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LKQ Completes Purchase of Coast Distribution

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LKQ Corp., parent company of Keystone Automotive and NTP-Stag successfully completed its tender offer for Coast Distribution in a transaction valued at $28.7 million.

According to the filing with the Federal Trade Commission, LKQ acquired more than 4.3 million shares of Coast, representing 84 percent of Coast’s outstanding shares and eclipsing the minimum amount for majority ownership.

LKQ announced the deal on July 8, and commenced the offer for Coast’s shares at a rate of $5.50 on July 19. Before the announcement, Coast shares traded for about $3.60.

The tender offer expired at midnight at the end of the day on Tuesday (Aug. 18), and LKQ announced the deal late Wednesday.

With the purchase complete, LKQ will commence a merger of Coast into its existing distribution system, made up of Keystone Automotive and NTP-Stag.

Of the acquired shares, 59,105 (1.14 percent of the total) were acquired through guaranteed delivery, from Coast leadership at the onset of the merger.

LKQ and Coast began discussions of the acquisition in early 2014, when Coast Board Chairman Thomas McGuire began exploring the idea in telephone and email correspondence with members of the LKQ board of directors.

Early in the talks, LKQ had proposed purchase prices $5 per share and $5.15 per share, before ultimately landing at the final amount of $5.50 per share in March this year.

According to sources attending the RV Aftermarket Association meetings in Vancouver, B.C., Coast representatives cancelled their meetings Wednesday to return to corporate headquarters for meetings regarding the transaction.

Timeline

A full timeline of the acquisition deal, according to LKQ’s filing with the FTC:

On Jan. 26, 2014, Ed Orzetti, the former president and CEO of LKQ introduced Thomas McGuire, the chairman of the board of directors of Coast, to Walter Hanley, LKQ’s senior vice president of development, via email.

On Feb. 5, 2014, Hanley telephoned McGuire to discuss a potential transaction. On that telephone call, McGuire indicated that Coast would not sell Coast for less than its $28 million to $29 million net book value.

On March 17, 2014, the members of the board of directors of Coast were informed by McGuire that LKQ had expressed an interest in exploring a possible acquisition transaction with Coast.

On April 10, 2014, Robert Wagman, LKQ’s president and chief executive officer, John Quinn, at the time LKQ’s chief financial officer and currently LKQ’s chief executive officer and managing director of European operations, Hanley and Orzetti met with McGuire in Chicago and discussed a potential business combination. McGuire indicated in that meeting that the price should exceed Coast’s tangible net book value.

On April 11, 2014, LKQ’s board of directors was made aware of the potential transaction.

LKQ and Coast entered into a confidentiality agreement effective as of April 18, 2014.

On April 24, 2014, LKQ delivered a non-binding indication of interest to Coast valuing all equity interests in Coast at a range of $25 million to $28 million.

On April 24, 2014, the board of directors of Coast held a special telephonic meeting at which the board members reviewed and discussed LKQ’s indication of interest. At that meeting, the board of directors of Coast established a special committee, comprised solely of independent directors (the “Special Committee”), to oversee any sales process that might develop and any negotiations that might ensue with LKQ.

On May 13, 2014, Quinn and Hanley met with James Musbach, Coast’s president and chief executive officer, and McGuire in Burr Ridge, Ill. McGuire and Musbach indicated that Coast’s board of directors would be willing to consider a transaction if LKQ valued Coast at the upper end of its April 24, 2014, valuation range. LKQ requested information to refine its valuation range.

On June 16, 2014, Coast delivered certain financial information to LKQ.

On June 20, 2014, Hanley, Justin Jude, LKQ’s senior vice president—Wholesale Parts Division, and Robert Deitch, LKQ’s vice president of development, had a conference call with McGuire, Musbach, Leonard Danna, a member of the board of directors of Coast, and Sandra Knell, Coast’s chief financial officer, executive vice president, and secretary, to discuss certain financial information relating to Coast.

On July 17, 2014, Hanley informed McGuire that LKQ’s valuation of Coast was in the upper half of the $25 million to $28 million range. The Company’s board of directors approved proceeding with the sale process.

On Aug. 6, 2014, the Special Committee engaged Robert W. Baird and Co. (“Baird”) to act as financial advisor to the Special Committee and the board of directors of Coast.

On Oct. 6, 2014, LKQ reconfirmed its April 24, 2014, non-binding indication of interest in an email to Baird.

On Nov. 18, 2014, LKQ received a “Company Overview Presentation” from Baird.

In Dec. 2014, Coast, with the assistance of Baird conducted a confidential market check to assess the level of interest that other companies operating in the recreational vehicle market, including LKQ, and other wholesale distribution companies might have in a possible acquisition of or other strategic transaction with Coast. As part of that process, Coast provided those companies confidential information about Coast’s business and received indications of interest in response to the market check.

On Dec. 4, 2014, LKQ received a process letter from Baird.

On Dec. 16, 2014, LKQ delivered a non-binding indication of interest to Baird, proposing a $5 per share valuation for Coast’s common stock.

On Jan. 9, 2015, LKQ was granted access to Coast’s virtual data room.

On Jan. 16, 2015, Hanley and Jude attended a management meeting/presentation with McGuire, Musbach, Knell, and representatives of Baird (Adam Czaia and Jacob Griffin) in Santa Clara, Calif.

On Feb. 12, 2015, LKQ received a draft form of merger agreement from Baird.

On Feb. 26, 2015, LKQ submitted to Baird proposed revisions to the merger agreement, which included a $5.15 per share valuation and a new condition precedent to the obligation of LKQ to consummate the offer and Merger.

On March 10, 2015, Baird submitted a revised proposal to LKQ which included a $5.50 per share valuation and which deleted that new condition precedent.

On March 18, 2015, LKQ submitted to Baird a revised proposal, with a per share valuation of $5.50 if that new condition precedent was included in the merger agreement or $5.35 if that new condition was deleted from the merger agreement.

On March 27, 2015, Baird submitted to Wagman a counter-proposal with a per share valuation of $5.50 per share and the deletion of the new condition precedent.

Also on March 27, 2015, by email from Hanley to Baird, LKQ further modified its proposal by deleting the new condition precedent, but maintaining the price at $5.50 per share.

Between March 18, 2015, and July 8, 2015, legal representatives of LKQ and Coast negotiated concerning various provisions of the merger agreement.

On June 11, 2015, the Special Committee engaged Duff & Phelps, LLC to render an opinion to the Special Committee and to the board of directors of Coast as to whether the price of $5.50 per share is fair, from a financial standpoint, to Coast’s stockholders.

On July 8, 2015, Duff & Phelps, LLC delivered its written opinion, addressed to both the Special Committee and the board of directors of Coast, that the price of $5.50 per share is fair, from a financial standpoint, to Coast’s stockholders (other than any of LKQ, parent and purchaser or their affiliates that owned any Shares). At meetings held thereafter on July 8, 2015, the Special Committee recommended, by unanimous vote, to Coast’s board of directors that the board approve the merger agreement and the transactions contemplated by the merger agreement and Coast’s board of directors unanimously approved the merger agreement and the transactions contemplated by the merger agreement and resolved to recommend to Coast’s stockholders that they tender their shares to purchaser pursuant to the offer. LKQ, purchaser, and the company executed the merger agreement on the evening of July 8, 2015.

On July 9, 2015, LKQ and Coast issued a joint press release announcing the proposed merger.

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