the corporation, or, if the proposal was not required to be
submitted to the shareholders, was approved by the directors. Other dissenting
shareholders, within that three-month period, may join as plaintiffs or may be
joined as defendants in any such proceeding, and any two or more such
proceedings may be consolidated. The complaint shall contain a brief statement
of the facts, including the vote and the facts entitling the dissenting
shareholder to the relief demanded. No answer to such a complaint is required.
Upon the filing of such a complaint, the court, on motion of the petitioner,
shall enter an order fixing a date for a hearing on the complaint and requiring
that a copy of the complaint and a notice of the filing and of the date for
hearing be given to the respondent or defendant in the manner in which summons
is required to be served or substituted service is required to be made in other
cases. On the day fixed for the hearing on the complaint or any adjournment of
it, the court shall determine from the complaint and from such evidence as is
submitted by either party whether the dissenting shareholder is entitled to be
paid the fair cash value of any shares and, if so, the number and class of such
shares. If the court finds that the dissenting shareholder is so entitled, the
court may appoint one or more persons as appraisers to receive evidence and to
recommend a decision on the amount of the fair cash value. The appraisers have
such power and authority as is specified in the order of their appointment. The
court thereupon shall make a finding as to the fair cash value of a share and
shall render judgment against the corporation for the payment of it, with
interest at such rate and from such date as the court considers equitable. The
costs of the proceeding, including reasonable compensation to the appraisers to
be fixed by the court, shall be assessed or apportioned as the court considers
equitable. The proceeding is a special proceeding and final orders in it may be
vacated, modified, or reversed on appeal pursuant to the Rules of Appellate
Procedure and, to the extent not in conflict with those rules, Chapter 2505 of
the Revised Code. If, during the pendency of any proceeding instituted under
this section, a suit or proceeding is or has been instituted to enjoin or
otherwise to prevent the carrying out of the action as to which the shareholder
has dissented, the proceeding instituted under this section shall be stayed
until the final determination of the other suit or proceeding. Unless any
provision in division (D) of this section is applicable, the fair cash value of
the shares that is agreed upon by the parties or fixed under this section shall
be paid within thirty days after the date of final determination of such value
under this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and, in
the case of a merger pursuant to section 1701.80 or 1701.801 [1701.80.1] of the
Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is the amount
that a willing seller who is under no compulsion to sell would be willing to
accept and that a willing buyer who is under no compulsion to purchase would be
willing to pay, but in no event shall the fair cash value of a share exceed the
amount specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value resulting from
the proposal submitted to the directors or to the shareholders shall be
excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay the
fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind
their adoption of the action involved;
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(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder
nor the corporation has filed or joined in a complaint under division (B)
of this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
HISTORY: 133 v S 158 (Eff 7-17-70); 135 v S 155 (Eff 9-30-74); 140 v H 250 (Eff
7-30-84); 140 v S 283 (Eff 9-20-84); 141 v H 902 (Eff 11-22-86); 141 v H 412
(Eff 3-17-87); 141 v H 428 (Eff 12-23-86); 142 v H 708 (Eff 4-19-88) 145 v S 74.
Eff 7-1-94.
Analogous to former RC sec. 1701.85 (126 v 432; 130 v S 121), repealed 133 v S
158, sec. 2, eff 7-17-70.
Not analogous to former RC sec. 1701.85 (GC sec. 8623-78; 112 v 9(40), sec. 78;
122 v 155; Bureau of Code Revision, 10-1-53), repealed 126 v 432, sec. 5, eff
10-11-55.
F-3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Huffy code of regulations provides that Huffy will indemnify any person
who served or serves as a director, officer, employee or agent of Huffy or who
served or serves at the request of Huffy as a director, trustee, officer,
employee or agent of another corporation or entity against any losses,
liabilities, damages and expenses incurred by such person in connection with any
claim, action, suit or proceeding (whether threatened, pending or completed and
whether civil, criminal, administrative or investigative) by reason of any act
or omission to act as such director, trustee, officer, employee or agent to the
full extent permitted by Ohio law. Further, all expenses incurred by a director
in defending the action, suit or proceeding shall be paid by Huffy as they are
incurred, in advance of the final disposition of the action, suit or proceeding
upon receipt of an undertaking to (i) repay such amount if it is proved that his
or her act or omission was undertaken with intent to cause injury to Huffy or
with reckless disregard for the best interests of Huffy and (ii) reasonably
cooperate with Huffy concerning such action, suit or proceeding.
In general, Ohio law provides that a corporation may indemnify such persons
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by such director, trustee,
officer, employee or agent in connection with such action, suit or proceeding if
the person seeking indemnification acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, if he or she
had no reasonable cause to believe his or her conduct was unlawful; provided,
however, that in the case of an action or suit by or in the right of the
corporation, no indemnification shall be made in respect of any claim or issue
as to which such person is adjudged to be liable for negligence or misconduct,
unless and to the extent that the court in which the action was brought holds
that indemnification is warranted.
The right to indemnification is not exclusive of any other right which a
person seeking indemnification may have under Huffy's articles of incorporation
or code of regulations or any agreement, vote of shareholders or disinterested
directors or otherwise. Huffy has entered into indemnification agreements with
its directors and officers which provide that Huffy shall indemnify the director
or officer if he was or is, or is threatened to be made, a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including, without limitation, any
action threatened or instituted, by or in the right of Huffy), by reason of the
fact that he is or was a director, officer, employee or agent of Huffy, or is or
was serving at the request of Huffy as a director, officer, trustee, employee or
agent of another corporation (domestic or foreign, non-profit or for profit),
partnership, joint venture, trust or other enterprise, against expenses
(including, without limitation, attorneys' fees, filing fees, court reporters'
fees, transcript costs and investigative costs), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the bests interests of Huffy, and
with respect to any criminal action or proceeding, he had no reasonable cause to
believe his conduct was unlawful. If the director or officer claims
indemnification under the agreement, he shall be presumed, in respect of any act
or omission giving rise to such claim for indemnity, to have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the bests
interests of Huffy, and with respect to any criminal matter, to have had no
reasonable cause to believe his conduct was unlawful, and the termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, rebut such
presumption.
The indemnity agreement also provides that Huffy will not indemnify an
officer or director in respect of any claim, issue or matter asserted in any
completed action or suit instituted by or in the right of Huffy to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of Huffy, or is or was serving at the request of
Huffy as a director, trustee, officer, employee or agent of another corporation
(domestic or foreign, non-profit or for profit), partnership, joint venture,
trust or other enterprise, as to which claim, issue or matter he shall have been
adjudged to be liable for acting with reckless
II-1
disregard for the bests interests of Huffy in the performance of his duty to
Huffy, unless and only to the extent that the Court of Common Pleas of
Montgomery County, Ohio or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability,
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to such indemnity as such court of Common Pleas or such
other court shall deem proper.
The Huffy code of regulations also provides that Huffy may purchase and
maintain insurance on behalf of any of the persons which it may indemnify
against such types of liability. Huffy has purchased insurance policies which
provide coverage for the acts and omissions of Huffy's directors and officers in
certain situations.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) See Index of Exhibits.
(b) See Index of Exhibits.
(c) Not applicable.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act of 1934) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(c) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offering therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
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(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miamisburg, State of
Ohio, on July 3, 2002.
HUFFY CORPORATION
By: /s/ NANCY A. MICHAUD
------------------------------------
Nancy A. Michaud
Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DON R. GRABER Chairman of the Board, President and July 3, 2002
------------------------------------------------ Chief Executive Officer (Principal
Don R. Graber Executive Officer)
/s/ ROBERT W. LAFFERTY Vice President, Chief Financial July 3, 2002
------------------------------------------------ Officer and Treasurer (Principal
Robert W. Lafferty Financial and Accounting Officer)
/s/ TIMOTHY G. HOWARD Vice President and Controller July 3, 2002
------------------------------------------------ (Principal Accounting Officer)
Timothy G. Howard
* /s/ NANCY A. MICHAUD Director July 3, 2002
------------------------------------------------
W. Anthony Huffman
* /s/ NANCY A. MICHAUD Director July 3, 2002
------------------------------------------------
Linda B. Keene
* /s/ NANCY A. MICHAUD Director July 3, 2002
------------------------------------------------
Donald K. Miller
* /s/ NANCY A. MICHAUD Director July 3, 2002
------------------------------------------------
James F. Robeson
* /s/ NANCY A. MICHAUD Director July 3, 2002
------------------------------------------------
Thomas C. Sullivan
* /s/ NANCY A. MICHAUD Director July 3, 2002
------------------------------------------------
Joseph P. Viviano
* Executed by Nancy A. Michaud pursuant to the attached Power of Attorney.
</Table>
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INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NO. FORM S-4 EXHIBITS
- ------- -----------------
2.a Agreement and Plan of Merger, as amended, dated June 5, 2002 **
by and among Huffy Corporation, HSGC, Inc. and Gen-X Sports,
Inc.(1)
2.b Share Purchase Agreement, dated June 5, 2002, by and among ***
Huffy Corporation, HSGC Canada, Inc. and Gen-X Sports, Inc.
3.a Amended Articles of Incorporation, dated June 16, 1995, *
incorporated by reference to Exhibit (3)(i) to Form 10-Q for
the quarter ended June 30, 1995
3.b Amended and Restated Code of Regulations, as amended, dated *
April 27, 2000, incorporated by reference to Exhibit (3) to
Form 10-Q for the fiscal quarter ended April 1, 2000
4.a Specimen Common Stock Certificate of Huffy Corporation, *
incorporated by reference to Exhibit 4(a) to Form 10-K for
the year ended December 31, 1997
4.b Rights Agreement, dated as of December 16, 1988, as amended *
August 23, 1991, and as amended and restated as of December
9, 1994, between Huffy Corporation and Bank One,
Indianapolis, National Association, incorporated by
reference to Form 8-K, dated December 22, 1994
4.c Amendment appointing Harris Trust and Savings Bank Successor *
Rights Agent, dated as of June 10, 1997, to Rights Agreement
as amended and restated as of December 9, 1994, between
Huffy Corporation and Bank One, Indianapolis, National
Association, incorporated by reference to Exhibit (4)(c) to
Form 10-K for the fiscal year ended December 31, 1999
4.d Amendment appointing LaSalle Bank, N.A. Successor Rights *
Agent, dated as of February 18, 2000, to Rights Agreement as
amended and restated as of December 9, 1994 between Huffy
Corporation and Bank One, Indianapolis, National
Association, incorporated by reference to Exhibit (4) to
Form 10-Q for the fiscal quarter ended April 1, 2000
4.e Amendment No. 1 to Rights Agreement, dated June 5, 2002, *
between Huffy Corporation and LaSalle Bank, N.A.,
incorporated by reference to Form 8-A/A filed July 2, 2002
4.f Amended and Restated Loan and Security Agreement, dated as *
of January 31, 2001, between Huffy Corporation and its
subsidiaries and Congress Financial Corporation (Central),
incorporated by reference to Exhibit 4.e to Form 10-K for
the fiscal year ended December 31, 2000
5.a Legal opinion of Dinsmore & Shohl LLP ***
8.a Tax opinion of KPMG LLP ****
10.a Lease and Development Agreement, dated as of May 29, 1996, *
between Asset Holdings Company VI, LLC and Huffy
Corporation, incorporated by reference to Exhibit (10)(c) to
Form 10-K for the fiscal year ended December 31, 1999
10.b First Addendum to Lease and Development Agreement, dated *
November 3, 2000, between Asset Holdings Company VI, LLC and
Huffy Corporation, incorporated by reference to Exhibit 10.b
to Form 10-K for the fiscal year ended December 31, 2000
10.c Participation Agreement, dated as of May 29, 1996, among *
Asset Holdings Company VI, LLC, Huffy Corporation, and Bank
One, Dayton, N.A., incorporated by reference to Exhibit
(10)(d) to Form 10-K for the fiscal year ended December 31,
1999
10.d Special Deferred Compensation Agreements, as amended, *
between Huffy Corporation and certain of its officers and
key employees, in substantially the forms incorporated by
reference to Exhibit (ix) to Form 10-K for the fiscal year
ended June 24, 1977, to Exhibit (2) to Form 10-Q for the
fiscal quarter ended September 23, 1983, and to Exhibit
(19)(c) to Form 10-Q for the fiscal quarter ended September
30, 1986
10.e Deferred Compensation Agreements, as amended, between Huffy *
Corporation and certain of its officers and key employees,
in substantially the forms incorporated by reference to
Exhibit (vi) to Form 10-K for the fiscal year ended June 29,
1979, and to Exhibit (3) to Form 10-Q for the fiscal quarter
ended September 23, 1983
</Table>
II-5
<Table>
<Caption>
EXHIBIT
NO. FORM S-4 EXHIBITS
- ------- -----------------
10.f Master Deferred Compensation Plan, incorporated by reference *
to Exhibit 4 to Form S-8, dated August 28, 1998
10.g Form of Amended and Restated Severance/Retention/Non-Compete *
Agreements, as revised and restated, between Huffy
Corporation and its Officers, incorporated by reference to
Exhibit 10.a to Form 10-Q for the fiscal quarter ended July
1, 2000
10.h Long Term Incentive Plan, incorporated by reference to *
Exhibit 10.h to Form 10-K for the fiscal year ended December
31, 2001
10.i Description of supplemental group life insurance arrangement *
between Huffy Corporation and certain officers and key
employees, incorporated by reference to Exhibit (10)(aa) to
Form 10-K for the fiscal year ended December 31, 1991
10.j Description of financial planning and tax preparation *
services, and automobile allowances, between Huffy
Corporation and certain officers and key employees
incorporated by reference to Exhibit (10)(m) to Form 10-K
for the fiscal year ended December 31, 1999
10.k Annual Performance Incentive Plan of Huffy Corporation for *
the fiscal year ended December 31, 2001
10.l Supplemental Benefit Agreement, dated as of June 21, 1996, *
between Huffy Corporation and Don R. Graber, incorporated by
reference to Exhibit 10.u to Form 10-K for the fiscal year
ended December 31, 1996
10.m Supplemental/Excess Benefit Plan, dated as of January 1, *
1988, incorporated by reference to Exhibit (10)(aa) to Form
10-K for the fiscal year ended December 31, 1987
10.n First Amendment to Huffy Corporation Supplemental/Excess *
Benefit Plan, effective as of January 1, 1988, incorporated
by reference to Exhibit (10)(ee) to Form 10-K for the fiscal
year ended December 31, 1990
10.o Second Amendment to Huffy Corporation Supplemental/Excess *
Benefit Plan, dated as of June 30, 1991, incorporated by
reference to Exhibit (10)(y) to Form 10-K for the fiscal
year ended December 31, 1994
10.p Third Amendment to Huffy Corporation Supplemental/Excess *
Benefit Plan, dated as of June 27, 1994, incorporated by
reference to Exhibit (10)(2) to Form 10-K for the fiscal
year ended December 31, 1994
10.q Fourth Amendment to Huffy Corporation Supplemental/Excess *
Benefit Plan dated as of May 26, 1995, incorporated by
reference to Exhibit 10.s to Form 10-K for the fiscal year
ended December 31, 1997
10.r Fifth Amendment to Huffy Corporation Supplemental/Excess *
Benefit Plan, effective as of July 15, 1996, incorporated by
reference to Exhibit 10.z to Form 10-K for the fiscal year
ended December 31, 1996
10.s Sixth Amendment to Huffy Corporation Supplemental/Excess *
Benefit Plan, effective as of June 15, 1997, incorporated by
reference to Exhibit 10.u to Form 10-K for the fiscal year
ended December 31, 1997
10.t Seventh Amendment to Huffy Corporation Supplemental/Excess *
Benefit Plan, effective as of December 22, 1997,
incorporated by reference to Exhibit 10.v to Form 10-K for
the fiscal year ended December 31, 1997
10.u Eighth Amendment to Huffy Corporation Supplemental/Excess *
Benefit Plan, effective as of February 12, 1998,
incorporated by reference to Exhibit (10)(x) to Form 10-K
for the fiscal year ended December 31, 1999
10.v Ninth Amendment to Huffy Corporation Supplemental/Excess *
Benefit Plan, effective as of February 15, 2000,
incorporated by reference to Exhibit (10)(d) to Form 10-Q
for fiscal quarter ended July 1, 2000
10.w Tenth Amendment to Huffy Corporation Supplemental/Excess *
Benefit Plan, effective as of May 25, 2000, incorporated by
reference to Exhibit (10)(e) to Form 10-Q for fiscal quarter
ended July 1, 2000
</Table>
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<Table>
<Caption>
EXHIBIT
NO. FORM S-4 EXHIBITS
- ------- -----------------
10.x Eleventh Amendment to Huffy Corporation Supplemental/Excess *
Benefit Plan, effective February 15, 2001, incorporated by
Reference to Exhibit 10.x to Form 10-K for the fiscal year
ended December 31, 2000
10.y Twelfth Amendment to Huffy Corporation Supplemental/Excess *
Benefit Plan, effective as of January 1, 2001
10.z Huffy Corporation 1998 Restricted Share Plan, effective *
April 17, 1998, incorporated by reference to Exhibit 3 to
the Company's Proxy Statement dated March 5, 1998 for the
Annual Meeting of Shareholders held April 17, 1998
10.aa Amendment No. 1 to Huffy Corporation 1998 Restricted Share *
Plan, effective as of April 27, 2001
10.bb Form of Restricted Share Agreements between Huffy *
Corporation and its Officers, incorporated by reference to
Exhibit 10.w to Form 10-K for the fiscal year ended December
31, 1997
10.cc Huffy Corporation Master Benefit Trust Agreement as *
Restated, dated June 9, 1995, incorporated by reference to
Exhibit 10.aa for Form 10-K for the fiscal year ended
December 31, 1995
10.dd First Amendment to Huffy Corporation Master Benefit Trust *
Agreement as Restated, effective as of July 25, 1996,
incorporated by reference to Exhibit 10.bb to Form 10-K for
the fiscal year ended December 31, 1996
10.ee Amendment No. 2 to Huffy Corporation Master Benefit Trust *
Agreement, dated January 2, 1998, incorporated by reference
to Exhibit 10.z to Form 10-K for the fiscal year ended
December 31, 1998
10.ff Third Amendment to Huffy Corporation Master Benefit Trust *
Agreement, as Restated, effective August 20, 1998,
incorporated by reference to Exhibit 10.aa to Form 10-K for
the fiscal year ended December 31, 1998
10.gg Huffy Corporation 1987 Director Stock Option Plan, *
incorporated by reference to Exhibit 19(a) to Form 10-Q for
the fiscal quarter ended June 30, 1988
10.hh First Amendment to Huffy Corporation 1987 Director Stock *
Option Plan, effective as of April 30, 1991, incorporated by
reference to Exhibit (10)(nn) to Form 10-K for the fiscal
year ended December 31, 1991
10.ii Second Amendment to Huffy Corporation 1987 Director Stock *
Option Plan, effective as of December 15, 1991, incorporated
by reference to Exhibit (10)(oo) to Form 10-K for the fiscal
year ended December 31, 1991
10.jj Third Amendment to Huffy Corporation 1987 Director Stock *
Option Plan, effective as of February 15, 1996, incorporated
by reference to Exhibit 10.ff to Form 10-K for the fiscal
year ended December 31, 1996
10.kk Huffy Corporation 1998 Director Stock Incentive Plan, *
effective April 17, 1998, as amended, incorporated by
reference to Exhibit 1 to the Company's Proxy Statement
dated March 6, 2002 for the Annual Meeting of Shareholders
held April 25, 2002
10.ll Huffy Corporation 1988 Stock Option Plan and Restricted *
Share Plan, as amended, incorporated by reference to Exhibit
19(b) to Form 10-Q for the fiscal quarter ended June 30,
1988; to Exhibit A to the Company's Proxy Statement dated
March 13, 1992 for the Annual Meeting of Shareholders held
April 24, 1992; and to Annex I to the Company's Proxy
Statement dated March 7, 1996 for the Annual Meeting of
Shareholders held April 26, 1996
10.mm Third Amendment to Huffy Corporation 1988 Stock Option Plan *
and Restricted Share Plan, effective October 22, 1998,
incorporated by reference to Exhibit 10.hh to Form 10-K for
the fiscal year ended December 31, 1998
10.nn Huffy Corporation 1998 Key Employee Stock Plan, effective *
April 17, 1998, incorporated by reference to Exhibit 2 to
the Company's Proxy Statement dated March 5, 1998 for the
Annual Meeting of Shareholders held April 17, 1998
</Table>
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<Table>
<Caption>
EXHIBIT
NO. FORM S-4 EXHIBITS
- ------- -----------------
10.oo First Amendment to Huffy Corporation 1998 Key Employee Stock *
Plan, effective October 22, 1998, incorporated by reference
to Exhibit 10.jj to Form 10-K for the fiscal year ended
December 31, 1998
10.pp Second Amendment to Huffy Corporation 1998 Key Employee *
Stock Plan, effective July 20, 2000, incorporated by
reference to Exhibit 10.nn to Form 10-K for the fiscal year
ended December 31, 2000
10.qq Amendment No. 3 to Huffy Corporation 1998 Key Employee Stock *
Plan, effective April 29, 2001
10.rr Form of Subscription Agreement between Huffy Corporation and *
Don R. Graber, incorporated by reference to Exhibit 10.ee to
Form 10-K for the fiscal year ended December 31, 1997
10.ss 1998 and 1999 Subscription Agreements between Huffy *
Corporation and Don R. Graber, incorporated by reference to
Exhibits (10)(b) and (10)(c) to Form 10-Q for the fiscal
quarter ended July 1, 2000
10.tt Huffy Corporation 1990 Directors' Retirement Plan *
incorporated by reference to Exhibit (10)(qq) to Form 10-K
for the fiscal year ended December 31, 1991
10.uu First Amendment to Huffy Corporation 1990 Directors' *
Retirement Plan, effective as of February 15, 1996,
incorporated by reference to Exhibit 10.ii to Form 10-K for
the fiscal year ended December 31, 1996
10.vv Second Amendment to Huffy Corporation 1990 Directors' *
Retirement Plan, effective as of February 15, 1996,
incorporated by reference to Exhibit 10.jj to Form 10-K for
the fiscal year ended December 31, 1996
10.ww Agreement and Plan of Reorganization, dated November 3, *
2000, by and among Huffy Corporation, Huffy Brands Company,
Washington Inventory Service, WIS Holdings Corp. and WIS
Acquisition Corp., incorporated by reference to Exhibit 2 to
Form 10-Q for the fiscal quarter ended September 30, 2000
21. Subsidiaries of the Registrant ***
23.a Consent of Dinsmore & Shohl LLP (included in Exhibit 5.a) ***
23.b Consent of KPMG LLP (as to audit matters) ***
23.c Consent of A.G. Edwards & Sons, Inc. ***
23.d Consent of Sheffield Merchant Banking Group ***
23.e Consent of KPMG LLP (as to tax matters (included in Exhibit ****
8.a))
24. Power of Attorney ***
99.a Cautionary Statement for Purposes of the "Safe Harbor" *
Provisions of the Private Securities Litigation Reform Act
of 1995
99.b Opinion of A.G. Edwards & Sons, Inc. **
99.c Opinion of Sheffield Merchant Banking Group **
99.d Form of proxy for Huffy Corporation special shareholders' ***
meeting
99.e Form of proxy for Gen-X Sports Inc. special stockholders' ***
meeting
</Table>
- ---------------
* Indicates that the exhibit is incorporated by reference into this
registration statement on Form S-4 from a previous filing with the
Commission.
** Included as an annex to the Proxy Statement/Prospectus included in this
Registration Statement on Form S-4.
*** Indicates that the exhibit is included as part of this registration
statement on Form S-4.
**** To be filed by amendment.
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