SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C
(Rule 14C-101)
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of
the Securities Exchange Act of 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-5(d)(1))
[X] Definitive Information Statement
First Aviation Services Inc.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is calculated and state
how it was determined):
$76.0 million - maximum sale price
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(4) Proposed maximum aggregate value of transaction:
$76.0 million
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(5) Total fee paid:
$15,200
[X] Fee previously paid with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a) (2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
FIRST AVIATION SERVICES INC.
15 Riverside Avenue
Westport, Connecticut 06880-4214
Dear Stockholder,
On September 9, 1999, First Aviation announced that it agreed to sell
to Rolls-Royce North America Inc. all of the outstanding capital stock of
National Airmotive Corporation, a California corporation and wholly-owned
subsidiary of First Aviation Services Inc. The enclosed Information Statement is
being furnished to you to inform you that this sale has been approved by the
holders of a majority of the outstanding common stock of First Aviation. The
Board of Directors is not soliciting your proxy in connection with the stock
sale and proxies are not requested from stockholders.
First Equity Group Inc. and Canpartners Investments IV, LLC, which
together control approximately 56% of the outstanding common stock of First
Aviation, have executed a written consent in favor of the stock sale described
above. The stock sale is still subject to a number of conditions described in
this Information Statement and will not be completed before November 1, 1999.
That is the date which is 20 days after this Information Statement was first
sent to stockholders.
YOUR BOARD OF DIRECTORS HAS FULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE STOCK SALE AND DETERMINED THAT IT IS FAIR AND IN THE BEST
INTERESTS OF FIRST AVIATION AND ITS STOCKHOLDERS. YOUR BOARD OF DIRECTORS HAS
APPROVED THE STOCK SALE.
In deciding to approve the stock sale, the Board gave careful
consideration to a number of factors, as described in the enclosed Information
Statement. You are urged to read the Information Statement in its entirety for a
description of the stock sale and the basis for the Board's approval of the
stock sale.
The Information Statement is first being mailed to stockholders of
First Aviation on or about October 12, 1999. Only stockholders of record at the
close of business on September 8, 1999 will be entitled to receive the
Information Statement.
By Order of the Board of Directors,
John A. Marsalisi
Secretary
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WE ARE NOT ASKING YOU FOR A PROXY
October 11, 1999
<PAGE>
FIRST AVIATION SERVICES INC.
-------------------------------------
INFORMATION STATEMENT
-------------------------------------
We are sending you this Information Statement to inform you that the
sale to Rolls-Royce North America, Inc. of all of the outstanding capital stock
of National Airmotive Corporation, a California corporation and wholly-owned
subsidiary of First Aviation, has been approved by the holders of a majority of
the outstanding shares of common stock of First Aviation.
The purchase price payable by Rolls-Royce is $73.0 million, subject to
adjustment based on the amount of net assets of National Airmotive reflected on
the balance sheet of National Airmotive as of the day before the closing date.
The adjustment is limited so that the purchase price cannot be less than $70.0
million or more than $76.0 million.
-------------------------------------
WE ARE NOT ASKING YOU FOR A PROXY
-------------------------------------
No further consent of First Aviation stockholders is necessary to
approve the stock sale. For that reason, no proxy card has been enclosed and no
meeting of stockholders will be held to consider approval of the stock sale. As
we explain in this Information Statement, however, completion of the stock sale
is still subject to a number of conditions, including various regulatory
approvals. The stock sale will not be completed before November 1, 1999. That is
the date which is twenty (20) days after the mailing of this Information
Statement.
THIS INFORMATION STATEMENT IS FURNISHED BY FIRST AVIATION FOR
INFORMATION PURPOSES ONLY. This Information Statement is dated October 11, 1999
and is first being mailed on or about October 12, 1999 to the holders of record
of First Aviation common stock as of the close of business on the record date,
September 8, 1999. As of the record date, 9,016,032 shares of First Aviation
common stock were outstanding.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY ....................................................................... 1
The Parties................................................................ 1
No Further Stockholder Approval Required; First Aviation Board Approval.... 1
The Stock Sale............................................................. 2
Interests of Certain Persons in the Stock Sale............................. 2
No Dissenters' Rights...................................................... 2
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA................................ 3
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA................................. 4
THE STOCK SALE................................................................. 5
General.................................................................... 5
First Aviation............................................................. 5
Rolls-Royce................................................................ 6
Background of the Stock Sale............................................... 6
Reasons For The Stock Sale; Approval of the Board of Directors............. 7
Interests of Certain Persons in the Stock Sale............................. 8
Business Activities Following the Stock Sale............................... 8
Accounting Treatment....................................................... 8
THE STOCK PURCHASE AGREEMENT................................................... 9
Purchase Price............................................................. 9
Representations and Warranties............................................. 9
Indemnification............................................................ 11
Indemnities without Limitation............................................. 11
Limited Indemnities........................................................ 12
Environmental Indemnities.................................................. 12
Income Tax Indemnification................................................. 13
Conditions................................................................. 13
No Solicitation............................................................ 15
Termination................................................................ 15
STOCK PERFORMANCE DATA......................................................... 16
Historical Market Price.................................................... 16
Recent Market Price........................................................ 17
Number of Holders.......................................................... 17
COMPARATIVE PER SHARE DATA..................................................... 17
BOOK VALUE PER SHARE........................................................... 17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................. 18
WHERE YOU CAN FIND MORE INFORMATION............................................ 19
CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS.......................... 20
</TABLE>
<PAGE>
SUMMARY
This summary highlights selected information from this document and may
not contain all of the information that is important to you. To understand the
stock sale fully and for a more complete description of the legal terms of the
stock sale, you should read carefully this entire document and the documents to
which we have referred you.
The Parties
First Aviation Services Inc.
15 Riverside Avenue
Westport, Connecticut 06880-4214
Tel.: (203) 291-3300
First Aviation is a worldwide leader in providing services to operators
of some of the most widely used military, commercial, and general aviation
aircraft engines in the world, including the Lockheed Martin C-130 Hercules and
P3C Orion aircraft and a large variety of aircraft and helicopters powered by
light turbine engines. First Aviation, through its wholly-owned subsidiary,
National Airmotive, repairs and overhauls gas turbine engines and accessories,
remanufactures engine components and accessories, and, through its majority
owned subsidiary, Aerospace Products International, Inc., has become one of the
leading suppliers of aircraft engine parts and other aircraft parts and
components to the general aviation industry worldwide, while at the same time
extending its third party logistics and inventory management services to the
commercial airline industry.
Rolls-Royce North America, Inc.
1191 Freedom Drive
Reston, Virginia 20190-5602
Tel.: (703) 834-1700
Rolls-Royce plc, headquartered in London, England, is a global company
with operations in civil aerospace, defense, marine and energy markets with
facilities in 14 countries. Its core gas turbine technology has created one of
the broadest product ranges of aero engines in the world, with some 55,000
engines in service with 300 airlines, 2,400 corporate and utility operators and
more than 100 armed forces, powering both fixed and rotary wing aircraft. More
than 30 navies use Rolls-Royce propulsion. Energy markets include the oil and
gas industry and power generation. Rolls-Royce, the pioneer of gas turbine
technology for aerospace, power generation and marine propulsion, is today
involved in the major future programs in these fields, including the Trent aero,
industrial and marine engines, combat engines for the Eurofighter Typhoon and
Joint Strike Fighter, and the WR21 marine engine. Rolls-Royce North America,
Inc. is a wholly owned subsidiary of Rolls-Royce plc, and is located in Reston,
Virginia.
No Further Stockholder Approval Required; First Aviation Board Approval
We are not asking you to vote on the stock sale. On September 8, 1999,
First Equity Group Inc. and Canpartners Investments IV, LLC, which together
control approximately 56% of First Aviation's voting power, gave their written
consent to approve the stock sale. Their written consent was sufficient for
stockholder approval of the stock sale. See "The Stock Sale-General".
First Aviation's Board of Directors believes that the stock sale is in
your best interest and in First Aviation's best interest. First Aviation's Board
of Directors has unanimously approved the stock sale.
1
<PAGE>
The Stock Sale
The Stock Purchase Agreement. The Stock Purchase Agreement is the legal
document that governs the stock sale. It is attached as Appendix A to this
Information Statement, and we encourage you to read it carefully.
Conditions to the Stock Sale. The consummation of the stock sale depends
upon a number of conditions, including the following:
o regulatory approvals and third-party consents; and
o the absence of certain material adverse changes in National Airmotive
and its subsidiary.
The stock sale is expected to be consummated not earlier than twenty (20)
days after the mailing of this Information Statement and following the
satisfaction or waiver of the conditions contained in the Stock Purchase
Agreement.
Regulatory Approvals. First Aviation and Rolls-Royce have filed the forms
required under the Hart-Scott-Rodino Act and made a voluntary filing pursuant to
the Exon-Florio Amendment. We received early termination of the waiting period
under the Hart-Scott Rodino Act on September 29, 1999. No action is required
under the Exon-Florio Amendment.
Material Federal Income Tax Consequences. The stock sale will be a taxable
transaction to First Aviation for federal income tax purposes. First Aviation
does not expect the stock sale to have federal income tax consequences to its
stockholders. Stockholders are encouraged to consult with their personal tax
advisors for any questions concerning this transaction.
Use of Proceeds. Simultaneous with the closing of the sale, all of National
Airmotive's existing bank debt will be prepaid and its credit facility will be
terminated. The remaining net proceeds, after income taxes, will be available to
enhance shareholder value, through potential new acquisitions, internal growth
opportunities, capital improvements, and for working capital needs.
Interests of Certain Persons in the Stock Sale
First Aviation, upon the authorization of the independent members of
the Board of Directors, previously had entered into an advisory agreement with a
related party, First Equity Development Inc. First Equity Development is a
wholly owned subsidiary of First Equity Group Inc. Pursuant to the agreement,
First Equity Development is to be paid a success fee of $945,000, an amount that
is in addition to retainer fees previously paid. The independent members of the
Board of Directors established the amount of the success fee. See "Interests of
Certain Persons in the Stock Sale".
To the best of First Aviation's knowledge, other than the transaction
described above, no officer, director or holder of at least five percent (5%) of
our common stock has a financial interest in the stock sale different from any
other holder of our common stock.
No Dissenters' Rights
Under Delaware law and our certificate of incorporation, you will not
be entitled to appraisal or dissenter's rights in connection with the stock
sale.
2
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following are selected consolidated historical financial data of
First Aviation and its subsidiaries for the six-months ended July 31, 1999 and
1998, and the years ended January 31, 1999, 1998, and 1997, respectively. The
selected historical consolidated financial data have been restated for all
periods presented to show National Airmotive as a discontinued operation.
This selected historical consolidated financial data should be read
along with the historical financial statements and accompanying notes included
in the First Aviation Quarterly Report on Form 10-Q/A for the six-months ended
July 31, 1999 and the Annual Report on Form 10-K/A for the year ended January
31, 1999 (you can obtain this report by following the instructions provided in
this Information Statement under the heading "Where You Can Find More
Information").
<TABLE>
<CAPTION>
Six-Months Six-Months Year Year Year
Ended Ended Ended Ended Ended
(All amounts in thousands, except per share amounts) July 31, July 31, January 31, January 31, January 31,
1999 1998 1999 1998(1) 1997(1)
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 38,122 $ 27,747 $ 59,666 $ 44,003 $ --
Cost of sales 30,869 22,417 47,970 35,770 --
--------- --------- --------- --------- ---------
Gross profit 7,253 5,330 11,696 8,233 --
Selling, general and administrative expenses 6,576 4,771 10,048 6,356 --
Non-recurring charge (2) -- -- 800 -- --
--------- --------- --------- --------- ---------
Operating income before corporate expenses 677 559 848 1,877 --
Corporate expenses 1,202 835 2,127 1,212 43
--------- --------- --------- --------- ---------
Income (loss) from operations (525) (276) (1,279) 665 (43)
Interest expense 296 64 267 -- --
Interest income -- -- -- (35) --
Other expense 24 21 42 38 --
--------- --------- --------- --------- ---------
Income (loss) from continuing operations before
income taxes (845) (361) (1,588) 662 (43)
Income tax expense (benefit) (338) (108) (635) 265 --
--------- --------- --------- --------- ---------
Net income (loss) from continuing operations (507) (253) (953) 397 (43)
Net income (loss) from discontinued operation 3,281 (789) (761) 4,854 638
--------- --------- --------- --------- ---------
Net income (loss) 2,774 (1,042) (1,714) 5,251 595
Dividends on preferred stock (3) -- -- -- 11 132
--------- --------- --------- --------- ---------
Net income (loss) available to common stockholders $ 2,774 $ (1,042) $ (1,714) $ 5,240 $ 463
========= ========= ========= ========= =========
Net income (loss) per common share:
Basic net income per common share from continuing
operations $ (0.05) $ (0.03) $ (0.11) $ 0.05 $ (0.05)
Basic net income (loss) per common share from
discontinued operation 0.36 (0.09) (0.08) 0.57 0.18
--------- --------- --------- --------- ---------
Basic net income per common share $ 0.31 $ (0.12) $ (0.19) $ 0.62 $ 0.13
========= ========= ========= ========= =========
Weighted average shares outstanding 9,005 8,958 8,973 8,432 3,557
Net income (loss) per common share from
continuing operations - assuming dilution $ (0.05) $ (0.03) $ (0.11) $ 0.04 $ (0.05)
Net income (loss) per common share from
discontinued operation 0.36 (0.09) (0.08) 0.56 0.18
--------- --------- --------- --------- ---------
Net income per common share - assuming dilution $ 0.31 $ (0.12) $ (0.19) $ 0.60 $ 0.13
========= ========= ========= ========= =========
Weighted average shares outstanding and
assumed conversions 9,005 8,958 8,973 8,698 3,557
</TABLE>
3
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA (continued)
<TABLE>
<CAPTION>
(All amounts in thousands) July 31, July 31, January 31, January 31, January 31,
1999 1998 1999 1998 1997
-------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 41,391 $ 53,040 $ 47,093 $ 53,735 $ 37,487
Total assets 112,805 89,023 97,089 82,523 62,372
Short-term line of credit 7,600 2,494 8,850 -- --
Current portion of note payable 6,000 -- -- -- --
Current portion of long-term debt -- -- -- -- 1,100
Long-term debt, less current portion 18,283 16,367 13,895 13,866 32,794
Other long-term liabilities 4,400 1,162 1,455 1,041 2,119
Series A Preferred Stock -- -- -- -- 1,650
Total stockholders' equity $ 47,216 $ 44,983 $ 44,381 $ 45,957 $ 6,281
</TABLE>
Notes to Selected Historical Consolidated Financial Data
(1) Results of operations include Aerospace Products International, which
was acquired on March 5, 1997, from the date of acquisition. Results
of operations prior to March 5, 1997 consisted principally of National
Airmotive, which was acquired in June 1995. Results for the period
ended January 31, 1996 are not comparable and cannot be presented
meaningfully due to the change in ownership and equity structure and,
therefore, are not presented herein.
(2) The non-recurring charge was for fees and expenses relating to
terminated acquisitions.
(3) The calculation of income per common share requires the deduction from
net income of preferred stock dividends. The preferred stock was
converted to common stock on March 5, 1997.
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(Unaudited)
The following unaudited selected consolidated pro forma statements of
operations data for the six-months ended July 31, 1999 and the year ended
January 31, 1999, and the unaudited pro forma selected consolidated balance
sheet data as of July 31, 1999 were derived from the unaudited consolidated
condensed pro forma statements of operations and the unaudited pro forma
consolidated balance sheet included elsewhere in this Information Statement.
This pro forma selected consolidated financial data should be read in
conjunction with the description of the stock sale contained in this Information
Statement and the unaudited condensed consolidated pro forma financial
statements appearing elsewhere herein. The selected consolidated pro forma
financial data is provided for informational purposes only and should not be
construed to be indicative of First Aviation's financial position or results of
operations had the stock sale been consummated on the dates assumed, and are not
intended to project First Aviation's financial position on any future date or
results of operations for any future period.
<TABLE>
<CAPTION>
(all amounts in thousands except for share amounts) Six Months Year Ended
Ended July 31, January 31,
1999 1999
-------------- -----------
<S> <C> <C>
Pro Forma Consolidated Statement of Operations Data:
Net Sales.................................................. $ 38,122 $ 59,666
Gross Profit............................................... 7,253 11,696
Operating income before corporate expenses................. 667 848
Net income................................................. $ 202 $ 397
Basic net income per common share.......................... $ 0.02 $ 0.04
Net income per common share-assuming dilution.............. $ 0.02 $ 0.04
<CAPTION>
As of July 31,
1999
--------------
<S> <C>
Pro Forma Consolidated Balance Sheet Data:
Working capital............................................ $ 53,878
Total Assets............................................... 85,044
Other non-current liabilities.............................. 2,901
Total stockholders' equity................................. $ 56,499
</TABLE>
4
<PAGE>
THE STOCK SALE
General
We are furnishing this Information Statement to inform you that the
stock sale to Rolls-Royce North America, Inc. of all of the outstanding capital
stock of National Airmotive has been approved by the holders of a majority of
the outstanding shares of common stock of First Aviation. The stock sale will be
carried out as provided in the Stock Purchase Agreement between First Aviation
Services Inc. and Rolls-Royce North America, Inc. dated as of September 9, 1999.
A copy of the Stock Purchase Agreement is attached as Appendix A to this
Information Statement.
This Information Statement has been sent to you because you were a
holder of record of common stock, par value $0.01 per share, on September 8,
1999.
This Information Statement constitutes the notice of corporate action
without a meeting required by Section 228 of the Delaware General Corporation
Law. Your vote is not required for the stock sale, because First Equity Group
Inc. and Canpartners Investments IV, LLC executed and delivered to First
Aviation, on September 8, 1999, a written consent in lieu of a meeting of
stockholders approving and adopting the Stock Purchase Agreement and the stock
sale. These stockholders then controlled, in the aggregate, 5,042,228 shares of
First Aviation common stock, representing 56 percent of the votes entitled to be
cast at a meeting of First Aviation's stockholders to consider the Stock
Purchase Agreement and the stock sale. As a result, so long as the Stock
Purchase Agreement is not amended and no provision of it is waived, no meeting
or further approval or consent of stockholders of First Aviation is necessary to
effect the stock sale. THE STOCK SALE WILL BECOME EFFECTIVE NO EARLIER THAN 20
BUSINESS DAYS AFTER THIS INFORMATION STATEMENT IS MAILED TO THE STOCKHOLDERS OF
FIRST AVIATION, BUT ONLY AFTER SATISFACTION OR WAIVER OF THE CONDITIONS TO THE
STOCK SALE CONTAINED IN THE STOCK PURCHASE AGREEMENT.
First Aviation
First Aviation is a worldwide leader in providing services to operators
of some of the most widely used military, commercial, and general aviation
aircraft engines in the world, including the Lockheed Martin C-130 Hercules and
P3C Orion aircraft and a large variety of aircraft and helicopters powered by
light turbine engines. First Aviation, through National Airmotive, repairs and
overhauls gas turbine engines and accessories, remanufactures engine components
and accessories, and, through its majority owned subsidiary, Aerospace Products
International, has become one of the leading suppliers of aircraft engine parts
and other aircraft parts and components to the general aviation industry
worldwide, while at the same time extending its third party logistics and
inventory management services to the commercial airline industry.
First Aviation was formed in March 1995 to acquire all of the capital
stock of National Airmotive. The acquisition was completed on June 1, 1995, and
was accounted for under the purchase method of accounting. Through National
Airmotive, First Aviation provides repair and overhaul services for several
aircraft engine types, including: (a) engines manufactured by the Allison Engine
Company, a subsidiary of Rolls-Royce, that power the Lockheed Martin C-130
Hercules cargo aircraft, (b) the engines employed on most light helicopters, and
(c) industrial turbine engines used primarily for power co-generation and gas
transmission. National Airmotive is an industry leader in the remanufacture of
serviceable engine parts and components for use in engine overhauls.
On March 5, 1997, Aerospace Products International, a majority owned
subsidiary of First Aviation, completed the acquisition of Aircraft Parts
International from AMR Combs, Inc. The acquisition was accounted for under the
purchase method of accounting. Aerospace Products International distributes more
than 100 major product lines of aircraft parts and components. API Technologies,
Aerospace Products International's licensed repair station, offers brake and
starter generator overhaul services, and is an authorized hose assembly
manufacturing facility.
5
<PAGE>
Rolls-Royce
Rolls-Royce plc, headquartered in London, England, is a global company
with operations in civil aerospace, defense, marine and energy markets with
facilities in 14 countries. Its core gas turbine technology has created one of
the broadest product ranges of aero engines in the world, with some 55,000
engines in service with 300 airlines, 2,400 corporate and utility operators and
more than 100 armed forces, powering both fixed and rotary wing aircraft. More
than 30 navies use Rolls-Royce propulsion. Energy markets include the oil and
gas industry and power generation. Rolls-Royce, the pioneer of gas turbine
technology for aerospace, power generation and marine propulsion, is involved in
the major future programs in these fields, including the Trent aero, industrial
and marine engines, combat engines for the Eurofighter Typhoon and Joint Strike
Fighter, and the WR21 marine engine. Rolls-Royce North America, Inc. is a wholly
owned subsidiary of Rolls-Royce plc, and is located in Reston, Virginia.
Background of the Stock Sale
The decision to sell National Airmotive was the result of careful
consideration that began as part of a strategic review initiated in September of
1998 of both operating subsidiaries, National Airmotive and Aerospace Products
International. The decision to explore a potential sale of National Airmotive
was the result of factors that relate to the markets that National Airmotive
competes in as well as the Board's opinion that the stock price of First
Aviation did not fairly reflect the underlying value of its operating
subsidiaries.
In September 1998, the Board of Directors entered into an investment
banking relationship with First Equity Development Inc. to represent the
company as its exclusive financial advisor. On April 28, 1999 the Board engaged
First Equity to begin a formal process to solicit and review potential offers
for National Airmotive. The law firm of Weil Gotshal & Manges LLP was retained
by First Aviation to represent it in any proposed transaction.
The Board publicly announced on April 29, 1999 its decision to begin
its strategic review concerning the potential sale of National Airmotive and to
enter into bonus and severance agreements with key managers at National
Airmotive. The Board took these steps in order to increase interest in National
Airmotive, insure that key managers were incented to reach their business plan
goals, assist the stockholders in obtaining the best possible value for National
Airmotive, and encourage management to remain with the business in case the
Board elected not to sell National Airmotive.
Between May 4, 1999 and June 10, 1999, confidentiality agreements were
executed with 16 parties, including Rolls-Royce. On June 28, 1999, Michael
Culver, CEO, and Aaron Hollander, Chairman, met with James Guyette, President of
Rolls-Royce North America, along with other managers and advisors of both
companies in Rolls-Royce's Reston, VA offices to determine the level of interest
that Rolls-Royce had in pursuing a transaction.
Five parties, including Rolls-Royce, presented preliminary non-binding
indications of interest and were permitted to visit National Airmotive, meet
with senior management and conduct due diligence between July 7, 1999 and July
27, 1999. There was at least one other less formal indication of interest by a
party that was not permitted to conduct due diligence or enter into
negotiations.
After July 27, 1999, two revised written indications of interest and
two less formal indications of interest were reviewed from potential acquirers.
In the opinion of management, the Rolls-Royce indication of interest presented
the best price and the best potential for closing a transaction.
On August 25, 1999, management of First Aviation and Rolls-Royce meet
in the offices of First Aviation's New York counsel to determine if a
transaction on terms favorable to both companies was feasible. The parties also
discussed the potential for establishing a commercial relationship between
Rolls-Royce and Aerospace Products International. The meeting concluded with no
agreement.
6
<PAGE>
On August 27, 1999, the Board of Directors of First Aviation had a
telephonic Board meeting to discuss the status of the sale and their objectives
for a sale if they chose to sell National Airmotive.
On September 3, 1999 Michael Culver of First Aviation met with James
Guyette and Ian Lloyd, Managing Director of Repair and Overhaul for Rolls-Royce
plc, as well as other managers of both companies and reached an agreement on
the principal terms of a sale, subject to being documented in a definitive
agreement, Board Approval, the consent of at least 51% of the shareholders of
First Aviation, and other regulatory approvals. The final terms of the Stock
Purchase Agreement were then negotiated by the parties and their legal advisors.
The Board of Directors of First Aviation, at a telephonic meeting on
September 8, 1999 unanimously approved the Stock Purchase Agreement. On
September 8, 1999, Canpartners Investments IV, LLC and First Equity Group,
representing a majority of the outstanding shares of common stock of First
Aviation, consented to the transaction.
On September 9, 1999, First Aviation announced that it had entered into
a definitive agreement for the sale of National Airmotive to Rolls-Royce.
Reasons For The Stock Sale; Approval of the Board of Directors
The First Aviation Board of directors has determined that the stock sale
and the Stock Purchase Agreement are fair to and in the best interests of First
Aviation and its stockholders. ACCORDINGLY, THE BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE STOCK SALE. The purchase price was negotiated on an
arm's length basis between representatives of First Aviation and Rolls-Royce.
During the course of its deliberations relating to a possible sale of
National Airmotive, the First Aviation Board considered the following factors:
o the historical and prospective business of First Aviation, including,
among other things, the current financial condition and future
prospects of First Aviation, the strategic direction of First
Aviation's business, the current conditions in (and future prospects
of) the aviation services and spare part and component industry, and
the competitive position of First Aviation in that industry;
o the fact that the market in which National Airmotive competes is highly
competitive and the opportunities for National Airmotive to be a
consolidator have diminished. In addition, the cost of entering new
programs such as the Pratt & Whitney Canada program are highly capital
intensive. The original engine manufacturers are taking a more
aggressive role in trying to capture the revenue stream in the
after-market for the engines they manufacture, making the number of
opportunities to enter new engine programs by independents more
limited;
o the rapid growth at Aerospace Products International, which has been
experiencing compound growth in excess of 25% for the last four years,
and the view that Aerospace Products International has a substantial
opportunity for continued growth and that significant capital will be
required to fund that growth;
o the terms and conditions of the Stock Purchase Agreement, including the
amount and form of consideration;
o the regulatory approvals required for the stock sale and the estimated
length of time required to consummate the sale;
o alternatives to the stock sale, including, among other things,
continuing to operate the National Airmotive business;
7
<PAGE>
o the expectation that management of Aerospace Products International and
Rolls-Royce would explore an expanded commercial relationship; and
o the fact that a competitive process was followed as part of the effort
to sell National Airmotive which resulted in a price that the Board
believed was an attractive price from a purchaser with the ability to
consummate the sale.
Based on all of these matters, and other such matters as the members of
the First Aviation Board deemed relevant, the First Aviation Board unanimously
approved the Stock Purchase Agreement and the stock sale.
The First Aviation Board did not find it practicable to provide
specific assessments of, quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination. The determination to
approve the stock sale was made after consideration of all the factors taken as
a whole, though individual members of the First Aviation Board may have given
different weights to different factors.
Interests of Certain Persons in the Stock Sale
During the quarter ended October 31, 1998, First Aviation, upon the
authorization of the independent members of the Board of Directors, entered into
an advisory agreement with a related party, First Equity Development Inc. First
Equity is a subsidiary of First Equity Group Inc. Pursuant to the agreement,
First Equity has been providing First Aviation investment and financial advisory
services relating to potential acquisitions and other financial transactions.
The agreement expires on February 1, 2000 but may be terminated sooner by either
party upon 30-days written notice to the other. Pursuant to the agreement, First
Aviation has been paying First Equity a $30,000 monthly retained fee. Under the
terms of the agreement, First Aviation agreed to pay a fee to First Equity for
the successful completion of certain transactions, and reimburse First Equity
for its out-of-pocket expenses. First Equity has provided substantial
financial advisory services in connection with the sale of National Airmotive.
First Equity is to be paid a success fee of $945,000, an amount that is in
addition to retainer fees previously paid. The independent members of the Board
of Directors established the amount of the success fee. In establishing the
success fee the independent members of the Board of Directors considered a
variety of factors, including the scope of the services provided, the size and
type of transaction, fees paid to other firms in comparable transactions and the
successful completion of this transaction.
To the best of First Aviation's knowledge, other than the transaction
described above, no officer, director, or holder of at least five percent (5%)
of First Aviation's common stock has an interest, financial or otherwise, in the
stock sale different from any other holder of common stock of First Aviation.
Business Activities Following the Stock Sale
After the consummation of the stock sale, First Aviation will no longer
be engaged in the engine repair and overhaul business. First Aviation's business
plan is to use the net cash proceeds from the stock sale (subject to any
indemnity obligations and retained liabilities) to implement its strategic plan
to grow its distribution and logistics business at Aerospace Products
International and to fund other potential acquisitions.
Accounting Treatment
The sale of National Airmotive has been accounted for as a disposal of a
segment of a business in accordance with generally accepted accounting
principles and is presented as a discontinued operation in First Aviation's
consolidated financial statements.
8
<PAGE>
THE STOCK PURCHASE AGREEMENT
First Aviation and Rolls-Royce are parties to the Stock Purchase
Agreement. The following is a brief summary of certain provisions of the Stock
Purchase Agreement. A copy of the Stock Purchase Agreement attached to this
Information Statement as Appendix A and is incorporated in this Information
Statement by reference. We urge you to carefully read the Stock Purchase
Agreement in its entirety.
Purchase Price
The purchase price for the capital stock of National Airmotive is $73.0
million, subject to adjustment, as described below. We expect the closing will
occur on or about November 1, 1999. Within sixty (60) days after the closing,
First Aviation is required to deliver to Rolls-Royce a balance sheet of National
Airmotive as of the day immediately prior to the closing date. The final balance
sheet is required to be prepared in accordance with generally accepted
accounting principles, as supplemented by the accounting principles referred to
the Stock Purchase Agreement
There will be an adjustment to the purchase price based on the final
net assets, which is the amount by which National Airmotive's total assets
exceed its total liabilities as set forth on the balance sheet. If the final net
assets as set forth on the balance sheet are less than $49,311,000, the purchase
price will be reduced on a dollar-for-dollar basis by the amount of such
deficiency up to a maximum of $3 million. If the final net assets as set forth
on the balance sheet are more than $49,311,000, the purchase price will be
increased on a dollar-for-dollar basis by the amount of such excess up to a
maximum of $3 million. The adjustment is limited so that the purchase price
cannot be less than $70.0 million or more than $76.0 million.
Within thirty (30) days after the delivery of the balance sheet and
related auditor's report, Rolls-Royce is required to complete a review and audit
of the balance sheet and to inform First Aviation in writing that the balance
sheet is either acceptable or to object to the balance sheet, setting forth a
specific description of Rolls-Royce's objections, the amount in dispute and the
information in its possession that forms the basis for its objection. Within two
(2) business days after the purchase price is finally determined, the
appropriate party will pay to the other cash in an amount equal to the excess or
deficiency in final net assets. In the event of a dispute, an Unrelated
Accounting Firm shall be engaged to render a final binding report.
Representations and Warranties
The Stock Purchase Agreement contains various representations and
warranties of the parties thereto. The Stock Purchase Agreement includes
representations and warranties of First Aviation as to:
o the corporate organization, standing and power of National
Airmotive and its subsidiary;
o the authorization of the Stock Purchase Agreement and the
approval of the First Aviation Board;
o the capitalization of National Airmotive;
o the Stock Purchase Agreement's non-contravention of any
agreement, law or charter or by-law provision;
o the ownership and valid transfer of the shares of National
Airmotive capital stock;
o the accuracy of National Airmotive's financial statements;
o the absence of undisclosed liabilities;
9
<PAGE>
o the absence of certain developments involving National Airmotive
and its subsidiary;
o certain tax matters;
o ownership and leasehold interests in real property;
o ownership of and rights to use certain intellectual property;
o certain contracts, leases and license agreement of National
Airmotive and its subsidiary;
o the terms, existence, operations, liabilities and compliance with
applicable law of employee plans maintained by National
Airmotive, its subsidiary and ERISA affiliates, and certain other
matters relating to the Employee Retirement Income Security Act
of 1974, as amended,
o certain labor matters;
o pending or threatened litigation;
o National Airmotive's possession of all governmental permits
necessary for National Airmotive or its subsidiary to conduct its
current business and National Airmotive's compliance with
applicable laws;
o environmental matters;
o insurance;
o brokers, finders and financial advisors employed by First
Aviation and National Airmotive;
o accounts receivable;
o certain transactions with affiliates;
o regulatory compliance and the absence of any enforcement action
by the Federal Aviation Administration;
o the absence of any Material Adverse Effect on National Airmotive
and its subsidiary;
o title to and condition of personal property;
o inventory;
o customers, suppliers and distributors;
o product warranties and liability;
o the absence of questionable or unlawful payments and the
maintenance of records and internal accounting controls in
accordance with federal securities laws;
o year 2000 capability; and
o certain matters relating to government contracts.
Rolls-Royce also has made representations and warranties relating to:
10
<PAGE>
o the corporate organization, standing and power of Rolls-Royce;
o the authorization of the Stock Purchase Agreement;
o the Stock Purchase Agreement's non-contravention of any
agreement, law or charter or by-law provision;
o pending or threatened litigation;
o investment intention relating to the purchase of National
Airmotive capital stock;
o financial capability; and
o brokers, finders and financial advisors employed by Rolls-Royce.
Indemnification
Indemnification by First Aviation. Pursuant to the Stock Purchase
Agreement, First Aviation is required to indemnify Rolls-Royce, National
Airmotive and their respective directors, officers, employees, affiliates,
agents, successors and assigns from and against certain losses. In many cases,
this indemnification is subject to limitations, as described below.
Indemnities without Limitation
First Aviation will have the obligation to indemnify Rolls-Royce and
its related parties for losses incurred relating to the following matters
without any limitation as to amount for which a claim can be made:
o the breach of any covenant or other agreement on the part of
First Aviation or its subsidiaries;
o the breach of First Aviation's representations and warranties
relating to: the corporate organization; standing and power of
National Airmotive and its subsidiary; the authorization of the
Stock Purchase Agreement; the capitalization of National
Airmotive; the existence of subsidiaries of National Airmotive;
corporate records of National Airmotive; the ownership and valid
transfer of the shares of National Airmotive capital stock, or
brokers, finders and financial advisors employed by First
Aviation and National Airmotive, but in each case only if a claim
for indemnity is made on or prior to March 1, 2001;
o any matters arising from or relating to specified claims in favor
of National Airmotive that are being retained by First Aviation;
o any amounts due with respect to the cancellation of the Pratt &
Whitney Distributor and Designated Overhaul Facility Agreement;
o amounts determined to be payable in connection with the pending
claim against National Airmotive of the Pension Benefit Guaranty
Corporation; and
o the termination of the lease of the facility currently operated
by National Airmotive in Long Beach, California, including any
restoration obligations under the lease for such facility;
provided that the lease is terminated within six months of the
closing date.
11
<PAGE>
Limited Indemnities
First Aviation will have the obligation to indemnify Rolls-Royce and
its related parties for losses incurred relating to the following matters,
provided that the amount for which a claim can be made will be limited as
described below:
o the breach of any representation or warranty of First Aviation, other than
the representations specified above as having no limitation; but only if a
claim for indemnity is made on or prior to March 1, 2001;
o certain specified potential claims against National Airmotive; and
o except to the extent non-income taxes are reserved for in the Balance Sheet
(excluding any reserve for deferred non-income taxes):
o the breach of certain representations or warranties of First Aviation
relating to non-income taxes, but only to the extent such losses are
attributable to periods ending on or before the closing date, and
o any and all non-income taxes that may be imposed upon or assessed
against National Airmotive, its subsidiary or their respective assets
with respect to all taxable periods ending on or prior to the closing
date.
First Aviation will have no obligation to indemnify Rolls-Royce or any
related party from and against any losses incurred relating to matters described
above unless the aggregate amount of such losses exceeds $1.0 million.
First Aviation's maximum liability for such losses may not exceed
$5,000,000 in the aggregate.
Environmental Indemnities
With respect to indemnification relating to environmental matters,
First Aviation will be required to indemnify Rolls-Royce and its related parties
for environmental losses up to a maximum of $5,000,000, but only if:
o the aggregate amount of environmental losses exceeds $1.0 million (in which
case, First Aviation will be liable for 80% of the losses exceeding the
$1.0 million threshold, but not for the initial $1.0 million in losses);
and
o notice of the claim for indemnification is given to First Aviation on or
prior to the third anniversary of the closing date.
12
<PAGE>
Income Tax Indemnification
First Aviation will have the obligation to indemnify Rolls-Royce and
its related parties for any and all income taxes that may be imposed upon or
assessed against National Airmotive, its subsidiary or their respective assets:
o with respect to all taxable periods ending on or prior to the
closing date; and
o with respect to any and all income taxes of any member of a
consolidated, combined or unitary group of which National
Airmotive or its subsidiary (or any predecessor) is or was a
member on or prior to the closing date, by reason of the
liability of National Airmotive or such subsidiary pursuant to
Treasury Regulation Section 1.1502-6(a) or any analogous or
similar state, local or foreign law or regulation.
With respect to income taxes, First Aviation's indemnification
obligations under the Stock Purchase Agreement survive indefinitely and are not
limited as to amount.
Indemnification by Rolls-Royce. Rolls-Royce will have the obligation to
indemnify First Aviation and its directors, officers, employees, affiliates,
agents, successors and assigns from and against any and all losses based upon,
attributable to or resulting from:
o the breach of any representation or warranty of Rolls-Royce;
o the breach of any covenant or other agreement on the part of Rolls-Royce;
o any and all non-income taxes of National Airmotive with respect to any
taxable period of National Airmotive beginning after the closing date;
o one-half of all of the out-of-pocket costs of pursuing, settling, and/or
litigating a claim in favor of National Airmotive that will be retained by
First Aviation; and
o National Airmotive's involvement in any research, repair and overhaul
operation conducted upon premises leased or subleased by National Airmotive
to any current or former U.S.-based Affiliate of Rolls-Royce, to the extent
such losses (1) arise from laws pertaining to employment, employee benefits
or termination of employment or (2) relate to taxes or related interest,
penalties or fines.
With respect to claims for indemnification based upon non-income taxes
or the breach of specified representations or warranties, Rolls-Royce's
indemnification obligation is limited to losses exceeding $1.0 million and is
limited to $5,000,000 in the aggregate. Otherwise, its indemnification
obligations under the Stock Purchase Agreement survive indefinitely and are not
limited as to amount.
Conditions
Conditions to Each Party's Obligations to Effect the Stock Sale. The
respective obligations of First Aviation and Rolls-Royce to effect the stock
sale are subject to the satisfaction or waiver of the following conditions:
o any waiting period (including any extension thereof) applicable to the
sale of National Airmotive's capital stock to Rolls-Royce under the
HSR Act and under the Exon-Florio Amendment shall have terminated or
expired;
o there shall not be in effect any order by a governmental body
restraining or prohibiting the stock sale; and
13
<PAGE>
o no injunction, restraining order or decree of any court or
governmental or regulatory authority shall exist against First
Aviation, Rolls-Royce or any of their related parties that restrains,
prevents or materially changes the transactions contemplated in the
Stock Purchase Agreement.
Conditions to the Obligations of Rolls-Royce. The obligations of
Rolls-Royce to effect the stock sale are subject to the satisfaction or waiver
of the following additional conditions:
o the representations and warranties of First Aviation being true on and
as of the closing date;
o First Aviation having performed and complied in all material respects
with all obligations and covenants required to be performed or
complied with by it on or prior to the closing date;
o since the January 31, 1999 there shall have been no event, occurrence,
development or state of circumstances that individually, or in the
aggregate, and when aggregated with all positive developments, has had
or would reasonably be expected to have a material adverse effect on
National Airmotive;
o First Aviation shall have provided Rolls-Royce with an affidavit of
non-foreign status that complies with Section 1445 of the Internal
Revenue Code;
o Rolls-Royce shall have received the written resignation of each
director of National Airmotive;
o Rolls-Royce shall have received a certificate from each landlord of
the properties leased by National Airmotive, dated during the month in
which the closing occurs, certifying
o (a) that the applicable lease is in good standing and full force
and effect in accordance with its terms and has not been modified
(except for modifications set forth therein), amended or
assigned,
o (b) the date(s) to which rent and other charges thereunder have
been paid,
o (c) that to the knowledge of the landlord there is no default
thereunder by either party thereto, and
o (d) that all work required to be done under the applicable lease
on the part of National Airmotive has been completed to the
satisfaction of the landlord;
o all assignments, consents, approvals and authorizations of certain
landlords that are listed shall have been obtained or effected, and
shall not impose any additional and unreasonable obligations,
liabilities or restrictions on Rolls-Royce; and
o First Aviation shall have
o (a) satisfied in full all obligations under any indebtedness of
National Airmotive and its subsidiary (including any interest,
prepayment premiums or penalties and other fees and charges) or
o (b) provided Rolls-Royce with correct and complete payoff letters
with respect to such indebtedness and directed its financing
sources to pay the amounts set forth in such payoff letters to
the parties referred to therein, and
o Rolls-Royce shall have received executed releases of all liens.
14
<PAGE>
Conditions to the Obligations of First Aviation. The obligations of
First Aviation to effect the stock sale are subject to the satisfaction or
waiver of the following additional conditions:
o the representations and warranties of Rolls-Royce shall be true
and correct in all material respects on and as of the closing
date; and
o Rolls-Royce shall have performed and complied in all material
respects with all obligations and covenants required by the Stock
Purchase Agreement to be performed or complied with by it on or
prior to the closing date.
No Solicitation
Under the Stock Purchase Agreement, First Aviation may not take, nor
may it permit National Airmotive, its subsidiary or any of First Aviation's
directors, officers, employees, representatives or agents, to directly or
indirectly to:
o discuss, negotiate, undertake, authorize, recommend, propose or
enter into any transaction involving a merger, consolidation,
business combination, purchase or disposition of any significant
amount of the assets or capital stock or other equity interest in
National Airmotive or any of its subsidiary other than the
transactions contemplated by the Stock Purchase Agreement (an
"Acquisition Transaction");
o facilitate, encourage, solicit or initiate discussions,
negotiations or submissions of proposals or offers in respect of
an Acquisition Transaction;
o furnish or cause to be furnished, to any person, any information
concerning the business, operations, properties or assets of
National Airmotive and its subsidiary in connection with an
Acquisition Transaction; or
o otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing.
Termination
The Stock Purchase Agreement may be terminated
o by either party, if the transactions contemplated by the Stock
Purchase Agreement have not been consummated by December 15,
1999, provided that the terminating party is not in default of
any of its obligations under the Stock Purchase Agreement;
o by the mutual written consent of the parties;
o by either party, if there shall be in effect a final
nonappealable Order of a Governmental Body of competent
jurisdiction restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by the Stock
Purchase Agreement;
o by either party, if the closing shall not have occurred on or
prior to November 1, 1999 (or another mutually agreed date),
provided that all of the conditions to closing are satisfied or
waived on that date and the failure to close is the result of an
action or inaction of the non-terminating party; and
15
<PAGE>
o by Rolls-Royce, if
(a) First Aviation breaches any of its representations,
warranties or obligations under the Stock Purchase Agreement, and
fails to cure the breach on or before December 15, 1999, provided
written notice of the breach is given to First Aviation; or
(b) if, but for the inclusion of information on an Updated
Schedule, the representations and warranties of National
Airmotive would not be true and correct in all material respects
as of the closing date; provided, that no termination right will
arise due to the addition of new contracts or amendments to or
terminations of existing contracts, if such contracts were not
entered into, amended or terminated in violation of the Stock
Purchase Agreement; or
o by First Aviation, if Rolls-Royce breaches any of its
representations, warranties or obligations, the breach is not
cured or waived and Rolls-Royce fails to provide reasonable
assurance that the breach will be cured on or before the closing
date.
No party will be entitled to terminate the Stock Purchase Agreement if
that party's intentional breach of the Stock Purchase Agreement has prevented
the satisfaction of a condition.
If the Stock Purchase Agreement is terminated, it immediately becomes
void and there will be no liability or obligation on the part of either First
Aviation or Rolls-Royce, except to the extent that the termination results from
the breach by a party of any of its obligations under the Stock Purchase
Agreement and provided that the confidentiality provisions of the Stock Purchase
Agreement will survive such termination.
STOCK PERFORMANCE DATA
Historical Market Price
First Aviation common stock trades on The NASDAQ Stock Market under the
symbol "FAVS." The following table sets forth the quarterly high and low sales
prices per share of First Aviation common stock as reported on the NASDAQ
Composite Tape since March 5, 1997, the date public trading commenced.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal Year ended January 31, 1998
First Quarter......................................... 11 3/4 8
Second Quarter........................................ 11 1/8 8 1/4
Third Quarter......................................... 11 7 5/8
Fourth Quarter........................................ 8 3/4 5 7/8
Fiscal Year ended January 31, 1999
First Quarter........................................ 7 1/4 5 1/2
Second Quarter........................................ 6 1/62 4 7/32
Third Quarter......................................... 5 7/8 4 1/8
Fourth Quarter........................................ 5 4 1/16
Fiscal Year ended January 31, 2000
First Quarter ........................................ 5 1/8 3 3/32
Second Quarter ....................................... 6 5/8 4 3/4
Third Quarter (through October 7, 1999) .............. 6 7/8 5 1/8
</TABLE>
16
<PAGE>
Recent Market Price
The following table sets forth the closing price and the high and low
sales prices per share of First Aviation common stock on The NASDAQ Stock Market
on September 8, 1999, the last trading day preceding the public announcement of
the stock sale and on October 7, 1999, the latest practicable trading day before
the printing of this Information Statement.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
September 8, 1999......................................... 6 5/8 6 1/8
October 7, 1999........................................... 5 3/8 5 3/8
</TABLE>
Number of Holders
As of the record date September 8, 1999, there were twenty-nine holders
of record of First Aviation common stock.
COMPARATIVE PER SHARE DATA
(Unaudited)
The following tabulation reflects the historical net income per share
in comparison with the pro forma net income per share after giving effect to the
stock sale. The information presented in this tabulation should be read in
conjunction with the description of the stock sale contained in this Information
Statement, the condensed consolidated pro forma financial statements appearing
elsewhere herein, and First Aviation's consolidated financial statements
included in its Quarterly Report on Form 10-Q/A for the six-months ended July
31, 1999.
<TABLE>
<CAPTION>
Six Months
Ended July 31,
1999
-------------
<S> <C>
Basic net income per share:
Historical....................................................... $ 0.31
Pro Forma........................................................ $ 0.02
Net income per share - assuming dilution:
Historical....................................................... $ 0.31
Pro Forma........................................................ $ 0.02
</TABLE>
BOOK VALUE PER SHARE
(Unaudited)
The following tabulation reflects the historical net book value per
share of First Aviation common stock in comparison with the pro forma net book
value per share of First Aviation common stock after giving effect to the stock
sale at July 31, 1999 based on 9,004,821 basic and 9,119,779 diluted shares
outstanding, respectively, for the historical net book value and the pro forma
net book value. The information presented in this Information Statement should
be read in conjunction with the description of the stock sale contained in this
Information Statement, the condensed consolidated pro forma financial statements
appearing elsewhere herein and First Aviation's consolidated financial
statements included in its Quarterly Report on Form 10-Q/A for the six-months
ended July 31, 1999.
<TABLE>
<CAPTION>
As of July 31, 1999
-------------------
Historical Pro Forma
---------- ---------
<S> <C> <C>
Basic Book Value Per Share...................... $ 5.24 $ 6.27
Book Value Per Share - Assuming Dilution........ $ 5.18 $ 6.20
</TABLE>
17
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of First Aviation common stock as of September 8, 1999, (i) by each
person who is known by First Aviation to own beneficially 5% or more of the
outstanding shares of common stock, (ii) each of First Aviation's directors,
(iii) each of the named executive officers, and (iv) all directors and executive
officers as a group. Except as indicated in the footnotes to the table, the
persons named in the table have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them, subject to
community property laws where applicable, and are located at 15 Riverside
Avenue, Westport, Connecticut 06880.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Owner Percent of Class
- ------------------- -------------------- ----------------
<S> <C> <C>
First Equity Group Inc. (1) 3,748,893 41.6%
Aaron P. Hollander (1) 3,748,893 41.6%
Michael C. Culver (1) 3,748,893 41.6%
The Wynnefield Group (2)
One Penn Plaza, Suite 4720
New York, NY 10119 1,732,792 19.2%
Canpartners Investments IV, LLC (3)
9665 Wilshire Boulevard
Suite 200
Beverly Hills, California 90212 1,293,335 14.3%
Wellington Management Company, LLP (4)
75 State Street
Boston, MA 02109 882,000 9.8%
John A. Marsalisi 11,713 *
Gerald E. Schlesinger 1,896 *
Aerospace Products International
3778 Distriplex Drive North
Memphis, TN 38118 1,000 *
Philip C. Botana 1,000 *
Aerospace Products International
3778 Distriplex Drive North
Memphis, TN 38118 1,000 *
Joshua S. Friedman (5) -- *
Robert L. Kirk 12,678 *
Charles B. Ryan 47,228 0.1%
All directors and executive officers as a
group (8 persons) 3,823,408 42.4%
</TABLE>
* less than 1%
(1) Aaron P. Hollander and Michael C. Culver own, in the aggregate, all of the
outstanding shares of First Equity Group Inc.
(2) Based upon a Schedule 13D dated June 7, 1999 and First Aviation's
knowledge, The Wynnefield Group is composed of the Wynnefield Partners
Small Cap Value, L.P., Channel Partnership II L.P., Wynnefield Small Cap
Value Offshore Fund, Ltd., and the Wynnefield Small Cap Value, L.P.I.
(3) Based upon a Schedule 13G dated February 12, 1998 and First Aviation's
knowledge, Canpartners Incorporated is a Managing Member of Canpartners.
Mr. Friedman, Mitchell R. Julis and R. Christian B. Evenson are the sole
shareholders and directors of Canpartners Incorporated and
18
<PAGE>
such individuals may be deemed to share beneficial ownership of the shares
shown as owned by Canpartners. Such persons disclaim beneficial ownership
of such shares.
(4) Based upon a Schedule 13G dated January 13, 1998 and First Aviation's
knowledge.
(5) Excludes 1,293,335 shares shown as owned by Canpartners. Mr. Friedman is a
Vice-President of Canpartners and is a shareholder and director of
Canpartners Incorporated, a Managing Member of Canpartners, and as such may
be deemed to have voting and investment power over such shares. Mr.
Friedman disclaims any beneficial ownership of such shares.
WHERE YOU CAN FIND MORE INFORMATION
First Aviation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission. Reports, proxy statements and other information filed by First
Aviation can be inspected and copied at the public reference facilities at the
SEC's office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at the SEC's Regional Office at Seven World Trade Center, Suite
1300, New York, New York 10048 and at the SEC's Regional Office at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of that material can
be obtained from the Public Reference Section of the SEC at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates, and
may also be accessed electronically by means of the SEC's home page on the
Internet at http://www.sec.gov. Those reports, proxy statements and other
information concerning First Aviation also can be inspected and copied at the
offices of The National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.
Statements contained in this Information Statement or in any document
incorporated in this Information Statement by reference as to the contents of
any contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an annex to this Information Statement or such other
document, each such statement being qualified in all respects by such reference.
This Information Statement incorporates by reference documents relating
to First Aviation that are not presented herein or delivered herewith. These
documents, excluding exhibits unless specifically incorporated therein, are
available, without charge to any holders of First Aviation common stock as of
September 8, 1999 to whom this Information Statement is delivered, upon written
or oral request, to:
First Aviation Services Inc.
Attn: Investor Relations
15 Riverside Avenue
Westport, CT 06880-4214
Phone: (203) 291-3300
Fax: (203) 291-3330
The following documents filed with the SEC under the Exchange Act are
incorporated herein by reference:
(a) First Aviation's Quarterly Report on Form 10-Q/A for the
six-months July 31, 1999;
(b) First Aviation's definitive Proxy Statement relating to its 1999
Annual Meeting of Shareholders held on July 15, 1999; and
(c) First Aviation's Annual Report on Form 10-K/A for the year ended
January 31, 1999.
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<PAGE>
CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
The following unaudited condensed consolidated pro forma statements of
operations for the six-months ended July 31, 1999 and the year ended January 31,
1999, reflect the results of First Aviation for each of the periods then ended,
adjusted to give pro forma effect to the stock sale as if the transaction had
occurred at the beginning of each respective period presented.
The following unaudited condensed consolidated pro forma balance sheet as of
July 31, 1999 reflects the accounts of First Aviation as of that date adjusted
to give pro forma effect to the stock sale as if the transaction had occurred as
of July 31, 1999.
The condensed consolidated pro forma financial statements and accompanying notes
should be read in conjunction with the description of the stock sale contained
in this Information Statement, the consolidated financial statements and related
notes thereto included in First Aviation's Quarterly Report on Form 10-Q/A for
the six-months ended July 31, 1999 and Annual Report on Form 10-K/A for the year
ended January 31, 1999. First Aviation believes that the assumptions used in the
following statements provide a reasonable basis on which to present the pro
forma financial statements. The condensed consolidated pro forma financial
statements are provided for informational purposes only and should not be
construed to be indicative of First Aviation's financial position or results of
operations had the stock sale been consummated on the dates assumed, and are not
intended to project First Aviation's financial position on any future date or
results of operations for any future period.
20
<PAGE>
First Aviation Services Inc.
Condensed Consolidated Pro Forma Results of Operations
For the Six-Months Ended
July 31, 1999
<TABLE>
<CAPTION>
(amounts in thousands, except for share amounts) Consolidated
Unadjusted Results, as
Consolidated NAC Previously Pro Forma Pro Forma
Results Elimination Reported(a) Adjustments Results
------------ ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 94,943 $(56,821) $ 38,122 $ -- $ 38,122
Cost of sales 78,105 (47,236) 30,869 -- 30,869
-------- --------- --------- ------- ---------
Gross profit 16,838 (9,585) 7,253 -- 7,253
Selling, general and administrative expenses 11,429 (4,853) 6,576 -- 6,576
-------- --------- --------- ------- ---------
Operating income before corporate expenses 5,409 (4,732) 677 -- 677
Corporate expenses 1,202 -- 1,202 -- 1,202
-------- --------- --------- ------- ---------
Income (loss) from operations 4,207 (4,732) (525) -- (525)
Net interest expense (income) 1,102 (806) 296 (1,181)(b) (885)
Minority interest in subsidiary 24 -- 24 -- 24
-------- --------- --------- ------- ---------
Income (loss) before provision (benefit)
for income taxes 3,081 (3,926) (845) 1,181 336
Provision (benefit) for income taxes 307 (645) (338) 472 (c) 134
-------- --------- --------- ------- ---------
Net income (loss) from continuing operations $ 2,774 $ (3,281) $ (507) $ 709 $ 202
Net income of discontinued operation -- 3,281 3,281 (3,281)(d) --
-------- --------- --------- ------- ---------
Net income (loss) available to common stockholders $ 2,774 $ -- $ 2,774 $(2,572) $ 202
======== ========= ========= ======= =========
Basic net income (loss) per common share from
continuing operations $ (0.05) $ 0.02
Basic net income (loss) per common share from
discontinued operation 0.36 --
--------- ---------
Basic net income (loss) per common share $ 0.31 $ 0.02
========= =========
Shares used in the calculation of basic net income
(loss) per common share 9,004,821 9,004,821
Net income (loss) per common share from
continuing operations - assuming dilution $ (0.05) $ 0.02
Net income (loss) per common share from
discontinued operation - assuming dilution 0.36 --
--------- ---------
Net income (loss) per common share - assuming dilution $ 0.31 $ 0.02
========= =========
Shares used in the calculation of net income (loss)
per common share - assuming dilution 9,004,821 9,119,779(e)
</TABLE>
(a) From the First Aviation Services Quarterly Report on Form 10-Q/A for
the six-months ended July 31, 1999.
(b) To record estimated interest income earned during the period at an
assumed rate of 5% of cash on hand.
(c) To record estimated income tax provision on pro forma adjustments at a
statutory combined rate of 40%.
(d) To eliminate the discontinued operation.
(e) Prior to the pro forma adjustments, a loss from continuing operations
was incurred. The dilutive effect of stock options was not included in
the calculation of shares outstanding because the effect on continuing
operations would have been antidilutive. After the pro forma
adjustments, the dilutive effect of stock options is included because
the results show income from continuing operations.
21
<PAGE>
Condensed Consolidated Pro Forma Results of Operations
For the Year Ended
January 31, 1999
<TABLE>
<CAPTION>
(amounts in thousands, except share amounts) Consolidated NAC
Results, as Elimination Consolidated
Previously and Corporate Results, as Pro Forma Pro Forma
Reported(a) Reclassification Restated(a) Adjustments Results
------------ ---------------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 153,740 $(94,074) $ 59,666 $ -- $ 59,666
Cost of sales 126,456 (78,486) 47,970 -- 47,970
--------- -------- --------- ------- ---------
Gross profit 27,284 (15,588) 11,696 -- 11,696
Selling, general and administrative expenses 21,662 (11,614)(b) 10,048 -- 10,048
Non-recurring charges 6,178 (5,378) 800 -- 800
--------- -------- --------- ------- ---------
Operating income before corporate expenses (556) 1,404 848 -- 848
Corporate expenses -- 2,127 (b) 2,127 -- 2,127
--------- -------- --------- ------- ---------
Income (loss) from operations (556) (723) (1,279) -- (1,279)
Net interest expense (income) 1,815 (1,548) 267 (2,250)(c) (1,983)
Minority interest in subsidiary 42 -- 42 -- 42
--------- -------- --------- ------- ---------
Income (loss) before provision (benefit)
for income taxes (2,413) 825 (1,588) 2,250 662
Provision (benefit) for income taxes (699) 64 (635) 900 (d) 265
--------- -------- --------- ------- ---------
Net income (loss) from continuing operations $ (1,714) $ 761 $ (953) $ 1,350 $ 397
Net income (loss) of discontinued operation -- (761) (761) 761 (e) --
--------- -------- --------- ------- ---------
Net income (loss) available to common stockholders $ (1,714) $ -- $ (1,714) $ 2,111 $ 397
========= ======== ========= ======= =========
Basic net income (loss) per common share from
continuing operations $ (0.19) $ (0.11) $ 0.04
Basic net (loss) per common share from
discontinued operation -- (0.08) --
--------- --------- ---------
Basic net income (loss) per common share $ (0.19) $ (0.19) $ 0.04
========= ========= =========
Shares used in the calculation of basic net
income (loss) per common share 8,972,953 8,972,953 8,972,953
Net income (loss) per common share from continuing
operations - assuming dilution $ (0.19) $ (0.11) $ 0.04
Net (loss) per common share from discontinued
operation - assuming dilution -- (0.08) --
--------- --------- ---------
Net income (loss) per common share - assuming
dilution $ (0.19) $ (0.19) $ 0.04
========= ========= =========
Shares used in the calculation of net (loss) per
common share - assuming dilution 8,972,953 8,972,953 9,091,192 (f)
</TABLE>
(a) From the First Aviation Annual Report on Form 10-K/A for the Year
ended January 31, 1999.
(b) Restated to reflect reclassification of corporate expenses from
selling, general and administrative expenses to a separate line.
(c) To record estimated interest income earned during the period at an
assumed rate of 5% of net cash on hand.
(d) To record estimated income tax on pro forma adjustments at a statutory
combined rate of 40%.
(e) To eliminate the discontinued operation.
(f) Prior to the pro forma adjustments, a loss from continuing operations
was incurred. The dilutive effect of stock options was not included in
the calculation of shares outstanding because the effect on continuing
operations would have been antidilutive. After the pro forma
adjustments, the dilutive effect of stock options is included because
the results show income from continuing operations.
22
<PAGE>
First Aviation Services Inc.
Condensed Consolidated Pro Forma Balance Sheet
As of July 31, 1999
<TABLE>
<CAPTION>
(amounts in thousands) As Previously NAC Pro Forma Pro Forma
Reported(a) Elimination Adjustments Totals
------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Cash $ 288 $ -- $ 50,617 (b) $ 50,905
Other current assets 84,009 (52,386) (3,006)(c) 28,617
-------- -------- -------- --------
Total current assets 84,297 (52,386) 47,611 79,522
Non-current assets 28,508 (22,986) -- 5,522
-------- -------- -------- --------
Total assets $112,805 $(75,372) $ 47,611 $ 85,044
======== ======== ======== ========
Current liabilities $ 42,906 $(21,354) $ 5,592 (c)(d) $ 27,144
Non-current liabilities 22,683 (21,282) -- 1,401
Stockholders' equity 47,216 -- 9,283 (e) 56,499
-------- -------- -------- --------
Total liabilities and stockholders' equity $112,805 $(42,636) $ 14,875 $ 85,044
======== ======== ======== ========
</TABLE>
(a) As shown in First Aviation's Quarterly Report on Form 10-Q/A for the
six-months ended July 31, 1999.
(b) To record estimated proceeds from the sale of National Airmotive, net
of expenses.
(c) To reclassify income taxes to liability account.
(d) To reclassify income taxes, record increase in income taxes payable as
a result of the pro forma adjustments and provide for estimated
liabilities in connection with the sale of National Airmotive.
(e) To record the estimated gain on the sale of National Airmotive, net of
applicable income tax effect.
23
================================================================================
STOCK PURCHASE AGREEMENT
BETWEEN
FIRST AVIATION SERVICES, INC.
AND
ROLLS-ROYCE NORTH AMERICA INC.
--------------------
DATED AS OF SEPTEMBER 9, 1999
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
ARTICLE I SALE AND PURCHASE OF SHARES................................................................1
Section 1.1 Sale and Purchase of Shares...........................................................1
ARTICLE II PURCHASE PRICE AND PAYMENT.................................................................1
Section 2.1 Amount of Purchase Price..............................................................1
Section 2.2 Adjustment of Purchase Price..........................................................1
Section 2.3 Payment of Purchase Price.............................................................3
ARTICLE III CLOSING AND TERMINATION....................................................................4
Section 3.1 Closing Date..........................................................................4
Section 3.2 Transactions on the Closing Date......................................................4
Section 3.3 Termination of Agreement..............................................................4
Section 3.4 Procedure Upon Termination............................................................5
Section 3.5 Effect of Termination.................................................................5
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLER...............................................5
Section 4.1 Organization and Good Standing........................................................5
Section 4.2 Authorization of Agreement............................................................6
Section 4.3 Capitalization........................................................................6
Section 4.4 Subsidiaries..........................................................................7
Section 4.5 Corporate Records.....................................................................7
Section 4.6 Conflicts; Consents of Third Parties..................................................7
Section 4.7 Ownership and Transfer of Shares......................................................8
Section 4.8 Financial Statements..................................................................8
Section 4.9 No Undisclosed Liabilities............................................................9
Section 4.10 Absence of Certain Developments.......................................................9
Section 4.11 Taxes................................................................................11
Section 4.12 Real Property........................................................................13
Section 4.13 Intellectual Property................................................................15
Section 4.14 Contracts............................................................................16
Section 4.15 Employee Benefits....................................................................18
Section 4.16 Labor................................................................................21
Section 4.17 Litigation...........................................................................21
Section 4.18 Compliance with Laws; Permits........................................................21
i
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
Section 4.19 Environmental Matters................................................................21
Section 4.20 Insurance............................................................................22
Section 4.21 Financial Advisors...................................................................23
Section 4.22 Accounts Receivable..................................................................23
Section 4.23 Affiliate Interests..................................................................23
Section 4.24 Pending FAA Enforcement Action and Regulatory Compliance.............................24
Section 4.25 No Material Change...................................................................24
Section 4.26 Personal Property....................................................................24
Section 4.27 Inventory............................................................................25
Section 4.28 Customers, Suppliers, Distributors, etc..............................................25
Section 4.29 Warranties of Products; Product Liability............................................25
Section 4.30 Absence of Questionable Payments.....................................................25
Section 4.31 Year 2000 Capability.................................................................26
Section 4.32 Government Contracts.................................................................26
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...........................................28
Section 5.1 Organization and Good Standing.......................................................28
Section 5.2 Authorization of Agreement...........................................................28
Section 5.3 Conflicts; Consents of Third Parties.................................................29
Section 5.4 Litigation...........................................................................29
Section 5.5 Investment Intention.................................................................29
Section 5.6 Financial Capability.................................................................29
Section 5.7 Financial Advisors...................................................................29
ARTICLE VI COVENANTS AND ADDITIONAL AGREEMENTS.......................................................30
Section 6.1 Access to Information................................................................30
Section 6.2 Conduct of the Business Pending the Closing..........................................30
Section 6.3 Preparation of Information Statement.................................................33
Section 6.4 Consents.............................................................................33
Section 6.5 Other Actions........................................................................33
Section 6.6 Non-Solicitation; Non-Competition....................................................33
ii
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
Section 6.7 Preservation of Records; Access and Support..........................................34
Section 6.8 Publicity............................................................................35
Section 6.9 Prepayment of Indebtedness and Cancellation of Affiliate Agreements..................35
Section 6.10 Transfer of Certain Claims...........................................................35
Section 6.11 Confidentiality......................................................................35
Section 6.12 Regulatory Filings...................................................................36
Section 6.13 Rights to Trade Show Space...........................................................36
Section 6.14 Updated Schedules....................................................................36
Section 6.15 Novation.............................................................................36
Section 6.16 Pratt & Whitney DDOF Termination Amounts.............................................36
Section 6.17 Designated Person for Consents.......................................................37
Section 6.18 Executive Sale Agreement Amounts.....................................................37
ARTICLE VII CONDITIONS TO CLOSING.....................................................................37
Section 7.1 Conditions Precedent to Obligations of Each Party....................................37
Section 7.2 Conditions Precedent to Obligations of the Purchaser.................................37
Section 7.3 Conditions Precedent to Obligations of the Seller....................................39
ARTICLE VIII INDEMNIFICATION...........................................................................39
Section 8.1 Non-Income Tax and Non-Environmental Indemnification.................................39
Section 8.2 Limitations on Indemnification for Breaches of Representations and Warranties,
Non-Income Taxes, the Lane Litigation and the Philippines Letter.....................41
Section 8.3 Environmental Indemnification and Limitation Thereof.................................42
Section 8.4 Non-Tax Indemnification Procedures...................................................43
Section 8.5 Income Tax Indemnification and Other Tax Matters.....................................46
Section 8.6 Tax Treatment of Indemnity Payments..................................................51
Section 8.7 Computation of Losses; Disputes......................................................51
Section 8.8 Indemnification as Sole Remedy.......................................................52
Section 8.9 Certain Additional Limitations on Indemnification....................................52
iii
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
ARTICLE IX MISCELLANEOUS.............................................................................52
Section 9.1 Certain Definitions..................................................................52
Section 9.2 Survival of Representations and Warranties...........................................56
Section 9.3 Expenses.............................................................................57
Section 9.4 Specific Performance.................................................................57
Section 9.5 Further Assurances...................................................................57
Section 9.6 Entire Agreement; Amendments and Waivers.............................................57
Section 9.7 GOVERNING LAW........................................................................57
Section 9.8 Dispute Resolution...................................................................58
Section 9.9 Table of Contents and Headings.......................................................58
Section 9.10 Notices..............................................................................58
Section 9.11 Severability.........................................................................59
Section 9.12 Binding Effect; Assignment...........................................................59
Section 9.13 Construction.........................................................................60
Section 9.14 Incorporation of Exhibits and Schedules..............................................60
</TABLE>
iv
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of September 9, 1999 (the
"Agreement"), between FIRST AVIATION SERVICES, INC., a Delaware corporation (the
"Seller") and ROLLS-ROYCE NORTH AMERICA INC., a Delaware corporation (the
"Purchaser").
W I T N E S S E T H:
WHEREAS, the Seller owns an aggregate of 551,000 shares of common
stock, $.01 par value (the "Shares"), of NATIONAL AIRMOTIVE CORPORATION, a
California corporation (the "Company"), which Shares constitute all of the
issued and outstanding shares of capital stock of the Company;
WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser
desires to purchase from the Seller, the Shares for the purchase price and upon
the terms and conditions set forth in this Agreement; and
WHEREAS, certain terms used in this Agreement are defined in
Section 9.1;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained in this
Agreement, the parties hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
---------------------------
Section 1.1 Sale and Purchase of Shares. Upon the terms and subject to
the conditions contained in this Agreement, on the Closing Date, the Seller
shall sell, assign, transfer, convey and deliver to the Purchaser, and the
Purchaser shall purchase from the Seller, the Shares.
ARTICLE II
PURCHASE PRICE AND PAYMENT
--------------------------
Section 2.1 Amount of Purchase Price. The purchase price for the Shares
shall be an amount equal to $73,000,000, subject to post-closing adjustment
pursuant to Section 2.2 (as adjusted, the "Purchase Price"). The Purchase Price
shall be payable as provided in Section 2.3. All amounts set forth in this
Agreement shall be in U.S. Dollars, unless otherwise stated.
Section 2.2 Adjustment of Purchase Price.
(a) The Purchase Price shall be adjusted as follows:
<PAGE>
(i) For purposes hereof, "Final Net Assets" shall mean the
total assets of the Company less the total liabilities of the Company,
as reflected in the Final Balance Sheet referred to in Section 2.2(b).
"Target Net Assets" shall mean $49,311,000.
(ii) If the amount of the Final Net Assets determined in
accordance with this Section is less than the Target Net Assets, the
Purchase Price shall be decreased by an amount equal to the difference
between the Final Net Assets and the Target Net Assets; provided,
however, that the amount of any adjustment that would decrease the
Purchase Price to an amount less than $70,000,000 shall be disregarded.
(iii) If the amount of the Final Net Assets is greater than
the Target Net Assets, the Purchase Price shall be increased by an
amount equal to the difference between the Final Net Assets and the
Target Net Assets; provided, however, that the amount of any adjustment
that would increase the Purchase Price to an amount greater than
$76,000,000 shall be disregarded.
(b) The Final Net Assets shall be determined as of the close of
business on the day immediately preceding the day of the Closing (the
"Determination Time") on the basis of the balance sheet of the Company as of the
Determination Time (the "Final Balance Sheet"). The Final Balance Sheet shall be
prepared by the Seller in accordance with U.S. generally accepted accounting
principles ("GAAP") as supplemented by the principles set forth in Schedule 2.2
(the "Accounting Principles") and shall be reported upon by Ernst & Young LLP;
provided, however, that should Ernst & Young LLP be unable or unwilling to
provide the report described above, the Seller shall promptly engage another
independent public accounting firm of national reputation (the "Alternate Firm")
to provide such report, or the Seller and the Purchaser may agree to the amount
of Final Net Assets and the amount of any required adjustment to the Purchase
Price as contemplated by this Section 2.2. Ernst & Young LLP or the Alternate
Firm, as the case may be, shall hereinafter be referred to as the "Auditor". The
Seller shall be responsible for the fees and expenses of the Auditor.
(c) The Seller shall use its best efforts to deliver to the
Purchaser the Final Balance Sheet within sixty (60) days after the Closing (or,
in the event the Auditor is the Alternate Firm, within sixty (60) days after the
Alternate Firm is engaged), together with a report of the Auditor thereon (i)
setting forth the amount of Final Net Assets reflected in the Final Balance
Sheet, (ii) stating that (y) the examination has been made in accordance with
generally accepted auditing standards, and (z) the Final Balance Sheet has been
prepared in conformity with the Accounting Principles, and (iii) setting forth
the amount of any required adjustment to the Purchase Price pursuant to this
Section 2.2. The Purchaser and the Seller shall take such actions as are
necessary to cause the Auditor's report on the Final Balance Sheet to be
performed expeditiously. During the period from the Closing Date (as defined in
Section 3.1) until the date of delivery of the Final Balance Sheet, the
Purchaser shall give the Seller, the Auditor and other appropriate personnel
such assistance and access to the assets and books and records of the Company as
the Seller and the Auditor shall reasonably request during normal business hours
in order to enable them to prepare and examine, respectively, the Final Balance
Sheet. KPMG LLP or such other independent accounting firm engaged by the
Purchaser at the Purchaser's sole expense (which shall not be the Unrelated
Accounting Firm referred to below) ("Purchaser's
2
<PAGE>
Auditor") shall have the opportunity to observe the taking of the inventory of
the Company in connection with the preparation of the Final Balance Sheet, and
to examine the work papers, schedules and other documents prepared by the Seller
in connection with its preparation of the Final Balance Sheet. The Seller shall
use its reasonable efforts to cause the Auditor to permit the Purchaser and the
Purchaser's Auditor to examine the Auditor's work papers used in connection with
its audit of the Final Balance Sheet.
(d) Within thirty (30) days following the delivery of the Final
Balance Sheet and the related report of the Auditor, the Purchaser shall deliver
to the Seller a notice of acceptance (an "Acceptance Notice") or a notice of
objection (an "Objection Notice") with respect to the Final Balance Sheet and
related auditor's report. Such Final Balance Sheet and related auditor's report
shall be final and binding on the parties if an Acceptance Notice is delivered
to the Seller or if no Objection Notice is delivered to the Seller within such
thirty (30) day period. Any Objection Notice shall specify in reasonable detail
the items on the Final Balance Sheet disputed and shall describe in reasonable
detail the basis for the objection and all information in the possession of the
objecting party which forms the basis thereof, as well as the amount in dispute.
If an Objection Notice is given, the parties shall consult with each other with
respect to the objection. If the parties are unable to reach agreement within
thirty (30) days after an Objection Notice has been given, any unresolved
disputed items shall be promptly referred to an accounting firm selected by
mutual agreement of the Purchaser and the Seller, or if the Purchaser and the
Seller are unable to agree, PriceWaterhouse Coopers LLP (the "Unrelated
Accounting Firm"). The Unrelated Accounting Firm shall be directed to render a
written report on the unresolved disputed issues with respect to the Final
Balance Sheet as promptly as practicable and to resolve only those issues of
dispute set forth in the Objection Notice. The resolution of the dispute by the
Unrelated Accounting Firm shall be final and binding on the parties. The fees
and expenses of the Unrelated Accounting Firm shall be borne equally by the
Seller and the Purchaser.
Section 2.3 Payment of Purchase Price.
(a) At the Closing, the Purchaser shall pay to the Seller an
amount equal to $73,000,000 by wire transfer of immediately available funds to
an account or accounts designated by the Seller in writing at least three (3)
business days prior to the Closing Date.
(b) Within two (2) business days after the Purchase Price is
finally determined pursuant to Section 2.2, the Seller shall pay to the
Purchaser, or the Purchaser shall pay to the Seller, as the case may be, the
amount of any adjustment required.
(c) Any payment pursuant to Section 2.3(b) shall be made by wire
transfer of immediately available funds to a single account designated by the
Seller or the Purchaser, as the case may be, and shall be accompanied by payment
of an amount determined by computing simple interest on the amount of that
payment at the rate of interest announced publicly by Chase Manhattan Bank from
time to time as its "reference rate" (on the basis of a 365-day year) from the
Closing Date to the date of payment(s).
3
<PAGE>
ARTICLE III
CLOSING AND TERMINATION
-----------------------
Section 3.1 Closing Date. The closing of the sale and purchase of the
Shares provided for in Section 1.1 (the "Closing") shall take place at 10:00
a.m. at the offices of Winthrop, Stimson, Putnam & Roberts, One Battery Park
Plaza, New York, New York (or at such other place as the parties may designate
in writing) on November 1, 1999 or such other date as shall be specified by the
parties, which shall be no later than the second business day after the
satisfaction or waiver of the conditions set forth in Article VII hereof (other
than those conditions that by their nature are to be satisfied at the Closing,
but subject to the fulfillment or waiver of those conditions). The date on which
the Closing shall be held is referred to in this Agreement as the "Closing
Date".
Section 3.2 Transactions on the Closing Date.
(a) At the Closing, the Seller will deliver to the Purchaser each
of the certificates and other documents contemplated by Section 7.2 hereof.
(b) At the Closing, the Purchaser will deliver to the Seller (i)
each of the certificates and other documents contemplated by Section 7.3 hereof
and (ii) $73,000,000 by wire transfer in immediately available funds to the
account or accounts designated by the Seller.
Section 3.3 Termination of Agreement. This Agreement may be terminated
prior to the Closing as follows:
(a) at the election of the Seller or the Purchaser on or after
December 15, 1999, if the Closing shall not have occurred by the close of
business on such date, provided that the terminating party is not in default of
any of its obligations hereunder;
(b) by mutual written consent of the Seller and the Purchaser;
(c) by the Seller or the Purchaser if there shall be in effect a
final nonappealable Order of a Governmental Body of competent jurisdiction
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby; it being agreed that the parties hereto shall
promptly appeal any adverse determination which is not nonappealable (and pursue
such appeal with reasonable diligence);
(d) by the Seller or the Purchaser, if, as a result of action or
inaction by the other party, the Closing shall not have occurred on or prior to
the date specified in or in accordance with Section 3.1, provided that all of
the conditions to Closing set forth in Article VII are satisfied or waived on
that date;
(e) by the Purchaser, if (i) the Seller shall breach any of its
representations, warranties or obligations hereunder, the Seller shall have
received written notice thereof, and the Seller shall not have cured such breach
on or before December 15, 1999; or (ii) if, but for the
4
<PAGE>
inclusion of information on an Updated Schedule, the condition precedent
specified in Section 7.2(a) would not be satisfied; provided, that no
termination right shall arise pursuant to this clause (ii) due to the addition
of new Contracts or amendments to or terminations of existing Contracts to
Schedule 4.14, if such Contracts were not entered into, amended or terminated in
violation of Section 6.2; or
(f) by the Seller, if the Purchaser shall breach any of its
representations, warranties or obligations hereunder and such breach shall not
have been cured or waived and the Purchaser shall not have provided reasonable
assurance that such breach will be cured on or before the Closing Date.
Notwithstanding the foregoing, no party shall be entitled to terminate
this Agreement pursuant to this Section 3.3 if such party's intentional breach
of this Agreement has prevented the satisfaction of a condition. Any termination
pursuant to this Section 3.3 shall be effected by a written instrument signed by
the terminating parties or party, which instrument shall specify the section
hereof pursuant to which this Agreement is being terminated.
Section 3.4 Procedure Upon Termination. In the event of termination and
abandonment by the Purchaser or the Seller, or both, pursuant to Section 3.3
hereof, written notice thereof shall forthwith be given to the other party or
parties, and this Agreement shall terminate, and the purchase of the Shares
hereunder shall be abandoned, without further action by the Purchaser or the
Seller. If this Agreement is terminated as provided herein, each party shall
redeliver all documents, work papers and other material of any other party
relating to the transactions contemplated hereby, whether so obtained before or
after the execution hereof, to the party furnishing the same.
Section 3.5 Effect of Termination. In the event that this Agreement is
validly terminated as provided herein, then each of the parties shall be
relieved of their duties and obligations arising under this Agreement after the
date of such termination and such termination shall be without liability to the
Purchaser or the Seller, except that (a) the obligations of the parties set
forth in Section 6.11 and Section 9.3 shall survive any such termination and be
enforceable and (b) nothing in this Section 3.5 shall relieve the Purchaser or
the Seller of any liability for a breach of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER
--------------------------------------------
The Seller and its Subsidiaries hereby represent and warrant to the
Purchaser that:
Section 4.1 Organization and Good Standing. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
conducted. The Company is duly qualified or authorized to do business as a
foreign corporation and is in good standing under the laws of each jurisdiction
in which it owns
5
<PAGE>
or leases real property and each other jurisdiction in which the conduct of its
business or the ownership of its properties requires such qualification or
authorization, with such exceptions as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
Section 4.2 Authorization of Agreement.
(a) The Seller has all requisite power, authority and legal
capacity to execute and deliver this Agreement and each other agreement,
document, or instrument or certificate to be executed by the Seller in
connection with the consummation of the transactions contemplated by this
Agreement (the "Seller Documents"), and to consummate the transactions
contemplated hereby and thereby. This Agreement has been, and each of the Seller
Documents will be at or prior to the Closing, duly and validly executed and
delivered by the Seller and (assuming the due authorization, execution and
delivery by the other parties hereto and thereto) this Agreement constitutes,
and each of the other Seller Documents when so executed and delivered will
constitute, legal, valid and binding obligations of the Seller, enforceable
against the Seller in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(b) The Board of Directors of the Seller, by resolutions duly
adopted at a meeting duly called and held has unanimously (i) determined that
this Agreement, the sale of the Shares and the other transactions contemplated
hereby are advisable and in the best interests of the Seller and its
stockholders and (ii) approved this Agreement, the sale of the Shares and the
other transactions contemplated hereby. Such resolutions have not subsequently
been rescinded or modified in any way.
(c) The holders of a majority of the shares of the Seller's common
stock entitled to vote thereon have taken action by written consent to approve
this Agreement and the transactions contemplated hereby. No other vote is
required by the holders of any class of the capital stock of the Seller or the
Company to approve this Agreement and the transactions contemplated hereby.
Section 4.3 Capitalization.
(a) The authorized capital stock of the Company consists of
25,000,000 shares of Common Stock, par value $.01 per share (the "Common Stock")
and 5,000,000 shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock"). As of the date hereof, there are 551,000 shares of Common
Stock issued and outstanding and no shares of Common Stock are held by the
Company as treasury stock. As of the date hereof, there are no shares of
Preferred Stock issued and outstanding or held by the Company as treasury stock.
All of the issued and outstanding shares of Common Stock are owned by the Seller
and were duly authorized for issuance and are validly issued, fully paid and
non-assessable.
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(b) There is no existing option, warrant, call, right, commitment
or other agreement of any character to which the Seller or the Company is a
party requiring, and there are no securities of the Company outstanding which
upon conversion or exchange would require, the issuance, sale or transfer of any
additional shares of capital stock or other equity securities of the Company or
other securities convertible into, exchangeable for or evidencing the right to
subscribe for or purchase shares of capital stock or other equity securities of
the Company. Neither the Seller nor the Company is a party to any voting trust
or other voting agreement with respect to any of the shares of Common Stock or
to any agreement relating to the issuance, sale, redemption, transfer or other
disposition of the capital stock of the Company other than this Agreement.
Section 4.4 Subsidiaries. Except as set forth on Schedule 4.4, the
Company has no Subsidiaries and does not own, directly or indirectly, any
capital stock or other equity securities of any corporation or have any direct
or indirect equity or ownership interest, including interests in partnerships
and joint ventures, in any Person. Schedule 4.4 sets forth the name,
jurisdiction of incorporation, authorized capitalization and share ownership of
each direct or indirect Subsidiary of the Company and the jurisdictions in which
each Subsidiary is qualified to do business. Except as set forth in Schedule
4.4, all of the outstanding capital stock of each Subsidiary is owned by the
Company or its Subsidiaries free and clear of all encumbrances except for
restrictions on transfer under federal and state securities laws. All such
shares of capital stock of each Subsidiary have been validly issued and are
fully paid and nonassessable. There are no outstanding options, warrants or
other rights of any kind to acquire any additional shares of capital stock of
any Subsidiary or securities convertible into or exchangeable for, or which
otherwise confer on the holder thereof any right to acquire, any such additional
shares, nor is any Subsidiary obligated to issue any such option, warrant, right
or security. Except as set forth in Schedule 4.4, there are no agreements
relating to the voting of, or obligating the Seller, the Company, or any of
their respective Subsidiaries to purchase or sell, capital stock of any
Subsidiary or of any partnership or joint venture interest held by any
Subsidiary.
Section 4.5 Corporate Records.
(a) The Seller has delivered to the Purchaser true, correct and
complete copies of the certificate of incorporation (certified by the Secretary
of State or other appropriate official of the state of California) and by-laws
(certified by the secretary, assistant secretary or other appropriate officer)
of the Company.
(b) The minute books of the Company previously made available to
the Purchaser contain complete and accurate records of all meetings and
accurately reflect all other corporate action of the stockholders and board of
directors (including committees thereof) of the Company. The stock certificate
books and stock transfer ledgers of the Company previously made available to the
Purchaser are true, correct and complete. All stock transfer taxes levied or
payable with respect to all transfers of shares of the Company prior to the date
hereof have been paid and appropriate transfer tax stamps affixed.
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Section 4.6 Conflicts; Consents of Third Parties.
(a) Neither the execution and delivery by the Seller of this
Agreement and the Seller Documents, the consummation of the transactions
contemplated hereby or thereby, nor compliance by the Seller with any of the
provisions hereof or thereof will, subject to receiving the consents referred to
in Section 4.6(b), (i) conflict with, or result in the breach of, any provision
of the certificate of incorporation or by-laws or comparable organizational
documents of the Seller or its Subsidiaries, (ii) conflict with, violate, result
in the breach or termination of, or constitute a default under, any Permit,
note, bond, mortgage, deed of trust, indenture, lease, license, shareholders'
agreement or partnership agreement to which the Company or any of its
Subsidiaries is a party or by which they or any of their properties or assets is
bound, (iii) result in the creation of any Lien (other than Permitted
Exceptions) upon the properties or assets of the Company and its Subsidiaries,
(iv) conflict with or violate any statute, rule, regulation, judgement, order,
writ, injunction or decree of any Governmental Body, administrative agency,
arbitration panel or authority applicable to the Company or any of its
Subsidiaries, or (v) conflict with, violate, result in the breach or termination
of, or constitute a default under any Contract required to be disclosed on
Schedule 4.14.
(b) Except for the novation of any Government Contract, filings as
may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act") and the voluntary notice to be filed under Section
721 of the Defense Production Act of 1950, as amended by Section 5021 of the
Omnibus Trade and Competitiveness Act of 1988 (the "Exon-Florio Amendment"), and
except as otherwise set forth on Schedule 4.6, no consent, waiver, approval,
Order, Permit or authorization of, or declaration or filing with, or
notification to, any Person or Governmental Body and no consent under any Permit
or any Contract required to be disclosed on Schedule 4.14 is required on the
part of the Seller, the Company or any of its Subsidiaries in connection with
the execution and delivery of this Agreement or the Seller Documents, or the
compliance by the Seller, the Company and its Subsidiaries with any of the
provisions hereof or thereof.
Section 4.7 Ownership and Transfer of Shares. The Seller is the record
and beneficial owner of the Shares, free and clear of any and all Liens. The
Seller has the power and authority to sell, transfer, assign and deliver such
Shares as provided in this Agreement, and such delivery will convey to the
Purchaser good and marketable title to such Shares, free and clear of any and
all Liens.
Section 4.8 Financial Statements. The Seller has delivered to the
Purchaser copies of the balance sheets of the Company and its Subsidiaries as at
January 31, 1997, 1998 and 1999 and the related statements of income of the
Company and its Subsidiaries for the years then ended (such statements,
including the related notes and schedules thereto, are referred to herein as the
"Financial Statements"). Each of the Financial Statements is in conformity with
the practices consistently applied by the Company, without modification of the
accounting principles used in the preparation thereof, and presents fairly in
all material respects the financial position, results of operations and cash
flows of the Company and its Subsidiaries as at the dates and for the periods
indicated in accordance with GAAP, except as set forth in Schedule 4.8.
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For the purposes hereof, the balance sheet of the Company and its
Subsidiaries as at January 31, 1999 is referred to as the "Balance Sheet" and
January 31, 1999 is referred to as the "Balance Sheet Date".
Section 4.9 No Undisclosed Liabilities. Except as set forth on Schedule
4.9, or to the extent reflected on the Final Balance Sheet, (a) the Company has
no indebtedness, obligations or liabilities of any kind (whether accrued,
absolute, contingent or otherwise, and whether due or to become due), and there
is no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against it giving rise to
liability except in each case for (i) liabilities set forth on the face of the
Balance Sheet, (ii) liabilities which have arisen after the Balance Sheet Date
in the ordinary course of business consistent with past practice, (iii)
liabilities that both (A) are not required to be reflected on a balance sheet
prepared in accordance with GAAP and (B) would not reasonably be expected to
have a Material Adverse Effect, (iv) liabilities relating to the performance of
the Contracts and (v) liabilities relating to the claims described on Schedule
6.10, the PBGC Claim or any litigation involving Robert Lane and (b) none of the
Company and its Subsidiaries has guaranteed any indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise, and
whether due or to become due) of any Person.
Section 4.10 Absence of Certain Developments. Except as contemplated by
Sections 6.2, 6.5, 6.9 or 6.10 or as set forth on Schedule 4.10, since the
Balance Sheet Date, and until the date hereof, the Company and its Subsidiaries
have conducted their respective businesses in the ordinary course consistent
with past practice and there has not been:
(i) any damage, destruction or loss, whether or not covered
by insurance, with respect to the property and assets of the Company
and its Subsidiaries having a replacement cost of more than $500,000
for any single loss or $1 million for all such losses;
(ii) any declaration, setting aside or payment of any
dividend or other distribution in respect of any shares of capital
stock of the Company or any of its Subsidiaries or any repurchase,
redemption or other acquisition by the Seller or the Company or any of
its Subsidiaries of any outstanding shares of capital stock or other
securities of, or other ownership interest in, the Company or any of
its Subsidiaries;
(iii) any change in the Company's accounting principles,
methods (other than in the ordinary course of business), elections or
policies (other than in the ordinary course of business);
(iv) any creation of a mortgage, pledge or Lien (other than a
Permitted Exception) on any assets of the Company or any of its
Subsidiaries, except, in each case, under or relating to credit
facilities existing on the Balance Sheet Date;
(v) any purchase, sale, lease, transfer or assignment or any
agreement to purchase, sell, lease, transfer or assign, any of the
Company's or any of its Subsidiaries' assets, tangible or intangible,
involving more than $100,000 for any single
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purchase, sale, lease, transfer or assignment (or agreement related to
the foregoing) or $1 million for a series of such related purchases,
sales, leases, transfers or assignments (or agreement related to the
foregoing), except for assets acquired or sold, leased or otherwise
disposed of in the ordinary course of business consistent with past
practice;
(vi) any contract, lease, sublease, license or sublicense (or
series of related contracts, leases, subleases, licenses and
sublicenses) entered into by the Company or any of its Subsidiaries
involving more than $100,000 except those entered into in the ordinary
course of business consistent with past practice;
(vii) any acceleration, termination, modification or
cancellation of any contract, lease, sublease, license or sublicense
(or series of related contracts, leases, subleases, licenses and
sublicenses) involving more than $100,000 to which the Company or any
of its Subsidiaries is bound, except in the ordinary course of business
consistent with past practice;
(viii) any capital expenditure (or series of related capital
expenditures) by the Company or any of its Subsidiaries involving more
than $100,000 except in the ordinary course of business consistent with
past practice;
(ix) any capital investment in, any loan to, or any
acquisition of the securities or assets of any other person (or series
of related capital investments, loans, and acquisitions) by the Company
or any of its Subsidiaries involving more than $100,000 except in the
ordinary course of business consistent with past practice;
(x) any creation, incurrence, assumption or guarantee of any
indebtedness for borrowed money by the Company or any of its
Subsidiaries involving more than $100,000 in the aggregate except in
the ordinary course of business consistent with past practice or under
or relating to existing credit facilities;
(xi) any grant of a license or sublicense of any rights under
or with respect to any Intellectual Property of the Company and its
Subsidiaries;
(xii) any change in the articles or by-laws of the Company
and its Subsidiaries;
(xiii) any issuance, sale or other disposition of any of the
capital stock of the Company and its Subsidiaries, or grant of any
options, warrants, or other rights to purchase or obtain (including
upon conversion or exercise) any of the capital stock of the Company
and its Subsidiaries;
(xiv) any loan to, or any transaction with, any of the
directors, officers, or employees of the Company or any of its
Subsidiaries outside the ordinary course of business giving rise to any
claim or right on its part against the person or on the part of the
person against the Company or any of its Subsidiaries;
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(xv) any labor or collective bargaining agreement, written or
oral, entered into, relating to the employees of the Company and its
subsidiaries, or any material modification of the terms of any existing
such contract or agreement, or any commitment to materially reduce the
workforce of the Company and its Subsidiaries;
(xvi) since April 1, 1999, any increase in the compensation
of any of the directors or officers of the Company or any of its
Subsidiaries or any employee of the Company or any of its Subsidiaries
with an annual base salary in excess of $75,000 (a "Key Employee") or
any general uniform increase in the compensation of the employees of
the Company or any of its Subsidiaries outside the ordinary course of
business consistent with past practice;
(xvii) the adoption by the Company or any of its Subsidiaries
of any (A) bonus, (B) profit-sharing, (C) incentive compensation, (D)
pension, (E) retirement, (F) medical, hospitalization, life or other
insurance or (G) severance plan;
(xviii) any other material change in employment terms for any
of the directors or officers of the Company or any of its Subsidiaries
or any Key Employee;
(xix) any pledge by the Company or any of its Subsidiaries to
make a capital contribution to any Person other than any of its
Subsidiaries outside the ordinary course of business consistent with
past practice;
(xx) to the extent that any of the following will be binding
or affect the Purchaser, the Company or any Subsidiary for any period
after the Closing Date, any change in an election concerning Taxes or
Tax Returns, any change in an annual accounting period, any adoption of
or any change in an accounting method, any filing of an amended return,
any entering into of a closing agreement with respect to Taxes, any
settlement of a Tax claim or assessment, any surrender of a right to
claim a refund of Taxes, any request for or receipt of a Tax ruling, or
any entering into of a Tax agreement, contract, understanding,
arrangement or plan; and/or
(xxi) any commitment by the Seller or any of its Subsidiaries
to do any of the foregoing.
Section 4.11 Taxes. Except as set forth on Schedule 4.11:
(a) All Tax Returns required to be filed by or on behalf of the
Company, each Subsidiary or any affiliated group (within the meaning of Section
1504 of the Code) of which the Company or any Subsidiary is or was a member have
been filed. All such Tax Returns are true, complete and correct. All Taxes of
the Company and its Subsidiaries, whether or not shown as due on such Tax
Returns, have been timely paid. No agreement, waiver or other document or
arrangement extending the period for assessment or collection of Taxes or for
filing any Tax Return has been executed or filed with the Internal Revenue
Service (the "IRS") or any other taxing authority by or on behalf of the Company
or any Subsidiary on or after June 2, 1995, and
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neither the Company nor any Subsidiary has been requested to enter into any such
agreement, waiver or other document or arrangement.
(b) All Taxes that the Company and each Subsidiary are required by
law to withhold or collect have been duly withheld or collected, and have been
timely paid over to the appropriate governmental authorities to the extent due
and payable.
(c) To the Seller's best knowledge, all Income Tax Returns with
respect to taxable years ending on or prior to December 31, 1994, have been
examined and closed or are Tax Returns with respect to which the applicable
statute of limitations, after giving effect to any extensions and waivers, has
expired. All property Tax Returns with respect to taxable years ending on or
prior to December 31, 1995 and all sales and use Tax Returns for the State of
California with respect to taxable years ending on or prior to December 31, 1996
have been examined and closed, or are Tax Returns with respect to which the
applicable statute of limitations, after giving effect to any extensions and
waivers, has expired. The Seller has made available to the Purchaser complete
copies of all other Tax Returns of the Company and each Subsidiary (except for
the consolidated federal income tax returns that include the Company and each
Subsidiary) and any audit report, request for information or documentation or
any other document related to any Tax Audit or any other proceeding, issued with
respect thereto.
(d) All deficiencies asserted or assessments made as a result of
any examinations by the IRS or any other taxing authority of the Tax Returns of
or covering or including the Company or any Subsidiary have been fully paid, or
adequately provided for in the Balance Sheet, and there are no other audits or
investigations by, or proceedings with, any taxing authority in progress, nor
have the Seller, the Company or any Subsidiary received any written notice from
any taxing authority that it intends to conduct such an audit or investigation
or initiate any such proceeding.
(e) Neither the Company or any Subsidiary nor any other Person
(including the Seller) on behalf of the Company or any Subsidiary has filed a
consent pursuant to Section 341(f) of the Code (or any comparable provision of
state, local or foreign law) or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as such term is defined in
Section 341(f)(4) of the Code) owned by the Company or any Subsidiary. No
property owned by the Company or any Subsidiary is (i) property required to be
treated as being owned by another Person pursuant to the provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986, (ii)
"tax-exempt use property" within the meaning of Section 168(h)(1) of the Code,
(iii) "tax-exempt bond financed property" within the meaning of Section 168(g)
of the Code, or (iv) subject to a provision of state, local or foreign law
comparable to any of the Code provisions listed in (i), (ii) or (iii) of this
sentence.
(f) The Seller is not a foreign person within the meaning of
Section 1445 of the Code.
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(g) There are no liens for any Tax on the assets of the Company or
any Subsidiary except for Taxes not yet due and payable or being contested in
good faith in appropriate proceedings.
(h) Except for the Tax sharing agreement among First Equity Group
Inc. and its subsidiaries dated January 1, 1995, to the Seller's best knowledge
there are no Tax sharing agreements to which the Company or any Subsidiary is
now a party or has since June 2, 1995 ever been a party.
(i) Neither the Company nor any Subsidiary is a party to any
agreement, contract, arrangement or plan that would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Code Section 280G (or any comparable provision of state, local or foreign
law).
(j) Neither the Company nor any Subsidiary has agreed to make any
adjustment under Code Section 481(a) (or any comparable provision of state,
local or foreign law) by reason of a change in accounting method or otherwise.
(k) Neither the Company nor any Subsidiary has been or is included
in any consolidated, affiliated, combined, unitary or other similar Tax Returns
that include the Seller or any affiliate of the Seller other than, as of June 2,
1995, the United States federal and State consolidated income tax returns that
include the Seller.
(l) No power of attorney is currently in effect, and, since June
2, 1995 (or to the Seller's best knowledge, at any time prior to June 2, 1995)
no Tax ruling has been requested of any governmental authority, with respect to
any Tax matter relating to the Company or any Subsidiary.
(m) No foreign Subsidiary has an "investment in United States
property" within the meaning of Code Section 956 in the Company or any domestic
Subsidiary.
Section 4.12 Real Property.
(a) Schedule 4.12 sets forth a complete list of (i) all real
property and interests in real property owned in fee by the Company and its
Subsidiaries (individually, an "Owned Property" and collectively, the "Owned
Properties"), and (ii) all real property and interests in real property leased,
subleased, assigned or otherwise used or occupied by the Company and its
Subsidiaries (individually, a "Leased Property" and collectively the "Leased
Properties," and the Leased Properties together with the Owned Properties, being
referred to herein individually as a "Company Property" and collectively as the
"Company Properties"). The Company or its Subsidiaries have good and marketable
fee simple title to all Owned Properties and all buildings, structures and other
improvements located thereon, free and clear of all Liens of any nature
whatsoever except the Permitted Exceptions (as defined in Section 9.1). The
Company Properties constitute all interests in real property currently used or
currently held for use in connection with the business of the Company and its
Subsidiaries and which are necessary for the continued operation of the business
of the Company and its Subsidiaries as the business is
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currently conducted. The Company or any Subsidiary, as the case may be, has a
valid and enforceable and binding leasehold interest to each of the Leased
Properties pursuant to the leases, subleases, assignments or other agreements
listed on and attached as exhibits to Schedule 4.12 (the "Real Property
Leases"), subject to applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and subject, as
to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity), and to the Seller's
best knowledge, (i) there is no default under any of the Real Property Leases by
the Company or any Subsidiary, (ii) there is no default or threatened default by
any other party thereto and (iii) no event has occurred that with the lapse of
time or the giving of notice, or both, would constitute a default by any party
thereunder. All rent and other sums and charges payable by the Company or any of
its Subsidiaries as tenant thereunder are current. The Real Property Leases have
not been modified or amended except as set forth on Schedule 4.12. All of the
Company Properties, buildings, structures, fixtures and improvements thereon
owned or leased by the Company or any Subsidiary are in good operating
condition, maintenance and repair (subject to normal wear and tear) and, to the
Seller's best knowledge, there are no defects with respect thereto which would
impair the day-to-day use of any the Company Properties and the buildings,
structures, fixtures or improvements located thereon or which would subject the
Company, or any Subsidiary or the Seller to any liability under applicable Law
(except Environmental Law, which is covered by Section 4.19), including any
restoration or repair obligation effective upon termination of any Real Property
Leases, except as set forth on Schedule 4.12. To the Seller's best knowledge,
all buildings, structures, fixtures and improvements located on the Company
Properties are supplied with sufficient utilities necessary to operate the
business as currently conducted at each of the Company Properties.
(b) There is no pending or, to the Seller's best knowledge,
threatened, appropriation, condemnation or like proceeding affecting the Company
Properties or any part thereof or of any sale or other disposition of the
Company Properties or any part thereof in lieu of condemnation.
(c) To the Seller's best knowledge, the uses for which the Company
Properties are zoned do not restrict, or in any manner impair, the use of the
Company Properties for current purposes of the business of the Company and its
Subsidiaries and the construction of the Company Properties complies in all
material respects with all applicable building and zoning codes, deed
restrictions, ordinances and rules. Neither the Seller nor any of its
Subsidiaries has received any notice of any violation of any applicable zoning
law, relating to or affecting the Company Properties, and to the best knowledge
of the Seller, no such violation exists.
(d) To the Seller's best knowledge, the buildings and other
improvements located on each of the Company Properties do not encroach on any
easements or on any land not included within the boundary lines of such Company
Properties and there are no neighboring improvements encroaching on such Company
Properties, except for such of the foregoing as do not and will not individually
or in the aggregate interfere with the current uses of such Company Properties
in the business of the Company and its Subsidiaries.
(e) To the Seller's best knowledge, the current uses of any parcel
included in the Company Properties do not in any respect violate or conflict
with (i) any covenants,
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conditions or restrictions applicable thereto to which the Company or any of its
Subsidiaries is bound or (ii) the terms and provisions of any contractual
obligations relating thereto to which the Company or any of its Subsidiaries is
bound.
Section 4.13 Intellectual Property.
(a) Schedule 4.13(a) sets forth, for the Intellectual Property
owned, in whole or in part, including jointly with others, by the Company or any
of its Subsidiaries, a complete and accurate list, of all United States and
foreign (i) patents and patent applications; (ii) Trademark registrations and
applications and unregistered Trademarks; (iii) copyright registrations and
applications; and (iv) domain name registrations and applications indicating for
each, the applicable jurisdiction, registration number (or application number)
and date issued (or date filed). The Company and each of its Subsidiaries have
taken reasonable steps in accordance with normal industry practice to protect
their respective rights in confidential information and Intellectual Property.
(b) Trademarks and Patents.
(i) All Trademark registrations are currently in compliance
with all legal requirements (including the timely post-registration
filing of affidavits of use and incontestability and renewal
applications) other than any requirement that, if not satisfied would
not result in a cancellation of any such registration or otherwise
affect the priority and enforceability of the Trademark in question.
(ii) The Company does not claim ownership rights under any
Patents.
(c) Software. The Software owned by the Company or any of its
Subsidiaries, including, without limitation, the Software known as "CARS", was
either (i) developed by employees of the Company or any of its Subsidiaries
within the scope of their employment; (ii) developed by independent contractors
who have assigned their rights to the Company or any of its Subsidiaries
pursuant to written agreements; or (iii) otherwise acquired by the Company or a
Subsidiary from a third party. Except as set forth in Schedule 4.13(c), to the
Seller's best knowledge, the Software developed by the Company and its
Subsidiaries does not contain any programming code, documentation or other
materials or development environments that embody Intellectual Property rights
of any person other than the Company or any of its Subsidiaries, except for such
materials or development environments obtained by the Company or any of its
Subsidiaries from other persons who make such materials or development
environments generally available on non-discriminatory commercial terms. The
Seller makes no representation or warranty as to the ability of the Company or
its subsidiaries to use the CARS software other than at its facilities existing
on the date hereof.
(d) Domain Names. All domain name registrations of the Company or
any of its Subsidiaries are currently in compliance in all material respects
with all legal requirements applicable to the registration and maintenance of
such domain names.
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(e) License Agreements. Schedule 4.13(e) sets forth a complete and
accurate list of all license agreements granting to the Company or any of its
Subsidiaries any material right to use or practice any rights under any
Intellectual Property other than software commercially available to any person
for a license fee of no more than $50,000 (collectively, the "IP Agreements"),
indicating for each the title and the parties thereto and the annual amount of
any future royalty or license fee payable thereunder. Except as set forth in
Schedule 4.13(e) there is no material outstanding or, to the Seller's best
knowledge, threatened dispute or disagreement with respect to any IP Agreement.
(f) Ownership; Sufficiency of IP Assets. The Company or one of its
Subsidiaries owns or possesses adequate licenses or other rights to use, free
and clear of Liens (other than Permitted Exceptions), orders and arbitration
awards, all of its Intellectual Property used in its business. The Intellectual
Property identified in Schedule 4.13(a), together with the Company's and its
Subsidiaries' Software, Trade Secrets, domain names and unregistered copyrights
and the Company's and such Subsidiaries' rights under the licenses granted to
the Company or any of its Subsidiaries under the IP Agreements and the
Intellectual Property commercially available, constitute all the material
Intellectual Property rights used in the operation of the Company's and its
Subsidiaries' business as it is currently conducted and are all the Intellectual
Property rights necessary to operate such businesses after the Closing Date in
substantially the same manner as such businesses have been operated by the
Company and its Subsidiaries prior thereto.
(g) No Infringement by the Company. To the Seller's best
knowledge, except as set forth on Schedule 4.13(g), the products used,
manufactured, marketed, sold or licensed by the Company and its Subsidiaries,
and all Intellectual Property used in the conduct of the Company's and its
Subsidiaries' business as currently conducted, do not infringe upon, violate or
constitute the unauthorized use of any valid and enforceable rights owned or
controlled by any third party, including any Intellectual Property of any third
party.
(h) Assignment; Change of Control. To the Seller's best knowledge,
except as set forth in Schedule 4.13(h), the execution, delivery and performance
by the Seller of this Agreement, and the consummation of the transactions
contemplated hereby, will not result in the loss or impairment of, or give rise
to any right of any third party to terminate or alter, any of the Company's or
any of its Subsidiaries' rights to own any of its Intellectual Property or their
respective rights under any IP Agreement, nor require the consent of any
Governmental Authority or third party in respect of any such Intellectual
Property.
Section 4.14 Contracts. Schedule 4.14 sets forth all of the following
Contracts to which the Company or any of its Subsidiaries is a party or by which
it is bound (collectively, the "Contracts"):
(a) any contract with the Seller, any Affiliate, or any current or
former officer, director, agent or employee of the Seller or any of its
Subsidiaries;
(b) any executory contract reasonably expected to extend for a
period more than eight months beyond the Closing Date pursuant to which the
Company or any of its
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Subsidiaries is required to purchase or sell a stated portion of its
requirements or output from or to another party involving a future annual
payment in excess of $100,000;
(c) any contract or commitment to sell, lease or otherwise dispose
of any asset of the Company or any of its Subsidiaries with a book value in
excess of $100,000 or for the grant to any Person of any preferential rights to
purchase any assets of the Company or any of its Subsidiaries, in each case
other than in the ordinary course of business consistent with past practice;
(d) any joint venture agreement;
(e) any contract containing covenants of the Company or any of its
Subsidiaries not to compete in any line of business or in any geographical area
or covenants of any other Person not to compete with the Company or any of its
Subsidiaries in any line of business or in any geographical area;
(f) any contract relating to the acquisition by the Company or any
of its Subsidiaries of any operating business or the capital stock or assets
with a value in excess of $100,000 (other than purchases of inventory in the
ordinary course of business) of any other Person;
(g) any contract relating to the borrowing of money or to the
guarantee in respect of indebtedness of any Person which may involve future
payment in excess of $100,000 or is a mortgage, security agreement or other
collateral arrangement securing indebtedness of any Person in excess of $100,000
and pursuant to which a Lien is imposed on any property or assets of the Company
or any of its Subsidiaries with an aggregate value in excess of $100,000;
(h) any contract containing any provision consisting of a swap,
hedge or other similar provision;
(i) any executory contract (other than purchase orders for the
purchase or sale of parts in the ordinary course of business) involving future
payment or receipt in excess of $100,000 or future performance or receipt of
services or delivery or receipt of goods and materials, in each case with an
aggregate value in excess of $100,000, including but not limited to sale
(conditional or otherwise) and purchase agreements, distributorship agreements
and loan agreements, notes, indentures, mortgages, pledge agreements and other
financing documents and Government Contracts;
(j) any lease relating to the Leased Properties;
(k) any contract or option for the purchase or sale of any real
property or interest in real property;
(l) (i) any employment or consulting contract pursuant to which
the Company or any of its Subsidiaries may reasonably be expected to make
payment in excess of $75,000 in any twelve month period, (ii) any written
contract or written arrangement relating to severance
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and/or post-termination consulting payments, or (iii) any contract or
arrangement relating to the payment of annual commission in excess of $75,000;
(m) any Intellectual Property licensing agreement involving the
payment of more than $50,000 per year by or to the Company or any of its
Subsidiaries; and
(n) any contract which involves capital expenditures in excess of
$100,000, individually or $200,000 in the aggregate.
There have been made available to the Purchaser, its affiliates and
their representatives true and complete copies of all of the Contracts. Except
as set forth on Schedule 4.14, all of the Contracts are in full force and effect
and are the legal, valid and binding obligations of the Company and its
Subsidiaries, enforceable against them in accordance with their terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity). Except as set forth
on Schedule 4.14, neither the Company nor any of its Subsidiaries, with notice
or lapse of time, or both, is in default in any respect under any Contracts,
nor, to the best knowledge of the Seller, is any other party to any Contract in
default thereunder in any respect.
Section 4.15 Employee Benefits.
(a) Schedule 4.15(a) sets forth a complete and correct list of (i)
the name, current annual compensation rate (including bonus and commissions),
title, current base salary rate, accrued bonus, accrued sick leave, accrued
severance pay and accrued vacation benefits of each present employee, all as of
August 28, 1999 or the date specified in such Schedule, (ii) all "employee
benefit plans", as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"); (iii) all severance, retention,
vacation pay, company awards, salary continuation, sick leave, deferred
compensation, bonus or other incentive compensation, stock or other
equity-related award, option or purchase, educational assistance, workers'
compensation, or leave of absence, change of control, fringe benefits,
agreements, arrangements, policies or plans; and (iv) all employment,
managerial, advisory, consulting, termination, individual compensation, employee
leasing or collective bargaining agreements sponsored, maintained or contributed
to by the Company, any Subsidiary or any ERISA Affiliate which provides benefits
to current or former employees of the Company or any of its Subsidiaries
("Employee Benefit Plans").
(b) Except as described in Schedule 4.15(b), each of the Employee
Benefit Plans and its related trust intended to qualify under Sections 401 and
501(a) of the Code, respectively ("Qualified Plans") so qualify, and, except as
disclosed on Schedule 4.15(b), nothing has occurred with respect to the
operation of any such Employee Benefit Plan which could cause the loss of such
qualification or exemption or the imposition of any liability, penalty or tax
under ERISA or the Code or would result in material costs to the Company or any
of its Subsidiaries under the Internal Revenue Service's Employer's Plans
Compliance Resolution System.
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(c) Except for the National Airmotive Defined Benefit Pension Plan
("Pension Plan"), neither the Company nor any of its Subsidiaries or ERISA
Affiliate sponsors or maintains (or has ever sponsored or maintained) an
"employee pension benefit plan" (within the meaning of Section 3(2) of ERISA)
that is subject to Title IV of ERISA or to the minimum funding requirements of
Section 412 of the Code or Part 3 of Title I of ERISA. With respect to the
Pension Plan:
(i) true, correct and complete copies of the Form 5310 and
related filings with the PBGC, and copies of all other correspondence
provided to or from the PBGC and plan participants under 4010, 4011,
4041, 4042 or 4043 of ERISA, or otherwise in connection with the
termination of the Pension Plan, have been made available to the
Purchaser; and
(ii) Except as disclosed on Schedule 4.15(b):
(A) there are no actions, suits or claims (other than
routine claims for benefits in the ordinary course) pending, or to
the Seller's best knowledge, threatened, against the Company or
any of its Subsidiaries or any of their officers, directors or Key
Employees (as such term is defined below) before any body with
respect to any Pension Plan, and to the Seller's best knowledge,
there are no facts which could give rise to any such actions,
suits or claims (other than routine claims for benefits in the
ordinary course); and
(B) ERISA, the Code and any other applicable Laws have
been complied with in all material respects with respect to any
Pension Plan.
(d) Neither the Company nor any of its Subsidiaries or ERISA
Affiliate contributes or is obligated to contribute (or has ever been obligated
to contribute) to a "multiemployer plan" (within the meaning of Section
4001(a)(3) of ERISA).
(e) There has been no violation in any material respect of ERISA
or any other applicable Laws with respect to the filing of applicable returns,
reports, documents and notices regarding any of the Employee Benefit Plans with
the Secretary of Labor or the Secretary of the Treasury or the furnishing of
such notices or documents to the participants or beneficiaries of the Employee
Benefit Plans; none of the Seller, the Company, any of their Subsidiaries or any
ERISA Affiliate has, with respect to any Benefit Plan, engaged in a non-exempt
prohibited transaction, as such term is defined in Code Section 4975 or ERISA
Section 406; and the requirements of ERISA and all other applicable laws have
been complied with in all material respects with respect to each Employee
Benefit Plan.
(f) All contributions and insurance premiums due and payable under
any Employee Benefit Plan as of the date hereof have been paid when due
(including permitted grace periods).
(g) There are no actions, suits or claims (other than routine
claims for benefits in the ordinary course) pending, or to the Seller's best
knowledge, threatened, and to the Seller's
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best knowledge, there are no facts which could give rise to any such actions,
suits or claims (other than routine claims for benefits in the ordinary course)
with respect to any Employee Benefit Plan.
(h) True, correct and complete copies of the following documents,
with respect to each of the Employee Benefit Plans (as applicable) and copies of
the most recent employee handbook of the Company or any of its Subsidiaries, if
any, have been delivered or made available to the Purchaser: (A) the most recent
document constituting the Employee Benefit Plan, and all amendments thereto, and
any related trust documents and other funding or insurance instruments relating
hereto, (B) the Forms 5500 and schedules thereto filed with the Internal Revenue
Service for the past three years, (C) the financial statements and actuarial
valuations for the past three years, (D) the most recent Internal Revenue
Service determination letter and any outstanding request for a determination
letter, (E) the most recent summary plan descriptions and all related summaries
of modifications (including letters or other documents updating such
descriptions), (F) written descriptions of all non-written Employee Benefit
Plans, and (G) any "top hat" plan notice to the U.S. Department of Labor.
(i) Except as set forth on Schedule 4.15(i), neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby, either alone or together with any subsequent events, will
(i) result in any payment becoming due or increase the amount of compensation
due, (ii) increase any benefits otherwise payable under any Employee Benefit
Plan, or (iii) result in the acceleration of the time of payment or vesting of
any such benefits; in each case, in respect of any employee or former employee
of the Company or any of its Subsidiaries.
(j) No stock or other security issued by the Company or any ERISA
Affiliate forms or has formed a part of the assets of any Employee Benefit Plan.
(k) Neither the Seller nor any of its Subsidiaries provides, or is
obligated to provide, any retiree life or retiree health benefits coverage
(whether or not issued) to any current or former employee of the Company or any
of its Subsidiaries beyond the date of his or her termination of employment or
services with the Company or any of its Subsidiaries, except as may be required
under Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA and
at the sole expense of the individual or the individual's beneficiary.
(l) For each Employee Benefit Plan which is an employee welfare
benefit plan (within the meaning of ERISA Section 3(1)) (a "Welfare Plan"), the
following is true:
(i) each such Welfare Plan intended to meet the requirements
for tax-favored treatment under Part III of Subchapter B of Chapter 1
of the Code meets such requirements in all material respects; and
(ii) each such Welfare Plan which is a "group health plan"
(as such term is defined in Code Section 5000(b)(1) and ERISA Section
607(1)) complies and has complied in all material respects with the
applicable requirements of Code Sections
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4980B and 9801-9806, ERISA Sections 601-734 and the applicable
provisions of the Social Security Act and state law.
Section 4.16 Labor. Neither the Company nor any of its Subsidiaries is
a party to any labor or collective bargaining agreement and there are no labor
or collective bargaining agreements which pertain to employees of the Company or
any of its Subsidiaries. There is no labor strike, dispute, slowdown or stoppage
actually pending or, to the Seller's best knowledge, threatened against the
Company or any of its Subsidiaries. As of the date hereof, no labor organization
or group of employees of the Company or any of its Subsidiaries has made a
pending demand for recognition or certification, and within the preceding three
years, there has been no representation, certification or other related
proceedings, or petitions seeking a representation proceeding or other related
proceeding, pending or, to the Seller's best knowledge, threatened to be brought
or filed with the National Labor Relations Board or other labor relations
tribunal respecting the employees of the Company or any of its Subsidiaries. As
of the date hereof, to the best knowledge of the Seller, the Company and its
Subsidiaries have complied with all applicable laws pertaining to the employment
or termination of employment of their employees, including, without limitation,
all such applicable laws relating to labor relations, equal employment
opportunities, fair employment practices, prohibited discrimination and other
similar employment activities and all FAA mandated employee drug and alcohol
testing and record keeping programs.
Section 4.17 Litigation. To the Seller's best knowledge, each Legal
Proceeding pending or threatened against the Seller, the Company or any of its
Subsidiaries or any of their officers, directors or Key Employees, in each case
with respect to the Company or any of its Subsidiaries, or to which the Company
or any of its Subsidiaries is otherwise a party before any court, or before any
governmental department, commission, board, agency, or instrumentality is set
forth in Schedule 4.17.
Section 4.18 Compliance with Laws; Permits. Except as relates to (i)
Tax laws, which are addressed in Section 4.11, (ii) laws pertaining to the
employment or termination of employment, which are addressed in Section 4.16,
and (iii) Environmental Laws, which are addressed in Section 4.19, as of the
date hereof, the Company and its Subsidiaries are in compliance with all Laws
applicable to the Company and its Subsidiaries or to the conduct of the business
or operations of the Company and its Subsidiaries or the use of their properties
(including any leased properties) and assets. The Company has all governmental
permits, approvals and licenses from state, federal or local authorities which
are required for the Company and the Subsidiaries to operate their business. A
list of all Permits is set forth on Schedule 4.18.
Section 4.19 Environmental Matters. Except as disclosed in Schedule
4.19:
(a) neither the Company nor any of its Subsidiaries is, to the
Seller's best knowledge, the subject of or threatened with any outstanding
written order, civil, criminal or administrative action, suit, demand, claim,
hearing, notice of violation or Contract with any governmental authority or
person respecting (i) Environmental Laws, (ii) Remedial Action or (iii) any
Release or threatened Release of a Hazardous Material, including any notice or
order
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from any governmental agency or private or public entity advising it that it is
responsible for or potentially responsible for Remedial Action or paying for the
cost of Remedial Action of any Hazardous Materials and neither the Seller nor
any of its Subsidiaries has entered into any agreements concerning such Remedial
Action;
(b) neither the Company nor any of its Subsidiaries has, to the
Seller's best knowledge, received any written communication, which has not been
resolved, alleging either or both that the Company or any of its Subsidiaries
may be in violation of any Environmental Law or any Environmental Permit, or may
have any liability under any Environmental Law;
(c) with regard to both Company Properties and properties
previously owned, operated or leased by the Company, neither the Company nor any
of its Subsidiaries has, to the Seller's best knowledge, any current or
contingent liability in connection with any Release of any Hazardous Materials
into the environment (whether on-site or off-site) and to the Seller's best
knowledge, there is no fact, circumstance or condition relating to Hazardous
Materials, including any Release or Remedial Action, that could reasonably be
expected to result in the Company or any of its Subsidiaries incurring liability
under Environmental Law;
(d) neither the Company nor its Subsidiaries is, to the Seller's
best knowledge, subject to any pending investigation of the business,
operations, or Company Properties or previously owned, operated or leased
property of the Company or any of its Subsidiaries which could lead to the
imposition of any liability pursuant to Environmental Law;
(e) there is not located at any of the Company Properties, to the
Seller's best knowledge, any (i) underground storage tanks, (ii)
asbestos-containing material which is not in substantial compliance with
Environmental Laws or (iii) equipment containing polychlorinated biphenyls which
is not in substantial compliance with Environmental Laws;
(f) the Company has obtained all Environmental Permits required
for the ownership, use and operation of each of the Company Properties, all such
Environmental Permits are in effect, no appeal nor any other action is pending
to revoke any Environmental Permit, and the Company is in compliance with all
terms and conditions of all such Environmental Permits;
(g) the Company, each of its Subsidiaries and the Company
Properties are in compliance with all Environmental Laws; and
(h) the Seller has made available to the Purchaser true and
complete copies of all environmental studies made since June 2, 1995 for or by
the Seller in the custody, control or possession of the Seller and relating to
the Company Properties or any other property or facility previously owned,
operated or leased by the Company or any of its Subsidiaries.
Section 4.20 Insurance. Schedule 4.20 sets forth a complete and
accurate list of all policies of insurance of any kind or nature covering the
Company and each Subsidiary or any of their employees, properties or assets,
including, without limitation, policies of life, disability, fire, theft,
workers compensation, employee fidelity, product liability and other casualty
and liability insurance. All such policies are in full force and effect and
neither the Seller, the
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Company nor any of their Subsidiaries is in default of any provision thereof.
All premiums with respect to such policies covering all periods up to and
including the Closing Date have been paid, and no notice of cancellation or
termination has been received with respect to any such policy. Such policies are
sufficient for compliance with all requirements of law and all agreements to
which the Company and each Subsidiary is a party are valid, outstanding and
enforceable polices, provide adequate insurance coverage for the assets and
operations of the Company and each Subsidiary, will remain in full force and
effect through the respective dates set forth in Schedule 4.20 without the
payment of additional premiums. No risks that are normally the subject of
insurance have been designated as being self insured. None of the Seller, the
Company or any of its Subsidiaries has been refused any insurance with respect
to the respective assets or operation of the Company or any Subsidiary, nor has
any such coverage been limited, by any insurance carrier to which the Seller,
the Company or any Subsidiary has applied for any such insurance or with which
the Company or any Subsidiary has carried insurance since June 2, 1995. To the
Seller's knowledge, all policies listed on Schedule 4.20 will terminate as a
result of the Closing.
Section 4.21 Financial Advisors. Except for First Equity Development,
Inc., no Person has acted, directly or indirectly, as a broker, finder or
financial advisor for the Seller or the Company in connection with the
transactions contemplated by this Agreement and no Person is entitled to any fee
or commission or like payment in respect thereof. In no event shall the Company
or any of its Subsidiaries be obligated to pay any such fees, commissions or
like payments, including any payments owing to First Equity Development, Inc.
Section 4.22 Accounts Receivable. The accounts receivable appearing on
the Balance Sheet and all accounts receivable created since that date through
the Closing Date represent and will represent valid obligations owing to the
Company or the applicable Subsidiary and are fully collectible by the Company or
the applicable Subsidiary, subject to the reserve for doubtful accounts
appearing on the Balance Sheet, assuming that the Purchaser causes the Company
to follow the same credit, surety and collection policies as are used by the
Company in the ordinary course of business as conducted on the date hereof.
Section 4.23 Affiliate Interests.
(a) Schedule 4.23 sets forth all amounts paid (or deemed for
accounting purposes to have been paid) and services provided by the Company or
any Subsidiary to, or received by the Company or any Subsidiary from, any
affiliate of the Company or any Subsidiary during the last fiscal year for
products or services (including any charge for administrative, purchasing,
financial or other services) and all such amounts currently owed by the Company
or any Subsidiary to, or to the Company or any Subsidiary by, any affiliate of
the Company or any Subsidiary, in each case where the amount paid or the value
of the services provided exceeds $25,000.
(b) Each contract, agreement or arrangement between the Company or
any Subsidiary, on the one hand, and the Seller or any affiliate of the Seller
(other than the Company or any Subsidiary) or any shareholder, officer or
director of the Seller, the Company, any Subsidiary or any affiliate of the
Seller, on the other hand ("Affiliate Agreements"), in each case
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where the amount paid or the value of the services provided exceeds $25,000 is
described in Schedule 4.23(b).
(c) Except as set forth in Schedule 4.23(b), no shareholder,
officer or director of the Seller, the Company, any Subsidiary or any affiliate
of the Seller has any material interest in any property, real or personal,
tangible or intangible, including without limitation, inventions, patents,
trademarks or trade names, used in or pertaining to the business of the Company
or any Subsidiary.
Section 4.24 Pending FAA Enforcement Action and Regulatory Compliance.
Except as set forth on Schedule 4.24, to the Seller's best knowledge, there is
no pending or threatened enforcement action by or on behalf of the FAA that
affects or is likely to affect the ability (i) of the Company to continue to
conduct its operations the manner in which they are currently conducted and (ii)
of the Seller and its Subsidiaries to consummate the transactions contemplated
by this Agreement. Except as set forth on Schedule 4.24, since January 1, 1998,
neither the Company nor any of its Subsidiaries has received any Letter of
Investigation from the FAA or Department of Transportation Office of Inspector
General, Notice of Violation, Notice Of Proposed Civil Penalty, Order Assessing
Civil Penalty, Compromise Order, Letter of Correction, Settlement Agreement or
Opinion and Order of an Administrative Law Judge, FAA Administrator, or the
National Transportation Safety Board, in each case with respect to the Company
or any of its Subsidiaries. Except as set forth on Schedule 4.24, since January
1, 1998, neither the Company nor any of its Subsidiaries has submitted any
self-disclosure pursuant to the FAA's Voluntary Disclosure Reporting Program for
Certificate Holders (FAA Advisory Circulars 00-58 or the earlier Advisory
Circular 120-56). Except as set forth on Schedule 4.24, since January 1, 1998,
no governmental entity regulating the business of the Company or any of its
Subsidiaries has commenced, or to the Seller's best knowledge, threatened in
writing to commence, any investigation or proceeding relating to the business of
the Company or any of its Subsidiaries. With respect to the period beginning on
June 2, 1995 and ending on January 1, 1998, in all areas where non-compliance
was identified in writing by the FAA or the Department of Transportation Office
of Inspector General, the Company took appropriate corrective action to resolve
any areas of non-compliance so identified.
Section 4.25 No Material Change. Since the Balance Sheet Date no event
has occurred which would constitute a Material Adverse Effect with respect to
Company and its Subsidiaries as a whole.
Section 4.26 Personal Property.
(a) Schedule 4.26(a) sets forth, as of August 30, 1999, (i) the
tangible physical assets of the Company and each Subsidiary that do not
constitute real property (including machinery, equipment, tools, dies,
furniture, furnishings, leasehold improvements, vehicles, buildings and
fixtures) and that have a value in excess of $50,000 per item or per category of
items and the location of such items; (ii) individual refundable deposits,
prepaid expenses, deferred charges and "other assets" in excess of $50,000 or
$100,000 in the aggregate; and (iii) all loans or advances made by the Company
or any Subsidiary to any Person in excess of $50,000.
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(b) Except as set forth in Schedule 4.26(b), each of the Company
and its Subsidiaries has good and valid title to all of its properties, assets
and other rights that do not constitute real property, free and clear of all
encumbrances (other than Permitted Exceptions). Except as set forth in Schedule
4.26(b), the Company and its Subsidiaries own, have valid leasehold interests
(pursuant to leases disclosed in Schedule 4.12) in or valid contractual rights
pursuant to Contracts disclosed in Schedule 4.14 or not required to be disclosed
therein due to the dollar thresholds set forth in Section 4.14 to use, all of
the assets, tangible and intangible, used by, or necessary for the conduct of
the business of, the Company and its Subsidiaries.
(c) The machinery, tools, equipment and other tangible physical
assets of the Company and each Subsidiary (other than items of inventory) that
are necessary for the conduct of the business of the Company and each Subsidiary
(as such business is now being conducted) are in good working order, normal wear
and tear excepted, and are in an operating condition sufficient to conduct the
business of the Company and each Subsidiary as now being conducted.
Section 4.27 Inventory. Except as set forth in Schedule 4.27, the
inventories of raw materials, in-process and finished products of each of the
Company and the Subsidiaries are useable, repairable or saleable in the ordinary
course of business, as currently conducted by the Company and its Subsidiaries.
If such inventory is sold in the ordinary course of business, such inventory is
saleable for an aggregate consideration of not less than the aggregate value at
which such inventory is carried on the Company's books and records. Except as
set forth on Schedule 4.27, the amount and mix of items in the inventories of
supplies, in-process and finished products is, and will be at the Closing Date,
consistent with the Company's and the Subsidiaries' past business practices.
Section 4.28 Customers, Suppliers, Distributors, etc. Except as set
forth in Schedule 4.28, as of the date hereof, no supplier, customer,
distributor or sales representative of the Company or any Subsidiary has
canceled or otherwise terminated, or, to the Seller's best knowledge, made any
written threat to the Company or any Subsidiary or to any of their affiliates to
cancel or otherwise terminate, for any reason, including the consummation of the
transactions contemplated hereby, its relationship with the Company or any
Subsidiary, or has at any time on or after the Balance Sheet Date decreased its
services or supplies to the Company or any Subsidiary in the case of any such
supplier, distributor or sales representative, or its usage of the services or
products of the Company or any Subsidiary. Except as set forth in Schedule 4.28,
as of the date hereof, to the Seller's best knowledge no such supplier,
customer, distributor or sales representative intends to cancel or otherwise
terminate its relationship with the Company or any Subsidiary.
Section 4.29 Warranties of Products; Product Liability. Attached hereto
as Schedule 4.29(a) is a list, to the Seller's best knowledge, of all written
product liability or warranty claims with respect to services or products
provided by the Company and its Subsidiaries since January 31, 1998.
Section 4.30 Absence of Questionable Payments. Since June 2, 1995 and,
to the Seller's best knowledge, prior to June 2, 1995, neither the Company or
any Subsidiary nor, any director, officer, agent, employee or other Person
acting on behalf of the Company or any
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Subsidiary, has used any corporate or other funds for unlawful contributions,
payments, gifts, or entertainment, or made any unlawful expenditures relating to
political activity to government officials or others or established or
maintained any unlawful or unrecorded funds in violation of Section 30A of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Since June 2,
1995 and, to the Seller's best knowledge, prior to June 2, 1995, neither the
Company or any Subsidiary nor any current director, officer, agent, employee or
other Person acting on behalf of the Company or any Subsidiary, has accepted or
received any unlawful contributions, payments, gifts, or expenditures. Insofar
as the obligations of the Seller under Section 13(b) of the Exchange Act relate
to the Company and the Subsidiaries, the Seller is in compliance, and the books,
records, accounts, and system of internal accounting controls of the Company and
its Subsidiaries are in compliance, with such section.
Section 4.31 Year 2000 Capability.
(a) To the Seller's best knowledge, except as set forth in
Schedule 4.31(a), all of the Company's and its Subsidiaries' internal computer
systems comprised of software, hardware, databases or embedded control systems
(microprocessor controlled, robotic or other device) related to the Company's
and its Subsidiaries' businesses (collectively, a "Business System"), that
constitutes any material part of, or is used in connection with the use,
operation or enjoyment of, any material tangible or intangible asset or real
property of the Company and its Subsidiaries, including its accounting systems,
will record, store, process and calculate and present calendar dates falling on
and after December 31, 1999, and will calculate any information dependent on or
relating to such dates in the same manner and with the same functionality, data
integrity and performance as the products record, store, process, calculate and
present calendar dates on or before December 31, 1999, or calculate any
information dependent on or relating to such dates (collectively, "Year 2000
Capable"). Except as set forth in Schedule 4.31(a), to the Seller's best
knowledge, the current versions of the Company's and its Subsidiaries' software
and all other Intellectual Property may be used prior to, during and after
December 31, 1999, such that such Software and Intellectual Property will
operate prior to, during and after such time period without error caused by date
data that represents or references different centuries or more than one century.
(b) Except as set forth on Schedule 4.31(b), to the Seller's best
knowledge, the conduct of the Company's business with its material customers and
suppliers will not be materially adversely affected by the advent of the year
2000, the advent of the twenty-first century or the transition from the
twentieth century through the year 2000 and into the twenty-first century.
Except as set forth on Schedule 4.31(b), to the Seller's best knowledge, neither
the Company nor any of its Subsidiaries is reasonably likely to incur material
expenses arising from or relating to the failure of any of its Business Systems
as a result of the advent of the year 2000, the advent of the twenty-first
century or the transition from the twentieth century through the year 2000.
Section 4.32 Government Contracts.
(a) To the Seller's best knowledge, no suspension or debarment
action has been commenced against the Company and there is no valid basis for
the Company's suspension
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or debarment from bidding on contracts or subcontracts for any agency of the
United States Government.
(b) To the Seller's best knowledge, the Company is not now being
audited or investigated by the General Accounting Office, the Defense Contract
Audit Agency, the Defense Contract Administrative Service, the Department of
Labor, the Environmental Protection Agency or the inspector general or auditor
general or similar functionary of any agency of the United States Government or
any Governmental Body (the "Investigating Agencies"), nor, to the Seller's best
knowledge, has any such audit or investigation been threatened. To the Seller's
best knowledge, except as set forth on Schedule 4.32, since June 2, 1995, the
Company has not been audited or investigated by any Investigating Agency.
(c) Except as set forth in Schedule 4.32, to the Seller's best
knowledge, there is no current dispute (whether or not certified in accordance
with the Contract Disputes Act of 1978) pending before a contracting office of,
or a current claim pending against, any agency of the United States Government,
relating to the Government Contracts or Current Proposals.
(d) Except as set forth in Schedule 4.32, the Company has not,
with respect to any Government Contract, or since June 2, 1995 with respect to
any former contract with an agency of the United States Government, received a
cure notice advising the Company that it was in default or would, if it failed
to take remedial action, be in default under such contract. Except as set forth
in Schedule 4.32, the Company has not, with respect to any Government Contract,
or since June 2, 1995 with respect to any former contract with an agency of the
United States Government, received a "show cause" order.
(e) All amounts previously charged to or presently carried as
chargeable by the Company to any Government Contract or Current Proposal have
been or will be reasonable, allowable, and allocable (as such terms are defined
in the Federal Acquisition Regulations) and in accordance with Government Cost
Accounting Standards to each such contract or proposal.
(f) There are no unpriced or, except as set forth on Schedule
4.32, undefinitized orders, change orders, or equitable adjustments that are
likely to exceed $50,000 nor are there any provisional overhead rates in effect
under the Government Contracts.
(g) The Company has not entered into any Forward Pricing Rate
Agreement under any Government Contract.
(h) Since June 2, 1995 and, to the Seller's best knowledge, prior
to June 2, 1995, the Company has fully complied with the Truth in Negotiations
Act (10 U.S.C. ss. 2306a, 41 U.S.C. ss. 254(d)) and submitted where required
cost or pricing data that were accurate, complete, and current. There is not and
shall not be any liability attributable to cost and pricing data submitted by
the Company to an agency of the United States Government as to a Government
Contract or a Current Proposal.
(i) Since June 2, 1995 and, to the Seller's best knowledge, prior
to June 2, 1995, the Company has complied in all respects with the so-called
procurement integrity
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provisions of 41 U.S.C. ss. 423 and its implementing regulations and has secured
from each of its covered employees appropriate certifications concerning
compliance with such provisions during any period when contractually required.
No employee, agent, consultant, representative or affiliate of the Company is in
receipt or possession of any competitor or government proprietary or procurement
sensitive information as defined under such provisions; nor to the Seller's best
knowledge is there any violation or potential violation of the aforementioned
provisions by the Company or its Subsidiaries.
(j) All items of Government Property that are not necessary for
the performance of the Government Contracts have either been returned to, or
declared excess by, the appropriate Governmental Body. All items of Government
Property that are necessary for the performance of the Government Contracts have
been used, maintained and stored in accordance with the applicable Government
Contract and are currently in good repair and condition, and each such item is
appropriately identified as Government Property.
(k) Since June 2, 1995 and, to the Seller's best knowledge, prior
to June 2, 1995, the Company has complied with all government cost accounting
standards and has accounted for all Government Contracts in accordance with a
disclosure schedule approved by the United States Government.
(l) Schedule 4.32 includes a summary of the audits that have been
conducted since January 31, 1998 of the Company's systems for performance,
reliability and quality control.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
The Purchaser hereby represents and warrants to the Seller that:
Section 5.1 Organization and Good Standing. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
Section 5.2 Authorization of Agreement. The Purchaser has full
corporate power and authority to execute and deliver this Agreement and each
other agreement, document, instrument or certificate to be executed by the
Purchaser in connection with the consummation of the transactions contemplated
hereby (the "Purchaser Documents"), and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by the
Purchaser of this Agreement and each Purchaser Document have been duly
authorized by all necessary corporate action on behalf of the Purchaser. This
Agreement has been, and each Purchaser Document will be at or prior to the
Closing, duly executed and delivered by the Purchaser and (assuming the due
authorization, execution and delivery by the other parties hereto and thereto)
this Agreement constitutes, and each Purchaser Document when so executed and
delivered will constitute, legal, valid and binding obligations of the
Purchaser, enforceable against the Purchaser in accordance with their respective
terms, subject to applicable bankruptcy,
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insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
Section 5.3 Conflicts; Consents of Third Parties.
(a) Neither the execution and delivery by the Purchaser of this
Agreement and of the other Purchaser Documents, nor the compliance by the
Purchaser with any of the provisions hereof or thereof will (i) conflict with,
or result in the breach of, any provision of the certificate of incorporation or
by-laws of the Purchaser, (ii) conflict with, violate, result in the breach of,
or constitute a default under any note, bond, mortgage, indenture, deed of
trust, lease, license, shareholders' agreement, partnership agreement, agreement
or other obligation to which the Purchaser is a party or by which the Purchaser
or its properties or assets are bound; (iii) result in the creation of any Lien
upon the properties or assets of the Purchaser to which the Purchaser is a party
or by which its properties or assets is bound, or (iv) conflict with or violate
any statute, rule, regulation, judgement, order, writ, injunction or decree of
any Governmental Body, administrative agency, arbitration panel or authority.
(b) Except for filings as may be required under the HSR Act and
voluntary notice to be filed under the Exon-Florio Amendment, no consent,
waiver, approval, Order, Permit or authorization of, or declaration or filing
with, or notification to, any Person or Governmental Body is required on the
part of the Purchaser in connection with the execution and delivery of this
Agreement or the other Purchaser Documents or the compliance by the Purchaser
with any of the provisions hereof or thereof.
Section 5.4 Litigation. There are no Legal Proceedings pending or, to
the best knowledge of the Purchaser, threatened that are reasonably likely to
prohibit or restrain the ability of the Purchaser to enter into this Agreement
or consummate the transactions contemplated hereby.
Section 5.5 Investment Intention. The Purchaser is acquiring the Shares
for its own account, for investment purposes only and not with a view to the
distribution (as such term is used in Section 2(11) of the Securities Act of
1933, as amended (the "Securities Act")) thereof. The Purchaser understands that
the Shares have not been registered under the Securities Act and cannot be sold
unless subsequently registered under the Securities Act or an exemption from
such registration is available.
Section 5.6 Financial Capability. Purchaser will have on the Closing
Date sufficient funds to purchase the Shares and consummate the transactions
contemplated by this Agreement.
Section 5.7 Financial Advisors. No Person has acted, directly or
indirectly, as a broker, finder or financial advisor for the Purchaser in
connection with the transactions contemplated by this Agreement and no person is
entitled to any fee or commission or like payment in respect thereof.
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ARTICLE VI
COVENANTS AND ADDITIONAL AGREEMENTS
-----------------------------------
Section 6.1 Access to Information. The Seller agrees that, prior to the
Closing Date, the Purchaser shall be entitled, through its officers, employees
and representatives, to have reasonable access to the properties, books,
records, officers and accountants of the Company during regular business hours
and upon reasonable advance notice. The Seller shall cause its officers,
employees, consultants, agents, accountants, attorneys and other representatives
to cooperate fully in connection with such access. Such access shall be
conducted by the Purchaser and its representatives in such a manner as not to
interfere unreasonably with the Company's business.
Section 6.2 Conduct of the Business Pending the Closing.
(a) Except as otherwise expressly contemplated by this Agreement
or with the prior written consent of the Purchaser, the Seller shall, and shall
cause the Company and its Subsidiaries to,
(i) conduct the business of the Company and its Subsidiaries
only in the ordinary course consistent with past practice and to use
commercially reasonable efforts to (A) preserve the present business
operations, organization and goodwill of the Company, (B) preserve its
present relationship with Persons having business dealings with the
Company and its Subsidiaries, and (C) maintain the Company Properties
and all buildings, structures, fixtures and improvements thereon in the
same condition as they exist on the date hereof, ordinary wear and tear
excepted, in each case consistent with past practice;
(ii) use commercially reasonable efforts to maintain the
assets of the Company and its Subsidiaries in customary repair, order
and condition, maintain insurance reasonably comparable to that in
effect on the Balance Sheet Date and, in the event of a casualty, loss
or damage to any of such assets prior to the Closing Date for which the
Company and its Subsidiaries is the beneficiary of insurance or the
condemnation of any such assets, either repair or replace such assets
or, if the Purchaser agrees, retain such insurance or condemnation
proceeds; and
(iii) if, to the Seller's best knowledge, any material
variances from the representations and warranties contained in Article
IV arise or occur, promptly inform the Purchaser of any such material
variances.
(b) Except as otherwise expressly contemplated by this Agreement
or with the prior written consent of the Purchaser, the Seller shall not, and
shall cause the Company and each of its Subsidiaries not to:
(i) declare, set aside, make or pay any dividend or other
distribution in respect of the capital stock of the Company and its
Subsidiaries or repurchase, redeem or
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otherwise acquire any outstanding shares of the capital stock or other
securities of, or other ownership interests in, the Company and its
Subsidiaries;
(ii) transfer, issue, sell or dispose of any shares of
capital stock or other securities of the Company and its Subsidiaries
or grant options, warrants, calls or other rights to purchase or
otherwise acquire shares of the capital stock or other securities of
the Company and its Subsidiaries;
(iii) effect any recapitalization, reclassification, stock
split or like change in the capitalization of the Company and its
Subsidiaries;
(iv) amend the articles of incorporation or by-laws of the
Company and its Subsidiaries;
(v) (A) grant any increase in the compensation of any of the
directors, officers, or Key Employees of the Company or any of its
Subsidiaries or make any general uniform increase in the compensation
of the employees of the Company or any of its Subsidiaries outside the
ordinary course of business consistent with past practice, (B) grant
any extraordinary bonus, benefit or other direct or indirect
compensation to any employee, director or consultant of the Company or
any of its Subsidiaries, or (C) enter into any severance, termination,
retention, deferred compensation, bonus or other incentive
compensation, profit sharing, stock option, stock appreciation right,
restricted stock, stock equivalent, stock purchase, pension,
retirement, medical, hospitalization, life or other insurance or other
employee benefit plan for the benefit of the officers, directors,
and/or employees of the Company or any of its Subsidiaries;
(vi) except for trade payables and under lines of credit
existing on the date hereof, with respect to the Company or any of its
Subsidiaries, borrow monies for any reason or draw down on any line of
credit or debt obligation, or become the guarantor, surety, endorser or
otherwise liable for any debt, obligation or liability (contingent or
otherwise) of any other Person;
(vii) except under lines of credit existing on the date
hereof, and consistent with past practice, subject any of the
properties or assets of the Company and its Subsidiaries to any Lien
(other than Permitted Exceptions);
(viii) purchase, sell, lease, transfer or assign any of the
Company's and its Subsidiaries' assets, tangible or intangible,
involving more than $100,000 for any single purchase, sale, lease,
transfer or assignment (or agreement related to the foregoing) or
$500,000 for a series of such related purchases, sales leases,
transfers or assignments (or agreement related to the foregoing) except
(A) for fair consideration in the ordinary course of business
consistent with past practice, (B) dispositions of assets no longer
useful to the conduct of the business of the Company and its
Subsidiaries, consistent with past practice, and (C) dispositions
(other than as part of an engine overhaul or repair) of inventory
covered by the Company's slow-moving inventory reserve in an amount not
resulting in aggregate sale proceeds in excess of $300,000;
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(ix) cancel or compromise any material debt or claim or waive
or release any material right of the Company or its Subsidiaries except
in the ordinary course of business consistent with past practice;
(x) with respect to the Company or any of its Subsidiaries,
enter into any commitment for capital expenditures in excess of
$100,000 for any individual commitment and $250,000 for all commitments
in the aggregate;
(xi) (A) enter into any employment contract (pursuant to
which the Company or any of its Subsidiaries may reasonably be expected
to make payment in excess of $50,000 in any twelve month period) or (B)
enter into any labor or collective bargaining agreement, oral or
written, or make any material modification of the terms of any existing
such contract or agreement, or, through negotiation or otherwise, make
any commitment or incur any liability to any labor organization with
respect to, or materially reduce the workforce of, the Company and its
Subsidiaries;
(xii) with respect to the Company or any of its Subsidiaries,
enter into or agree to enter into any merger or consolidation with, any
corporation or other entity, and not engage in any new business or
invest in, make a loan, advance or capital contribution to, or
otherwise acquire the securities of any other Person;
(xiii) with respect to the Company or any of its
Subsidiaries, and except for transfers of cash pursuant to normal cash
management practices, make any investments in or loans to, or except in
accordance with past practices, pay any fees or expenses to, or enter
into or modify any Contract with, the Seller or any Affiliate of the
Seller;
(xiv) with respect to the Company or any of its Subsidiaries,
make or change any election concerning Taxes or Tax Returns, change an
annual accounting period, adopt or change any accounting method, file
any amended Tax Return, enter into any closing agreement with respect
to Taxes, settled any Tax claim or assessment or surrender any right to
claim a refund of Taxes or obtain or enter into any Tax ruling,
agreement, contract, understanding, arrangement or plan, in each case
that will be binding on or affect the Purchaser, the Company or any of
its Subsidiaries for any period after the Closing Date;
(xv) with respect to the Company or any of its Subsidiaries,
enter into any contract, lease, sublease, license or sublicense (or
series of related contracts, leases, subleases, licenses and
sublicenses) involving more than $50,000 except those entered into in
the ordinary course of business consistent with past practice;
(xvi) with respect to the Company or any of its Subsidiaries,
accelerate, terminate, modify or cancel any contract, lease, sublease,
license or sublicense (or series of related contracts, leases,
subleases, licenses and sublicenses) involving more than $50,000 except
in the ordinary course of business consistent with past practice;
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(xvii) with respect to the Company or any of its
Subsidiaries, (A) make any capital investment in, any loan to, or any
acquisition of the securities of another Person (or series of related
capital investments, loans and acquisitions) involving more than
$50,000 except in the ordinary course of business consistent with past
practice or (B) make any pledge to make such a capital contribution;
(xviii) with respect to the Company or any of its
Subsidiaries, grant a license or sublicense of any rights under or with
respect to any intellectual property;
(xix) make any loan to, or enter into any transaction with,
any of the directors, officers, or employees of the Company or any of
its Subsidiaries outside the ordinary course of business;
(xx) make any other material change in employment terms for
any of the directors or officers of the Company or any of its
Subsidiaries or the Key Employees; or
(xxi) agree to do anything prohibited by this Section 6.2 or
anything which would make any of the representations and warranties of
the Seller in this Agreement or the Seller Documents untrue or
incorrect in any material respect.
Section 6.3 Preparation of Information Statement. The Seller will, as
promptly as reasonably practicable, prepare and file with the Securities and
Exchange Commission (the "SEC") an information statement relating to the written
consent on the date hereof of the holders of a majority of the shares of
Seller's common stock with respect to the sale of the Shares. The Seller will
mail the information statement to its stockholders at the earliest practicable
date following receipt of notification from the SEC that it will not review, or
has no further comments on, the information statement.
Section 6.4 Consents. The Seller shall use reasonable commercial
efforts, and the Purchaser shall cooperate with the Seller, to obtain at the
earliest practicable date all consents and approvals referred to in Section 4.6
and Schedule 4.6, and all other approvals, if any, required to consummate the
transactions contemplated by this Agreement; provided, however, that the
Purchaser shall not be obligated to pay any consideration therefor to any third
party from whom consent or approval is requested.
Section 6.5 Other Actions. Each of the Seller and the Purchaser shall
use reasonable commercial efforts to (i) take all actions necessary or
appropriate to consummate the transactions contemplated by this Agreement and
(ii) cause the fulfillment at the earliest practicable date of all of the
conditions to their respective obligations to consummate the transactions
contemplated by this Agreement.
Section 6.6 Non-Solicitation; Non-Competition.
(a) The Seller will not, and will not cause or permit the Company
or any of its Subsidiaries or any of the Seller's directors, officers,
employees, representatives or agents
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(collectively, the "Representatives") to, directly or indirectly, (i) discuss,
negotiate, undertake, authorize, recommend, propose or enter into, either as the
proposed surviving, merged, acquiring or acquired corporation, any transaction
involving a merger, consolidation, business combination, purchase or disposition
of any significant amount of the assets or capital stock or other equity
interest in the Company or any of its Subsidiaries other than the transactions
contemplated by this Agreement (an "Acquisition Transaction"), (ii) facilitate,
encourage, solicit or initiate discussions, negotiations or submissions of
proposals or offers in respect of an Acquisition Transaction, (iii) furnish or
cause to be furnished, to any Person, any information concerning the business,
operations, properties or assets of the Company and its Subsidiaries in
connection with an Acquisition Transaction, or (iv) otherwise cooperate in any
way with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other Person to do or seek any of the foregoing.
(b) Beginning as of the date hereof and continuing through the
date that is two years following the Closing Date, the Seller and its
Subsidiaries will not directly or indirectly, except by means of a general
public solicitation, solicit, encourage, entice or induce any Person who is an
employee of the Purchaser or its Subsidiaries, to terminate his or her
employment with the Purchaser. The Seller agrees that money damages will not be
an adequate remedy and that the Purchaser shall be entitled to equitable relief,
including but not limited to injunction, in the event of any breach by the
Seller or its Subsidiaries of this Section 6.6(b), in addition to any other
remedies available to the Purchaser at law; provided, however, that nothing in
this Section 6.6(b) shall restrict the Seller or its Subsidiaries from
soliciting employees of the Purchaser or its Subsidiaries who are terminated by
their respective employers.
(c) Beginning as of the date hereof and continuing through the
date that is two years following the Closing Date, the Purchaser and its
Subsidiaries will not directly or indirectly, except by means of a general
public solicitation, solicit, encourage, entice or induce any Person who is an
employee of the Seller or its Subsidiaries to terminate his or her employment
with the Seller nor, in the case of any such employee, may the Purchaser employ
any such employee during such two year period. The Purchaser agrees that money
damages will not be an adequate remedy and that the Seller shall be entitled to
equitable relief, including but not limited to injunction, in the event of any
breach by the Purchaser or its Subsidiaries of this Section 6.6(c), in addition
to any other remedies available to the Seller at law; provided, however, that
nothing in this Section 6.6(c) shall restrict the Purchaser or its Subsidiaries
from soliciting employees of the Seller on the date hereof or at any time
hereafter who are terminated by their respective employers.
Section 6.7 Preservation of Records; Access and Support.
(a) Subject to Section 8.5(c) hereof (relating to the preservation
of Tax records), the Seller and the Purchaser agree that each of them shall
preserve and keep the records held by it relating to the business of the Company
for a period of six years from the Closing Date and shall make such records and
personnel available to the other as may be reasonably required by such party in
connection with, among other things, any insurance claims by, legal proceedings
against or governmental investigations of the Seller or the Purchaser or any of
their Affiliates or in order to enable the Seller or the Purchaser to comply
with their respective obligations under
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this Agreement and each other agreement, document or instrument contemplated
hereby or thereby.
(b) In the event the Seller or the Purchaser wishes to destroy the
records referred to in Section 6.7(a) after the time periods referred to
therein, such party shall first give ninety (90) days' prior written notice to
the other and such other party shall have the right at its option and expense,
upon prior written notice given to such party within that ninety (90) day
period, to take possession of the records within one hundred and eighty (180)
days after the date of such notice.
Section 6.8 Publicity. The Seller and the Purchaser shall agree on the
text of any press release before issuing any press release or public
announcement concerning this Agreement or the transactions contemplated hereby.
Neither party shall issue any such press release or make any such public
statement prior to such agreement, except as may be required by applicable law
or by obligations pursuant to any agreement with the NASDAQ or any stock
exchange, as determined by the party so obligated (and in such case only with
prior notice to the other party).
Section 6.9 Prepayment of Indebtedness and Cancellation of Affiliate
Agreements. On or prior to the Closing Date, the Seller shall cause the Company
to repay (or shall otherwise discharge) (a) all Intercompany Indebtedness (i)
owed by the Company or any of its Subsidiaries to (ii) the Seller or any of its
Subsidiaries (other than the Company and its Subsidiaries) and (b) all amounts
then outstanding under any loan facility or other credit arrangement with third
parties, including its Loan and Security Agreement, dated June 13, 1996, as
amended, with Fleet Capital Corporation. Upon the repayment described in clause
(b) of this Section 6.9, such credit facility will be terminated and cancelled,
and the Seller shall cause the Company to obtain and deliver evidence reasonably
satisfactory to the Purchaser of the release of all Liens existing thereunder.
On or prior to the Closing Date, the Seller shall cause the Company and its
Subsidiaries to cancel all Affiliate Agreements (other than agreements between
the Company and its Subsidiaries and other than agreements whose continuance the
Purchaser has approved in writing).
Section 6.10 Transfer of Certain Claims. On or prior to the Closing
Date, the Company will transfer to the Seller all of its rights to and interest
in certain claims or potential claims described in Schedule 6.10 but will not
transfer to the Seller any of its rights to or interests in any other claims.
With respect to the Avanti Claim, the Seller covenants and agrees to pay to the
Company (or the Purchaser or any other Affiliate designated by the Purchaser),
one-half of all cash settlement or award amounts actually received with respect
to the Avanti Claim, less one-half of the out-of-pocket costs incurred by the
Seller in connection with pursuing, settling and/or litigating the Avanti Claim.
The Seller shall provide the Purchaser with reasonable documentation of such
expenses at the Purchaser's request.
Section 6.11 Confidentiality. The Purchaser and its Affiliates and the
Seller and any of its Subsidiaries will hold and will cause their respective
representatives to hold in strict confidence, unless compelled to disclose by
judicial or administrative process, or, in the opinion of its counsel, by other
requirements of law, all documents and information concerning the Company or any
Subsidiary furnished to the Purchaser and all documents and information
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concerning the Purchaser furnished to the Seller in connection with the
transactions contemplated by this Agreement (except to the extent that such
information can be shown to have been (a) previously known by the Purchaser
prior to its disclosure to the Purchaser by the Seller, (b) previously known by
the Seller prior to its disclosure to the Seller by the Purchaser, (c) in the
public domain through no fault of either the Seller or the Purchaser or (d)
later lawfully acquired by either the Seller or the Purchaser from other sources
that are not known to be under an obligation of confidentiality) and will not
release or disclose such information to any other Person, except in connection
with this Agreement to its lenders, auditors, attorneys, financial advisors and
other consultants and advisors.
Section 6.12 Regulatory Filings. Prior to the Closing Date, each of the
parties hereto will furnish to the other parties hereto such necessary
information and reasonable assistance as such other parties may reasonably
request in connection with the preparation of necessary filings or submissions
to any Governmental Body and shall notify each other of any material
correspondence with or material contacts with any such agency in connection with
the operation of the business of the Company and its Subsidiaries. The Purchaser
and the Seller agree to file any information required by the HSR Act and the
voluntary notice under the Exon-Florio Amendment and each agrees promptly to
supplement such information.
Section 6.13 Rights to Trade Show Space. The Purchaser will cause the
Company to make available to the Seller, for the use of the Seller and its
Affiliates, all of the rights or space that the Company has reserved at the
trade shows described on Schedule 6.13 (to the extent it is able to do so at no
cost or risk of liability to the Company).
Section 6.14 Updated Schedules. Schedules 4.14, 4.16, 4.17, 4.18, 4.19,
and 4.29 shall be updated by the Seller, as provided in this Section 6.14, and
delivered to the Purchaser at the Closing (collectively, the "Updated
Schedules"). The Updated Schedules shall be updated as of the Closing Date to
reflect changes occurring between the date hereof and the Closing Date to the
information set forth in response to the corresponding representations and
warranties; provided, that, no such changes or Updated Schedules shall affect
the representations and warranties (and corresponding Schedules) made as of the
date hereof.
Section 6.15 Novation. Promptly following the signing of this
Agreement, the Purchaser and the Seller shall apply for a novation (the
"Novation") with respect to the Government Contracts. The Purchaser and the
Seller shall act diligently and reasonably, and shall cooperate with each other,
to secure the Novation and shall cooperate so that the Purchaser receives the
benefit of the Government Contracts pending the receipt of the Novation.
Section 6.16 Pratt & Whitney DDOF Termination Amounts. Promptly
following the Closing Date, the Purchaser shall cause the Company to instruct
Pratt & Whitney Canada to pay all amounts relating to the cancellation of the
Pratt & Whitney DDOF to Seller rather than to the Company, to the extent such
amounts were not paid prior to the Closing Date. If any such amounts are
received by the Company or its Affiliates following the Closing Date, the
Purchaser shall cause the Company to promptly pay such amounts to the Seller.
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Section 6.17 Designated Person for Consents. Prior to the Closing Date,
the Purchaser shall designate in writing a person responsible for authorizing
all consents contemplated by Section 6.2. If such person will be unavailable to
consider such requests for more than two consecutive business days, the
Purchaser upon the request of the Seller shall designate a substitute to act in
his or her absence. The Purchaser shall cause such person to respond promptly to
all requests for consents pursuant to Section 6.2.
Section 6.18 Executive Sale Agreement Amounts. Promptly following the
final determination of the Purchase Price pursuant to Section 2.2, the Seller
shall make all payments due under the Executive Sale Agreements adopted on May
1, 1999. The Purchaser will not permit the Company following the Closing Date to
amend the Executive Sale Agreements in any respect.
ARTICLE VII
CONDITIONS TO CLOSING
---------------------
Section 7.1 Conditions Precedent to Obligations of Each Party. The
respective obligations of the Purchaser and the Seller to consummate the
transactions contemplated by this Agreement is subject to the fulfillment, on or
prior to the Closing Date, of each of the following conditions:
(a) any waiting period (including any extension thereof)
applicable to the purchase and sale of the Shares to the Purchaser under the HSR
Act and under the Exon-Florio Amendment shall have terminated or expired;
(b) there shall not be in effect any Order by a Governmental Body
of competent jurisdiction restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated hereby; and
(c) no injunction, restraining order or decree of any court or
governmental or regulatory authority shall exist against the Purchaser, the
Seller or any of their respective Affiliates, or any of the principals, officers
or directors of any of them, that restrains, prevents or materially changes the
transactions contemplated hereby.
Section 7.2 Conditions Precedent to Obligations of the Purchaser. The
obligation of the Purchaser to consummate the transactions contemplated by this
Agreement is subject to the fulfillment, on or prior to the Closing Date, of
each of the following conditions (any or all of which may be waived by the
Purchaser in whole or in part):
(a) all representations and warranties of the Seller contained
herein qualified as to materiality shall be true and correct, and the
representations and warranties of the Seller contained herein not qualified as
to materiality shall be true and correct in all material respects, at and as of
the Closing Date with the same effect as though those representations and
warranties had been made again at and as of that time;
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(b) the Seller shall have performed and complied in all material
respects with all obligations and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing Date;
(c) the Purchaser shall have been furnished with certificates
(dated the Closing Date and in form and substance reasonably satisfactory to the
Purchaser) executed by the Seller certifying as to the fulfillment of the
conditions specified in Sections 7.2(a) and 7.2(b);
(d) certificates representing 100% of the Shares shall have been,
or shall at the Closing be, validly delivered and transferred to the Purchaser,
free and clear of any and all Liens;
(e) since the Balance Sheet Date there shall have been no event,
occurrence, development or state of circumstances that individually, or in the
aggregate, and when aggregated with all positive developments, has had or would
reasonably be expected to have a Material Adverse Effect;
(f) the Seller shall have provided the Purchaser with an affidavit
of non-foreign status that complies with Section 1445 of the Code (a "FIRPTA
Affidavit");
(g) the Purchaser shall have received the written resignation of
each director of the Company;
(h) the Purchaser shall have received a certificate from each
landlord of the Leased Properties, dated during the month in which the Closing
occurs, certifying (i) that the applicable Real Property Lease is in good
standing and full force and effect in accordance with its terms and has not been
modified (except for modifications set forth therein), amended or assigned, (ii)
the date(s) to which rent and other charges thereunder have been paid, (iii)
that to the knowledge of the landlord there is no default thereunder by either
party thereto, and (iv) that all work required to be done under the applicable
Real Property Lease on the part of the Company or any of its Subsidiaries has
been completed to the satisfaction of the landlord;
(i) all assignments, consents, approvals and authorizations of
landlords that are listed on Schedule 7.2(i) hereto (the "Seller Necessary
Consents") shall have been obtained or effected, and shall not impose any
unreasonable obligations, liabilities or restrictions on the Purchaser that are
in addition to those already imposed by the terms of the instruments underlying
such Seller Necessary Consents;
(j) the Seller shall have (i) satisfied in full all obligations
under any indebtedness of the Company and its Subsidiaries (including any
interest, prepayment premiums or penalties and other fees and charges) or (ii)
provided the Purchaser with correct and complete payoff letters with respect to
such indebtedness and directed its financing sources to pay the amounts set
forth in such payoff letters to the parties referred to therein, and all
documents related thereto shall be reasonably satisfactory to the Purchaser. The
Purchaser shall have received duly executed releases (including UCC-3
termination statements) of all encumbrances (other than Permitted Exceptions) on
the assets of the Company and its Subsidiaries in form and substance reasonably
satisfactory to the Purchaser and its counsel; and
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(k) the Purchaser shall have received copies, certified to the
Purchaser's satisfaction, of (i) the resolutions of the board of directors of
the Seller referred to in Section 4.2(b) and the written consent of the Seller's
stockholders establishing the corporate power and authority of the Seller to
consummate the transactions contemplated by this Agreement, and (ii) the
information statement referred to in Section 6.3.
Section 7.3 Conditions Precedent to Obligations of the Seller. The
obligations of the Seller to consummate the transactions contemplated by this
Agreement are subject to the fulfillment, prior to or on the Closing Date, of
each of the following conditions (any or all of which may be waived by the
Seller in whole or in part):
(a) all representations and warranties of the Purchaser contained
herein qualified as to materiality shall be true and correct, and all
representations and warranties of the Purchaser contained herein not qualified
as to materiality shall be true and correct in all material respects, at and as
of the Closing Date with the same effect as though those representations and
warranties had been made again at and as of that date;
(b) the Purchaser shall have performed and complied in all
material respects with all obligations and covenants required by this Agreement
to be performed or complied with by the Purchaser on or prior to the Closing
Date; and
(c) the Seller shall have been furnished with certificates (dated
the Closing Date and in form and substance reasonably satisfactory to the
Seller) executed by the Purchaser certifying as to the fulfillment of the
conditions specified in Sections 7.3(a), and 7.3(b).
ARTICLE VIII
INDEMNIFICATION
---------------
Section 8.1 Non-Income Tax and Non-Environmental Indemnification.
(a) Subject to Sections 8.2, 8.5 and 8.9 the Seller and its
Subsidiaries, jointly and severally, hereby agree to indemnify and hold the
Purchaser, the Company, and their respective directors, officers, employees,
Affiliates, agents, successors and assigns (collectively, the "Purchaser
Indemnified Parties") harmless from and against any and all Losses based upon,
attributable to or resulting from:
(i) subject to Sections 8.2, and 8.9 the failure of any
representation or warranty of the Seller and/or its Subsidiaries set
forth in Article IV hereof (other than Section 4.11 or Section 4.19),
or any representation or warranty contained in any certificate
delivered by or on behalf of the Seller or its Subsidiaries pursuant to
this Agreement (other than a representation or warranty in a
certificate that repeats a representation or warranty set forth in
Section 4.11 or Section 4.19), to be true and correct in all respects
as of the date made;
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(ii) the breach of any covenant or other agreement on the
part of the Seller or its Subsidiaries under this Agreement or any of
the Seller Documents;
(iii) any matters arising from or relating to any claim set
forth on Schedule 6.10;
(iv) any amounts due with respect to the cancellation of the
Pratt & Whitney DDOF;
(v) amounts determined to be payable in connection with the
pending claim of the Pension Benefit Guaranty Corporation as described
in Schedule 4.15(b) (the "PBGC Claim");
(vi) litigation involving Robert Lane or the matters
described in the Philippines Letter;
(vii) the termination of the lease of the facility currently
operated by the Company in Long Beach, California, including any
restoration obligations under the lease for such facility; provided,
however, that the indemnification provided for by this clause (vii)
shall terminate and shall be of no further force or effect if the Long
Beach, California lease is not terminated within six months of the
Closing Date; and
(viii) except to the extent Non-Income Taxes are reserved for
in the Balance Sheet (excluding any reserve for deferred Non-Income
Taxes):
(A) the failure of any representation or warranty of the
Seller set forth in Section 4.11, in so far as it relates to
Non-Income Taxes, to be true and correct in all respects as of the
date made, but only to the extent such Losses are attributable to
periods ending on or before the Closing Date, and
(B) any and all Non-Income Taxes that may be imposed
upon or assessed against the Company or any Subsidiary or the
assets thereof:
(1) with respect to all taxable periods ending on
or prior to the Closing Date; and
(2) with respect to the period allocated to the
Seller pursuant to Section 8.5(b)(iv).
(b) Subject to Sections 8.2 and 8.5, the Purchaser hereby agrees
to indemnify and hold the Seller and its directors, officers, employees,
Affiliates, agents, successors and assigns (collectively, the "Seller
Indemnified Parties") harmless from and against any and all Losses based upon,
attributable to or resulting from:
(i) subject to Section 8.2, the failure of any representation
or warranty of the Purchaser set forth in Article V hereof, or any
representation or warranty contained
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in any certificate delivered by or on behalf of the Purchaser pursuant
to this Agreement, to be true and correct as of the date made;
(ii) the breach of any covenant or other agreement on the
part of the Purchaser under this Agreement or any of the Purchaser
Documents;
(iii) any and all Non-Income Taxes of the Company (A) with
respect to any taxable period of the Company beginning after the
Closing Date or (B) attributable to the period allocated to the
Purchaser pursuant to Section 8.5(b)(iv);
(iv) one-half of all of the out-of-pocket costs of pursuing,
settling, and/or litigating the Avanti Claims, it being understood that
such costs shall be reimbursed to the Seller upon its request (which
shall be made no more frequently than on a quarterly basis) or at the
Seller's option may be offset against any cash recoveries in the manner
provided by Section 6.10; and
(v) the Company's involvement in any research, repair and
overhaul operation conducted upon premises leased or subleased by the
Company to any current or former U.S.-based Affiliate of the Purchaser,
to the extent such Losses (A) arise from laws pertaining to employment,
employee benefits or termination of employment or (B) relate to Taxes
or related interest, penalties or fines.
Section 8.2 Limitations on Indemnification for Breaches of
Representations and Warranties, Non-Income Taxes, the Lane Litigation and the
Philippines Letter.
(a) The Seller shall not have any liability under Section
8.1(a)(i), Section 8.1(a)(vi) and/or Section 8.1(a)(viii) unless the aggregate
amount of Losses to the Purchaser Indemnified Parties finally determined to
arise thereunder based upon, attributable to or resulting from the failure of
any representation or warranty to be true and correct (other than the
representations and warranties set forth in Sections 4.1, 4.2, 4.3, 4.4, 4.5,
4.7 and 4.21, as to which there shall be no limitation), Non-Income Taxes, the
Philippines Letter and the Lane Litigation exceeds $1 million (the "Basic
Threshold"). The Purchaser shall not have any liability under Section 8.1(b)(i)
and/or Section 8.1(b)(iii) hereof unless the aggregate amount of Losses to the
Seller Indemnified Parties finally determined to arise thereunder based upon,
attributable to or resulting from the failure of any representation or warranty
to be true and correct (other than the representations and warranties set forth
in Sections 5.1, 5.2, 5.5, 5.6 and 5.7 hereof, as to which there shall be no
limitation) and Non-Income Taxes exceeds the Basic Threshold.
(b) The Seller and its Subsidiaries shall not be obligated to pay
more than $5,000,000 in the aggregate in respect of Losses based upon,
attributable to or resulting from the failure of any representation or warranty
of the Seller and/or its Subsidiaries to be true and correct (other than the
representations and warranties set forth in Sections 4.1, 4.2, 4.3, 4.4, 4.5,
4.7, and 4.21, as to which there shall be no limitation), Non-Income Taxes, the
Philippines Letter and/or the Lane litigation. The Purchaser shall not be
obligated to pay more than $5,000,000 in the aggregate in respect of Losses
based upon, attributable to or resulting from the failure of any representation
or warranty of the Purchaser to be true and correct (other than the
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representations and warranties set forth in Sections 5.1, 5.2, 5.5, 5.6 and 5.7
hereof, as to which there shall be no limitation) and Non-Income Taxes.
(c) An indemnifying party shall not have any liability under
Section 8.1(a)(i) or Section 8.1(b)(i) in respect of any claim first presented
or submitted after 5:00 p.m., New York City time, March 1, 2001.
Section 8.3 Environmental Indemnification and Limitation Thereof.
(a) Subject to Section 8.9 and the provisions of Section 8.3(b),
the Seller and its Subsidiaries, jointly and severally, hereby agree to
indemnify and hold the Purchaser Indemnified Parties harmless from and against
any and all Losses incurred by the Purchaser Indemnified Parties as a result of:
(i) the failure of any representation or warranty of the
Seller and/or its Subsidiaries set forth in Section 4.19, or any
representation or warranty in a certificate delivered by or on behalf
of the Seller or its Subsidiaries that repeats a representation or
warranty set forth in Section 4.19, to be true and correct in all
respects as of the date made;
(ii) loss of life, injury to persons or property, or damage
to natural resources caused by the Release, storage, transportation,
treatment or generation of Hazardous Materials generated, stored, used,
disposed of, treated, handled or shipped by the Company or any of its
Subsidiaries on or before the Closing Date;
(iii) any Hazardous Materials requiring Remedial Action to
the extent released: (x) on or beneath the Company Properties prior to
or on the Closing Date; or (y) at any other location if such substances
were generated, used, treated, transported or Released by or on behalf
of the Company or any of its Subsidiaries prior to or on the Closing
Date;
(iv) installation of pollution control equipment or other
equipment to bring the facility into compliance with any Environmental
Law if such equipment is installed as a result of the failure of the
facility to be in compliance with any Environmental Law as of the
Closing Date; and
(v) each and every item listed in Schedule 4.19 to the extent
required by Environmental Laws, or to address or otherwise correct a
condition where it is prudent and reasonable to do so to mitigate
Losses otherwise covered by subparagraphs (i), (ii) or (iii) of this
Section 8.3(a), unless the Losses based upon, attributable to or
resulting therefrom arose solely from the activities of the Purchaser
after the Closing Date.
(b) (i) The Seller and its Subsidiaries shall not have any
liability under Section 8.3(a) unless the aggregate amount of Losses to the
Purchaser Indemnified Parties finally determined to arise thereunder exceeds $1
million (the "Environmental Threshold"). Subject to the other provisions of this
Article VIII, the Seller and its Subsidiaries shall be obligated
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to provide indemnification under Section 8.3(a) only with respect to amounts in
excess of the Environmental Threshold.
(ii) The Seller and its Subsidiaries shall pay 80% of the
Losses to the Purchaser Indemnified Parties in excess of the
Environmental Threshold based upon, attributable to or resulting from
the matters for which indemnification is available pursuant to Section
8.3(a).
(iii) The Seller and its Subsidiaries shall not be obligated
to pay more than $5,000,000 under this Section 8.3.
(iv) The Seller and its Subsidiaries shall not have any
liability under Section 8.3(a) in respect of any claim first presented
or submitted after 5:00 p.m., New York City time, on the date that is
the third anniversary of the Closing Date.
(v) No Remedial Action shall be voluntarily undertaken by any
Purchaser Indemnified Party at any Company Property unless doing so is
(x) required by Environmental Laws or (y) prudent and reasonable to
mitigate Losses otherwise covered by Section 8.3(a).
(vi) Any Remedial Action at any Company Property shall be
undertaken, to the best of the Purchaser's abilities, in a reasonable
and cost-effective manner, consistent with the industrial use of the
Company Property.
(vii) Except for Remedial Action undertaken on an emergency
basis to protect against an imminent risk to human health or the
environment, prior to the commencement of any Remedial Action for which
the Seller and its Subsidiaries may have indemnity obligations subject
to indemnification hereunder, at any Company Property, a representative
of the Purchaser Indemnified Parties shall provide the Seller and its
Subsidiaries with a plan as to the Purchaser Indemnified Parties'
intended course of action, the projected costs to be incurred in
connection therewith, and the anticipated time frame for completion.
The Seller shall have the right to review such plan with the Purchaser
Indemnified Parties, to consult with Purchaser Indemnified parties
regarding the proposed plan of action and to provide comments and
suggestions, which reasonable comments and suggestions the Purchaser
will make good faith efforts to incorporate into the work plan. The
Seller shall receive periodically written status reports with regard to
the Remedial Action efforts subject to the indemnification.
Section 8.4 Non-Tax Indemnification Procedures.
(a) In the event that any Legal Proceedings shall be instituted or
that any claim or demand ("Claim") shall be asserted by any third Person in
respect of which payment may be sought under Section 8.1 (other than any Claims
under Section 8.1(a)(viii) and Section 8.1(b)(iii), which shall be governed by
Section 8.5) or 8.3 hereof (regardless of the Basic Threshold or Environmental
Threshold referred to above), the indemnified party shall reasonably
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and promptly cause written notice of the assertion of any Claim of which it has
knowledge which is covered by this indemnity to be forwarded to the indemnifying
party. The indemnifying party shall have the right, at its sole option and
expense, to be represented by counsel of its choice (which must be reasonably
satisfactory to the indemnified party), and to defend against, negotiate, settle
or otherwise deal with any Claim which relates to any Losses indemnified against
hereunder; provided, however, that the Purchaser shall have the right (i) to
control the defense of any claim seeking equitable relief and (ii) to take such
Remedial Action as the Purchaser reasonably determines must be promptly
implemented in order to mitigate any Losses which would otherwise arise as a
result of failing to promptly take such Remedial Action, without adversely
impacting any of its rights of indemnification hereunder. If the indemnifying
party elects to defend against, negotiate, settle or otherwise deal with any
Claim which relates to any Losses indemnified against hereunder, it shall within
five (5) days (or sooner, if the nature of the Claim so requires) notify the
indemnified party of its intent to do so. If the indemnifying party elects not
to defend against, negotiate, settle or otherwise deal with any Claim which
relates to any Losses indemnified against hereunder, fails to notify the
indemnified party of its election as herein provided or contests its obligation
to indemnify the indemnified party for such Losses under this Agreement, the
indemnified party may defend against, negotiate, settle or otherwise deal with
such Claim. If the indemnified party defends any Claim, then the indemnifying
party shall reimburse the indemnified party for the costs and expenses
(including reasonable attorneys' and other professionals' fees and expenses) of
defending such Claim upon submission of periodic bills. If the indemnifying
party shall assume the defense of any Claim, the indemnified party may
participate, at his or its own expense, in the defense of such Claim; provided,
however, that such indemnified party shall be entitled to participate in any
such defense with separate counsel at the expense of the indemnifying party if
(i) so requested by the indemnifying party to participate or (ii) in the
reasonable opinion of counsel to the indemnified party, a conflict or potential
conflict exists between the indemnified party and the indemnifying party that
would make such separate representation advisable; and provided, further, that
the indemnifying party shall not be required to pay for more than one such
counsel for all indemnified parties in connection with any Claim. The parties
hereto agree to cooperate fully with each other in connection with the defense,
negotiation or settlement of any such Claim.
(b) After any final judgment or award shall have been rendered by
a court, arbitration board or administrative agency of competent jurisdiction
and the expiration of the time in which to appeal therefrom, or a settlement
shall have been consummated, or the indemnified party and the indemnifying party
shall have arrived at a mutually binding agreement with respect to a Claim
hereunder, the indemnified party shall forward to the indemnifying party notice
of any sums due and owing by the indemnifying party pursuant to this Agreement
with respect to such matter and the indemnifying party shall be required to pay
all of the sums so due and owing to the indemnified party by wire transfer of
immediately available funds within 10 business days after the date of such
notice.
(c) The failure of the indemnified party to give reasonably prompt
notice of any Claim shall not release, waive or otherwise affect the
indemnifying party's obligations with respect thereto except to the extent that
the indemnifying party can demonstrate actual loss and prejudice as a result of
such failure.
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(d) No settlement of any Claim may be made by the indemnifying
party without the consent of the indemnified party, which consent shall not be
unreasonably withheld, unless such settlement (i) releases the indemnified party
from any liability in respect thereof, (ii) does not include any admission of
culpability on the part of the indemnified party and (iii) does not compromise
or adversely affect the Purchaser's rights in any assets of the business of the
Company and its Subsidiaries.
(e) In the event that an indemnified party should have a claim
against the indemnifying party hereunder which does not involve a claim or
demand being asserted by a third party, the indemnified party shall send a
written notice with respect to such claim to the indemnifying party. The
indemnifying party shall have 60 days from the date such notice is delivered
during which to notify the indemnified party in writing of any good faith
objections it has to the indemnified party's notice or claims for
indemnification, setting forth in reasonable detail each of the indemnifying
party's objections thereto. If the indemnifying party does deliver such written
notice of objection within such 60-day period, the indemnifying party and the
indemnified party shall attempt in good faith to resolve any such dispute within
60 days of the delivery by the indemnifying party of such written notice of
objection.
(f) Notwithstanding any other provision of this Section 8.4:
(i) the Purchaser shall have the right to control the defense
of the Lane litigation through the same counsel as currently used,
unless both parties agree to a new counsel, and to defend against,
negotiate, settle or otherwise deal with such litigation in its
discretion; provided, however, that the Purchaser shall consult with
the Seller with respect to all major decisions regarding litigation
strategy and in connection with the settlement of such litigation;
(ii) the Seller shall have the right to control the defense
of the PBGC Claim through counsel of its choice (which must be
reasonably satisfactory to the Purchaser), and to defend against,
negotiate, settle or otherwise deal with such litigation in its
discretion; provided, however, that the Seller shall not take any
position adverse to the Purchaser in connection with the litigation of
the PBGC Claim and shall consult with the Seller in connection with the
settlement of such litigation; and
(iii) the Seller shall have the right to control all matters
relating to any claim set forth on Schedule 6.10 in its sole
discretion; provided, however, that Seller will not settle the Avanti
Claim without the Purchaser's consent, unless such settlement provides
that the Company and its Affiliates shall have the perpetual right to
use the CARS software worldwide on a royalty-free basis (except that
the Company and its Affiliates need not obtain the right to license
such software to third parties), it being understood that the Purchaser
shall be provided a reasonable opportunity to review the relevant terms
of such settlement in advance of the execution of the same by the
Seller.
This subsection 8.4(f) shall not affect the obligation of the Seller and its
Subsidiaries to provide indemnification for the matters described in clauses
(i), (ii) and (iii) of this Section 8.4(f).
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Section 8.5 Income Tax Indemnification and Other Tax Matters.
(a) Income Tax Indemnification.
(i) Except to the extent Income Taxes are reserved for in the
Balance Sheet (excluding any reserve for deferred Income Taxes), and
subject to Section 8.9, the Seller agrees to be responsible for and to
indemnify and hold the Purchaser Indemnified Parties harmless from and
against:
(A) the failure of any representation or warranty of the
Seller set forth in Section 4.11, in so far as it relates to
Income Taxes, to be true and correct in all respects as of the
date made, but only to the extent that such Losses are
attributable to periods ending on or before the Closing Date, and
(B) any and all Income Taxes that may be imposed upon or
assessed against the Company or any Subsidiary or the assets
thereof:
(1) with respect to all taxable periods ending on
or prior to the Closing Date;
(2) with respect to the period allocated to the
Seller pursuant to Section 8.5(b)(iv);
(3) with respect to any and all Income Taxes of any
member of a consolidated, combined or unitary group of which
the Company or any Subsidiary (or any predecessor) is or was
a member on or prior to the Closing Date, by reason of the
liability of the Company or such Subsidiary pursuant to
Treasury Regulation Section 1.1502-6(a) or any analogous or
similar state, local or foreign law or regulation.
(ii) The Purchaser agrees to indemnify and hold harmless the
Seller from and against any and all Income Taxes of the Company (A)
with respect to any taxable period of the Company beginning after the
Closing Date or (B) attributable to the period allocated to the
Purchaser pursuant to Section 8.5(b)(iv).
(b) Preparation of Tax Returns; Payment of Taxes.
(i) The Seller shall cause the Company and the Subsidiaries
to be included in the Seller's consolidated federal income Tax Returns
for all periods for which they are eligible to be so included,
including without limitation the period from January 1, 1999, to the
Closing Date, and in any other required state, local and foreign
consolidated, affiliated, combined, unitary or other similar group Tax
Returns that include the Seller or any affiliate of the Seller for all
taxable periods ending on or prior to the Closing Date for which any of
them are required to be so included. The Seller shall (A) timely
prepare and file all such Tax Returns and timely pay any and all Taxes
due with respect to such Tax Returns and (B) timely prepare and file,
or cause to be prepared
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and file, all other Tax Returns required to be filed by the Company or
any Subsidiary for all taxable periods ending on or prior to the
Closing Date and shall timely pay any and all Taxes due with respect to
such Tax Returns. Prior to the filing of any Tax Return described in
the preceding sentence that was not filed before the Closing Date, the
Seller shall provide the Purchaser with a substantially final draft of
such Tax Return (or, with respect to Tax Returns described in clause
(A) above, the portion of such draft Tax Return that relates to the
Company or any Subsidiary) at least twenty days prior to the due date
for filing such Tax Return, and the Purchaser shall have the right to
review such Tax Return prior to the filing of such Tax Return;
provided, that the foregoing does not apply to the 1998 federal income
Tax Return or the 1998 California franchise Tax Return. The Purchaser
shall notify the Seller of any reasonable objections the Purchaser may
have to any items set forth in such draft Tax Returns, and the
Purchaser and the Seller agree to consult and resolve in good faith any
such objection and to mutually consent to the filing of such Tax
Return. Such Tax Returns shall be prepared or completed in a manner
consistent with prior practice of the Seller, the Company and any
Subsidiary with respect to Tax Returns concerning the income,
properties or operations of the Company and any Subsidiary (including
elections and accounting methods and conventions), except as otherwise
required by law or regulation or otherwise agreed to by the Purchaser
prior to the filing thereof. In the event the parties are unable to
resolve any dispute within ten days following the delivery of such Tax
Return, the parties shall resolve such dispute pursuant to Section
8.5(f).
(ii) Except as provided in Section 8.5(b)(i), following the
Closing, the Purchaser shall be responsible for preparing or causing to
be prepared all federal, foreign, state and local Tax Returns required
to be filed by the Company after the Closing Date. To the extent any
Taxes shown due on any such Tax Return are indemnifiable by the Seller,
(A) such Tax Return shall be prepared in a manner consistent with prior
practice unless otherwise required by applicable Tax law and (B) the
Purchaser shall deliver, at least twenty days prior to the due date for
filing of such Tax Return (including extensions), to the Seller a
statement setting forth the amount of Tax for which the Seller is
responsible pursuant to Section 8.5(a) hereof or that is allocable to
the Seller pursuant to Section 8.5(b)(iv) hereof, as the case may be
(the "Statement"), and copies of such Tax Return. The Seller shall have
the right to review such Tax Return and the Statement prior to the
filing of such Tax Return. The Seller and the Purchaser agree to
consult and resolve in good faith any issue arising as a result of the
review of such Tax Return and the Statement and to mutually consent to
the filing as promptly as possible of such Tax Return. In the event the
parties are unable to resolve any dispute within ten days following the
delivery of such Tax Return and the Statement, the parties shall
resolve such dispute pursuant to Section 8.5(f). The Purchaser shall
file or cause to be filed all such Tax Returns and shall pay the Taxes
shown due thereon.
(iii) Not later than the five days before due date for
payment of Taxes with respect to any Tax Returns which the Purchaser
has the responsibility to file, the Seller shall pay to the Purchaser
an amount equal to that portion of the Taxes shown on such Tax Return
or the Statement for which the Seller has an obligation to indemnify
the
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Purchaser and its Affiliates pursuant to the provisions of Section
8.5(a) or that is allocable to the Seller pursuant to Section
8.5(b)(iv) hereof as the case may be.
(iv) With respect to all Taxes, the Seller and the Purchaser
will, unless prohibited by applicable law, close the taxable period of
the Company as of the close of the Closing Date. Neither the Seller nor
the Purchaser shall take any position inconsistent with the preceding
sentence on any Tax Return. In any case where applicable law does not
permit the Company to close its taxable year on the Closing Date or in
any case in which a Tax is assessed with respect to a taxable period
which includes the Closing Date (but does not begin or end on that
day), then Taxes, if any, attributable to the taxable period of the
Company beginning before and ending after the Closing Date shall be
allocated (i) to the Seller for the period up to and including the
Closing Date, and (ii) to the Purchaser for the period subsequent to
the Closing Date. Any allocation of income or deductions required to
determine any Taxes attributable to any period beginning before and
ending after the Closing Date shall be prepared by the Purchaser and
shall be made by means of a closing of the books and records of the
Company as of the close of the Closing Date, provided that exemptions,
allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization
deductions) shall be allocated between the period ending on the Closing
Date and the period after the Closing Date in proportion to the number
of days in each such period. The Purchaser shall provide the Seller
with a schedule showing the computation of the allocation at least 30
days prior to the due date for filing a Tax Return which includes the
Closing Date. The Seller shall have the right to review such schedule,
and the Purchaser and the Seller shall attempt in good faith mutually
to resolve any disagreements regarding the determination of such
allocation. Any disagreements regarding such determination shall be
resolved pursuant to Section 8.5(f). Any amount owing from the Seller
under this Section 8.5(b)(iv) shall be paid no later than the filing of
the underlying Tax Return.
(c) Cooperation with Respect to Tax Returns. The Purchaser and the
Seller agree to furnish or cause to be furnished to each other, and each at
their own expense, as promptly as practicable, such information (including
access to books and records) and assistance, including making employees
available on a mutually convenient basis to provide additional information and
explanations of any material provided, relating to the Company and any
Subsidiary as is reasonably necessary for the filing of any Tax Return, for the
preparation for any audit, and for the prosecution or defense of any claim, suit
or proceeding relating to any adjustment or proposed adjustment with respect to
Taxes. The Purchaser or the Company shall retain in its possession, and shall
provide the Seller reasonable access to (including the right to make copies of),
such supporting books and records and any other materials that the Seller may
reasonably specify with respect to Tax matters relating to any taxable period
ending on or prior to the Closing Date until the relevant statute of limitations
has expired. After such time, the Purchaser may dispose of such material,
provided that prior to such disposition the Purchaser shall give the Seller
prior written notice and a reasonable opportunity to take possession of such
materials. Notwithstanding the foregoing, neither the Seller nor the Purchaser,
nor any of their
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affiliates, shall be required unreasonably to prepare any document, or determine
any information not then in its possession, in response to a request under this
Section 8.5(c).
(d) Tax Audits.
(i) The Purchaser shall have the sole right to represent the
interests of the Company and any Subsidiary in any Tax audit or
administrative or court proceeding relating to taxable periods of the
Company beginning after the Closing Date and to employ counsel of its
choice at its expense. The Seller agrees that it will provide such
cooperation and information as the Purchaser and its counsel shall
reasonably request in the defense against or compromise of any claim in
any said proceeding.
(ii) The Purchaser shall promptly notify the Seller in
writing upon receipt by the Purchaser of notice of any pending or
threatened Tax audit or assessment which may affect the Tax liabilities
of the Company for which Seller would be required to indemnify the
Purchaser. The Seller shall have the sole right to represent the
interests of the Company in any Tax audit or administrative or court
proceeding relating to any Taxes or taxable periods of the Company for
which Seller has an obligation to indemnify the Purchaser hereunder,
and to employ counsel of its choice at its expense; provided, however,
that the Purchaser shall have the right to participate in any such
audit or proceeding to the extent that any such audit or proceeding may
affect the Tax liability of the Purchaser, any of its affiliates, the
Company or any Subsidiary for any period ending after the Closing Date
and to employ counsel of its choice at its own expense for purposes of
such participation. Notwithstanding anything to the contrary contained
or implied in this Agreement, without the prior written approval of the
Purchaser, neither the Seller nor any affiliate of the Seller shall
agree or consent to compromise or settle, either administratively or
after the commencement of litigation, any issue or claim arising in any
such audit or proceeding, or otherwise agree or consent to any Tax
liability, to the extent that any such compromise, settlement, consent
or agreement may affect the Tax liability of the Purchaser, any of its
affiliates, the Company or any Subsidiary for any period ending after
the Closing Date; provided, however, that if the Purchaser refuses to
consent to any such compromise, settlement, consent or agreement that
the Seller or any affiliate of the Seller proposes to accept (a
"Proposed Settlement"), then (A) the liability with respect to the
subject matter of the Proposed Settlement, as otherwise determined
pursuant to the terms hereof, of the Seller shall not exceed the amount
that such liability would have been if the Proposed Settlement had been
accepted, and (B) the Purchaser shall be responsible for all expenses
incurred thereafter in connection with the contest of the subject
matter of the Proposed Settlement. The Purchaser agrees that it will
provide such cooperation and information as the Seller and its counsel
shall reasonably request in the defense against or compromise of any
claim in any said proceeding.
(iii) If the examination of any Tax Return of the Company or
any Subsidiary for any taxable period ending on or before the Closing
Date shall result (by settlement or otherwise) in any adjustment which
permits the Purchaser, the Company or any Subsidiary to increase
deductions, losses or tax credits or decrease the income, gains or
recapture of tax credits which would otherwise (but for such
adjustments) have been
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reported or taken into account (including by way of any increase in
basis) by the Purchaser, the Company or any Subsidiary for one or more
periods after the Closing Date, the Purchaser shall pay to the Seller
the amount of any resulting Tax benefit. The amount of such resulting
Tax benefit shall be determined in good faith by the Seller taking into
account all relevant facts and circumstances, including the time value
of money, and shall be subject to the Purchaser's approval. Any dispute
concerning such determination shall be settled in accordance with
Section 8.5(f).
(iv) If the examination of any Tax Return of the Company or
any Subsidiary for any taxable period beginning and ending after the
Closing Date shall result (by settlement or otherwise) in any
adjustment which permits the Seller, the Company or any Subsidiary to
increase deductions, losses or tax credits or decrease the income,
gains or recapture of tax credits which would otherwise (but for such
adjustments) have been reported or taken into account (including by way
of any increase in basis) by the Seller, the Company or any Subsidiary
for one or more periods ending on or before the Closing Date, the
Seller shall pay to the Purchaser the amount of any resulting Tax
benefit. The amount of such resulting tax benefit shall be determined
in good faith by the Purchaser taking into account all relevant facts
and circumstances, including the time value of money, and shall be
subject to the Seller's approval. Any dispute concerning such
determination shall be settled in accordance with Section 8.5(f).
(e) Transfer Taxes. The Seller and the Purchaser shall each pay
one-half of all sales, use, stamp, documentary, filing, recording, transfer or
similar fees or taxes or governmental charges (including, without limitation,
real property transfer gains taxes, UCC-3 filing fees, FAA, ICC, DOT, real
estate and motor vehicle registration, title recording or filing fees and other
amounts payable in respect of transfer filings) as levied by any taxing
authority or governmental agency in connection with the transactions
contemplated by this Agreement (other than fees to be paid to the SEC and any
other governmental charges and assessments in connection with the solicitation
of the Seller's stockholders, which shall be paid entirely by the Seller). The
parties shall file all necessary Documents (including, but not limited to, all
Tax Returns) with respect to all such amounts in a timely manner.
(f) Any dispute as to any matter covered in this Section 8.5 shall
be resolved by an independent accounting firm mutually acceptable to the Seller
and the Purchaser. The fees and expenses of such accounting firm shall be borne
equally by the Seller and the Purchaser.
(g) The indemnification provided for in this Section 8.5 shall be
the sole remedy for any claim in respect of Taxes and the provisions of Sections
8.1 through 8.4 hereof shall not apply to such claims.
(h) Any claim for indemnity under this Section 8.5 may be made at
any time prior to the lapse of six months after the expiration of the applicable
Tax statute of limitations with respect to the relevant taxable period
(including all periods of extension, whether automatic of permissive).
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(i) Section 338(h)(10) Election. The Purchaser and the Seller
shall make a joint election under Section 338(h)(10) of the Code and
under any comparable or equivalent provisions of state or local law
with respect to the purchase of the Shares by the Purchaser (the
"Election"). The Seller and the Purchaser shall report, in connection
with the determination of Taxes, the transactions contemplated by this
Agreement in a manner consistent with the Election.
(A) The Seller shall be responsible for the preparation
and, subject to the Purchaser's review and approval, timely filing
of all forms and documents required in connection with the
Election. In connection with the Election, the Seller shall
provide the Purchaser with copies of (A) a properly executed Form
8023 (or any successor form), (B) all attachments required to be
filed therewith pursuant to the Code and (C) any comparable forms
and attachments with respect to any applicable state or local
elections being made pursuant to the Election. Absent any dispute,
which shall be resolved under Section 8.5(f) hereof, the Purchaser
shall execute and deliver to the Seller, within 15 days of the
date delivered by the Seller, such documents or forms as are
required by any Tax laws to properly complete the Election.
(B) The Seller and the Purchaser shall comply with all
of the requirements of Section 338(h)(10) of the Code, and shall
take no action which is inconsistent with the requirements for
filing the Election under the Code.
(C) To the extent permitted by state or local laws, the
principles and procedures of this Section 8.5(i) shall also apply
with respect to a Section 338(h)(10) election or equivalent or
comparable provision under state or local law.
Section 8.6 Tax Treatment of Indemnity Payments. Except as otherwise
required by applicable law, the Seller and the Purchaser agree to treat any
indemnity payment made pursuant to this Article VIII as an adjustment to the
Purchase Price for federal, state, local and foreign income tax purposes.
Section 8.7 Computation of Losses; Disputes. The amount of any Losses
for which indemnification is provided under this Article VIII shall be reduced
by (x) any related Tax benefits realized or received or to be realized or
received and (y) any insurance recovery if and when actually realized or
received, in each case in respect of such Losses. Any such recovery shall be
promptly repaid by the indemnified party to the indemnifying party following the
time at which such recovery is realized or received pursuant to the previous
sentence, minus all reasonably allocable costs, charges and expenses incurred by
the indemnified party in obtaining such recovery. In the case where a Tax
benefit is to be realized pursuant to clause (x) of this Section 8.7 above, the
amount of such Tax benefit to be realized shall be determined in good faith by
the Purchaser taking into account all relevant facts and circumstances,
including, without limitation, the time value of money. Any dispute concerning
such determination shall be settled in accordance with Section 8.5(f).
Notwithstanding the foregoing, if (x) the amount of Losses for which the
indemnifying party is obligated to indemnify the indemnified party is reduced by
any Tax benefit or insurance recovery in accordance with the provisions of the
previous
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sentence, and (y) the indemnified party subsequently is required to repay the
amount of any such Tax benefit or insurance recovery or such Tax benefit or
insurance recovery is disallowed, then the obligation of the indemnifying party
to indemnify with respect to such amounts shall be reinstated immediately and
such amounts, plus interest at the statutory rate for underpayments as provided
by the Code from the date of the initial indemnification payment to the date of
the reinstatement payment, shall be paid promptly to the indemnified party in
accordance with the provisions of this Agreement.
Section 8.8 Indemnification as Sole Remedy. The Purchaser acknowledges
that the indemnification provisions contained in this Article VIII, together
with the termination rights under Article III, constitute the Purchaser's sole
remedies with respect to any of the matters arising out of or in connection with
this Agreement. The Purchaser acknowledges and agrees that: (i) the Purchaser
and its representatives have the experience and knowledge to evaluate the
business, financial condition, assets and liabilities of the Company; and (ii)
in determining to acquire the Shares and, therefore, the business and the
underlying assets and liabilities of the Company (including the real property,
fixtures and the tangible personal property owned or used by the Company), the
Purchaser has made its own investigation into, and based thereon the Purchaser
has formed an independent judgment concerning, the Shares, the business and the
underlying assets and liabilities of the Company (including the real property,
fixtures and the tangible personal property owned or used by the Company).
Section 8.9 Certain Additional Limitations on Indemnification.
Notwithstanding anything to the contrary contained herein, Purchaser shall have
no right to make any claim for indemnification (under this Article VIII or
otherwise) with respect to any Losses based upon, attributable to or resulting
from the Company's involvement in any research, repair and overhaul operation
conducted upon premises leased or subleased by the Company to any current or
former U.S.-based Affiliate of the Purchaser.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1 Certain Definitions. For purposes of this Agreement, the
following terms shall have the meanings specified in this Section 9.1 (such
definitions and the other defined terms used in this Agreement to be equally
applicable to both the singular and plural forms of the terms herein defined):
"Accounting Principles" means the accounting principles, policies and
procedures described in Exhibit A attached hereto.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person.
"as of the date hereof", "the date hereof", and words of similar import
mean the date on which this Agreement is executed by the parties hereto.
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"Avanti Claim" means the potential claim against Avanti and Oracle
described on Schedule 6.10.
"Business Day" means any day of the year on which national banking
institutions in New York are open to the public for conducting business and are
not required or authorized to close.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Contract" means any Contract, agreement, indenture, note, bond, loan,
instrument, lease, commitment or other arrangement or agreement.
"Current Proposals" means all proposals by the Company to provide
products or services, directly or indirectly (including as a subcontractor), to
any Governmental Body that are currently outstanding.
"Directors" or "directors" means, as to any Person, any member of its
Board of Directors or similar governing body.
"Environmental Law" means any applicable foreign, federal, state or
local statute, regulation, ordinance, rule of common law or other legal
requirement, including orders, consent decrees and judgments, in effect in any
way relating to the protection of human health and safety, the environment or
natural resources including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. ss. 9601 et seq.), the
Hazardous Materials Transportation Act (49 U.S.C. App. ss. 1801 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.), the Clean
Water Act (33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et
seq.) the Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. ss. 136 et seq.), and the
Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.), and the
regulations promulgated pursuant thereto.
"Environmental Permits" means any Permit, required by Environmental
Laws for the ownership, use and operations at the Company Properties.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which are under control, or which are treated as a single
employer, with the Company under Section 414(b), (c), (m) or (o) of the Code.
"FAA" means the Federal Aviation Administration.
"GAAP" means generally accepted United States accounting principles as
of the date hereof.
"Governmental Body" means any government or governmental or regulatory
body thereof, or political subdivision thereof, whether federal, state, local or
foreign, or any agency, instrumentality or authority thereof, or any court or
arbitrator (public or private).
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"Government Contracts" means all contracts, arrangements, and
agreements (including all change orders and modifications to contracts) to which
the Company provides products or services, directly or indirectly (including as
a subcontractor), to any Governmental Body.
"Government Property" means all property furnished by a Governmental
Body, directly or indirectly (including through a prime or other contractor) to
the Company.
"Hazardous Material" means any substance, material or waste which is
regulated, classified or otherwise designated by the United States, or any state
or local governmental authority as hazardous, toxic, pollutant, contaminant or
words of similar meaning or regulatory effect including, without limitation,
petroleum and its by-products and asbestos.
"Income Taxes" means Taxes based on net income.
"Intellectual Property" means: trademarks and service marks (whether
registered or unregistered), trade names and designs, together with all goodwill
related to the foregoing (collectively, "Trademarks"); patents (including any
continuations, continuations in part, renewals and applications for any of the
foregoing) (collectively "Patents"); copyrights (including any registrations and
applications therefor and whether registered or unregistered) (collectively,
"Copyrights"); internet domain names ("Domain Names"); computer software;
databases; works of authorship; mask works; technology; trade secrets and other
confidential information, know-how, proprietary processes, formulae, algorithms,
models, user interfaces, customer lists, inventions, discoveries, concepts,
ideas, techniques, methods, source codes, object codes, methodologies and, with
respect to all of the foregoing, related confidential data or information
(collectively, "Trade Secrets").
"Intercompany Indebtedness" shall mean any amounts owed to the Seller
by any Affiliate of the Seller, and any amounts owed by the Seller to any
Affiliate of the Seller.
"Law" means any federal, state, local or foreign law (including common
law), statute, code, ordinance, rule, regulation or other requirement.
"Legal Proceeding" means any judicial, administrative or arbitral
actions, suits, investigations proceedings (public or private), orders pending,
claims or governmental proceedings.
"Lien" means any lien, pledge, mortgage, deed of trust, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any shareholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"Losses" shall mean, collectively, with respect to any Person, any and
all losses, liabilities, obligations, damages, costs and expenses, and all
losses, liabilities, obligations, damages, costs and expenses, and all notices,
actions, suits, proceedings, claims demands, assessments, judgments, costs,
penalties and expenses, including attorneys' and other professionals' fees and
disbursements incident to any such loss, liability, obligation, damage, cost or
expense, in each case, incurred or suffered by such Person.
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"Material Adverse Effect" means any change, circumstance, fact or
effect which has resulted in, or is reasonably likely to result in, any material
adverse change in the business, properties, results of operations, prospects,
condition (financial or otherwise) of the Company, other than any change,
circumstance, fact or effect relating (x) to the economy or financial markets in
general, (y) generally to the industry in which the Company operates and not
specifically relating to the Company, or (z) to any action or inaction of the
Purchaser or its Affiliates, including, without limitation, any delays in the
delivery of parts due to strike, force majeure or otherwise.
"Net Assets" means the total assets of the Company and its Subsidiaries
less the total liabilities of the Company and its Subsidiaries as of the date of
determination, as determined in accordance with the Accounting Principles.
"Non-Income Taxes" means Taxes other than Income Taxes.
"Order" means any order, injunction, judgment, decree, ruling, writ,
assessment or arbitration award.
"Permits" means any governmental approvals, authorizations, consents,
licenses, permits or certificates required in connection with and material to
the operations of the business of the Company and its Subsidiaries.
"Permitted Exceptions" means (i) statutory liens for current taxes,
assessments or other governmental charges not yet delinquent or the amount or
validity of which is being contested in good faith by appropriate proceedings,
provided an appropriate reserve is established therefor; (ii) mechanics',
carriers', workers', repairers' and similar Liens arising or incurred in the
ordinary course of business that are not material to the business, operations
and financial condition of the property so encumbered or the Company; (iii)
zoning, entitlement and other land use and environmental regulations by any
Governmental Body, provided that such regulations have not been violated and do
not interfere with the continued use of the applicable Company Property in the
manner presently used; and (iv) such other imperfections in title, charges,
easements, restrictions and encumbrances which do not render title unmarketable,
do not detract significantly from the value of or interfere with the continued
use of any Company Property in the manner presently used subject thereto or
affected thereby.
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.
"Philippines Letter" means the correspondence received by the Company
from Fortunato D. Peralta dated August 20, 1999, and related correspondence
annexed as part of Schedule 4.17.
"Pratt & Whitney DDOF" means the authorization agreement between the
Company and Pratt & Whitney Canada concerning PT 6 engine repair.
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"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, migration or leaching into
the indoor or outdoor environment, or into or out of any property;
"Remedial Action" means all actions to (x) clean up, remove, treat or
in any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public health
or welfare or the indoor or outdoor environment; or (z) perform pre-remedial
studies and investigations or post-remedial monitoring and care.
"Seller's best knowledge" means the actual knowledge of each of the
following individuals: Tony Amato, Rich Bowley, Barbara Britt, Michael Culver,
Lorne Dyke, Paul Flohr, Joseph Ghantous, Jay Gross, Leroy Johnson, Joe Lindley,
Rudi Lautz, Gary Lewis, Barry Lynch, John Marsalisi and Rajesh Sharma. For
purposes of determining such individuals' actual knowledge, each such individual
shall be presumed to have consulted his or her current files where he or she
reasonably believed such consultation was warranted.
"Software" means any and all (i) computer programs, including any and
all software implementations of algorithms, models and methodologies, whether in
source code or object code, (ii) databases and compilations, including any and
all data and collections of data, whether machine readable or otherwise, (iii)
descriptions, schematics, flow-charts and other work product used to design,
plan, organize and develop any of the foregoing, and (iv) all documentation,
including user manuals and training materials, relating to any of the foregoing.
"Subsidiary" means, as to any Person (the "first Person"), any other
Person a majority of the outstanding voting securities or other voting equity
interests of which are owned, directly or indirectly, by the first Person;
provided, however, that if no first Person is specified, the term "Subsidiary"
shall denote a Subsidiary of the Company.
"Taxes" means (i) all federal, state, local or foreign taxes, charges,
fees, imposts, levies or other assessments, including, without limitation, all
net income, gross receipts, capital, sales, use, ad valorem, value added,
transfer, franchise, profits, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, severance, stamp,
occupation, property and estimated taxes, customs duties, fees, assessments and
charges of any kind whatsoever, (ii) all interest, penalties, fines, additions
to tax or additional amounts imposed by any taxing authority in connection with
any item described in clause (i), and (iii) any amount due under a Tax sharing
agreement.
"Tax Return" means all returns, declarations, reports, estimates,
information returns and statements required to be filed in respect of any Taxes.
Section 9.2 Survival of Representations and Warranties. Subject to the
limitations and qualifications set forth herein, the parties hereto hereby agree
that the representations and warranties contained in this Agreement or in any
certificate, document or instrument delivered in connection herewith, shall
survive the execution and delivery of this Agreement, and the Closing hereunder,
regardless of any investigation made by the parties hereto.
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Section 9.3 Expenses. Except as otherwise provided in this Agreement,
the Seller and the Purchaser shall each bear its own expenses incurred in
connection with the negotiation and execution of this Agreement and each other
agreement, document and instrument contemplated by this Agreement and the
consummation of the transactions contemplated hereby and thereby, it being
understood that in no event shall the Company bear any of such costs and
expenses.
Section 9.4 Specific Performance. The Seller and the Purchaser each
acknowledge and agree that the breach of this Agreement would cause irreparable
damage to the other party, and that the other party will not have an adequate
remedy at law. In the event of such breach, therefore, the respective
obligations of the Seller and the Purchaser under this Agreement, including,
without limitation, the Seller's obligation to sell the Shares to the Purchaser,
shall be enforceable by a decree of specific performance issued by any court of
competent jurisdiction, and appropriate injunctive relief may be applied for and
granted in connection therewith. Such remedies shall, however, be cumulative and
not exclusive and shall be in addition to any other remedies which any party may
have under this Agreement or otherwise.
Section 9.5 Further Assurances. The Seller and the Purchaser each
agrees to execute and deliver such other documents or agreements and to take
such other action as may be reasonably necessary or desirable for the
implementation of this Agreement and the consummation of the transactions
contemplated hereby.
Section 9.6 Entire Agreement; Amendments and Waivers. This Agreement
(including the schedules and exhibits hereto) represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and can be amended, supplemented or changed, and any
provision hereof can be waived, only by written instrument making specific
reference to this Agreement signed by the party against whom enforcement of any
such amendment, supplement, modification or waiver is sought. No action taken
pursuant to this Agreement, including without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representation, warranty, covenant or
agreement contained herein. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a further or
continuing waiver of such breach or as a waiver of any other or subsequent
breach. No failure on the part of any party to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy
by such party preclude any other or further exercise thereof or the exercise of
any other right, power or remedy. All remedies hereunder are cumulative and are
not exclusive of any other remedies provided by law.
Section 9.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW
YORK APPLICABLE TO AGREEMENTS MADE AND TO BE WHOLLY PERFORMED IN SUCH STATE
WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE THAT
WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE
OF NEW YORK.
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Section 9.8 Dispute Resolution.
(a) Any dispute, claim or controversy arising out of or relating
to this Agreement, or the interpretation or breach thereof, shall be referred to
arbitration under the rules of the American Arbitration Association, to the
extent such rules are not inconsistent with this Section 9.8. Judgment upon the
award of the arbitrator may be entered in any court having jurisdiction thereof
or such court may be asked to judicially confirm the award and order its
enforcement, as the case may be. The demand for arbitration shall be made within
a reasonable time after the claim, dispute or other matter in question has
arisen, and in any event shall not be made after the date when institution of
legal or equitable proceedings, based on such claim, dispute or other matter in
question, would be barred by the applicable statute of limitations.
(b) The arbitration panel shall consist of three neutral
arbitrators, one appointed by each of the parties and the third appointed by the
two party-appointed arbitrators, in conformance with the rules of the American
Arbitration Association. If the parties hereto are unable to agree on the
appointment of any arbitrator, either party may petition the American
Arbitration Association to make the appointment.
(c) The place of arbitration shall be New York, New York.
Section 9.9 Table of Contents and Headings. The table of contents and
section headings of this Agreement are for reference purposes only and are to be
given no effect in the construction or interpretation of this Agreement.
Section 9.10 Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed given when delivered
personally or mailed by certified mail, return receipt requested, to the parties
(and shall also be transmitted by facsimile to the Persons receiving copies
thereof) at the following addresses (or to such other address as a party may
have specified by notice given to the other party pursuant to this provision):
If to the Seller, to:
First Aviation Services, Inc.
15 Riverside Avenue
Westport, CT 06880-4124
Attention: Aaron Hollander
Telephone: (203) 291-7705
Facsimile: (203) 291-7730
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With copies to:
First Aviation Services, Inc.
15 Riverside Avenue
Westport, CT 06880-4124
Attention: John A. Marsalisi
Telephone: (203) 291-7705
Facsimile: (203) 291-7730
and to:
Weil, Gotshal & Manges LLP
Attention: Frederick S. Green, Esq.
767 Fifth Avenue
New York, NY 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
If to the Purchaser, to:
Rolls-Royce North America Inc.
Attention: Thomas P. Dale, Esq.
1191 Freedom Drive
Reston, VA 20190-5602
Telephone: (703) 834-1700
Facsimile: (703) 834-5629
With a copy to:
Winthrop, Stimson, Putnam & Roberts
Attention: Christopher R. Wall, Esq.
One Battery Park Plaza
New York, NY 10004-1490
Telephone: (212) 858-1000
Facsimile: (212) 858-1500
Section 9.11 Severability. If any provision of this Agreement is
invalid or unenforceable, the balance of this Agreement shall remain in effect.
Section 9.12 Binding Effect; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns. Nothing in this Agreement shall create or be
deemed to create any third party beneficiary rights in any person or entity not
a party to this Agreement except as provided below. No assignment of this
Agreement or of any rights or obligations hereunder may be made by the Seller,
any of its Subsidiaries or the Purchaser (by operation of law or otherwise)
without the prior written consent of the other parties hereto and any attempted
assignment without the required consents shall be
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void; provided, however, that the Purchaser may assign this Agreement and any or
all rights or obligations hereunder (including, without limitation, the
Purchaser's rights to purchase the Shares and the Purchaser's rights to seek
indemnification hereunder) to any Affiliate of the Purchaser. Upon any such
permitted assignment, the references in this Agreement to the Purchaser shall
also apply to any such assignee unless the context otherwise requires.
Section 9.13 Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
Section 9.14 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
[SIGNATURES BEGIN ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first written above.
ROLLS-ROYCE NORTH AMERICA INC.
By: /s/ James M. Guyette
----------------------------
Name: James M. Guyette
Title: President and CEO
FIRST AVIATION SERVICES, INC.
By: /s/ John A. Marsalisi
-----------------------------
Name: John A. Marsalisi
Title: Vice President and CFO
