SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to ___________________
Commission File No. 1-11775
AVIATION SALES COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 65-0665658
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
6905 NW 25TH STREET
MIAMI, FLORIDA 33122
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (305) 592-4055
Indicate by check whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [ ] NO [X]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 8,162,500 SHARES OF COMMON
STOCK, $.001 PAR VALUE PER SHARE, WERE OUTSTANDING AS OF AUGUST 12, 1996.
Page 1 of __
Exhibit Index at Page __
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $253,307 $3,196,364
Accounts receivable, net of allowance for doubtful accounts of $1,951,395
and $1,951,286, and allowance for sales returns of $1,245,598
and $1,480,598, in 1995 and 1996, respectively 23,824,362 25,173,083
Inventories 48,956,682 51,052,693
Prepaid expenses 56,963 297,269
----------- ------------
Total current assets 73,091,314 79,719,409
----------- ------------
SPARE PARTS ON LEASE, net of accumulated amortization of $1,024,904 in 1995
and $1,667,249 in 1996 11,697,151 16,891,270
----------- ------------
FIXED ASSETS:
Property and equipment 3,121,702 3,675,470
Less - Accumulated depreciation (1,259,658) (1,588,851)
----------- ------------
Total fixed assets 1,862,044 2,086,619
----------- ------------
AMOUNTS DUE FROM AFFILIATES 3,031,198 2,974,930
----------- ------------
OTHER ASSETS:
Deferred financing costs, net 2,972,454 3,199,724
Deferred income taxes - 914,459
Deposits and other 682,469 1,579,966
----------- ------------
Total other assets 3,654,923 5,694,149
----------- ------------
Total assets $93,336,630 $107,373,377
=========== ============
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Continued
2
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<TABLE>
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AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
CONTINUED
LIABILITIES, STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
DECEMBER 31, 1995 JUNE 30, 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $10,453,278 $9,234,580
Accrued expenses 4,080,634 4,444,562
Accrued interest payable 794,800 734,443
Income taxes payable - 61,000
Other liabilities, vendor-held parts 1,030,228 955,860
Notes payable, current maturities-
Senior 10,000,000 10,000,000
Other, revolver 42,808 15,806,400
----------- ------------
Total current liabilities 26,401,748 41,236,845
----------- ------------
LONG-TERM LIABILITIES:
Deferred income 877,315 890,065
Notes Payable-
Senior 45,000,000 40,000,000
Subordinated debt 7,000,000 7,000,000
----------- ------------
Total long-term liabilities 52,877,315 47,890,065
----------- ------------
DUE TO PARTNERS - 9,185,000
----------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL:
Partners' capital 14,057,567 -
Stockholders' equity-
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none outstanding - -
Common stock, $.001 par value, 30,000,000 shares
authorized, 4,425,000 shares outstanding at
June 30, 1996 - 4,425
Additional paid-in capital - 8,057,562
Retained earnings - 999,480
----------- ------------
Total stockholders' equity and partners' capital 14,057,567 9,061,467
----------- ------------
Total liabilities, stockholders' equity and partners' capital $93,336,630 $107,373,377
=========== ============
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THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE CONDENSED CONSOLIDATED BALANCE SHEETS.
3
<PAGE>
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AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------- ---------------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Sales of aircraft parts, net $26,398,726 $31,375,465 $53,638,202 $62,098,309
Rentals from leases and other 2,350,404 2,918,858 3,561,738 5,094,161
----------- ----------- ----------- -----------
28,749,130 34,294,323 57,199,940 67,192,470
COST OF SALES 17,754,530 23,045,103 34,408,727 44,233,046
----------- ----------- ----------- -----------
10,994,600 11,249,220 22,791,213 22,959,424
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Operating 2,308,576 2,228,011 4,365,429 4,570,775
Selling 1,268,186 1,424,445 2,363,334 3,013,873
General and administrative 1,921,570 2,180,725 4,216,532 4,509,576
Depreciation and amortization 331,682 512,732 647,028 969,537
----------- ----------- ----------- -----------
5,830,014 6,345,913 11,592,323 13,063,761
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 5,164,586 4,903,307 11,198,890 9,895,663
INTEREST EXPENSE, AMORTIZATION OF
DEFERRED FINANCING COSTS AND
LOAN ADMINISTRATION FEES 2,099,837 1,945,316 4,183,291 3,868,285
----------- ----------- ----------- -----------
INCOME BEFORE BENEFIT FOR INCOME TAXES 3,064,749 2,957,991 7,015,599 6,027,378
Benefit for income taxes - 853,459 - 853,459
----------- ----------- ----------- -----------
NET INCOME $3,064,749 $3,811,450 $7,015,599 $6,880,837
=========== =========== =========== ===========
PRO FORMA DATA:
Historical income before income taxes $3,064,749 $2,957,991 $7,015,599 $6,027,378
Pro forma provision for income taxes (1,195,252) (1,153,616) (2,736,084) (2,350,677)
----------- ----------- ----------- -----------
Pro forma net income $1,869,497 $1,804,375 $4,279,515 $3,676,701
=========== =========== =========== ===========
PRO FORMA NET INCOME PER SHARE $0.37 $0.36 $0.86 $0.74
=========== =========== =========== ===========
PRO FORMA AVERAGE SHARES OUTSTANDING 5,000,000 5,000,000 5,000,000 5,000,000
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
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AVIATION SALES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
1995 1996
---------- ----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $7,015,599 $6,880,837
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization 981,429 1,327,155
Provision for doubtful accounts 180,000 275,000
Deferred income tax benefit - (914,459)
(Increase) decrease in accounts receivable (9,465,055) (1,623,721)
(Increase) decrease in prepaids expenses (156,771) (240,306)
(Increase) decrease in inventories 4,420,793 (2,096,011)
(Increase) decrease in deposits and other (141,339) (897,497)
Increase (decrease) in accounts payable 2,462,362 (1,218,698)
Increase (decrease) in accrued liabilities (1,170,504) 363,928
Increase (decrease) in accrued interest 110,813 (60,357)
Increase (decrease) in vendor-held (49,704) (74,368)
Increase (decrease) in income taxes payable - 61,000
Increase (decrease) in deferred income (7,999) 12,750
---------- ----------
Net cash provided by operating activities 4,179,624 1,795,253
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of spare parts on lease - (5,843,464)
Purchases of equipment, net (622,638) (553,768)
Due from affiliates (28,414) 56,268
---------- ----------
Net cash used in investing activities (651,052) (6,340,964)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Partner distributions (1,703,598) (3,041,937)
Payment of deferred fees (84,529) (232,887)
Payment of senior debt - (5,000,000)
Net issuance (repayment) of senior revolving facility (2,152,208) 15,763,592
---------- ----------
Net cash provided by (used in) financing,
activities (3,940,335) 7,488,768
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (411,763) 2,943,057
CASH AND CASH EQUIVALENTS, beginning of period 1,482,279 253,307
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $1,070,516 $3,196,364
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid $3,569,926 $2,909,842
========== ==========
Income taxes paid $ - $ -
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
AVIATION SALES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION:
Organization and Operations
Aviation Sales Company (ASC or the Company) is a newly organized Delaware
corporation, with wholly owned subsidiaries, Aviation Sales Operating Company
(and its wholly owned subsidiary, Aviation Sales Leasing Company) and Aviation
Sales Finance Company. Substantially all of the operating assets of the Company
are owned by Aviation Sales Operating Company and its subsidiaries.
The operations of the Company were initially conducted by AJT Capital Partners
d/b/a Aerospace International Services (AIS). AIS was formed in February 1992 to
acquire certain aircraft spare parts owned by Eastern Air Lines, Inc. (the EAL
Inventory) and certain outstanding accounts receivable. On December 2, 1994,
(effective November 30, 1994) AIS organized ASC Acquisition Partners, L.P. (the
Partnership) to acquire the Aviation Sales Company business unit from Aviall
Services, Inc. (Aviall) and to operate the business of AIS and the Partnership
on a going forward basis. Simultaneously with the acquisition, AIS contributed
all of its assets to the Partnership. For accounting purposes, the Partnership
and AIS were considered related parties as the ultimate ownership interests of
the Partnership interests were held by parties who owned substantially the same
ownership percentage in AIS. As a result, the combination was accounted for in a
manner similar to a pooling of interest.
On June 26, 1996, all but one of the parties holding interests in the
Partnership contributed their interests in the Partnership to the Company in
exchange for shares of common stock. Simultaneously, one of the parties holding
an interest in the Partnership (J/T Aviation Partners) contributed its interest
in the Partnership to the Company in exchange for shares of common stock and an
amount equal to the proceeds to be received by the Company for 575,000 shares of
common stock sold in the offering, as more completely described below.
On June 26, 1996, the Company's Registration Statement on Form S-1 was declared
effective. On July 2, 1996, the Company closed its public offering of 3,250,000
shares of its common stock at $19 per share. In addition, the Company granted
the underwriters of its public offering a 30-day option to purchase up to
487,500 additional shares of its common stock to cover over-allotments. On July
25, 1996, the underwriters exercised the over-allotment option and the Company
sold an additional 487,500 shares of its common stock.
The net proceeds from the offering were $66,041,625. Of such proceeds,
$10,160,250 were used to pay indebtedness due to J/T Aviation Partners in
connection with the formation of the Company. The remaining proceeds were used
to repay indebtedness due to financial institutions and other costs of the
offering (see Note 2).
Interim Condensed Financial Statements
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements of ASC contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of ASC
as of June 30, 1996 and the results of its operations and cash flows for the
three and six month periods ended June 30,1996 and 1995. The results of
operations and cash flows for the six month period ended June 30, 1996 are not
necessarily indicative of the results of operations or cash flows which may be
reported for the remainder of 1996.
6
<PAGE>
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
for reporting on Form 10-Q. Pursuant to such rules and regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The accompanying unaudited interim condensed financial
statements should be read in connection with the Company's December 31, 1995
financial statements and the notes thereto included in the Prospectus contained
in the Company's Form S-1 Registration Statement.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
2. NOTES PAYABLE AND LONG-TERM DEBT:
On July 2, 1996, the Company completed the repayment of indebtedness and
restructuring of its credit facility per the terms of an Amended Credit
Facility, dated June 27, 1996. The Amended Credit Facility consists of (i) a
term loan facility (the Term Loan) in an original principal amount of $20.0
million and (ii) a $50.0 million revolving loan, letter of credit and
acquisition loan facility, subject to an availability calculation based on the
eligible borrowing base (the Revolving Credit Facility). The letter of credit
portion of the Revolving Credit Facility is subject to a $10.0 million sublimit
and the acquisition loan portion of the Revolving Credit Facility is subject to
a $30.0 million sublimit with the imposition of certain borrowing criteria based
on the satisfaction of certain debt ratios. The unused portion of the
acquisition loan portion of the Revolving Credit Facility expires on the second
anniversary of the closing date of the Amended Credit Facility. The interest
rate on the Amended Credit Facility is, at the option of the Company, (i) prime
plus a margin, or (ii) LIBOR plus a margin, where the margin determination is
made based upon the Company's financial performance over the prior 12 month
period (ranging from 0.25% to 1.25% in the event prime is utilized, or 1.75% to
2.75% in the event LIBOR is utilized). At the present time, the margin is .25%
for prime rate loans and 1.75% for LIBOR loans.
The Term Loan will amortize in equal quarterly installments and will terminate
on December 1, 1999. Interim payments under the Revolving Credit Facility will
be made daily from collections of the Company's accounts receivable and the
Revolving Credit Facility will terminate on December 1, 1999. The Amended Credit
Facility contains financial and other covenants of the Company and mandatory
prepayment events and is secured by a lien on substantially all of the assets of
the Company.
3. PRO FORMA DISCLOSURES:
Pro Forma Income Taxes
As described in Note 1, prior to June 26, 1996, the business of the Company was
conducted by the Partnership. The Partnership was not subject to income taxes.
On June 26, 1996, the net assets of the Partnership were contributed to a C
Corporation (ASC) and became subject to federal and state income taxes. Upon
transfer of the net assets of the Partnership to ASC, a deferred income tax
benefit of $914,459, reflecting the tax effect of temporary differences between
the Partnership's book and tax basis of certain assets and liabilities, was
credited to operations.
A pro forma adjustment to record income taxes at the estimated effective tax
rate has been reflected in the accompanying condensed consolidated statements of
operations.
7
<PAGE>
Pro Forma Net Income Per Share
Pro Forma net income per share has been computed by dividing pro forma net
income by the number of shares of ASC common stock which the partners of the
Partnership received upon the formation of the Company. The pro forma weighted
average number of common shares outstanding of 5,000,000 assumes that the
4,425,000 shares issued to the partners, as described above, and the 575,000
shares of common stock, the net proceeds in respect of which were paid to J/T
Aviation Partners, were also outstanding in all periods.
4. STOCK OPTION PLANS:
In connection with the organization of the Company, the Company adopted two
stock option plans (the Plans). Pursuant to the 1996 Director Stock Option Plan
(the Director Plan), options to acquire a maximum of the greater of 150,000
shares or 2% of the number of shares of common stock then outstanding may be
granted to directors of the Company. Pursuant to the 1996 Stock Option Plan,
(the 1996 Plan), options to acquire a maximum of the greater of 650,000 shares
of common stock or 8% of the number of shares of common stock then outstanding
may be granted to executive officers, employees (including employees who are
directors), independent contractors and consultants of the Company. Options to
purchase 165,000 shares at an exercise price equal to $19.00 per share have been
granted under the Plans, 94,999 of which are immediately exercisable.
5. SUBSEQUENT EVENT:
On August 9, 1996, the Company, through a second tier subsidiary, Aviation Sales
Bearings Company, completed the acquisition of certain assets of business of
Dixie Bearings, Incorporated relating primarily to the sale of new bearings for
use in aircrafts for the purchase price of approximately $9 million. In
addition, the Company assumed certain liabilities in the amount of $25,000. The
acquisition was accounted for using the purchase method of accounting. The
historical operations of Dixie Bearings, Incorporated, when compared to the
historical operations of the Company, are not significant.
In connection with the acquisition, the Company: (a) issued $6,000,000 of senior
notes payable to financial institutions and (b) paid the balance in cash.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW: The following discussion and analysis should be read in conjunction
with the information set forth under Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 16 through 22 of Aviation
Sales Company's Prospectus dated June 26, 1996.
RESULTS OF OPERATIONS: Second-quarter operating revenues rose 19.3% to $34.3
million, compared with $28.7 million for the same period last year. Operating
revenues for the six months ended June 30, 1996 increased 17.5% to $67.2
million, compared with $57.2 million, for the same period last year. Operating
revenues increased due to the addition of new sales personnel, increased
customer penetration, increased investment in and availability of inventory and
the expansion of value added inventory management services offered to customers.
Gross profit increased slightly to $11.2 million for the quarter ended June 30,
1996, compared with $11.0 million for the same period last year. Gross profit
margin declined to 32.8% for the second quarter 1996, from 38.2% for the same
period in 1995, due to a change in mix of inventories sold during the periods.
Gross profits in 1995 were significantly impacted on a favorable basis by the
bulk inventory acquisition of the Aviation Sales business unit from Aviall
Services, Inc., which acquisition occurred in December 1994. During 1996, the
Company has not completed a comparable bulk inventory acquisition and
accordingly, gross profits have not been impacted in a similar manner.
The Company's operating expenses (consisting of operating, selling and general
and administrative) increased $0.5 million from the second quarter of 1995 to
the second quarter of 1996. Operating expenses as a percent of operating
revenues declined from 20.3% of revenues for the second quarter of 1995 to 18.5%
for the second quarter of 1996. Operating expenses were $11.6 million for the
first half of 1995, or 20.3% of operating revenues, compared with $13.1 million
for the first half of 1996, or 19.4% of operating revenues. The increase in
absolute dollars from the first half of 1995 to the first half of 1996 is due to
higher selling and operating expenses as a result of the higher sales levels
achieved during the first half of 1996 compared to the first half of 1995. Lower
operating expenses as a percentage of operating revenues were the result of
economies of scale.
Interest expense decreased slightly from period to period due to slightly lower
aggregate borrowings from period to period and slightly lower interest rates.
As a result of the above factors, income before a one time income tax benefit
derived by the Company upon formation, in the amount of $1.0 million was $3.0
million and $6.0 million , respectively, for the three and six months ended June
30, 1996, as compared to the $3.1 million and $7.0 million, respectively, for
the three and six months ended June 30, 1995.
After accounting for pro forma income taxes (as if the Company had been taxed as
a C Corporation), pro forma net income for the three and six months ended June
30, 1996 were $1.8 million ($0.36 per share) and $3.7 million ($0.74 per share),
respectively, as compared to $1.9 million ($0.37 per share) and $4.3 million
($0.86 per share), respectively, for the three and six months ended June 30,
1995.
LIQUIDITY AND FINANCIAL RESOURCES: On July 2, 1996 the Company closed its
initial public offering of 3,250,000 shares of its authorized but unissued
common stock at $19 per share. In addition, the Company granted the underwriters
a 30-day option to purchase up to 487,500 additional shares to cover
over-allotments. On July 25, 1996, the underwriters exercised the over-allotment
option and the Company sold an additional 487,500 shares of its common stock.
The net proceeds from the offering were $66,041,625. Of such proceeds,
$10,160,250 were used to pay J/T Aviation Partners for debt incurred on the
organization of the Company. The remaining proceeds were used to repay
indebtedness due to financial institutions and other costs relating to the
initial public offering.
9
<PAGE>
On July 2, 1996 the Company completed the repayment of indebtedness and
restructuring of its credit facility per the terms of the Amended Credit
Facility dated June 27, 1996. The Amended Credit Facility consists of (i) a term
loan facility (the Term Loan) in an original principal amount of $20.0 million
and (ii) a $50.0 million revolving loan, letter of credit and acquisition loan
facility, subject to an availability calculation based on the eligible borrowing
base (the Revolving Credit Facility). The letter of credit portion of the
Revolving Credit Facility is subject to a $10.0 million sublimit and the
acquisition loan portion of the Revolving Credit Facility is subject to a $30.0
million sublimit with the imposition of certain borrowing criteria based on the
satisfaction of certain debt ratios. The unused portion of the acquisition loan
portion of the Revolving Credit Facility expires on the second anniversary of
the closing date of the Amended Credit Facility. The interest rate on the
Amended Credit Facility is, at the option of the Company, (i) prime plus a
margin, or (ii) LIBOR plus a margin, where the margin determination is made
based upon the Company's financial performance over the prior 12 month period
(ranging from 0.25% to 1.25% in the event prime is utilized, or 1.75% to 2.75%
in the event LIBOR is utilized). At the present time, the margin is .25% for
prime rate loans and 1.75% for LIBOR loans.
The Term Loan will amortize in equal quarterly installments and will terminate
on December 1, 1999. Interim payments under the Revolving Credit Facility will
be made daily from collections of the Company's accounts receivable and the
Revolving Credit Facility will terminate on December 1, 1999. The Amended Credit
Facility contains financial and other covenants of the Company and mandatory
prepayment events and is secured by a lien on substantially all of the assets of
the Company.
During the first six months of 1996, the Company's operating activities
generated $1.8 million. The Company used $6.3 million of cash in investing
activities primarily for the purchase of aircraft spare parts on lease. Cash
flow provided by financing activities for the six months ended June 30, 1996 of
$7.5 million resulted from an increase in the Company's revolving line of
credit, partially offset by $5.0 of million principal payments made during the
period on outstanding term loans and $3.0 million of partner distributions.
As a result of the completion of the Company's initial public offering and the
use of the proceeds therefrom to repay indebtedness due to certain financial
institutions, the Company will record an adjustment during the third quarter of
1996 to write-off deferred financing costs relating to the debt which was
repaid.
During 1996, the Company expects to incur capital expenditures of approximately
$1.0 million ($554,000 of which was expended during the first half of 1996), the
majority of which will be used to make enhancements to the Company's management
information systems, telecommunications systems and other capital equipment and
improvements. The Company anticipates that funds for these capital expenditures
will be provided from cash flow from operations.
The repayment of indebtedness from the net proceeds of the offering improved the
Company's liquidity by reducing both the Company's interest expense and the
principal amount of the indebtedness required to be repaid in the future. The
Company believes that cash flow from operations and borrowing availability under
the Amended Credit Facility will be sufficient to satisfy the Company's
anticipated working capital requirements over the next two years.
As part of the its growth strategy, the Company intends to pursue acquisitions
of bulk inventories of aircraft parts and complementary businesses. Financing
for such acquisitions will be provided from operations and from the proceeds of
the Amended Credit Facility. The Company may also issue additional debt and/or
equity securities in connection with one or more of these acquisitions. The
Company is currently evaluating a number of acquisition opportunities and is at
varying stages of negotiation with respect to such acquisitions. Except as
described herein, no commitments or binding agreements have been entered into to
date and accordingly no assurance can be given that any of the acquisitions
currently being considered will be consummated.
10
<PAGE>
OUTLOOK: As described in Part II Item 5, the Company completed the acquisition
of the aircraft distribution division of Dixie Bearings, Incorporated on August
9, 1996. The Company continues to pursue its strategy of increasing revenues and
operating income through continued customer penetration in its existing markets
and expansion into new markets.
11
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PART II. OTHER INFORMATION
Item 1. LITIGATION
Not applicable.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On June 26, 1996, at a special meeting, the Company's shareholders
unanimously approved the adoption of the 1996 Director Stock Option Plan and the
1996 Stock Option Plan.
Item 5. OTHER INFORMATION
On August 9, 1996, Aviation Sales Company (the "Company"), through a
second tier subsidiary, Aviation Sales Bearings Company, a Delaware corporation
("ASBC"), completed the purchase from Dixie Bearings, Incorporated, a Tennessee
corporation ("Dixie Bearings"), of certain enumerated assets (the "Assets") of
Dixie Bearings' business relating primarily to the sale of new bearings for use
in aircrafts (the "Business").
The Assets acquired included, among other things, the following: (i)
approximately $6.0 million of inventory relating to the Business and all
historical records related thereto; (ii) approximately $3.0 million of accounts
receivable generated in the Business; (iii) personal property and motor vehicles
used in the Business; (iv) contracts, agreements, franchises, authorizations
granted by equipment manufacturers and other contracts, agreements or
commitments to which Dixie Bearings is a party relating to the Business; (v) all
written technical information, data, specifications, research and development
information and operating and maintenance manuals used in the Business; (vi)
computer hardware and software used exclusively in the Business; (vii)
accounting books and records, cost information, sales and pricing data, customer
lists, quality records and reports and other books, records, studies, surveys,
reports, plans and documents relating to the Business; (viii) intangible and
other assets relating exclusively to the business; and (ix) trade names used
exclusively in the Business.
The purchase price which was paid for the Assets and the Business
was approximately $9 million (the "Purchase Price"), which was paid in cash at
the closing, plus the assumption of certain liabilities in the amount of
approximately $25,000. The Purchase Price is subject to certain post closing
adjustments relating to receivables and inventory purchased, which may result in
an increase or a decrease in the Purchase Price.
The purchase was made pursuant to the terms of an Asset Purchase
Agreement, dated August 9, 1996 (the "Purchase Agreement"), by and between ASBC
and Dixie Bearings. The Purchase Agreement contains various representations and
warranties from both ASBC and Dixie Bearings, as well as certain indemnification
agreements among the parties.
In connection with the closing of the Purchase Agreement, ASBC and
Dixie Bearings entered into an Inventory Consignment Agreement (the "Consignment
Agreement") as well as two separate Supply Agreements (the "Supply Agreements"),
all dated as of August 9, 1996.
12
<PAGE>
Under the Consignment Agreement, Dixie Bearings agreed to consign to
ASBC aircraft parts and components with a value of approximately $6.0 million
(collectively, the "Materials"), which ASBC will have the exclusive right to
market and sell. Pursuant to the Consignment Agreement, Dixie Bearings and ASBC
will split the net sales proceeds from the sale of the Materials.
The Supply Agreements provide that Dixie Bearings or ASBC, as the
case may be, must use their best efforts to purchase from one another all such
items of bearings and other products (collectively, the "Parts") and services,
to the extent not ordinarily stocked or offered by the purchasing party, offered
by them in connection with their business operations. Each Supply Agreement will
have an initial term of five years and will automatically be renewed for
successive periods of one year, unless otherwise terminated.
Additionally, Dixie Bearings and its parent, Bearings, Inc., in
connection with the closing, entered into an Agreement Not to Compete (the
"Agreement Not to Compete"). The Agreement Not to Compete provides that for a
period of five years after the closing, without the prior written consent of
ASBC, Dixie Bearings and its affiliates (including, without limitation,
Bearings, Inc.) will not, directly or indirectly, in an individual or
representative capacity, engage in the marketing of aircraft bearings,
components or accessories to any operator of commercial, civilian, government or
military aircraft, any Section 145 or JAA licensed repair station or any
distributor of such bearings, components or accessories.
Further, in connection with the transaction, ASBC and Dixie Bearings
entered into: (i) a lease whereby ASBC leased approximately 7,000 square of
office and warehouse space from Dixie Bearings for rent (on a triple net basis)
of approximately $2,200 per month; (ii) an option to purchase whereby Dixie
Bearings granted ASBC the right to purchase the leased facility for
approximately $350,000; and (iii) a license agreement whereby ASBC was granted
the right to use the name "Dixie Aviation Bearings" for an 18-month period.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS
The acquisition of the Assets and the Business does not constitute a
material acquisition for the Company under applicable accounting rules.
Therefore, historical financial statements of the Business are not required to
be included in this Form 8-K.
(c) EXHIBITS.
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NUMBER
----------- ----------- -----------
<S> <C> <C>
10.12 Asset Purchase Agreement, dated as of August 9, 1996, by
and between Dixie Bearings, Incorporated and Aviation
Sales Bearings Company.
27 Financial Data Schedule
</TABLE>
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AVIATION SALES COMPANY
By: /s/ DALE S. BAKER
----------------------------------------------------
Dale S. Baker, President and Chief Executive Officer
By: /s/ JOSEPH E. CIVILETTO
----------------------------------------------------
Joseph E. Civiletto, Vice President and
Chief Financial Officer
14
EXHIBIT 10.12
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
DIXIE BEARINGS, INCORPORATED
AND
AVIATION SALES BEARINGS COMPANY
<PAGE>
<TABLE>
<CAPTION>
INDEX
<S> <C>
ARTICLE I CERTAIN DEFINITIONS.......................................................... 1
ARTICLE II SALE OF ASSETS: CLOSING; ADJUSTMENT......................................... 8
Section 2.1. Assets to Be Acquired..................................... 8
Section 2.2. Excluded Assets........................................... 9
Section 2.3. Assumption of Liabilities................................. 11
Section 2.4. Retained Liabilities...................................... 12
Section 2.5. Consideration; Closing Deliveries; Possession............. 13
Section 2.6. Time and Place of Closing................................. 15
Section 2.7. Closing Procedures........................................ 15
Section 2.8. Post-Closing Procedures................................... 16
Section 2.9. Final Purchase Price Adjustments.......................... 17
Section 2.10. Records................................................... 18
Section 2.11. Collection of Receivables................................. 19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER................................... 20
Section 3.1. Incorporation; Authorization; etc......................... 20
Section 3.2. Financial Information..................................... 21
Section 3.3. Properties................................................ 21
Section 3.4. Absence of Certain Changes; Solvency...................... 22
Section 3.5. Litigation; Orders........................................ 22
Section 3.6. [intentionally left blank]................................ 22
Section 3.7. Licenses, Approvals, Other Authorizations, Consents,
Reports, etc.............................................. 22
Section 3.8. Labor Matters............................................. 23
Section 3.9. Compliance with Laws...................................... 23
Section 3.10. Insurance................................................. 23
Section 3.11. Contracts................................................. 23
Section 3.12. Environmental Matters..................................... 24
Section 3.13. No Agreements to Sell Assets.............................. 25
Section 3.14. Brokers, Finders, etc..................................... 25
Section 3.15. Maintenance of the Assets................................. 25
Section 3.16. Preservation of Business.................................. 26
Section 3.17. Maintenance of the Records................................ 26
Section 3.18. Schedules and Exhibits.................................... 26
Section 3.20. No Implied Representation................................. 26
Section 3.21. Construction of Certain Provisions........................ 27
Section 3.22. Due Diligence Exception................................... 27
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER..................................... 28
Section 4.1. Organization; Authorization; etc.......................... 28
- i -
<PAGE>
Section 4.2. Brokers, Finders, etc..................................... 28
Section 4.3. Licenses, Approvals, Other Authorizations, Consents,
Reports, etc.............................................. 28
Section 4.4. Schedules and Exhibits.................................... 28
Section 4.5 Litigation; Orders........................................ 29
Section 4.6 Solvency.................................................. 29
ARTICLE V COVENANTS OF SELLER AND BUYER................................................ 30
Section 5.1. Efforts; Obtaining Consents; Antitrust Laws............... 30
Section 5.2. Further Assurances........................................ 31
Section 5.3. Public Announcements...................................... 32
Section 5.4. Accounts and Notes Payable Notices........................ 32
Section 5.5. Post-Closing Confidentiality.............................. 32
Section 5.6 Interim Services.......................................... 33
Section 5.7 Cooperative Purchasing.................................... 33
ARTICLE VI EMPLOYEE BENEFITS........................................................... 34
Section 6.1. Employee Benefit Plans.................................... 34
Section 6.2. Termination of Participation.............................. 34
Section 6.3. 401(k) Plan Transfer...................................... 34
Section 6.4. Employees................................................. 35
ARTICLE VII TAX AND ACCOUNTING MATTERS................................................. 37
Section 7.1. Tax Returns............................................... 37
Section 7.2. Sales, Transfer and Similar Taxes......................... 37
Section 7.3. Cooperation and Exchange of Information................... 37
Section 7.4. Prorations................................................ 39
ARTICLE VIII CONDITIONS OF BUYER'S OBLIGATION TO CLOSE................................. 40
Section 8.1. Representations, Warranties and Covenants of Seller....... 40
Section 8.2. Filings; Consents; Waiting Periods........................ 40
Section 8.3. No Injunction............................................. 40
Section 8.4. Delivery of Records....................................... 40
Section 8.5. Releases of Liens......................................... 40
Section 8.6. Performance of Seller's Obligations....................... 40
Section 8.7. No Material Adverse Change................................ 41
ARTICLE IX CONDITIONS TO SELLER'S OBLIGATION TO CLOSE.................................. 42
Section 9.1. Representations, Warranties and Covenants of Buyer........ 42
Section 9.2. No Injunction............................................. 42
Section 9.3. Performance of Buyer's Obligations........................ 42
ARTICLE X SURVIVAL; INDEMNIFICATION.................................................... 43
Section 10.1. Survival.................................................. 43
- ii -
<PAGE>
Section 10.2. General Indemnification by Buyer or Seller................ 44
Section 10.3. Environmental Indemnification by Seller................... 44
Section 10.4. Third Party Claims........................................ 48
Section 10.5. Bulk Sales Waiver; Indemnification........................ 48
ARTICLE XI MISCELLANEOUS............................................................... 49
Section 11.1. Corporate Name............................................ 49
Section 11.2. Non-Assignable Undertakings and Rights.................... 49
Section 11.3. Counterparts.............................................. 49
Section 11.4. Governing Law............................................. 49
Section 11.5. Entire Agreement.......................................... 49
Section 11.6. Expenses.................................................. 50
Section 11.7. Notices................................................... 50
Section 11.8. Successors and Assigns.................................... 51
Section 11.9. Headings; Definitions..................................... 51
Section 11.10. Amendments and Waivers.................................... 51
Section 11.11. Interpretation; Absence of Presumption.................... 52
Section 11.12. Severability.............................................. 52
Section 11.13. Settlement of Disputes.................................... 52
Section 11.14. Waiver of Consumer Protection Laws........................ 55
Section 11.15. Survival.................................................. 55
</TABLE>
- iii -
<PAGE>
SCHEDULES
Schedule 1(a) Business Inventory
Schedule 1(c) Permitted Liens
Schedule 2.1(a)(i) Furniture, Fixture and Equipment
Schedule 2.1(a)(ii) Motor Vehicles
Schedule 2.1(b) Purchased Inventory
Schedule 2.1(c) Contracts, Agreements and Deposits
Schedule 2.1(j) Accounts Receivable and Notes Receivable
Schedule 2.1(j)-1 Aging of Past Due Receivables
Schedule 2.1(k) Licenses and Permits
Schedule 2.1(l) Included Claims
Schedule 2.1(m) Included Names
Schedule 2.2(g) Excluded Computer Hardware and Software
Schedule 3.2 Summary of Operations for Three Years
Schedule 3.3(a) Encumbrances on Properties
Schedule 3.3(d) Encumbrances on Accounts Receivable
Schedule 3.4(a) Adverse Changes
Schedule 3.5 Litigation; Orders
Schedule 3.7 Seller's Licenses, Approvals, Other
Authorizations, Consents, Reports,
etc.--Operation of the Business
Schedule 3.8 Workers' Compensation Claims
Schedule 3.9 Non-Compliance with Laws
Schedule 3.10 Insurance
- iv -
<PAGE>
Schedule 3.11 Contracts
Schedule 3.12(b) Environmental Matters
Schedule 3.12(b)(v) Environmental Permits
Schedule 3.13 Agreements to Sell Assets
Schedule 4.3 Buyer's Licenses, Approvals, Other
Authorizations, Consents, Reports, etc.
Schedule 6.1(a) Employee Benefit Plans
Schedule 6.1(c) Employee Benefit Plans
Schedule 6.4(a) Active Employees
Schedule 6.4(c) Non-solicitation Employees
Schedule 7.3(c) Tax Returns
- v -
<PAGE>
EXHIBITS
Exhibit 2.5(b)(i) Form of Assignment and Assumption Agreement
Exhibit 2.5(b)(ii) Form of Guaranty
Exhibit 2.5(b)(iii) Form of License Agreement
Exhibit 2.5(b)(iv) Form of Dixie Facilities Lease Agreement
Exhibit 2.5(b)(v) Form of Dixie Consignment Agreement
Exhibit 2.5(b)(vi)-1 and -2 Forms of Supply Agreements
Exhibit 2.5(c)(i) Form of Bill of Sale
Exhibit 2.5(c)(ii) Form of Materials Certification
Exhibit 2.5(c)(iv) Form of Seller's Agreement Not to Compete
Exhibit 2.5(c)(v) Form of Memorandum of Option
Exhibit 2.5(c)(vi) Form of Landlord's Waiver
Exhibit 5.3 Form of Press Release
- vi -
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (and, collectively with all of the
Schedules and Exhibits referenced herein and attached hereto, the "AGREEMENT"),
dated as of August 9, 1996 (the "EFFECTIVE DATE"), is by and between DIXIE
BEARINGS, INCORPORATED, a corporation organized under the laws of the State of
Tennessee ("SELLER"), and AVIATION SALES BEARINGS COMPANY, a corporation
organized under the laws of the State of Delaware ("BUYER").
WHEREAS, Seller wishes to sell to Buyer the assets and businesses of
the Business (as defined herein), and Buyer wishes to purchase such assets and
to assume certain of the liabilities relating to the Business and such assets,
but only to the extent specified herein and excluding, in all events, the
Retained Liabilities (as defined herein), all upon the terms and subject to the
conditions set forth herein.
NOW THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
"ACTION" shall mean any actual or threatened action, suit, arbitration,
inquiry, proceeding or investigation by or before any Government Authority or
arbitral tribunal.
"ACTIVE EMPLOYEES" shall have the meaning set forth in Section 6.4(a).
"AFFILIATE" (and, with a correlative meaning, "AFFILIATED") shall mean,
with respect to any Person, any other Person that directly, or 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).
"AGREEMENT" shall have the meaning set forth in the preamble of this
Agreement.
- 1 -
<PAGE>
"ANTITRUST LAWS" shall mean and include the Sherman Act, as amended,
the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as
amended, and all other federal, state, foreign and multinational (including
European Community) statutes, rules, regulations, orders, decrees,
administrative and judicial doctrines, and other laws that are designed or
intended to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade.
"ASSET PURCHASE" shall mean the consummation of the transactions
described in Sections 2.1 to 2.4.
"ASSETS" shall have the meaning set forth in Section 2.1.
"ASSUMED LIABILITIES" shall have the meaning set forth in Section 2.3.
"BANK DEBT" shall mean any indebtedness of Seller related to the
Business or any of the Assets.
"BANK LIENS" shall mean any liens or other encumbrances granted by
Seller to lenders affecting the Business or any of the Assets.
"BUSINESS" shall mean the business of the Aircraft Distribution Center
of Seller as it is being conducted by Seller on the Effective Date, consisting
primarily of the sale of new bearings for use in aircraft (excluding main shaft
bearings for aircraft engines).
"BUSINESS CONDITION" shall have the meaning set forth in Section
3.1(a).
"BUSINESS EMPLOYEE BENEFIT PLANS" shall have the meaning set forth in
Section 6.1(a).
"BUSINESS EMPLOYEES" shall have the meaning set forth in Section
6.1(a).
"BUSINESS INVENTORY" shall mean all of the inventory (whether existing
or on order) of new bearings, components, and accessories that are used or held
for use in the Business, as such inventory shall exist or be on order as of the
Closing Date, which Business Inventory, as of July 19, 1996, is in the quantity
described on SCHEDULE 1(a) attached hereto, calculated at Seller's Historical
Acquisition Cost.
"BUYER" shall have the meaning set forth in the preamble of this
Agreement.
"BUYER INDEMNIFIED PARTIES" shall have the meaning set forth in Section
10.2(b).
"BUYER'S 401(K) PLAN" shall have the meaning set forth in Section 6.3.
"CERCLA" shall have the meaning set forth in Section 3.12(a)(i).
- 2 -
<PAGE>
"CLAIMS" shall mean all rights, demands, claims, actions and causes of
action (whether for personal injuries or property, consequential or other
damages of any kind).
"CLOSING" shall mean the consummation of the transactions made the
subject of this Agreement.
"CLOSING AUDIT PAYMENT DATE" shall have the meaning set forth in
Section 2.9(d).
"CLOSING DATE" shall mean 11:59 p.m. Miami, Florida time, on the date
of the Closing.
"CLOSING DATE ASSETS STATEMENT" shall have the meaning set forth in
Section 2.8(a).
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and
any successor thereto.
"CONSIGNED INVENTORY" shall have the meaning set forth in Section
2.2(k).
"CONTRACTS" shall have the meaning set forth in Section 2.1(c).
"COVERED LIABILITIES" shall mean any and all debts, losses,
liabilities, claims, damages, obligations (including those arising out of any
Action, such as any settlement or compromise thereof or judgment or award
therein), and any reasonable out-of-pocket costs and expenses (including
reasonable attorneys' fees, experts' fees, consultants' fees and expenses
incurred in defending any Action).
"CURRENT RECEIVABLES" shall have the same meaning set forth in Section
2.7(c).
"DIXIE CONSIGNMENT AGREEMENT" shall mean the Inventory Consignment
Agreement relating to the Consigned Inventory to be entered into by Buyer and
Seller at the Closing, the form of which is attached hereto as EXHIBIT
2.5(b)(v).
"DIXIE FACILITIES" shall mean the real property, together with the
improvements and fixtures located thereon or attached thereto, owned by Seller
and located at 1044-1048 Lee's Mill Road, College Park, Clayton County, Georgia,
and being more particularly described in the Dixie Facilities Lease.
"DIXIE FACILITIES LEASE" shall mean the Lease Agreement (with Option to
Purchase) to be entered into by Buyer and Seller at the Closing, whereby Seller
will lease to Buyer a portion of the Dixie Facilities at 1048 Lee's Mill Road,
College Park, Clayton County, Georgia, and Seller will grant to Buyer the option
to purchase the Dixie Facilities, the form of which is attached hereto as
EXHIBIT 2.5(b)(iv).
"EFFECTIVE DATE" shall have the meaning set forth in the preamble of
this Agreement.
- 3 -
<PAGE>
"EMPLOYMENT LAWS" shall have the meaning set forth in Section 6.4(d).
"ENCUMBRANCES" shall mean mortgages, liens, encumbrances, security
interests, covenants, conditions, restrictions, rights-of-way, easements and
encroachments, whether recorded or unrecorded.
"EPA" shall have the meaning set forth in Section 10.3(b)(ii)(A).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"EXCESS RECEIVABLES COLLECTIONS" shall have the meaning set forth in
Section 2.11.
"EXCLUDED ASSETS" shall have the meaning set forth in Section 2.2.
"EXCLUDED HARDWARE AND SOFTWARE" shall have the meaning set forth in
Section 2.2(g).
"EXCLUDED NAMES" shall mean all logos, trade marks, service marks, and
trade names utilized by Seller in connection with the Business or otherwise,
except for the Included Names.
"FAA" shall mean the United States Federal Aviation Administration.
"FEDERAL AVIATION ACT" shall have the meaning set forth in Section
3.3(b).
"FINAL CURRENT RECEIVABLES" shall have the meaning set forth in Section
2.9(b).
"FINAL HISTORICAL ACQUISITION COST" shall have the meaning set forth in
Section 2.9(a).
"FINAL INVENTORY ADJUSTMENT" shall have the meaning set forth in
Section 2.9(a).
"FINAL INVENTORY DECREASE AMOUNT" shall have the meaning set forth in
Section 2.9(a).
"FINAL INVENTORY INCREASE AMOUNT" shall have the meaning set forth in
Section 2.9(a).
"FINAL PURCHASE PRICE ADJUSTMENT" shall have the meaning set forth in
Section 2.9(c).
"FINAL RECEIVABLES ADJUSTMENT" shall have the meaning set forth in
Section 2.9(b).
"FINAL RECEIVABLES DECREASE AMOUNT" shall have the meaning set forth in
Section 2.9(b).
"FINAL RECEIVABLES INCREASE AMOUNT" shall have the meaning set forth in
Section 2.9(b).
"401(K)" shall have the meaning set forth in Section 6.3.
"GOVERNMENT AUTHORITY" shall mean any government or state (or any
subunit thereof),
- 4 -
<PAGE>
whether domestic, foreign or multinational (including European Community), or
any agency, authority, bureau, commission, department or similar body or
instrumentality thereof, or any governmental court or tribunal.
"HAZARDOUS MATERIALS" shall have the meaning set forth in Section
3.12(a)(ii).
"HAZARDOUS MATERIALS CONTAMINATION" shall have the meaning set forth in
Section 3.12(a)(iii).
"HAZARDOUS SUBSTANCES LAWS" shall have the meaning set forth in Section
3.12(a)(i).
"HIRED EMPLOYEES" shall have the meaning set forth in Section 6.4(a).
"HISTORICAL ACQUISITION COST" shall mean the actual cost incurred by
Seller in acquiring the Business Inventory or the Purchased Inventory, as the
case may be, without regard to LIFO or FIFO reserves or depreciation.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"INCLUDED NAMES" shall have the meaning set forth in Section 2.1(n).
"INITIAL CURRENT RECEIVABLES" shall have the meaning set forth in
Section 2.7(c).
"INITIAL HISTORICAL ACQUISITION COST" shall have the meaning set forth
in Section 2.7(b).
"INITIAL INVENTORY ADJUSTMENT" shall have the meaning set forth in
Section 2.7(b).
"INITIAL INVENTORY DECREASE AMOUNT" shall have the meaning set forth in
Section 2.7(b).
"INITIAL PURCHASE PRICE" shall mean the aggregate sum of (i)
$6,000,000, as decreased, if applicable, by the amount of the Initial Inventory
Decrease Amount described in Section 2.7(b), plus (ii) $2,500,000, as increased
or decreased, as the case may be, by the Initial Receivables Adjustment
described in Section 2.7(c), plus (iii) $100,000, all subject to any additional
adjustments specifically provided for in this Agreement.
"INITIAL RECEIVABLES ADJUSTMENT" shall have the meaning set forth in
Section 2.7(c).
"INITIAL RECEIVABLES DECREASE AMOUNT" shall have the meaning set forth
in Section 2.7(c).
"INITIAL RECEIVABLES INCREASE AMOUNT" shall have the meaning set forth
in Section 2.7(c).
"INTERIM SERVICES" shall have the meaning set forth in Section 5.6.
- 5 -
<PAGE>
"JAMS" shall have the meaning set forth in Section 11.13(b)(ii).
"LICENSE AGREEMENT" shall mean the License Agreement to be entered
between Seller and Buyer at Closing with respect to the use of the name "Dixie",
the form of which is attached hereto as EXHIBIT 2.5(b)(iii).
"LICENSES" shall have the meaning set forth in Section 3.7(a).
"MISSING INVENTORY" shall have the meaning set forth in Section
2.7(e)(i).
"PARENT ENTITY" shall have the meaning set forth in Section 2.2(a).
"PERMITTED LIENS" shall mean (i) statutory liens for Taxes not yet due
and payable, (ii) those Encumbrances disclosed in the Schedules, and (iii) those
set forth on SCHEDULE 1(C) attached hereto.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, trust, unincorporated organization, other form of business or legal
entity or Government Authority.
"PHYSICAL INVENTORY" shall have the meaning set forth in Section
2.7(e)(i).
"PRELIMINARY CLOSING DATE ASSETS STATEMENT" shall have the meaning set
forth in Section 2.7(a).
"PURCHASE PRICE" shall mean the aggregate sum of (i) $6,000,000, as
initially decreased, if applicable, at the Closing in the manner specified in
Section 2.7(b), and as finally adjusted following the Closing in the manner
described in Section 2.9(a), plus (ii) $2,500,000, as initially increased or
decreased, as the case may be, at the Closing in the manner specified in Section
2.7(c), and as finally increased or decreased following the Closing in the
manner described in Section 2.9(b), plus (iii) $100,000, all subject to any
additional adjustments specifically provided for in this Agreement.
"PURCHASED INVENTORY" shall have the meaning set forth in Section
2.1(b).
"RCRA" shall have the meaning set forth in Section 3.12(a)(i).
"RECEIVABLES" shall have the meaning set forth in Section 2.1(k).
"RECORDS" shall have the meaning set forth in Section 2.10.
"RETAINED LIABILITIES" shall have the meaning set forth in Section 2.4.
"REVIEW" shall have the meaning set forth in Section 2.8(b).
- 6 -
<PAGE>
"SELLER" shall have the meaning set forth in the preamble of this
Agreement.
"SELLER INDEMNIFIED PARTIES" shall have the meaning set forth in
Section 10.2(a).
"SELLER'S DEPOSITS" shall have the meaning set forth in Section 2.1(c).
"SELLER'S AGREEMENT NOT TO COMPETE" shall mean the Agreement Not to
Compete to be executed and delivered by Seller in favor of Buyer at the Closing,
which is ancillary to this Agreement, the form of which is attached hereto as
EXHIBIT 2.5(c)(iv).
"STAY PUT OBLIGATIONS" shall have the meaning set forth in Section
6.4(a).
"SUPPLY AGREEMENTS" shall mean the Supply Agreements to be entered into
by Seller and Buyer at the Closing, the forms of which are attached hereto as
EXHIBITS 2.5(b)(vi)-1 AND 2.5(b)(vi)-2.
"TAX AUDIT" shall have the meaning set forth in Section 7.3(d).
"TAXES" shall mean (i) all taxes (whether federal, state, local or
foreign) based upon or measured by income and any other tax whatsoever,
including gross receipts, profits, sales, excise, use, occupation, value added,
ad valorem, transfer, franchise, withholding, payroll, employment, excise, real
property or other property taxes, together with any interest or penalties
imposed with respect thereto, and (ii) any obligations under any agreements or
arrangements with respect to any Taxes described in clause (i) above.
"WARN ACT" shall have the meaning set forth in Section 6.4(d).
- 7 -
<PAGE>
ARTICLE II
SALE OF ASSETS: CLOSING; ADJUSTMENTS
SECTION 2.1. ASSETS TO BE ACQUIRED. Subject to the satisfaction or
waiver of the conditions set forth herein and to the other terms, conditions and
provisions of this Agreement, at the Closing, Seller shall sell, convey, assign,
transfer and deliver to Buyer, and Buyer shall purchase, acquire, accept and pay
for, all of Seller's right, title and interest in all of the properties, assets
and other rights (excluding the Excluded Assets) owned or leased by, or licensed
to, Seller on the Closing Date and used exclusively in the Business, including
without limitation, the following (collectively, the "ASSETS"):
(a) (i) all apparatus, computers and other electronic data
processing equipment, fixtures, machinery, equipment, furniture, office
equipment, tools, packing and packaging materials and other tangible personal
property of the type of personal property described on SCHEDULE 2.1(a)(i), which
schedule reflects the personal property as of the date set forth in such
schedule to the extent such personal property has an individual purchase price
greater than or equal to $500, and (ii) all motor vehicles used in connection
with the Business and described on SCHEDULE 2.1(a)(ii) attached hereto, which
schedule reflects the motor vehicles as of the date set forth in such schedule;
(b) a portion of the Business Inventory selected and
designated by Buyer in accordance with Section 2.7(e)(i), as reflected on
SCHEDULE 2.1(b) attached hereto, consisting of $6,000,000 worth of the Business
Inventory, with the amount calculated at Seller's Historical Acquisition Cost
(the "PURCHASED INVENTORY"), together with all Records relating to such
Purchased Inventory;
(c) (i) to the extent assignable, all contracts,
agreements, leases of personal property, franchises, authorizations granted by
original licensed equipment manufacturers, cooperation agreements, volume
discount agreements and other contracts, agreements or commitments to which
Seller is a party, whether written or oral, which are in effect on the Closing
Date (including all assignable warranties and indemnities of manufacturers
related to the Purchased Inventory but only to the extent that any assignment
thereof shall not affect any of Seller's rights as against any third party
(including, without limitation, any manufacturers) with respect to any Retained
Liabilities), except as otherwise expressly provided in Section 2.2
(collectively, the "CONTRACTS"), which Contracts, as of the date set forth on
such schedule, include the contracts and agreements described on SCHEDULE 2.1(c)
attached hereto, together with (ii) all deposits or advance payments made by
Seller with third parties in connection with any Contract or made by third
parties with Seller in connection with any Contract (collectively, the "SELLER'S
DEPOSITS"), which Seller's Deposits, as of the date set forth on such schedule,
consist of the deposits described on SCHEDULE 2.1(c) attached hereto;
(d) all written technical information, data,
specifications, research and development information, engineering drawings and
operating and maintenance manuals;
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(e) to the extent assignable, all computer hardware and
operating applications and programs, source codes, object codes, and computer
data files, including systems documentation and instructions, including, without
limitation, the computer hardware and operating applications and programs,
source codes, access codes and computer data files comprising the "QUICK QUOTE
SYSTEM", but excluding the Excluded Hardware and Software described in Section
2.2(g);
(f) accounting books and records, cost information, sales
and pricing data, customer lists, quality records and reports and other books,
records, studies, surveys, reports, plans and documents;
(g) all lists of the Business' agents, representatives,
suppliers and subcontractors, together with all contracts and agreements with
the foregoing to which Seller is a party which are in effect on the Closing
Date;
(h) [Intentionally Left Blank]
(i) all intangible and other assets relating exclusively
to the Business;
(j) subject to the provisions of Section 2.11, all
accounts receivable and notes receivable arising from the Business, as such
accounts receivable and notes receivable shall exist on the Closing Date (the
"RECEIVABLES"), which Receivables, as of June 30, 1996, consist of the accounts
receivable and the notes receivable described on SCHEDULE 2.1(j);
(k) to the extent assignable, all licenses, permits,
approvals and authorizations which have been issued by any Government Authority,
including, without limitation, the licenses and permits described on SCHEDULE
2.1(k) attached hereto;
(l) all Claims which Seller or the Business may have
against any Person with respect to or which are related to any of the Assets,
which are specifically identified on SCHEDULE 2.1(l); and
(m) those logos, trade marks, service marks, and
trade names (together with the goodwill associated therewith) described on
SCHEDULE 2.1(m) attached hereto (the "INCLUDED NAMES"), and, subject to the
provisions of Section 11.1, all literature, sales materials or products
incorporating the Included Names.
SECTION 2.2. EXCLUDED ASSETS. Notwithstanding anything to the contrary
herein, all of Seller's right, title and its interest in the properties, assets
and other rights not related exclusively to the Business and the following
properties, assets and other rights (collectively, the "EXCLUDED ASSETS") shall
be excluded from the Assets:
(a) all accounting books and records that do not relate
exclusively to the Business, as well as copies of business records relating to
the Assets (i) that are reasonably
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required by Seller, any entity directly or indirectly owning a majority of the
capital stock of Seller (a "PARENT ENTITY"), or any Affiliate of Seller in order
to permit Seller, any Parent Entity, or any Affiliate of Seller to prepare any
Tax return or other filing or report to be made after the Closing Date or to
otherwise comply with law, or (ii) that relate to the employment of present,
former or retired employees of Seller;
(b) all logos, trademarks, service marks and trade names
(together with the goodwill associated therewith) not specifically described on
SCHEDULE 2.1(m) attached hereto;
(c) any assets of any employee benefit plan and any
rights under any plan or agreement relating to employee benefits, employment or
compensation to be retained by Seller or any Affiliate of Seller in accordance
with the provisions of Article VI;
(d) any and all rights of Seller or the Business
(including any reserves, accruals or provisions) with respect to Claims that
have not been transferred to Buyer;
(e) all cash, certificates of deposit and cash
equivalents;
(f) all insurance policies and binders owned or held by
Seller or the Business, any receivables or Claims thereunder, and any and all
reserves attributable to Claims thereunder, whether for periods prior to or
after the Closing Date;
(g) the computer hardware, software and data files
described on SCHEDULE 2.2(g) (the "EXCLUDED HARDWARE AND SOFTWARE");
(h) all Claims and any and all reserves of Seller,
accruals or provisions related thereto which Seller, any Affiliate of Seller or
the Business may have against any Government Authority for refund or credit of
any type with respect to Taxes of the Business for periods ending on or prior to
the Closing Date;
(i) all Claims which Seller, any Affiliate of Seller or
the Business may have against any Person with respect to or which are related to
any Retained Liabilities or Excluded Assets, any Claims related to the Business
for periods prior to the Closing, other than those identified on SCHEDULE 2.1(l)
attached hereto, and any Claims for which Buyer has a right to indemnification
from Seller under this Agreement;
(j) the Dixie Facilities;
(k) the Business Inventory, to the extent not included
within the Purchased Inventory (including, without limitation, any of the
Business Inventory sold by Seller prior to the Closing Date but returned by the
third party purchaser thereof after the Closing Date), which residual Business
Inventory (the "CONSIGNED INVENTORY"), shall be consigned by Seller to Buyer at
the Closing pursuant to the Dixie Consignment Agreement;
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(l) any asset of a type described in Section 2.1 but
not specifically identified on the Schedules described in Section 2.1, if such
asset is not used exclusively in connection with the Business; it being
understood by the parties hereto that any asset which is used both in connection
with the Business and with another business or activity of Seller or any of its
Affiliates, to the extent not specifically identified on the Schedules described
in Section 2.1, shall be deemed an Excluded Asset. In connection with the
foregoing, (i) there shall be a rebuttable presumption that any tangible asset
which is located at the portion of the Dixie Facilities utilized by the Business
on the Effective Date, other than fixtures, is an Asset, and (ii) there shall be
a rebuttable presumption that any tangible asset which is not located at the
portion of the Dixie Facilities utilized by the Business on the Effective Date
is an Excluded Asset; and
(m) any and all warranty and concession reserves or any
provisions or accruals relating to any of the Retained Liabilities, including
those that relate to any product liability or similar claims as described in
Section 2.4(b).
SECTION 2.3. ASSUMPTION OF LIABILITIES. Except as set forth in this
Section 2.3, at the Closing Buyer shall not assume, succeed to, be obligated for
or be liable for any of the liabilities and obligations (whether or not known,
suspected, asserted or claimed at the Closing Date or at any time theretofore or
thereafter, whether or not reflected or provided for, or required to be
reflected or provided for, on a balance sheet of the Business and whether fixed,
liquidated, unliquidated, absolute, contingent or otherwise) which relate to or
arise out of the Assets, the Business or any of its operations arising prior to
the Closing Date, or arising from actions taken or omitted to be taken prior to
the Closing Date.
Notwithstanding the foregoing, at the Closing, Buyer shall assume and
shall agree to pay, perform and discharge, and shall indemnify, and hold Seller
and the Seller Indemnified Parties harmless against, all liabilities and
obligations which at any time relate to or arise out of the Business after the
Closing Date, along with the following (collectively, hereinafter referred to as
the "ASSUMED LIABILITIES"):
(a) all liabilities and obligations relating to
employee matters to be assumed by Buyer pursuant to Article VI (including
without limitation, all liabilities and obligations relating to accrued vacation
time of Hired Employees and all liabilities and obligations relating to the Stay
Put Obligations of Seller with respect to Hired Employees but only subject to
and in accordance with the terms and provisions of Section 2.7(d) and Section
6.4(a));
(b) all other liabilities and obligations with respect to
which Buyer is obligated to indemnify Seller or the Seller Indemnified Parties
under this Agreement as set forth in Article X;
(c) any product liability or similar claim for injury
to person or property, regardless of when made or asserted, which arises out of
or is based upon any express or implied representation, warranty, agreement or
guarantee, or which is imposed or ascribed to be imposed by operation of law, in
connection with any service performed or product sold or leased by or on
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behalf of the Business after the Closing Date;
(d) any contracts, agreements, leases, arrangements,
unfilled orders, commitments, or other instruments or obligations of Seller
related to the Business to the extent included within the Assets; and
(e) all open purchase orders for the sale of portions
of the Business Inventory.
SECTION 2.4. RETAINED LIABILITIES. Seller shall retain, and shall
continue to be responsible after the Closing Date for, and shall hold Buyer and
the Buyer Indemnified Parties harmless against, the "RETAINED LIABILITIES",
which term shall mean, and be strictly limited to, the liabilities and
obligations which at any time arise out of the following, and which shall
specifically exclude any and all of the Assumed Liabilities set forth in Section
2.3:
(a) all of the liabilities and obligations (whether or
not known, suspected, asserted or claimed at the Closing Date or at any time
theretofore or thereafter, whether or not reflected or provided for, or required
to be reflected or provided for, on a balance sheet of the Business and whether
fixed, liquidated, unliquidated, absolute, contingent or otherwise) which relate
to or arise out of the Assets, the Business or any of its operations arising
prior to the Closing Date, or arising from actions taken or omitted to be taken
prior to the Closing Date, excluding in all events any Assumed Liabilities, but
including, without limitation, any amounts owed pursuant to unpaid purchase
orders placed by Seller for the purchase of Business Inventory which has already
been delivered to Seller;
(b) any product liability or similar claim for injury to
person or property, regardless of when made or asserted, which arises out of or
is based upon any express or implied representation, warranty, agreement or
guarantee or which is imposed or ascribed to be imposed by operation of law, in
connection with any service performed or product sold or leased by or on behalf
of the Business on or prior to the Closing Date (it being understood that, as
set forth in Section 2.2(m), any reserves relating to such amounts shall be
deemed to be Excluded Assets);
(c) any liability or obligation under or in connection
with the Excluded Assets;
(d) except as otherwise provided in Section 6.4, any
liability or obligation arising prior to the Closing Date to any Business
Employees, agents or independent contractors of Seller, whether or not employed
by Buyer after the Closing, or under any Business Employee Benefit Plan with
respect thereto, except accrued vacation time of Hired Employees and Seller's
Stay Put Obligations (it being understood that, pursuant to Section 6.4(d),
Buyer shall indemnify Seller, and hold Seller harmless, with respect to
violations, if any, by Buyer of any Employment Laws with respect to the Hired
Employees);
(e) any liability or obligation of Seller arising or
incurred in connection with the negotiation, preparation or execution of this
Agreement and the transactions contemplated hereby, including without
limitation, fees and expenses of counsel and other experts; and
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(f) (i) all Taxes of, or relating to, the Assets or the
Business for periods ending as of the Closing Date and all income Taxes imposed
on Seller or any Affiliate of Seller as a consequence of the transactions
contemplated by this Agreement, and (ii) with respect to the current Tax period,
all Taxes of, or relating to, the Assets or the Business accrued as of the
Closing Date, as determined on a pro rata basis as set forth in Section 7.4.
SECTION 2.5. CONSIDERATION; CLOSING DELIVERIES; POSSESSION.
(a) At the Closing, Buyer shall purchase the Assets from
Seller, upon and subject to the terms and conditions of this Agreement and in
reliance on the representations, warranties and covenants of Seller contained
herein, in exchange for the Purchase Price.
(b) Subject to the terms and conditions of this
Agreement, at the Closing:
(i) Buyer shall (A) pay to Seller the Initial
Purchase Price by wire transfer of immediately available funds to the
account or accounts specified by Seller, and (B) assume the Assumed
Liabilities pursuant to an Assignment and Assumption Agreement in the
form of EXHIBIT 2.5(b)(i);
(ii) Guaranty of Aviation Sales Operating Company
d/b/a Aviation Sales Company in the form of EXHIBIT 2.5(b)(ii);
(iii) Buyer and Seller shall enter into the
License Agreement in the form of EXHIBIT 2.5(b)(iii);
(iv) Buyer and Seller shall enter into the Dixie
Facilities Lease Agreement in the form of EXHIBIT 2.5(b)(iv);
(v) Buyer and Seller shall enter into the Dixie
Consignment Agreement in the form of EXHIBIT 2.5(b)(v); and
(vi) Buyer and Seller shall enter into the Supply
Agreements in the form of EXHIBIT 2.5(b)(vi)-1 AND 2.5(b)(vi)-2.
(c) In addition to the other things required to be done
hereunder, at the Closing, Seller shall deliver, or cause to be delivered, at
Seller's sole cost and expense except when otherwise expressly provided, to
Buyer the following:
(i) a duly executed Bill of Sale in
substantially the form of EXHIBIT 2.5(c)(i);
(ii) a Materials Certification executed by
Seller regarding the Purchased Inventory in substantially the form of
EXHIBIT 2.5(c)(ii), which executed Materials Certification shall be set
forth on each page of a schedule similar in format to Schedule
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1(a) and listing the items of the Purchased Inventory in existence as
of the Closing Date;
(iii) to the extent not previously delivered to
Buyer, the materials and information described in Section 2.10 in the form of
originals (or if originals are not avail able, then true and legible copies);
(iv) Seller's Agreement Not to Compete in the
form of EXHIBIT 2.5(c)(iv);
(v) a Memorandum of Option in the form of
EXHIBIT 2.5(c)(v), which shall be recorded in the real property records of
Clayton County, Georgia;
(vi) a Landlord's Waiver in the form of EXHIBIT
2.5(c)(vi);
(vii) a legal opinion from Squire, Sanders &
Dempsey in form and substance reasonably satisfactory to Buyer and Buyer's
counsel;
(viii) a copy of the resolutions of the board of
directors of Seller, or similar enabling document, authorizing the execution,
delivery and performance of this Agreement by Seller, and a certificate of its
secretary or assistant secretary, dated as of the Closing Date, that such
resolutions were duly adopted and are in full force and effect;
(ix) evidence or copies of any consents,
approvals, orders, qualifications, waivers or releases of liens required
pursuant to Section 8.2 or Section 8.5; and
(x) all necessary documents to transfer title to
all motor vehicles comprising a portion of the Assets.
(d) In addition to the payment of the Initial Purchase
Price and assumption of the Assumed Liabilities and the other things required to
be done hereunder, at the Closing, Buyer shall deliver, or cause to be
delivered, to Seller the following:
(i) a legal opinion from Boyar, Simon &
Miller, P.C., counsel to Buyer, in form and substance reasonably satisfactory to
Seller and Seller's counsel;
(ii) a copy of the resolutions of the board of
directors of Buyer, or similar enabling document, authorizing the execution,
delivery and performance of this Agreement by Buyer, and a certificate of the
secretary or assistant secretary of Buyer, dated as of the Closing Date, that
such resolutions were duly adopted and are in full force and effect; and
(iii) if not previously delivered to Seller, all
other certificates, documents, instruments and writings required pursuant hereto
to be delivered by or on behalf of Buyer at or before the Closing.
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(e) At the Closing, Seller shall deliver all tangible
items included within the Assets, as reflected in the Preliminary Closing Date
Assets Statement, and subject in all events to the provisions of Section 2.7.
Seller shall deliver possession of the Assets to Buyer at the Dixie Facilities
on the Closing Date.
SECTION 2.6. TIME AND PLACE OF CLOSING. The Closing shall take place on
the Closing Date beginning at 10:00 A.M., Cleveland, Ohio time, at the offices
of Squire, Sanders & Dempsey in Cleveland, Ohio (or such other time and place as
may be agreed to by the parties).
SECTION 2.7. CLOSING PROCEDURES.
(a) PRELIMINARY CLOSING DATE ASSETS STATEMENT. Not less
than two (2) business days prior to the Closing Date, Seller shall prepare and
deliver to Buyer a preliminary statement of the Business Inventory (including
inventory on order) as of June 30, 1996 and the Receivables of the Business as
of June 30, 1996, which shall be referred to as the "PRELIMINARY CLOSING DATE
ASSETS STATEMENT". The Preliminary Closing Date Assets Statement shall be
prepared by Seller from the books and records of Seller.
(b) INITIAL INVENTORY ADJUSTMENT. If the aggregate
Historical Acquisition Cost of the Business Inventory as shown on the
Preliminary Closing Date Assets Statement (the "INITIAL HISTORICAL ACQUISITION
COST") shall be less than $11,000,000, then the Initial Purchase Price shall be
decreased in an amount equal to the amount by which the Initial Historical
Acquisition Cost of the Business Inventory is less than $11,000,000 (such
amount, the "INITIAL INVENTORY DECREASE AMOUNT"). Any adjustment to the Initial
Purchase Price made pursuant to this paragraph shall be referred to as the
"INITIAL INVENTORY ADJUSTMENT."
(c) INITIAL RECEIVABLES ADJUSTMENT. If the aggregate
amount of all Receivables that are less than ninety (90) days past due as of
June 30, 1996 (the "CURRENT RECEIVABLES") as shown on the Preliminary Closing
Date Assets Statement (the "INITIAL CURRENT RECEIVABLES") shall be less than
$2,500,000, then the Initial Purchase Price shall be decreased in an amount
equal to the amount by which the Initial Current Receivables are less than
$2,500,000 (such amount, the "INITIAL RECEIVABLES DECREASE AMOUNT"). If the
aggregate amount of all Initial Current Receivables shall be more than
$2,500,000, then the Initial Purchase Price shall be increased in an amount
equal to the amount by which the Initial Current Receivables are more than
$2,500,000 (such amount, the "INITIAL RECEIVABLES INCREASE AMOUNT"). Any
adjustment to the Initial Purchase Price made pursuant to this paragraph shall
be referred to as the "INITIAL RECEIVABLES ADJUSTMENT."
(d) ADDITIONAL PURCHASE PRICE ADJUSTMENTS. The Initial
Purchase Price shall be decreased in an aggregate amount equal to (i) the amount
of the liabilities and obligations as reflected on the Seller's books and
records as of the Closing Date which would then be owed for accrued but unpaid
vacation time of the Hired Employees to the extent such liabilities and
obligations are assumed by Buyer pursuant to Section 6.4(a), and (ii) the amount
by which the Stay Put Obligations to the Hired Employees exceed $110,000 in the
aggregate, as described in Section
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6.4(a).
(e) PHYSICAL INVENTORY.
(i) On July 19, 1996, Seller and Buyer jointly
completed a physical inventory (the "PHYSICAL INVENTORY") of all of the Business
Inventory, and the results of such Physical Inventory shall be reflected on the
Preliminary Closing Date Assets Statement. The Physical Inventory was undertaken
jointly by Buyer and Seller. Each of Seller and Buyer shall bear their own costs
and expenses associated with the Physical Inventory. The Physical Inventory
verified the physical existence of the Business Inventory (other than the
inventory on order) reflected on the Preliminary Closing Date Assets Statement.
If the Physical Inventory reflects that an item of Business Inventory is missing
(i.e., not located at the Dixie Facilities, not on order, or not within the
possession or control of Seller) (collectively, the "MISSING INVENTORY"), such
Missing Inventory will not be included within the Business Inventory for
purposes of calculating the Purchase Price.
(ii) Buyer has completed its selection of the
Business Inventory that will constitute the Purchased Inventory, and a list of
such Purchased Inventory is attached hereto as SCHEDULE 2.1(b).
(iii) Seller acknowledges and agrees that if,
after the Closing, Seller has in its possession or control any of the Missing
Inventory, then if the Missing Inventory is located at the Dixie Facilities,
Seller shall deliver such Missing Inventory to Buyer to be included as part of
the Consigned Inventory under the Dixie Consignment Agreement.
(f) VERIFICATION OF BUSINESS INVENTORY. Without
limiting the provisions of Section 2.7(d), until the Closing Date, Buyer or
Buyer's representative shall also have the right to verify the stated condition
of, and the Records for, the Business Inventory. Seller shall provide Buyer and
Buyer's representative reasonable access to any and all records and storage
facilities necessary for Buyer and Buyer's representative to verify the stated
condition of, and the Records for, each item of the Business Inventory;
PROVIDED, HOWEVER, that such verification is conducted during normal business
hours and does not unreasonably disrupt Seller's normal business operations, and
PROVIDED FURTHER, HOWEVER, that Seller shall have the right to observe such
verification process by Buyer when and to the extent conducted at the Seller's
Facilities.
SECTION 2.8. POST-CLOSING PROCEDURES.
(a) FINAL ADJUSTMENT. As soon as practicable following the
Closing Date, but in no event later than forty-five (45) days thereafter, Seller
shall, at Seller's cost and expense, prepare from its books and records and
deliver to Buyer a statement of the Business Inventory and the Receivables as of
the Closing Date (but taking into account any returns of Business Inventory or
adjustments to the Receivables occurring after the Closing Date to the extent
affecting the Business Inventory and the Receivables existing as of the Closing
Date), which shall be referred
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to as the "CLOSING DATE ASSETS STATEMENT". The Closing Date Assets Statement
shall be prepared by Seller from its books and records maintained as provided in
Section 3.2 and otherwise consistent with the provisions of Section 2.7. Buyer
shall provide to Seller access to such of its books and records as may
reasonably be required for the preparation of the Closing Date Assets Statement.
(b) RESOLUTION OF AUDIT DISPUTES. Buyer shall have
forty-five (45) days to review the proposed Closing Date Assets Statement and
the related report prepared by Seller and to notify Seller of any disputes Buyer
may have relating to the proposed Closing Date Assets Statement. Buyer's notice
to Seller of any dispute shall specify in reasonable detail all points of
disagreement and demand that a review of such dispute (a "REVIEW") be conducted.
In such event, each of the parties will appoint a designated executive whose
task it will be to meet for the purpose of endeavoring to resolve such dispute.
The designated executives shall meet as often as the parties reasonably deem
necessary in order to gather and furnish to the other all information with
respect to the matter in issue which the parties believe to be appropriate and
germane in connection with its resolution. Such executives will discuss the
problem and/or negotiate in good faith in an effort to resolve the dispute
without the necessity of any formal proceeding relating thereto. During the
course of such negotiation, all reasonable requests made by one party to the
other for information will be honored in order that each of the parties may be
fully advised of the premises. The specific format for such discussions will be
left to the discretion of the designated executives but may include the
preparation of agreed upon statements of fact or written statements of position
to the other party. No action for the resolution of such dispute outside of
these procedures shall be taken by either party until the earlier of (i) 45 days
after Seller's receipt of Buyer's notice of a Review, or (ii) when one of the
designated executives concludes in good faith that amicable resolution through
continued negotiation of the matter in issue does not appear likely and so
notifies the other designated executive in writing. If Seller and Buyer are
unable to resolve such disputes by direct negotiations, then such disputes shall
be resolved in accordance with Section 11.13.
SECTION 2.9. FINAL PURCHASE PRICE ADJUSTMENTS.
(a) FINAL INVENTORY ADJUSTMENT. If (i) the Historical
Acquisition Cost of the Business Inventory as shown on the Closing Date Assets
Statement (the "FINAL HISTORICAL ACQUISITION COST") shall exceed the Initial
Historical Acquisition Cost and (ii) at the Closing, the Initial Purchase Price
was subject to an Initial Inventory Adjustment in accordance with the provisions
of Section 2.7(b), then Buyer shall pay to Seller an amount in cash equal to the
lesser of (A) the amount by which the Final Historical Acquisition Cost exceeds
the Initial Historical Acquisition Cost or (B) the Initial Inventory Decrease
Amount (such amount, the "FINAL INVENTORY INCREASE AMOUNT"). If the Final
Historical Acquisition Cost of the Business Inventory shall be less than
$11,000,000, and if the Final Historical Acquisition Cost shall be less than the
Initial Historical Acquisition Cost, then Seller shall pay to Buyer an amount in
cash equal to the amount by which the Final Inventory Historical Acquisition
Cost is less than the Initial Historical Acquisition Cost (such amount, the
"FINAL INVENTORY DECREASE AMOUNT"). Any payment made pursuant to this paragraph
shall be referred to as the "FINAL INVENTORY ADJUSTMENT."
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(b) FINAL RECEIVABLES ADJUSTMENT. If the Current
Receivables as shown on the Closing Date Assets Statement (the "FINAL CURRENT
RECEIVABLES ") shall exceed the Initial Current Receivables, then Buyer shall
pay to Seller an amount in cash equal to the amount by which the Final Current
Receivables exceeds the Initial Current Receivables (such amount, the "FINAL
RECEIVABLES INCREASE AMOUNT"). If the Final Current Receivables shall be less
than the Initial Current Receivables, then Seller shall pay to Buyer an amount
in cash equal to the amount by which the Final Current Receivables are less than
the Initial Current Receivables (such amount, the "FINAL RECEIVABLES DECREASE
AMOUNT"). In calculating the Final Current Receivables, Buyer shall be entitled
to a dollar-for-dollar credit for any of the Business Inventory sold by Seller
prior to the Closing Date, but which is returned by the third party purchaser
thereof after the Closing Date; provided, however, that receivables relating to
such Business Inventory were not more than 90 days past due pursuant to Section
3.3(d). Any payment made pursuant to this paragraph shall be referred to as the
"FINAL RECEIVABLES ADJUSTMENT."
(c) PAYMENT OF FINAL PURCHASE PRICE ADJUSTMENT. On the
Closing Audit Payment Date, the Final Inventory Adjustment, if any, and the
Final Receivables Adjustment, if any, shall be aggregated and netted together to
determine the final adjustment to the Purchase Price (the "FINAL PURCHASE PRICE
ADJUSTMENT"). If the Final Purchase Price Adjustment evidences that Buyer is
obligated to pay a net sum to Seller, then Buyer shall pay to Seller the amount
of the Final Purchase Price Adjustment, and if the Final Purchase Price
Adjustment evidences that Seller is obligated to pay a net sum to Buyer, then
Seller shall pay to Buyer the amount of the Final Purchase Price Adjustment. In
any case, the Final Purchase Price Adjustment shall be paid on the Closing Audit
Payment Date by wire transfer of immediately available funds to the account or
accounts designated by the party entitled to receive such funds. The Final
Purchase Price Adjustment shall bear interest, at the rate of nine percent (9%)
per annum, from and including the Closing Date, to but excluding the date of
payment. In the event any action or proceeding is brought to enforce the payment
of the Final Purchase Price Adjustment, the prevailing party in such action
shall be entitled to recover all reasonable attorney's fees and other costs
incurred in connection with such action.
(d) For purposes of the payment required to be made
pursuant to Section 2.9(c), "CLOSING AUDIT PAYMENT DATE" shall mean the date
which is ten (10) business days after the earliest to occur of (i) the date that
Buyer and Seller agree on a resolution of all disputes concerning the proposed
Closing Date Assets Statement, (ii) forty-five (45) days after Buyer receives
the proposed Closing Date Assets Statement together with Seller's report
thereon, if Seller shall not have received notice from Buyer on or prior to such
date demanding a Review of such proposed Closing Date Assets Statement, (iii)
the date on which Buyer and Seller shall resolve all disputes with respect to
the Closing Date Assets Statement, or (iv) the date on which all points of
disagreement with respect to the Closing Date Assets Statement shall be resolved
in accordance with Section 11.13, as the case may be.
SECTION 2.10. RECORDS. Seller will, at Seller's sole cost and expense,
deliver to Buyer at the Dixie Facilities, on the Closing Date, the following
records relating to the Purchased Inventory but only in the form such records
are already in existence and in the
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possession or control of Seller or a third party for the sole benefit of Seller
as of the Closing Date (PROVIDED, that Seller shall have no liability or
obligation to Buyer if such third party does not deliver such documentation to
Buyer); PROVIDED, HOWEVER, that nothing contained in this Section 2.10 shall be
construed to require Seller to create any new or additional records or modify in
any way any existing records (the "RECORDS"):
(a) All computer data, in any and all media in which
maintained by Seller, including, without limitation, inventory details, historic
sales and quote activity, purchasing records, original supplier invoices,
warranty records if applicable, computer data, and hard copies of Inventory
Activity Reports, in whatever medium currently stored;
(b) All illustrated parts catalogs of aircraft and engine
types covered by the Purchased Inventory, to the extent in Seller's possession;
(c) All historical, engineering, technical, operational
and maintenance files and data related to the Purchased Inventory, including,
without limitation, purchase orders, packing slips, material certifications,
vendor tags or other tags indicating the condition of the Purchased Inventory
and historical records for all parts, so as to ensure traceability of each item
of Purchased Inventory to the original manufacturer thereof to the Buyer's
reasonable satisfaction.
SECTION 2.11. COLLECTION OF RECEIVABLES.
(a) With respect to the Receivables, Buyer shall retain
the first net proceeds collected by Buyer or Seller with respect to the
Receivables up to an amount equal to the Final Current Receivables. Any net
proceeds from collections of Receivables by Buyer or Seller during the first six
(6) months after the Closing Date in excess of an amount equal to the Final
Current Receivables (the "EXCESS RECEIVABLES COLLECTIONS"), shall be shared
ninety-five percent (95%) by Seller and five percent (5%) by Buyer. In this
regard, Buyer shall remit and deliver to Seller an amount equal to ninety-five
percent (95%) of the Excess Receivables Collections.
(b) Buyer and Seller recognize that Seller may receive
payments on the Receivables being sold by Seller to Buyer under this Agreement.
Any such payments received by Seller with respect to the Receivables shall be
held by Seller as agent for Buyer, and such payments received by Seller shall at
all times constitute the sole and exclusive property of Buyer. Seller shall turn
over to Buyer on a daily basis 100% of any and all proceeds collected by Seller
with respect to the Receivables, whether such proceeds are received by Seller
before or after the Closing. Such proceeds shall be delivered by Seller to Buyer
by wire transfer to an account designated by Buyer. Seller further acknowledges
and agrees that the agreements of Seller contained in this Section 2.11(b) shall
be absolute and unconditional obligations of Seller and shall not be subject to
the thresholds, deductibles and limitations set forth in Article X of this
Agreement.
(c) Buyer shall pay any sums due and owing to Seller
pursuant to this Section 2.11 on a monthly basis, within fifteen (15) days after
the end of any calendar month in which
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Buyer collects any Excess Receivables Collections. Buyer shall use its
reasonable efforts to collect all Receivables. Seller acknowledges that Buyer
shall have the right to utilize the services of a third party collection agent
to collect the Receivables, and that the sharing of collections as between
Seller and Buyer on a 95/5 basis shall be after taking into account any
collection costs paid to such third party collection agent. Notwithstanding the
foregoing, Buyer shall retain in full the proceeds of collections of all
Receivables collected by Buyer at any time after the first nine (9) months after
the Closing Date. Payments received on the Receivables shall be applied to the
invoices designated on the payments by the accounts debtors, but if no such
designation is made, then payments shall be applied first to the oldest
outstanding invoices. Buyer acknowledges and agrees that the agreements of Buyer
contained in this Section 2.11 shall be absolute and unconditional obligations
of Buyer and shall not be subject to the thresholds, deductibles and limitations
set forth in Article X of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
SECTION 3.1. INCORPORATION; AUTHORIZATION; ETC.
(a) Seller is duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation. Seller
(i) has all requisite corporate power to own, lease and otherwise operate its
properties and assets and to carry on its business as and where it is now being
conducted, and (ii) is in good standing and is duly qualified to transact
business in each domestic jurisdiction in which the nature of property owned or
leased by it or the conduct of its business requires it to be so qualified,
except where the failure to be in good standing or to be duly qualified to
transact business, would not, individually or in the aggregate, have a material
adverse effect on the Assets or financial condition of the Business taken as a
whole (the "BUSINESS CONDITION").
(b) Seller has full corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby.
(c) The execution and delivery of this Agreement, the
performance of Seller's obligations hereunder and the consummation of the
transactions contemplated hereby by Seller have been duly and validly authorized
by all necessary corporate proceedings on the part of Seller.
(d) The execution, delivery and performance by Seller of
this Agreement will not (i) violate any provision of Seller's certificate of
incorporation or by-laws, (ii) violate any provision of, or be an event that is
(or with the passage of time will result in) a violation of, or result in the
acceleration of or entitle any party to accelerate (whether after the giving of
notice or lapse of time or both) any material obligation under, or result in the
imposition of any lien upon or the creation of a security interest in any of the
Assets pursuant to, any mortgage, lien, lease,
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agreement, instrument, order, arbitration award, judgment, injunction, decree,
contractual obligation, license, commitment or other arrangement to which Seller
is a party or by which Seller or the Assets are bound, or (iii) except as
disclosed on SCHEDULE 3.7, violate or conflict with any material statute, rule
or regulation applicable to Seller, the Assets or the Business or any of its
properties or assets or any other material restriction of any kind or character
to which Seller or the Assets are subject.
(e) This Agreement has been duly executed and delivered
by Seller, and, assuming the due execution and delivery of this Agreement by
Buyer, this Agreement constitutes the legal, valid and binding obligation of
Seller, enforceable against Seller in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting the rights and remedies of creditors generally and to
general principles of equity (regardless of whether in equity or at law).
(f) Upon consummation of the Asset Purchase at the
Closing, Seller will deliver to Buyer good and indefeasible title to the Assets
owned by Seller, free and clear of any liens, claims, charges, security
interests, options, claims of offset or other legal or equitable encumbrances
(including without limitation the Bank Liens), except for Permitted Liens.
SECTION 3.2. FINANCIAL INFORMATION. Attached as SCHEDULE 3.2 is a
summary of the unaudited balance sheets of Seller and profit and loss statements
relating to the Business for the last three (3) fiscal years and the current
fiscal year to date, which fairly and accurately reflect the results of such
operations during such period. To Seller's knowledge, the data contained in such
summary is true and accurate in all material respects and was prepared utilizing
the books of account and records of Seller, which books of account and records,
taken as a whole, have been maintained in all material respects in accordance
with the then applicable United States generally accepted accounting principles
consistently applied by Seller, except as noted on SCHEDULE 3.2 attached hereto.
SECTION 3.3. PROPERTIES.
(a) Except as disclosed on SCHEDULE 3.3(a) attached
hereto and except for properties disposed of since May 31, 1996, in the ordinary
course of business, and subject to any Bank Liens (which Bank Liens with respect
to the Assets will be released at the Closing), (i) Seller has good,
indefeasible and marketable title to, or holds by valid and existing lease or
license, free and clear of all mortgages, pledges, liens, encumbrances, security
interests or claims of offset, all of the Assets, (ii) Seller has not conveyed
to any Person any rights or interests in any of the Assets, (iii) no amount is
owing under any lease agreement included in or related to the Assets or the
Business with respect to the period through the Closing Date, (iv) all
mortgages, pledges, liens, encumbrances, security interests upon or affecting
the Assets or the Business shall have been released prior to the Closing, except
for the Permitted Liens and except in any of the foregoing cases for such
imperfections of title, mortgages, pledges, liens, encumbrances or security
interests as (x) are set forth on SCHEDULE 3.3(a), (y) are reflected or reserved
against in the Assets Statement, or (z) arise out of Taxes or general or special
assessments not in default and payable
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without penalty or interest.
(b) To Seller's knowledge, SCHEDULE 1(a) contains a true,
accurate and complete listing of the quantity and location of the Business
Inventory as of July 19, 1996.
(c) All of the Assets (other than the accounts
receivable and notes receivable and other intangibles) are located at the Dixie
Facilities.
(d) SCHEDULE 2.1(j) sets forth a true, correct and
complete list of all accounts receivable and notes receivable relating to the
Business as of June 30, 1996 included within the Assets. SCHEDULE 2.1(j)-1 sets
forth a true, correct and complete aging of all accounts receivable and notes
receivable relating to the Business as of June 28, 1996 included within the
Assets but that are, as of such date, more than ninety (90) days past due.
Except as set forth on SCHEDULE 3.3(d) attached hereto, Seller has good and
marketable title to each of the accounts receivable and notes receivable listed
on SCHEDULE 2.1(j), free and clear of any liens, claims, charges, security
interests, options, claims of offset or other legal or equitable encumbrances.
(e) Taken as a whole, the facilities, structures and
equipment owned or leased by Seller and comprising a portion of the Assets or
utilized by Seller in the conduct of the Business are in good operating
condition and repair, ordinary wear and tear excepted.
SECTION 3.4. ABSENCE OF CERTAIN CHANGES; SOLVENCY.
(a) Except as disclosed on SCHEDULE 3.4(a) attached
hereto or as otherwise specifically contemplated by the terms and provisions of
this Agreement, since May 31, 1996: (i) there has been no material adverse
change in the consolidated net worth of the Business, and (ii) to Seller's
knowledge, no event has occurred and no condition exists unique to Seller which,
individually or in the aggregate, would have a material adverse effect on this
Agreement, the Assets, the Business, or the transactions contemplated by this
Agreement.
(b) As of the Effective Date, (i) the fair value of
Seller's assets is in excess of the total amount of its liabilities (including,
without limitation, contingent liabilities), (ii) the present fair salable value
of Seller's assets is greater than its probable liability on its existing debts
as such debts become absolute and mature; (iii) Seller is able and expects to be
able to pay its debts as they mature; and (iv) Seller has capital sufficient to
carry on its business as currently being conducted.
SECTION 3.5. LITIGATION; ORDERS. Except as disclosed on SCHEDULE 3.5
attached hereto, as of the Effective Date, to Seller's knowledge, there are no
lawsuits, actions, administrative or arbitration or other proceedings or
governmental investigations pending or threatened by or against Seller (to the
extent reasonably expected to affect the Assets taken as a whole or impact or
affect the ability of Seller to consummate the Asset Purchase), the Assets taken
as a whole, or the Business. Except as disclosed on SCHEDULE 3.5, as of the
Effective Date, to Seller's knowledge, there are no judgments or outstanding
orders, injunctions, decrees,
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stipulations or awards (whether rendered by a court or administrative agency, or
by arbitration) against Seller (to the extent reasonably expected to affect the
Assets taken as a whole or impact or affect the ability of Seller to consummate
the Asset Purchase), the Assets taken as a whole, or the Business.
SECTION 3.6. [Intentionally Left Blank]
SECTION 3.7. LICENSES, APPROVALS, OTHER AUTHORIZATIONS, CONSENTS,
REPORTS, ETC. The Assets include all of the agreements, materials, and real and
personal property interests and rights generally necessary to operate the
Business as it was being conducted by Seller prior to the Closing. SCHEDULE 3.7
attached hereto includes a list of all material licenses, permits, franchises
and other authorizations of any Government Authority that are necessary for the
operation and maintenance of the Business by Seller prior to the Closing (the
"LICENSES"), true, correct and complete copies of which have been delivered by
Seller to Buyer or otherwise been made available by Seller for Buyer. Except as
disclosed on SCHEDULE 3.7, all such Licenses are in full force and effect. As of
the Effective Date, except as disclosed on SCHEDULE 3.7, to Seller's knowledge,
no proceeding is pending or threatened seeking the revocation or limitation of
any such license, permit, franchise or other authorization.
SECTION 3.8. LABOR MATTERS. As of the Effective Date, there are no
collective bargaining agreements with labor unions or associations representing
employees of the Business. As of the Effective Date, to Seller's knowledge, the
Business is not involved in any labor dispute (except day-to-day disputes not
material to the condition or conduct of the Business), arbitration, lawsuit or
administrative proceeding relating to labor matters involving the employees of
the Business, other than the workers' compensation claims set forth on SCHEDULE
3.8 attached hereto and the matters described on SCHEDULE 3.5 attached hereto.
SECTION 3.9. COMPLIANCE WITH LAWS. Except as indicated on SCHEDULE 3.9
attached hereto, the conduct of the business of the Business substantially
complies in all respects with all material statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable thereto (including,
without limitation, the Foreign Corrupt Practices Act), and Seller has obtained
all material approvals, authorizations, consents, licenses, franchises and other
permits the absence of which would have a material adverse effect upon the
Business Condition or Seller's ability to enter into this Agreement or
consummate the transactions contemplated hereby. The parties agree that the
representation contained in the preceding sentence does not relate to or cover
environmental matters, and that the Seller makes no representation or warranty
with respect to environmental matters, except as specifically set forth in
Section 3.12.
SECTION 3.10. INSURANCE. SCHEDULE 3.10 attached hereto lists all
insurance policies owned or held by Seller on the Effective Date, covering the
Business. As of the Effective Date, all such policies are in full force and
effect, all premiums with respect thereto covering all periods up to and
including the Effective Date have been paid to the extent due, and no notice of
cancellation or termination has been received with respect to any such policy.
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SECTION 3.11. CONTRACTS AND AGREEMENTS. Except as otherwise disclosed
on SCHEDULE 3.11 attached hereto or SCHEDULE 6.1(a) attached hereto, as of the
Effective Date, Seller is not a party to any (i) employment or consulting
agreement relating to the Business, (ii) distribution agreements, distributor or
manufacturer's representative contract relating to the Business, (iii) lease of
real or personal property relating to the Business, whether as lessor or lessee,
(iv) consignment of inventory relating to the Business, whether as consignor or
consignee, (v) joint venture or partnership agreement relating to the Business,
(vi) technology license agreement relating to the Business, (vii) agreement or
commitment for capital expenditure relating to the Business, (viii) agreement
continuing over a period of more than one (1) year from its date relating to the
Business requiring future payment or payments in excess of $10,000 per year, or
(ix) other contract, agreement or arrangement relating to the Business requiring
future payment or payments in excess of $10,000 per year. Except as set forth on
SCHEDULE 3.11, there are no written contracts or agreements between divisions or
Affiliates of Seller related to the sale of Business Inventory that directly
benefit or directly derive benefit from the Business. With respect to all
contracts listed on SCHEDULE 3.11, except as disclosed on said Schedule, to
Seller's knowledge, such contracts are legal, valid and binding and in full
force and effect in accordance with their terms, and Seller is not, as of the
Effective Date, in material breach thereof or material default thereunder and
there does not exist under any provision thereof, as of the Effective Date, any
event that, with the giving of notice or the lapse of time or both, would
constitute such a breach or default, except for such failures and such breaches,
defaults and events as to which requisite waivers or consents have been or are
obtained or which would not, individually or in the aggregate, have a material
adverse effect on the Business Condition. To Seller's knowledge, no dispute
involving an amount in excess of $5,000.00 exists with respect to any of the
contracts listed on SCHEDULE 3.11, except as described on SCHEDULE 3.11.
SCHEDULE 3.11 lists, as of the Effective Date, all indebtedness (of the type
required to be disclosed on a balance sheet prepared in accordance with
generally accepted accounting principles) owed by Seller with respect to the
Business, including without limitation, all notes, mortgages, indentures and
other obligations and agreements and other instruments and other liabilities and
obligations, whether accrued, absolute, contingent or otherwise, for or relating
to any lending or borrowing (including assumed debt) effected by Seller or to
which any of the Assets or the properties of the Business are subject.
SECTION 3.12. ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. For the purposes of this Agreement,
unless the context otherwise specifies or requires, the following terms shall
have the meaning herein specified:
(i) "HAZARDOUS SUBSTANCES LAWS" shall mean all
present laws, ordinances, rules, regulations and standards of any Government
Authority relating to the use, analysis, production, storage, treatment, sale,
disposal or transportation of any Hazardous Materials, including, without
limitation, the Resource Conservation and Recovery Act of 1976 (42 U.S.C. ss.
6901 et seq.) ("RCRA"), the Comprehensive Environmental Response Compensation
and Liability Act of 1980 (42 U.S.C. ss. 9601 et seq.) ("CERCLA"), the Federal
Water Pollution Control Act (33 U.S.C. ss. 1251), the Federal Insecticide,
Fungicide and Rodenticide Act (7 U.S.C. ss. 136), and the Clean Air
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Act, all as may be amended from time to time.
(ii) "HAZARDOUS MATERIALS" shall mean (A) any
"hazardous waste" as defined by RCRA, and regulations promulgated thereunder;
(B) any "hazardous substance" as defined by CERCLA, and regulations promulgated
thereunder; (C) asbestos; (D) polychlorinated biphenyls; (E) any substance the
presence of which on the Dixie Facilities is prohibited by any Hazardous
Substances Laws; and (F) any other substance which by any Hazardous Substances
Laws requires special handling or notification of any federal, state or local
governmental entity in its collection, storage, treatment or disposal.
(b) HAZARDOUS MATERIALS WARRANTIES. Seller hereby
represents and warrants that, except as set forth on SCHEDULE 3.12(b) attached
hereto:
(i) Seller and the Business are in substantial
compliance with all Hazardous Substance Laws;
(ii) To Seller's knowledge, there are no
conditions existing on or at the Dixie Facilities that can reasonably be
expected to give rise to any cleanup obligations under any Hazardous Substances
Laws in effect on the Closing Date;
(iii) Except for Hazardous Materials contained
in products used by Seller for ordinary maintenance and office purposes, or sold
by Seller in manufacturer-sealed containers, Seller does not use Hazardous
Materials in connection with the Business;
(iv) Seller has not received any written
notification of any violation of Hazardous Substances Laws, and the Seller's
knowledge, no investigation, administrative order, consent order and agreement,
litigation or settlement with respect to Hazardous Materials or Hazardous
Materials contamination is in existence or proposed or threatened with respect
to the Business or the Dixie Facilities;
(v) To Seller's knowledge, all environmental
permits required for the operation of the Business conducted at the Dixie
Facilities are listed on SCHEDULE 3.12(b)(v) attached hereto, and there are no
pending or renewal applications for issuance of any additional environmental
permits for the operations conducted at the Dixie Facilities.
The parties agree that no representation or warranty contained in this
Agreement, other than those contained in this Section 3.12, relates to or shall
be deemed to relate to any environmental matters.
SECTION 3.13. NO AGREEMENTS TO SELL ASSETS. Except as set forth on
SCHEDULE 3.13 attached hereto and except for the transactions contemplated by
this Agreement, and, except for sales of the Business Inventory in the ordinary
course of business prior to the Closing Date, Seller has no legal obligation,
absolute or contingent, to any Person to sell the
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Assets or sell the Business, or to effect any merger, consolidation or other
reorganization of Seller or to enter into any agreement with respect thereto.
SECTION 3.14. BROKERS, FINDERS, ETC. Seller has not employed, and is
not subject to the valid claim of, any broker, finder, consultant or other
intermediary in connection with the transactions contemplated hereby who would
have a valid claim for a fee or commission from Buyer in connection with such
transactions, except for The TransAction Group. Seller shall be responsible for
all fees payable to The TransAction Group in connection with the transaction
described in this Agreement.
SECTION 3.15. MAINTENANCE OF THE ASSETS. From May 31, 1996, through the
Closing Date, Seller has maintained the Assets in a diligent manner and, in
particular, Seller has used its reasonable best efforts:
(a) Not to cancel or permit any insurance relating to the
Assets or the Business to lapse or terminate (unless renewed or replaced by like
coverage);
(b) Not to knowingly violate or fail to comply in any
material respect with any laws applicable to the Assets or the Business; and
(c) To keep and maintain the Assets in a good
condition, reasonable wear and tear excepted, and to continue to store the
Assets in accordance with prudent industry practices.
SECTION 3.16. PRESERVATION OF BUSINESS. Subject to the terms and
conditions of this Agreement, from May 31, 1996, through the Closing Date,
Seller has and has caused the Business to be run in the ordinary course in
accordance with Seller's past practices.
SECTION 3.17. MAINTENANCE OF THE RECORDS. Except as may have been
necessary to effect sales of the Business Inventory by Seller in the ordinary
course of business, Seller (i) has maintained the Records where presently
located in the Dixie Facilities, (ii) has not removed any of the Records, (iii)
has continued to input data into the Seller's computer related to the Assets,
and (iv) has not sold, transferred or otherwise assigned any right, title or
interest in or to the Records to any third party.
SECTION 3.18. SCHEDULES AND EXHIBITS. Disclosure of any fact or item by
Seller in any Schedule or Exhibit hereto referenced by a particular paragraph or
section in this Agreement shall, should the existence of the fact or item or its
contents be relevant to any other paragraph or section, be deemed to be
disclosed with respect to that other paragraph or section whether or not an
explicit cross-reference appears.
SECTION 3.19. [Intentionally Left Blank]
SECTION 3.20. NO IMPLIED REPRESENTATION. NOTWITHSTANDING ANYTHING
CONTAINED IN THIS ARTICLE OR ANY OTHER PROVISION OF THIS
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AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT SELLER IS NOT
MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, BEYOND
THOSE EXPRESSLY GIVEN IN THIS AGREEMENT, THE SCHEDULES AND THE DOCUMENTS,
INSTRUMENTS AND CERTIFICATES TO BE DELIVERED TO BUYER AT THE CLOSING, INCLUDING,
BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION,
MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY OF
THE ASSETS AND IT IS UNDERSTOOD THAT BUYER TAKES ALL OF SUCH PROPERTIES AND
ASSETS ON AN "AS IS" AND "WHERE IS" BASIS. It is understood that
any cost estimates, projections or other predictions contained or referred to in
the Schedules hereto and any cost estimates, projections or predictions that
have been or shall hereafter be provided to Buyer or any of its Affiliates,
agents or representatives are not and shall not be deemed to be representations
or warranties of Seller. NOTWITHSTANDING ANY PROVISION OF THIS SECTION 3.20 TO
THE CONTRARY, BUT SUBJECT IN ALL EVENTS TO THE TERMS OF THIS AGREEMENT WITH
RESPECT TO SURVIVAL OF THE REPRESENTATIONS, WARRANTIES AND AGREEMENTS THAT ARE
CONTAINED HEREIN, SELLER ACKNOWLEDGES THAT (A) BUYER IS RELYING ON THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE III AND IN ARTICLE VI
IN DECIDING TO ENTER INTO THIS AGREEMENT, AND (B) BUYER'S DECISION TO CONSUMMATE
THE TRANSACTIONS MADE THE SUBJECT OF THIS AGREEMENT SHALL NOT BE CONSTRUED AS,
OR BE DEEMED TO BE, A WAIVER OF BUYER'S RELIANCE ON THE REPRESENTATIONS AND
WARRANTIES CONTAINED IN THIS ARTICLE III AND IN ARTICLE VI IN ELECTING TO
CONSUMMATE THE TRANSACTIONS MADE THE SUBJECT OF THIS AGREEMENT. BUYER REPRESENTS
AND WARRANTS THAT THE ASSETS DO NOT CONSTITUTE "CONSUMER PRODUCTS" WITHIN THE
MEANING OF THE MAGNUSON-MOSS WARRANTY ACT AND THAT IF ANY WARRANTY IS
NEVERTHELESS IMPOSED UNDER THAT ACT IT SHALL BE LIMITED TO A PERIOD OF THIRTY
(30) DAYS.
SECTION 3.21. CONSTRUCTION OF CERTAIN PROVISIONS. It is understood and
agreed that neither the specification of any dollar amount in the
representations and warranties contained in this Agreement nor the inclusion of
any specific item in the Schedules or Exhibits is intended to imply that such
amounts or higher or lower amounts, or the items so included or other items, are
or are not material, and neither party shall use the fact of the setting of such
amounts or the fact of the inclusion of any such item in the Schedules or
Exhibits in any dispute or controversy between the parties as to whether any
obligation, item or matter is or is not material for purposes of this Agreement.
SECTION 3.22. DUE DILIGENCE EXCEPTION. Seller's representations and
warranties are limited by, and Seller shall have no liability arising out of,
any fact(s) or circumstance(s) which became known to Buyer prior to Closing. For
purposes of this Section 3.22, a fact or circumstance shall be deemed to be
known by Buyer only upon the actual knowledge of such fact or circumstance by
either Buyer's Chief Executive Officer or Chief Financial Officer.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
SECTION 4.1. ORGANIZATION; AUTHORIZATION; ETC. Buyer is a corporation
duly organized and validly existing under the laws of its jurisdiction of
organization. Buyer has full power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
the performance of Buyer's obligations hereunder and the consummation of the
transactions contemplated hereby by Buyer have been duly and validly authorized
by all necessary corporate proceedings on the part of Buyer and no other
proceedings or actions on the part of Buyer, its board of directors or
stockholders are necessary therefor. The execution, delivery and performance by
Buyer of this Agreement will not (i) violate any provision of the certificate of
incorporation or bylaws or similar organizational instrument of Buyer, (ii)
violate any provision of, or be an event that is (or with the passage of time
will result in) a violation of, or result in the acceleration of or entitle any
party to accelerate (whether after the giving of notice or lapse of time or
both) any obligation under, or result in the imposition of any lien upon or the
creation of a security interest in any of Buyer's assets or properties pursuant
to, any mortgage, lien, lease, agreement, instrument, order, arbitration award,
judgment, injunction or decree to which Buyer is a party or by which Buyer is
bound, or (iii) violate or conflict with any statute, rule or regulation
applicable to Buyer or any of its properties or assets or any other restriction
of any kind or character to which Buyer is subject. This Agreement has been duly
executed and delivered by Buyer, and, assuming the due execution and delivery of
this Agreement by Seller, this Agreement constitutes the legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or affecting the rights and remedies of creditors
generally and to general principles of equity (regardless of whether in equity
or at law).
SECTION 4.2. BROKERS, FINDERS, ETC. Buyer has not employed, and is not
subject to the valid claim of, any broker, finder, consultant or other
intermediary in connection with the transactions contemplated hereby who would
have a valid claim for a fee or commission from Seller in connection with such
transactions.
SECTION 4.3. LICENSES, APPROVALS, OTHER AUTHORIZATIONS, CONSENTS,
REPORTS, ETC. SCHEDULE 4.3 attached hereto lists all registrations, filings,
applications, notices, consents, approvals, orders, qualifications or waivers
required to be made, filed, given or obtained by Buyer with, to or from any
Person in connection with the execution, delivery, performance and consummation
of the Asset Purchase, except for those that become applicable solely as a
result of the specific regulatory status of Seller or its Affiliates.
SECTION 4.4. SCHEDULES AND EXHIBITS. Disclosure of any fact or item by
Buyer in any Schedule or Exhibit hereto referenced by a particular paragraph or
section in this
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Agreement shall, should the existence of the fact or item or its contents be
relevant to any other paragraph or section, be deemed to be disclosed with
respect to that other paragraph or section whether or not an explicit
cross-reference appears.
SECTION 4.5 LITIGATION; ORDERS. As of the Effective Date, there are no
lawsuits, actions, administrative or arbitration or other proceedings or, to
Buyer's knowledge, governmental investigations pending or, to Buyer's knowledge,
threatened by or against Buyer (to the extent reasonably expected to affect the
Assets taken as a whole or impact or affect the ability of Buyer to consummate
the Asset Purchase). As of the Effective Date, to Buyer's knowledge, there are
no judgments or outstanding orders, injunctions, decrees, stipulations or awards
(whether rendered by a court or administrative agency, or by arbitration)
against Buyer (to the extent reasonably expected to affect the ability of Buyer
to consummate the Asset Purchase).
SECTION 4.6 SOLVENCY. As of the Effective Date, (i) The fair value of
Buyer's assets is in excess of the total amount of its liabilities (including,
without limitation, contingent liabilities), (ii) the present fair salable value
of Buyer's assets is greater than its probable liability on its existing debts
as such debts become absolute and mature; (iii) Buyer is able and expects to be
able to pay its debts as they mature; and (iv) Buyer has capital sufficient to
carry on its business as conducted and as proposed to be conducted.
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ARTICLE V
COVENANTS OF SELLER AND BUYER
SECTION 5.1. EFFORTS; OBTAINING CONSENTS; ANTITRUST LAWS.
(a) Subject to the terms and conditions herein provided,
Seller and Buyer each agree to use reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective as promptly as practicable the
transactions contemplated hereby, and to cooperate with the other in connection
with the foregoing, including using all reasonable efforts (i) to lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties hereto to consummate the transactions contemplated
hereby, (ii) to effect all necessary registrations and filings including, but
not limited to, any submissions of information requested by any Government
Authority, and (iii) to fulfill all conditions to this Agreement.
(b) Seller hereby agrees that Buyer shall have the right
to contact any third party who conducts any business with the Business for the
purpose of confirming the relative rights, liabilities and obligations between
Seller and such third party to the extent related to the Business.
SECTION 5.2. FURTHER ASSURANCES. Seller and Buyer agree that, from time
to time, whether before, at or after the Closing Date, each of them will, and
will cause their respective Affiliates to, execute and deliver such further
instruments of conveyance and transfer and take such other action as may be
reasonably necessary to carry out the purposes and intents of this Agreement.
Without limiting the generality of the preceding sentence, Buyer shall cooperate
with Seller to enable Seller to obtain and take possession of all Excluded
Assets, from and after the Closing. Furthermore, after the Closing, and for no
further consideration, Seller shall (a) use its reasonable efforts to enable
Buyer to accomplish the transfer or issuance of all authorizations of any
Government Authority and all other registrations, permits, approvals and the
like as contemplated by this Agreement and as shall be required from time to
time for Buyer to operate the Business, and (b) execute, acknowledge and deliver
such assignments, transfers, consents and other documents and instruments as
Buyer or its counsel may reasonably request, in each case, to vest in Buyer, and
protect Buyer's right, title and interest in, and enjoyment of, the Assets and
the Business intended to be conveyed, assigned, transferred and granted to Buyer
pursuant to this Agreement. If requested by Buyer, Seller further agrees to use
its reasonable best efforts to prosecute or otherwise enforce in its own name
for the benefit of Buyer any claims, rights or benefits that are transferred to
Buyer by this Agreement and that require prosecution or enforcement in any of
Seller's name. Any prosecution or enforcement of claims, rights or benefits
under this Section 5.2 shall be at Buyer's sole expense, unless the prosecution
or enforcement is made necessary by a breach of this Agreement by Seller.
Following the Closing, Seller shall refer to Buyer, as promptly as practicable,
all appropriate inquiries from customers relating to the Assets and the Business
transferred or granted at such Closing, including all inquiries regarding the
possible purchase of any Business Inventory by any customer.
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SECTION 5.3. PUBLIC ANNOUNCEMENTS. Seller and Buyer will agree with
each other before issuing, or permitting any agent or Affiliate to issue, any
press releases or otherwise making or permitting any agent or Affiliate to make,
any public statements with respect to this Agreement and the transactions
contemplated hereby. Notwithstanding the foregoing, subject to providing the
other party with an advance copy, Seller and Buyer shall be permitted to file
any required disclosures relating to the Asset Purchase as may be required by
the federal securities laws or by any securities exchange on which securities of
Seller, Buyer or any of their respective Affiliates are listed, and Seller and
Buyer shall, upon the Closing of the Asset Purchase, be permitted to issue the
press release attached hereto as EXHIBIT 5.3.
SECTION 5.4. ACCOUNTS AND NOTES PAYABLE NOTICES. Seller shall assist
Buyer and Buyer's agents and representatives in delivering notices from Seller,
in form and substance reasonably satisfactory to Seller and Buyer, and at
Buyer's sole cost and expense, to each Person to whom Seller anticipates it will
owe an account payable or note payable as of the Closing Date notifying such
Person that Seller shall remain liable for the payment of such account payable
or note payable pursuant to the terms hereof. Seller hereby covenants and agrees
that it will provide Buyer with a list of the Persons to whom such notice should
be addressed; it being understood that the failure to transmit any such notice
to any such Person shall not be deemed a breach of this Agreement.
SECTION 5.5. POST-CLOSING CONFIDENTIALITY. For a period of five (5)
years after the Closing, Seller shall not use or disclose to any Person any
trade or business secrets relating exclusively to the Business, and Seller shall
not intentionally disclose, directly or indirectly, any such information, and
shall cause such information to be kept confidential and not used in any way
detrimental to Buyer; PROVIDED, that (i) Seller may use or disclose any such
information which has been publicly disclosed (other than directly or indirectly
by Seller after the Effective Date), (ii) to the extent that Seller may become
legally compelled to disclose any of such information, Seller may disclose such
information if Seller shall have afforded Buyer the opportunity, to obtain any
appropriate protective order, or other satisfactory assurance of confidential
treatment, for the information to be so disclosed, (iii) Seller may disclose any
such information to Seller's agents and experts who agree to be bound by this
confidentiality provision, and (iv) Seller may disclose any such information as
is necessary to prosecute or defend any Claim.
SECTION 5.6 INTERIM SERVICES. Effective on the Closing Date, and for a
period of up to six (6) months thereafter, Seller shall provide transitional
computer services, consisting of computer services currently provided to the
Business ("INTERIM SERVICES") without charge and other services and extensions
of services at prices mutually agreed upon by Seller and Buyer.
SECTION 5.7 COOPERATIVE PURCHASING. Seller, for itself and on behalf of
its Affiliates, and Buyer, for itself and on behalf of its Affiliates, agree
that promptly after the Closing of the Asset Purchase, they will work, as
appropriate, in a cooperative fashion in purchasing materials from suppliers
that supply both bearings and other products sold by both
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Buyer and Seller in the ordinary course of their respective businesses,
including the Business. Such cooperation shall consist of, but not be limited
to, (i) joint purchasing agreements with suppliers, whereby volume purchasing
produces discounts and/or rebates on a periodic basis (which discounts and/or
rebates shall be shared proportionately by Seller and Buyer based on the amount
of purchases during any particular period for which the discount or rebate is
given or paid, as the case may be), and (ii) joint advertising and marketing
programs with suppliers.
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ARTICLE VI
EMPLOYEE BENEFITS
SECTION 6.1. EMPLOYEE BENEFIT PLANS. Seller hereby represents and
warrants to Buyer as follows:
(a) SCHEDULE 6.1(A) attached hereto lists all
compensation and benefit plans, contracts and arrangements (other than routine
administrative procedures or government-required programs) in effect as of the
Effective Date sponsored or maintained by Seller or its Affiliates including all
pension, profit sharing, savings and thrift, bonus, incentive or deferred
compensation, severance pay and medical and life insurance plans in which any
current or former employees of the Business or their respective dependents
(collectively, "BUSINESS EMPLOYEES") participate (collectively, "BUSINESS
EMPLOYEE BENEFIT PLANS").
(b) All Business Employee Benefit Plans which are
"employee benefit plans," as defined in Section 3(3) of ERISA, are in compliance
with and have been administered in compliance with all applicable requirements
of law, including but not limited to the Code and ERISA, and all contributions
or premiums required to be made to each such plan under the terms of such Plan,
ERISA or the Code for all periods of time prior to the Effective Date and the
Closing Date have been or will be, as the case may be, made or accrued.
(c) Except as otherwise set forth on SCHEDULE 6.1(C)
attached hereto and Section 6.3, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (i)
result in any material payment (including severance, unemployment compensation,
golden parachute or otherwise) becoming due under any Business Employee Benefit
Plan, (ii) materially increase any benefits otherwise payable under any Business
Employee Benefit Plan, or (iii) result in the acceleration of the time of
payment or vesting of any such benefits to any material extent.
SECTION 6.2. TERMINATION OF PARTICIPATION. Except as otherwise provided
in this Article VI, the active participation of all Active Employees in each
Business Employee Benefit Plan shall cease as of the Closing Date and no
additional benefits shall be accrued thereunder for such employees.
SECTION 6.3. 401(K) PLAN TRANSFER. Effective as of the Closing Date,
Seller shall take, or shall cause to be taken, all action necessary to fully
vest all Active Employees in their accrued benefits, if any, under the Seller's
401(k) Plan (the "401(K) PLAN") and to provide for allocation of contributions
accrued prior to the Closing Date with respect to the Active Employees who are
participants in the 401(k) Plan as of the Closing Date. As of the Closing Date,
Seller shall make all contributions (including employee contributions within the
control of Seller, matching contributions and other employer contributions
provided for under the 401(k) Plan) on behalf of all Active Employees to the
401(k) Plan attributable to service and compensation for such Active Employees
through the Closing Date, whether or not such
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contributions are due under the terms of the 401(k) Plan. Seller shall, to the
extent legally permissible, cause a spin-off and transfer, in compliance with
Section 414(l) of the Code, from the trust for the 401(k) Plan to a trust
established by and for a defined contribution savings plan qualified under
Sections 401(a) and 401(k) of the Code maintained or established by Buyer
("BUYER'S 401(K) PLAN") of an amount in cash equal to the aggregate account
balances, as of the date of such transfer, of the Hired Employees (as defined in
Section 6.4) who are participants under the 401(k) Plan as of such transfer
date. Any such transfer shall occur as soon as practicable after all of the
following have occurred: (a) the Closing, (b) the designation (or establishment
or amendment, if necessary) of Buyer's 401(k) Plan, (c) the receipt by Seller of
a favorable determination letter issued by the Internal Revenue Service for the
Buyer's 401(k) Plan or an opinion of counsel of Buyer reasonably satisfactory to
Seller opining that the Buyer's 401(k) Plan is a qualified plan under Sections
401(a) and 401(k) of the Code, and, if applicable, (d) the expiration of thirty
(30) days after both Buyer and Seller have filed Form 5310-A, if necessary, with
the Internal Revenue Service. From and after the date of such transfer, Buyer
shall cause Buyer's 401(k) Plan to assume and fully perform, pay and discharge
all obligations and liabilities of Seller and the 401(k) Plan to and with
respect to the Hired Employees who are participants under the 401(k) Plan as of
such transfer date. All Hired Employees shall receive credit for years of
service with Seller toward such Hired Employees' service requirements under
Buyer's 401(k) Plan.
SECTION 6.4. EMPLOYEES.
(a) At Closing, Buyer agrees to offer full-time
employment to all Persons listed on SCHEDULE 6.4(A) and any Persons which are
hired by Seller to replace such employees prior to the Closing Date
(collectively, "ACTIVE EMPLOYEES") on such terms and conditions as may be
determined by Buyer in its sole discretion; provided, however, that the base
salary of such hired persons shall be not less than their base salaries as of
the Closing Date, and provided further that each of the Hired Employees shall
receive and participate in all standard benefit programs provided by Buyer to
its employees and shall receive credit for years of service with Seller prior to
the Closing Date for participation in Buyer's benefit programs (the Persons
actually hired by Buyer are referred to herein as the "HIRED EMPLOYEES"). Buyer
agrees to assume all accrued but unpaid vacation time of the Hired Employees as
of the Closing Date; provided that Buyer shall receive a credit to the Purchase
Price in accordance with the provisions of Section 2.7(c). Buyer further agrees
to assume responsibility for the "stay put" obligations (the "STAY PUT
OBLIGATIONS"), of Seller to the Hired Employees listed on SCHEDULE 6.4(A);
provided that Buyer's obligation with respect to the Stay Put Obligations shall
not exceed $110,000 in the aggregate. To the extent that the Stay Put
Obligations exceed $110,000 in the aggregate, Seller shall be responsible for
such amounts and Buyer shall be entitled to a credit against the Purchase Price
in accordance with Section 2.7(c) for an amount equal to such excess Stay Put
Obligations. Buyer shall pay to Seller $7,500 on account of severance payments
to a part-time employee as a purchase price adjustment at the time of payment of
the Final Purchase Price Adjustment.
(b) Buyer shall indemnify and shall hold Seller and the
Seller Indemnified Parties harmless from and against all Covered Liabilities
with respect to all Hired Employees for
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all actions of Buyer, including any Covered Liabilities with respect to Hired
Employees arising out of the transactions contemplated by this Agreement.
Without limiting the foregoing, Buyer shall indemnify and shall hold Seller and
the Seller Indemnified Parties harmless from and against any claims asserted by
any Hired Employee for any severance package from Seller.
(c) Seller agrees that, without the prior written
consent of Buyer, which consent may be withheld in Buyer's sole discretion,
neither Seller nor any Affiliate will solicit to hire any of the Hired Employees
identified on SCHEDULE 6.4(C) attached hereto, for a period of two (2) years
after the Closing Date. The agreements contained in this Section 6.4(c) shall be
enforced in accordance with the provisions of Section 11.13(c).
(d) Notwithstanding anything in this Agreement to the
contrary, Seller and Buyer covenant and agree to cooperate and to consult with
each other to ensure that neither Seller nor Buyer, nor both of them, violate
the Worker Adjustment and Retraining Notification Act ("WARN ACT"), or any
federal or state equal opportunity anti-discrimination, wage and hour or any
other employment law, rule or regulation that is or may be applicable to the
provisions hereof (collectively, "EMPLOYMENT LAWS"). Each of Seller and Buyer
covenant and agree that neither will take any separate actions or omissions, or
joint actions or omissions, which would cause either Seller or Buyer, or both,
to violate any of the Employment Laws. Seller and Buyer further covenant and
agree that in the event any of the Employment Laws are violated, Seller shall be
solely responsible and liable for any and all Claims relating to any violation
by Seller of the Employment Laws (except to the extent Seller is indemnified by
Buyer for violations of Employment Laws by Buyer with respect to the Hired
Employees pursuant to the terms of this Agreement), and Buyer shall be solely
responsible and liable for any and all Claims relating to any violation by Buyer
of the Employment Laws.
(e) Seller shall be responsible for any severance
package for any of the Active Employees who do not accept employment with Buyer
and become Hired Employees. Buyer shall give Seller notice within five (5)
business days after Buyer has notice that any of such Active Employees have not
accepted employment with Buyer. With regard to such severance obligations of
Seller, Seller shall indemnify and shall hold harmless Buyer and the Buyer
Indemnified Parties from and against any Covered Liabilities with respect to
Active Employees who do not accept employment with Buyer and become Hired
Employees.
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ARTICLE VII
TAX AND ACCOUNTING MATTERS
SECTION 7.1. TAX RETURNS. Seller represents and warrants that all Tax
returns required to be filed for taxable periods ending on or prior to the
Closing Date by, or with respect to any activities of, the Business have been or
will be filed in accordance with all applicable laws. All Taxes with respect to
the Business (whether or not requiring the filing of a return and including any
interest, penalties and additions thereto) due and payable have been, and as of
the Closing Date will have been, timely paid in full.
SECTION 7.2. SALES, TRANSFER AND SIMILAR TAXES. Buyer shall be liable
for, and shall hold harmless Seller and the Seller Indemnified Parties, from and
against any and all documentary stamp Taxes and surtaxes levied by the State of
Georgia in connection with the transfer of the Assets to Buyer, and all other
Taxes and fees levied in connection with the transfer of the Assets to Buyer,
including but not limited to sales, transfer, use, and filing fees and Taxes.
Buyer and Seller shall each be liable for, and shall hold harmless the other
party and the Seller Indemnified Parties and the Buyer Indemnified Parties, as
the case may be, from and against any income Taxes levied against such party in
connection with the transactions contemplated by this Agreement.
SECTION 7.3. COOPERATION AND EXCHANGE OF INFORMATION.
(a) As soon as practicable, but in any event within
thirty (30) days after either party's request, from and after the Closing Date,
the other party shall provide the requesting party with such cooperation and
shall deliver to such requesting party such information and data concerning the
pre-Closing operations of the Business and make available such knowledgeable
employees of the other party as the requesting party may reasonably request,
including providing the information and data required by the requesting party's
customary Tax and accounting questionnaires, in order to enable the requesting
party to complete and file all Tax returns which it or its Affiliates may be
required to file with respect to the operations and business of the Business
through the Closing Date or to respond to audits by any taxing authorities with
respect to such operations and to otherwise enable the requesting party to
satisfy its accounting and Tax requirements. Such cooperation and information
shall include promptly forwarding copies of appropriate notices and forms or
other communications received from or sent to any taxing authority which relate
to the operations and business of the Business through the Closing Date, and
providing copies of all relevant Tax returns, together with accompanying
schedules and related workpapers, documents relating to rulings or other
determinations by any taxing authority and records concerning the ownership and
Tax basis of property, which the other party may possess and which relate to the
operation and business of the Business through the Closing Date. Each party
agrees to make its employees and facilities available on a mutually convenient
basis to provide explanation of any documents or information provided hereunder.
(b) For a period of seven (7) years after the Closing
Date or such longer period
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as may be required by law, Buyer shall retain in accordance with I.R.S. Rev.
Proc. 86-19 and 91-59, and neither destroy nor dispose of, all Tax returns,
books and records (including computer files) of, or with respect to the
activities of, the Business for all taxable periods ending on or prior to the
Closing Date. Thereafter, Buyer shall not destroy or dispose of any such Tax
returns, books or records unless it first uses its best efforts to offer such
Tax returns, books and records to Seller in writing at least sixty (60) days
prior to such proposed destruction or disposition; PROVIDED, HOWEVER, that sixty
(60) days after Buyer offers such Tax returns, books or records to Seller in
writing, if Seller does not accept such offer, Buyer shall be free to dispose of
or destroy such records and if Seller accepts such offer, Buyer shall no longer
have any obligation hereunder with respect to records delivered to Seller.
(c) Buyer and Seller and their respective Affiliates
shall cooperate in the preparation of all Tax returns relating in whole or in
part to taxable periods ending on or before or including the Closing Date that
are required to be filed after such date, a list of which is set forth on
SCHEDULE 7.3(C) attached hereto. Such cooperation shall include, but not be
limited to, furnishing prior years' Tax returns or return preparation packages
illustrating previous reporting practices or containing historical information
relevant to the preparation of such Tax returns, and furnishing such other
information within such party's possession requested by the party filing such
Tax returns as is relevant to their preparation. In the case of any state, local
or foreign joint, consolidated, combined, unitary or group relief system Tax
returns, such cooperation shall also relate to any other taxable periods in
which one party could reasonably require the assistance of the other party in
obtaining any necessary information.
(d) Seller shall have the right, at its own expense, to
control any audit or examination by any taxing authority ("TAX AUDIT"), initiate
any claim for refund, contest, resolve and defend against any assessment, notice
of deficiency, or other adjustment or proposed adjustment relating to any and
all Taxes for any taxable period beginning on or before the Closing Date with
respect to the Business. In this regard, Seller agrees, notwithstanding any
other provision of this Agreement, to reimburse Buyer for any and all actual
out-of-pocket expenses incurred by Buyer in connection with any such Tax Audit.
The obligations of Seller contained in this Section 7.3(d) shall be absolute and
unconditional obligations of Seller and shall not be subject to the thresholds,
deductibles and limitations set forth in Article X.
(e) If either party fails to provide any information
reasonably requested by the other party that such other party is obligated to
provide to the requesting party pursuant to the terms of this Agreement in the
time specified herein, or if no time is specified pursuant to this Section 7.3,
within a reasonable period, or otherwise fails to do any act required of it
under this Section 7.3, then the other party shall be obligated, notwithstanding
any other provision of this Agreement, to indemnify the requesting party and the
Seller Indemnified Parties or the Buyer Indemnified Parties, as the case may be,
and the other party shall so indemnify and hold harmless the requesting party
and the Seller Indemnified Parties or the Buyer Indemnified Parties, as the case
may be, from and against any and all costs, claims or damages, including all
Taxes or deficiencies thereof, payable as a result of such failure.
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SECTION 7.4. PRORATIONS.
(a) Buyer shall be responsible for the payment of all
operating expenses related to the Assets attributable to periods after the
Closing Date, and Seller shall be responsible for the payment of all operating
expenses related to the Assets incurred for all prior periods prior to and
including the Closing Date.
(b) To the extent possible, the amount of any adjustment
described in this Section 7.4 shall be estimated and paid at the Closing, based
upon the best information available to Buyer and Seller at the time, and shall
be adjusted as soon thereafter as may be reasonably practicable when final
billings are available or when such amounts may be determined with reasonable
certainty. The provisions of this Section 7.4 shall survive the Closing.
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ARTICLE VIII
CONDITIONS OF BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to consummate the Asset Purchase shall be subject to
the satisfaction on or prior to the Closing Date, or waiver by Buyer, of all of
the following conditions:
SECTION 8.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. The
representations and warranties of Seller contained in this Agreement shall have
been true on the Effective Date without regard to any schedule updates and shall
be true and correct in all material respects on and as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of such date, except for representations and warranties that speak as of
a specific date or time other than the Closing Date (which need only be true and
correct in all material respects as of such date or time), and the covenants and
agreements of Seller to be performed on or before the Closing Date in accordance
with this Agreement shall have been duly performed or complied with in all
material respects.
SECTION 8.2. FILINGS; CONSENTS; WAITING PERIODS. All registrations,
filings, applications, notices, consents, assignments, approvals, estoppel
certificates, orders, qualifications and waivers described in Section 5.1(a)
shall have been filed, made or obtained.
SECTION 8.3. NO INJUNCTION OR PENDING LITIGATION. At the Closing Date,
there shall be no legislation, injunction, restraining order or decree of any
nature of any court or Government Authority of competent jurisdiction that is in
effect that restrains or prohibits the consummation of the Asset Purchase, and
there shall be no action, suit or proceeding, in law or in equity, instituted or
threatened before any federal, state, county or local court, department,
commission, agency or other instrumentality or arbitrator or similar entity
pertaining to the transactions contemplated by this Agreement or to their
consummation, excluding any action, suit or proceeding instituted or threatened
by Buyer.
SECTION 8.4. DELIVERY OF RECORDS. Seller shall have delivered all
Records in its possession to Buyer in accordance with the provisions of Section
2.10.
SECTION 8.5. RELEASES OF LIENS. Buyer shall have received releases of
all liens with respect to the Assets in recordable form executed by all holders
of liens that are of record in any jurisdiction; all of which shall operate to
release any and all liens and encumbrances affecting the Assets, except for
Permitted Liens.
SECTION 8.6. PERFORMANCE OF SELLER'S OBLIGATIONS. Seller shall have
furnished or caused to be furnished to Buyer, all items required to be furnished
to Buyer pursuant to other Sections of this Agreement, including without
limitation, the documents described in Sections 2.5(b) and 2.5(c).
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SECTION 8.7. NO MATERIAL ADVERSE CHANGE. Buyer shall have determined to
its satisfaction that there has been no material adverse change in the condition
of the Business or of Seller which would reasonably be expected to affect the
Business, except as may be contemplated by or result from any operations of the
Business to the extent such operations are consistent with the terms and
provisions of this Agreement.
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ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to consummate the Asset Purchase is subject to the
satisfaction on or prior to the Closing Date, or waiver by Seller, of all of the
following conditions:
SECTION 9.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER. The
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date except for representations and warranties that speak as of a
specific date or time other than the Closing Date (which need only be true and
correct in all material respects as of such date or time) and the covenants and
agreements of Buyer to be performed on or before the Closing Date in accordance
with this Agreement shall have been duly performed in all material respects.
SECTION 9.2. NO INJUNCTION. At the Closing Date, there shall be no
legislation, injunction, restraining order or decree of any nature of any court
or Government Authority of competent jurisdiction that is in effect that
restrains or prohibits the consummation of the Asset Purchase, excluding any
injunction, restraining order or decree resulting from action initiated by
Buyer.
SECTION 9.3. PERFORMANCE OF BUYER'S OBLIGATIONS. Buyer shall have
furnished or caused to be furnished to Seller, all items required to be
furnished to Seller pursuant to other Sections of this Agreement, including,
without limitation, the documents described in Section 2.5(b) and Section
2.5(d).
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ARTICLE X
SURVIVAL; INDEMNIFICATION
SECTION 10.1. SURVIVAL.
(a) Except as otherwise provided in Sections 7.3(d),
7.4 and 10.3, all representations, warranties and (except as provided in Section
10.1(e)) covenants and agreements of the parties contained in this Agreement, or
any certificate, document or other instrument delivered in connection herewith
(to the extent not fully performed prior to the Closing Date), shall survive the
Closing only until the twelve (12) month anniversary of the Closing, except for
the liabilities or obligations of Seller relating to the payment of Taxes which
shall survive until the applicable statute of limitations shall have expired.
(b) No action or proceeding may be brought with respect
to any of the representations, warranties, covenants or agreements set forth in
this Agreement, unless written notice thereof, setting forth in reasonable
detail the claimed misrepresentation or breach of warranty, covenant or
agreement, shall have been delivered to the party alleged to have breached such
representation, warranty, covenant or agreement prior to the expiration of the
survival time set forth for such representation, warranty, covenant or agreement
in Section 10.1(a) and Section 10.1(e).
(c) In calculating any amount of loss payable to Seller
pursuant to Section 10.2(a) or payable to Buyer pursuant to Section 10.2(b) or
Section 10.3, amounts shall not be included for special damages, consequential
damages, incidental damages, lost profits, damages for lost business
opportunity, punitive damages or exemplary damages.
(d) Notwithstanding any provision to the contrary
contained in this Agreement, neither Buyer nor Seller shall make any claim
against the other party for any breach of representation, warranty, covenant or
agreement under this Agreement until the dollar amount of all loss to such other
party for such breaches suffered after the Closing, shall exceed in the
aggregate the amount of $50,000, and, if such amount is exceeded, Buyer or
Seller, as the case may be, shall be required to pay the entire amount of such
aggregate loss to the other party for all such breaches; PROVIDED, HOWEVER, that
a party's obligation and liability for any and all breaches of the
representations, warranties, covenants and agreements set forth in this
Agreement shall not exceed in the aggregate an amount equal to the Purchase
Price, and PROVIDED FURTHER, HOWEVER, that the indemnities of Seller with
respect to any Claims against any of the Buyer Indemnified Parties relating to
Seller's failure to satisfy the Retained Liabilities and of Buyer with respect
to any Claims against any of the Seller Indemnified Parties relating to Buyer's
failure to satisfy the Assumed Liabilities, respectively, shall be absolute and
unconditional obligations of Seller and Buyer, respectively, and shall not be
subject to the thresholds and limitations set forth in this Article X.
(e) Those covenants or agreements that contemplate or may
involve actions to
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be taken or obligations in effect after the Closing, including those pursuant to
Section 10.3, shall survive in accordance with their terms.
SECTION 10.2. GENERAL INDEMNIFICATION BY BUYER OR SELLER.
(a) From and after the Closing Date, Buyer shall
indemnify and hold harmless Seller, Seller's Affiliates, and each of their
respective directors, officers, employees and agents, and each of the heirs,
executors, successors and assigns of any of the foregoing (collectively, the
"SELLER INDEMNIFIED PARTIES") (i) subject to the applicable notification and
timing requirements and the other limitations provided in Section 10.1, from and
against any and all Covered Liabilities arising out of any breach of any
representation or warranty or of any covenant or agreement which survives the
Closing made by Buyer under this Agreement, (ii) from and against any and all
Covered Liabilities arising out of the failure of Buyer to pay, discharge or
perform any of the Assumed Liabilities, and (iii) the operation of the Business
by Buyer after the Closing Date.
(b) From and after the Closing Date, Seller shall
indemnify and hold harmless Buyer, Buyer's Affiliates, each of their respective
directors, officers, employees and agents, and each of the heirs, executors,
successors and assigns of any of the foregoing (collectively, the "BUYER
INDEMNIFIED PARTIES") from and against (i) subject to the applicable
notification and timing requirements and other limitations and obligations
provided in Sections 10.1 and 10.3, any and all Covered Liabilities arising out
of any breach of any representation or warranty or of any covenant or agreement
which survives the Closing made by or on behalf of Seller under this Agreement,
and (ii) any and all Covered Liabilities arising out of the failure of Seller to
pay, discharge or perform any of the Retained Liabilities.
(c) Except as may otherwise be provided herein,
indemnification pursuant to this Article X shall be the exclusive remedy for any
breach by either party of any representation or warranty contained in this
Agreement.
SECTION 10.3. ENVIRONMENTAL INDEMNIFICATION BY SELLER.
(a) Subject to the applicable limitations provided in Section 10.1 and
this Section 10.3 and the obligations of Buyer set forth in this Section 10.3,
for a period of two (2) years from and after the Closing Date, Seller shall
indemnify and hold harmless the Buyer Indemnified Parties from and against any
and all Covered Liabilities to the extent arising out of (i) the breach of any
of the representations and warranties contained in Section 3.12, (ii) the
treatment, storage or disposal, prior to the Closing Date, of Hazardous
Materials, and (iii) the presence of Hazardous Materials in the fixtures,
structures, soil, groundwater or air to the extent that the presence of such
Hazardous Materials occurred prior to the Closing Date.
(b) Seller's liability under this Section 10.3 shall be
subject to the following:
(i) With respect to any Covered Liability which
is the subject of Section 10.3(a) arising out of the release of any Hazardous
Materials prior to the Closing Date at
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the Dixie Facilities:
(A) With respect to conditions where Seller
agrees that it has liability upon presentation of a
sufficient claim by Buyer, Seller shall have the
option to either:
(1) cause the necessary remediation to
be accomplished at Seller's direction and
expense using Seller's personnel, consultants,
and/or contractors, in accordance with the
provisions of Section 10.3(b)(i)(E), in which
event Buyer shall furnish necessary access to
the facility and shall make available (to the
extent it does not unreasonably interfere with
Buyer's business or operations and at Seller's
cost and expense) utilities and like services
required to enable Seller's personnel,
consultants, and contractors to perform their
work, and shall promptly comply with all
reasonable requests by such personnel,
consultants, and contractors relating to the
remediation work, at the expense of Seller
(which expense shall be credited toward the
aggregate liability of Seller for purposes of
the limitations set forth in Section 10.1)
(PROVIDED that, any remediation performed by
Seller or at Seller's direction, shall be
performed in a manner that does not
unreasonably interfere with Buyer's operations;
PROVIDED FURTHER, HOWEVER, that Buyer
acknowledges that some interference with those
operations is unavoidable and Buyer hereby
irrevocably waives any claims against Seller
arising out of any such reasonable
interference); or
(2) require Buyer to accomplish the
remediation at Buyer's direction using Buyer's
personnel, consultants, and/or contractors,
PROVIDED, HOWEVER, that as a precondition
Seller shall have delivered to Buyer, prior to
the initiation of any such remediation, cash
funds or a letter of credit (from a financial
institution and containing such terms and
conditions as are reasonably acceptable to
Buyer), in an amount estimated by an
environmental consultant acceptable to Buyer
and Seller to cover all reasonable expenses to
be incurred by Buyer in connection with that
remediation (which funds shall be credited
toward the aggregate liability of Seller for
purposes of the limitations set forth in
Section 10.1).
(B) (1) With respect to conditions
where Seller does not agree that it has
liability or where Buyer presents a deficient
claim, then Seller shall have the same options
as described in Section 10.3(b)(i)(A), except
that Seller shall have no obligation to deposit
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with Buyer any cash funds or letter of
credit under Section 10.3(b)(i)(A)(2) and
neither party shall have any obligation to
reimburse the other party for any cost or
expense incurred by such other party in
connection with the remediation until and
unless there has been a final resolution of the
relative liabilities of the parties thereto by
mutual agreement or under the provisions of
Section 11.13. Either party may initiate
arbitration under the provisions of Section
11.13 with respect to any claim under this
Section 10.3(b)(i)(B)(1) at any point, whether
prior to or after commencement of remediation.
(2) In any situation covered by this
Section 10.3, the party conducting the
remediation work shall indemnify each of the
Seller Indemnified Parties or the Buyer
Indemnified Parties, as the case may be, from
and against any Covered Liabilities arising
from any third-party claims for personal injury
or property damage from the performance of the
remediation work, whether based upon
negligence, strict liability or any other
theory of recovery in either law or equity.
(C) Seller's liability to remediate
contamination or to indemnify Buyer and the Buyer
Indemnified Parties therefor under this Section 10.3
shall be limited to conditions or matters which
constitute a breach of the representations and
warranties contained in Section 3.12.
(D) Except as required by law or with
the express prior written consent of Seller in each
instance, or unless Buyer determines in the exercise
of its reasonable business judgment that such action
is necessary to prevent Hazardous Materials
contamination or liability for Buyer related to
Hazardous Materials contamination that constitutes
Covered Liabilities, Buyer shall not take action or
fail to take action which has the effect of
triggering, accelerating, or expanding Seller's
liability to remediate any contamination (or to pay
for such remediation). Notwithstanding any other
provision herein, Seller shall have no liability for,
and Buyer shall indemnify and hold Seller Indemnified
Parties harmless against, any breach by Buyer of this
Section 10.3(b)(i)(d).
(E) The party directing any remediation work
shall deliver all workplans to the other party for
prior written approval not to be unreasonably
withheld or delayed, provide the other party with
reasonable notice prior to commencing any remediation
work, require that consultants and contractors obtain
insurance in the types and amounts reasonably
appropriate considering the scope and extent of the
remediation work, permit representatives of the other
party to observe the remediation work
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at all reasonable times and in a manner which does
not unreasonably interfere with the progress of the
remediation, perform all remediation work in
accordance with all applicable laws, dispose of all
Hazardous Materials generated in connection with such
remediation work in the name of such party, and
promptly furnish to the other party copies of all
reports concerning the remediation (including
forecasts of expenditures, budgets, and other
financial information) which may be prepared by or
for the party performing the remediation and all
correspondence to or from environmental agencies
concerning the remediation or the condition being
remediated. All reports, other than those given to a
Government Authority, shall be treated as
confidential by the party receiving such reports and
shall not be disclosed to third parties. All
contractors performing any remediation work on behalf
of Seller shall, as a precondition to performing any
such work, deliver to Buyer a written waiver, in form
and substance satisfactory to Buyer, of all rights to
assert any liens or claims against Buyer or any of
its properties. The review, oversight and other
expenses incurred by the party not performing the
remediation work, whether payable to environmental
consultants, contractors or otherwise, shall not be
considered Covered Liabilities and shall not be
subject to reimbursement by the other party.
(F) Seller shall have no responsibility and
shall bear no cost to remediate any condition of
contamination to a greater degree or extent than that
which is required by applicable Hazardous Substances
Laws.
(ii) With respect to any Covered Liability
arising out of any alleged, actual or threatened contamination at a
site which is not, and has not been, a facility operated by the
Business, or arising out of the inclusion of any facility, whether
operated by the Business or not, as part of a multi-party CERCLA (or
state superfund) site, then:
(A) Notwithstanding any other provision in
this Agreement to the contrary, Seller's liability
shall be limited to those matters as to which Buyer
shall, by the second (2nd) anniversary of the Closing
Date, have given Seller notice specifying in
reasonable detail the basis on which liability
arising from the operation of the Business prior to
the Closing Date is claimed; PROVIDED, HOWEVER, that
Seller shall have no liability whatsoever, unless
Buyer shall have given Seller prompt notice upon
receiving a claim or notice from the U.S.
Environmental Protection Agency (the "EPA") or any
other Government Authority or upon learning of facts
that could give rise to such a claim; and
(B) If either Buyer or Seller is named in
the claim or notice, Buyer and Seller shall each
cooperate and assist the other in the investigation
and defense of any indemnified claims by the EPA or
any
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other Government Authority or other Person and shall
furnish such information relating to the claim as may
be reasonably requested by the other party. Each
party shall permit representatives of the other party
to interview such party's personnel and to examine
and copy all non-confidential records of the Business
which may be relevant to the defense of any such
claim.
(iii) For purposes of the reimbursement obligations
described in this Section 10.3, "promptly" shall mean payment in
immediately available funds within thirty (30) days after receipt from
any of the Seller Indemnified Parties or Buyer Indemnified Parties, as
the case may be, of a demand for indemnity payment or reimbursement, or
if such demand is contested, within thirty (30) days of resolution of
such conflict in the demanding party's favor by mutual agreement or
under the procedures of Section 11.13. If Seller or Buyer should fail
promptly to pay a valid reimbursement claim when made, or should pay a
claim subsequently determined not to have been valid, then the unpaid
sum or the wrongfully paid sum, as the case may be, shall bear simple
interest at a rate of nine percent (9%) per annum from the date on
which payment was due, in the case of an unpaid claim, and from the
date on which payment was made, in the case of a wrongfully paid claim,
until payment is made.
SECTION 10.4. THIRD PARTY CLAIMS. If a claim by a
third party is made against an indemnified party (i.e., a Seller Indemnified
Party or a Buyer Indemnified Party), and if such indemnified party intends to
seek indemnity with respect thereto under this Article X, such indemnified party
shall promptly notify the indemnifying party in writing of such claims setting
forth such claims in reasonable detail. The indemnifying party shall have thirty
(30) days (or such shorter period as may be necessary to prevent the loss of any
rights or claims) after receipt of such notice to undertake, through counsel of
its own choosing (subject to the reasonable approval of the indemnified party)
and at its own expense, the settlement or defense thereof, and the indemnified
party shall cooperate with it in connection therewith; PROVIDED, HOWEVER, that
the indemnified party may participate in such settlement or defense through
counsel chosen by such indemnified party, PROVIDED that the fees and expenses of
such counsel shall be borne by such indemnified party. The indemnified party
shall have the right to pay or settle any such claim, PROVIDED that in such
event it shall waive any right to indemnity therefor by the indemnifying party
unless the indemnifying party has consented in writing to such payment or
settlement. If the indemnifying party does not notify the indemnified party
within thirty (30) days (or such shorter period as may be necessary to prevent
the loss of any rights or claims) after the receipt of the indemnified party's
notice of a claim of indemnity hereunder that it elects to undertake the defense
thereof, the indemnified party shall have the right to contest, settle or
compromise the claim but shall not thereby waive any right to indemnity therefor
pursuant to this Agreement.
SECTION 10.5. BULK SALES WAIVER; INDEMNIFICATION.
Buyer hereby waives compliance by Seller with the provisions of any applicable
"bulk sales" or similar laws, subject to the indemnity of Seller contained in
this Section 10.5. Seller hereby agrees to indemnify, defend, and hold harmless
Buyer and the Buyer Indemnified Parties from and against any and all
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claims, liabilities, damages, losses, actions, causes of action, costs, fees and
expenses, including, without limitation, court costs and attorney's fees, in any
way arising out of any "bulk sales" or similar laws applicable to the Asset
Purchase, unless the claim relates to an Assumed Liability. Seller acknowledges
and agrees that the agreements of Seller contained in this Section 10.5 shall be
absolute and unconditional obligations of Seller and shall not be subject to the
thresholds, deductibles and limitations set forth in Article X of this
Agreement.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1. USE OF NAME. Buyer acknowledges that, from and
after the Closing Date, Seller and the Seller's Affiliates have the absolute and
exclusive proprietary right to each of the Excluded Names, by itself or in
combination with any other name, and that none of the rights thereto or goodwill
represented thereby or pertaining thereto are being transferred hereby or in
connection herewith. Buyer agrees that from and after the Closing Date, it will
not, nor will it permit any of its Affiliates to, use any name, phrase or logo
incorporating the Excluded Names in or on any of its literature, sales materials
or products or otherwise in connection with the sale of any products or
services, except as permitted in accordance with the terms of the License
Agreement; PROVIDED, HOWEVER, that nothing contained in this Section 11.1 shall
be construed to restrict the use by Buyer of the use of any of the Included
Names.
SECTION 11.2. NON-ASSIGNABLE UNDERTAKINGS AND RIGHTS.
Notwithstanding anything in this Agreement to the contrary, this Agreement shall
not constitute an agreement to assign any claim, contract, license, permit,
lease, commitment, sales order or purchase order which would otherwise be
assigned hereunder if any attempted assignment thereof without the consent of
the other party thereto or the grantor thereof would constitute a breach thereof
or would in any way affect the rights of Seller thereunder. If such consent is
not obtained, Seller shall act as the agent for Buyer in order to obtain for
Buyer the benefits thereunder. To the extent that consents or waivers are not
obtained by Seller prior to Closing but Buyer elects to consummate the Asset
Purchase, Seller and Buyer shall continue to seek such consents or waivers and
to cooperate with each other to establish, to the extent practicable,
arrangements that are reasonable and lawful as to both Seller and Buyer, and
which result in the benefits and obligations under such assumed contracts,
leases and permits being apportioned in a manner that is in accordance with the
purpose and intention of this Agreement.
SECTION 11.3. COUNTERPARTS. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other party. Copies of
executed counterparts transmitted by telecopy, telefax or other electronic
transmission service shall be considered original executed counterparts for
purposes of this Section 11.3, PROVIDED receipt of copies of such counterparts
is confirmed.
SECTION 11.4. GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
reference to the choice of law principles thereof.
SECTION 11.5. ENTIRE AGREEMENT. This Agreement (including
agreements incorporated herein), and the Schedules and Exhibits hereto supersede
any and all previous agreements and understandings between the parties
(including, without limitation, that certain Letter Agreement dated May 31,
1996, between Seller and ASC Acquisition Partners, L.P.,
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Buyer's predecessor in interest, d/b/a "Aviation Sales Company"), and contain
the entire agreement between the parties with respect to the subject matter of
this Agreement and there are no agreements, understandings, representations or
warranties between the parties other than those set forth or referred to herein.
Except for Sections 10.2, 10.3 and 10.4, which are intended to benefit, and to
be enforceable by, any of the Seller Indemnified Parties and the Buyer
Indemnified Parties, as the case may be, this Agreement is not intended to
confer upon any Person not a party hereto (other that the successors and assigns
of the parties hereto as permitted by Section 11.8) any rights or remedies
hereunder and no other Person, including any present or future employees of
Buyer or Seller, shall be treated as a third-party beneficiary of any of the
provisions of this Agreement.
SECTION 11.6. EXPENSES. Except as set forth in this Agreement,
whether or not the Asset Purchase is consummated, all legal and other costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses.
SECTION 11.7. NOTICES. All notices and other communications
hereunder shall be sufficiently given for all purposes hereunder if in writing
and delivered personally, sent by documented overnight delivery service or, to
the extent receipt is confirmed, telecopy, telefax or other electronic
transmission service to the appropriate address or number as set forth below.
Notices to Seller shall be addressed to:
Dixie Bearings, Incorporated
3600 Euclid Avenue
Cleveland, Ohio 44115
Attn: Mr. John R. Whitten
Vice President Finance & Treasurer
Telecopy Number: (216) 881-7744
with a copy to:
Squire, Sanders & Dempsey
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
Attn: David A. Zagore, Esq.
Telecopy Number: (216) 479-8793
or at such other address and to the attention of such other Person as Seller may
designate by written notice to Buyer. Notices to Buyer shall be addressed to:
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Aviation Sales Company
6905 N.W. 25th Street
Miami, Florida 33122
Attention: Dale S. Baker, President
Telecopy Number: (305) 599-6610
with a copy to:
Boyar, Simon & Miller
4265 San Felipe, Suite 1200
Houston, Texas 77027
Attention: J. William Boyar, Esq.
Telecopy Number: (713) 552-1758
or at such other address and to the attention of such other Person as Buyer may
designate by written notice to Seller.
SECTION 11.8. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; PROVIDED, HOWEVER, that no party hereto will assign its
rights or delegate its obligations under this Agreement without the express
prior written consent of each other party hereto. Notwithstanding the provisions
of the first sentence of this Section 11.8, (a) on or after the Closing Date,
Seller shall be entitled to assign all of its rights and obligations to any
successor entity that may acquire all or substantially all its assets or
business, by merger or otherwise, without the prior written consent of Buyer,
and (b) this Agreement, and all agreements, documents and instruments
contemplated hereby, may be assigned by Buyer to (i) financial institutions (for
the purposes of granting security interests herein), and or (ii) any successor
entity that may acquire all or substantially all its assets or business, by
merger or otherwise (for the purposes of assigning the Buyer's interest herein
and therein) without the prior written consent of the Seller, provided that no
such assignment shall relieve Buyer of its obligations hereunder; PROVIDED
FURTHER that any assignee of any assignment shall be subject to all claims of
offset and all defenses that may be asserted by the other party to this
Agreement against the assignor to such assignment; PROVIDED, FURTHER, Buyer
shall not assign any such agreements to a competitor of Seller or its Affiliates
without the prior written consent of Seller.
SECTION 11.9. HEADINGS; DEFINITIONS. The Section, Article and
other headings contained in this Agreement are inserted for convenience of
reference only and will not affect the meaning or interpretation of this
Agreement. All capitalized terms defined herein are equally applicable to both
the singular and plural forms of such terms.
SECTION 11.10. AMENDMENTS AND WAIVERS. This Agreement may not
be modified or amended except by an instrument or instruments in writing signed
by all parties hereto. Any party hereto may, only by an instrument in writing,
waive compliance by the other party hereto with any term or provision of this
Agreement on the part of such other party hereto to be
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performed or complied with. The waiver by any party hereto of a breach of any
term or provision of this Agreement shall not be construed as a waiver of any
subsequent breach.
SECTION 11.11. INTERPRETATION; ABSENCE OF PRESUMPTION.
(a) For the purposes of this Agreement, (i) "to Seller's knowledge"
shall mean the actual knowledge of Seller's executive officers after due
inquiry, which may be satisfied by consultation with the Business's executive
officers, (ii) "to Buyer's knowledge" shall mean the actual knowledge of Buyer's
executive officers after due inquiry, which may be satisfied by consultation
with Buyer's executive officers, (iii) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other genders as the context requires, (iv) the terms "hereof,"
"herein," and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole (including all of the
Schedules and Exhibits hereto) and not to any particular provision of this
Agreement, and Article, Section, paragraph, Exhibit and Schedule references are
to the Articles, Sections, paragraphs, Exhibits and Schedules to this Agreement
unless otherwise specified, (v) the word "including" and words of similar import
when used in this Agreement shall mean "including, without limitation," unless
otherwise specified, (vi) the word "or" shall not be exclusive, and (vii)
provisions shall apply, when appropriate, to successive events and transactions.
(b) This Agreement shall be construed without regard to any presumption
or rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
SECTION 11.12. SEVERABILITY. Any provision of this Agreement
which is invalid or unenforceable shall be ineffective to the extent of such
invalidity or unenforceability, without affecting in any way the remaining
provisions of this Agreement.
SECTION 11.13. SETTLEMENT OF DISPUTES.
(a) Except as provided in Section 2.8(b) and Section 11.13(c), any
dispute or controversy between the parties hereto arising from or relating to
this Agreement or the construction, validity, interpretation, meaning,
performance, non-performance, enforcement, operation or breach of this Agreement
shall be submitted to mediation, and if such mediation is unsuccessful then to
mandatory, final and binding arbitration. If there arises any dispute or
controversy arising from or relating to this Agreement in connection with which
a party seeks to impose personal liability upon a Seller Indemnified Party or a
Buyer Indemnified Party, the Seller Indemnified Party or the Buyer Indemnified
Party against whom such claim is made has the right, but is not required, to
require that such dispute or controversy be submitted to mediation, and if such
mediation is unsuccessful then to mandatory, final and binding arbitration, in
accordance with the provisions of this Section 11.13. Prior written notice of
any dispute or controversy described in the preceding sentence shall be
delivered to the Seller Indemnified Party or to the Buyer Indemnified Party,
who, within ten (10) days after delivery of the notice, shall deliver to the
demanding party a written statement of whether the mediation and arbitration
provisions of this Section 11.13 are elected. If the written response of the
Seller Indemnified Party or the Buyer
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Indemnified Party is not timely delivered to the claiming party, the provisions
of this Section 11.13 shall not apply to such dispute or controversy.
(b) Any mediation or arbitration under this Agreement shall take place
pursuant to the following procedures:
(i) If a dispute or controversy arises, either party
may, in a written notice delivered to the other party, demand
mediation. The notice shall briefly state the matter in controversy.
(ii) If the parties do not resolve the dispute within
ten (10) days after delivery of the notice of mediation, either party
may request that Judicial Arbitration and Mediation Service ("JAMS")
(or similar mediation service of a similar national scope if JAMS no
longer then exists) appoint an independent mediator, who shall serve as
mediator for all purposes hereof. Each party shall pay one-half of the
cost of the mediator's services, in advance upon request by the
mediator or any party.
(iii) Within ten (10) days after appointment of the
mediator, the mediator shall schedule a meeting among the parties and
the mediator for the purpose of mediating the dispute. If the parties
do not resolve the dispute with thirty (30) days after appointment of
the mediator, the dispute shall be resolved in arbitration and either
party may, in a written notice delivered to the other party, demand
arbitration. The notice shall name and appoint an arbitrator selected
by the party demanding arbitration.
(iv) Within thirty (30) days after receiving a demand
for arbitration, the receiving party shall, in a written notice
delivered to the demanding party, name and appoint its own arbitrator.
If the receiving party fails to name and appoint an arbitrator timely,
then an arbitrator shall be appointed for the receiving party by the
Senior United States District Judge for the United States District
Court in Atlanta, Georgia. The two arbitrators so appointed shall
appoint a third arbitrator within thirty (30) days, and the appointment
may be made either by agreement of the two arbitrators or by the Senior
United States District Judge for the United States District Court in
Atlanta, Georgia at the request of the two arbitrators.
(v) Each party shall bear its own arbitration fees,
costs and expenses; PROVIDED, HOWEVER, that fees, costs and expenses
associated with judicial proceedings may be awarded by a court under
Section 11.13(b)(vii). The arbitration hearing shall be held in
Atlanta, Georgia at a location designated by a majority of the
arbitrators. The Commercial Arbitration Rules of the American
Arbitration Association, as supplemented hereby, shall apply to the
arbitration. The substantive laws of the State of New York (excluding
conflict of laws provisions) shall also apply to the arbitration.
(vi) The arbitration hearing shall be concluded
within ten (10) days unless otherwise ordered by a majority of the
arbitrators, and the award thereon shall be made
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within fifteen (15) days after the close of submission of evidence. An
award rendered by a majority of the arbitrators shall be final and
binding on all parties to the proceeding and non-appealable, and
judgment on the award may be entered by either party in a court of
competent jurisdiction.
(vii) The parties stipulate that the provisions of
this Section 11.13 shall be a complete defense to any suit, action or
proceeding instituted in any federal, state or local court or before
any administrative tribunal with respect to any controversy or dispute
arising out of this Agreement between the parties, and the parties
waive any right to have the award of the arbitrators appealed. The
arbitration provisions of this Agreement shall, with respect to such
controversy or dispute, survive the termination or expiration of this
Agreement. Should any party institute judicial proceedings seeking to
avoid the mediation or arbitration provisions of this Agreement, or
should any party in judicial proceedings unsuccessfully contest an
arbitration award rendered under this Section 11.13, the other party
shall be entitled to recover reasonable attorney's fees, costs and
expenses associated with the judicial proceedings, with the amount of
attorney's fees, costs and expenses to be determined by the court. If a
party fails to comply with the terms of an arbitration award made under
this Agreement, the other party shall be entitled to recover reasonable
attorney's fees, costs and expenses incurred in seeking judicial
confirmation of the award, with the amount of attorney's fees, costs
and expenses to be determined by the court. Failure to comply with the
terms of an arbitration award shall include without limitation the
failure to pay the full amount due under an arbitration award within
the time specified in the arbitration award.
Neither any party hereto nor the arbitrators may disclose the existence or
results of any arbitration hereunder without the prior written consent of the
other party; nor may any party hereto disclose to any third party any
confidential information disclosed by any other party hereto in the course of an
arbitration hereunder without the prior written consent of such other party.
(c) EMERGENCY RELIEF. Notwithstanding anything in this Section 11.13 to
the contrary, either party may seek from a court any provisional remedy that may
be necessary to protect any rights or property of such party pending the
establishment of the arbitral tribunal or its determination of the merits of the
controversy.
(i) JURISDICTION. In connection only with the
provisions of Section 11.13, each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the United States District
Court in Atlanta, Georgia and, if such court does not have
jurisdiction, of the courts of the State of Georgia in Fulton County,
for the purposes of any Action arising out of this Agreement or the
subject matter of this Agreement brought by any other party under
Section 11.13 of this Agreement.
(ii) WAIVER OF DEFENSES. In connection only with the
provisions of this Section 11.13, to the extent permitted by applicable
law, each party hereby waives and agrees not to assert, by way of
motion, as a defense or otherwise, in any such Action under
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<PAGE>
this Section 11.13, any claim (A) that it is not personally subject to
the jurisdiction of the above-named courts, (B) that the Action is
brought in an inconvenient forum, (C) that it is immune from any legal
process with respect to itself or its property, (D) that the venue of
the suit, action or proceeding is improper, or (E) that this Agreement
or the subject matter of this Agreement may not be enforced in or by
such courts.
(iii) SERVICE OF PROCESS. In connection only with the
provisions of this Section 11.13, Buyer and Seller agree that, even if
at any time during the term of this Agreement Buyer is not qualified to
do business as a foreign corporation in the State of Georgia, or Seller
is not qualified to do business as a foreign corporation in the State
of Georgia, Buyer and Seller each shall and do hereby irrevocably
designate and appoint the Secretary of State of the State of Georgia as
its agent for service of process in any Action with respect to any
matter as to which it submits to jurisdiction as set forth above; it
being agreed that any method of service upon such agent, with a copy
sent to Buyer or Seller, as the case may be, in the manner set forth in
Section 11.7, shall constitute valid service upon Buyer or Seller, as
the case may be.
(iv) JUDICIAL RELIEF FOR BREACH OF NON-SOLICITATION
PROVISIONS. Notwithstanding anything in this Section 11.13 to the
contrary, a dispute or controversy relating to a violation or
threatened violation of Section 6.4(c) of this Agreement shall not be
subject to the mediation and arbitration provisions of this Section
11.13, and either party may seek from a court of law any available
judicial remedy, whether legal or equitable (including but not limited
to injunctive relief and damages), based on a breach or threatened
breach of Section 6.4(c) of this Agreement.
SECTION 11.14. WAIVER OF CONSUMER PROTECTION LAWS.
(a) BUYER HEREBY WAIVES ANY ACTIONS OR REMEDIES TO THE EXTENT AVAILABLE
TO IT UNDER THE FLORIDA CONSUMER PROTECTION LAWS, FLA. LAWS CH. 501.
(b) BUYER HEREBY WAIVES ANY ACTIONS OR REMEDIES TO THE EXTENT AVAILABLE
TO IT UNDER THE UNIFORM DECEPTIVE TRADE PRACTICES ACT, GA. CODE ANN. ss.
10-1-370, ET SEQ., AND THE FAIR BUSINESS PRACTICES ACT, GA. CODE ANN. ss.
10-1-390, ET. SEQ.
SECTION 11.15. SURVIVAL. The disclaimers, waivers, releases,
renunciations and other rights and obligations of the parties under Sections
3.19 and 11.14 of this Agreement shall survive forever and shall specifically
survive any transfer of title or possession of any Purchased Inventory, any
termination or expiration of this Agreement or any impossibility of performance
of this Agreement or frustration of purpose of this Agreement.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
- 55 -
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of
each of the parties as of the Effective Date.
DIXIE BEARINGS, INCORPORATED
By: /s/ JOHN R. WHITTEN
-------------------------------------
John R. Whitten, Vice President
Finance and Treasurer
AVIATION SALES BEARINGS COMPANY
By: /s/ DALE S. BAKER
-------------------------------------
Dale S. Baker, President
Signature Page to Asset Purchase Agreement
By and Between
Dixie Bearings, Incorporated and
Aviation Sales Bearings Company
- 56 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 3,196,364
<SECURITIES> 0
<RECEIVABLES> 25,173,083<F1>
<ALLOWANCES> 3,431,884
<INVENTORY> 51,052,693
<CURRENT-ASSETS> 79,719,409
<PP&E> 3,675,470
<DEPRECIATION> 1,588,851
<TOTAL-ASSETS> 107,373,377
<CURRENT-LIABILITIES> 41,236,845
<BONDS> 47,890,065<F2>
0
0
<COMMON> 4,425
<OTHER-SE> 9,057,042
<TOTAL-LIABILITY-AND-EQUITY> 107,373,377
<SALES> 62,098,309
<TOTAL-REVENUES> 67,192,470
<CGS> 44,233,046
<TOTAL-COSTS> 44,233,046
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,868,285
<INCOME-PRETAX> 6,027,378<F3>
<INCOME-TAX> 2,350,677<F4>
<INCOME-CONTINUING> 3,676,701<F5>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,676,701<F6>
<EPS-PRIMARY> .74<F7>
<EPS-DILUTED> .74<F8>
<FN>
<F1>Net of allowance for doubtful accounting of $1,951,286 and allowance for
sales returns of $1,480,598.
<F2>Comprised of long-term debt
<F3>Excludes income tax benefit of $853,459.
<F4>Pro-forma income taxes.
<F5>Net income after giving effect to pro-forma income taxes.
<F6>Net income after giving effect to pro-forma income taxes.
<F7>Net income after giving effect to pro-forma income taxes.
<F8>Net income after giving effect to pro-forma income taxes.
</FN>
</TABLE>
