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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition Period from ______ to ______
Commission File Number 1-5483
WHITEHALL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 41-0838460
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
POST OFFICE BOX 29709 75229
2659 NOVA DRIVE (Zip Code)
DALLAS, TEXAS
(Address of principal executive offices)
Registrant's telephone number, including area code: 972-247-8747
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $0.10 PAR VALUE
NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. ___
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT ON MARCH 24, 1998, WAS $83,181,305
On March 24, 1998, there were issued and outstanding 5,530,000 shares of the
registrant's Common Stock, $0.10 par value, excluding 2,161,312 shares of
treasury stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the annual meeting of
stockholders presently scheduled to be held on June 30, 1998, are incorporated
into Part III by reference.
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PART I
ITEM 1. BUSINESS
A. General
Whitehall Corporation ("Whitehall" or the "Company") is an independent
provider of maintenance and modification services for commercial, military and
freighter aircraft. The Company focuses primarily on two categories of
commercial customers: established traditional commercial carriers that view
outsourcing as a way to reduce operating expenses and increase their
competitiveness and new entrant, low-cost air carriers that rely on outsourcing
for scheduled heavy maintenance The Company operates two United States Federal
Aviation Administration ("FAA") and Joint Aviation Authority of the European
Economic Community ("JAA") certified repair stations that specialize in heavy
maintenance and modification of Boeing 707, 727, 737, McDonnell Douglas DC-8,
DC-9, DC-10 and Lockheed L-100, L-188 and C-130 aircraft. The Company offers its
customers a comprehensive range of aviation services, including scheduled "A,"
"B," "C" and "D" level inspections, block overhauls and repairs, corrosion
prevention and control programs and exterior stripping and painting.
Modification services provided by the Company include interior reconfiguration,
cargo conversions and avionics installations. Through a joint venture, the
Company also designs, and markets hushkits designed to reduce the noise created
by Boeing 737-100 and 737-200 series aircraft to levels which comply with
FAA-mandated Stage 3 noise reduction standards. The Company was incorporated
under the laws of Delaware in 1963 as a successor to a Minnesota corporation
organized in 1960.
B. Significant Developments
On March 24, 1998, the Company entered into a definitive merger agreement
(the "Merger Agreement") with Aviation Sales Company ("AVS") pursuant to which a
wholly-owned subsidiary of AVS will merge (the "Merger") with and into the
Company. As a result of the Merger, the Company will become a wholly owned
subsidiary of AVS. The Merger is expected to be accounted for as a pooling of
interests. Under the terms of the Merger Agreement, each share of the Company's
common stock outstanding at the effective time of the Merger will be converted
into the right to receive .5143 shares of common stock of AVS. Consummation of
the Merger, which is expected to occur at the end of the second quarter of 1998,
is subject to customary closing conditions, including, without limitation,
approval of the Company's and AVS's stockholders and successful completion of
regulatory review under the Hart-Scott-Rodino Antitrust Improvements Act. No
assurance can be given that the Merger will ultimately be consummated or that it
will be consummated on the terms set forth in the Merger Agreement.
In July 1997, the Company purchased from Zantop International Airlines,
Inc. ("Zantop") certain assets (the "Acquired Assets") used in connection with
the operation of Zantop's third party aircraft maintenance business located in
Macon, Georgia. Among the Acquired Assets were all of the Zantop's leasehold
interests in the properties located at its Macon facility (the "Leased
Facilities"). The purchase price for the Acquired Assets was $1.5 million in
cash plus the assumption of certain liabilities, including approximately $4.3
million in future lease obligations relating to the Leased Facilities.
In April 1997, the United States Air Force ("USAF") awarded the Company a
five-year contract (the "C-130 Contract") to perform Programmed Depot
Maintenance on its fleet of C-130 cargo aircraft stationed in the continental
United States. In June 1997, the C-130 Contract was cancelled at the convenience
of the U.S. government because the USAF elected to perform this work with
government personnel at two of its remaining USAF bases rather than outsourcing
it to private contractors. The C-130 Contract provides for reimbursement by the
USAF of costs incurred by the Company during its term. The Company has made a
claim for reimbursement and is currently negotiating a settlement with the USAF
for the claimed amount.
In March 1997, the Company sold its electronics business to a private
investor group (the "Crystek Buyer") for approximately $2.7 million. The
transaction was structured as a sale by the Company of all of the outstanding
capital stock of Crystek Crystals Corporation, the Company's electronics
division operating subsidiary ("Crystek"). The Company received approximately
$1.9 million in cash and two promissory notes aggregating $864,000. The
promissory notes are due in installments from 1998 through 2001 and bear
interest at a rate of 10% per annum. Under the terms of the agreement
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relating to the sale of Crystek (the "Crystek Agreement"), the Company agreed to
remediate certain environmental conditions on the real property owned by Crystek
(the "Crystek Property") and, if such environmental conditions are not
satisfactorily remediated by December 31, 1998, the Crystek Buyer has the right
to require the Company to repurchase the Crystek Property on the terms and
subject to the conditions set forth in the Crystek Agreement. In the event of
such a sale, the Crystek Buyer will have the right to lease the Crystek Property
from the Company.
In November 1996, the Company sold its ocean systems business to a
newly-formed company, Hydroscience Technologies, Inc. ("HTI"), in exchange for
818,182 shares of preferred stock of HTI (the "HTI Preferred Stock") and the
limited assumption by HTI of potential warranty liabilities associated with such
business. The aggregate amount of HTI Preferred Stock received by the Company
was equal to the book value of the assets transferred by it to HTI. The HTI
Preferred Stock carries a liquidation preference of $5.50 per share. At the
Company's election, the HTI Preferred Stock is convertible into 45% of the
common stock of HTI. The Company has concluded that the value of its investment
in the HTI Preferred Stock has declined permanently. The entire amount was
written off in September 1997.
C. Financial Information about Industry Segments
During 1997, the Company operated in two business segments: aircraft
maintenance and electronics. During 1996, the Company also operated in the ocean
systems business. A table presenting selected financial information attributable
to each of the principal industry segments in which the Company operated is set
forth in Note N of the Notes to the Consolidated Financial Statements filed
under Item 8 in Part II of this Annual Report on Form 10-K.
As described in Item 1(B) above, the Company sold its ocean systems
business in November 1996 and its electronics business in March 1997. As a
result, the Company operates exclusively in the aviation maintenance industry.
D. Narrative Description of the Business
INDUSTRY OUTLOOK
General. The Company believes that the total market for commercial airframe
heavy maintenance and modification services in North America is approximately
$2.3 billion annually. Approximately 65% of these services are currently being
performed by airlines themselves, with the remaining demand being outsourced to
independent providers such as the Company. As the commercial airline industry
continues to operate under intense competition and federal budgetary constraints
force reductions in military spending, management believes that both the private
and military sectors will increasingly view outsourcing as a logical and
effective way to reduce operating cost. Factors which management believes
indicate the strength of the demand for its services include (i) the projected
growth of worldwide air traffic, (ii) the proliferation of start-up airlines
which typically depend on outside facilities for maintenance, (iii) the desire
of established airlines to reduce costs by divesting themselves of large
segments of their maintenance operations and shifting these responsibilities to
third-party providers who are often able to provide these services more quickly
and less expensively; (iv) the growth of the worldwide air cargo industry which
the Company believes will foster the demand for passenger-to-freighter
modification services and (v) the current policy of the United States military
to promote outsourcing to the private sector many of the services that were
traditionally provided internally.
Commercial Maintenance Market. The growth of the worldwide commercial
aircraft maintenance market is greatly affected by worldwide air travel.
According to Boeing's 1997 Current Market Outlook (the "Boeing Report"), world
air travel is expected to grow at a compound annual rate of 5.5% for the next
ten years. During that same period, the worldwide fleet of commercial airplanes
is expected to double. Further, deregulation of the aviation industry in the
United States and the European Economic Community, increased demand for low-fare
air travel and relatively low barriers to entry have led to the emergence of
several start-up airlines. Approximately 92% of the aircraft operators worldwide
have fleets of less than 30 aircraft. For these carriers, in-house maintenance
capabilities are not generally considered to be economically viable. In
addition, a number of established airlines have begun to view maintenance
outsourcing as a way to increase productivity of their assets, reduce operating
costs and better focus their resources on their core competencies of
transporting passengers and freight.
Commercial Modification Market. The Company expects the airframe
modification business to experience growth over the next several years,
primarily due to the rapid expansion of the global air freight industry and the
phase in of federal noise control legislation requiring airlines to either
modify or remove from their U.S. fleet certain aircraft models
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by the end of 1999. As the worldwide freight transport market continues to grow,
so does the demand for dedicated cargo aircraft. According to the Boeing Report,
air cargo traffic is projected to increase at a compound annual rate of 6.6%
through 2016 and an additional 420 dedicated freighter aircraft are expected to
be added to the world fleet during that period. Because few cargo carriers are
willing to commit the capital to purchase newly built cargo aircraft, it is
expected that the majority of the dedicated freighter aircraft coming into
circulation in the next several years will be passenger aircraft which have been
modified and converted for cargo duty.
The Airport Noise and Capacity Act of 1990 ("ANCA") requires the phaseout
of Stage 2 aircraft (defined as aircraft that comply with the Stage 2 noise
levels prescribed in Part 36 of the Federal Aviation Regulations) by December
31, 1999, subject to certain exceptions. The FAA regulations which implement the
ANCA require carriers to modify or reduce the number of Stage 2 aircraft
operated by 75% by the end of 1998 and 100% by the end of 1999. Alternatively, a
carrier could satisfy these compliance requirements by phasing in aircraft
meeting the stricter Stage 3 requirements (set forth in Part 36 of the Federal
Aviation Regulations) so that its fleet has at least 75% Stage 3 aircraft by the
end of 1998 and 100% of Stage 3 aircraft by the end of 1999. Certain types of
Stage 2 aircraft can be modified to meet Stage 3 requirements by installing a
hushkit to the aircraft's engine. AvAero Noise Reduction Joint Venture
("AvAero"), a joint venture in which the Company holds a 40% interest, designs
and markets FAA-certified hushkits for Boeing 737-100 and 737-200 series
aircraft. AvAero's other venturers are Avro Corp., which holds a 40% interest,
and WDW Aviation Management, Inc., which holds a 20% interest.
MILITARY MAINTENANCE AND MODIFICATION MARKET. The U.S. military has also turned
to outsourcing in an effort to reduce costs in a shrinking budgetary
environment. Currently, U.S. military and government civilian personnel perform
approximately 72% and 64% of the aircraft maintenance for the USAF and United
States Navy ("Navy"), respectively. Several factors suggest that a greater
percentage of this work may be outsourced in the future. Budget constraints have
lead to a reduction in the number of military and government civilian personnel
in each branch of the U.S. military. The Navy is considering closing three of
its six naval aviation depots, however the number of its aircraft to be
maintained is expected to be reduced by only 25%. The USAF has moved to
"privatize in place" rather than close down its Kelly and McClellen bases.
Private contractors have submitted proposals to perform the work on site at
these bases and to employ many of the former government workers. The reduction
in the government's internal capacity to provide military aircraft maintenance
and modification services has not been accompanied by a corresponding reduction
in demand for these services. The current U.S. policy favoring the rapid
deployment of forces as opposed to maintaining numerous overseas military bases
relies heavily on the ability to quickly airlift personnel and equipment to
areas requiring military or humanitarian intervention. Accordingly, the need for
maintenance, modification and life extension programs for a substantial portion
of the U.S. military air fleet is expected to continue. Under the so-called
"60-40 law," the military was limited in the amount of depot level aircraft
maintenance work it was permitted to transfer to the private sector to 40% of
its overall depot level maintenance requirements. On November 18, 1997, the
National Defense Authorization Act for Fiscal 1998 increased this amount to 50%.
Although the recent change in law and current trend towards outsourcing by the
U.S. military should result in greater opportunities for independent maintenance
providers such as the Company, there can be no assurance that the Company will
be successful in obtaining any future U.S. military contracts.
Principal Products And Services
Commercial Maintenance Services. The principal services performed by the
Company are scheduled "A," "B," "C" and "D" level maintenance checks. Each
involves a different degree of inspection and the services performed at each
level vary depending upon the individual aircraft operator's FAA-certified
maintenance program. The "A" and "B" level checks involve the fewest required
procedures and often can be completed within a few days. The "C" and "D" level
checks are more comprehensive and usually take several weeks to complete,
depending upon the scope of the work to be performed.
The "C" level check is an intermediate level service inspection that
typically includes a thorough cleaning of the aircraft's exterior, testing and
lubrication of its operational systems, filter servicing and limited cleaning
and servicing of the interior. Trained mechanics perform a visual inspection of
the external structure and internal structure through access panels. The "D"
level check includes all of the work accomplished in the "C" level check but
places a more detailed emphasis on the integrity of the systems and structural
functions. In the "D" level check, the aircraft is disassembled to the point
where the entire structure can be inspected and evaluated. Once the evaluation
and repairs are completed, the aircraft and its systems are reassembled to the
detailed tolerances demanded in each system's specifications. Depending upon the
type of aircraft and the FAA-certified maintenance program being followed,
intervals between "C" level checks can range from 1,000 to 5,000 flight hours
and intervals between "D" level checks can range from 10,000 to 25,000 flight
hours.
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Structural inspections performed during "C" level and "D" level checks
provide Company personnel with detailed information about the condition of the
aircraft and the need to perform additional work or repairs not provided for in
the original workscope. Project coordinators and customer support personnel work
closely with the aircraft's customer service representative in evaluating the
scope of any additional work required and in the preparation of a detailed cost
estimate for the labor and materials required to complete the job. Upon receipt
of the customer representative's approval of the estimate, the Company releases
the requisitions and work orders into the work flow for the aircraft.
Other maintenance services offered to commercial customers include
Supplemental Structure Inspections ("SSI's") and Corrosion Prevention and
Control Programs ("CPCP's"). SSI's are structural inspections which focus on
known problem areas and are required by most aircraft manufacturers. CPCP's are
also an outgrowth of manufacturer-required Aging Aircraft Programs and involve
the inspection and treatment of areas with known corrosion problems. These
additional inspections often supplement the "C" and "D" level check tasks.
Commercial Modification Services. Each aircraft certified by the FAA is
constructed under a "Type Certificate." Anything which is done subsequently to
modify the aircraft from its original specifications requires the review,
flight-testing and approval of the FAA which is evidenced by the issuance of a
Supplemental Type Certificate ("STC") for that particular modification. Typical
modification services performed by the Company include refurbishing and
reconfiguring passenger seating, installing passenger amenities such as
telephones and video screens and converting traditional passenger cabins into
amenity filled "VIP" quarters.
The process of converting a passenger plane to freighter configuration
entails completely stripping the interior; strengthening the load-bearing
capacity of the flooring; installing the bulkhead or cargo net; cutting into the
fuselage for the installation of a large cargo door; reinforcing the surrounding
structures for the new door; replacing windows with metal plugs; and fabricating
and installing the cargo door itself. The aircraft interior may also need to be
lined to protect cabin walls from pallet damage and the air conditioning system
may have to be modified. Conversion contracts also typically require "C" or "D"
level maintenance checks as these converted aircraft have often been out of
service for some time and maintenance is required for the aircraft to comply
with current FAA standards.
The Company owns a 40% interest in AvAero, a joint venture that designs and
markets hushkits for Boeing 737- 100 and 737-200 series aircraft. The AvAero
hushkit weighs approximately 500 pounds at its heaviest configuration and fits a
wide range of engine models and aircraft weights. Major airlines have cited its
design simplicity, ease of installation, performance and absence of operational
restrictions as major factors in selecting the AvAero hushkit over competing
models. In January 1997, AvAero was selected by Southwest Airlines ("Southwest")
to provide hushkits for up to 34 of Southwest's Boeing 737 aircraft. The
agreement with Southwest provides for the delivery of 20 hushkits beginning in
June 1997 and an option to purchase an additional 14 hushkits.
Additional modification services performed by the Company include cockpit
reconfiguration and the integration of Traffic Control and Avoidance Systems
("TCAS"), windshear detection systems and navigational aids.
Military Maintenance and Modification Services. The Company provides
aircraft maintenance and modification services to the U.S. military and the
military branches of certain foreign governments. The Company specializes in
providing Programmed Depot Maintenance ("PDM") on large transport planes used to
move troops, supplies and equipment, such as the C-130 "Hercules." The PDM
program involves a nose to tail inspection and repair program. It begins with
the defueling of the aircraft and the stripping of its exterior paint. Trained
mechanics then perform a section-by-section structural examination of the entire
aircraft which can result in modifications to the airframe. Avionics are
inspected and repaired, replaced or modified as needed. Corrosion prevention and
control measures and various system overhauls or upgrades may also be performed.
At the completion of the overhaul, the aircraft is repainted.
On April 15, 1997, the Company was awarded the C-130 Contract by the USAF.
It provided for the furnishing of PDM on the USAF's C-130 aircraft stationed in
the continental United States. In June 1997, the C-130 Contract was cancelled at
the convenience of the U.S. government because the USAF elected to perform this
work with government personnel at two of its remaining USAF bases rather than
outsourcing it to private contractors. The C-130 Contract provides for
reimbursement by the USAF of costs incurred by the Company during its term. The
Company has made a claim for reimbursement and is currently negotiating a
settlement with the USAF for the claimed amount.
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The Company is currently performing C-130 PDM work for the government of
Mexico and continues to bid for similar work for aircraft owned and operated by
certain other foreign governments.
PRICING
The Company's services are offered to commercial customers on a contract
basis. Customers are generally offered either time and material based
arrangements or flat rate fixed price arrangements. Under the time and materials
fee arrangement, customers receive a detailed price estimate and condition
report from the Company after a thorough inspection of the aircraft. Following
the approval by the customer of the estimate, the Company issues work orders and
requisitions for the customer's aircraft. Customer support personnel closely
monitor the progress of the aircraft and negotiate with the customer any
additional pricing, scheduling and logistical issues which arise during the
course of servicing. Most of the aircraft serviced by the Company are priced on
a time and material based arrangement.
Under the flat rate fixed pricing contracts, the Company establishes a set
price prior to undertaking a maintenance or modification project based upon
estimates made either before or after inspection of the aircraft. The Company's
flat rate fixed price estimates made prior to inspection of an aircraft are
based upon standard labor and materials requirements and typically include
provisions for adjustments based upon condition of the aircraft.
The U.S. military contracts for which the Company competes are awarded on a
competitive bid basis. The contracts are typically firm agreements to provide
specified aviation services at a fixed rate. They typically have terms of one
year subject to annual renewals at the option of the contracting agency.
MANAGEMENT INFORMATION SYSTEM
The Company has developed an advanced integrated management information
system which allows management and customers to track the progress of every
aircraft being serviced on a real time basis. Bar coded work task cards are
tracked electronically and help coordinate the work of each assigned mechanic
and quality control inspector. The system can be accessed from any one of more
than 200 display stations located throughout the Company's Lake City and Macon
facilities. Project Coordinators can immediately access such detailed
information as the number of work-hours generated for any given project, a list
of all parts used or ordered and the identity of and tasks performed by each
mechanic and quality control inspector who has worked on an aircraft. This
information enables management to optimize the daily deployment of personnel,
materials and equipment among the various projects in service and to provide
customers with quick and accurate information about the status of their
aircraft.
COMPETITION
The market for aircraft maintenance and modification services is highly
competitive and fragmented. In addition to several other independent maintenance
operators, the Company faces significant competition from major commercial
airlines that own and operate their own aircraft maintenance service centers. In
addition, the aircraft divisions of certain large original equipment
manufacturers ("OEM"s) have announced their intention to enter this market. Such
OEM's and airlines have substantially greater financial resources than the
Company. The Company does not have data available to determine its exact
relative market position. The Company believes that the most important bases for
competition in its industry are dependability of performance, prompt turnaround
time, price and flexibility. The Company considers its competitive strengths to
be the flexibility and experience of its labor force, its efficient facilities
and its reputation for quality and on-time delivery. The Company's principal
competitors for its commercial work include Tramco, Inc., Dee Howard Company,
Mobile Aerospace, Inc., Triad International Maintenance Corporation and Pemco
World Air Services, Inc. Its principal competitors for military contracts
include Boeing Military Aircraft, Lockheed-Martin Aeromod and Raytheon-E
Systems.
CUSTOMERS
The Company's commercial services are offered to the airline industry at
large, and in particular, to owners and operators of aircraft who do not have
maintenance facilities of their own or whose facilities are unable to
accommodate an increasing workload. These customers have historically included
many start-up passenger airlines and air cargo companies. The Company's
customers also include large, established air carriers who have turned to
outsourcing
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portions of their maintenance operations in an effort to increase their
profitability. During 1997, AirTran Holdings, Inc. (formerly, Valujet, Inc.)
accounted for approximately 23% of the Company's consolidated net sales, and the
top three customers of the Company (including AirTran) accounted for
approximately 49% of such sales. During 1996, three customers accounted for
approximately 26%, 15%, and 14% of the Company's consolidated net sales. During
1995, two customers accounted for 30% and 21% of the Company's consolidated net
sales. None of the Company's customers are contractually obligated to provide
the Company with any minimum number of aircraft for servicing in the future.
There can be no assurance that the Company's larger historical customers will
continue to utilize the Company's services to the same extent as they have in
the past. The Company's commercial customers include Continental Airlines,
American Trans Air, AirTran, Ryan International/Emery Worldwide, Burlington Air
Freight, and US Airways. The Company has also performed services under
government contracts for the USAF, the U.S. Coast Guard and the Mexican Air
Force. The U.S. government accounted for approximately 5% and 2% of the
Company's 1997 and 1995 consolidated net sales, respectively. The Company made
no sales to the U.S. government in 1996.
REGULATION AND CERTIFICATION
The maintenance, modification and operation of aircraft are strictly
regulated by the FAA and foreign aviation authorities which oversee such matters
as aircraft certification, inspection, maintenance, certification of personnel
and record keeping. FAA regulations are designed to insure that all aircraft and
aviation equipment are continuously maintained in proper condition to ensure
safe operation of the aircraft. Similar rules apply in most foreign countries.
All aircraft must be maintained under a continuous monitoring program and must
periodically undergo thorough inspection and maintenance. The inspection,
maintenance and repair procedures for the various types of aircraft are
prescribed by regulatory authorities and can be performed only by certified
repair facilities utilizing certified technicians. The Company operates FAA-
certified repair stations in Lake City, Florida and Macon, Georgia and has been
granted licenses from the FAA and several foreign regulatory counterparts,
including the JAA, to perform maintenance, repair and overhaul services on most
narrow-bodied aircraft and wide-bodied aircraft. The Company also employs a
dedicated staff of FAA-certified structural, electrical, avionics and Airframe
and Powerplant technicians.
In addition to domestic and foreign governmental regulations, OEMs,
commercial airlines and other customers require that the Company satisfy certain
requirements relating to the quality of its services. The Coordinated Agency for
Supplier Evaluation ("CASE"), a consortium of United States air carriers,
reviews the operations of the Company on a regular basis for quality and
efficiency. The Company has completed several audits conducted by the FAA and
CASE and has continually met or exceeded the requirements imposed by its
customers and by OEMs.
The Company's operations are also subject to a variety of worker and
community safety laws. The Occupational Safety and Health Act of 1970 ("OSHA")
mandates general requirements for safe workplaces for all employees. Specific
safety standards have been promulgated for workplaces engaged in the treatment,
disposal or storage of hazardous waste. The Company believes that its operations
are in material compliance with OSHA's health and safety requirements.
ENVIRONMENTAL MATTERS
The Company's operations, like those of other companies engaged in similar
businesses, are subject to federal, state and local environmental laws and
regulation by government agencies, including the United States Environmental
Protection Agency ("EPA") and the Florida Department of Environmental Protection
("FDEP"). Among other matters, these regulatory authorities impose requirements
that regulate the emission, discharge, generation, management, transportation
and disposition of hazardous materials, pollutants and contaminants, govern
public and private response actions to hazardous or regulated substances which
may be or have been released to the environment, and require the Company to
obtain and maintain licenses and permits in connection with its operations. This
extensive regulatory framework imposes significant compliance burdens and risks
on the Company.
The Company periodically reviews its reserves for potential environmental
liabilities. Such review includes an evaluation of currently available facts
with respect to each individual site and consideration of factors such as
existing technology, current laws and regulations and the Company's prior
experience in remediation of contaminated sites. As assessments and remediation
efforts progress at individual sites, the Company's environmental reserves and
remediation plans are reviewed and adjusted to reflect the additional legal and
technical information as it becomes available.
The Company is taking remedial action pursuant to EPA regulations at the
Lake City, Florida facility.
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Environmental testing continues to be performed at this site and the Company is
monitoring the results of such tests to assess the impact and magnitude of the
Company's required remediation efforts. Based upon the most recent cost
estimates provided by the Company's environmental consultants, the Company
believes that the total remaining remediation and compliance costs at this
facility will be approximately $2.4 million. There are, however, other areas on
the property at Lake City that could also require remediation, although the
Company does not believe it is responsible for such areas. In the event
remediation efforts are required in such areas, the Company may be required to
share in the costs of such remediation in order to continue its operations at
Lake City. The Company is unable to estimate the potential amount of such costs
at this time.
In connection with the sale of Crystek, the Company was required to
perform, at its own expense, an environmental site assessment on the Crystek
Property. The Company is also required to remedy all recognized environmental
conditions identified in the assessment to bring the Crystek Property into
compliance with all applicable Federal, State and local environmental laws. If
the facility is not brought into compliance with such environmental laws by
December 31, 1998, the Crystek Buyer shall have the option of requiring the
Company to repurchase the Crystek Property. The Company has engaged independent
environmental consultants to review the potential environmental liabilities on
the Crystek Property. Such investigation and testing resulted in the
identification of likely environmental remedial actions. Based upon the cost
estimates provided by the consultants, the Company believes that the total
remediation and compliance costs for the Crystek Property will be approximately
$1.0 million.
Actual costs required to be incurred by the Company in the future for
environmental compliance and remediation may vary from the Company's current
estimates of such costs, primarily because of the inherent uncertainties in
evaluating environmental exposures. These uncertainties include the extent of
remediation based on testing and evaluation not yet completed, the varying costs
and effectiveness of remediation methods and potential changes in environmental
laws, regulations or the interpretations thereof. No assurance can be given that
actual amounts ultimately required to be expended by the Company for
environmental compliance and remediation in the future will not be material.
MATERIALS
The Company purchases components, parts and equipment from various
suppliers. The Company is not dependent upon any single supplier or group of
suppliers for any of the material it uses in its business and has encountered no
difficulties in purchasing sufficient quantities in the open market.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS
The Company holds no material patents, franchises or concessions.
BACKLOG
Although the Company has in prior years reported backlog in its Annual
Report on Form 10-K and Quarterly Reports on Form 10-Q, management has
determined that the Company is not able to calculate and report with certainty
or reliability the backlog of orders which it believes to be firm. Though the
Company generally enters into written customer contracts, such contracts
generally define the obligations of the parties once an aircraft is delivered
for service but do not usually obligate the customer to deliver for service any
specific number of aircraft or to deliver an aircraft on any specific date. Any
estimate would also be subject to the difficulties of estimating the likelihood
of success of the Company's outstanding bids, the inability to predict services
to be provided in the future on aircraft delivered on a "drop-in" basis and the
fact that anticipated aircraft service dates often extend beyond a fiscal
period. Further estimates of the value of service to be rendered on any
particular aircraft are difficult to make until such time as the aircraft is
actually delivered for service and inspected.
EMPLOYEES
As of December 31, 1997, the Company has approximately 1,152 full-time
employees. None of the Company's employees are covered by a collective
bargaining agreement. The Company believes that its relations with its employees
are generally good.
-8-
<PAGE> 9
ITEM 2. PROPERTIES
The following are the locations and general character of the principal
plants and other materially important physical properties of the Company and its
subsidiaries:
<TABLE>
<CAPTION>
Approximate
Approximate Square Feet
Industry Segment Total of Floor Owned or
and Location Acreage Space Description Leased
---------------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
CORPORATE OFFICES
Dallas, Texas 5.2 80,000 Executive offices of the Company Owned
AIRCRAFT MAINTENANCE
Lake City, Florida 120.0 650,000 Offices and aircraft rebuilding Lease expiring
and modification facilities of 2022
Aero Corporation
Macon, Georgia 7.4 140,000 Offices and aircraft rebuilding Lease expiring
and modification facilities of 2018
Aero Corporation
</TABLE>
The Company leases approximately 70,000 sq. ft. of the Dallas, Texas
facility to HTI.
The Company's aircraft depot located at the Lake City Municipal Airport in
Lake City, Florida spans 120 acres and includes seven maintenance hangars, two
runways, over 1.3 million square feet of ramp space, an FAA-certified control
tower and a fuel farm. The seven clear span steel hangars provide over 650,000
square feet of covered space and can comfortably house up to 18 narrow-bodied
aircraft. There is also covered nose dock space which allows for the sheltered
maintenance of up to four additional aircraft. Six hangars are used for heavy
maintenance and modification and one hangar is dedicated for aircraft striping
and painting. Each hangar has its own technical library, customer representative
offices, tool rooms, storage rooms and a production control center where all of
the paperwork associated with a project's workscope is maintained. Each of the
hangars are in close proximity to one another and to the Company's
administrative offices and hydraulic and sheetmetal shops. The Lake City
facility is operated by the Company under a lease from the City of Lake City
which expires in 2022. Since 1992, the Company has invested more than $9.2
million to renovate and improve the Lake City facility to the point where it is
now capable of accommodating nearly all narrow-bodied and wide-bodied aircraft
in current production.
The Company's Macon facility consists of five buildings on the East ramp of
the Macon Municipal Airport in Macon, Georgia. With over 140,000 square feet
under roof, the Macon facility can house three DC-8 and three DC-9 aircraft in
its hangar bays. One of its three hangar bays can also accommodate a DC-10 or
A-300 size aircraft.
The Company believes that its plants and other physical properties are
adequate for its intended operations
ITEM 3. LEGAL PROCEEDINGS
On May 10, 1991, an action was filed in the District Court of Dallas
County, Texas, by Lee D. Webster, former Chairman, Chief Executive Officer and
President of Whitehall, against the Company, each of its directors (other than
Mr. Webster) and Cambridge Capital Fund, L.P., alleging, among other things,
that ( i ) the defendants' actions, both individually and in concert,
constituted willful interference with Mr. Webster's employment relationship with
the Company and was the direct cause of Mr. Webster's termination as its
President and Chairman of the Board, and (ii) the defendants' actions forced Mr.
Webster into retirement without providing Mr. Webster with retirement benefits
which Mr. Webster was purportedly promised. On August 17, 1994, the defendants
were granted a partial summary judgment. On October 24, 1994, Mr. Webster filed
a third amended petition and alleged the following causes of action: tortuous
interference with contractual relations against Cambridge Capital Fund, L.P.,
and directors George F. Baker and John J. McAtee; intentional infliction of
emotional distress and breach of oral contracts. The third amended petition
sought compensatory and punitive damages in excess of $35 million.
-9-
<PAGE> 10
On January 12, 1995, the Court entered an abatement on one of the breach of oral
contract claims against the Company and entered a summary judgment in the
defendants' favor on all remaining claims alleged by Mr. Webster. On February
26, 1996, the Court granted a summary judgment in favor of the defendants on Mr.
Webster's remaining claims and entered a take nothing final judgment which
dismissed all of Mr. Webster's claims with prejudice to refiling. On March 26,
1996, Mr. Webster appealed the final judgment to the Dallas, Texas Court of
Appeals. Oral argument was held on November 13, 1997. To date, no decision has
been reached by the court. Management intends to vigorously defend this appeal.
The Company is also involved in certain legal proceedings in the normal
course of its business. After consultation with counsel, management is of the
opinion that the outcome of the above-mentioned proceedings will not have a
material effect on the financial position or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted for a vote of the Company's stockholders in
the fourth quarter of Fiscal 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names and ages of all executive officers of
the Company, all positions and offices of the Company presently held by such
persons, the commencement of the period of continuous service as an executive
officer, and the business experience of each operating officer during the past 5
years.
<TABLE>
<CAPTION>
Name Age Offices with Company and Business Experience During Past 5 Years
---- --- ----------------------------------------------------------------
<S> <C> <C>
George F. Baker 58 Chairman of the Board and Chief Executive Officer of the Company since April
1991; President of the Company from October 1991 until April 1995; a Managing
Partner of Cambridge Capital Fund, L.P. since its formation in 1988; a
Managing Partner of Baker Nye Investments, L.P., since 1967.
John H. Wilson 55 President of the Company since May 1995; Director of the Company since July
1983. Served as interim President of the Company from April 1991 until
October 1991. Director of Capital Southwest Corporation, Encore Wire
Corporation, Norwood Promotional Products, Inc. and Palm Harbor Homes, Inc.
and has been President of U. S. Equity Corporation since 1983.
Garlan Braithwaite 63 Senior Vice President and Chief Financial Officer of the Company since August
1997; President of Dragon Investment Corporation from 1990 to 1997.
</TABLE>
There are no family relationships between any of the executive officers.
Executive officers of the Company are not elected for a fixed term but
serve subject to the earlier of their resignation or removal by the Board of
Directors and until their respective successors are elected and qualified. The
Board of Directors is required to elect officers annually.
-10-
<PAGE> 11
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $0.10 par value (the "Common Stock") is listed
on the New York Stock Exchange ("NYSE"), the principal market in which these
securities are traded. The Company's only listing agreement is with the NYSE. At
April 1, 1998, the Company had 605 stockholders of record.
The table below shows the high and low sales prices of the Common Stock as
reported for the NYSE Composite Transactions for each quarter during the two
most recent calendar years. These historical prices have been adjusted to
reflect the 2 for 1 stock split declared January 29, 1997 in the form of a 100%
stock dividend to stockholders of record at the close of business on March 25,
1997.
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
High Low High Low High Low High Low
---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $22.88 $17.13 $20.88 $15.88 $24.94 $18.63 $20.25 $15.75
1996 $16.75 $13.75 $21.69 $15.75 $20.00 $15.69 $22.13 $18.50
</TABLE>
The Company has not paid any cash dividends on its Common Stock, and its
policy is to retain earnings for use in its business.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(Dollar Amounts in Thousands Except Per Share Figures)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net sales $ 65,791 $ 70,170 $ 56,229 $ 32,098 $ 30,910
Cost of sales 64,197 59,809 48,385 27,586 26,455
Gross profit 1,594 10,361 7,844 4,512 4,455
Income (loss) before taxes (15,547) 6,523 3,838 (1,224) (3,190)
Net income (loss) (11,937) 4,317 2,949 (1,224) (1,868)
Net income (loss) per share*
Basic (2.16) 0.79 0.54 (0.23) (0.34)
Diluted (2.16) 0.75 0.52 (0.23) (0.34)
Weighted average shares outstanding*
Basic 5,518,402 5,481,476 5,426,384 5,397,230 5,562,348
Diluted 5,518,402 5,735,118 5,642,304 5,397,230 5,562,348
Cash flow from (used in) operations (4,545) (4,084) (1,802) 1,990 (2,001)
Capital expenditures 3,739 4,438 1,668 467 2,313
YEAR-END POSITION:
Total assets 48,599 44,936 41,182 32,213 32,863
Working capital 7,741 19,223 21,398 17,739 20,813
Current ratio 1.4 3.0 3.0 4.5 5.7
Property, plant and equipment -- net 17,567 9,654 6,869 6,384 7,099
Common shareholders' equity 23,039 34,825 30,099 26,989 28,239
Per share outstanding* 4.17 6.33 5.54 4.99 5.22
YEAR-END STATISTICS:
Common shares outstanding* 5,530,000 5,505,400 5,439,800 5,412,600 5,412,000
Number of shareholders 618 640 661 740 793
Number of employees 1,152 752 682 512 528
Plant area (thousand sq. ft.) 870 680 750 767 846
</TABLE>
*Adjusted to reflect the 2 for 1 stock split declared January 29, 1997.
-11-
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPERATING RESULTS
Consolidated sales totaled $65,791,000 for 1997, a decrease of 6% from
sales of $70,170,000 in 1996. Consolidated sales in 1996 include approximately
$1.9 million of sales in the Ocean Systems segment, which was sold in November
1996. Sales in the Electronics segment decreased by $2,212,000 to $672,000 in
1997. In March of 1997, the Company sold the Electronics segment for $2.7
million, see Item 1B and Note L of the Notes to Consolidated Financial
Statements. Aircraft Maintenance segment sales decreased by $221,000 to
$65,119,000 in 1997, primarily as a result of hangar space that was reserved in
anticipation of the United States Air Force C-130 maintenance contract awarded
in April 1997, which was subsequently canceled at the convenience of the
government in June 1997. The C-130 contract provides for reimbursement by the
United States Air Force of costs incurred during its operation, and the Company
has recorded a claim against the government for these costs. This reduction in
anticipated revenue was partially offset by the acquisition of the Macon,
Georgia facility, which accounted for approximately $12 million of the segment's
sales. Sales are also affected by arrivals of planes later than their scheduled
time.
Consolidated sales totaled $70,170,000 for 1996, an increase of 25% over
sales of $56,229,000 in 1995. Aircraft Maintenance segment sales increased by
$22,699,000 to $65,340,000 in 1996, primarily as a result of its continued
expansion into the third party commercial aircraft maintenance market. Sales in
the Ocean Systems segment decreased by $8,002,000 to $1,946,000 in 1996.
Revenues in the Ocean Systems segment decreased primarily as a result of
contract completions with no follow-on contract awards. In November 1996, the
Company sold substantially all of the assets of the Ocean Systems segment, see
Item 1B and Note D. Sales in the Electronics segment decreased by $756,000 to
$2,884,000 in 1996.
Consolidated sales totaled $56,229,000 for 1995, an increase of 75% over
sales of $32,098,000 in 1994. Aircraft Maintenance segment sales increased by
$17,238,000 to $42,641,000 in 1995, primarily as a result of its continued
expansion into the third party commercial aircraft maintenance market. Sales in
the Ocean Systems segment increased by $6,126,000 to $9,948,000 in 1995.
Revenues in the Ocean Systems segment increased primarily as a result of new
product sales in the commercial geophysical market. Sales in the Electronics
segment increased by $767,000 to $3,640,000 in 1995.
The Company recorded an operating loss of $9,996,000 in 1997 compared to an
operating profit of $5,705,000 in 1996. The Aircraft Maintenance segment
reported an operating loss of $9,764,000 in 1997 compared to an operating profit
of $7,026,000 in 1996 primarily due to the increase in environmental reserves
(see "Environmental Matters" above), an increase in the provision for obsolete
inventory, and an increase in the allowance for doubtful accounts. The allowance
was increased because of disputes with large customers (the ultimate outcome of
which can not be determined at this time) and certain customers in weak
financial condition, including two customers that went into bankruptcy. The
Electronics segment reported an operating loss of $6,000 in 1997 compared to an
operating profit of $557,000 in 1996. The Electronics segment was sold in March
1997. Corporate office general and administrative expenses decreased to $337,000
in 1997 compared to $968,000 in 1996. This decline was the result of lower
insurance and legal expense reserves, as well as a reduction in corporate staff
and staff expenses.
The Company recorded an operating profit of $5,705,000 in 1996 compared to
an operating profit of $2,875,000 in 1995. The Aircraft Maintenance segment
reported an operating profit of $7,026,000 in 1996 compared to an operating
profit of $3,430,000 in 1995. The improved profitability in the Aircraft
Maintenance segment resulted primarily from the increase in sales. The Company
increased its sales to its three largest customers in 1996 over those same
customers in 1995, mainly because those customers had increased the size of
their fleets. The Ocean Systems segment reported an operating loss of $789,000
in 1996 compared to an operating profit of $419,000 in 1995. The decline in
sales was the primary reason for the 1996 operating loss in the Ocean Systems
segment. The Electronics segment reported an operating profit of $557,000 in
1996 compared to an operating profit of $796,000 in 1995. The decline in sales
was the primary reason for the lower 1996 operating profit in the Electronics
segment. Corporate office general and administrative expenses decreased to
$968,000 in 1996 compared to $2,128,000 in 1995 primarily as a result of
reductions in legal and insurance expenses.
Other expense, net in 1997 includes the $4,500,000 writedown of the
Company's investment in Hydroscience
-12-
<PAGE> 13
Technologies, Inc. (HTI) preferred stock (See Item 1B). Other income in 1996
includes interest earned of $307,000 and investment income of $440,000. Other
income in 1995 includes gains on sales of fixed assets of $650,000 and interest
earned of $671,000. Other income in 1994 includes gains on sales of fixed assets
of $512,000 and interest earned of $791,000.
The Company recorded an income tax benefit of $3,610,000 in 1997. The
Company recorded net income tax expense of $2,206,000 for 1996 and $889,000 in
1995.
-13-
<PAGE> 14
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using '00' as the year 1900 rather than the year 2000. If the Company's
systems are unable to recognize or properly treat the year 2000, critical
financial and operational information may be processed incorrectly. The Company
has not yet assessed the year 2000 compliance expense and related potential
effect on the Company's earnings.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, cash used in operating activities totaled $4,545,000 as
compared to $4,084,000 in 1996 and $1,802,000 in 1995.
The Company made capital expenditures during 1997 of approximately
$3,739,000 compared to $4,438,000, and $1,668,000 in 1996 and 1995. The majority
of the capital expenditures in all years were made to renovate the Aero facility
in Lake City, Florida. All planned major expansions have been completed as of
December 31, 1997. Including in 1997 capital expenditures was the construction
of a building and the purchase of other items for the C-130 contract and the
completion of the refinishing of various hanger floors. However, the Company
will make capital and other expenditures during 1998 as conditions warrant.
Cash and cash equivalents decreased from approximately $2,656,000 at
December 31, 1996, to $1,251,000 at December 31, 1997. During 1997, the Company
borrowed an additional $7,163,000 on its line of credit primarily to fund
working capital, the acquisition of the Macon, Georgia facility, and capital
expenditures of $3,739,000. At December 31, 1997, there was approximately
$2,287,000 available under the line of credit.
The Company believes that, despite the losses generated in 1997 mainly
attributable to the increase in the accounts receivable reserve, the increase in
the environmental reserve, and the writedown of its investment in the HTI
Preferred Stock, its cash balances and line of credit facility are sufficient to
meet its short and long-term capital requirements. The Company intends to
continue to pursue opportunities for the acquisition of aircraft maintenance
facilities, and any future acquisitions may require additional capital. In order
to provide additional funds for the Company's growth strategies and for
operations over the long-term, the Company may incur, from time to time,
additional short and long-term bank indebtedness and may issue, in public or
private transactions, equity and debt securities. The availability and terms of
such securities may depend upon market and other conditions. There can be no
assurances that such potential financing will be available on terms acceptable
to the Company.
FORWARD-LOOKING STATEMENTS
This Form 10-K includes certain forward-looking statements, including
statements made under Item 7, about anticipated results, liquidity and capital
resources and statements made under Item 1 concerning the anticipated growth of
worldwide air traffic and the expected trend toward greater outsourcing by
commercial air carriers and the US Military. Such forward-looking statements are
based upon known and unknown assumptions, risks, uncertainties, and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Factors
that could cause actual results to differ from such expectations include, but
are not limited to, those associated with general economic and business
conditions, aircraft and aerospace industry trends, availability of financing,
and the inability or failure to identify or consummate successful acquisitions
or to assimilate the operations of any acquired businesses with those of the
Company.
-14-
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants 16
Consolidated Balance Sheets at December 31, 1997 and 1996 17
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 19
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995 20
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 21
Notes to Consolidated Financial Statements 22
Schedule II -- Valuation and Qualifying Accounts 38
</TABLE>
-15-
<PAGE> 16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Whitehall Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Whitehall
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of operations, shareholders'
equity, and cash flows for the three years in the period ended December 31,
1997. These consolidated financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Whitehall Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 25, 1998
-16-
<PAGE> 17
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,251,000 $ 2,656,000
Accounts receivable, net 16,234,000 18,461,000
Income taxes receivable 2,590,000 458,000
Inventories 6,029,000 6,440,000
Prepaid expenses and other 636,000 656,000
Current deferred income tax 1,053,000 --
Notes receivable 516,000 --
------------ ------------
TOTAL CURRENT ASSETS 28,309,000 28,671,000
INVESTMENTS -- 4,611,000
PROPERTY, PLANT AND EQUIPMENT:
Land 910,000 399,000
Buildings 4,880,000 1,293,000
Machinery and equipment 13,718,000 11,790,000
Leasehold improvements 10,259,000 8,710,000
------------ ------------
29,767,000 22,192,000
Accumulated depreciation 12,200,000 12,538,000
------------ ------------
17,567,000 9,654,000
NOTES RECEIVABLE 2,723,000 2,000,000
------------ ------------
TOTAL ASSETS $ 48,599,000 $ 44,936,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
-17-
<PAGE> 18
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY December 31,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 6,618,000 $ 6,239,000
Bank line of credit 9,713,000 2,550,000
Current portion of long term debt 283,000 280,000
Current portion of obligations under capital lease 84,000 --
Accrued environmental costs 3,954,000 379,000
------------ ------------
TOTAL CURRENT LIABILITIES 20,652,000 9,448,000
LONG-TERM DEBT, net of current portion 263,000 546,000
OBLIGATIONS UNDER CAPITAL LEASES 4,174,000 --
OTHER NON-CURRENT LIABILITIES 471,000 117,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $5.00 par value:
authorized 500,000 shares -- none issued -- --
Common stock, $.10 par value: authorized
20,000,000 shares, issued 7,691,312 and
7,666,712 at December 31, 1997 and 1996 770,000 767,000
Additional paid-in capital 1,914,000 1,766,000
Retained earnings 36,500,000 48,437,000
------------ ------------
39,184,000 50,970,000
Less- treasury stock (2,161,312 shares
at December 31, 1997 and 1996), at cost
(16,145,000) (16,145,000)
------------ ------------
23,039,000 34,825,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 48,599,000 $ 44,936,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
-18-
<PAGE> 19
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
December 31,
------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
Services $ 65,119,000 $ 65,340,000 $ 42,641,000
Products 672,000 4,830,000 13,588,000
------------ ------------ ------------
65,791,000 70,170,000 56,229,000
Cost of sales:
Services 63,786,000 56,033,000 37,510,000
Products 411,000 3,776,000 10,875,000
------------ ------------ ------------
64,197,000 59,809,000 48,385,000
GROSS PROFIT 1,594,000 10,361,000 7,844,000
Selling, engineering and administrative expenses 11,590,000 4,656,000 4,969,000
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (9,996,000) 5,705,000 2,875,000
Other income (expense), net (5,551,000) 818,000 963,000
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (15,547,000) 6,523,000 3,838,000
Provision for (benefit from) income taxes (3,610,000) 2,206,000 889,000
------------ ------------ ------------
NET INCOME (LOSS) $(11,937,000) $ 4,317,000 $ 2,949,000
============ ============ ============
NET INCOME (LOSS) PER SHARE
Basic $ (2.16) $ 0.79 $ 0.54
============ ============ ============
Diluted $ (2.16) $ 0.75 $ 0.52
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 5,518,000 5,481,000 5,426,000
Diluted 5,518,000 5,735,000 5,642,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
-19-
<PAGE> 20
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Treasury Stock
--------------- --------------------- Paid-in Retained -------------------------
Shares Amount Shares Amount Capital Earnings Shares Amount
------ ------ --------- --------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 -- $-- 3,786,956 $ 379,000 $ 1,200,000 $ 41,555,000 (1,080,656) $(16,145,000)
Exercise of Stock Options -- -- 13,600 1,000 160,000 -- -- --
Net income -- -- -- -- -- 2,949,000 -- --
--- --- --------- --------- ----------- ------------ ---------- ------------
Balance, December 31, 1995 -- -- 3,800,556 380,000 1,360,000 44,504,000 (1,080,656) (16,145,000)
Exercise of Stock Options
(adjusted for stock split) -- -- 65,600 7,000 406,000 -- -- --
2 for 1 stock split effected
in the form of a 100% stock
dividend -- -- 3,800,556 380,000 -- (384,000) (1,080,656) --
Net income -- -- -- -- -- 4,317,000 -- --
--- --- --------- --------- ----------- ------------ ---------- ------------
Balance, December 31, 1996 -- -- 7,666,712 767,000 1,766,000 48,437,000 (2,161,312) (16,145,000)
Exercise of stock options -- -- 24,600 3,000 148,000 -- -- --
Net loss -- -- -- -- -- (11,937,000) -- --
--- --- --------- --------- ----------- ------------ ---------- ------------
Balance, December 31, 1997 -- $-- 7,691,312 $ 770,000 $ 1,914,000 $ 36,500,000 (2,161,312) $(16,145,000)
=== === ========= ========= =========== ============ ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-20-
<PAGE> 21
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31,
------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(11,937,000) $ 4,317,000 $2,949,000
Adjustments to reconcile net income (loss) to cash
used in operating activities--
Depreciation and amortization 1,342,000 1,096,000 1,097,000
Gain on sale of fixed assets -- (11,000) (650,000)
Writeoff of preferred stock of Hydroscience
Technologies, Inc. 4,500,000 -- --
Investment (income) loss 111,000 (440,000) 329,000
Changes in operating assets and liabilities
(excluding disposition and net of acquisition)--
Accounts receivable, net 1,822,000 (1,064,000) (10,409,000)
Income taxes receivable (2,132,000) (458,000) --
Federal income tax liability -- (1,186,000) 1,186,000
Deferred income taxes (1,053,000) -- (390,000)
Inventories (686,000) (3,246,000) (833,000)
Prepaid expenses and other (13,000) 70,000 (144,000)
Accounts payable and accrued liabilities 4,000 (2,619,000) 5,006,000
Environmental reserve 3,175,000 (246,000) --
Other liabilities 322,000 (297,000) 57,000
------------ ------------ ------------
Total adjustments 7,392,000 (8,401,000) (4,751,000)
------------ ------------ ------------
CASH USED IN OPERATING ACTIVITIES (4,545,000) (4,084,000) (1,802,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid in acquisition (1,500,000) -- --
Capital expenditures (3,739,000) (4,438,000) (1,668,000)
Notes receivable (375,000) -- 500,000
Proceeds from sale of fixed assets -- 11,000 735,000
Proceeds from sale of segment 1,720,000 -- --
------------ ------------ ------------
CASH USED IN INVESTING ACTIVITIES (3,894,000) (4,427,000) (433,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in line of credit 7,163,000 2,550,000 --
Net change in long term debt (283,000) 826,000 --
Issuance of common stock from exercise of stock options 151,000 409,000 161,000
------------ ------------ ------------
CASH PROVIDED BY FINANCING ACTIVITIES 7,031,000 3,785,000 161,000
------------ ------------ ------------
Net decrease in cash and cash equivalents (1,405,000) (4,726,000) (2,074,000)
Cash and cash equivalents at beginning of period 2,656,000 7,382,000 9,456,000
------------ ------------ ------------
Cash and cash equivalents at end of period $ 1,251,000 $ 2,656,000 $ 7,382,000
============ ============ ============
SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Income taxes $ 143,000 $ 3,720,000 $ --
Interest 677,000 61,000 --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Promissory notes received for sale of Electronics segment $ 864,000 $ -- $ --
Disposition of Ocean Systems segment inventory and fixed
assets in exchange for Hydroscience Technologies, Inc.
preferred stock:
Inventory $ -- $ 3,943,000 $ --
Fixed assets, net -- 557,000 --
Investment in Hydroscience Technologies, Inc.
preferred stock -- (4,500,000) --
</TABLE>
The accompanying notes are an integral part of these financial statements.
-21-
<PAGE> 22
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- ACCOUNTING POLICIES AND PRACTICES
Consolidation: The consolidated financial statements of Whitehall Corporation
and subsidiaries (the "Company") include the accounts of all subsidiaries after
elimination of intercompany accounts and transactions.
Use of Estimates: Generally accepted accounting principles require management to
make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications: Certain reclassifications have been made to 1996 and 1995
amounts to conform with the 1997 presentation.
Long-term Contracts: Revenue on long-term contracts in 1996 and 1995 is
recognized using the percentage of completion or unit of delivery method. On
contracts where the percentage of completion method is applied, revenue is
accrued in the proportion that costs incurred bear to management's estimate of
total contract costs. Any known or anticipated losses are provided for
currently.
Concentration of Credit Risk: Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of temporary
cash investments and accounts receivable. The Company places its temporary cash
investments with creditworthy financial institutions and, thus, limits the
amount of credit exposure to any one entity. The Company's customer base is
comprised primarily of U.S. airlines and air transport companies.
Cash Equivalents: Cash equivalents consist of highly liquid debt instruments
purchased with an original maturity of three months or less.
Inventories: Inventories are carried at average cost, not in excess of market.
Property, Plant and Equipment: Property, plant and equipment is stated at cost.
Provisions for depreciation and amortization have been computed generally using
the straight-line method over the estimated useful lives of the assets.
Long-Lived Assets: The Company periodically reviews its long-lived assets for
impairment. If this review indicates that the carrying amount of an asset may
not be recovered through future operations or sale, the carrying value of the
asset will be reduced to its fair value. In 1997, the Company recorded an
impairment loss on its investment in preferred stock (see Note D).
Research and Development: Research and development costs are included in
selling, engineering and administrative expenses and amounted to approximately
$41,000 in 1996, and $45,000 in 1995. There were no research and development
costs incurred in 1997.
Federal Income Taxes: The Company accounts for income taxes using an asset and
liability approach for financial accounting and income tax reporting. Deferred
tax liabilities and assets are recognized for the estimated future tax effects
attributable to temporary differences and carryforwards and are adjusted
whenever tax rates or other provisions of income tax statutes change.
The Company and all subsidiaries file a consolidated Federal income tax return.
Deferred federal income taxes have been provided for temporary differences
between tax and financial reporting resulting primarily from depreciation
provisions, allowances and expense accruals.
-22-
<PAGE> 23
Earnings (Loss) Per Share: Effective January 1, 1997, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." SFAS No. 128 simplifies the computation of earnings per share (EPS) by
replacing the presentation of primary EPS with a presentation of basic EPS.
Basic EPS is calculated by dividing the income (loss) available to common
shareholders by the weighted average number of common shares outstanding during
the period. Options and other potentially dilutive securities are excluded from
the calculation of basis EPS. Diluted EPS includes options and other potentially
dilutive securities that are excluded from basic EPS to the extent that these
securities are not anti-dilutive. Options were not included in the 1997
computation of diluted EPS because they are anti-dilutive.
The following is a reconciliation between basic and diluted EPS for the years
ended December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
Loss Shares Income Shares Income Shares
(Numerator) (Denominator) (Numerator) (Denominator) (Numerator) (Denominator)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ (11,937,000) 5,518,000 $ 4,317,000 5,481,000 $ 2,949,000 5,426,000
Effect of dilutive options -- -- -- 254,000 -- 216,000
------------- ------------- ------------- ------------- ------------- -------------
Diluted EPS $ (11,937,000) 5,518,000 $ 4,317,000 5,735,000 $ 2,949,000 5,642,000
============= ============= ============= ============= ============= =============
</TABLE>
In accordance with SFAS No. 128, the earnings (loss) per share for all prior
periods have been restated.
Joint Venture Investment: See Note D.
Treasury Shares: During 1991, the Board of Directors authorized the repurchase
of up to 1,000,000 shares of the Company's common stock. An additional
authorization of 500,000 shares was made by the Board of Directors in March
1993. As of December 31, 1997, a total of 1,257,800 shares have been purchased
under these authorizations. The Company did not acquire any treasury stock
during 1995, 1996 or 1997.
Environmental Costs: Environmental expenditures that relate to current
operations are expensed. Remediation costs that relate to existing conditions
caused by past operations are accrued when it is probable that these costs will
be incurred and can be reasonably estimated. Environmental costs are included in
selling, engineering and administrative expenses in the accompanying
consolidated statements of operations.
Other Income (Expense): Other expense for 1997 includes the $4.5 million
writedown of the Company's investment in the preferred stock of Hydroscience
Technologies, Inc. Other income, net in 1996 and 1995 includes interest earned
of $307,000 and $671,000, respectively, and gains on sales of fixed assets of
$11,000 and $650,000, respectively.
Employee Benefits: The Company offers no significant post-employment or
post-retirement benefits.
New Accounting Pronouncements: During 1997, the Financial Accounting Standards
Board (FASB) issued SFAS No. 129, "Disclosure of Information About Capital
Structure," which establishes standards for disclosing certain information about
an entity's capital structure. The statement is effective for years ending after
December 15, 1997, and its adoption did not have any impact on the Company's
financial statements.
During 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a company's financial
statements. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. This Statement does not require a specific format
for that financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. This statement requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS No. 130 is effective for periods beginning
after December 15, 1997.
During 1997, FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This Statement is effective for financial
statements for periods beginning after December 15, 1997. As the Company is
operating
-23-
<PAGE> 24
in only one segment as of December 31, 1997, and plans to focus solely on the
aircraft maintenance industry, this statement is not expected to have an impact
on the Company's financial statements.
NOTE B -- ACCOUNTS RECEIVABLE, NET
Accounts receivable were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Commercial accounts:
Accrued sales not billed $ 5,574,000 $ 6,578,000
Billed 10,842,000 10,916,000
----------- -----------
16,416,000 17,494,000
Receivables from foreign governments 14,000 206,000
Receivables from United States Government, net 2,750,000 184,000
----------- -----------
2,764,000 390,000
Advances to joint venture (see Note D) 901,000 1,095,000
Less -- allowance for doubtful accounts 3,847,000 518,000
----------- -----------
$16,234,000 $18,461,000
=========== ===========
</TABLE>
Accrued sales not billed will be billed on the basis of contract terms and
deliveries. All accrued amounts at December 31, 1997, are expected to be billed
and collected in 1998.
In April 1997, the Company was awarded the United States Air Force C-130
maintenance contract, which was subsequently canceled in June 1997 at the
convenience of the government, based on no fault or issue with the Company. The
C-130 contract provides for reimbursement by the United States Air Force of
costs incurred during its operation, and the Company has recorded a $2.8
million net receivable from the government for these costs, which is the
Company's best estimate of the amount it will collect for the claim it has
made. The Company is currently negotiating a termination settlement with the
government.
NOTE C -- INVENTORIES
The components of inventories were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Finished goods $ -- $1,175,000
Work in process -- 5,000
Raw materials 6,029,000 5,260,000
---------- ----------
$6,029,000 $6,440,000
========== ==========
</TABLE>
Costs included in inventories include raw materials and related labor and
overhead costs.
NOTE D -- INVESTMENTS
In November 1996, the Company sold substantially all of the assets related to
its Ocean Systems segment to Hydroscience Technologies, Inc. ("HTI") in exchange
for 818,182 shares of HTI Preferred Stock, which carries a liquidation
preference of $5.50 per share. At the Company's election, the HTI Preferred
Stock is convertible after December 31, 1997, into 45% of HTI's Common Stock.
(See Note P for pro forma information related to this transaction.) Although the
purchaser of Ocean
-24-
<PAGE> 25
Systems provided additional capital and new management, the continuing decline
in defense spending and other concerns caused management to reevaluate this
preferred stock in 1997. Management has concluded that the value of its
investment has declined permanently. The entire amount was written off in 1997.
During 1994, the Company obtained 40% ownership of a joint venture involved in
the development of aircraft-related technology for an initial investment of
$1,000. The Company accounts for its investment in the joint venture under the
equity method. In 1994, the Company obtained a promissory note for an advance of
$2,000,000 to the joint venture. The principal balance of the promissory note
accrues interest at a maximum rate of 5% per annum and the principal balance
with accrued interest is due January 5, 1999. The note is secured by certain
assets of the joint venture. During 1997 and 1996, the Company advanced an
additional $815,000 and $75,000 to the joint venture. These advances are
included in accounts receivable.
Summarized balance sheet information for the joint venture as of December 31,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Current assets $14,358,000 $ 6,578,000
Noncurrent assets 2,782,000 3,818,000
Current liabilities 12,489,000 5,176,000
Noncurrent liabilities 2,000,000 2,000,000
</TABLE>
Summarized financial information for the joint venture for the years ended
December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 17,810,000 $ 11,520,000 $ 5,244,000
Gross profit 3,578,000 4,104,000 1,501,000
Net income (loss) (569,000) 1,044,000 (710,000)
</TABLE>
NOTE E -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
----------- ----------
<S> <C> <C>
Accounts payable $5,617,000 $5,403,000
Salaries, wages and payroll taxes 1,001,000 836,000
---------- ----------
$6,618,000 $6,239,000
========== ==========
</TABLE>
NOTE F - LONG-TERM DEBT
The Company entered into a long-term note and a credit facility during 1996 with
a bank. The credit facility consists of a $12,000,000 line of credit agreement
and a $3,000,000 standby letter of credit agreement. Advances under the line of
credit agreement accrue interest at the prime interest rate (8.5% at December
31, 1997). The Company also pays an annual commitment fee of 1/4 of 1 % on the
unused portion of the line of credit. At December 31, 1997, the unused and
available portion of the line of credit was $2,287,000. The line of credit
expires on June 30, 1998. Management is confident that this line will be renewed
or comparable financing can be obtained at June 30, 1998, for at least another
one-year period.
The credit facility is unsecured and contains certain financial covenants
related to working capital, consolidated net income and consolidated tangible
net worth, among other restrictions. The Company was in violation of certain
covenants as of December 31, 1997; however, these covenants have been waived by
the bank.
-25-
<PAGE> 26
The long-term note consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Note payable with interest at 7.98%, payable in monthly
installments of $23,611 principal plus interest (7.98%) on the
outstanding balance to maturity in November 1999, at which
time the remaining principal balance is due, secured by property
valued at $850,000. $ 546,000 $ 826,000
Less: amounts payable within one year 283,000 280,000
---------- ----------
$ 263,000 $ 546,000
========== ==========
</TABLE>
This debt was incurred to finance the acquisition of certain fixed assets. The
total future debt principal payments are $283,000 in 1998, $263,000 in 1999, and
zero thereafter.
A $1,700,000 standby letter of credit was issued, pursuant to the standby letter
of credit agreement, in order to comply with the annual financial assurances
required by the Florida Department of Environmental Protection and related to
the environmental remediation being performed at the Company's Lake City,
Florida facility (see Note O). The standby letter of credit agreement has an
annual commitment fee of 1% of the amount of the letter of credit.
NOTE G -- SHAREHOLDERS' EQUITY
On January 29, 1997, the Board of Directors declared a 2 for 1 stock split to be
effected in the form of a 100% stock dividend to shareholders of record at the
close of business March 25, 1997. The dividend resulted in $384,000 being
transferred from retained earnings to common stock. This amount represents the
par value of the new stock. All share and per share amounts have been adjusted
to recognize this dividend.
On March 17, 1997, the shareholders approved an amendment to the Company's
Restated Certificate of Incorporation increasing the number of authorized shares
of Common Stock from 5,000,000 shares to 20,000,000 shares.
NOTE H -- INCOME TAXES
Federal and state income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Current Deferred Current Deferred Current Deferred
----------- ----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Federal $(2,016,000) $(1,053,000) $ 2,086,000 $ -- $ 1,279,000 $ (390,000)
State (541,000) -- 120,000 -- -- --
----------- ----------- ----------- ------- ----------- -----------
$(2,557,000) $(1,053,000) $ 2,206,000 $ -- $ 1,279,000 $ (390,000)
=========== =========== =========== ======= =========== ===========
</TABLE>
The provision (benefit) for income taxes differs from the amount computed by
applying the federal income tax rate to income before income taxes. The
following table summarizes the reasons for this difference:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income tax provision (benefit) at statutory rate $ (5,286,000) $ 2,217,000 $ 1,315,000
State taxes (benefit) (541,000) 120,000 --
Alternative minimum tax -- -- (12,000)
Change in deferred tax allowance 2,425,000 (158,000) (515,000)
Other items -- net (208,000) 27,000 101,000
------------ ------------ ------------
$ (3,610,000) $ 2,206,000 $ 889,000
============ ============ ============
</TABLE>
-26-
<PAGE> 27
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Short-term-
Expense accruals not deducted for tax purposes $2,166,000 $ 520,000
---------- ----------
Total short-term 2,166,000 520,000
Long-term-
Writedown of investment 1,800,000 --
Other 68,000 37,000
---------- ----------
Total deferred tax assets 4,034,000 557,000
Less- Valuation allowance (2,609,000) (184,000)
---------- ----------
Net deferred tax asset $1,425,000 $ 373,000
Deferred tax liabilities-
Short-term-
Costs deducted for tax purposes $ -- $ 24,000
Long-term-
Difference for depreciation of property, plant,
and equipment 372,000 349,000
---------- ----------
Total deferred tax liability $ 372,000 $ 373,000
Net deferred tax asset $1,053,000 $ --
========== ==========
</TABLE>
The Company has established a valuation allowance to offset the deferred tax
assets that have resulted from items that will only be deductible when such
items are actually incurred. The valuation allowance will be maintained until it
is more likely than not that these deferred tax assets will be realized.
NOTE I -- STOCK OPTION PLANS
In May 1992, the stockholders approved the Whitehall Corporation Incentive Stock
Option Plan ("Incentive Plan") and the Whitehall Corporation Non-Employee
Directors Stock Option Plan ("Directors Plan"). The Incentive Plan provides for
the grant of incentive stock options for up to 650,000 shares of Common Stock to
key employees. The Directors Plan provides for the grant of incentive stock
options for up to 130,000 shares of Common Stock to non-employee Directors of
the Company. Under the Plans, the exercise price for stock options will not be
less than the fair market value of the optioned stock at the date of grant.
Stock options expire ten years from the date of grant and generally vest over a
five-year period with one-fifth of the shares becoming exercisable on each of
the five anniversaries of the date of grant. As December 31, 1997, 1996, and
1995 there were 347,100, 218,600, and 196,200 options exercisable, respectively.
The option period under both Plans may not be more than ten years from the date
the option is granted.
-27-
<PAGE> 28
Transactions involving the Plans are summarized as follows:
<TABLE>
<CAPTION>
Shares
--------
<S> <C>
Options outstanding, December 31, 1994 444,000
Granted ($14.13 per share) 20,000
Canceled --
Exercised ($5.63-$7.75 per share) (27,200)
-------
Options outstanding, December 31, 1995 436,800
Granted ($17.75-$19.53 per share) 130,000
Canceled --
Exercised ($5.81-$7.75 per share) (65,600)
-------
Options outstanding, December 31, 1996 501,200
Granted ($16.375 per share) 40,000
Canceled ($7.75-$17.75 per share) (16,600)
Exercised ($5.81-$7.75 per share) (24,600)
-------
Options outstanding, December 31, 1997 500,000
=======
</TABLE>
The Company accounts for its stock option plans in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized for stock option awards. In 1996, the Company adopted SFAS No. 123,
which requires that options be priced using the fair value method, and has
elected the disclosure only alternative. The fair value of each stock option
grant is estimated on the date of grant using the Black-Scholes option pricing
model. Using the fair value method to determine compensation costs, the
Company's pro forma net income and net income per share would be:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income: As Reported $ (11,937,000) $ 4,317,000 $ 2,949,000
Pro Forma (11,940,000) 3,355,000 2,829,000
Net income per share: As Reported $ (2.16) $ 0.75 $ 0.52
Pro Forma (2.16) 0.59 0.50
The following assumptions were used:
Risk free interest rate 5.86% 7.03% 7.24%
Expected dividend yield -- -- --
Expected life of options 10 years 10 years 10 years
Expected volatility 37.44% 38.19% 38.33%
</TABLE>
The weighted average fair value of the stock options granted during 1997, 1996
and 1995 was $ 9.91, $11.22 and $9.11, respectively. The weighted average
exercise prices of the stock options outstanding and exercisable in 1997, 1996,
and 1995 are:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of the year $ 10.12 $ 6.80 $ 6.38
Granted 16.38 18.30 14.13
Exercised 6.10 6.24 5.90
Canceled 16.79 -- --
Outstanding at end of year 10.26 10.12 6.80
Exercisable at end of year $ 7.95 $ 6.67 $ 6.47
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the
-28-
<PAGE> 29
resulting pro forma compensation cost may not be representative of that to
be expected in future years.
NOTE J -- SAVINGS PLAN
The Company implemented a voluntary 401(k) savings plan for eligible employees
(as defined by the Plan document) effective September 1, 1992. The Company
contributed $50 per enrolling employee in 1995. The Company contributes 50% of
employee contributions up to 1.5% of the employee's base salary. The Company may
make future matching contributions at its discretion. Company contributions
totaled approximately $86,000 in 1997, $40,000 in 1996, and $25,000 in 1995.
The Company's contributions vest over a six-year period.
NOTE K - ACQUISITION
In July 1997, the Company acquired an aircraft maintenance company in Macon,
Georgia for approximately $6.7 million in cash and assumed liabilities. This
acquisition involved the purchase of inventories, equipment, and certain
intangible assets. This acquisition was accounted for using the purchase method
of accounting. Accordingly, operations of the acquired business are included in
the accompanying consolidated financial statements for the period subsequent to
the effective date of the acquisition. See Note P for pro forma information for
this acquisition as if it had occurred at the beginning of the fiscal year.
The preliminary estimated fair values assigned to assets acquired and
liabilities assumed is summarized as follows:
<TABLE>
<S> <C>
Assets acquired $ 6,700,000
Liabilities assumed (5,200,000)
-----------
Cash purchase price $ 1,500,000
===========
</TABLE>
NOTE L - SALE OF ELECTRONICS SEGMENT
In March 1997, the Company entered into an agreement to sell its Electronics
segment to a group of private investors for approximately $2.7 million. The
purchase consideration consists of approximately $1.9 million in cash and
$864,000 in promissory notes bearing interest at a rate of 10% per annum. See
Note P for pro forma information related to this transaction.
NOTE M--LEASES
In 1997, the Company assumed capital leases for land and buildings in the
acquisition of the aircraft maintenance facility in Macon, Georgia. Both leases
carry an interest rate of 8.25% and expire in 2018. There were no capital leases
in 1996. The following leased property included in the accompanying balance
sheets is under capital leases:
<TABLE>
<S> <C>
Land $ 588,000
Buildings 3,702,000
-----------
Total leased property under capital lease 4,290,000
Less: Accumulated depreciation (89,000)
-----------
$ 4,201,000
===========
</TABLE>
The aggregate future minimum rental commitments as of December 31, 1997, for all
noncancellable operating leases and capital leases are as follows:
<TABLE>
<CAPTION>
Capital Leases Operating Leases Total
-------------- ---------------- -----------
<S> <C> <C> <C>
1998 $ 432,000 $ 58,000 $ 490,000
1999 432,000 58,000 490,000
2000 432,000 42,000 474,000
2001 432,000 26,000 458,000
2002 and thereafter 7,092,000 539,000 7,631,000
----------- ----------- -----------
8,820,000 723,000 9,543,000
Amount related to interest (4,562,000) -- (4,562,000)
----------- ----------- -----------
Total lease obligation $ 4,258,000 $ 723,000 $ 4,981,000
=========== =========== ===========
</TABLE>
-29-
<PAGE> 30
Total rental expense amounted to approximately $281,000 in 1997, $305,000 in
1996, and $105,000 in 1995.
NOTE N -- INDUSTRY SEGMENTS AND MAJOR CUSTOMERS
The Company operated in two segments during 1997: Aircraft Maintenance and
Electronics. The Aircraft Maintenance segment rebuilds, modifies and maintains
turboprop and jet aircraft. The Electronics segment manufactures and distributes
quartz crystals and oscillators.
Operating profit represents total revenue less operating expenses, excluding
general corporate expenses and interest expense. Identifiable assets are those
assets used in each segment. Corporate assets are principally cash, prepaid
items and capital assets.
Information about the Company's operations in the different segments is
summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Sales:
Aircraft Maintenance $ 65,119 $ 65,340 $ 42,641
Electronics 672 2,884 3,640
Ocean Systems -- 1,946 9,948
-------- -------- --------
$ 65,791 $ 70,170 $ 56,229
======== ======== ========
Operating profit and income (loss) before taxes:
Aircraft Maintenance $ (9,764) $ 7,026 $ 3,430
Electronics (6) 557 796
Ocean Systems -- (789) 419
-------- -------- --------
(9,770) 6,794 4,645
Corporate:
Writedown of investment (4,500) -- --
Interest income 112 307 671
Investment income (loss) (111) 440 --
Gain (loss) on sale of assets (314) 11 650
General and administrative expenses (337) (968) (2,128)
Interest expense (627) (61) --
-------- -------- --------
Income (loss) before taxes$ $(15,547) $ 6,523 $ 3,838
======== ======== ========
Identifiable assets:
Aircraft Maintenance $ 38,803 $ 32,507 $ 24,078
Electronics -- 2,216 2,627
Ocean Systems -- -- 6,518
Corporate 9,796 10,213 7,959
-------- -------- --------
$ 48,599 $ 44,936 $ 41,182
======== ======== ========
Depreciation and amortization:
Aircraft Maintenance $ 1,179 $ 776 $ 813
Electronics -- 50 27
Ocean Systems -- 193 219
Corporate 163 77 38
-------- -------- --------
$ 1,342 $ 1,096 $ 1,097
======== ======== ========
</TABLE>
-30-
<PAGE> 31
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Capital expenditures:
Aircraft Maintenance $3,679 $3,395 $1,441
Electronics -- 100 46
Ocean Systems -- 5 181
Corporate 60 938 --
------ ------ ------
$3,739 $4,438 $1,668
====== ====== ======
</TABLE>
The Company has three customers in the Aircraft Maintenance segment that account
for 23%, 16%, and 10% of 1997 consolidated net sales. The Company has three
customers in the Aircraft Maintenance segment that account for 26%, 15%, and 14%
of 1996 consolidated net sales. The Company has two customers in the Aircraft
Maintenance segment that accounted for 30% and 21% of 1995 consolidated net
sales. The United States government accounted for approximately 5% of
consolidated net sales in 1997, and 2% of consolidated net sales in 1995. The
Company made no sales to the United States government in 1996.
NOTE O -- COMMITMENTS AND CONTINGENCIES
Environmental Matters
The Company's operations, like those of other companies engaged in similar
businesses, are subject to extensive and evolving federal, state, and local
environmental laws and regulations. The measurement of environmental liabilities
is based on an evaluation of currently available facts with respect to each
individual site and considers factors such as existing technology, presently
enacted laws and regulations, and prior experience in remediation of
contaminated sites. As assessments and remediation progress at individual sites,
these liabilities are reviewed and adjusted to reflect the additional technical
and legal information as it becomes available. In order to comply with present
federal, state and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, the Company will be required to
fund remediation efforts, which could result in potentially substantial
operating costs and capital expenditures.
The Company is taking remedial action pursuant to Environmental Protection
Agency ("EPA") regulations at the Lake City, Florida facility. Ongoing testing
is being performed and new information is being gathered to continually assess
the impact and magnitude of the required remediation efforts on the Company.
Based upon the most recent cost estimates provided by environmental consultants,
the Company believes that the total remaining remediation and compliance costs
for this facility will be approximately $2.4 million, which has been accrued at
December 31, 1997.
Additionally, there are other areas on the Lake City property that could also
require remediation. The Company believes it
-31-
<PAGE> 32
is not responsible for these areas; however, it may be required to take part in
the remediation process to continue its operations at that location. No estimate
of any such costs to the Company is available at this time.
In connection with the sale of Crystek (see Note L), Whitehall was required to
perform, at its own expense, an environmental site assessment at the Crystek
facility. The Company is also required to remedy all recognized environmental
conditions identified in the assessment to bring the Crystek facility into
compliance with all applicable Federal, State, and local environmental laws. If
the facility is not brought into compliance with environmental laws by December
31, 1998, the buyer shall have the option of requiring the Company to repurchase
the property. The Company has engaged environmental consultants to review
potential environmental liabilities at the Crystek facility. Such investigation
and testing resulted in the identification of likely environmental remedial
actions. Based upon the cost estimates provided by the consultants, the Company
believes that the total remediation and compliance costs for this facility will
be approximately $1.0 million, which has been accrued at December 31, 1997.
Future information and developments will require the Company to continually
reassess the expected impact of the environmental matters discussed above.
Actual costs to be incurred in future periods may vary from the estimate, given
the inherent uncertainties in evaluating environmental exposures. These
uncertainties included the extent of required remediation based on testing and
evaluation not yet completed and the varying costs and effectiveness of
remediation methods.
To comply with the financial assurances required by the Florida Department of
Environmental Protection (FDEP), the Company requested and a bank issued a
$1,700,000 standby letter of credit in favor of the FDEP. This letter of credit
meets all conditions required by the FDEP.
Legal Matters
On May 10, 1991, an action was filed in the District Court of Dallas County,
Texas, by Lee D. Webster, former Chairman, Chief Executive Officer and President
of Whitehall, against the Company, each of its directors (other than Mr.
Webster) and Cambridge Capital Fund, L.P., alleging, among other things, that
(i) the defendants' actions, both individually and in concert, constituted
willful interference with Mr. Webster's employment relationship with the Company
and was the direct cause of Mr. Webster's termination as its President and
Chairman of the Board, and (ii) the defendants' actions forced Mr. Webster into
retirement without providing Mr. Webster with retirement benefits which Mr.
Webster was purportedly promised. On August 17, 1994, the defendants were
granted a partial summary judgment. On October 24, 1994, Mr. Webster filed a
third amended petition and alleged the following causes of action: tortuous
interference with contractual relations against Cambridge Capital Fund, L.P.,
and directors George F. Baker and John J. McAtee; intentional infliction of
emotional distress and breach of oral contracts. The third amended petition
sought compensatory and punitive damages in excess of $35 million. On January
12, 1995, the Court entered an abatement on one of the breach of oral contract
claims against the Company and entered a summary judgment in the defendants'
favor on all remaining claims alleged by Mr. Webster. On February 26, 1996, the
Court granted a summary judgment in favor of the defendants on Mr. Webster's
remaining claims and entered a take nothing final judgment which dismissed all
of Mr. Webster's claims with prejudice to refiling. On March 26, 1996, Mr.
Webster appealed the final judgment to the Dallas, Texas Court of Appeals. Oral
argument was held on November 13, 1997. To date, no decision has been reached by
the court. Management intends to vigorously defend this appeal.
The Company is also involved in certain legal proceedings in the normal course
of its business. After consultation with counsel, management is of the opinion
that the outcome of the above-mentioned proceedings will not have a material
effect on the financial position or results of operations of the Company.
NOTE P -- PRO FORMA INFORMATION
The unaudited pro forma financial information presented below is for the years
ended December 31, 1997 and 1996. The unaudited pro forma financial information
gives effect to the sale of the Ocean Systems and Electronics segments and the
purchase of the Macon facility as if such transactions had occurred as of
January 1, 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales $ 76,153,000 $ 81,719,000
Net income (loss) (12,841,000) 3,506,000
Net income per share (2.33) 0.64
</TABLE>
-32-
<PAGE> 33
The pro forma financial information does not purport to represent what the
results of operations of the Company would have actually been if the
aforementioned transactions had occurred on January 1, 1996, nor does it project
the results of operations for any future periods.
NOTE Q -- RELATED PARTY TRANSACTIONS
As of December 31, 1997, two former officers of the Company were indebted to
the Company in the aggregate amount of approximately $363,000. This amount is
classified as accounts receivable and is fully reserved.
These receivables will be written off in 1998.
NOTE R -- SUBSEQUENT EVENT
On March 24, 1998, the Company entered into a definitive agreement with
Aviation Sales Company (AVS). Under the terms of the agreement, the Company
will exchange its common stock for common stock of AVS. This transaction is
expected to be accounted for as a pooling of interests.
-33-
<PAGE> 34
NOTE S -- SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
-------------
Mar. 31 June 30 Sept. 30 Dec. 31 Total
------- ------- -------- ------- -----
(In thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
1997:
Net sales $ 13,551 $ 19,035 $ 14,256 $ 18,949 $ 65,791
Gross profit (loss) 2,560 3,524 (6,955) 2,465 1,594
Net income (loss) 1,135 1,329 (8,231) (6,170) (11,937)
Net income (loss) per
common share:
Basic $ 0.21 $ 0.24 ($ 1.49) ($ 1.12) $ (2.16)
Diluted $ 0.20 $ 0.23 ($ 1.49) ($ 1.12) $ (2.16)
1996:
Net sales $ 20,187 $ 20,221 $ 16,318 $ 13,444 $ 70,170
Gross profit 3,092 2,879 2,197 2,193 10,361
Net income 1,063 1,129 1,187 938 4,317
Net income per
common share:*
Basic $ 0.19 $ 0.21 $ 0.22 $ 0.17 $ 0.79
Diluted $ 0.19 $ 0.20 $ 0.21 $ 0.16 $ 0.75
*Restated to give effect to 100% stock dividend to stockholders' of record at the close of business
on March 25, 1997.
</TABLE>
The fourth quarter of 1997 net loss and loss per share reflect approximately
$6.5 million of adjustments to accrue additional environmental reserves,
increase the allowance for bad debts, and increase the allowance for obsolete
inventory.
-34-
<PAGE> 35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Executive Officers of the Registrant
is contained in Part I of this Annual Report under the caption "Executive
Officers of the Registrant." Information with respect to the Directors of the
Registrant is contained in the definitive proxy statement under the captions
"Election of Directors," "Nominees for Election as Directors," "Security
Ownership of Certain Beneficial Owners," "Security Ownership of Management" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
"Executive Compensation" in the definitive proxy statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Security Ownership of Certain Beneficial Owners" and "Security
Ownership of Management" in the definitive proxy statement are incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
"Certain Relationships and Related Transactions" in the definitive
proxy statement are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The following consolidated financial statements of the Company
and its subsidiaries are included in Item 8:
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Income for the years ended December
31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
2. The following consolidated financial statement schedule of the
Company and its subsidiaries is included herewith on page 38:
Schedule II -Valuation and qualifying accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
-35-
<PAGE> 36
3. Exhibits
Exhibit Incorporated by Reference to Description
- ------- ---------------------------- -----------
(3) Form 10-K December 31, 1987 a. Restated Certificate of
Form 10-K December 31, 1996 b. Amendment to Restated
Certificate of Incorporation
Incorporation
Form 10-K December 31, 1992 c. Restated bylaws
(10) MATERIAL CONTRACTS
Form 10-K December 31, 1987 a. Resolutions adopted by the
Compensation Committee of
the Board of Directors of
Whitehall Corporation on
March 14, 1988, approved by
the full Board of Directors
on March 22, 1988, relating
to benefits payable to
survivors of Mr. Lee D.
Webster.
Filed herein b. Whitehall Corporation
Management Security
Agreements
Form 10-K December 31, 1992 c. Whitehall Corporation
Incentive Stock Option Plans
d. Whitehall Corporation
Non-Employee Directors Stock
Option Plan, as amended by
Amendment No. 1 thereto
e. Lease between Aero
Corporation and City of Lake
City, Florida dated December
30, 1992
Form 10-K December 31, 1996 f. Line of Credit Agreement
between Comerica Bank
and Whitehall Corporation
dated January 24, 1996
Filed herein g. Asset Contribution
Agreement, dated November 7,
1996, by and between
Hydroscience, Inc. and
Hydroscience Technologies,
Inc.
h. Asset Purchase Agreement,
dated July 8, 1997, by and
among Aero Corp Macon, Inc.,
as buyer, Zantop
International Airlines,
Inc., as seller, and the
Zantop shareholders, party
to the agreement
i. Lease Agreement, dated May
1, 1993 by and between the
Macon-Bibb County Industrial
Authority and Zantop
International Airlines, Inc.
j. Stock Purchase Agreement,
dated February 13, 1997, by
and among Crystek
Acquisition Corporation, as
buyer, and Whitehall
Corporation, as seller
k. First Amendment to Stock
Purchase Agreement, dated
March 31, 1997, by and among
Crystek Acquisition
Corporation, Whitehall
Corporation and Crystek Real
Estate Corporation
(21) -- SUBSIDIARIES OF THE REGISTRANT
(23) -- CONSENT OF INDEPENDENT PUBLIC
ACCOUNTANTS
(27) -- FINANCIAL DATA SCHEDULE
The Registrant will furnish, upon request, a copy of any Exhibit upon
the payment of its reasonable
-36-
<PAGE> 37
expenses for duplicating and mailing such Exhibit.
(b) Reports on Form 8-K
The Company has not filed a report on Form 8-K during the last quarter
of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WHITEHALL CORPORATION
By /s/ G.F. BAKER
------------------------
George F. Baker
Chairman of the Board
Date: April 7, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ G.F. BAKER Chairman of the Board April 7, 1998
- ---------------------------------- (Principal executive officer)
George F. Baker
/s/ JOHN H. WILSON President April 7, 1998
- ----------------------------------
John H. Wilson
/s/ GARLAN BRAITHWAITE Senior Vice President and April 7, 1998
- ---------------------------------- Chief Financial Officer
Garlan Braithwaite
/s/ BRUCE C. CONWAY Director April 7, 1998
- ----------------------------------
Bruce C. Conway
/s/ ARTHUR H. HUTTON Director April 7, 1998
- ----------------------------------
Arthur H. Hutton
/s/ JOHN J. MCATEE Director April 7, 1998
- ----------------------------------
John J. McAtee, Jr.
/s/ J.S. PARKER Director April 7, 1998
- ----------------------------------
Jack S. Parker
/s/ LEWIS S. WHITE Director April 7, 1998
- ----------------------------------
Lewis S. White
</TABLE>
-37-
<PAGE> 38
SCHEDULE II
WHITEHALL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
---------
Balance at Charges Charged to Balance at
Beginning to Costs and Other Accounts Deductions End of
Description of Period Expenses (Describe) (Describe) Period
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1997:
Reserves and allowances deducted
from asset accounts-
Allowance for uncollectible
accounts $ 518,000 $ 5,076,000 $ -- $ 1,747,000(1) $ 3,847,000
Allowance for obsolete inventory -- 1,220,000 -- --(4) 1,220,000
------------ ------------ ------------ ------------ ------------
Totals $ 518,000 $ 6,296,000 $ -- $ 1,747,000 $ 5,067,000
============ ============ ============ ============ ============
Accrued environmental cost $ 379,000 $ 3,400,000 $ 400,000(3) $ 225,000(2) $ 3,954,000
============ ============ ============ ============ ============
YEAR ENDED
DECEMBER 31, 1996:
Reserves and allowances deducted
from asset accounts-
Allowance for uncollectible
accounts $ 732,000 $ -- $ -- $ 214,000(1) $ 518,000
Allowance for obsolete inventory 300,000 -- -- 300,000(4) --
------------ ------------ ------------ ------------ ------------
Totals $ 1,032,000 $ -- $ -- $ 514,000 518,000
============ ============ ============ ============ ============
Accrued environmental cost $ 625,000 $ -- $ -- $ 246,000(2) $ 379,000
============ ============ ============ ============ ============
YEAR ENDED
DECEMBER 31, 1995:
Reserves and allowances deducted
from asset accounts-
Allowance for uncollectible
accounts $ 858,000 $ 748,000 $ -- $ 874,000(1) $ 732,000
Allowance for obsolete inventory -- 300,000 -- -- 300,000
------------ ------------ ------------ ------------ ------------
Totals $ 858,000 $ 1,048,000 $ -- $ 874,000 $ 1,032,000
============ ============ ============ ============ ============
Accrued environmental cost $ 736,000 $ 416,000 $ -- $ 527,000(2) $ 625,000
============ ============ ============ ============ ============
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Environmental clean up costs incurred.
(3) Purchase accounting.
(4) Reserve adjustment.
-38-
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference to Description
- ------- ---------------------------- -----------
<S> <C> <C>
(3) Form 10-K December 31, 1987 a. Restated Certificate of
Form 10-K December 31, 1996 b. Amendment to Restated
Certificate of Incorporation
Incorporation
Form 10-K December 31, 1992 c. Restated bylaws
(10) MATERIAL CONTRACTS
Form 10-K December 31, 1987 a. Resolutions adopted by the
Compensation Committee of
the Board of Directors of
Whitehall Corporation on
March 14, 1988, approved by
the full Board of Directors
on March 22, 1988, relating
to benefits payable to
survivors of Mr. Lee D.
Webster.
Filed herein b. Whitehall Corporation
Management Security
Agreements
Form 10-K December 31, 1992 c. Whitehall Corporation
Incentive Stock Option Plans
d. Whitehall Corporation
Non-Employee Directors Stock
Option Plan, as amended by
Amendment No. 1 thereto
e. Lease between Aero
Corporation and City of Lake
City, Florida dated December
30, 1992
Form 10-K December 31, 1996 f. Line of Credit Agreement
between Comerica Bank
and Whitehall Corporation
dated January 24, 1996
Filed herein g. Asset Contribution
Agreement, dated November 7,
1996, by and between
Hydroscience, Inc. and
Hydroscience Technologies,
Inc.
h. Asset Purchase Agreement,
dated July 8, 1997, by and
among Aero Corp Macon, Inc.,
as buyer, Zantop
International Airlines,
Inc., as seller, and the
Zantop shareholders, party
to the agreement
i. Lease Agreement, dated May
1, 1993 by and between the
Macon-Bibb County Industrial
Authority and Zantop
International Airlines, Inc.
j. Stock Purchase Agreement,
dated February 13, 1997, by
and among Crystek
Acquisition Corporation, as
buyer, and Whitehall
Corporation, as seller
k. First Amendment to Stock
Purchase Agreement, dated
March 31, 1997, by and among
Crystek Acquisition
Corporation, Whitehall
Corporation and Crystek Real
Estate Corporation
(21) -- SUBSIDIARIES OF THE REGISTRANT
(23) -- CONSENT OF INDEPENDENT PUBLIC
ACCOUNTANTS
(27) -- FINANCIAL DATA SCHEDULE
</TABLE>
The Registrant will furnish, upon request, a copy of any Exhibit upon
the payment of its reasonable
<PAGE> 1
ASSET CONTRIBUTION AGREEMENT
This Asset Contribution Agreement (the "Agreement") is made and entered
into effective November 7, 1996, by and between HYDROSCIENCE,INC., a Texas
corporation ("Hydroscience"), and HYDROSCIENCE TECHNOLOGIES, INC., a Texas
corporation (HTI).
Hydroscience is in the business of manufacturing, selling, and servicing
offshore geophysical and seismic products (the "Business"). Hydroscience
desires to transfer and contribute, and HTI desires to acquire, the assets of
Hydroscience. Hydroscience shall obtain the approval, authorization, and
ratification of the agreement from Whitehall corporation, Hydroscience's parent
company, and Whitehall corporation shall grant to HTI, and HTI desires to
acquire, certain leasehold rights in and to real property owned by Whitehall
Corporation and presently occupied by Hydroscience.
In consideration of the foregoing recitals and the mutual covenants and
obligations of the parties set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
ARTICLE I
Contribution and
Transfer
1.1. Contribution and Transfer of Assets. On the terms set forth herein,
Hydroscience hereby transfers, assigns, and delivers to HTI, and HTI hereby
acquires and accepts from Hydroscience, all tangible and intangible assets
owned by Hydroscience, including but not limited to the following: (i) the name
"Hydroscience" and all derivations of or other names substantially similar to
such name, (ii) inventory, (iii) equipment, furniture, and furnishings, (iv)
permits relating to or used in the Business to the extent they are
transferrable, (v) patents of Hydroscience, and all patents related to the
business of Hydroscience but owned by Whitehall Corporation, trademarks,
service marks, technology, know-how, and other intangible property used in the
Business and all goodwill associated therewith, and (vi) books and records;
however, Hydroscience retains, and does not hereby transfer certain designated
accounts receivable due to Hydroscience from its customers which shall be
itemized and shown on Exhibit "All attached hereto and made a part of this
agreement for all relevant purposes.
The transfer and delivery given effect by this Agreement shall be effective
as of 5:00 p.m., Central Standard Time, on November 7, 1996 (the "Effective
Time"). The parties intend that the transfer and contributions effected hereby
qualify as a contribution to the capital of HTI in conformity with the
requirements of Section 351 of the Internal Revenue Code of 1986,as amended.
1.2. Issuance of Preferred Stock. As consideration for the transfer by
Hydroscience to HTI of its Assets, HTI has contemporaneously herewith issued
and delivered to Hydroscience
<PAGE> 2
818,182 shares of Preferred Stock, $0.01 par value per share, of HTI (the
"Preferred Shares"), which shall have an assigned value of $4,454,000.00 based
upon an equal value of the contributed assets allocated as follows:
Work in progress inventory - $500,000.00
Finished goods inventory - $605,000.00
Raw materials inventory - $330,000.00
Patents - $1,575,000.00
Machinery and equipment - $1,444,000.00
1.3. Limited Assumption of Liabilities. As further consideration for the
transfer by Hydroscience to HTI of its Assets, Hydroscience hereby assigns to
HTI, and HTI hereby accepts such assignment of assumes and agrees to perform
and pay, Hydroscience's obligations and liabilities under the warranties given
by Hydroscience to its customers relating to products sold by Hydroscience
which do not exceed $100,000.00 (direct labor and materials). Once $100,000.00
has been expended, HTI will provide labor and Hydroscience will pay for
materials. HTI accepts responsibility for costs of labor which may be required
to fulfill Hydroscience's warranty. Except as expressly set forth in the
preceding sentence, HTI is not acquiring, and does not assume, any liability or
obligation whatsoever of or belonging to Hydroscience, and Hydroscience shall
remain solely liable for all liabilities and obligations of any kind or nature
not expressly assumed by HTI herein.
1.4. Real Property Lease. (a) As further consideration for the issuance to
it of the Preferred Stock and HTI's assumption of warranty liabilities under
Section 1.3, Hydroscience agrees to cause Whitehall Corporation ("Whitehall"),
its parent company, to grant to HTI a real property lease of the real property
owned by Whitehall and commonly known as 2659 Nova Drive, Dallas, Texas, from
the Effective Time through December 31, 1997. The consideration for such lease
agreement shall be one dollar ($1.00) for the full term of the lease. All terms
and conditions of such lease shall be set out in a written lease agreement
which shall be attached hereto as Exhibit "B" and made a part hereof for all
relevant purposes. Whitehall corporation shall be responsible for payment of
all utilities costs related to the leased property including HTI's bills for
electricity, water, and gas. Whitehall corporation shall also pay all
maintenance costs for maintenance of the leased premises, all real property
taxes, and all insurance costs for insuring the leased premises.
1.5. Employees of Hydroscience. HTI agrees to initially employ all of the
present employees of Hydroscience effective at the Effective time and retain
such employees until such time as in HTI's management's judgment their
continued employment is not in HTI's best interest. HTI agrees that all
benefits which Hydroscience provides to its employees will terminate
immediately before the Effective Time, and as soon as practicable after the
Effective Time HTI will provide health insurance benefits to all
<PAGE> 3
its employees formerly employed by Hydroscience. HTI shall not be responsible
for any obligation owing by Hydroscience to any Hydroscience employee.
1.6. Further Assurances. After the execution and delivery of this Agreement
(the "Closing"), each of the parties agrees to execute and deliver such
additional documents and take such additional actions as any party may
reasonably deem to be practical and necessary or advisable in order to
consummate the transactions contemplated by this Agreement, including vesting
more fully in HTI the ownership of Hydroscience's Assets and in Hydroscience
the ownership of the Preferred Shares.
1.7. Change of Name by Hydroscience. As soon as reasonably practicable
after Closing, Hydroscience may change its corporate name as it sees fit,
however such name change shall have no affect whatsoever on HTI except that HTI
shall be entitled to all benefits, and good will associated with Hydroscience
and its name.
ARTICLE II
Representations and Warranties of Hydroscience
Hydroscience represents and warrants that the following are true and
correct as of the Effective Time as if made at that date and time:
2.1. Organization and Good Standing. Hydroscience is a corporation duly
organized, validly existing, and in good standing under the laws of Texas, with
all requisite power and authority to carry on the business in which it is
engaged and to own all Assets being transferred to HTI.
2.2. Authorization and Validity. The execution, delivery, and performance
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by Hydroscience, and its parent corporation Whitehall
Corporation. This Agreement together with exhibits thereto constitute the
legal, valid, and binding obligation of Hydroscience, enforceable against it,
and Whitehall Corporation, in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
2.3. Title. Hydroscience has at the Effective Time transferred to HTI good
and marketable title to the transferred Assets, free and clear of all liens,
security interests, claims, and encumbrances. Hydroscience shall obtain the
transfer of all relevant patents, and trademarks used by Hydroscience in "The
Business" from Whitehall Corporation to HTI.
2.4. No Violation. The execution and performance of this Agreement will not
(a) result in a violation or breach of the
<PAGE> 4
Articles of Incorporation or Bylaws of Hydroscience or any agreement or other
instrument under which Hydroscience is bound or to which any of the assets of
Hydroscience are subject, or result in the creation or imposition of any lien,
security interest, claim, or encumbrance upon any of such assets, or (b)
violate any applicable law or regulation or any judgment or order of any court
or governmental agency.
2.5. Consents. No authorization, consent, approval, permit, or license of,
or filing with, any governmental or public body or authority, any lender or
lessor, or any other person or entity is required to authorize, or is required
in connection with, the execution, delivery, and performance of this Agreement
by Hydroscience.
2.6. Litigation. There is no legal action, threatened legal action, or
administrative proceeding or investigation instituted or, to the knowledge of
Hydroscience threatened against Hydroscience which could affect the
consummation of the transactions contemplated hereby, or the assets being
transferred to HTI by Hydroscience.
ARTICLE III
Representations and Warranties of HTI
HTI represents and warrants that the following are true and correct as of
the Effective Time as if made at that date and time:
3.1. Organization and Good Standing. HTI is a corporation duly organized,
validly existing, and in good standing under the laws of Texas, with all
requisite power and authority to carry on the business in which it is to engage
and to own the assets it owns and which are being transferred to it by
Hydroscience.
3.2. Authorization and Validity. The execution, delivery, and performance
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by HTI. This Agreement and the Exhibits thereto
constitute the legal, valid, and binding obligation of HTI, enforceable against
it in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, or similar laws affecting creditors rights generally
or the availability of equitable remedies.
3.3. Preferred Shares. The authorized capital stock of HTI consists of (i)
3,000,000 shares of common stock, $0.01 par value, of which 1,000,000 shares
are issued and outstanding and (ii) 818,182 shares of preferred stock, of which
818,182 shares are outstanding as the Preferred Shares. The Preferred Shares
have the rights and privileges set forth in the Articles of Incorporation of
HTI, a true, correct, and complete copy of which has previously been provided
by HTI to Hydroscience. No amendment to the Articles of Incorporation of HTI
which effects the rights or privileges of holders of preferred stock may be
approved or implemented without the approval of the holders of preferred stock,
voting as a class.
<PAGE> 5
No shares of HTI capital stock are held by it in treasury. No shares of HTI
capital stock have been issued or disposed of in violation of, and no
shareholder has any, preemptive rights. There is no existing option, warrant,
call, subscription, agreement, right, or commitment of any kind calling for the
issuance of authorized but unissued shares of HTI capital stock, or securities
convertible into or exchangeable for, or otherwise relating to any HTI capital
stock other than (as to convertibility) the Preferred Shares.
3.4. No Violation. The execution and performance of this Agreement will not
(a) result in a violation or breach of the Articles of Incorporation or Bylaws
of HTI or any agreement or other instrument under which HTI is bound or to
which any of the assets of HTI are subject, or result in the creation or
imposition of any lien, security interest, claim, or encumbrance upon any of
such assets, or (b) violate any applicable law or regulation or any judgment or
order of any court or governmental agency.
3.5. Consents. No authorization, consent, approval, permit, or license of,
or filing with, any governmental or public body or authority, any lender or
lessor, or any other person or entity is required to authorize, or is required
in connection with, the execution, delivery, and performance of this Agreement
by HTI.
3.6. Litigation. There is no legal action or administrative proceeding or
investigation instituted or, to the best of the knowledge of HTI, threatened
against HTI which could affect the consummation of the transactions
contemplated hereby.
ARTICLE IV
Indemnification
4.1. Indemnity by Hydroscience. Hydroscience and Whitehall Corporation
shall indemnify, defend, and hold HTI and its officers, directors, agents,
shareholders, attorneys, and affiliates (collectively, the "Hydroscience
Indemnified Person") harmless from and against all losses, claims, obligations,
demands, assessments, penalties, liabilities, costs, damages, reasonable
attorneys' fees, and expenses (collectively, "Damages") asserted against or
incurred by any of the Hydroscience Indemnified Persons by reason of or
resulting from: (a) a breach by Hydroscience of any representation, warranty,
or covenant with others or contained herein, (b) any liability or obligation of
Hydroscience not assumed by HTI pursuant to Section 1.3, and (c) except with
respect to liabilities or obligations assumed by HTI pursuant to Section 1.3,
any claim arising out of or relating to occurrences of any nature relating to
the Business, product warranties, the employees, or the Purchased Assets prior
to the Effective Time, whether any such claims are asserted prior to or after
the Effective Time.
4.2. Indemnity by HTI. HTI shall indemnify, defend, and hold Hydroscience
and its officers, directors, agents, shareholders, attorneys, and affiliates
(collectively, the "HTI Indemnified
<PAGE> 6
Persons") harmless from and against all Damages asserted against or incurred by
any of the HTI Indemnified Persons by reason of or resulting from: (a) a breach
by HTI of any representation, warranty, or covenant contained herein; (b) the
liabilities and obligations assumed by HTI pursuant to Section 1.3, and (c) any
claim arising out of or relating to occurrences of any nature relating to the
Purchased Assets or the conduct of business by HTI (whether or not using the
Purchased Assets) after the Effective Time.
ARTICLE V
Miscellaneous
5.1. Confidentiality. The parties shall keep this Agreement and its terms
confidential, but any party may make such disclosures after Closing as it
reasonably considers are required by law so long as it notifies the other party
in advance of any such disclosure.
5.2. Survival of Representations, Warranties and Covenants. The
representations, warranties, and covenants contained herein shall survive the
Closing and the Effective Time and any investigation made by either party
hereto or on its behalf.
5.3. Taxes. HTI shall be liable for and shall indemnify Hydroscience
against any sales, use, or other similar taxes resulting from the transactions
contemplated hereby, except any taxes on the real property involved in this
agreement.
5.4. Notices. Any notices, consents, demands, requests, approvals, and
other communications to be given under this Agreement by any party to the other
shall be deemed to have been duly given if given in writing and personally
delivered, sent by nationally recognized courier, sent by telegram, or
telecopy, or sent by mail, registered or certified, postage prepaid with return
receipt requested, at the address specified beside each party's signature at
the end of this Agreement. Notices delivered personally or by courier,
telegram, or telecopy shall be deemed communicated as of actual receipt; mailed
notices shall be deemed communicated as of 10:00 a.m. on the third business day
after mailing. Any party may change its address for notice hereunder by giving
notice of such change in the manner provided in this Section.
5.5. Entire Agreement. This writing, and the exhibits thereto, constitute
the entire agreement of the parties, and such agreement supersedes any and all
other agreements, either oral or written, between the parties hereto with
respect to the subject matter hereof and contains all of the covenants and
agreements between the parties with respect thereto.
5.6. Modification and Wavier. No change or modification of this Agreement
shall be valid or binding upon the parties hereto unless such change or
modification shall be in writing and signed
<PAGE> 7
by both the parties hereto. No waiver of any term or condition of this
Agreement shall be enforceable unless it shall be in writing and signed by the
party against which it is sought to charged. The waiver by either party of a
breach of any provision of this Agreement by the other shall not operate or be
construed as a waiver of any subsequent breach by such other party.
5.7. Governing Law. The laws of the State of Texas shall govern the validity
or enforceability and the interpretation or construction of all provisions of
this Agreement and all issues hereunder. This Agreement shall be performable in
Dallas County, Texas. Venue of any litigation arising hereunder shall be in a
court of competent jurisdiction in Dallas County, Texas. HTI hereby agrees
irrevocably and unconditionally to consent to submit to the exclusive
jurisdiction of the courts of the State of Texas and of the United States of
America located in Dallas, Texas, for any actions, suits or proceedings arising
out of or relating to this Agreement and the transactions contemplated hereby,
and further agrees that service of process, summons or notice by U.S.
registered mail to HTI's address set forth above shall be effective service of
process of any action, suit or proceeding brought against HTI in any such
court. HTI hereby irrevocably and unconditionally waives any objection to the
laying of venue of any action, suit or proceeding arising out of this Agreement
or the transactions contemplated hereby in the courts of the State of Texas or
the United States of America located in Dallas, Texas, and hereby irrevocably
and unconditionally waives and agrees not to plead or claim in any such court
that any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
5.8. Counterparts. This Agreement may be executed in counterparts, each of
which shall constitute an original, but all of which shall constitute one and
the same document.
5.9. Costs. That parties hereto shall pay all of their own expenses
relating to the negotiation, documentation, and closing of the transactions
contemplated by this Agreement, including (without limitation) the fees and
expenses of their respective counsel, accountants, and other advisors. If any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement, the prevailing party shall be entitled to reasonable attorneys'
fees, costs, and necessary disbursements in addition to any other relief to
which it may be entitled.
5.10. Assignment. Neither party may assign this Agreement without the prior
written consent of the other party hereof, which consent may be withheld in its
sole discretion; provided, however, that Hydroscience may assign this Agreement
to Whitehall (or Whitehall's successor) if Hydroscience liquidates its assets.
5.11. Binding Effect. This Agreement shall be binding upon the parties
hereto, together with their respective successors and permitted assigns.
<PAGE> 8
5.12. Language; Captions; References. Whenever the context requires,
references in this Agreement to the singular number shall include the plural,
the plural number shall include the singular, and words denoting gender shall
include the masculine, feminine, and neuter. Section headings in this Agreement
are for convenience of reference only and shall not be considered in construing
or interpreting this Agreement. "Hereof," "hereto," "herein," and words of
similar import used in this Agreement shall be deemed references to this
Agreement as a whole, and not to any particular Section, paragraph, or other
provision of this Agreement unless the context specifically indicates to the
contrary. Any reference to a particular "Section" shall be construed as
referring to the indicated Section of this Agreement unless the context
indicates to the contrary. Whenever the term "including" is used herein, it
shall mean "including without limitation."
5.13. Relationship of Parties. Nothing in this Agreement shall create or be
deemed to create the relationship of partners, joint venturers,
employer-employee, or principal-agent between the parties, nor shall either
party have any authority to assume or create any obligation or responsibility
whatsoever, express or implied, on behalf of or in the name of the other party
or to bind the other party in any manner whatsoever, nor shall either party
make any representation, warranty, covenant, agreement, or commitment on behalf
of the other party.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of 5:00 p.m. on November 7, 1996.
Address: HYDROSCIENCE, INC.
1659 Nova Drive By: /s/ E. F. CAMPBELL
Dallas, Texas 75229 --------------------------------
Telecopy (972) 247-2024 Name: E. F. CAMPBELL
-------------------------------
(Please Print)
Title: Vice President
-----------------------------
HYDROSCIENCE TECHNOLOGIES, INC.
Address: 1659 Nova Drive /s/ FRED G. WOODLAND
Dallas, Texas 75229 ------------------------------------
Telecopy (972) 247-2024 Fred G. Woodland
------------------------------------
(Please Print)
Title: President
-----------------------------
By:
-----------------------------
Name:
---------------------------
Telecopy
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<PAGE> 9
AUTHORIZATION AND RATIFICATION
The foregoing agreement by and between Hydroscience, Inc. and Hydroscience
Technologies, Inc. is hereby approved, authorized, ratified and adopted by
Whitehall Corporation.
WHITEHALL CORPORATION
By: /s/ JOHN H. WILSON - PRESIDENT
--------------------------------
Name: John H. Wilson
-------------------------------
(Please Print)
Title of Authorized Representative:
------------------------------------
<PAGE> 1
EXECUTION VERSION
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ASSET PURCHASE AGREEMENT
DATED AS OF JULY 8, 1997
BY AND AMONG
AERO CORP MACON, INC.,
ZANTOP INTERNATIONAL AIRLINES, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
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<PAGE> 2
EXECUTION VERSION
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") dated as of July 8,
1997 by and among Aero Corp Macon, Inc., a Delaware corporation (the
"Purchaser"), Zantop International Airlines, Inc., a Michigan corporation (the
"Seller"), and the persons listed on the signature page of this Agreement under
the caption "Stockholders" (collectively, the "Stockholders," and each of those
persons individually, a "Stockholder").
WITNESSETH
WHEREAS, The Seller is engaged in third party airplane maintenance and
related businesses and operations conducted at, or related to, the Seller's
Macon, Georgia facility (the "Facility," and such businesses and operations,
collectively, the "Business"); and
WHEREAS, subject to the terms and conditions set forth herein, the
Seller desires to sell, and the Purchaser desires to purchase, certain assets of
the Business by means of an asset purchase (such asset purchase hereafter
referred to as the "Acquisition").
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
Article 1
The Acquisition.
Section 1.1 Purchase of Assets. At the Closing, subject to the terms
of Section 2.2, and upon the terms and subject to the conditions set forth in
this Agreement, the Seller will sell, convey, assign and transfer to the
Purchaser, and the Purchaser will purchase and acquire from the Seller, all of
the Seller's rights, title and interest in and to the assets of the Seller,
wherever situated, of every kind, nature and description, tangible and
intangible, which are used or held for use in connection with or which otherwise
relate to the Business, and all assets situated at the Facility, whether arising
by contract, law or otherwise, except for the Retained Assets, all as the same
shall exist as of the date hereof and which may be hereafter acquired
immediately prior to the Closing (such rights and assets, collectively, other
than the Retained Assets, are hereafter referred to as the "Assets"), in each
case free and clear of all mortgages, liens, claims, charges, security
interests, easements, restrictive covenants, rights-of-way, leases, purchase
agreements, options and other encumbrances and agreements ("Liens"), except for
Liens for taxes and other governmental charges, assessments or fees
<PAGE> 3
which are not yet due and payable ("Permitted Liens"). Without limiting the
definition of "Assets," as set forth above in this paragraph, the Assets shall
include:
(a) all the equipment, machinery, furniture, tools, appliances, telephone
systems, copy machines, fax machines, implements, spare parts,
supplies, leasehold improvements and all other tangible personal
property of every kind and description, including, without limitation,
all of the items set forth on Schedule 1(a), together with any rights
or claims of the Seller arising out of the breach of any express or
implied warranty by manufacturers, sellers or other third parties,
with respect to such assets;
(b) all customer lists, sales records, credit data and other information
relating to present and past customers of the Business;
(c) all contracts and agreements pursuant to which the Business provides
or will provide goods or services to its customers (collectively,
"Customer Contracts") and all other Material Contracts (as defined in
Section 6.16), including, without limitation, the contracts and
agreements attached hereto as Schedule 1(c);
(d) all of Seller's rights, title and interest in and to the leases
pursuant to which the Seller leases the Facility, and all improvements
and fixtures thereon, whether leased or owned to or by the Seller
(collectively the "Facility Lease");
(e) all vehicles and other transportation equipment used or held for use
in the Business, including those identified in Schedule 1(e);
(f) Subject to Section 8.6, all work-in-process ("WIP"), raw materials,
purchased parts, shipping containers and supplies, whether in the
possession of the Seller, in the possession of third parties or in
transit to or from the Seller;
(g) all financial, accounting and operating data and records relating to
or used or held for use in the Business, including all tax returns,
schedules, work papers, books, records, notes, sales and sales
promotional data, advertising materials, credit information, cost and
pricing information, equipment maintenance data, purchasing records
and information, supplier lists, business plans, reference catalogs,
payroll and personnel records, stationery, purchase orders, sales
forms, labels, catalogs, brochures, artwork, photographs, product
display and other similar property, rights and information; provided,
that the foregoing shall not include materials relating to business
operations of the Seller other than the Business; and provided further
that the Seller may retain copies of the foregoing materials furnished
to the Purchaser.
(h) all Intellectual Property (as defined in Section 6.13), including,
without limitation, proprietary rights and all engineering, production
and other designs, drawings,
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<PAGE> 4
specifications, formulas, technology, computer and electronic data
processing programs and software, inventions, processes and know-how;
(i) the right to use the name "Zantop," individually or together with
other words and phrases, including, without limitation, the name
"Zantop Macon," as an assumed name under which the Business is or has
been operated, subject to the terms of Section 8.8;
(j) to the extent assignable or otherwise transferable, all rights in, to
and under all governmental approvals, authorizations or requirements
(whether issued from a federal, state, local governmental authority,
municipal body or regulatory or administrative body) or any Licenses
(as defined in Section 6.11), including, without limitation, those set
forth on Schedule 1(j).
(k) all insurance policies, insurance proceeds and insurance claims in
favor of the Seller relating to all or any part of the Business and,
to the extent transferable, the benefit of and the right to enforce
the covenants and warranties, if any, that the Seller is entitled to
enforce against the insurer under such policies with respect to the
Business;
(1) all other or additional privileges, rights, interests, properties and
assets of every kind and description and located at the Facility or
related to the Business (other than the Retained Assets) that are used
or intended for use in connection with, or that are necessary to the
continued conduct of, the Business as presently being conducted; and
(m) all instruments and documents of title representing any of the
foregoing, and all rights, title, security and guaranties in favor of
the Seller.
Article 2
Assumed Liabilities; Retained Assets
Section 2.1 Assumed Liabilities. On the Closing Date, the Purchaser
shall only assume the following obligations and liabilities (such obligations
and liabilities are hereafter referred to as the "Assumed Liabilities"):
(a) Executory obligations of the Seller under the Facility Lease, which
obligations have accrued after the Closing;
(b) The obligation to perform WIP under purchase orders existing as of the
Closing, subject to the terms and conditions set forth in Section 8.6;
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<PAGE> 5
(c) All obligations and liabilities (contingent or otherwise) of the
Seller arising out of any claim, litigation or proceeding, but only to
the extent that any such claim, litigation or proceeding is based
directly upon work performed or services provided by the Purchaser
after the Closing, and provided that the Purchaser shall not be liable
(and the Seller shall indemnify the Purchaser) for any damages and
other liabilities and costs arising out of, relating to, or otherwise
attributable to, in whole or in part, work performed or services
rendered (or which were to be performed or rendered) by the Seller
prior to the Closing.
Section 2.2 Retained Assets. The Assets will not include, and the
Purchaser and the Seller acknowledge and agree that there shall be excluded from
the Assets, all the following of the Seller (collectively, the "Retained
Assets"):
(a) Cash and cash equivalents or similar type investments, such as
certificates of deposit, Treasury bills and other marketable
securities;
(b) Accounts and notes receivable of the Seller as of the Closing;
(c) Any assets of any qualified or non-qualified pension or welfare plans
or other deferred compensation arrangements or other Seller Plans (as
defined in Section 6.14) maintained by the Seller for its employees
("Employees");
(d) Claims for refunds of taxes and other governmental charges for time
periods ending on or before the Closing, which taxes and charges shall
remain the liability of Seller under this Agreement;
(e) Subject to the Purchaser's rights to purchase certain inventory and
such other conditions set forth in Section 3.1, all inventories,
including finished goods and finished components; and
(f) Computer hardware located at the Seller's facility in Ypsilanti,
Michigan, and operating and application software used in connection
therewith and any other tangible personal property located at such
Ypsilanti facility and used in connection with the Seller's operations
at such facility.
Section 2.3 Retained Liabilities. The Seller and the Purchaser hereby
acknowledge and agree that the Purchaser is not assuming and will not be liable
or obligated pursuant to this Agreement, any instrument or document executed in
connection with the Acquisition or otherwise, to pay, perform discharge or
otherwise be responsible for any debts, liabilities or obligations of the Seller
or any debts, liabilities or obligations arising out of, or related to, the
Assets or the Business, whether accrued, absolute, contingent or otherwise, oral
or written, disclosed or undisclosed, except the Assumed Liabilities, and all
such debts, liabilities and obligations other than the Assumed Liabilities (the
"Retained Liabilities") will remain the responsibility and obligation of the
Seller.
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<PAGE> 6
Without limiting the generality of the foregoing, it is expressly agreed that
the Purchaser will neither assume nor incur any liabilities or obligations based
on, arising out of or in connection with:
(a) any litigation, warranty claims, actions, proceedings, suits, damages,
losses, liabilities, obligations, judgments, costs (including, without
limitation, reasonable costs of investigation and attorneys' fees and
disbursements), expenses or other claims (collectively, "Damages")
based on violation of any Environmental Law (as defined herein) or any
Damages associated with or relating to the Assets or the Business
arising out of, connected with or otherwise attributable to, actions
or omissions or conditions that accrued, occurred or were incurred or
in existence, as the case may be, prior to the Closing;
(b) any and all federal, state, local and foreign income, profits,
franchise, gross receipts, payroll, sales, employment, use, property,
withholding, excise and other taxes, duties or assessments of any
nature whatsoever, together with all interest, penalties and additions
imposed with respect to such amounts (collectively, "Taxes"), which
accrued prior to Closing;
(c) any liabilities accruing on or prior to, or relating to periods
before, the Closing, with respect to any employee benefit plan, bonus
or profit-sharing plan, or any other Seller Plan or group health plan
(including, without limitation, health claims or benefits accrued but
unpaid prior to Closing), employment agreement, or employee policies
and procedures or any claims for wages or other compensation, vacation
pay, holiday pay or for severance arising out of alleged or actual
employment loss;
(d) any indebtedness of the Seller existing or created on or prior to the
Closing Date;
(e) any liabilities, obligations or expenses of the Seller for any
broker's or finder's commission or similar fees relating to this
Agreement or any of the transactions contemplated hereby;
(f) any liabilities or obligations of the Seller arising from, or incurred
in connection with, the negotiation, preparation or execution of this
Agreement or the transactions contemplated hereby, including fees and
expenses of counsel; or
(g) subject to the Purchaser's obligations under Section 8.6, any Damages
(i) incurred or otherwise accrued or attributable to time periods
ending on or before the Closing, (ii) arising out of, or connected to,
actions taken (or omissions committed) by the Seller prior to the
Closing or (iii) with respect to work performed (or to be performed)
or services rendered (or to be rendered) by the Seller, prior to, the
Closing, including, without limitation, liabilities or obligations
arising out of any
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<PAGE> 7
failure by the Seller to perform any contract, commitment or
arrangement, including any Customer Contract, in accordance with its
terms, prior to the Closing.
Article 3
Acquisition Consideration
Section 3.1 Acquisition Consideration. (a) In consideration of the
sale, conveyance, assignment and transfer of the Assets by the Seller to the
Purchaser and in reliance on the representations and warranties made herein by
the Seller and the Stockholders, the Purchaser agrees on the Closing Date (i) to
assume the Assumed Liabilities in accordance with Section 2.2, (ii) to pay, by
wire transfer or other immediately available funds, One Million Two Hundred
Thousand Dollars ($1,200,000); (iii) to pay, in immediately available funds, an
additional inventory payment (the "Inventory Prepayment") in the amount of Three
Hundred Thousand Dollars ($300,000) (which Inventory Prepayment shall be
governed by the terms and conditions set forth below in Section 3.1(b)) and
(iv) an amount allocated to the Seller out of the amounts pre-paid by the Seller
with respect to rent and other pre-paid expenses (including utility payments and
other deposits) under the Facility Lease for the month in which the Closing
shall occur (the "Closing Month"), and which allocation to the Seller shall be
made on the basis of the number of days left in the Closing Month as of the
Closing Date. The consideration set forth in clauses (i), (ii), (iii) and (iv)
above, collectively, shall be hereafter referred to as the "Acquisition
Consideration").
(b) The Inventory Prepayment shall be deemed to be a credit against
purchases by the Purchaser of the Seller's inventory on the Closing Date and/or
subsequently thereafter. As such, the Purchaser shall from time to time elect to
purchase inventory items at a purchase price of the then fair market value, and
such purchase price shall be deducted from the Inventory Prepayment. Upon the
Inventory Prepayment credit balance being reduced to zero, the Purchaser shall
have the right to purchase inventory from time to time at a purchase price equal
the then fair market value, which purchase price shall be paid in cash, within
thirty (30) days from the date of such purchase. For purposes of this Agreement,
"fair market value" shall be determined, with respect to purchases of inventory
made at Closing, by mutual agreement of the parties, and, with respect to
purchases made subsequent to the Closing, the lesser of the Seller's list price
of each item of inventory or the amount that the Purchaser could then purchase
such item of inventory on the open market. At Closing, the Seller shall deliver
to the Purchaser the list price of all inventory items, which list shall be set
forth as Schedule 3.1(b) attached hereto. All inventory of the Seller located at
the Facility shall remain at the Facility after the Closing Date. Thereafter,
any items of inventory may be sold by the Seller to a third party, provided
that, prior to the consummation of any such sale, the Seller shall send written
notice to the Purchaser of the Seller's desire to sell such inventory and the
purchase price offered by a third party, and thereupon, the Purchaser shall have
the right, exercisable within five (5) business days from receipt of the
Seller's notice, to purchase any and all of such items of inventory at the same
purchase price for such items as set forth in the Seller's notice.
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<PAGE> 8
Article 4
Instruments of Transfer
Section 4.1 Delivery of Documents. (i) At the Closing, the Seller and
the Purchaser will execute and exchange a general assignment, assumption and
bill of sale substantially in the form of Exhibit A attached hereto (the "Bill
of Sale").
Article 5
The Closing
Section 5.1 The Closing. On or before July 8, 1997, or such other date
mutually agreed upon by the parties (the "Closing Date"), the parties hereto
will take all actions necessary to (A) effect the Acquisition and (B) satisfy
the document delivery requirements on which the obligations of the parties to
effect the Acquisition and the other transactions contemplated hereby are
conditioned by the terms and conditions set forth in this Agreement (all those
actions collectively being the "Closing"). The Closing shall be effective as of
12:01 a.m. New York City time on the Closing Date.
Article 6
Representations and Warranties of the Seller and the Stockholders
The Seller and each of the Stockholders, jointly and severally, hereby
represent and warrant to the Purchaser as of the date hereof and as of the
Closing Date, as follows:
Section 6.1 Existence, Good Standing, Corporate Authority. The Seller
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Michigan. The Seller has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
the Business as it is now being conducted. The Seller is duly qualified or
licensed as a foreign corporation to transact business, and is in good standing,
in each jurisdiction where the character of the properties and assets owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except where the failure to be so
qualified, licensed or in good standing has not had, and will not have, singly
or in the aggregate, a material adverse effect on the business, financial
condition or results of operations of the Seller.
Section 6.2 Charter Documents; Corporate Records. The Seller has
delivered to the Purchaser true and correct copies of the Seller's certificate
of incorporation ("Certificate of
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<PAGE> 9
Incorporation") and by-laws, and such copies are attached hereto as Exhibit B.
All material actions and transactions taken or entered into by the Seller
requiring action by the Seller's board of directors or stockholders were duly
authorized or ratified as necessary.
Section 6.3 Authorization and Validity of Agreement. The Seller has
all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by the Seller and the consummation of
the transactions contemplated hereby have been duly authorized by the board of
directors of the Seller and by all other all requisite corporate action on the
part of the Seller, including the obtaining of the requisite vote or consent of
the Seller's stockholders. This Agreement has been duly executed and delivered
by the Seller and is a valid and binding obligation of the Seller, enforceable
against the Seller in accordance with its terms.
Section 6.4 No Approvals or Notices Required; No Conflict With
Instruments. The execution and delivery by the Seller of this Agreement do not,
and the performance by the Seller of its obligations hereunder and the
consummation of the transactions contemplated hereby will not:
(1) conflict with or violate the Certificate of Incorporation or
by-laws of the Seller;
(2) require any consent, approval, order or authorization of or
other action by any Governmental Entity (as defined herein) (a
"Government Consent") or any registration, qualification, declaration
or filing with or notice to any Governmental Entity (a "Governmental
Filing"), in each case on the part of or with respect to the Seller,
except for those Government Consents and Governmental Filings with
state and local governmental authorities required with respect to
Licenses held by the Seller and identified on Schedule 6.4; and
(3) require, on the part of the Seller, any consent by or
approval of (a "Contract Consent") or notice to (a "Contract Notice")
any other person or entity (other than a Governmental Entity), whether
under any License or other Contract (as defined in clause 4 of this
Section 6.4) or otherwise, except as and to the extent specified on
Schedule 6.4;
(4) assuming that all Government Consents, Government Filings,
Contract Consents and Contract Notices described in clauses (2) and
(3) of this Section 6.4 or set forth on Schedule 6.4 are obtained,
made and given, conflict with, result in any violation or breach of or
default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or acceleration of
any obligation or the loss of any material benefit under or the
creation of any Liens or other encumbrance on any Assets pursuant to
(any such conflict, violation, breach, default, right of termination,
cancellation or acceleration, loss or creation, a "Violation"), any
Contract (which term shall mean and include any note, bond, indenture,
mortgage, deed of trust, lease, franchise, permit, authorization,
license, Material Contract, instrument, employee benefit plan or
practice, or
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any other agreement, obligation, commitment or concession of any
nature) to which the Seller or any Affiliate (as defined in Section
11.12) of the Seller or any of their respective assets or properties
is bound or affected or pursuant to which the Seller or any Affiliate
of the Seller is entitled to any rights or benefits (including the
Licenses); and
(5) assuming the Government Consents and Governmental Filings
specified in clause (2) of this Section 6.4 or on Schedule 6.4 are
obtained, made and given, result in a Violation of, under or pursuant
to any law, rule, regulation, order, judgment or decree applicable to
the Seller or any Affiliate or by which any of their respective
properties or assets are bound or affected. As used herein, the term
"Governmental Entity" means and includes any court, administrative
agency, regulatory body, commission or other governmental authority,
department or instrumentality, Federal, state, local or foreign, or
other entity exercising executive, legislative or judicial functions.
Section 6.5 No Subsidiaries. Except as set forth on Schedule 6.5, the
Seller does not have any Subsidiaries (as defined in Section 11.12) and does not
own, directly or indirectly, any interest or investment (whether equity or debt)
in any corporation, partnership joint venture, trust or other legal entity.
Section 6.6 Financial Condition.
(a) The Seller has provided to the Purchaser the financial statements
relating to the Business (the "Seller's Financial Statements") and books and
records of account related to the Business, and the Seller's Financial
Statements are attached hereto as Schedule 6.6. Except as set forth on Schedule
6.6(a), the Seller's Financial Statements and the books of account of the Seller
are true and complete, have been maintained in accordance with good business
practices and accurately and fairly reflect all of the properties, assets,
liabilities and transactions of the Seller as such relate to the Business and
prepared on an income tax basis, using a comprehensive accounting system,
consistently applied. All fees, charges, costs and expenses associated with the
ownership, leasing, operation, maintenance and management of the Business that
are required by the foregoing principles to be charged and reflected in the
Seller's Financial Statements and on the Seller's books and records have been
properly charged and reflected, and such financial statements and books and
records do not, because of the provision of services or the bearing of costs and
expenses by any other person or entity or for any other reason, materially
understate the true costs and expenses of conducting the business of the Seller.
Section 6.7 No Undisclosed Liabilities. Except as set forth on
Schedule 6.7 and except for liabilities and obligations incurred in the ordinary
course of business since March 31, 1997, which are not, singly or in the
aggregate, material, the Seller does not have any liabilities or obligations
(absolute, accrued, contingent or otherwise) which, under generally accepted
accounting principles, should be fully reflected, reserved against or disclosed
in the Seller's Financial Statements that are not so reflected, reserved against
or disclosed.
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Section 6.8 Absence of Certain Changes or Events. (a) Since March 31,
1997, there has not been any change in the condition (financial or otherwise) of
the assets, liabilities, earnings or the Seller with respect to the Business and
the Assets, other than changes in the ordinary course of business, none of which
has been or will be (singly or in the aggregate) materially adverse.
(b) Without limiting the generality of the foregoing set forth in
Section 6.8(a), since March 31, 1997, and except as set forth on Schedule 6.8,
the Seller has not:
(i) with respect to the Business or the Assets, incurred or become
subject to or made any commitment with respect to any obligation or
liability (absolute or contingent) which commits the Seller to pay an
amount, in any single transaction or series of related transactions, in
excess of $10,000, except current liabilities incurred, and obligations
under Contracts entered into, by the Seller in the ordinary course of
business and on terms consistent with past practices;
(ii) mortgaged, pledged, subjected to or suffered to exist any Liens
upon any of its assets or properties used in connection with the Business
or located at the Facility, except Permitted Liens;
(iii) sold or transferred any portion of the Assets or inventory,
other than immaterial assets sold or transferred in the ordinary course of
business, or canceled or agreed to cancel any debts or claims;
(iv) suffered any material loss or damage to any of the Assets or
inventory, whether or not covered by insurance, or waived or released, or
agreed to waive or release, any rights of substantial value;
(v) entered into any transaction related to the Business other than in
the ordinary course of business and on terms consistent with past
practices;
(vi) terminated, rescinded, modified, amended or renewed, or waived or
released in writing any term, condition or provision of, any Material
Contract; or
(vii) entered into any contractual arrangement or understanding
(written or oral, express or implied) to do any of the foregoing.
Section 6.9 Tax Matters. Except as set forth on Schedule 6.9, (i)
there has been duly filed by or on behalf of the Seller (and its predecessors),
or filing extensions from the appropriate federal, state, local and foreign
Governmental Entities have been obtained with respect to, all federal, state,
local and foreign tax returns and reports required to be filed on or prior to
the date hereof and (ii) payment in full of all Taxes required to be paid in
respect of the periods covered by such Tax returns and reports has been made.
None of (x) the federal income Tax returns filed by or on behalf of the Seller
and its predecessors (the "Seller Federal Returns") under the Internal
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<PAGE> 12
Revenue Code of 1986, as amended (the "Code"), or (y) state income Tax returns
filed by or on behalf of the Seller and its predecessors (the "Seller State
Returns") are currently under examination by the Internal Revenue Service
("IRS") or with any state taxing authority, respectively. There have not been
any deficiencies or assessments asserted in writing by the IRS or any state
taxing authority with respect to the Seller Federal Returns or the Seller State
Returns, respectively. Except as set forth on Schedule 6.9, neither the Seller
nor any of its predecessors has, with regard to any assets or property held,
acquired or to be acquired by any of them, filed a consent pursuant to Section
341(f) of the Code or any predecessor statute.
Section 6.10 Compliance With Laws. The Seller is in substantial
compliance with all Laws (as defined herein) in respect to the conduct of the
Business and the ownership, possession, maintenance and operation of its assets
and its properties relating to the Business or located at the Facility, except
any such noncompliance which, singly or in the aggregate, would not have a
material adverse effect on the Business or the Assets. No claims or
investigations by any Governmental Entity alleging any violation by the Seller
of any such Laws have at any time been made or settled during the last two
years. For purposes of this Agreement, "Laws" shall mean the common law and any
statute, ordinance, code or other law, rule, regulation, order, technical or
other standard, requirement or procedure enacted, adopted, promulgated, applied
or followed by any Governmental Entity or court.
Section 6.11 Licenses. The Seller holds all licenses, franchises,
registrations, ordinances, authorizations, permits, certificates, variances,
qualifications, exemptions, orders, approvals and waivers of any Governmental
Entity (federal, state and local) (collectively, "Licenses") which are required
for the operations of the Business as currently conducted. All of the Licenses
are in full force and effect, and no action, complaint, litigation, claim,
prosecution, indictment, suit, arbitration, investigation or proceeding (an
"Action") by or before any Governmental Entity is pending or, to the knowledge
of the Seller, threatened, seeking the revocation or limitation of any of the
Licenses. Schedule 6.11 lists all Licenses that are material to the Business or
the Assets. Except as indicated on Schedule 6.11, no License will terminate as a
result of the Acquisition.
Section 6.12 Legal Proceedings. Except as set forth on Schedule 6.12,
the Seller has not been served with notice of any pending Action and, to the
knowledge of the Seller, there is no Action threatened against the Seller, nor
is there any judgment, decree, injunction, rule or order of any Governmental
Entity or any arbitrator outstanding against the Seller. To the knowledge of the
Seller, there is no Action pending against any Affiliate of the Seller, or
against any officer, director or shareholder of the Seller or any such Affiliate
which, if adversely resolved against such Affiliate, officer or director, could
be reasonably expected to have a material adverse effect on the Business, the
Assets or the Acquisition.
Section 6.13 Intellectual Property. The ownership, operation and
conduct by the Seller of the Business, as presently owned, operated, and
conducted, and to be continued by the Purchaser, does not, to the knowledge of
the Seller, infringe upon or conflict in any respect with any
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patent, copyright, trademark, trade name, service mark, brand name or other
intellectual property rights (collectively, "Intellectual Property") of any
other person and, to the knowledge of the Seller, no other person is infringing
upon any Intellectual Property of the Seller. Schedule 6.13 sets forth an
accurate and complete list of the Intellectual Property owned or used by the
Seller in the conduct of the Business.
Section 6.14 Leased Property. (a) Schedule 6.14 lists all real
property (including all land and buildings) which is leased by Seller as lessee
or sublessee with respect to the Business (the "Leased Real Estate"). The Seller
has delivered or caused to be delivered to the Purchaser complete and accurate
copies of the written leases and subleases which are listed in Schedule 6.14.
The Seller has not received written notice of condemnation or eminent domain
proceedings pending or threatened against any Leased Real Estate. The Seller has
not received any notice from any city, village or other Governmental Entity of
any zoning, ordinance, building, fire or health code or other legal violation in
respect of any Leased Real Estate, other than violations which have been
corrected. To the knowledge of the Seller, there are no material structural
defects relating to any Leased Real Estate.
(b) Except as set forth on Schedule 6.14: (i) each of the leases or
subleases relating to the Leased Real Estate (each, a "Lease" and collectively,
the "Leases") is in full force and effect and, to the knowledge of the Seller,
valid and binding on the lessor or sublessor and enforceable in accordance with
its terms, and (ii) all consents required under any Lease (including the
Facility Lease) in connection with the Acquisition have been obtained;
(c) no amount payable under any Lease (including the Facility Lease)
is past due;
(d) the Seller is in compliance in all material respects with all
commitments and obligations on its part to be performed or observed under each
Lease and is not aware of the failure by any other party to such Lease to comply
in all material respects with all of its commitments and obligations;
(e) the Seller has not received any written notice (A) of a default
(which has not been cured), offset or counterclaim under any Lease, or any other
communication calling upon the Seller to comply with any provision of any Lease
or asserting noncompliance, or asserting the Seller has waived or altered its
rights thereunder, and no event or condition has happened or presently exists
which constitutes a default or, after notice or lapse of time or both, would
constitute a default under any Lease on the part of Seller or any other party
thereto, or (B) of any Action against any party under any Lease which if
adversely determined would result in such Lease being terminated or modified in
a manner adverse to the Seller;
(f) Except as set forth on Schedule 6.14, the Seller has not assigned,
mortgaged, pledged or otherwise encumbered its interest, if any, under any
Lease; and
(g) the Seller has exercised within the time prescribed in each Lease
any option
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<PAGE> 14
provided therein to extend or renew the term thereof.
(h) The Leased Real Estate constitute, in the aggregate, all of the
real property used to conduct the Business in the manner in which such Business
was conducted during the fifteen-month period ended March 31, 1997 and since
such time. Except as set forth on Schedule 6.14, no consent is required of any
party to any of the Leases by virtue of the Acquisition, and the Acquisition
will not result in the termination of any Lease.
Section 6.15 Tangible Personal Property; Sufficiency of Assets. (a)
Except as disclosed on Schedule 6.15, the Seller has good and valid title to all
tangible personal property which it owns or uses in the operation of the
Business, except (x) for personal property leased (exclusive of capitalized
leases) by the Seller pursuant to a written agreement identified on Schedule
6.15 and (y) for such tangible personal property disposed of to third parties
since March 31, 1997 in the ordinary course of business and consistent with past
practices, in each case free and clear of all Liens, except (i) mechanics',
materialmen's, carriers', workmen's, warehousemen's, repairmen's, landlord's or
other like Liens securing obligations that are not delinquent; (ii) Liens for
Taxes and other governmental charges which are not due and payable or which may
be paid without penalty; (iii) purchase money liens securing the purchase price
of the related personal property listed as purchase money liens on Schedule
6.15; and (iv) other Liens, if any, set forth in Schedule 6.15. Except as set
forth in Schedule 6.15, none of the tangible personal property which is used in
the Business is leased by the Seller. The tangible personal property owned or
used in the operation of the Business are in good working order, reasonable wear
and tear excepted, and are suitable for the use for which they are intended in
all material respects.
(b) Except as set forth on Schedule 6.15, the tangible personal
property of the Seller which is currently owned or leased by it is, in the
aggregate, all of the tangible personal property used to conduct the Business in
the manner in which such Business was conducted during the 15 month period ended
March 31, 1997 and since such time, except for additions thereto and deletions
therefrom in the ordinary course of business and consistent with past practice
which could not reasonably be expected to have a material adverse effect on the
business, financial condition or results of operations of the Business.
Section 6.16 Material Contracts. (a) Except as disclosed on Schedule
6.16, the Seller is not a party or subject to any of the following with respect
to the Business (collectively, "Material Contracts"):
(i) any collective bargaining or other agreements with labor unions,
trade unions, employee representatives, work committees, guilds or
associations representing Employees;
(ii) any employment consulting, severance, termination or
indemnification agreement, contract or arrangement, written or oral, with
any current or former officer, consultant, director or employee which (x)
provides for payments in excess of $10,000 per annum or (y) requires
aggregate payments over the life of such agreement, contract or
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<PAGE> 15
arrangement in excess of $25,000 or which in any case is not terminable by
the Seller or its subsidiaries on 30 days' notice or less without penalty
or obligation to make payments related to or after such termination;
(iii) any joint venture contract or arrangement or any other agreement
which has involved or is expected to involve a sharing of revenues with
other persons or entities;
(iv) any lease for real or personal property in which the amount of
payments which the Seller is required to make, or is expected to receive,
on an annual basis exceeds $10,000;
(v) any material agreement, contract, policy, License, document,
instrument, arrangement or commitment which has not been terminated or
performed in its entirety and which may be, by its terms, terminated,
impaired or adversely affected by reason of the execution of this
Agreement, the closing of the Acquisition, or the consummation of the
other transactions contemplated hereby;
(vi) any agreement, contract, policy, License, document, instrument,
arrangement or commitment that materially limits the freedom of the Seller
to compete in any line of business or with any person or entity or in any
geographic area or which would so materially limit the freedom of the
Purchaser to conduct the Business after the Closing;
(vii) any agreement or contract relating to any outstanding commitment
for capital expenditures in excess of $10,000 individually or $25,000 in
the aggregate, or any partially or fully executory agreement or contract
relating to the acquisition or disposition of rights or assets having a
value of in excess of $10,000 individually or $25,000 in the aggregate;
(viii) any sale-leaseback, conditional sale, exclusive dealing,
brokerage, finder's fee or take-or-pay contract or agreement; or
(ix) any other agreement, contract, policy, License, document,
instrument arrangement or commitment which is material to the Seller; or
(x) any other agreement or contract that relates to the provision of
goods or services in excess of $1,000.
(b) As of the date hereof, each of the Material Contracts is in full
force and effect and is a valid and binding obligation of the Seller and, to the
knowledge of the Seller, the other parties thereto. Except as set forth on
Schedule 6.16, the Seller is not in default under any Material Contract in any
material respect, nor does any condition exist that with notice or lapse of time
or both would constitute a material default thereunder. To the knowledge of the
Seller, no other party to any Material Contract is in material default
thereunder. The Seller has no reason to believe that any of the Material
Contracts that are renewable will not be renewed on reasonable terms, nor does
the Seller know of any expressed desire or intent, on the part of any other
party to any of the Material
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<PAGE> 16
Contracts, to materially reduce or terminate the amount of its business with the
Seller in the future. Except as set forth on Schedule 6.16, no consent is
required of any party to any of the Material Contracts by virtue of the
Acquisition, and the Acquisition will not result in the termination of any
Material Contract.
Section 6.17 Employee Benefit Plans. (a) The names of and the IRS
identification numbers of (i) all "employee pension benefit plans," as defined
in Section 3(2) and subject to Title IV of the Employee Retirement Income
Security Act of 1984, as amended ("ERISA"), which have been maintained or
contributed to by the Seller during any of the last five years (the "Pension
Plans"), (ii) all other "employee pension benefit plans" as defined in Section
3(2) of ERISA which have been maintained or contributed to by the Seller during
any of the last five (5) years, and (iii) all other employee benefit plans
(including all "employee welfare benefit plans" as defined in Section 3(l) of
ERISA and all other "employee benefit plans" as defined in Section 3(3) of
ERISA) which have been maintained or contributed to by the Seller and (A) which
currently exist or (B) for which any continuing liabilities exist (all of which
plans described in clauses (i), (ii) and (iii) are referred to collectively as
the "Seller Plans"), are listed on Schedule 6.17. Except as otherwise indicated
on Schedule 6.17, none of the Pension Plans is a "multi-employer plan" as
defined in Section 4001(a)(3) of ERISA or single-employer plan subject to
Section 4063 of ERISA, and the Seller has not incurred and is not expected to
incur any withdrawal liability under ERISA with respect to any "multi-employer
plan" or any single-employer plan subject to Section 4063 of ERISA.
(b) Favorable determination letters from the IRS with respect to the
status of each Pension Plan which is intended to qualify under Section 401 of
the Code have been received. The Seller is not aware of any facts which would
adversely affect the qualified status of any Pension Plan that is intended to so
qualify.
(c) The Seller has not incurred in connection with the termination of
a Pension Plan, and has no knowledge of any event or condition which would be
reasonably likely to cause, any liability to the Pension Benefit Guaranty
Corporation (the "PBGC") or otherwise under ERISA. Except as set forth in
Schedule 6.17, were any Pension Plan to terminate on the date hereof the Seller
would not incur any material liability to the PBGC or otherwise under ERISA, nor
be required to contribute any material additional amounts to any Pension Plan in
order to terminate such Pension Plan.
(d) The Seller has not been served with any Action against the assets
of any of the trusts under the Seller Plans or against the Seller or any
fiduciary.
(e) The Seller Plans have been maintained and administered in all
material respects in accordance with their terms and with all provisions of
ERISA and the Code or any predecessor statute (including rules and regulations
under ERISA, the Code and any predecessor statute) applicable thereto and
neither the Seller nor any "party in interest" or "disqualified person" (within
the meaning of Section 4975 of the Code or Title I, Part 4 of ERISA within the
control of the Seller with respect to the Seller Plans has engaged in a
"prohibited transaction" within the
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meaning of Section 4975 of the Code or Title I, Part 4 of ERISA. Without
limiting the generality of the foregoing, none of the Pension Plans has incurred
a material "accumulated funding deficiency" within the meaning of Section 302 of
ERISA or Section 412 of the Code whether or not waived; no Pension Plan has been
the subject of a "reportable event" as defined in Section 4043 of ERISA, as to
which notices would be required to be filed with the PBGC, and all required
contributions under each Pension Plan for all periods through and including the
date hereof have been made.
(f) At the time of the Closing and immediately thereafter, each of the
Seller Plans will be fully funded with assets available for allocation to the
appropriate participants and former participants.
Section 6.18 Labor Matters. With respect to the Business, except as
set forth on Schedule 6.18, the Seller is not a party to, or bound by, any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, and there are no unfair labor
practices or labor arbitration proceedings pending or, to the knowledge of the
Seller, threatened against the Seller relating to its business. Other than as
disclosed on Schedule 6.18: (i) there are no organization efforts with respect
to the formation of a collective bargaining unit presently being made or
threatened involving Employees of the Seller; (ii) there is no labor strike,
dispute, slowdown or work stoppage pending or, to the knowledge of the Seller,
threatened against the Seller nor has the Seller experienced any of the same
within the past five years; and (iii) all Employees of the Seller are employed
at will. A list of the Seller's Employees, together with each employee's job
title and salary, as of June 22, 1997, is set forth on Schedule 6.18.
Section 6.19 Environmental Compliance. (a) For purposes of this
Section 6.19, (A) "Hazardous Substance" means any pollutant, contaminant,
hazardous or toxic substance or waste, solid waste, petroleum or any fraction
thereof, or any other chemical, substance or material listed or identified or
regulated by or under any Environmental Law; (B) "Environmental Law" means the
Comprehensive Environmental Response, Compensation and Liability Act., 42 U.S.C.
Section 9601 et seq., the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the Clean Water
Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act, 42 U.S.C. Section 7401
et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., the
Safe Drinking Water Act, 42 U.S.C. Section 300 et seq., the Emergency Planning
and Community Right to Know Act, 42 U.S.C. Section 11001 et seq., the
Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq., the Oil
Pollution Act, 33 U.S.C. Section 2701 et seq., in each case as amended from time
to time and all regulations promulgated thereunder, and any other state or
federal statute, law regulation, ordinance, bylaw, rule, judgment, order, decree
or directive of any Governmental Entity dealing with the pollution or protection
of natural resources or the indoor or ambient environment or with the protection
of human health or safety; and (C) "RCRA Hazardous Waste" means a solid waste
that is listed or classified as hazardous waste, as that term is defined in or
pursuant to the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
Section 6901 et seq.
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<PAGE> 18
(b) Except as set forth on Schedule 6.19, there are no claims pending
against the Seller, with respect to the Business, the Assets or the Facility,
relating to a Hazardous Substance or arising under an Environmental Law, nor has
the Seller received any form of notice that the Seller or any property owned by
the Seller in connection with the Business ("Owned Property") or Leased Real
Estate or any real property previously owned or operated by the Seller is, has
been or may be in noncompliance with or subject to liability under any
Environmental Law.
(c) Except as set forth on Schedule 6.19, no Hazardous Substances are
now present in amounts, concentrations or conditions requiring investigation,
removal, remediation or any other response action or corrective action under, or
forming the basis of a claim pursuant to, any Environmental Law, in, on, from or
under any Owned Property or Leased Real Estate or any real property previously
owned or operated by the Seller in connection with the Business or the Assets or
located at the Facility.
(d) Except as set forth on Schedule 6.19, none of the Owned Property
or Leased Real Estate is being, and, to the knowledge of the Seller, has not
been during the period of time such property has been owned or leased by the
Seller, used in connection with the business of manufacturing, storing or
transporting Hazardous Substances, and no RCRA Hazardous Wastes are being or, to
the knowledge of the Seller, have been during the period of time owned or
operated by the Seller treated, stored or disposed of there in violation of any
Environmental Law.
(e) Except as set forth on Schedule 6.19, there neither are nor, to
the knowledge of the Seller, have been during the period of time they have been
owned or operated by the Seller any asbestos -containing materials,
polychlorinated biphomyl ("PCB") - containing materials or equipment,
underground storage tanks, lagoons or other containment facilities of any kind
which contain or contained any Hazardous Substances on any of the Owned Property
or Leased Real Estate.
(f) Except as set forth on Schedule 6.19, there are no locations,
facilities or properties at which Hazardous Substances originating at the
Seller, the Owned Property or the Leased Real Estate were treated, stored,
recycled or disposed so as to give rise to liability on the part of the Seller
under an Environmental Law.
(g) The Seller has made available to the Purchaser true and correct
copies of, all environmental audits or assessments, analyses of soil,
groundwater, indoor and outdoor air, sediment, surface water and
asbestos-containing materials conducted on or after January 1, 1992 relating in
whole or in part to the Seller, any Owned Property or any Leased Real Estate
undertaken by or on behalf of the Seller, and any written communications
received by the Seller since January 1, 1992 relating in whole or in part to the
existence of Hazardous Substances at any Owned Property or Leased Real Estate or
any real property previously owned or operated by the Seller or the compliance
of the Seller with respect to any Environmental Law.
Section 6.20 Insurance. Schedule 6.20 sets forth all policies or
binders of fire, liability, workmen's compensation, vehicular or other insurance
held by or on behalf of the Seller
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with respect to the Business (specifying the insurer, the policy number or
covering note number with respect to binders, and describing each pending claim
thereunder of more than $5,000, setting forth the aggregate amounts paid out
under each such policy through the date of this Agreement and the aggregate
limit of any of the insurer's liability thereunder). Such policies and binders
are in full force and effect and insure against risks and liabilities customary
for companies of similar size, financial condition and engaged in the business
in which the Seller is engaged. The Seller is not in default with respect to
payment of any premium or any provision contained in any such policy or binder
and has not failed to give any notice or present any claim under any such policy
or binder in due and timely fashion. Except for claims set forth on Schedule
6.20, there are no outstanding unpaid claims under any such policy or binder,
and the Seller has not been advised of any defense to coverage in connection
with any claim to coverage asserted or noticed by the Seller under or in
connection with any of its extant insurance policies. The Seller has not
received any written notice from or on behalf of any insurance carrier issuing
policies or binders relating to or covering the Seller that there will be a
cancellation or non-renewal of existing policies or binders, or that alteration
of any equipment or assets or any improvements to real estate occupied by or
leased to or by the Seller, purchase of additional equipment or assets, or
material modification of any of the methods of doing business, will be required.
The Seller has no knowledge of any inaccuracy in any application for such
policies or binders, any failure to pay premiums when due or any similar state
of facts which might form the basis for termination of any such insurance.
Section 6.21 Brokers or Finders. No agent, broker, investment banker,
financial advisor or other person or entity is or will be entitled, by reason of
any agreement, act or statement by the Seller, to any financial advisory,
broker's, finder's or similar fee or commission in connection with any of the
transactions contemplated by this Agreement.
Section 6.22 Full Disclosure. No statement herein or in the Schedules
hereto or in any certificate delivered pursuant to the requirements of this
Agreement by or on behalf of the Seller contains or will contain any untrue
statement of a material fact concerning the Seller or any of its Affiliates, or
omits or will omit to state a material fact necessary in order to make the
statements made herein or therein concerning the Seller or any of its
Affiliates, in light of the circumstances under which they were made, not
misleading.
Article 7
Representations and Warranties of the Purchaser
The Purchaser represents and warrants to the Seller as of the date hereof and as
of the Closing, as follows:
Section 7.1 Due Organization; Good Standing and Power. The Purchaser
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Purchaser has all corporate power and
authority to execute this Agreement and the agreements and instruments
contemplated by the Acquisition and to perform its obligations
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hereunder and thereunder. The Purchaser is duly authorized, qualified or
licensed to do business as a foreign corporation, and is in good standing, in
all other jurisdictions in which its right, title or interest in or to any
asset, or the conduct of its business, requires such authorization,
qualification or licensing, except where the failure to so qualify or to be in
good standing would not have a material adverse effect on the ability of the
Purchaser to perform its obligations hereunder.
Section 7.2 Authorization and Validity of Agreement. The execution,
delivery and performance of this Agreement and the other agreements and
instruments contemplated by this Agreement to be executed in connection with the
Acquisition by the Purchaser and the consummation by the Purchaser of the
transactions contemplated hereby and thereby have been duly authorized by its
board of directors. No other corporate action is necessary for the
authorization, execution, delivery and performance by the Purchaser of this
Agreement and such other agreements and instruments and the consummation by the
Purchaser of the transactions contemplated hereby or thereby. This Agreement has
been duly executed and delivered by the Purchaser and constitutes the legal,
valid and binding obligation of the Purchaser, enforceable in accordance with
its terms.
Section 7.3 No Approvals or Notices Required: No Conflict with
Instruments to which the Purchaser is a Party. The execution, delivery and
performance of this Agreement and the other agreements and instruments in
connection with the Acquisition by the Purchaser and the consummation by it of
the transactions contemplated thereby (i) will not violate (with or without the
giving of notice or the lapse of time or both), or require any consent,
approval, filing or notice under, any provision of any law, rule or regulation,
court order, judgment or decree applicable to the Purchaser, except for such
violations the occurrence of which, and such consents, approvals, filings or
notices the failure of which to obtain or make, would not in the aggregate
reasonably be expected to have a material adverse effect on the Purchaser's
ability to perform its obligations hereunder or thereunder, and (ii) will not
conflict with, or result in the breach or termination of any provision of, or
constitute a default under, or result in the acceleration of the performance of
the obligations of the Purchaser under, the charter or bylaws of the Purchaser,
or any indenture, mortgage, deed of trust, lease, licensing agreement, contract,
instrument or other agreement to which the Purchaser is a party or by which the
Purchaser or any of its assets or properties is bound, except for such
conflicts, breaches, terminations, defaults, accelerations or liens which would
not in the aggregate reasonably be expected to have a material adverse effect on
the Purchaser's ability to perform its obligations hereunder or thereunder.
Article 8
Covenants
Section 8.1 Access to Information. The Seller agrees that, during the
period commencing on the date hereof and ending at the Closing, (i) it will give
or cause to be given to the Purchaser and its representatives reasonable access
during normal business hours to the offices,
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plants, properties, books and records of the Seller relating to the
Assets or the Business, (ii) it will furnish or cause to be furnished to
the Purchaser such financial and operating data and any other
information with respect to the business and properties of the Business
and (iii) the Purchaser and its representatives shall be entitled to
reasonable access during normal business hours to the representatives,
officers, Employees and contractors of the Seller involved in the
Business, in the case of each of (i), (ii) and (iii), as the Purchaser
may reasonably request; provided that the Purchaser shall not take any
action to supervise the Seller's Employees or otherwise operate the
Business. The Seller shall have the right to have its representatives
present at any discussions between the Purchaser and any of the persons
specified in this Section, and the Purchaser agrees to schedule such
discussions through the Seller.
Section 8.2 Conduct of the Business Pending the Closing Date.
The Seller agrees that, except as required or contemplated by this
Agreement or otherwise consented to or approved in writing by the
Purchaser, during the period commencing on the date hereof and ending on
the Closing Date, it will:
(a) operate and maintain the Business in all material respects
only in the usual, regular and ordinary manner consistent with past
practice and, to the extent consistent with such operation and
maintenance, use its best efforts to preserve the present business
organization of the Business intact, keep available the services of the
present Employees (subject to the Purchaser's rights to direct the
Seller to terminate any Employee pursuant to Section 8.10) and preserve
its present relationships with all persons having business dealings with
the Business;
(b) maintain its books, accounts and records relating to the
Business in the usual, regular and ordinary manner, on a basis
consistent with past practice, comply in all material respects with all
Laws and contractual obligations applicable to the Business or to the
conduct of the Business and perform all of its material obligations
relating to the Business;
(c) not (i) modify or change in any material respect any of
the Assets or dispose of any material Asset except for (A) the sale of
inventory in the ordinary course of business, consistent with past
practice, and (B) any Assets that in the ordinary course of business are
replaced with substantially similar Assets, (ii) enter into any
Contract, commitment or other agreement that would be material to the
operation of the Business or use of the Assets or, except as expressly
contemplated by this Agreement or expressly contemplated by or required
pursuant to their respective terms, modify or change in any material
respect any obligation under any such Contract, commitment or agreement,
(iii) modify or change in any material respect any obligation under any
License, (iv) modify or change in any material respect the manner in
which it markets and sells the products produced or services by the
Business, or (v) agree, whether in writing or otherwise, to do any of
the foregoing;
(d) not (i) permit or allow any of the Assets to become
subject to any Liens, (ii) waive any material claims or rights relating
to the Business, (iii) grant any increase in the compensation or
benefits of any of the Seller's Employees (including any such increase
pursuant
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to any bonus, pension, profit-sharing or other plan or commitment),
except (A) for reasonable increases in the ordinary course of business
that are consistent with past practice or (B) for reasonable payments in
normal sales compensation plans, including bonuses, consistent with past
practice or (iv) agree, whether in writing or otherwise, to do any of
the foregoing; and
(e) not take any action that would result in the
representations with respect to the Seller as contained in this
Agreement not being true as of the Closing Date if the representations
were given for the period from the date hereof through the Closing Date;
Section 8.3 Cooperation by the Purchaser. The Purchaser hereby
covenants and agrees to respond to any and all of the Seller's requests
for consents required pursuant to this Article as promptly as reasonably
practicable, provided that the Purchaser shall have been provided with
all information it may reasonably request or that is otherwise
reasonably necessary to evaluate such request for consent.
Section 8.4 Risk of Loss. On or prior to the Closing, risk of
loss, damage or destruction to the Assets and risk of taking of the
Facility or any of the Assets or any portion of the Business by eminent
domain shall be borne by the Seller. In the event of any such loss,
damage or destruction not repaired or replaced by the Seller, the
Purchaser on or prior to the Closing shall have the option of (a)
causing the Seller to assign and transfer to the Purchaser all such
proceeds receivable under any insurance policy for any such loss, damage
or destruction or the receivable from any such taking by eminent domain,
as the case may be, (b) reducing the Purchase Price by the amount of the
reasonable good faith estimate of the cost of repair or replacement or
the reasonable good faith estimate of the amount of proceeds from such
taking by eminent domain, as the case may be, or (c) terminating this
Agreement, without liability to either party. The parties further
acknowledge and agree that the risk of loss, damage or destruction of
the inventory items to remain at the Facility as Retained Assets, and
risk of taking by eminent domain with respect to such items, shall be
borne by the Seller until such time as the inventory items are purchased
by the Purchaser.
Section 8.5 Further Actions.
(a) Subject to the terms and conditions hereof, the Seller and
the Purchaser agree to use their commercially reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done,
all things necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement, and to
confirm that such transactions have been accomplished, including,
without limitation, using all commercially reasonable efforts (without
commencement of litigation): (i) to obtain prior to the Closing all
Licenses and consents to the transfer of any Licenses that are
transferable by the Seller; (ii) to effect all necessary registrations
and filings; and (iii) to furnish to each other such information and
assistance as reasonably may be requested in connection with the
foregoing.
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(b) All Government Consents and Contract Consents in respect
of the Seller as are required in connection with the consummation of the
transactions contemplated hereby shall have been obtained by the Seller
and shall be in full force and effect, all Governmental Filings and
Contract Notices in respect of the Seller or the Business as are
required in connection with the consummation of such transactions shall
have been made by the Seller, and all Licenses of the Seller that are
required to be transferred in connection with the consummation of such
transactions shall have been transferred by the Seller.
Section 8.6 Work-In-Progress. (a) WIP relating to the Business
as of the Closing Date shall be undertaken by the Purchaser and shall be
performed until completion after the Closing Date. Upon such completion,
the Seller acknowledges that the Purchaser shall have the sole
responsibility to bill any finished products and services to the
applicable customer. The effective time (the "WIP Effective Time") of
transfer of all WIP shall be 12:01 a.m. on the Closing Date in order to
calculate the allocation of revenues received from customers with respect
to completed WIP. WIP to be performed on a time and materials basis shall
be billed out and revenues received allocated on a pro rata basis based
upon the WIP Effective Time. Revenue collected from WIP performed on a
flat rate basis, shall be allocated on the basis of the formula set forth
in the following sentence. The Seller's proportional share of revenues
received by the Purchaser with respect to WIP items performed at a flat
rate shall be equal to the fraction that is obtained by dividing (i) the
Seller's actual labor and material expense (each calculated at normal
customer billing rates) by (ii) the sum of (A) the Seller's actual labor
and material expense (each calculated at normal customer billing rates)
plus (B) the Purchaser's actual labor and material expense (each
calculated at normal customer billing rates). Upon the Purchaser's
receipt of payment in respect of such completed WIP, the Purchaser shall,
within ten (10) business days, deliver to the Seller its allocable share
of such payment, in accordance with the foregoing formulas.
Notwithstanding the foregoing, nothing contained in this Section 8.7
shall be deemed to impose any liability on the Purchaser in the event
that any completed WIP becomes or remains uncollectible, in whole or in
part, and accordingly, the Purchaser only shall be obligated to use its
commercially reasonable efforts (which shall not include the commencement
of litigation) to collect from customers payment with respect to
completed WIP and to remit to the Seller the payments due to the Seller
in accordance with the terms of this Section.
(b) The Seller hereby acknowledges and agrees that the Seller
shall remain liable for any warranty claims or other claims for breach
of contract, negligence, personal injury, property or any other claims,
suits, actions, litigation, judgments, costs (including, without
limitation, reasonable attorneys' fees and disbursements), losses and
other damages and liabilities, relating to, arising out of or in
connection with, WIP (collectively, the "WIP Claims") to the extent that
any of such WIP Claims were incurred or accrued prior to the Closing or
otherwise arose out of, or are attributable to work performed or
conditions existing prior to Closing. All such WIP Claims asserted
against the Purchaser shall be handled in accordance with procedures
for indemnification under Section 10.1.
Section 8.7 Non-Competition; Non-Solicitation. Neither the
Seller nor any of the Stockholders shall enter into direct or indirect
competition (whether as an owner, partner, member,
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officer, director, employee, consultant or in any other capacity) with
the Business or relating to, or connected with, the Assets, or the
business activities to be conducted by the Purchaser at the Facility on
and after the Closing Date (provided, however, the Seller shall be
permitted to perform maintenance on airplanes and parts owned by the
Seller, so long as the Seller does not engage in any third party
maintenance activities); and (ii) neither the Seller nor any of the
Stockholders shall solicit any of the Employees retained by the
Purchaser, any person or entity that is a customer of the Seller with
respect to the Business as of the date hereof or on the Closing Date, or
any person or entity that is as of the Closing Date, or becomes after
the Closing Date, a customer of the Purchaser with respect to the
Business. The restrictions in clause (i) of the preceding sentence, as
to James M. Zantop only, shall terminate one (1) year from the date of
this Agreement. The Seller acknowledges and agrees that the scope of the
Business is nationwide, and accordingly, the scope of the foregoing
non-competition provision shall extend throughout the United States. The
parties hereby expressly agree that the scope of the non-competition
restriction is necessary and reasonable to assure that the Purchaser is
permitted to enjoy the benefits of this Agreement as contemplated by the
parties hereunder. The parties further agree that the Seller's present
third-party airplane maintenance business at Willow Run Airport for
Spirit Airlines, Inc. and USAJet, Inc. is not competitive with the
Business.
Section 8.8 License to Use Seller's Name. In consideration for
the Purchaser's entering into this Agreement, the Seller hereby grants
and licenses to the Purchaser the non-exclusive right and license, on
royalty-free basis, to use the name "Zantop," individually or in
connection with other words or phrases, with respect to assumed or
"doing-business-as" names used in connection with the Business. The
foregoing license shall terminate on the one year anniversary of the
Closing Date; provided, however, that if at such termination date there
exists any unsatisfied indemnification claims, then the Purchaser shall,
in addition, to any and all other rights and remedies that the Purchaser
may have in law or in equity, be permitted to continue to possess and
use the license until all such indemnification claims are satisfied by
the Seller or the Stockholders, as the case may be.
Section 8.9 Maintenance of Existing Accounting System. The
Seller and the Purchaser hereby agree that from the date hereof and
extending through a maximum of 120 days from the Closing Date, the
Seller shall continue to maintain the existing accounting system with
respect to the Business, and in connection therewith, the Seller shall
also provide the Purchaser with access to the Seller's central computer
system to the extent of such accounting system. In consideration for the
foregoing services, the Purchaser shall pay to the Seller $4,500 per
month (the "Monthly Accounting Fee") for any month that the Purchaser
desires to have the Seller provide such services, plus the cost of any
required programming changes (provided that any such proposed changes
and the estimated cost thereof have been pre-approved in writing by the
Purchaser) at the Seller's standard billing rate of $50 per hour;
provided, that the Purchaser shall not acquire any interest in the
Seller's operating software by reason of such payments; and provided,
further that the Purchaser may terminate the Seller's services at any
time within the 120 day period, so long as the Purchaser pays to the
Seller a pro rata portion of the Monthly Accounting Fee, based on the
number of days left in the month in which services are being provided at
the time of termination.
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Section 8.10 Retention of Employees. The Seller and the Purchaser hereby
expressly agree that the Purchaser shall have no obligation whatsoever to retain
or hire the existing Employees of the Seller as of the Closing Date.
Furthermore, the Seller agrees that the Seller shall, at the instruction of the
Purchaser, terminate any Employee's employment prior to or on the Closing Date,
and, in connection therewith, the Purchaser shall assume no liability arising
from such terminations, and Seller shall indemnify and hold the Purchaser
harmless in accordance with Section 10.1 for any claim or liability arising out
of the terminations.
ARTICLE 9
Conditions Precedent.
Section 9.1 Conditions Precedent to Obligations of Both Parties. The
respective obligations of the Purchaser and the Seller to consummate the
transactions contemplated by this Agreement shall be subject to the satisfaction
on or prior to the Closing Date of the following conditions:
(a) No Injunction, etc. No preliminary or permanent injunction or
other order issued by any federal, provincial or state court of competent
jurisdiction in the United States or by any United States federal, provincial
or state governmental or regulatory body nor any statute, rule, regulation or
executive order promulgated or enacted by any United States federal, provincial
or state governmental authority which restrains, enjoins or otherwise prohibits
the transactions contemplated hereby shall be in effect; provided, that before
any determination is made to the effect that this condition has not been
satisfied, the Seller and the Purchaser shall each use commercially reasonable
efforts and take such other actions as may be reasonably necessary, at its own
expense, to have such order or injunction lifted or dismissed.
(b) Governmental Consents. All consents required in connection with
the assignment of the Governmental Licenses listed on Schedule 6.11 shall
have been obtained.
Section 9.2 Conditions Precedent to Obligations of the Purchaser. The
obligations of the Purchaser under this Agreement are subject to the
satisfaction (or waiver by the Purchaser) on or prior to the Closing Date of
each of the following conditions:
(a) Accuracy of Representations and Warranties. All representations
and warranties, disregarding all qualifications and exceptions contained
therein relating to materiality or any material adverse effects, of the Seller
and the Stockholders contained herein shall be true and correct in all respects
on and as of the Closing Date, with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date,
with only such exceptions as would not in the aggregate reasonably be expected
to have a material adverse effect on the business, financial condition or
results of operations of the Business; provide, however, that to the extent
that any such representation or warranty refers to financial or other
information that
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is made as of a specified date, such financial or other information
shall have been true and correct as of such date.
(b) Performance of Agreements. The Seller shall in all
material respects have performed all obligations and agreements and
complied with all covenants contained in this Agreement to be performed
or complied with by it on or prior to the Closing Date.
(c) Significant Events and Incidental Losses. After the date
of this Agreement, no event, occurrence or other matter has occurred
that would reasonably be expected to have a material adverse effect on
the business, financial condition or results of operations of the Seller
or the Business.
(d) Third Party Consents. All agreements and consents of any
third party required in connection with the assignment of any of the
Material Contracts listed on Schedule 6.16 shall have been obtained.
(e) Officer's Certificate. The Purchaser shall have received a
certificate, dated the Closing Date, of the President or a Vice
President of the Seller, to the effect that, to the knowledge,
information and belief of such officer, the conditions specified in the
above paragraphs have been fulfilled.
Section 9.4 Conditions Precedent to the Obligations of the
Seller. The obligations of the Seller under this Agreement are subject
to the satisfaction (or waiver by the Seller) on or prior to the Closing
Date of each of the following conditions:
(a) Accuracy of Representations and Warranties. All
representations and warranties of the Purchaser or any officer of the
Purchaser contained herein or in any certificate or document delivered
to the Seller pursuant hereto shall be true and correct in all respects
on and as of the Closing Date, with the same force and effect as though
such representations and warranties had been made on and as of the
Closing Date, except to the extent that any such representation or
warranty refers to financial or other information that is made as of a
specified date, in which case such financial or other information shall
have been true and correct as of such date.
(b) Performance of Agreements. The Purchaser shall in all
material respects have performed all obligations and agreements and
complied with all covenants contained in this Agreement to be performed
or complied with by it on or prior to the Closing Date.
(c) Officer's Certificate. The Seller shall have received a
certificate, dated the Closing Date, of the President or a Vice
President of the Purchaser to the effect that, to the knowledge,
information and belief of such officer, the conditions specified in the
paragraphs above have been fulfilled.
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Article 10
Indemnification
Section 10.1 Indemnification.
(a) The Seller and each of the Stockholders, jointly and severally,
hereby agrees to indemnify the Purchaser and to defend and hold the Purchaser
harmless from and against any and Damages arising out of or otherwise in
respect of the following: (i) the Retained Liabilities; (ii) the Retained
Assets; (iii) the termination by the Seller of any Employee from the Seller's
employment prior to or on the Closing Date (including, without limitation, such
Employees that are terminated by the Seller at the direction of the Purchaser
pursuant to Section 8.10); (iv) any failure by the Seller to comply with its
obligations hereunder or otherwise with respect to any Employee (including,
without limitation, any claims for salary, benefits, bonuses, health insurance
claims or employment-related litigation) accruing or arising on or prior to the
Closing Date or otherwise with respect to time periods ending on or before the
Closing Date; (v) any suit or claim of violation brought against the Purchaser
under the federal WARN Act for any actions taken (or failed to be taken,
including, the Seller's failure to send out all required notices to the
Seller's Employees within the relevant notice periods) by the Seller before or
after the Closing with regard to Employees at the Facility or any site of
employment or operating unit affected by this Agreement; (vi) any and all
Employee claims, charges, grievances or complaints (regardless of whether made
before or after the Closing), including, without limitation, claims for
severance pay, claims arising under any "employee benefit plan" as defined in
Section 3(3) of ERISA, EEO charges and worker's compensation claims, incurred
with respect to any time periods ending on or before the Closing Date; (vii)
any WIP Claims to the extent that any such WIP Claims accrued, were incurred or
were in existence prior to the Closing or otherwise arose out of, or are
attributable to work performed or any condition existing, prior to the Closing;
and (viii) the breach of any representation, warranty or covenant on the part
of the Seller contained in this Agreement. The indemnification obligations
shall survive Closing and shall survive the termination of this Agreement for
any reason; provided, that the indemnification obligations set forth in this
paragraph shall be limited in dollar amount to the value of the Acquisition
Consideration, valued on the Closing Date. The Seller and the Stockholders
hereby acknowledge and agree that they shall be obligated to indemnify the
Purchaser in accordance with this paragraph, notwithstanding any claims by the
Seller or any of the Stockholders that the Purchaser was comparatively or
contributorily negligent with respect to any claim giving rise to the right of
indemnification.
(b) The Purchaser hereby agrees to indemnify the Seller and to defend
and hold the Seller harmless from and against any and all Damages arising out
of or otherwise in respect of the following: (i) the Assumed Liabilities; and
(ii) any and all employee claims, charges, grievances or complaints based on
actions of the Purchaser after the Closing Date; (iii) the breach of any
representation, warranty or covenant on the part of the Purchaser contained in
this Agreement.
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(c) The indemnification obligations of the Seller and the Purchaser
shall survive Closing and shall terminate on the date that is the later of (i)
ninety (90) days after the expiration of any applicable statute of limitations
period with respect to any claim, action or proceeding that has formed or may
form the basis of any claim for indemnification, or (ii) ten (10) years.
Article 11
Miscellaneous
Section 11.1 Notices. All notices or other communications hereunder
shall be in writing and shall be deemed to have been duly given or made if (i)
delivered in person, on the date actually delivered, (ii) by United States
mail, certified or registered, with return receipt requested, on the date which
is two business days after the date of mailing, or (iii) if sent by facsimile
transmission, with a copy mailed on the same day in the manner provided in (ii)
above, on the date transmitted provided receipt is confirmed by telephone:
If to the Seller:
840 Willow Run Airport
Ypsilanti, Michigan 48198-0840
Attention: Mr. James M Zantop, President
Telecopy No.: 313-485-4813
with copies to:
Howard & Howard
1400 N. Woodward, Suite 101
Bloomfield, Michigan 48304
Attention: John E. Young, Esq.
Telecopy No.: 248-645-1568
If to the Purchaser:
P.O. Box 29709
2659 Nova Drive
Dallas, Texas 75229
Attention: John H. Wilson, President
Telecopy No.: 972-247-2024
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with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
Attention: John M. Huggins, Esq.
Telecopy No.: 212-705-5125
or at such other address as may be furnished in writing by a party to
each other party from time to time in accordance with the notice
provisions set forth above.
Section 11.2 Survivability of Representations and Warranties.
All representations and warranties made by any of the parties hereto
shall survive the Closing and remain in full force and effect.
Section 11.3 Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any
rule of law or public policy, all other terms and provisions of this
Agreement shall nonetheless remain in full force and effect so long as
the economic or legal substance of the transactions contemplated hereby
is not affected in any manner materially adverse to any party. Upon any
such determination that a term or other provision is invalid, illegal or
incapable of being enforced, the parties shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the
parties as closely as possible to the fullest extent permitted by
applicable law in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
Section 11.4 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York,
regardless of the laws that might otherwise govern under applicable
principles of conflicts of law.
Section 11.5 No Adverse Construction. The rule that a contract
is to be construed against the party drafting the contract is hereby
waived, and shall have no applicability in construing this Agreement or
any provision hereof.
Section 11.6 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument.
Section 11.7 Fees and Expenses. All costs and expenses,
including without limitation fees and disbursements of counsel, incurred
by the parties hereto shall be borne solely and entirely by the party
which has incurred such costs and expenses.
Section 11.8 Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their
respective successors and assigns, but neither this
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Agreement nor any of the rights, interests or other obligations
hereunder shall be assigned by any party hereto without the prior
written consent of the other party.
Section 11.9 Amendment. This Agreement may not be amended
without the written consent of the Purchaser and the Seller.
Section 11.10 Waiver. Any party hereto may (i) extend the time
for the performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations and
warranties of the other parties contained herein or in any document
delivered pursuant hereto, and (iii) waive compliance by the other
parties with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid only if set forth in an
instrument in writing signed by the party or parties to be bound
thereby.
Section 11.11 Entire Agreement. This Agreement (including the
Exhibits and Schedules attached hereto and other documents referred to
herein and which form a part hereof) constitutes the entire agreement
among the parties hereto and supersedes all prior agreements and
understandings, oral and written, among the parties with respect to the
subject matter hereof.
Section 11.12 Definition of Subsidiary and Affiliate. As used in
this Agreement, (i) a "Subsidiary" of any person means any corporation,
partnership, joint venture or other legal entity of which such person
(either alone or together with one or more other Subsidiaries) (x) is a
general partner or (y) owns, directly or indirectly, 50% or more of the
stock or other equity interests, the holders of which are generally
entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity, and (ii) an
"Affiliate" of any person means any individual, corporation or other
organization, whether incorporated or unincorporated, which directly or
indirectly controls, or is controlled by, or is under common control
with, such first mentioned person. The term "control" (including the
terms "controlled," "controlled by" and "under common control with"
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a person,
corporation or other entity, whether through the ownership of voting
securities, by contract or otherwise.
[SIGNATURE PAGE BEGINS ON THE NEXT PAGE]
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<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
AERO CORP MACON, INC.
By: /s/ JOHN H. WILSON
------------------------------------
John H. Wilson
President
ZANTOP INTERNATIONAL AIRLINES, INC.
By: /s/ JAMES M. ZANTOP
------------------------------------
James M. Zantop
President
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<PAGE> 32
STOCKHOLDERS
/s/ DUANE A. ZANTOP
-----------------------------
DUANE A. ZANTOP
/s/ ANNA LOUISE ZANTOP
-----------------------------
ANNA LOUISE ZANTOP
/s/ JAMES M. ZANTOP
-----------------------------
JAMES M. ZANTOP
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<PAGE> 1
LEASE AGREEMENT
between
MACON-BIBB COUNTY INDUSTRIAL AUTHORITY
and
ZANTOP INTERNATIONAL AIRLINES, INC.
Dated as of May 1, 1993
- -------------------------------------------------------------------------------
This instrument was prepared by:
KING & SPALDING
191 Peachtree Street
Atlanta, Georgia 30303-1763
Telephone: (404) 572-4600
<PAGE> 2
LEASE AGREEMENT
TABLE OF CONTENTS
(The Table of Contents for this Lease Agreement is for convenience of reference
only and is not intended to define, limit or describe the scope or intent of
any provisions of this Lease Agreement.)
<TABLE>
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PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I. DEFINITIONS AND CERTAIN
RULES OF INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.2. Certain Rules of Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE II. REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.1. Representations by the Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.2. Representations by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE III. LEASING CLAUSES AND TITLE TO
PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.1. Lease of the Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.2. Lease Term and Renewal Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.3. Title to Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.4. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IV. COMMENCEMENT AND COMPLETION OF THE
PROJECT; ISSUANCE OF
THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.1. Agreement to Acquire and Construct
the Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.2. Agreement to Issue Bonds;
Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 4.3. Disbursements from the Project Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 4.4. Obligation to Furnish Documents
to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.5. Establishment of Completion Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.6. Company Required to Pay Project Costs
If Project Fund Insufficient . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.7. Issuer to Pursue Remedies Against
Suppliers, Contractors and
Their Sureties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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Section 4.8. Investment of Bond Fund and
Project Fund Moneys Permitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE V. TITLE TO PROJECT;
PROVISIONS FOR PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.1. Title to the Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.2. Payment Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.3. Other Payments; Trustee's Fees
and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.4. Obligations of the Company
Absolute and Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VI. MAINTENANCE, MODIFICATION, TAXES AND
INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 6.1. Maintenance and Modification of Project
by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 6.2. Taxes, Other Governmental Charges and
Utility Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.3. Insurance Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.4. Application of Net Proceeds of
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.5. Additional Provisions Respecting
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.6. Other Issuer Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.7. Advances by Issuer or City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VII. DAMAGE, DESTRUCTION AND CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.1. Damage and Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.2. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.3. Condemnation of Company-Owned Property . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE VIII. PARTICULAR AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.1. No Warranty of Condition or
Suitability by the Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.2. Inspection of the Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.3. Indemnification of Issuer and Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.4. Maintenance of Corporate Existence;
Qualification in the State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.5. Assignment and Subleasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.6. Annual Audit; Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.7. Agreement of Issuer
Not to Assign or Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.8. Redemption of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.9. Reference to Bonds Ineffective
After Bonds Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
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Section 8.10. Covenants of Company and Issuer with
Respect to Exemption of Interest
from Federal Income Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.11. Non-Arbitrage Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.12. Depreciation Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE IX. EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 9.1. Events of Default Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 9.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 9.3. No Remedy Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.4. Agreement to Pay Counsel
Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE X. PREPAYMENT UNDER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.1. Option to Prepay Rental Payments
Under Agreement in Whole in
Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.2. Other Options to Prepay Rental
Payments Under Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 10.3. Obligation to Prepay Rental
Payments Under Agreement
Under Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE XI. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.1. Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.3. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.4. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.5. Amounts Remaining in
Project Fund or Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.6. Delegation of Duties by Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.7. Amendments, Changes
and Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.8. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.9. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.10. Payments Due on Saturdays,
Sundays and Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.11. Recording of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 11.12. Law Governing Construction
of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 11.13 Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
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SIGNATURES AND SEALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63, 64
EXHIBIT "A" - DESCRIPTION OF LEASED LAND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT "B" - DESCRIPTION OF LEASED EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT "C" - REQUISITION AND CERTIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
EXHIBIT "D" - CERTIFICATE OF COMPLETION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
EXHIBIT "E" - CONTRACT BETWEEN ISSUER AND CITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
</TABLE>
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<PAGE> 6
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Agreement") is entered into as of May 1,
1993, by and between the MACON-BIBB COUNTY INDUSTRIAL AUTHORITY (the "Issuer"),
a public body corporate and politic and an instrumentality of the City of Macon
and the County of Bibb, created and existing under the laws of the State of
Georgia, as lessor, and ZANTOP INTERNATIONAL AIRLINES, INC. (the "Company"), a
Michigan corporation, as lessee;
W I T N E S S E T H:
In consideration of the respective representations, covenants and
agreements hereinafter contained, the Issuer and the Company DO HEREBY AGREE,
as follows:
<PAGE> 7
WHEREAS, the Issuer is a public body corporate and politic and an
instrumentality of the City of Macon (the "City") and the County of Bibb (the
"County") created under an amendment to the Constitution of the State of
Georgia (Ga. Laws 1962, page 885, et seq.), duly ratified and proclaimed, and
an act of the General Assembly of the State of Georgia (Ga. Laws 1962, page
2323, et seq.), as amended (the "Act"), duly created, its members have been
appointed and are currently acting in that capacity; and
WHEREAS, the Issuer has been created to encourage, induce, assist,
promote and develop the location and expansion of industrial and commercial
facilities throughout the territorial limits of the County of Bibb so as to
relieve, insofar as possible, abnormal unemployment within its boundaries, and
to otherwise support and expand the economy thereof; and
WHEREAS, the Act empowers the Issuer to issue its revenue obligations,
bearing rate or rates of interest and maturing at the years and amounts as
determined by the Issuer and otherwise in accordance with the applicable
provisions of the Revenue Bond Law of the State of Georgia (O.C.G.A. Sections
36-82-60 -- 36-82-85 (1987)), as heretofore and hereafter amended, in
furtherance of the public purpose for which it was created; and
WHEREAS, the Issuer, by due corporate action, has authorized the
financing of the acquisition, construction and installation of a new
maintenance hangar at the City-owned Middle Georgia Regional Airport in the
City of Macon, Georgia (the "Project"), pursuant to plans and specifications
prepared by Dennis & Dennis, Inc., Macon, Georgia, dated December 1, 1992,
therefor which plans and specifications are on file and of record with the
Secretary of the Issuer, including any changes or amendments thereto as may be
approved by the Airport Director of the City of Macon, the Authority and the
Company (the "Plans and Specifications"), such Project to be financed by the
Issuer for the Company, pursuant to this Agreement; and
WHEREAS, the City, pursuant to the "Lease" (hereinafter defined), has
agreed to lease the "Leased Land" (hereinafter defined) to the Issuer; and
WHEREAS, after careful study and investigation of the nature of the
proposed Project, the Issuer has determined that, in assisting with the
financing of the Project, it will be acting in furtherance of the public
purposes intended to be served by the Act; and
WHEREAS, the Issuer has been advised by the Company that the amount
necessary to finance the cost of the acquisition, construction and installation
of the Project, including capitalized interest during construction and expenses
incidental thereto, is $4,630,000 and, by proper corporate action, the Issuer
-2-
<PAGE> 8
has authorized the issuance and sale of $4,500,000 in aggregate principal
amount of its Macon-Bibb County Industrial Authority Airport Improvement
Revenue Bonds, Series 1993 (the "Bonds"), the proceeds of which will be used to
finance the cost of the acquisition, construction and installation of the
Project on the Leased Land; and
WHEREAS, the Bonds will be issued and secured pursuant to an Indenture
of Trust (the "Indenture") between the Issuer and First Union National Bank of
Georgia, Charlotte, North Carolina (the "Trustee"); and
WHEREAS, the Issuer has entered into this Agreement with the Company
under the terms of which the Issuer has agreed to finance the cost of
acquiring, constructing and installing the Project through the issuance of the
Bonds and, in consideration thereof, the Company has agreed to pay to the
Issuer rents sufficient to pay the principal of, and the redemption premium (if
any) and the interest on, the Bonds as the same become due and payable and to
pay certain administrative expenses in connection with the Bonds; and
WHEREAS, the City has determined that the construction of the Project
in the manner and for the purpose set forth herein will result in both short
and long term employment benefits, will provide hangar facilities at the
Airport of the City, the title to which will belong to the City, and will
enhance the ability of the City and the Issuer to provide for future
development of industrial sites contiguous to the Airport; and
WHEREAS, in consideration of the foregoing public benefits and as
security for the payment of the Bonds, the City will enter into a contract with
the Issuer, dated the date hereof (the "Contract"), whereby, in consideration
of the Issuer's agreement to issue the Bonds, the City agrees to pay certain
amounts equal to principal, premium (if any) and interest on the Bonds as they
come due in the event that moneys therefor are unavailable under this
Agreement, and further, to levy an annual tax within the limits prescribed by
law on all taxable property located in the City at such rate or rates as may be
necessary to produce funds sufficient to make the above payments to the Issuer
pursuant to the Contract; and
WHEREAS, as additional security for the payment of the Bonds, the
Issuer has agreed to assign and pledge to the Trustee under the Indenture all
right, title and interest of the Issuer in the Contract and all amounts on
deposit from time to time in the "Bond Fund" and the "Project Fund;"
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, THIS AGREEMENT
WITNESSETH:
-3-
<PAGE> 9
ARTICLE I.
DEFINITIONS AND CERTAIN
RULES OF INTERPRETATION
Section 1.1. Definitions. In addition to the words and terms elsewhere
defined herein, the following words and terms as used herein shall have the
following meanings unless the context or use clearly indicates another or
different meaning or intent, and any other words and terms defined in the
Indenture shall have the same meanings when used herein as assigned them in the
Indenture unless the context or use clearly indicates another or different
meaning or intent:
"Agreement" means this Lease Agreement as it now exists and as it may
hereafter be amended pursuant to Article VIII of the Indenture;
"Authorized Issuer Representative" means the person at the time
designated to act on behalf of the Issuer by written certificate furnished to
the Company and the Trustee containing the specimen signature of such person
and signed on behalf of the Issuer by the Chairman or Vice Chairman of the
Issuer. Such certificate may designate an alternate or alternates;
"Authorized Company Representative" means the person at the time
designated to act on behalf of the Company by written certificate furnished to
the Issuer and the Trustee containing the specimen signature of such person and
signed on behalf of the Company by the chairman of the board, president or any
vice president of the Company. Such certificate may designate an alternate or
alternates;
"City" means the City of Macon, Georgia, a municipal corporation of
the State;
"Completion Date" means the date of completion of the Project as that
date shall be certified as provided in Section 4.5;
"Construction Period" means the period between the beginning of
construction of the Project or the date of issuance and delivery of the Bonds
(whichever is earlier) and the Completion Date;
"Contract" means the contract, dated as of May 1, 1993, between the
City of Macon and the Issuer, providing for certain payments by the City to the
Issuer in consideration of the Issuer's issuance of the Bonds, a copy of which
is attached hereto as "Exhibit "E" and by this reference thereto incorporated
herein and made a part hereof;
-4-
<PAGE> 10
"County" means Bibb County, Georgia, a political subdivision of the
State;
"Determination of Taxability" means a determination that the interest
income on any Bond is not excludable from gross income for federal income tax
purposes to the holder thereof ("exempt interest") under Section 142 of the
Code, for any reason other than that such holder is a Substantial User of the
facility being financed with the Bond proceeds or a Related Person, which
determination shall be deemed to have been made upon the occurrence of the
first to occur of the following:
(a) the date on which the Company determines that the
interest income on any bond does not qualify as exempt interest, if
such determination is supported by a written opinion to that effect of
Bond Counsel satisfactory to the Trustee; or
(b) the date on which any change in law or regulation
becomes effective or on which the Internal Revenue Service has issued
any private ruling, technical advice or any other written
communication to the effect that the interest income on any Bond does
not qualify as exempt interest; or
(c) the date on which the Company shall receive notice
from the Trustee in writing that the Trustee has been advised by the
holder of any Bond that the Internal Revenue Service has issued a
30-day letter or other notice which asserts that the interest on such
Bond does not qualify as exempt interest; or
(d) the date on which the Trustee receives notice that
the Company or the Issuer has taken any action inconsistent with, or
has failed to act consistently with, the tax-exempt status of the
Bonds (unless the Trustee receives an opinion of Bond Counsel
satisfactory to it to the effect that, notwithstanding such action or
failure to act, the interest on the Bonds continues to qualify as
exempt interest);
(e) the date on which the Company is advised in writing
that a final determination, from which no further right of appeal
exists, has been made by a court of competent jurisdiction in the
United States of America in a proceeding with respect to which the
Company has been given written notice and an opportunity to
participate and defend that the interest on the Bonds is includable in
the gross income of any holder or former holder of a Bond for federal
income tax purposes due to the occurrence of an Event of Taxability;
provided, however, no Determination of Taxability shall occur under
subparagraph (b), (c) or (d) of this paragraph unless the
-5-
<PAGE> 11
Company has been afforded the opportunity, at its expense, to contest any such
conclusion and/or assessment and, further, no Determination of Taxability shall
occur until such contest, if made, has been finally determined. The Company
shall be deemed to have been afforded the opportunity to contest if it shall
have been permitted to commence and maintain any action in the name of any
holder or former holder of a Bond to judgment and through any appeals therefrom
or other proceedings related thereto;
"Event of Taxability" means the date on which the interest income on
any of the Bonds becomes includable in gross income for federal income tax
purposes;
"Indenture" means the Trust Indenture between the Issuer and First
Union National Bank of Georgia, Charlotte, North Carolina, as Trustee, dated as
of the date hereof, pursuant to which the Bonds will be issued and secured;
"Independent Engineer" means an engineer or engineering firm
registered and qualified to practice the profession of engineering under the
laws of the State and not an employee on a full-time basis of either the Issuer
or the Company (but who or which may be regularly retained by either);
"Issuance Costs" means all costs that are treated as costs of issuing
or carrying the Bonds under existing Treasury Department regulations and
rulings, including, but not limited to:
(a) underwriter's spread (whether realized directly or
derived through purchase of the Bonds at a discount below the price at
which they are expected to be sold to the public);
(b) counsel fees (including bond counsel, underwriter's
counsel, Issuer's counsel, Company counsel, Trustee's counsel, as well
as any other specialized counsel fees incurred in connection with the
issuance of the Bonds;
(c) financial adviser fees incurred in connection with
the issuance of the Bonds;
(d) rating agency fees;
(e) Trustee fees incurred in connection with the issuance
of the Bonds;
(f) paying agent and certifying and authenticating agent
fees related to issuance of the Bonds;
(g) accountant fees related to the issuance of the Bonds;
-6-
<PAGE> 12
(h) printing costs of the Bonds and of the preliminary
and final offering materials;
(i) publication costs associated with the financing
proceedings; and
(j) costs of engineering and feasibility studies
necessary to the issuance of the Bonds;
provided, that bond insurance premiums and certain credit enhancement fees, to
the extent treated as interest expense under applicable tax regulations, shall
not be treated as "Issuance Costs;"
"Lease" means the Lease, dated as of May 1, 1993, from the City to the
Issuer, of the Leased Land;
"Leased Equipment" means those items of machinery, equipment and
related property installed in the Project or on the Leased Land with proceeds
from the sale of the Bonds, or the proceeds of any payment by the Company
pursuant to Section 4.6, and any item of machinery, equipment and related
property acquired and installed on the Leased Land in substitution or
replacement therefor. The Leased Equipment insofar as it's identified on the
date hereof is more fully described in Exhibit "B" hereto;
"Leased Land" means the real property described in Exhibit "A"
attached hereto and by this reference made a part hereof;
"Lease Term" means the duration of the leasehold interest created in
Article V hereof;
"Net Proceeds", when used with respect to any insurance or
condemnation award, means the gross proceeds from the insurance or condemnation
award with respect to which that term is used remaining after payment of all
expenses (including Counsel fees and any Extraordinary Expenses of the Trustee)
incurred in the collection of such gross proceeds;
"net proceeds of the sale of the Bonds" means the face amount of the
Bonds, plus accrued interest and premium (if any) paid on the purchase of the
Bonds by the original purchasers thereof from the Issuer, less original issue
discount and less amounts deposited in any reserve fund;
"Permitted Encumbrances" means, as of any particular time,
(a) liens for ad valorem taxes and special assessments
not then delinquent;
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(b) the Lease and this Agreement;
(c) such utility, access or other easements and
rights-of-way, restrictions, reservations, reversions and exceptions
other than those set forth in the title policy (or binder) referred to
in (b) above and which do not, in the opinion of an Independent
Engineer and the Company, materially interfere with or impair the
operations being conducted in the Project (or, if no operations are
being conducted therein, the operations for which the Project was
designed or last modified) or elsewhere on the Leased Land;
(d) unfiled and inchoate mechanics' and materialmen's
liens for construction work in progress;
(e) architects', contractors', subcontractors',
mechanics', materialmen's, suppliers', laborers', vendors', workers',
repairmen's, carriers', land surveyors' and engineers' liens or other
similar liens not then payable;
(f) such minor defects, irregularities, encumbrances,
easements, rights-of-way and clouds on title as normally exist with
respect to properties similar in character to the Project and as do
not, in the opinion of Independent Counsel, materially interfere with
or impair the operations being conducted in the Project (or, if no
operations are being conducted therein, the operations for which the
Project was designed or last modified) or elsewhere on the Leased
Land; and
(g) any other encumbrances agreed to in writing by the
City and the Issuer;
"Project" means the building and improvements to be constructed on the
Leased Land, related improvements, and the Leased Equipment, as they may at any
time exist;
"State" means the State of Georgia;
"Taxable Period" means, with respect to a Bond, the period which
elapses from an Event of Taxability until payment in full of such Bond;
"Trustee" means the party so named and designated in the Indenture and
any successors or corporations resulting from or surviving any consolidation or
merger to which it or its Successors may be a party and any successor at the
time serving as successor trustee or any co-trustee under the Indenture.
Section 1.2. Certain Rules of Interpretation. The definitions set
forth in Section 1.1 shall be equally applicable
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to both the singular and plural forms of the terms therein defined and shall
cover all genders.
"Herein", "hereby", "hereunder", "hereof", "hereinbefore",
"hereinafter" and other equivalent words refer to this Agreement and not solely
to the particular Article, Section or subdivision hereof in which such word is
used.
Reference herein to an Article number (e.g., Article IV) or a Section
number (e.g., Section 6-2) shall be construed to be a reference to the
designated Article number or Section number hereof unless the context or use
clearly indicates another or different meaning or intent.
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<PAGE> 15
ARTICLE II.
REPRESENTATIONS
Section 2.1. Representations by the Issuer. The Issuer makes the
following representations as the basis for the undertakings on its part herein
contained:
(a) Organization and Authority. The Issuer is a public body corporate
and politic and an instrumentality of the City of Macon and the County of
Bibb, created and validly existing pursuant to the Constitution and laws of
the State, including particularly the provisions of the Act. The Issuer has
all requisite power and authority under the Act to (i) issue the Bonds,
(ii) use the proceeds thereof to acquire, construct and install the
Project, (iii) own, lease and dispose of the Project, and (iv) enter into
and perform its obligations under, this Agreement and the Indenture. The
Issuer has sufficient title to the Leased Land by means of a leasehold
interest from the City to perform and fulfill its obligations hereunder.
(b) Pending Litigation. There are no actions, suits, proceedings,
inquiries or investigations pending, or to the knowledge of the Issuer
threatened, against or affecting the Issuer in any court or before any
governmental authority or arbitration board or tribunal, which involve the
possibility of materially and adversely affecting the transactions
contemplated by this Agreement, the Contract or the Indenture or which
would in any way adversely affect the validity or enforceability of the
Bonds, the Indenture, the Contract, this Agreement or any agreement or
instrument to which the Issuer is a party and which is used or contemplated
for use in the consummation of the transactions contemplated hereby or
thereby.
(c) Security for the Bonds. As security for the Bonds, the Issuer has,
as of the date hereof, entered into the Contract with the City, pursuant to
which the City, in consideration of the Issuer's agreement to issue the
Bonds, has agreed to make certain payments equal to the amount of
principal, premium (if any) and interest falling due on the Bonds should
funds payable under this Agreement be insufficient to make said payments.
Pursuant to the Contract, the City has further agreed to levy an annual tax
within the limits prescribed by law on all taxable property located in the
City at such rate or rates as may be necessary to produce funds sufficient
to make the above payments to the Issuer pursuant to the Contract. The
Issuer's rights under this Agreement are not being pledged under the terms
of the Indenture as security for the Bonds but are pledged by the
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<PAGE> 16
Issuer to the City under the Contract as security for the City.
(d) Issue, Sale, and Other Transactions Are Legal and Authorized. The
issuance and sale of the Bonds and the execution and delivery by the Issuer
of this Agreement, the Contract and the Indenture, and the compliance by
the Issuer with all of the provisions of each thereof and of the Bonds (i)
are within the purposes, powers and authority of the Issuer, (ii) have been
done in full compliance with the provisions of the Act, are legal and will
not conflict with or constitute on the part of the Issuer a violation of or
a breach of or default under, or result in the creation of any lien, charge
or encumbrance upon any property of the Issuer (other than as contemplated
by this Agreement and the Indenture) under the provisions of any charter
instrument, by-law, indenture, mortgage, deed of trust, note agreement or
other agreement or instrument to which the Issuer is a party or by which
the Issuer is bound, or any license, judgment, decree, law, statute, order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Issuer or any of its activities or properties, and
(iii) have been duly authorized by all necessary corporate action on the
part of the Issuer.
(e) Governmental Consents. Neither the nature of the Issuer nor any of
its activities or properties, nor any relationship between the Issuer and
any other person, nor any circumstance in connection with the offer, issue,
sale or delivery of any of the Bonds is such as to require the consent,
approval or authorization of, or the filing, registration or qualification
with, any governmental authority on the part of the Issuer in connection
with the execution, delivery and performance of this Agreement, the
Contract and the Indenture or the offer, issue, sale or delivery of the
Bonds, other than those already obtained, including specifically (i) the
public approval of the issuance of the Bonds and compliance with the
information reporting requirements contained in Section 147(f) and Section
149(e), respectively, of the Code, and (ii) the validation of the Bonds by
the Superior Court of the County.
(f) No Defaults. No event has occurred and no condition exists with
respect to the Issuer which would constitute an "event of default" as
defined in this Agreement, the Contract or the Indenture or which, with the
lapse of time or with the giving of notice or both, would become an "event
of default" under this Agreement, the Contract or the Indenture. The Issuer
is not in default under the Act or under any charter, instrument, by-law or
other agreement or instrument to which it is a party or by which it is
bound.
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<PAGE> 17
(g) No Prior Pledge. This Agreement has not been pledged or
hypothecated in any manner or for any purpose by the Issuer as security for
the payment of the Bonds. The Issuer has agreed with the City in the
Contract that it will apply rentals hereunder to the payment of the Bonds
before calling on the City for any payments necessary to pay the Bonds.
(h) Disclosure. Neither the representations of the Issuer contained in
this Agreement, the Contract and the Indenture nor any written statement
relating to the Issuer furnished to the original purchasers of the Bonds by
or on behalf of the Issuer in connection with the transactions contemplated
hereby, contains any untrue statement of a material fact or omits to state
a material fact necessary in order to make the statements contained herein
and therein not misleading.
(i) Nature and Location of Project. The financing of the Project is in
furtherance of the public purposes intended to be served by the Act. The
Project will be located within Bibb County, Georgia.
(j) Official Action. By resolution duly adopted on November 3, 1992,
the Issuer took "official action" (within the meaning of Section
1.103-8(a)(5) of the Income Tax Regulations) providing for the acquisition,
construction and installation of the Project and the financing of the cost
of the Project, in whole or in part, through the issuance of the Bonds.
(k) Limited Obligations. Notwithstanding anything herein contained to
the contrary, any obligation the Issuer may hereby incur for the payment of
money shall not constitute an indebtedness of the State or of any political
subdivision thereof within the meaning of any state constitutional
provision or statutory limitation and shall not give rise to a pecuniary
liability of the State or a political subdivision thereof, or constitute a
charge against the general credit or taxing power of said State or a
political subdivision thereof, but shall be limited obligations of the
Issuer payable solely from (i) revenues derived from the sale of the Bonds,
and (ii) amounts on deposit from time to time in the Project Fund and the
Bond Fund, including payments made into the Bond Fund pursuant to the
Contract, subject to the provisions of this Agreement and the Indenture
permitting the application thereof for the purposes and on the terms and
conditions set forth herein and therein.
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<PAGE> 18
(l) Use of Proceeds. Not less than 95% of the net proceeds of the sale
of the Bonds have been used to acquire land or property of a character
subject to the allowance for depreciation under Section 167 of the Code and
such costs representing proceeds so used are properly chargeable to the
capital account of the Issuer for federal income tax purposes or would be
so chargeable either with a proper election by the Issuer or but for a
proper election by the Issuer to deduct the costs.
(m) Inducement. The issuance of the Bonds by the Issuer and the use of
the proceeds to enable the Company to acquire, construct and install the
Project have induced the Company to locate the Project in the County,
which will directly result in an increase in employment opportunities in
the City of Macon, Georgia, for approximately one hundred forty (140)
additional persons.
(n) Operation of Project. The Company intends to operate the Project
from the Completion Date to the expiration or sooner termination of this
Agreement as provided herein as a "project" within the meaning of the Act,
and as an "exempt facility" as described in Section 2.2(n) hereof.
(o) Commencement of Construction. The acquisition, construction and
installation of the Project commenced after November 3, 1992, and no
obligation relating to the acquisition, construction or installation of the
Project was paid or incurred prior to such date.
(p) Composite Issues. There are no other obligations heretofore issued
or to be issued by or on behalf of any state, territory or possession of
the United States, or political subdivision of any of the foregoing, or of
the District of Columbia, for the benefit of the Issuer or any "Related
Person" (as that term is defined in Section 147(a)(2) of the Code), which
constitute "private activity bonds" within the meaning of Section 141 of
the Code and which (i) were or are to be sold at substantially the same
time as the Bonds, (ii) were or are to be sold at substantially the same
interest rate as the interest rate of the Bonds, (iii) were or are to be
sold pursuant to a common plan of marketing as the marketing plan for the
Bonds, and (iv) are payable directly or indirectly by the Issuer or from
the source from which the Bonds are payable.
(q) I.R.S. Form 8038 Information. The information furnished by the
Issuer and used by the Issuer in connection with preparing I.R.S. Form
8038, "Information Return for Tax-Exempt Private Activity Bond Issues,"
which has been filed by or on behalf of the Issuer with the Internal
Revenue Service
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<PAGE> 19
Center in Philadelphia, Pennsylvania, pursuant to Section 149(e) of the
Code, was true and complete as of the date of the filing thereof.
(r) Exempt Facility. Section 103(a) of the Code provides that, except
as provided in Section 103(b), gross income does not include interest on
any State or local bond. Section 103(b) provides that Section 103(a) does
not apply to any private activity bond which is not a "qualified bond"
within the meaning of Section 141 of the Code. Section 141 defines a
private activity bond as any bond issued as part of an issue where more
than 10 percent of the proceeds of that issue are (1) to be used for any
private business use and the payment of principal or interest on more than
10 percent of the proceeds of the issue is (under the terms of the issue or
any underlying arrangement) directly or indirectly secured by any interest
in property to be used for a private business use or payments in respect of
such property, or (2) to be derived from payments (whether or not to the
issuer) in respect of property, or borrowed money, used or to be used for a
private business use.
As more than 10 percent of the proceeds of the Bonds will be used in a
private business use and the payment of the principal of and the interest
on more than 10 percent of the proceeds of the Bonds will be derived from
payments in respect of property to be used for a private business use, the
Bonds are "private activity bonds" under Section 141 of the Code. Section
141(d)(1)(A) defines the term "qualified bond" as any private activity bond
if such bond is an exempt facility bond, and qualified bonds are included
in the interest exclusion of Section 103(a).
Section 142(a)(1) defines "exempt facility bonds" as any bond issued as
part of an issue 95 percent or more of the net proceeds of which are to be
used to provide facilities for an airport, so the Bonds will be "exempt
facility bonds" under Section 142(a)(1) of the Code. Further, in
compliance with the requirements of Section 142(b) of the Code, all the
property to be financed by the net proceeds of the issue is to be owned by
the City. The City has, pursuant to the Lease, leased the Leased Land to
the Issuer, and the Issuer has hereunder subleased the Leased Land to the
Company for a term of twenty-five years. Pursuant to this Agreement and in
compliance with Section 142(b)(1)(B) of the Code, the Company has made in
Section 8.12 hereof an irrevocable election, binding on the Company and all
successors in interest under this Agreement, not to claim depreciation or
an investment tax credit with respect to the Project or the Leased Land.
The twenty-five-year term of this Agreement (including any renewal options
contained herein), for the purposes of Section 168(i)(3) of the Code, is
not more than 80 percent of
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the reasonably expected economic life of the Project (as determined under
Section 147(b) of the Code). Also in compliance with Section 142(b)(1)(B),
the Company has no option to purchase the Project or to renew or extend the
Lease Term except at fair market value (as of the time the option is
exercised).
(s) Limitation on Maturity. The weighted average maturity of the Bonds
does not exceed the weighted average estimated economic life of the
components comprising the Project by more than 20%, determined pursuant to
Section 147(b) of the Code.
(t) Restrictions on Financings and Operation of Certain Facilities. At
no time will:
(i) any portion of the net proceeds of the sale of the Bonds be
used to provide any airplane, skybox, or other private luxury box, any
health club facility, any facility primarily used for gambling, or any
store the principal business of which is the sale of alcoholic
beverages for consumption off premises; or
(ii) any portion of the proceeds of the sale of the Bonds be used
(directly or indirectly) for the acquisition of land (or an interest
therein) to be used for farming purposes, or 25% or more of the net
proceeds of the sale of the Bonds be used (directly or indirectly) for
the acquisition of land other than land to be used for farming
purposes; or
(iii) any portion of the net proceeds of the sale of the Bonds be
used for the acquisition of any property or any interest therein, other
than land or an interest in land as provided in the preceding
subparagraph, unless the first use of such property is pursuant to such
acquisition; provided, however, that this limitation shall not apply
with respect to any building (and the equipment therefor) if
"Rehabilitation Expenditures" (hereinafter defined) with respect to
such building equal or exceed fifteen percent of the portion of the
cost of acquiring such building (and equipment) financed with proceeds
of the Bonds; or, in the case of structures other than a building, if
Rehabilitation Expenditures with respect to such structure equal or
exceed one hundred percent of the portion of the cost of acquiring such
structure financed with the proceeds of the Bonds. The term
"Rehabilitation Expenditures" means any amount properly chargeable to
the capital account of the Company or a successor to the Company or by
the seller under a sales contract with the Company for the property
acquired in connection with the rehabilitation
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of such property, or in the case of property constituting equipment, in
connection with the replacement of such equipment with equipment having
substantially the same function, excluding, however, (A) expenditures
described in Section 48(g)(2)(B) of the Code and (B) amounts incurred
after the date two years after the later of the date of acquisition of
the property in question or the date of issuance and delivery of the
Bonds.
(u) Reasonable Expectations. Based on current facts, estimates and
circumstances, it is expected that:
(i) the acquisition, construction and installation of the Project
and the expenditure of all Bond proceeds will be completed by May 1,
1994,
(ii) work on the Project (which has commenced) will proceed with
due diligence to completion,
(iii) the net proceeds of the sale of the Bonds are needed for the
purpose of paying all or a part of the cost of the acquisition,
construction and installation of the Project, and
(iv) the Project will not be sold or disposed of, in whole or in
part, prior to payment in full of the Bonds.
(v) Substantial Binding Obligation. The Company reasonably expects to
enter into various contracts providing for the acquisition, construction
and installation of the Project within six months of the issuance of the
Bonds, and the amounts required to be paid under said contracts are
expected to exceed $100,000 or 2 1/2%, whichever is less, of the estimated
total cost of the Project.
(w) Federal Guaranty Prohibition. The Company shall take no action and
shall not permit or suffer any action to be taken if the result of the same
would be to cause the Bonds to be "federally guaranteed" within the
meaning of section 149(b) of the Code.
(x) Limitation on Issuance Costs. From the proceeds of the Bonds
received from the initial purchasers thereof on the date of issuance and
delivery of the Bonds, and investment earnings thereon, an amount not in
excess of two percent (2%) of the face amount of the Bonds shall be used to
pay for, or provide for the payment of, Issuance Costs.
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Section 2.2. Representations by the Company. The Company makes the
following representations as the basis for the undertakings on its part herein
contained:
(a) Corporate Organization and Power. The Company (i) is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Michigan and is qualified to do business and is in good standing
under the laws of the State, and (ii) has all requisite power and authority
and all necessary licenses and permits to own and operate its properties
and to carry on its business as now being conducted and as presently
proposed to be conducted.
(b) Pending Litigation. There are no proceedings pending, or to the
knowledge of the Company threatened, against or affecting the Company in
any court or before any governmental authority or arbitration board or
tribunal which involve the possibility of materially and adversely
affecting the properties, profits or condition (financial or otherwise) of
the Company, or the ability of the Company to perform its obligations under
this Agreement. The only litigation pending, or to the knowledge of the
Company, threatened, against or affecting the Company is fully described in
a schedule which has been furnished to the Issuer by the Company. The
Company is not in default with respect to an order of any court,
governmental authority or arbitration board or tribunal.
(c) Agreements Are Legal and Authorized. The execution and delivery by
the Company of this Agreement and the compliance by the Company with all of
the provisions hereof and thereof (i) are within the power of the Company,
(ii) will not conflict with or result in any breach of any of the
provisions of, or constitute a default under, or result in the creation of
any lien, charge or encumbrance (other than Permitted Encumbrances) upon
any property of the Company under the provisions of, any agreement, charter
document, by-law or other instrument to which the Company is a party or by
which it may be bound, or any license, judgment, decree, law, statute,
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its activities or
properties, and (iii) have been duly authorized by all necessary corporate
action on the part of the Company.
(d) Governmental Consent. Neither the Company nor any of its business
or properties, nor any relationship between the Company and any other
person, nor any circumstances in connection with the execution, delivery
and performance by the Company of this Agreement or the offer, issue, sale
or delivery by the Issuer of the Bonds, is such as to require the consent,
approval or authorization of, or the filing,
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registration or qualification with, any governmental authority on the part
of the Company other than those already obtained.
(e) No Defaults. No event has occurred and no condition exists with
respect to the Company that would constitute an "event of default" under
this Agreement or the Indenture, or which, with the lapse of time or with
the giving of notice or both, would become an "event of default" under this
Agreement or the Indenture. The Company is not in violation in any material
respect of any agreement, charter document, by-law or other instrument to
which it is a party or by which it may be bound.
(f) Compliance with Law. The Company is not in violation of any laws,
ordinances, governmental rules or regulations to which it is subject and
has not failed to obtain any licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its properties or
to the conduct of its business, which violation or failure to obtain might
materially and adversely affect the properties, business, prospects,
profits or condition (financial or otherwise) of the Company.
(g) Restrictions on the Company. The Company is not a party to any
contract or agreement that restricts the right or ability of the Company to
enter into this Agreement.
(h) Disclosure. Neither the representations of the Company contained in
this Agreement, nor any written statement relating to the Company furnished
by or on behalf of the Company to the Issuer or to the original purchasers
of the Bonds in connection with the transactions contemplated hereby or
thereby, contains any untrue statement of a material fact or omits to state
a material fact necessary to make the statements contained herein or
therein not misleading. There is no fact that the Company has not disclosed
to the Issuer and to the City in writing that materially and adversely
affects or in the future may (so far as the Company can now reasonably
foresee) materially and adversely affect the acquisition, construction,
installation, ownership or operation of the Project, or the properties,
business, prospects, profits or condition (financial or otherwise) of the
Company, or the ability of the Company to perform its obligations under
this Agreement or any documents or transactions contemplated hereby.
(i) Inducement. The issuance of the Bonds by the Issuer and the use of
the proceeds to enable the Company to acquire, construct and install the
Project have induced the Company to locate the Project in the County, which
will directly result in an increase in employment opportunities in
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the City of Macon, Georgia, for approximately one hundred forty (140)
additional persons.
(j) Operation of Project. The Company intends to operate the Project
from the Completion Date to the expiration or sooner termination of this
Agreement as provided herein as a "project" within the meaning of the Act,
and as an "exempt facility" as described in Section 2.2(n) hereof.
(k) Commencement of Construction. The acquisition, construction and
installation of the Project commenced after November 3, 1992, and no
obligation relating to the acquisition, construction or installation of
the Project was paid or incurred prior to such date.
(1) Composite Issues. There are no other obligations heretofore issued
or to be issued by or on behalf of any state, territory or possession of
the United States, or political subdivision of any of the foregoing, or of
the District of Columbia, for the benefit of the Company or any "Related
Person" (as that term is defined in Section 147(a)(2) of the Code), which
constitute "private activity bonds" within the meaning of Section 141 of
the Code and which (i) were or are to be sold at substantially the same
time as the Bonds, (ii) were or are to be sold at substantially the same
interest rate as the interest rate of the Bonds, (iii) were or are to be
sold pursuant to a common plan of marketing as the marketing plan for the
Bonds, and (iv) are payable directly or indirectly by the Company or from
the source from which the Bonds are payable.
(m) I.R.S. Form 8038 Information. The information furnished by the
Company and used by the Issuer in connection with preparing I.R.S. Form
8038, "Information Return for Tax-Exempt Private Activity Bond Issues,"
which has been filed by or on behalf of the Issuer with the Internal
Revenue Service Center in Philadelphia, Pennsylvania, pursuant to Section
149(e) of the Code, was true and complete as of the date of the filing
thereof.
(n) Exempt Facility. Section 103(a) of the Code provides that, except
as provided in Section 103(b), gross income does not include interest on
any State or local bond. Section 103(b) provides that Section 103(a) does
not apply to any private activity bond which is not a "qualified bond"
within the meaning of Section 141 of the Code. Section 141 defines a
private activity bond as any bond issued as part of an issue where more
than 10 percent of the proceeds of that issue are (1) to be used for any
private business use and the payment of principal or interest on more than
10 percent of the proceeds of the issue is (under the terms of the issue or
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any underlying arrangement) directly or indirectly secured by any interest
in Property to be used for a private business use or payments in respect of
such property, or (2) to be derived from payments (whether or not to the
issuer) in respect of property, or borrowed money, used or to be used for a
private business use.
As more than 10 percent of the proceeds of the Bonds will be used in a
private business use and the payment of the principal of and the interest
on more than 10 percent of the proceeds of the Bonds will be derived from
payments in respect of property to be used for a private business use, the
Bonds are "private activity bonds" under Section 141 of the Code. Section
141(d)(1)(A) defines the term "qualified bond" as any private activity bond
if such bond is an exempt facility bond, and qualified bonds are included
in the interest exclusion of Section 103(a).
Section 142(a)(1) defines "exempt facility bonds" as any bond issued as
part of an issue 95 percent or more of the net proceeds of which are to be
used to provide facilities for an airport, so the Bonds will be "exempt
facility bonds" under Section 142(a)(1) of the Code. Further, in compliance
with the requirements of Section 142(b) of the Code, all the property to be
financed by the net proceeds of the issue is to be owned by the City. The
City has, pursuant to the Lease, leased the Leased Land to the Issuer, and
the Issuer has hereunder subleased the Leased Land to the Company for a
term of twenty-five years. Pursuant to this Agreement and in compliance
with Section 142(b)(1)(B) of the Code, the Company has made in Section 8.12
hereof an irrevocable election, binding on the Company and all successors
in interest under this Agreement, not to claim depreciation or an
investment credit with respect to the Project or the Leased Land. The
twenty-five-year term of this Agreement (including the seven-year renewal
option contained herein), for the purposes of Section 168(i)(3) of the
Code, is not more than 80 percent of the reasonably expected economic life
of the Project (as determined under Section 147(b) of the Code). Also in
compliance with Section 142(b)(1)(B), the Company has no option to purchase
the Project or to renew or extend the Lease Term except at fair market
value (as of the time the option is exercised).
(o) Limitation on Maturity. The weighted average maturity of the Bonds
does not exceed the weighted average estimated economic life of the
components comprising the Project by more than 20%, determined pursuant to
Section 147(b) of the Code.
(p) Restrictions on Financing and Operation of Certain Facilities. At
no time will:
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(i) any portion of the net proceeds of the sale of the
Bonds be used to provide any airplane, skybox, or other private luxury
box, any health club facility, any facility primarily used for
gambling, or any store the principal business of which is the sale of
alcoholic beverages for consumption off premises; or
(ii) any portion of the proceeds of the sale of the Bonds be used
(directly or indirectly) for the acquisition of land (or an interest
therein) to be used for farming purposes, or 25% or more of the net
proceeds of the sale of the Bonds be used (directly or indirectly) for
the acquisition of land other than land to be used for farming
purposes; or
(iii) any portion of the net proceeds of the sale of the Bonds be
used for the acquisition of any property or any interest therein, other
than land or an interest in land as provided in the preceding
subparagraph, unless the first use of such property is pursuant to such
acquisition; provided, however, that this limitation shall not apply
with respect to any building (and the equipment therefor) if
"Rehabilitation Expenditures" (hereinafter defined) with respect to
such building equal or exceed fifteen percent of the portion of the
cost of acquiring such building (and equipment) financed with proceeds
of the Bonds; or, in the case of structures other than a building, if
Rehabilitation Expenditures with respect to such structure equal or
exceed one hundred percent of the portion of the cost of acquiring such
structure financed with the proceeds of the Bonds. The term
"Rehabilitation Expenditures" means any amount properly chargeable to
the capital account of the Company or a successor to the Company or by
the seller under a sales contract with the Company for the property
acquired in connection with the rehabilitation of such property, or in
the case of property constituting equipment, in connection with the
replacement of such equipment with equipment having substantially the
same function, excluding, however, (A) expenditures described in
Section 48(g)(2)(B) of the Code and (B) amounts incurred after the date
two years after the later of the date of acquisition of the property in
question or the date of issuance and delivery of the Bonds.
(q) Reasonable Expectations. Based on current facts, estimates and
circumstances, it is expected that:
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(i) the acquisition, construction and installation of the Project
and the expenditure of all Bond proceeds will be completed by May 1,
1994.
(ii) work on the Project (which has commenced) will proceed with
due diligence to completion,
(iii) the net proceeds of the sale of the Bonds are needed for the
purpose of paying all or a part of the cost of the acquisition,
construction and installation of the Project, and
(iv) the Project will not be sold or disposed of, in whole or in
part, prior to payment in full of the Bonds.
(r) Substantial Binding Obligation. The Company reasonably expects to
enter into various contracts providing for the acquisition, construction
and installation of the Project within six months of the issuance of the
Bonds, and the amounts required to be paid under said contracts are
expected to exceed $100,000 or 2 1/2%, whichever is less, of the estimated
total cost of the Project.
(s) Federal Guaranty Prohibition. The Company shall take no action and
shall not permit or suffer any action to be taken if the result of the same
would be to cause the Bonds to be "federally guaranteed" within the
meaning of section 149(b) of the Code.
(t) Limitation on Issuance Costs. From the proceeds of the Bonds
received from the initial purchasers thereof on the date of issuance and
delivery of the Bonds, and investment earnings thereon, an amount not in
excess of two percent (2%) of the face amount of the Bonds shall be used to
pay for, or provide for the payment of, Issuance Costs.
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ARTICLE III.
LEASING CLAUSES AND TITLE TO PROJECT
Section 3.1. Lease of the Project. The Issuer hereby leases to the
Company, and the Company hereby leases from the Issuer, the Project at the rent
set forth in Section 5.2 and in accordance with the provisions hereof.
Section 3.2. Lease Term and Renewal Options. This Agreement shall
become effective upon its execution and delivery, and the leasehold interest
created hereby shall then begin, and, subject to the other provisions hereof,
shall expire at midnight, May 1, 2018. The Company shall also have the option to
renew the Lease Term for one seven-year period at fair market value at the time
that the option is exercised.
It is the specific understanding of the parties hereto that, pursuant
to the terms of the Lease, upon either (i) prepayment of all of the rental
amounts due under Section 5.2 hereof and all other amounts due and payable to
the bondholders and/or to the Trustee with respect to the payment of the Bonds,
including reasonable counsel fees, or (ii) the Company's election to exercise
its option to renew the Lease Term following the expiration thereof on May 1,
2018, the Issuer shall assign its interest in this Agreement to the City and
shall notify the Company and the City of such payment and shall advise the
parties that the City has become the Lessor under this Agreement. Upon such
assignment and notice, the Issuer's position as Lessor in this Agreement shall
terminate and the City shall immediately become the Lessor of the Project
hereunder, and upon such event, the City shall immediately and automatically
assume all of the rights, duties, powers and responsibilities of the Issuer as
to this Agreement. At the expiration of this Agreement at midnight on May 1,
2018, should the Company elect not to exercise its renewal option, or at the end
of the last option to renew exercised by the Company pursuant to this Section,
or upon repossession pursuant to Section 9.2 hereof, the Project shall be
returned to the City in good condition and repair.
Section 3.3. Title to Project. The Issuer hereby represents and
warrants that the City holds fee simple title in and to the Leased Land subject
only to the Lease and this Agreement. The Project shall be the property of the
City and subject to the terms of the Lease and this Agreement.
Section 3.4. Quiet Enjoyment. The Issuer warrants and agrees that it
will defend the Company in the quiet enjoyment and peaceable possession of the
Project, free from all claims of all persons claiming by, through or under the
Issuer throughout the Lease Term, so long as the Company shall perform the
agreements to
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be performed by it hereunder, or so long as the period for remedying any failure
in such performance shall not have expired. The City has, pursuant to the terms
of the Lease, agreed that it will defend the Issuer in the quiet enjoyment and
peaceable possession of the Project, free from all claims of all persons
claiming by, through or under the City throughout the Lease Term, so long as the
Issuer shall perform the agreements to be performed by it under the Lease, or so
long as the period for remedying any failure in such performance shall not have
expired.
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ARTICLE IV.
COMMENCEMENT AND COMPLETION
OF THE PROJECT; ISSUANCE OF THE BONDS
Section 4.1. Agreement to Acquire and Construct the Project. Not
later than the delivery hereof the Issuer will have leased the Leased Land from
the City and the Issuer agrees that:
(a) it will cause the Project to be constructed on the Leased Land,
wholly within the boundary lines thereof. It will acquire, construct and
install other facilities necessary for the completion and commencement of
operation of the Project. The aforesaid acquisition, construction and
installation shall be substantially in accordance with the Plans and
Specifications, or, to the extent permitted by Section 8.10(c), and
amendments thereto as may be agreed to by the parties hereto.
(b) it will cause to be acquired and installed in the Project or on
the Leased Land, the Leased Equipment, to consist of machinery, equipment
and related property described in the list attached hereto as Exhibit "B"
and such other items of machinery, equipment and related property as in the
Company's judgment may be necessary for the operation of the Project. The
Leased Equipment shall be the property of the City and subject to the terms
of the Lease and this Agreement.
The Issuer, to the maximum extent permitted by law, hereby makes,
constitutes and appoints the Company as its true, lawful and exclusive agent for
the acquisition, construction and installation of the Project, and the Company
hereby accepts such agency to act and do all things on behalf of the Issuer, to
perform all acts of the Issuer hereinbefore provided in this Section 4.1. and to
bring any actions or proceedings against any person which the Issuer might bring
with respect thereto as the Company shall deem proper. The Issuer hereby
ratifies and confirms all actions of, and assumes and adopts all contracts
entered into by, the Company with respect to the Project prior to the date
hereof. This appointment of the Company to act as agent and all authority hereby
conferred or granted is conferred and granted irrevocably, until all activities
in connection with the acquisition, construction and installation of the Project
shall have been completed, and shall not be terminated prior thereto by act of
the Issuer or of the Company.
The Company agrees to construct and install the Project with all
reasonable dispatch and to use its best efforts to cause said construction and
installation to be completed as soon as practicable, delays incident to strikes,
riots, acts of God or the
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public enemy beyond the reasonable control of the Company only excepted, but if
said construction and installation is not completed within the time herein
contemplated there shall be no resulting liability on the part of the Company
and no diminution in or postponement or abatement of the rents required in
Section 5.2 to be paid by the Company.
Section 4.2. Agreement to Issue Bonds; Application of Proceeds. In
order to provide funds for the payment of the cost of the acquisition,
construction and installation of the Project, the Issuer agrees that as soon as
possible it will authorize, validate, sell and cause to be delivered to the
initial purchaser or purchasers thereof, the Bonds, bearing interest and
maturing as set forth in Article II of the Indenture, at a price to be approved
by the Company. Upon the issuance and delivery of the Bonds, all accrued
interest (if any) derived from the sale of the Bonds shall be paid into the Bond
Fund. The balance of the proceeds of the sale of the Bonds shall be deposited
into the Project Fund.
Section 4.3. Disbursements from the Project Fund. The Issuer will in
the Indenture authorize and direct the Trustee to use the moneys in the Project
Fund for the following purposes but, subject to the provisions of Section 4.8,
for no other purposes:
(a) payment of interest prior to the Completion Date, payment to the
Company and to the Issuer, as the case may be, of such amounts, if any, as
shall be necessary to reimburse either of them in full for all advances and
payments made by either of them prior to or after the delivery of the Bonds
for expenditures in connection with clearing the Leased Land, site
improvement, the preparation of the Plans and Specifications (including any
preliminary study or planning of the Project or any aspect thereof), the
construction of the Project, the acquisition and installation of the Leased
Equipment and the acquisition, construction and installation necessary to
provide utility services or other facilities including trackage to connect
the Project with public transportation facilities, and all real or personal
properties deemed necessary in connection with the Project, or any one or
more of said expenditures (including architectural, engineering and
supervisory services) with respect to any of the foregoing; provided,
however, that in no event shall moneys be disbursed from the Project Fund
to reimburse the City for any advances or payments made by the City in
connection with site preparation on the Leased Land undertaken pursuant to
any obligation of the City to make said site improvements.
(b) payment of, or reimbursement of the Company and the Issuer for,
Issuance Costs, but in any event not more than
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two percent (2.0%) of the face amount of the Bonds shall be used for such
purposes as provided by the Code;
(c) payment of, or reimbursement of the Company for, labor, services,
material, supplies and/or equipment used or furnished in site improvement
and in the construction of the Project, all as provided in the Plans and
Specifications, payment for the cost of the acquisition and installation of
the Leased Equipment, payment for the cost of acquisition, construction and
installation of utility services or other facilities including trackage to
connect the Project with public transportation facilities, and all real and
personal properties deemed necessary in connection with the Project and
payment for the miscellaneous expenses incidental to any of the foregoing;
(d) payment of, or reimbursement of the Company for, the fees, if any,
for architectural, engineering and supervisory services with respect to the
Project;
(e) payment of, or reimbursement of the Company, subject to the
limitation on the use of the proceeds of the Bonds for the payment of,
Issuance Costs;
(f) payment of, or reimbursement of the Company and the Issuer for,
any other legal and valid costs and expenses relating to the Project,
subject to the limitation on the use of the proceeds of the Bonds for the
payment of Issuance Costs; and
(g) all moneys remaining in the Project Fund (including moneys earned
on investments made pursuant to the provisions of Section 4.8) after the
Completion Date and payment in full of the cost of the acquisition,
construction and installation of the Project, and after payment of all
other items provided for in the preceding subsections of this Section then
due and payable, shall be used to reimburse the City for any payments it
may have made pursuant to the Contract, and thereafter, at the direction of
the Company shall be (i) used to acquire, construct and install additions,
extensions and improvements to the Project in accordance with amended Plans
and Specifications therefor duly filed with the Issuer subject to Section
8.10(c), (ii) deposited into the Bond Fund and used by the Trustee to the
maximum extent practicable consistent with making partial redemptions in
amounts of not less than $5,000 or integral multiples thereof, for the
redemption of Bonds at the earliest date permitted by the indenture or the
purchase of Bonds for the purpose of cancellation at any time prior to the
earliest date permitted by the Indenture for the redemption of Bonds, or
(iii) deposited into the Bond Fund and used by the Trustee to pay interest
on the Bonds, or (iv) a combination of (i), (ii) and/or (iii) as is
provided in
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such direction, provided that amounts approved by the Authorized Company
Representative shall be retained by the Trustee in the Project Fund for
payment of costs not then due and payable. Any balance remaining of such
retained moneys after full payment of all such Project costs shall be used
by the Trustee as directed by the Company in the manner specified in
clauses (i), (ii), (iii) or (iv) of this subsection. Amounts directed by
the Company to be used by the Trustee to redeem Bonds or to purchase Bonds
for the purpose of cancellation shall not, pending such use, be invested at
a yield which exceeds the yield on the Bonds, unless the Trustee shall
receive an opinion of nationally recognized bond counsel acceptable to the
Trustee stating that such use would not affect the exclusion of the
interest on the Bonds from gross income for federal income tax purposes.
Amounts in excess of the aggregate of 3% of the net proceeds of the sale of
the Bonds shall not be directed by the Company to be used for the purposes
described in clauses (i), (ii), (iii) or (iv) without providing the Trustee
with an opinion of a firm of nationally recognized bond counsel acceptable
to the Trustee stating that such use will not impair the exclusion of the
interest on the Bonds from gross income for federal income tax purposes. In
the event the yield must be so restricted, the Trustee shall be entitled to
rely upon advice from such legal and accounting experts as may be
reasonably required, and the costs of such advice shall be borne by the
Company.
The payments specified in subsections (a) through (g) of this Section
(other than payment of interest on the Bonds accruing prior to the Completion
Date) shall be made by the Trustee only upon receipt of the following;
(1) a written requisition for such payment signed by the Authorized
Company Representative and, subject to the indemnification provisions of
Section 8.3 hereof, the Authorized Issuer Representative;
(2) a certificate by the person signing such requisition certifying;
(i) that an obligation in the stated amount has been incurred in
connection with the issuance of the Bonds or the acquisition,
construction and installation of the Project;
(ii) that such obligation is a proper charge against the Project
Fund and has not been the basis of any previous withdrawal from the
Project Fund, and specifying the purpose and circumstances of such
obligation in reasonable detail and the name and address of the person
to whom such obligation is owed,
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accompanied by a bill or statement of account for such obligation;
(iii) that (A) he has no notice of any vendors', materialmen's,
mechanics', suppliers', or other similar liens or right to liens,
chattel mortgages or conditional sales contracts, or other contracts
or obligations which should be satisfied or discharged before payment
of such obligation is made, or (B) such requisition is for the purpose
of obtaining funds to be used to satisfy or discharge a lien or
contract of the type described in (A) above;
(iv) that such requisition contains no request for payment on
account of any portion of such obligation which the Company is, as of
the date of such requisition, entitled to retain under any retained
percentage agreements;
(v) that such requisition contains no request for payment on
account of any obligation paid or incurred prior to November 3, 1992;
and
(3) with respect to any such requisition for payment for labor,
services, material, supplies and/or equipment, an additional certificate,
signed by the Authorized Company Representative and Authorized Issuer
Representative, certifying that insofar as such obligation was incurred for
labor, services, material, supplies and/or equipment in connection with the
acquisition, construction and installation of the Project, such labor
and/or services were actually performed in a satisfactory manner and such
material, supplies and/or equipment were actually used in or about the
construction or delivered at the site of the Project for that purpose and
that the item of equipment with respect to which any payment is requested
constitutes Leased Equipment. Such requisition and certification shall be
in substantially the form attached hereto as Exhibit "C" and by this
reference thereto made a part hereof. The Trustee may require additional
certifications as in its reasonable judgment may be necessary. The
Authorized Issuer Representative may rely conclusively on any certification
furnished it by Dennis & Dennis, Inc. with respect to any of the foregoing.
In making any such payment from the Project Fund the Trustee may rely
on any such requisitions and any such certificates delivered to it pursuant to
this Section and the Trustee shall be relieved of all liability with respect to
making such payments in accordance with any such requisitions and such
supporting certificate or certificates without inspection of the Project or any
other investigation. Disbursements from the Project
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Fund for deposit in the Bond Fund to pay interest on the Bonds accruing during
the Construction Period may be made by the Trustee at the proper times without
the necessity of receiving any such written requisition or supporting
certificate pertaining thereto.
The Issuer and the Company agree for the benefit of each other and for
the benefit of the Trustee and the holders of the Bonds that the proceeds of the
Bonds will not be used in any manner which would result in the loss of the
exemption from federal income taxation of the interest on the Bonds.
Section 4.4. Obligation to Furnish Documents to Trustee. The Company
agrees to furnish to the Trustee the documents referred to in Section 4.3 that
are required by the Trustee to effect payments out of the Project Fund, and to
cause such requisitions and certificates to be directed by the Authorized
Company Representative to the Trustee as may be necessary to effect such
payments. Such obligation of the Company is subject to any provisions hereof or
of the Indenture requiring additional documentation with respect to payments and
shall not extend beyond the moneys in the Project Fund available for payment
under the terms of the Indenture.
Section 4.5. Establishment of Completion Date. The Completion Date
shall be evidenced to the Trustee by a certificate signed by the Authorized
Company Representative stating that, except for amounts retained by the Trustee
for Project costs not then due and payable as provided in Section 4.3(g),
(a) the acquisition, construction and installation of the Project have
been completed substantially in accordance with the plans and
specifications therefor and all labor, services, materials, supplies and/or
equipment used in such acquisition, construction and installation have been
paid for,
(b) all other facilities necessary in connection with the Project have
been acquired, constructed and installed substantially in accordance with
the Plans and Specifications therefor and all costs and expenses incurred
in connection therewith have been paid,
(c) the Project and all other facilities in connection therewith have
been acquired, constructed and installed to his satisfaction and are
suitable and sufficient for the efficient operation of the Project for its
intended purposes, and
(d) a certificate of occupancy, if required, and any other permissions
required of governmental authorities for the occupancy of the Project have
been obtained.
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Notwithstanding the foregoing, such certificate by the Authorized Company
Representative shall state that it is given without prejudice to any rights
against third parties which exist on the date of such certificate or which may
subsequently come into being and shall be in substantially the form attached
hereto as Exhibit "D" and by this reference thereto made a part hereof. The
Company agrees to furnish a copy of such certificate to the Issuer at the same
time such document is furnished to the Trustee.
Section 4.6. Company Required to Pay Project Costs If Project Fund
Insufficient. If the moneys in the Project Fund available for payment of the
cost of the Project should not be sufficient to pay the cost thereof in full,
the Company agrees to complete the Project and to pay all that portion of the
cost of the Project as may be in excess of the moneys available therefor in the
Project Fund. The Issuer does not make any warranty, either express or implied,
that the moneys which will be paid into the Project Fund and which, under the
provisions of this Agreement, will be available for payment of the cost of the
Project will be sufficient to pay all costs which will be incurred in that
connection. The Company agrees that if after exhaustion of the moneys in the
Project Fund the Company should pay any portion of the cost of the Project
pursuant to the provisions of this Section, it shall not be entitled to any
reimbursement therefor from the Issuer or from the Trustee or from the holders
or owners of any of the Bonds, nor shall it be entitled to any diminution in or
postponement of the payments required to be made hereunder.
Section 4.7. Issuer to Pursue Remedies Against Suppliers, Contractors
and Their Sureties. At the direction and sole cost of the Company (to the extent
that such cost is not payable and actually paid from the Project Fund), the
Issuer will promptly proceed, either separately or in conjunction with others,
to exhaust the remedies of the Issuer against any defaulting supplier,
contractor or subcontractor and against any surety therefor, for the performance
of any contract made in connection with the Project. If the Company shall so
notify the Issuer, the Company may, in its own name or in the name of the
Issuer, prosecute or defend any action or proceeding or take any other action
involving any such supplier, contractor, subcontractor or surety which the
Company deems reasonably necessary, and in such event the Issuer agrees to
cooperate fully with the Company and to take all necessary actions or
proceedings. In addition, the Issuer recognizes that it may be entitled to a
refund of certain sales, use or other taxes levied and paid on goods and
merchandise which are used in the construction of the Project and which become
an integral part thereof. The Issuer agrees that it will, at the request and
expense of the Company, take all necessary action to obtain any such refund to
which it is entitled. Any moneys recovered by way of damages, refunds,
adjustments or otherwise in connection with the foregoing prior to the
Completion Date shall
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be paid into the Project Fund and after the Completion Date shall be used as
authorized by Section 4.3(g).
Section 4.8. Investment of Bond Fund and Project Fund Moneys
Permitted. Any moneys held in the Bond Fund or the Project Fund shall be
invested or reinvested by the Trustee upon the oral request and direction of the
Company, promptly confirmed in writing, in Permitted Investments as defined in
the Indenture, to the extent permitted by the laws of the State. Such
investments shall be made upon direction of the Authorized Company
Representative and shall mature in such amounts and at such times as may be
necessary to provide funds when needed to make payments from the Bond Fund or
the Project Fund. The Trustee may make any and all such investments through its
own bond department or trust investment department. Any interest or gain
received from such investments shall be credited to and held in the Bond Fund or
the Project Fund and any loss from such investments shall be charged against the
Bond Fund or the Project Fund and paid by the Company at such time as there are
insufficient moneys in any such Fund to make a required payment. The Trustee
shall not be responsible or liable for any loss suffered in connection with any
investment of funds made by it in accordance with this Section 4.8 or the
provisions of Article VII of the Indenture. The provisions of this Section 4.8
shall be subject to the provisions of Section 8.10 of this Agreement and Section
510 of the Indenture.
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ARTICLE V.
TITLE TO PROJECT; PROVISIONS FOR PAYMENT
Section 5.1. Title to the Project. The Issuer acknowledges and agrees
that it will not be vested with any interest (other than this leasehold
interest) in the Project by virtue of executing, delivering and performing this
Agreement or issuing the Bonds to finance the cost of the acquisition,
construction and installation thereof. Title to the Project shall remain in the
City subject to the Lease and this Agreement.
Section 5.2. Payment Obligations of the Company. As rent for the
Project, the Company agrees to make prompt payment to the Trustee for the
account of the Issuer, for deposit in the Bond Fund, amounts sufficient to pay
the principal of, and the interest on, the Bonds as the same become due, as
follows: on or before the 15th day prior to each Bond Payment Date (as defined
in the Indenture) or any other date that any payment of interest, redemption
premium, if any, or principal (whether by scheduled payment or by mandatory
redemption, if any, as provided in Section 301 of the Indenture) is required to
be made in respect of the Bonds pursuant to the Indenture, until the principal
of, redemption premium, if any, and interest on the Bonds shall have been fully
paid or provision for payment thereof shall have been made in accordance with
the Indenture, in immediately available funds, a sum which will enable the
Trustee to pay the amount payable on such date (taking into account any money
then held by the Trustee and available for such payment) as principal of
(whether at maturity or upon redemption or acceleration or otherwise),
redemption premium, if any, and interest on the Bonds as provided in the
Indenture.
All such payments shall be made to the Trustee at its principal
corporate trust office in Charlotte, North Carolina, in lawful money of the
United States of America which will be immediately available on the date each
such payment is due. Each payment shall be sufficient to pay the total amount of
principal of and interest on, the Bonds due on the succeeding Bond Payment Date.
Anything herein to the contrary notwithstanding, if on any such payment date,
the balance in the Bond Fund is insufficient to make the required payments of
principal of, and interest on, the Bonds on such date, the Company shall
forthwith pay any such deficiency.
Should the Company fail to make the payments required under this
Section and such payments are made by the City pursuant to the terms of the
Contract between the City and the Issuer, the Company shall be obligated
hereunder to pay to the Issuer for the account and benefit of the City all such
sums so paid by the City
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pursuant to the Contract with interest thereon from the date of payment by the
City at the rate of 7% per annum.
Section 5.3. Other Payments; Trustee's Fees and Expenses. In addition
to payment of the amounts specified in Section 5.2, the Company agrees to pay to
the Trustee until payment in full of the Bonds shall have been made as rent
hereunder, (a) an amount equal to the reasonable fees and charges of the Trustee
for the Ordinary Services of the Trustee rendered and its reasonable Ordinary
Expenses incurred under the Indenture, (b) the reasonable fees and charges of
the Trustee and any other paying agent for acting as paying agent and Bond
Registrar as provided in the Indenture, as and when the same become due,
including the reasonable fees of Counsel, and (c) the reasonable fees and
charges of the Trustee for Extraordinary Services rendered by it and reasonable
Extraordinary Expenses incurred by it under the Indenture, as and when the same
become due.
Section 5.4. Obligations of the Company Absolute and Unconditional.
The obligations of the Company and the Issuer to make the payments required in
Section 5.2 and to perform and observe the other agreements on its part
contained herein shall be absolute and unconditional and shall not be subject to
diminution by set-off, counterclaim, abatement or otherwise. Until such time as
the principal of, and the interest on, the Bonds shall have been paid in full,
the Company (a) will not suspend or discontinue any payments provided for in
Section 5.2 except to the extent the same have been prepaid, (b) will perform
and observe all its other agreements contained herein, and (c) except as
provided in Sections 10.1, 10.2 and 10.3, will not terminate this Agreement for
any cause, including, without limiting the generality of the foregoing, any acts
or circumstances that may constitute failure of consideration, sale, loss,
eviction or constructive eviction, destruction of or damage to the Project,
commercial frustration of purpose, any change in the tax or other laws of the
United States of America or of the State or any political subdivision of either,
or any failure of the Issuer to perform and observe any agreement, whether
express or implied, or any duty, liability or obligation arising out of or in
connection herewith or with the Indenture. Nothing contained in this Section
shall be construed to release the issuer from the performance of any of the
agreements on its part herein contained; and if the Issuer should fail to
perform any such agreement, the Company may institute such action against the
Issuer as the Company may deem necessary to compel performance or recover its
damages for nonperformance so long as such action shall not affect or alter the
agreements on the part of the Company contained in the preceding sentence.
Nothing contained herein shall be construed as a waiver of any rights
which the Company may have against the Issuer under this Agreement, or against
any person under this Agreement, the Indenture or otherwise, or under any
provision of law.
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ARTICLE VI.
MAINTENANCE, MODIFICATION, TAXES AND INSURANCE
Section 6.1. Maintenance and Modification of Project by Company.
(a) Throughout the Lease Term the Company shall at its own expense (i)
keep the Project in as reasonably safe condition as the operation thereof
will permit, and (ii) keep the Leased Equipment and all other improvements
forming a part of the Project in good repair and in good operating
condition, making from time to time all necessary repairs thereto and
renewals and replacements thereof.
(b) The Company may, from time to time, in its sole discretion and at
its own expense, make any additions, modifications or improvements to the
Project, including installation of additional machinery, equipment, and
related property; which it may deem desirable for its business purposes;
provided that all such additions, modifications and improvements do not
adversely affect the structural integrity of the building and are located
wholly within the boundary lines of the Leased Land. All machinery,
equipment and related property so installed by the Company shall remain the
sole property of the Company in which neither the Issuer nor the Trustee
shall have any interest and may be modified or removed at any time;
provided, that any damage to the Project occasioned by such modification or
removal shall be repaired by the Company at its own expense.
(c) The Company shall not permit any mechanics', materialmen's,
suppliers', vendors', or other similar lien to be established or remain
against the Project for labor or materials furnished or services rendered
in connection with any additions, modifications, improvements, repairs,
renewals or replacements so made by it; provided, that if the Company shall
first notify the Issuer of its intention so to do, the Company may in good
faith contest any mechanics', materialmen's, suppliers', vendors' or other
similar lien filed or established against the Project, and in such event
may permit the items so contested to remain undischarged and unsatisfied
during the period of such contest and any appeal therefrom unless the
Issuer or the Trustee shall notify the Company that, in the opinion of
independent Counsel, by nonpayment of any such items, the lien or security
interests afforded by this Agreement will be materially endangered or the
Project or any part thereof or the Trust Estate will be subject to loss or
forfeiture, in which event the Company shall promptly pay and cause to be
satisfied and discharged all such unpaid items. The Issuer will cooperate
fully with the Company in any such contest.
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Section 6.2. Taxes, Other Governmental Charges and Utility Charges.
The Issuer and the Company acknowledge that under present law, no part of the
Issuer's interest in the Project is subject to ad valorem taxation by the State
or by any political or taxing subdivision thereof, and that under present law,
the income and profits (if any) of the Issuer from the Project are not subject
to either federal or State taxation. The Issuer and the Company also acknowledge
that the Company's interest in the Leased Land and the Project is a usufruct and
not an estate for years, and therefore, the Company's interest in the Leased
Land and the Project is not subject to either federal or State taxation. The
Company shall pay, as the same become lawfully due and payable,
(a) all taxes and governmental charges of any kind whatsoever upon or
with respect to the interest held by the Company hereunder,
(b) all taxes and governmental charges of any kind whatsoever upon or
with respect to the Project or any machinery, equipment or related property
installed or brought by the Company therein or thereon (including, without
limiting the generality of the foregoing, any taxes levied upon or with
respect to the income or profits of the Issuer from the Project which, if
not paid, will become a lien on the Project prior to or on a parity with
the security interest in favor of the Issuer created hereunder),
(c) all utility and other charges incurred in the operation,
maintenance, use, occupancy and upkeep of the Project, and
(d) all assessments and charges lawfully made by any governmental body
for public improvements that may be secured by a lien on the Project;
provided, that with respect to special assessments or other governmental charges
that may lawfully be paid in installments over a period of years, the Company
shall be obligated to pay only such installments as are required to be paid
during the Lease Term.
The Company may, at its own expense and in its own name and behalf or
in the name and behalf of the Issuer, in good faith contest any such taxes,
assessments and other charges and, in the event of any such contest, may permit
the taxes, assessments and other charges so contested to remain unpaid during
the period of such contest and any appeal therefrom unless the Issuer or the
Trustee shall notify the Company that, in the opinion of Independent Counsel, by
nonpayment of any such items the lien or security interests afforded by this
Agreement in favor of the Issuer will be materially endangered or the Project or
any part thereof will be subject to loss or forfeiture, in which event such
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taxes, assessments or charges shall be paid promptly. The Issuer shall cooperate
fully with the Company in any such contest. If the Company shall fail to pay any
of the foregoing items required by this Section to be paid by the Company, the
Issuer may (but shall be under no obligation to) pay the same, and any amounts
so advanced therefor by the Issuer shall become an additional obligation of the
Company to the Issuer, which amounts, together with interest thereon at the rate
of 8% per annum from the date thereof, the Company agrees to pay.
Section 6.3. Insurance Required. Throughout the Lease Term the Company
shall keep the Project continuously insured against such risks as are
customarily insured against by businesses of like size and type (other than
business interruption insurance), paying as the same become due all premiums in
respect thereto, including, but not necessarily limited to:
(a) insurance to the full insurable actual cash value of the Project
against loss from damage by fire and lightning, with uniform standard
extended coverage endorsement limited only as may be provided in the
standard form of extended coverage endorsement at the time in use in the
State, and the policies evidencing such insurance may provide that the
Company shall be self-insured to the extent of $100,000 in connection with
each separate claim insured against. Such self-insurance may, at the
Company's option, be taken directly as a deductible or indirectly under any
type of retrospective rating arrangement between the Company and such
insurer as it may select; and
(b) general public liability insurance against claims for bodily
injury, death or property damage occurring on, in or about the Project and
the adjoining streets, sidewalks, and passageways, such insurance to afford
protection of not less than $10,000,000 with respect to bodily injury to
any one person, not less than $10,000,000 with respect to bodily injury to
two or more persons in any one accident, and not less than $10,000,000 with
respect to property damage resulting from any one occurrence, and the
policies evidencing such insurance may provide that the Company shall be
self-insured to the extent of $100,000 in connection with each separate
claim insured against. Such self-insurance may, at the Company's option, be
taken directly as a deductible or indirectly under any type of
retrospective rating arrangement between the Company and such insurer as it
may select; and
(C) during the Construction Period and throughout the Lease Term, the
Company shall maintain, or cause to be maintained in connection with the
Project, Workers' Compensation Coverage required by then applicable law.
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With respect to the insurance required by Section 6.3(a), if the
Issuer shall disagree with the Company as to the full insurable actual cash
value of the Project, the Issuer shall have the right at its own expense to
appoint an MAI appraiser to determine such value for such purposes, and, should
the Company disagree with such appraisal, it may appoint at its own expenses a
second MAI appraiser and the two appraisers shall appoint a third MAI appraiser
(at the joint expense of the Issuer and the Company), and the appraisers shall
establish such value.
Section 6.4. Application of Net Proceeds of insurance. The Net
Proceeds of the insurance carried pursuant to the provisions of Section 6.3
shall be applied, as follows: (a) the Net Proceeds of the insurance required in
Section 6.3(a) shall be applied as provided in Section 7.1, and (b) the Net
Proceeds of the insurance required in Sections 6.3(b) and (c) shall be applied
toward extinguishment or satisfaction of the liability with respect to which
such insurance proceeds may be paid.
Section 6.5. Additional Provisions Respecting Insurance. All insurance
required in Section 6.3 shall be taken out and maintained in generally
recognized responsible insurance companies selected by the Company and
authorized to do business in the State. All policies evidencing such insurance
shall provide for payment of the losses for coverage required by Section 6.3(a)
and 6.3(b) to the Issuer, the Company and the City as their respective interests
may appear; provided, however, that all claims regardless of amount may be
adjusted by the Company with the insurers, subject to approval of the Issuer,
which approval shall not be unreasonably withheld, as to settlement of any claim
which is an amount which would require payment to the Issuer as aforesaid. The
insurance hereby required may be contained in blanket policies now or hereafter
maintained by the Company.
All such policies, or a certificate or certificates of the insurers
that such insurance is in force and effect, shall be deposited with the Issuer
and the City and shall contain a provision that such policy may not be cancelled
unless the Issuer and the City are notified at least thirty (30) days prior to
cancellation; and at least thirty (30) days prior to expiration of any such
policy, the Company shall furnish the Issuer and the City with evidence
satisfactory to the latter that the policy has been renewed or replaced or is no
longer required hereby.
The Company may fulfill its obligations to keep the Project insured
pursuant to Section 6.3 hereof and this Section 6.5 by having the Project
covered under a blanket or master policy of the City or the Issuer. In the case
of such coverage, the Issuer must assure the receipt by the Company thirty (30)
days prior notice of any changes, modifications or cancellations of insurance
coverage. The Issuer agrees to use its best efforts to procure the insurance at
the most favorable rates possible, and,
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if possible, to cause the City to provide coverage through its blanket or master
policies (in which case the cost of such insurance to the Company shall be
equitably reduced to reflect the cost savings as a result of such inclusion in
the City's or the Issuer's blanket or master policies).
Section 6.6. Other Issuer Expenses. Anything to the contrary herein
notwithstanding, the Company shall pay any expenses not specifically mentioned
herein which are incurred by the Issuer in connection with the Project, this
Agreement, the Indenture or the Bonds, and which are not payable from the
Project Fund pursuant to Section 4.3.
The provisions of this Section shall survive the termination of this
Agreement.
Section 6.7. Advances by Issuer or City. If the Company fails to
maintain the full insurance coverage required hereby or fails to keep the
Project in as reasonably safe condition as its operating conditions will permit,
or fails to keep the Project and the Leased Equipment in good repair and good
operating condition, the Issuer or the City may (but unless satisfactorily
indemnified shall be under no obligation to) take out the required policies of
insurance and pay the premiums on the same or make the required repairs,
renewals and replacements; and all amounts so advanced therefor by the Issuer or
the City will become an additional obligation of the Company to the one making
the advancement, which amounts, together with interest thereon at the rate per
annum borne by the Bonds from the date thereof, the Company agrees to pay.
The provisions of this Section shall survive the termination of this
Agreement.
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ARTICLE VII
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 7.1. Damage and Destruction. If prior to payment in full of
the Bonds the Project is damaged by fire or other casualty, the Company at its
option shall have the right to use the Net Proceeds of insurance resulting from
such claims for losses to either (a) redeem the Bonds, or (b) replace, repair,
rebuild or restore the Project as hereinafter set forth.
The Company shall make such election within ninety (90) days following
any such loss by giving written notice to the issuer and the City.
In the event the Company elects to redeem the Bonds, the Net Proceeds
of insurance attributable to (x) the contents of the Project exclusive of the
Leased Equipment described in Exhibit "B" hereto and (y) the improvements on the
Leased Land belonging to the Company present on the Leased Land as of May 1,
1993 shall promptly be paid to the Company, and all other Net Proceeds of
insurance shall promptly upon receipt thereof be applied (without any investment
thereof) to the redemption of the Bonds, and any remainder of Net Proceeds after
providing for the redemption of the Bonds in full shall be paid, in the event
the Company does not elect to replace, repair, rebuild or restore the property,
to restoring the site of the Project to developable condition and the balance
shall be paid to the Company, the Issuer and the City as their respective
interests may appear.
In the event the Company elects to replace, repair, rebuild or restore
the property,
(i) the Net Proceeds of insurance attributable to (x) the contents of
the Project exclusive of the Leased Equipment described in Exhibit "B"
hereto and (y) the improvements on the Leased Land belonging to the Company
present on the Leased Land as of May 1, 1993 shall promptly be paid to the
Company, (ii) all other Net Proceeds of insurance shall promptly upon
receipt thereof be deposited in a special trust account with the issuer and
made available to the Company to replace, repair, rebuild or restore,
(ii) the Company, or the Issuer at the Company's direction, shall
proceed promptly to replace, repair, rebuild or restore the property
damaged or destroyed to substantially the same condition as existed prior
to the event causing such damage or destruction, with such changes,
alterations and modifications (including the substitution and addition of
other property) as may be desired by the Company and as will not impair the
operating unity or productive capacity of the
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Project or change its character to such an extent that its ownership by the
issuer would not be permitted under the laws pursuant to which the Issuer
then exists, and
(iii) the issuer shall apply so much as may be necessary of the Net
Proceeds of such insurance to the payment of the costs of such replacement,
repair, rebuilding or restoration, either on completion thereof or as the
work progresses, as directed by the Company.
Each such direction of the Company shall be accompanied by a certificate of an
architect or engineer (or, in the case of a loss of $25,000 or less, the
Company), which architect or engineer shall be selected by the Company and
satisfactory to the City, in charge of the replacement, repair, rebuilding or
restoration, dated not more than thirty (30) days prior to such direction,
setting forth in substance that
(A) the sum then directed to be applied either has been paid by the
Company, or is justly due, to contractors, subcontractors, materialmen,
engineers, architects or other persons who shall have rendered services or
furnished materials or improvements for the replacement, repair, rebuilding
or restoration therein specified; the names of such persons; a brief
description of such services or materials or improvements and the several
amounts so paid or due to each of such persons; and, a statement that none
of the costs of the services or materials or improvements described in such
certificate has been or is being made the basis, in any previous or then
pending direction, for payment under this Section and that the sum then
directed to be applied does not exceed the value of the services or
materials or improvements described in the certificate, and
(B) except for the amount, if any, stated (pursuant to (A) preceding)
in such certificate to be due for services or materials or improvements,
there is not outstanding any indebtedness known to the persons signing such
certificate which is then due for labor, services, material, supplies
and/or equipment in connection with the replacement, repair rebuilding or
restoration which, if unpaid, might become the basis of mechanics',
materialmen's, suppliers' and vendors, liens or other similar liens (other
than those being contested in good faith as permitted herein upon the
Project or any part thereof).
The Issuer may conclusively rely upon such direction and shall have no liability
or responsibility for payments made pursuant to this Section in reliance
thereon. If said Net Proceeds are not sufficient to pay in full the costs of
such replacement, repair, rebuilding or restoration, the Company shall
nonetheless complete the same and shall pay that portion of the costs thereof in
excess
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of the amount of said Net Proceeds or shall advance to the Issuer the moneys
necessary to complete said work, in which case the Issuer shall proceed so to
complete the work. The Company shall not, by reason of the payment of such
excess costs (whether by direct payment thereof or advances to the Issuer), be
entitled to any reimbursement from the Issuer or the City or any diminution in
or postponement or abatement of the Rents payable under Section 5.2.
Any balance of said Net Proceeds remaining after payment of all the
costs of such replacement, repair, rebuilding or restoration shall be paid into
the Bond Fund. If payment in full of the Bonds has been made, all Net Proceeds
shall be paid to the Issuer for the benefit of the Company.
Section 7.2. Condemnation. If the title in and to, or the temporary
use of, the Project or any part thereof shall be taken under the exercise of the
power of eminent domain by any governmental body or by any other person acting
under governmental authority, or the Project or any part thereof is sold in lieu
of such exercise of the power of eminent domain, the Company shall be obligated
to continue to pay the rents specified in Section 5.2. The Issuer shall cause
the Net Proceeds received by it and the City, from any award made in such
eminent domain proceeding, or from any proceeds of a sale in lieu thereof, to be
applied in one or more of the following ways as shall be directed in writing by
the Company:
(a) the restoration of the improvements of the Project to
substantially the same condition as existed prior to the exercise of such
power of eminent domain, with such changes, alterations and modifications
(including the substitution and addition of other property) as may be
desired by the Company, provided that such changes, alterations and
modifications do not adversely affect or impair the structural integrity of
the building or change the Project's character to such an extent that the
Project would not constitute a "project" within the meaning of the Act and
that all such changes, alterations and modifications are located within the
boundaries of the Leased Land;
(b) the acquisition, by construction or otherwise, by the Issuer of
other improvements on any remaining portion of the Leased Land suitable for
the Company's operations at the Project, provided that such improvements do
not adversely affect or impair the structural integrity of the building or
change the Project's character to such an extent that the Project would not
constitute a "project" within the meaning of the Act and that all such
improvements are located within the boundary lines of the Leased Land. All
such improvements to the Project shall inure to and become part of the
Project;
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(c) redemption of the Bonds together with accrued interest thereon to
the date of redemption; provided, that no part of any such condemnation
award or proceeds of a sale in lieu thereof may be applied for such
redemption unless (1) the Bonds are to be redeemed in whole in accordance
with the Indenture upon exercise by the Company of its option to direct
redemption of the Bonds provided by Section 10.1(b), or (2) if less than
all of the Bonds are to be redeemed, the Company shall furnish to the
Issuer and the City a certificate of an Independent Engineer (who shall be
selected by the Company and be acceptable to the City and the Issuer)
stating (i) that the property forming a part of the Project that was taken
in such eminent domain proceeding is not essential to the Company's use or
occupancy of the Project, (ii) that the Project has been restored to a
condition substantially equivalent to its condition prior to the taking in
such eminent domain proceeding, or (iii) that improvements have been
acquired which are suitable for the Company's operations at the Project as
contemplated by the foregoing subsection (b) of this Section; or
(d) payment into the Bond Fund or, if payment in full of the Bonds has
been made, to the Company.
Within ninety (90) days from the date of entry of a final order in any
eminent domain proceeding granting condemnation or a sale in lieu of
condemnation, the Company shall direct the Issuer and the City in writing as to
which way or ways specified in this Section the Company elects to have the
condemnation award applied. The direction of the Company shall, in the case of a
restoration under Section 7.2(a) or the acquisition or construction of
improvements under Section 7.2(b), be accompanied by a certificate similar to
that required in Section 7.1. The Issuer may conclusively rely upon such
direction and shall have no liability for payments made pursuant to this Section
in reliance thereon.
The Company shall take or cause to be taken such action, if any, as
may be necessary to perfect the lien and security interest of the Issuer with
respect to any improvements of the Project pursuant to this Section.
The Issuer shall cooperate fully with the Company in the handling and
conduct of any prospective or pending eminent domain proceeding with respect to
the Project or any part thereof and shall, to the extent it may lawfully do so,
permit the Company to litigate in any such proceeding in the name and on behalf
of the Issuer. In no event will the Issuer voluntarily settle, or consent to the
settlement of, any prospective or pending eminent domain proceeding with respect
to the Project or any part thereof without the written consent of the Company
and the Trustee.
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In the event the Company elects to redeem the Bonds, the Net Proceeds
of condemnation proceeds shall promptly upon receipt thereof be applied (without
any investment thereof) to the redemption of the Bonds.
In the event the Company elects to replace, repair, rebuild or restore
the property, the Net Proceeds of condemnation proceeds shall promptly upon
receipt thereof be deposited in a special trust account with the Issuer and made
available to the Company for such purpose.
Section 7.3. Condemnation of Company-Owned Property. The Company shall
be entitled to the proceeds of any condemnation award or portion thereof made
for damages to or taking of its own property or for damages on account of the
taking of or interference with the Company's rights to possession, use or
occupancy of the Project.
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ARTICLE VIII.
PARTICULAR AGREEMENTS
Section 8.1. No Warranty of Condition or Suitability by the Issuer.
THE ISSUER MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE CONDITION OF
THE PROJECT OR THAT IT WILL BE SUITABLE FOR THE COMPANY'S PURPOSES OR NEEDS. The
Company releases the Issuer from, agrees that the Issuer shall not be liable for
and agrees to hold the Issuer harmless against, any loss or damage to property
or any injury to or death of any person that may be occasioned by any cause
whatsoever pertaining to the Project or the use thereof.
Section 8.2. Inspection of the Project. The Company agrees that the
City, the Issuer and the Trustee and their duly authorized agents who are
acceptable to the Company shall have the right at reasonable times during
business hours, subject to the Company's usual safety and security requirements
for persons on the Leased Land, to enter upon the Leased Land and to examine and
inspect the Project without interference or prejudice to the Company's
operations; provided, however, that any such right of inspection shall be solely
for the purpose of determining the Company's compliance with this Agreement.
Before exercising any such right of inspection, the Issuer or the Trustee, as
the case may be, shall first give notice, written or oral, to the Company at
least three (3) hours prior to making the requested inspection of the Project.
The Company further agrees that the City, the Issuer and its duly
authorized agents who are acceptable to the Company shall have such rights of
access to the Project as may be reasonably necessary to cause to be completed
the acquisition, construction and installation of the Project.
Section 8.3. Indemnification of Issuer and Trustee. The Company shall
indemnify and save the Issuer and its directors, officers and employees, and the
Trustee and its directors, officers, employees, agents and affiliates harmless
against and from all claims by or on behalf of any person, firm or corporation
arising from the conduct or management of, or from any work or thing done on,
the Project during the term of this Agreement, and against and from all claims
arising during the term of this Agreement from
(a) any condition of the Project caused by the Company,
(b) any failure on the part of the Company in the performance of any
of its obligations hereunder,
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(c) any contract entered into by the Company or by the Issuer with the
written consent of the Company in connection with the acquisition,
construction and installation of the Project,
(d) any act of negligence of the Company or of its agents,
contractors, servants, employees or licensees, and
(e) any act of negligence of any assignee or sublessee of the Company,
or of any agent, contractor, servant, employee or licensee of any assignee
or sublessee of the Company.
The Company shall indemnify and save the Issuer (including its directors,
officers and employees) harmless from and against all costs and expenses
incurred in or in connection with any action or proceeding brought thereon, and
upon notice from the Issuer, the Company shall defend the Issuer in any such
action or proceeding. This indemnification shall not extend to the Issuer for
actions undertaken in negligence or bad faith.
The Company shall indemnify and save the Trustee (including its directors,
officers, employees, agents and affiliates) harmless from and against all costs
and expenses incurred in or in connection with any action or proceeding brought
thereon, and upon notice from the Trustee, the Company shall defend the Trustee
in any such action or proceeding. This indemnification shall not extend to the
Trustee for actions undertaken in negligence or bad faith.
The Company agrees to pay to the Trustee any and all sums of money
required to be paid by the Issuer pursuant to Section 1002 of the Indenture.
The provisions of this Section shall survive the termination of this
Agreement.
Section 8.4. Maintenance of Corporate Existence; Qualification in the
State. The Company agrees that so long as any Bonds remain outstanding it shall
maintain its corporate existence and shall not merge or consolidate with any
other corporation and shall not transfer or convey all or substantially all of
its property, assets and licenses; provided, however, the Company may, without
violating any provision hereof, consolidate with or merge into another domestic
corporation (i.e., a corporation incorporated and existing under the laws of one
of the states of the United States of America or the District of Columbia) or
permit one or more other domestic corporations to consolidate with or merge into
it, or transfer all or substantially all of its assets to another domestic
corporation, but only on the condition that ration, but only on the condition
that
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(a) the assignee corporation or the corporation resulting from or
surviving such merger (if other than the Company) or consolidation or the
corporation to which such transfer is made is in compliance with the terms
of the second paragraph of this Section and shall expressly assume in
writing and agree to perform all of the Company's obligations hereunder,
and
(b) in connection with any such consolidation or merger there shall
be filed with the Issuer and the Trustee a letter from an independent
certified public accountant (or firm thereof) satisfactory to the Trustee
certifying that immediately after the consummation of such consolidation,
merger or transfer the corporation resulting from or surviving such
consolidation or merger or the corporation to which such transfer is made
will have an aggregate stockholders' equity at least equal the aggregate
stockholders' equity of the Company as of March 31, 1993.
If the Company is the surviving corporation in such a consolidation or merger,
the express assumption referred to in (a) above shall not be required, but the
letter of an independent certified public accountant (or firm thereof) shall be
filed as indicated in (b) above.
The Company warrants (i) that it is and throughout the term hereof it
will continue to be qualified to do business in the State, and (ii) that if it
elects to consolidate with, merge into or transfer all or substantially all of
its assets to another corporation in accordance with this Section, and such
other corporation is not organized under the laws of the State, the Company, as
a condition of such consolidation, merger or transfer of assets, shall cause
such other corporation to qualify to do business as a foreign corporation in the
State and to remain so qualified continuously during the term hereof.
The Company shall preserve and keep in full force and effect all
licenses and permits necessary to the proper conduct of its business.
Section 8.5. Assignment and Subleasing. This Agreement may be
assigned, and the Project may be subleased as a whole or in part, by the Company
without the necessity of obtaining the consent of either the Issuer or the City,
subject, however, to the following conditions:
(1) the Company shall remain primarily liable for its obligations
hereunder, including the payment of the rents specified in Section 5.2
hereof and the performance and observance of the other agreements on its
part herein contained;
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(2) the assignee or sublessee shall assume the obligations of the
Company hereunder (including specifically, but without limitation, all
covenants required to maintain the tax-exempt status of the Bonds) to the
extent of the interest assigned or subleased;
(3) the Company shall, within thirty (30) days after the delivery
thereof, furnish or cause to be furnished to the Issuer and to the City a
true and complete copy of each such assignment and sublease, as the case
may be; and
(4) any assignee or sublessee shall elect and waive in writing
satisfactory to the Issuer any rights to claim depreciation or investment
tax credit with respect to the Project or the Leased Land.
Section 8.6. Annual Audit; Financial Information. The Company agrees
to have an annual audit made by an independent certified public accountant (or
firm thereof) and to furnish to the Issuer and the City either a copy of such
audit promptly upon its completion or a copy of the Company's annual report to
its stockholders if such annual report shall contain financial statements of
substantially similar detail and similarly prepared and certified.
Section 8.7. Agreement of Issuer Not to Assign or Pledge. The Issuer
agrees that except for granting to the City a security interest in the Issuer's
rights hereunder, it will not attempt to assign, pledge, transfer or convey its
interest in or create any assignment, pledge, lien, charge or encumbrance of any
form or nature with respect to this Agreement so long as the Company is not in
default hereunder.
Section 8.8. Redemption of Bonds. The Issuer or the Trustee, at the
request at any time of the Company and if the same are then redeemable, shall
forthwith take all steps that may be necessary under the applicable redemption
provisions of the Indenture to effect redemption of all or any portion of the
Bonds, as may be specified by the Company, on the earliest redemption date on
which such redemption may be made under such applicable provisions or upon the
date set for the redemption by the Company pursuant to Sections 10.1 and 10.2.
As long as the Company is not in default hereunder and the Issuer is not
obligated to call Bonds pursuant to the terms of the Indenture, neither the
Issuer nor the Trustee shall redeem any Bond prior to its stated maturity unless
requested to do so in writing by the Company.
Section 8.9. Reference to Bonds Ineffective After Bonds Paid. Upon
payment in full of the Bonds and all fees and charges of the Trustee, all
references herein to the Bonds and the Trustee shall be ineffective, and neither
the Trustee nor the holders of any of the Bonds shall thereafter have any rights
hereunder,
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saving and excepting those that shall have theretofore vested and any right of
the Issuer or the Trustee to indemnification under Section 8.3, which right
shall survive the payment of the Bonds and the termination of this Agreement.
Reference is hereby made to Section 802 of the Indenture which sets forth the
conditions upon the existence or occurrence of which payment in full of the
Bonds shall be deemed to have been made. Upon payment in full of the Bonds and
all fees and charges of the Trustee, the Company may elect to continue as lessee
of the Project under the provisions of this Agreement, with no further rental
payments due after prepayment of the rental installments provided in Section 5.2
hereof. In the case of such an election, all rights and obligations of the
Company, as lessee, and the Issuer, as lessor, shall continue hereunder until
midnight on May 1, 2018. The Company shall then have the option to renew the
Lease Term for one seven-year period at fair market value at the time the option
is exercised.
Section 8.10. Covenants of Company and Issuer with Respect to
Exemption of Interest from Federal Income Taxation. The Bonds are being issued
by the Issuer in compliance with the conditions necessary for the interest
income on the Bonds to be exempt from federal income taxation pursuant to the
provisions of Sections 103(a), 103(b)(1), 141(d)(1)(A) and 142(a) of the Code
relating to "exempt facility bonds" issued as part of an issue 95% of the net
proceeds of which are to be used to provide funds for the construction of a new
airport hangar. It is the intention of the parties hereto that the interest on
the Bonds be and remain excludable from gross income for federal income tax
purposes, and, to that end, the Issuer and the Company do hereby covenant with
each other, the Trustee and each of the holders of any Bonds, as follows:
(a) that the Issuer will not cause and the Company will not cause or
permit the proceeds of the Bonds to be used in a manner which will cause
the interest on the Bonds to lose the exemption from federal income
taxation conferred by Sections 103(a), 103(b)(1), 141(e) and 142(a) of the
Code;
(b) that, during the term of this Agreement, the Company will fully
comply with all effective rules, rulings and regulations promulgated by the
Department of the Treasury or the Internal Revenue Service, with respect to
bonds issued under Section 142 of the Code so as to maintain the tax-exempt
status of the interest payable on the Bonds;
(c) that the Company will make no change in the plans and
specifications for the Project which would result in (i) the Project not
being a "project" within the meaning of the Act or an airport exempt
facility under the Code, or (ii) a violation of the limitation on maturity
of the Bonds under Section 147(b) of the Code;
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(d) that no portion of the Project will be used as office space for
individuals who are not employees of a governmental unit or of the Issuer
other than office space that is directly related to the day-to-day
operations at the Project and that is located at or within the Project; and
(e) that at no time will:
(i) any portion of the net proceeds of the sale of the Bonds be
used to provide any airplane, skybox, or other private luxury box, any
health club facility, any facility primarily used for gambling, or any
store the principal business of which is the sale of alcoholic
beverages for consumption off premises; or
(ii) any portion of the proceeds of the Bonds be used to provide
any lodging facility, any retail facility (including food and beverage
facilities) in excess of a size necessary to serve passengers and
employees at the "exempt facility" (as defined in Section 142(a) of
the Code), any retail facility (other than parking) for passengers or
the general pubic located outside the exempt facility terminal, any
office building for individuals who are not employees of a
governmental unit or of the operating authority for the exempt
facility, or any industrial park or manufacturing facility; or
(iii) any portion of the proceeds of the sale of the Bonds be
used (directly or indirectly) for the acquisition of land (or an
interest therein) to be used for farming purposes, or 25% or more of
the net proceeds of the sale of the Bonds be used (directly or
indirectly) for the acquisition of land other than land to be used for
farming purposes; or
(iv) any portion of the net proceeds of the sale of the Bonds be
used for the acquisition of any property or any interest therein,
other than land or an interest in land as provided in the preceding
subparagraph, unless the first use of such property is pursuant to
such acquisition; provided, however, that this limitation shall not
apply with respect to any building (and the equipment therefor) if
"Rehabilitation Expenditures" (hereinafter defined) with respect to
such building equal or exceed fifteen percent of the portion of the
cost of acquiring such building (and equipment) financed with proceeds
of the Bonds; or, in the case of structures other than a building, if
Rehabilitation Expenditures with respect to such structure equal or
exceed one hundred percent of the portion of the cost of
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acquiring such structure financed with the proceeds of the Bonds. The
term "Rehabilitation Expenditures" means any amount properly
chargeable to the capital account of the Company or a successor to the
Company or by the seller under a sales contract with the Company for
the property acquired in connection with the rehabilitation of such
property, or in the case of property constituting equipment, in
connection with the replacement of such equipment with equipment
having substantially the same function, excluding, however, (A)
expenditures described in Section 48(g)(2)(B) of the Code and (B)
amounts incurred after the date two years after the later of the date
of acquisition of the property in question or the date of issuance and
delivery of the Bonds; or
(v) any Bond be held by a person who is a substantial user of the
facilities or by a related person of such substantial user (as
"Related Person" is defined in Section 147(a)(2) of the Code).
Section 8.11. Non-Arbitrage Covenant. The Company and the Issuer each
covenants that it shall take no action, nor shall the Company approve the
Trustee's taking any action or making any investment or use of the proceeds of
the Bonds or any other moneys which may arise out of, or in connection with,
this Agreement, the Indenture or the Project, which would cause the Bonds to be
treated as "arbitrage bonds" within the meaning of Section 148 of the Code.
Without limiting the generality of the foregoing, the Company covenants and
agrees to comply with the requirements of Section 148(d)(3) and Section 148(f)
of the Code as it may be applicable to the Bonds or the proceeds derived from
the sale of the Bonds or any other moneys which may arise out of or in
connection with, this Agreement, the Indenture or the Project.
Section 8.12. Depreciation Election. The Company hereby makes an
irrevocable election, binding on the Company and all successors in interest
under this Agreement, not to claim depreciation or an investment tax credit with
respect to the Project. This covenant is intended to be a covenant running with
the land and this Agreement shall be recorded in the records of the Clerk of the
Superior Court of Bibb County.
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ARTICLE IX.
EVENTS OF DEFAULT AND REMEDIES
Section 9.1. Events of Default Defined. The following shall be
"events of default" hereunder and the term "event of default" shall mean,
whenever it is used herein, any one or more of the following events:
(a) failure by the Company to make any payment required
to be made hereunder when the same becomes due and payable but in any
event, by five days prior to a Bond Payment Date;
(b) failure by the Company to observe and/or perform any
agreement hereunder or under the Lease (to which it is a signatory) on
its part to be observed and/or performed, other than as referred to in
subsection (a) of this Section, for a period of thirty (30) days after
written notice, specifying such failure and requesting that it be
remedied, given to the Company by the Issuer, unless the Issuer shall
agree in writing to an extension of such time prior to its expiration;
provided, however, if the failure stated in the notice cannot be
corrected within the applicable period, the Issuer will not
unreasonably withhold its consent to an extension of such time if it
is possible to correct such failure and corrective action is
instituted by the Company within the applicable period and diligently
pursued until the failure is corrected; or in the case of any such
default which can be cured with due diligence but not within such
thirty-day period, the Company's failure to proceed promptly to cure
such default and thereafter prosecute the curing of such default with
due diligence;
(c) any representation by or on behalf of the Company
contained in this Agreement or in any instrument furnished in
compliance with or in reference to this Agreement or the Indenture
proves false or misleading in any material respect as of the date of
the making or furnishing thereof;
(d) the Company shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of the Company or of all or a substantial part
of its property, (ii) admit in writing its inability, or be generally
unable, to pay its debts as such debts become due, (iii) make a
general assignment for the benefit of its creditors, (iv) commence a
voluntary case under the Federal Bankruptcy Code (as now or hereafter
in effect), (v) file a petition seeking to take advantage of any other
law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, (vi) fail to controvert in a
timely or appropriate manner, or acquiesce
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in writing to, any petition filed against the Company in an
involuntary case under said Federal Bankruptcy Code, or (vii) take any
corporate action for the purpose of effecting any of the foregoing;
(e) a proceeding or case shall be commenced, without the
application or consent of the Company, in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization,
dissolution, winding-up, or composition or adjustment of debts, of the
Company, (ii) the appointment of a trustee, receiver, custodian,
liquidator or the like of the Company or of all or any substantial
part of its assets, or (iii) similar relief in respect of the Company
under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, and such proceeding
or case shall continue undismissed, or an order, judgment or decree
approving or ordering any of the foregoing shall be entered and
continue unstayed and in effect, for a period of sixty (60) days from
commencement of such proceeding or case or the date of such order,
judgment or decree, or an order for relief against the Company shall
be entered in an involuntary case under said Federal Bankruptcy Code;
or
(f) an "event of default" occurs and is continuing under
the Indenture.
The foregoing provisions of subsection (b) of this Section are
subject to the following limitations: If by reason of force majeure the Company
is unable in whole or in part to carry out the agreements on its part therein
referred to, the failure to perform such agreements due to such inability shall
not constitute an event of default nor shall it become an event of default upon
appropriate notification to the Company and/or the passage of the stated period
of time. The term force majeure as used herein shall mean, without limitation,
the following: acts of God; strikes, lockouts or other industrial disturbances;
acts of public enemies; orders of any kind of the government of the United
States of America or of the State or any of their departments, agencies,
political subdivisions or officials, or any civil or military authority;
insurrections; riots; epidemics; landslides; lightning; earthquakes; fires;
hurricanes; tornadoes; storms; floods; washouts; droughts; arrests; restraint
of government and people; civil disturbances; explosions; breakage or accident
to machinery, transmission pipes or canals; partial or entire failure of
utilities; or any other cause or event not reasonably within the control of the
Company. The Company agrees, however, to remedy with all reasonable dispatch
the cause or causes preventing the Company from carrying out its agreements;
provided, that the settlement of strikes, lockouts and other industrial
disturbances shall be entirely within the discretion of the Company, and the
Company shall not be required to make settlement of strikes,
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lockouts and other industrial disturbances by acceding to the demands of the
opposing party or parties when such course is, in the judgment of the Company,
unfavorable to the Company.
Section 9.2. Remedies. Whenever an event of default shall have
happened and be continuing, the Issuer may take any one or more of the
following remedial steps:
(a) The Issuer may declare all installments of rent
payable under Section 5.2 for the remainder of the Lease Term to be
immediately due and payable, whereupon the same shall become
immediately due and payable. If the Issuer elects to exercise the
remedy afforded in this subsection (a) and accelerates all rents
required to be paid under Section 5.2 for the remainder of the Lease
Term, the amount then due and payable by the Company as accelerated
payments shall be the sum of (i) the aggregate principal amount of the
outstanding Bonds, (ii) all interest on the Bonds then due and (iii)
all other amounts due and payable to the bondholders and/or to the
Trustee with respect to the payment of the Bonds, including reasonable
Counsel fees;
(b) The Issuer may re-enter and take possession of the
Project without terminating the Lease Term and without any liability
to the Company for such entry and repossession, and sublease the
Project for the account of the Company, holding the Company liable for
the difference in the rents and other amounts payable by such
sublessee in such subleasing and the rents and other amounts payable
by the Company hereunder;
(c) The Issuer may terminate the Lease Term, exclude the
Company from possession of the Project and use its best efforts to
lease the Project to another for the account of the Company, holding
the Company liable for all rents and other amounts payable by the
Company hereunder up to the effective date of such leasing; and
(d) The Issuer may take whatever action at law or in
equity may appear necessary or desirable to collect any sums then due
and thereafter to become due hereunder or to enforce performance and
the observance of any agreement of the Company hereunder.
In the event of an acceleration of the Bonds, all payments due under Section
5.2 hereunder shall be and become immediately due and payable without notice or
demand; provided, however, that in no event shall the Company be excluded from
possession of the Project pursuant to subsection (c) above until the Company
has been given notice of such termination of the Lease Term and thirty (30)
days to pay the amount provided for in subsection (a) above, which thirty (30)
day period shall begin to run upon the later of
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(1) the receipt of notice of acceleration pursuant to subsection (a) above, or
(2) the receipt of notice of termination of the Lease Term pursuant to
subsection (c) above. Any amounts collected pursuant to action taken under this
Section shall be paid into the Bond Fund and applied in accordance with the
provisions of the Indenture and after payment in full of the Bonds and the
payment of any costs occasioned by an event of default hereunder, any excess
moneys in the Bond Fund shall be returned to the Company as an overpayment of
rents.
Section 9.3. No Remedy Exclusive. Subject to Section 7.2(d)
hereof, no remedy herein conferred upon or reserved to the Issuer is intended
to be exclusive of any other remedy, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy hereunder or now or
hereafter existing at law, in equity or by statute. No delay or omission to
exercise any right or power accruing upon the occurrence of any event of
default shall impair any such right or power or shall be construed to be a
waiver thereof, but any such right or power may be exercised from time to time
and as often as may be deemed expedient.
Section 9.4. Agreement to Pay Counsel Fees and Expenses. If
there should occur a default or an event of default hereunder and the Issuer
should employ Counsel or incur other expenses for the collection of sums due
hereunder or the enforcement of performance or observance of any agreement on
the part of the Company herein contained, the Company agrees that it will on
demand therefor pay to the Issuer the reasonable fee of such Counsel and such
other reasonable expenses so incurred by the Issuer.
The provisions of this Section shall survive the termination
of this Agreement.
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ARTICLE X.
PREPAYMENT UNDER AGREEMENT
Section 10.1. Option to Prepay Rental Payments Under Agreement
in Whole in Certain Events. So long as the Company is not in default hereunder,
the Company shall have, and is hereby granted, the option to prepay the rents
required to be made under Section 5.2 if any of the following shall have
occurred:
(a) the Project shall have been damaged or destroyed to
such an extent that the Company is thereby prevented from carrying on
its normal operations at the Project for a period of six (6)
consecutive months;
(b) title in and to, or the temporary use of, all or
substantially all of the Project shall have been taken under the
exercise of the power of eminent domain by any governmental authority,
or person acting under governmental authority (including such a taking
as, in the judgment of the Company, results in the Company being
prevented thereby from carrying on its normal operations at the
Project for a period of three (3) consecutive months); or
(c) as a result of any changes in the Constitution of the
State or the Constitution of the United States of America or by
legislative or administrative action (whether State or Federal) or by
final decree, judgment, decision or order of any court or
administrative body (whether State or Federal), this Agreement shall
have become void or unenforceable or impossible of performance in
accordance with the intent and purposes of the parties as expressed
herein.
To exercise such option, the Company (i) shall, within ninety (90) days
following the event giving rise to the Company's desire to exercise such
option, deliver to the Issuer and to the Trustee a certificate, executed by an
officer of the Company, stating (A) the event giving rise to the exercise of
such option, (B) that the Company has directed the Trustee to redeem all of the
Bonds in accordance with the provisions of the Indenture, and (C) the date upon
which such prepayment is to be made, which date shall not be less than
forty-five (45) days nor more than ninety (90) days from the date such notice
is mailed; and (ii) shall make arrangements satisfactory to the Trustee for the
giving of the required notice of redemption.
The prepayment price which shall be paid to the Trustee by the
Company on or prior to its exercise of the option granted in this Section shall
be the sum of the following:
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(1) an amount of money which, when added to the amount
then on deposit in the Bond Fund, will be sufficient to pay and redeem
all of the then outstanding Bonds on the earliest applicable
redemption date including, without limitation, principal plus accrued
interest thereon to said redemption date, plus
(2) an amount of money equal to the Trustee's and paying
agents' fees and expenses under the Indenture accrued and to accrue
until such final payment and redemption of the Bonds.
Section 10.2. Other Options to Prepay Rental Payments Under
Agreement. The Company shall have, and is hereby granted, the option to prepay
the rents required to be made under Section 5.2 in whole, at any time, or in
part on any Bond Payment Date (as defined in the Indenture), by (i) depositing
irrevocably with the Trustee for the account of the Issuer sufficient moneys to
pay the principal of and interest on all of the Bonds due and to become due on
or prior to the redemption date (if the Bonds are to be redeemed) or maturity
thereof, (ii) paying to the Trustee all Trustee's fees and expenses due in
connection with the payment or redemption of any such Bonds, and (iii) if any
Bonds are to be redeemed on any date prior to their maturity, giving the
Trustee irrevocable instructions to redeem such Bonds on such date and either
evidence satisfactory to the Trustee that all redemption notices required by
the Indenture have been given or irrevocable power authorizing the Trustee to
give such redemption notices.
Section 10.3. Obligation to Prepay Rental Payments Under
Agreement Under Certain Circumstances. If there occurs a Determination of
Taxability, not later than six (6) months following the date of such
Determination of Taxability, the Company shall be obligated to, as promptly as
practical, pay to the Trustee for the account of the Issuer for deposit in the
Bond Fund, the following:
(a) For application by the Trustee to the redemption of
Bonds which are outstanding on the date of such Determination of
Taxability and which will not mature or otherwise be redeemed prior to
the redemption date contemplated by this Section:
(i) the principal amount of such Bonds plus accrued
interest to such redemption date; plus
(ii) an additional amount equal to one-half (1/2) the
interest paid and/or accrued on each such Bond during the
Taxable Period;
(b) To be paid by the Trustee to the holders of Bonds
which are outstanding on the date of the Event of Taxability
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and which will mature or will be redeemed prior to the redemption date
provided for in this Section, an additional amount equal to one-half
(1/2) the interest paid and/or accrued on each such Bond during the
Taxable Period.
Said accelerated payments shall also include expenses
of redemption and the fees and expenses of the Trustee and the paying
agent(s) accrued and to accrue until such final payment and redemption
of the Bonds.
The Company shall give prompt written notice to the
Issuer and the Trustee of (i) the filing by the Company of any
Supplemental Statement which shows that an Event of Taxability has
occurred, and (ii) its receipt of any oral or written advice from the
Internal Revenue Service that an Event of Taxability has occurred.
Promptly upon receipt of written notice of the occurrence of a
Determination of Taxability, the Trustee shall cause notice thereof to be given
to the bondholders in the same manner as is provided in the Indenture for
notices of redemption. In such notice to bondholders, the Trustee may make
provisions for obtaining advice from bondholders, in such form as shall be
deemed appropriate, respecting relevant assessments made on such bondholders by
the Internal Revenue Service, so as to be able, if appropriate, to verify the
existence, present or future, of a Determination of Taxability.
The Company shall immediately instruct the Trustee to apply
the accelerated payments made by the Company as a result of such Determination
of Taxability, together with any moneys then held by the Trustee, in the order
of priority set forth in Section 504 of the Indenture, on the earliest possible
date after the giving of the required notice of redemption under the Indenture,
to the redemption of Bonds or to the payment to the holders of Bonds which will
mature or will be redeemed prior to the redemption date contemplated by this
Section, all in accordance with the requirements hereinbefore set forth in this
Section. A copy of such instructions shall be forwarded by the Company, to the
Issuer.
Upon the redemption date contemplated by this Section,
provided there has been deposited with the Trustee the total amount as
required, such amount shall constitute the total compensation due the Issuer
and the holders of the Bonds as a result of an occurrence of such Determination
of Taxability and the Company shall not be deemed to be in default hereunder by
reason of the occurrence of such Determination of Taxability.
Upon the occurrence of a Determination of Taxability, any
other option of the Company to prepay the rents required to be made under
Section 5.2 shall be superseded by its prepayment of
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the installment amounts required to be made under Section 5.2 under this
Section for the amounts herein set forth.
The provisions of this Section shall survive the termination
of this Agreement.
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ARTICLE XI.
MISCELLANEOUS
Section 11.1. Term of Agreement. This Agreement shall
terminate as provided in Article III hereof.
Section 11.2. Notices. All notices, approvals, consents,
requests and other communications hereunder shall be in writing and shall be
deemed to have been given when delivered or mailed by first class mail, postage
prepaid, and addressed as follows;
If to the Issuer:
Macon-Bibb County Industrial Authority
Chamber of Commerce Building
305 Coliseum Drive
Macon, Georgia 31201
Attention: Chairman
If to the Company: Zantop International Airlines, Inc.
840 Willow Run Airport
Ypsilanti, Michigan 48197
Attention: President
If to the Trustee: First Union National Bank
of Georgia
230 South Tryon Street, 8th Floor
Charlotte, North Carolina 28288-1179
Attention: Corporate Trust/Bond
Administration Department
A duplicate copy of each notice, approval, consent, request or other
communication given hereunder by the Issuer, the Company or the Trustee to any
one of the others shall also be given to all of the others. The Issuer, the
Company and the Trustee may, by, notice given hereunder, designate any further
or different addresses to which subsequent notices, approvals, consents,
requests or other communications shall be sent or persons to whose attention
the same shall be directed.
Section 11.3. Binding Effect. This Agreement shall inure to
the benefit of and shall be binding upon the Issuer, the Company and their
respective successors and assigns.
Section 11.4. Severability. If any provision hereof shall be
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision
hereof.
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Section 11.5. Amounts Remaining in Project Fund or Bond Fund.
It is agreed by the parties hereto that any amounts remaining in the Project
Fund or the Bond Fund upon expiration or sooner termination of this Agreement,
after payment in full of the Bonds and payment of the fees, charges and
expenses of the Trustee and any paying agents in accordance with the Indenture,
and after repaying the City for any payments made by it under the Contract
(provided, however, that in no event shall any payments be made to the City
pursuant to this Section to reimburse the City for any advances or payments
made by the City in connection with site preparation on the Leased Land
undertaken pursuant to any obligation of the City to make said improvements),
shall belong to and be paid to the Company by the Trustee.
Section 11.6. Delegation of Duties by Issuer. It is agreed
that under the terms of this Agreement the Issuer has delegated certain of its
duties thereunder to the Company and that under the terms of the Indenture the
Issuer has delegated certain of its duties thereunder to the Trustee. The fact
of such delegation shall be deemed a sufficient compliance by the Issuer to
satisfy the duties so delegated and the Issuer shall not be liable in any way
by reason of acts done or omitted by the Company, the Authorized Company
Representative or the Trustee. The Issuer shall have the right at all times to
act in reliance upon the authorization, representation or certification of the
Authorized Company Representative or the Trustee.
Section 11.7. Amendments, Changes and Modifications. Except as
otherwise provided herein or in the Indenture, subsequent to the date of
issuance and delivery of the Bonds and prior to their payment in full, this
Agreement may not be effectively amended or terminated without the written
consent of the Trustee.
Section 11.8. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument.
Section 11.9. Captions. The captions and headings herein are
for convenience only and in no way define, limit or describe the scope or
intent of any provisions hereof.
Section 11.10. Payments Due on Saturdays, Sundays and
Holidays. In any case where the date for any payment required to be made
hereunder or under the Indenture shall be, in the city of payment, a Saturday,
a Sunday, a legal holiday or a day on which banking institutions are authorized
by law to close, then payment need not be made on such date in such city but
may be made on the next succeeding business day not a Saturday, a Sunday, a
legal holiday or a day on which banking institutions are authorized by
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law to close with the same force and effect as if made on the date fixed for
such payment, and if such payment is made on the next succeeding business day
no interest shall accrue for the period after such date.
Section 11.11. Recording of Agreement. This Agreement and
every assignment and modification hereof shall be recorded in the Clerk's
Office of the Superior Court of the County, or in such other office as may be
at the time provided by law as the proper place for such recordation.
Section 11.12. Law Governing Construction of Agreement. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State.
Section 11.13. Net Lease. This Agreement shall be deemed a
"net lease," and the Company shall pay absolutely net during the Lease Term the
rents specified herein, without abatement, reduction or set-off other than
those herein expressly provided.
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IN WITNESS WHEREOF, the Issuer and the Company have caused
this Agreement to be executed in their respective corporate names and their
respective corporate seals to be affixed hereto and attested by their
authorized officers, all as of the date first above written.
MACON-BIBB COUNTY INDUSTRIAL AUTHORITY
BY: /s/ ILLEGIBLE
----------------------------
Chairman
(CORPORATE SEAL)
Attest:
/s/ ILLEGIBLE
- ----------------------------
Secretary
Signed, sealed and delivered
in the presence of:
/s/ ILLEGIBLE
- ----------------------------
Unofficial Witness
/s/ ILLEGIBLE
- ----------------------------
Notary Public
My commission expires 5/9/97.
(NOTARIAL SEAL)
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ZANTOP INTERNATIONAL AIRLINES, INC.
By: /s/ ILLEGIBLE
----------------------------
Executive Vice President
(CORPORATE SEAL)
Attest:
/s/ ILLEGIBLE
- ----------------------------
Secretary
Signed, sealed and delivered
in the presence of:
/s/ ILLEGIBLE
- ----------------------------
Unofficial Witness
/s/ ILLEGIBLE
- ----------------------------
Notary Public
Notary Public Gwinnett County, Georgia
My Commission Expires December 27, 1993
(NOTARIAL SEAL)
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EXHIBIT "A"
DESCRIPTION OF LEASED LAND:
All that tract or parcel of land lying and being in Land Lots 231 and 232
of the 4th Land District of Bibb County Georgia, and shown upon a property
survey for the City of Macon of property leased to Zantop International
Airlines, Inc., dated July 30, 1990 and revised January 19, 1993, prepared by
the Office of the City Engineer of the City of Macon, a copy of which is
recorded in Plat Book 87, Page 501, Clerk's Office, Bibb Superior Court, Bibb
County, Georgia, the property herein conveyed being more particularly described
as Parcel 1, containing 294,090 square feet, or 6.75 acres, and Parcel 2A,
containing 28,469 square feet, or 0.675 acres, and more particularly described
according to said plat as follows:
To find the point of beginning, begin at a brass disc in concrete, marked
Bibb County number 620, located in an access road running along the
northeasterly line of the property herein conveyed, and running thence south 69
degrees, 33 minutes, 06 seconds west a distance of 38.79 feet to the southeast
corner of Parcel 1, which point marks the point of beginning; running thence
south 67 degrees, 03 minutes, 35 seconds west a distance of 91.41 feet to a
point; running thence south 67 degrees, 02 minutes, 39 seconds west a distance
of 32.84 to a point; running thence south 22 degrees, 36 minutes, 19 seconds
east a distance of 10.07 feet to a point; running thence south 67 degrees, 02
minutes, 39 seconds west, a distance of 122.83 feet to a point; running thence
south 22 degrees, 56 minutes, 57 seconds east a distance of 99.69 feet to a
point; running thence south 67 degrees, 03 minutes, 03 seconds west a distance
of 12.75 feet to a point; running thence north 22 degrees, 56 minutes, 57
seconds west a distance of 22.00 feet to a point; running thence south 67
degrees, 03 minutes, 03 seconds west a distance of 9.30 feet to a point; running
thence south 22 degrees, 56 minutes, 57 seconds east a distance 30.55 feet to a
point; running thence south 67 degrees, 03 minutes, 35 seconds west a distance
of 269.26 feet to a point; running thence north 23 degrees, 21 minutes, 11
seconds west a distance of 98.84 feet to a point; running thence north 23
degrees, 21 minutes, 11 seconds west a distance of 503.15 feet to a point;
running thence north 50 degrees, 28 minutes, 42 seconds east a distance of
455.03 feet to a point on the northeasterly edge of a 20 foot asphalt paving;
running thence south 22 degrees, 47 minutes, 29 seconds east a distance of
146.11 feet to a point; running thence north 66 degrees, 30 minutes east a
distance of 102.47 feet to a point; running thence south 23 degrees, 30 minutes
east a distance of 468.39 feet to the point of beginning.
The above mentioned plat is hereby referred to for the purpose of
incorporation herein.
<PAGE> 71
EXHIBIT "B"
DESCRIPTION OF LEASED EQUIPMENT
-------------------------------
Heating and air-conditioning, ventilation, electrical and fire safety
systems and equipment, as described in the Plans and Specifications, together
with any other equipment purchased with Bond Proceeds or investment earnings
thereon and which are specified in an amendment to the Plans and Specifications.
<PAGE> 72
EXHIBIT "C"
REQUISITION AND CERTIFICATION
Request No. __________ Date: __________
First Union National Bank of Georgia,
as Trustee
under the Trust Indenture,
dated as of May 1, 1993,
relating to $4,500,000
Macon-Bibb County Industrial Authority
Airport Improvement Revenue Bonds, Series 1993
Attention: Corporate Trust Department
The undersigned Authorized Company Representative and Authorized
Issuer Representative designated pursuant to the terms of a Lease Agreement,
dated as of May 1, 1993 (the "Agreement"), between the Macon-Bibb County
Industrial Authority, a public body corporate and politic and an
instrumentality of the City of Macon and the County of Bibb created and
existing under the laws of the State of Georgia (the "Issuer"), and Zantop
International Airlines, Inc., a Michigan corporation (the "Company") hereby
request that there be paid from the Project Fund (hereinbelow described) the
sum of $__________, and in that connection with respect to the use of the
proceeds of the Macon-Bibb County Industrial Authority Airport Improvement
Revenue Bonds, Series 1993 (the "Bonds"), DO HEREBY CERTIFY, as follows:
1. The requested payment is a proper charge against the
Macon-Bibb County Industrial Authority Airport Facilities Project --
Project Fund 1993 and has not been the basis of any previous
withdrawal from said Project Fund.
2. Payment should be made to:
Name:
Address:
3. Attached hereto is a bill, statement of account or a
schedule showing in reasonable detail the items with respect to which
payment is being requested, and, if the Company or the Issuer is to be
reimbursed, proof of payment of such items is attached hereto, which
proof is satisfactory to the undersigned and the Trustee may act
thereon.
<PAGE> 73
4. (a) The Company and the Issuer have no notice of any
vendors', materialmen's, mechanics', suppliers' or other similar liens
or right to liens, chattel mortgages or conditional sales contracts,
or other contracts or obligations which should be satisfied or
discharged before payment of such obligation is made, or (b) this
requisition is for the purpose of obtaining funds to be used to
satisfy or discharge a lien or contract of the type described in (a)
above.
5. This requisition contains no request for payment on
account of any portion of such obligation which the Company is, as of
the date hereof, entitled to retain under retained percentage
agreements.
6. The obligation does not represent a cost paid or
incurred by the Issuer or the Company prior to November 3, 1992.
7. With respect to any such item representing payment
for labor, services, material, supplies and/or equipment, insofar as
such obligation was incurred for labor, services, material, supplies
and/or equipment in connection with the acquisition, construction and
installation of the "Project" (defined in the Agreement), (i) such
labor and/or services were actually performed in a satisfactory
manner, and (ii) such material, supplies and/or equipment were
actually used in or about the construction of the Project or delivered
at the site of the Project for that purpose and the item of equipment
with respect to which such payment is requested constitutes a portion
of the Project.
By:
-------------------------------------
Authorized Company Representative
By:
-------------------------------------
Authorized Issuer Representative
-2-
<PAGE> 74
EXHIBIT "D"
CERTIFICATE OF COMPLETION
The undersigned Authorized Company Representative designated pursuant
to that certain Lease Agreement (the "Agreement"), dated as of May 1, 1993,
between the Macon-Bibb County Industrial Authority, a public body corporate and
politic and an instrumentality of the City of Macon and the County of Bibb
created and existing under the laws of the State of Georgia, and Zantop
International Airlines, Inc., a Michigan corporation (the "Company"), DOES
HEREBY CERTIFY, as follows:
1. The acquisition, construction and installation of the
"Project" as described in the Agreement have been completed
substantially in accordance with the plans and specifications therefor
and all labor, services, material, supplies and/or equipment used in
such acquisition, construction and installation have been paid for,
except for amounts retained in the "Project Fund" created in the
Agreement for costs of the Project not yet due and payable which
amount is $__________.
2. All other facilities necessary in connection with the
Project have been acquired, constructed and installed substantially in
accordance with the plans and specifications therefor and all costs
and expenses incurred in connection therewith have been paid, except
for amounts retained in said Project Fund for costs of the Project not
yet due and payable.
3. The Project and all other facilities in connection
therewith have been acquired, constructed and installed in a
satisfactory manner and are suitable and sufficient for the efficient
operation of the Project for its intended purposes.
4. A certificate of occupancy and all other permissions
required of governmental authorities for the occupancy of the Project
have been obtained.
This Certificate is given without prejudice to any rights against
third parties which exist on the date of this Certificate or which may
subsequently come into being.
This the _____ day of __________, 19_____.
ZANTOP INTERNATIONAL AIRLINES, INC.
By:
-------------------------------------
Authorized Company Representative
<PAGE> 75
[SELL & MELTON LETTERHEAD]
June 16, 1997
Mr. Jim Loree
Zantop International Airlines, Inc.
Ypsilanti, Michigan
Dear Jim:
Enclosed is a history and description of the Zantop facilities and
operations in Macon. I have attempted to boil down all of the many details of
the arrangements between Zantop, the City and the Authority into a fairly short
summary. I think the attachment of the 1986 lease agreement and the project
summary of the 1992 expansion may be particularly helpful.
Also, I have not, of course, been able to color the plats which I have
attached, but I hope you can color as suggested in the summary. Also, please
enter the amount of the unpaid principal on each bond issue.
Jim, I suspect as this project moves forward, that we will need to have a
meeting with the other parties and go through all of the documents so that
everyone will have a full understanding. I suspect that this might be best
done in Macon, and it will probably take some time to go through all of the
documents. If you think this would be the proper approach, and if we can help
with this, please let us know.
Please look at the attached carefully. In my haste to get this to you
this afternoon, I may have misstated something or left something out that may
be considered crucial. If you have any revisions to suggest, please call me or
Suellyn and we will make the changes promptly and get a new draft back to you.
Sincerely,
/s/ BUCKNER F. MELTON
BUCKNER F. MELTON
BFM/so
Enclosure
<PAGE> 76
HISTORY AND DESCRIPTION OF ZANTOP INTERNATIONAL
AIRLINES, INC. FACILITIES AND OPERATIONS AT THE
MIDDLE GEORGIA REGIONAL AIRPORT, MACON, GEORGIA
Zantop International Airlines, Inc. ("Zantop") initiated its operations at
the Middle Georgia Regional Airport ("Airport") under a lease assignment
agreement dated September 2, 1980, with the Macon-Bibb County Industrial
Authority ("Authority") and Hawaiian Airlines, Inc. ("Hawaiian"). The original
site of operations consisted of an aircraft repair and maintenance center which
had been constructed on the original site for use by and lease to Hawaiian.
Hawaiian was not successful in an air freight operation which it undertook, and
Zantop agreed, by the September 2, 1980, lease agreement, to assume the
responsibilities and rights of Hawaiian under its agreements with the City of
Macon ("City") and the Authority.
The property covered by the September 2, 1980, agreement consisted of the
property shown as Parcel 1 on Exhibit "A," which is attached hereto. For
convenience, this Parcel 1 is shaded in red on Exhibit "A." This Parcel 1 is
owned by the City, but was leased by the City to the Authority on September 2,
1979, for use by the Authority for sublease to Hawaiian.
The sublease between the Authority and Zantop was amended on two
occasions: October 4, 1982, and September 12, 1983.
On September 13, 1985, the City leased an additional parcel of land to
Zantop. This parcel is adjacent to Parcel 1 referred to above, and is shown as
Parcel 2 (consisting of an apron area of 99,068 square feet and a ground lease
area of 100,932 square feet, as well as Parcels "A," "B," and "C," on Exhibit
"A"
<PAGE> 77
attached hereto. All of the properties subject to lease under the September 13,
1985, lease are shown in blue on Exhibit "A" attached hereto.
On December 19, 1986, the City and Zantop executed an agreement which
merged all previous lease agreements into one comprehensive agreement. A copy
of this lease agreement is attached hereto. The 1986 lease permitted an
expansion of the Zantop facilities, and Zantop built a new hanger on a
reconfigured Parcel 2, consisting of approximately 47,000 square feet, said
hangar is located on Parcel 2 as indicated on Exhibit "B."
The 1986 expansion was financed by the issuance of revenue bonds by the
Authority in the amount of $3,950,000.00. These bonds are paid through lease
payments made by Zantop. Final payment will occur in 1998. The current
principal balance due on these bonds is $ 675,000.00 as of June 1, 1997.
In 1993, Zantop needed additional space and entered and entered into
agreements with the City and the Authority which permitted the Authority to
issue additional revenue bonds in the amount of $4,500,000.00. With these
funds, Zantop constructed a new hangar consisting of approximately 68,500 square
feet on Parcels 1 and 2A, as shown on Exhibit "B" (said new hangar being
attached to existing buildings). Under the 1993 agreement, Zantop agreed to pay
additional rentals sufficient to pay debt service on the bonds through May 1,
2018.
The principal balance due on these bonds is $ 4,190,000.00 as of May 1,
1997.
For a better understanding of the 1993 agreements, a "Project
2
<PAGE> 78
Memorandum" is attached hereto.
This project memorandum was approved by Zantop, the City and the
Authority, and the expansion and financing activities as described in the
memorandum were essentially carried out as planned.
The foregoing information is, indeed, a summary. Many details are not
stated, but all pertinent documents are available for review.
This summary is intended to be a guide to an understanding of the status
of Zantop facilities and operations at Macon vis a vis the City and the
Authority.
BFM/6/16/97
3
<PAGE> 79
[AIRPORT MAP]
[SEAL][LEGEND FOR MAP]
EXHIBIT "A"
<PAGE> 80
[AIRPORT MAP]
[LEGEND FOR MAP]
EXHIBIT "B"
<PAGE> 81
<TABLE>
<CAPTION>
CITY OF MACON - GROUND RENTS
<S> <C>
Parcels 1 & 2A $2,683.14 per month
Parcels 2, A, B, & C $2,252.62 per month
----------------------
Total per month $4,935.76
(see attached letter)
MACON - OLD BONDS - SERIES 1986 (DC8 Hangar & Warehouse)
February 1997 - December 1997 $41,035.83 per month
January 1998 - November 1998 $39,325.00 per month
Current Property Insurance: $10,696.00
(paid direct by Zantop) 4/21/97-4/21/98
MACON - NEW BONDS - SERIES 1993 (Old Hangar Expansion)
(twice a year)
May:
Principal $105,000.00
Interest $123,475.00
----------------------
Total for May $229,475.00
November:
Interest only $124,475.00
Current property insurance: $4,627.00
(passed thru from City) (10/96-10/97)
Real Estate Taxes:
(Charter Medical & EBU) $12,822.00 Annually
Personal Property Taxes: $21,254 Annually
</TABLE>
<PAGE> 82
[SEAL OF THE CITY OF MACON, GEORGIA] [LOGO]
CITY OF MACON, GEORGIA
---------------------------------------------------------------
REX ELDER MIDDLE GEORGIA REGIONAL AIRPORT GLORIA DURDEN
AVIATION DIRECTOR ADMINISTRATIVE ASSISTANT
HERBERT SMART AIRPORT
GENERAL AVIATION
JUNE 10 1997
Mr. Jim Lorie
Zantop International Airlines, Inc.
P.O. Box 840
Willow Run Airport
Ypsilanti, Mich. 48197-0840
Dear Jim,
According to your lease with the City of Macon dated December 1986, the rental
payment for parcels 1 and 2A is $2,473.00. This rate began on 8/01/93 and runs
to 8/01/96.
A Cost of Living increase should have been adjusted to your monthly invoice
as of August 1996, but was inadvertently overlooked.
The adjustment should have been done by the formula as follows:
August, 1996 CPI-W 154.5
Rent on 8/01/86 x ------------------ = $2,473.00 x ----- = $2,683.14
August, 1993 CPI-W 142.4
<TABLE>
<S> <C>
$2,683.14 new monthly rent payment
$2,473.00 old monthly rent payment
- ---------
210.14 x
11 months back rent
- ---------
$2,311.54 total owned for back rent payment
Here's the breakdown of total monthly payment due the City on a monthly basis.
$2,683.14 for parcels 1 and 2A
$2,252.62 for parcels 2, A, B and C
- ---------
$4,935.76
</TABLE>
Middle Georgia Regional Airport (912) 786-3760
<PAGE> 83
July's invoice should read: $4,935.76
$2,311.54 back rent
---------
$7,247.30
If you should have any questions, please call me at (912) 788-3760.
Sincerely,
/s/ GLORIA DURDEN
Gloria Durden
Administrative Assistant
GD/
<PAGE> 84
CITY OF MACON
MIDDLE GEORGIA REGIONAL AIRPORT
[RECEIVED
APRIL 7, 1997] OFFICE OF AVIATION DIRECTOR
MACON, GEORGIA, 31297
TO CITY OF MACON, GEORGIA, DEBTOR
April 4, 1997
RE: PAYMENT IN LIEU OF TAXES
Zantop International Airlines, Inc.
P.O. Box 840, Detroit Willow Run Apt.
Ypsilanti, Mich. 48197
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Payment in lieu of taxes due City of Macon for Airport lease for 1996.
LEASE DATE 19, DECEMBER 1986: $ 9,446.20
LEASE DATE 01, MAY 1993: 4,723.20
----------
$14,169.40
==========
NOVEMBER 1, 1996 $14,169.40
VENDOR # C.A.B. # OPER. A/C BUDGET LOC TOTAL
37345 53471 00 0 50 30 14169 40
<PAGE> 85
[OFFICE OF THE CITY CLERK SEAL]
[OFFICE OF THE CITY CLERK LETTERHEAD]
November 16, 1992
I, Steven G. Durden, City Clerk, do hereby certify that the attached
Resolution #R-92-0091, concerning Zantop International Airlines, is a true and
correct copy on file in the City Clerk's Office, City Hall, Macon, Georgia.
/s/ STEVEN G. DURDEN
- --------------------------
Steven G. Durden
City Clerk
<PAGE> 86
A RESOLUTION OF THE MAYOR AND COUNCIL OF THE CITY OF MACON, GEORGIA AUTHORIZING
THE MAYOR TO EXECUTE THE NECESSARY DOCUMENTS BETWEEN THE CITY OF MACON AND THE
MACON-BIBB COUNTY INDUSTRIAL AUTHORITY AND BETWEEN THE CITY OF MACON AND ZANTOP
INTERNATIONAL AIRLINES, INC. WITH RESPECT TO CERTAIN PREMISES AND IMPROVEMENTS
THEREON AT THE MIDDLE GEORGIA REGIONAL AIRPORT; AND FOR OTHER PURPOSES.
WHEREAS, Zantop International Airlines, Inc. has indicated its interest in
substantially increasing its facilities and operations at the Middle Georgia
Regional Airport; and
WHEREAS, the Macon-Bibb County Industrial Authority, an agency of the City
and Bibb County governments, has recommended that the City provide certain
support for the projects; and
WHEREAS, the attached Project Memorandum outlining the terms and conditions
of the transactions required to facilitate the project has been considered by
this body and is attached hereto as Exhibit "A".
NOW, THEREFORE, BE IT RESOLVED by the Mayor and Council of the City of
Macon and it is hereby so resolved by the authority of the same that the City of
Macon has determined that the Project, as outlined on Exhibit "A" hereto, is in
the public interest, will result in a substantial number of new employment
opportunities and, in general terms, stimulate economic conditions in Macon; and
BE IT FURTHER RESOLVED that the City of Macon hereby expresses its
commitment to enter into the arrangements described in Exhibit "A" and cordially
invites Zantop to proceed with its plans for expansion based upon said
commitment of the City to undertake the obligations which would be imposed by
the arrangements described in Exhibit "A" attached hereto; and
<PAGE> 87
BE IT FURTHER RESOLVED that the Mayor is authorized to continue
negotiations and discussions with Zantop and is further authorized to execute
any legal documents necessary to effectuate this transaction according to the
terms and conditions of Exhibit "A" attached hereto.
SO RESOLVED this 3rd day of November, 1992.
/s/ [ILLEGIBLE]
----------------------------
President, City Council
SO APPROVED this 4th day of November, 1992.
/s/ TOMMY C. OLMSTEAD
----------------------------
Mayor
City of Macon, Ga. SUBMITTED TO MAYOR'S OFFICE
I do hereby certify that the above and November 4, 1992
foregoing Resolution was duly passed at ---------------------------
the Regular Meeting of the Council of RETURNED FROM MAYOR'S OFFICE
the City of Macon, held November 3, 1992. November 10, 1992
Witness my hand and seal of the City of ---------------------------
Macon this November 4, 1992. on
/s/ [ILLEGIBLE] 11:30 AM
- ----------------------------------------
Clerk of Council
<PAGE> 88
PROJECT MEMORANDUM
ZANTOP INTERNATIONAL AIRLINES, INC. 1992 EXPANSION
Zantop International Airlines, Inc. ("Zantop") has operated an aircraft
maintenance, overhaul and repair facility at Middle Georgia Regional Airport
since 1980. Zantop now employs approximately 335 people in skilled and
managerial positions. Exhibit "A" attached hereto is a Historical and
Statistical Highlights summary of Zantop operations. Exhibit "B" attached hereto
(letter from Zantop to Tom Moody) sets forth some details of Zantop expansion
plans.
Zantop has proposed to substantially increase its operations and its
employment at the airport if satisfactory facilities can be provided.
This memorandum outlines the general details of a proposed transaction
which will permit expansion of facilities and operations of Zantop. It is
understood by the parties that if the general plan as outlined herein is
approved by Zantop, the City of Macon, County of Bibb and the Macon-Bibb County
Industrial Authority ("Authority"), the project will be undertaken and the
necessary documentation will be put in place to consummate the transactions
involved.
The following definitions shall apply throughout this Project Memorandum.
EXHIBIT "A"
<PAGE> 89
(a) "Hangar I" means the original hangar built for Hawaiian Airlines
owned by the City and leased by Zantop and shown outlined in red on Exhibit "C";
(b) "Hangar II" means the hangar constructed in the 1986-87 period now in
use by Zantop and shown outlined in green on Exhibit "C";
(c) "Hangar I Additions" means the additions to be made to Hangar I and
support facilities (including fixed permanent equipment) to be constructed and
acquired, said additions shown outlined in blue on Exhibit "C";
(d) "Hangar III" means Hangar I, together with Hanger I Additions (red
and blue on Exhibit "C");
(e) "Zantop Series 1992 Bonds" means the bonds described in paragraph 4
hereunder.
1. New Facilities. Hangar I Additions, consisting of approximately
61,500 square feet will be constructed on the airport ramp adjacent to and
connected with Hangar I so as to constitute Hangar III. A plat generally
outlining the existing areas under lease by Zantop and depicting the location of
Hangar I improvements is attached as Exhibit "C". The cost of the new facilities
is estimated to be approximately $4,000,000, but in any event, no more than
$4,500,000 ("Project Costs").
2. Site Improvements. In order to accommodate the Zantop expansion,
substantial improvements need to be made to airport properties, including
improvements of portions of ramp space located upon Parcels 1 and 2 as
- 2 -
<PAGE> 90
shown on Exhibit "C" and upon ramp space adjacent thereto, vehicular parking
expansion and improvements, storm water drainage improvements, augmentation of
the existing fire protection water supply and other miscellaneous improvements.
The scope of these improvements and the estimated costs thereof will be
determined by the parties on an expedited basis. A preliminary list of
improvements is attached as Exhibit "D" hereto. An analysis of the improvements
indicates that some of the items are quite directly related to the Zantop
project, and others are indirectly related to the project, but nevertheless
necessary to approximately and conveniently accommodate Zantop's expansion as
well as for the improvement for the infrastructure of the City's airport. The
Authority shall pay the costs for Items shown on Exhibit "D".
3. Financing. Project Costs will be financed through a lease arrangement
between the City, Industrial Authority and Zantop. The term "Project Costs" as
used in this memorandum shall include the actual cost of the Hangar I Additions,
the cost for site improvements as described in Exhibit "D", capitalized
interest on the bonds during the construction period minus estimated
construction fund earnings and two percent of the bond amount for issuance costs
as allowed under current federal law. The Macon-Bibb County Industrial Authority
will issue revenue bonds in an amount not to exceed $4,500,000 for the cost as
described above. Zantop will enter into a twenty-five
- 3 -
<PAGE> 91
year lease of Hangar III (the "1992 Lease") and lease payments shall be
sufficient under the term of the lease to retire all debt service on the bonds
to be issued for Project costs (the "Basic Fixed Rental"), as well as $2,473.00
per month commencing on August 1, 1993 (allocated as rent for Parcel 1 charged
by the City (the "Additional Rent"). Zantop shall also pay to City the sum of
$10,000 per year as a payment for City services on Hangar I Additions, in
addition to other rental payments, said payments to commence on November 1,
1993, and continue through the term of the 1992 Lease. Further, Zantop shall
make payments for City services as required by Paragraph 5(A) of the lease
agreement between the parties dated December 19, 1986 (the "1986 Lease"), and
these payments shall continue through the term of the 1992 Lease. Further, the
$10,000 per year payment described above shall be adjusted each four (4) years
commencing on November 1, 1997, in accordance with the CPI adjustment formula
set forth in Paragraph 5(A) of the 1986 Lease: provided however that in no event
shall said payment ever be less than $10,000. In consideration for Zantop's
inclusion of site improvements in the Project Cost and their payment of excess
issuance costs over and above amounts that can be financed with proceeds of the
tax exempt bonds, such cost to be in excess of $200,000.00, the City agrees that
for a period of twenty years, beginning on November 1, 1993, Zantop will be
credited $10,000
- 4 -
<PAGE> 92
annually against amounts owed to the City for City services on Hangar I
additions. Additionally, Zantop agrees to grant and convey to the City a
security interest in its leasehold interest and all improvements located on
Parcels 2, A, B and C. Prior to August 1, 1993, rents shall continue as
presently required by the 1986 Lease, and Additional Rent payments shall be
adjusted every four (4) years. The debt service on the bonds will be guaranteed
by the City, but the lease payments by Zantop shall be sufficient for a period
of twenty-five years so as to cover all debt service, payments for City services
and Additional Rent. Furthermore, the parties agree that in the event the City
allows Zantop to construct additional improvements in the future on the leased
premises at Zantop's sole expense and without any financing to be guaranteed by
the City, in any way, then the City will not require an additional payment for
City services regarding the proposed future improvements.
4. Contract for construction of Hangar I Additions. The Authority shall
contract with Zantop to construct the Hangar I Additions. Plans and
specifications shall have prior approval of the City. Construction costs shall
be paid from bond proceeds.
5. Terms of the Lease. Based upon a $4,500,000 Zantop Series 1992 Bond
issue, the Basic Fixed Rental to be paid by Zantop over a 25 year period will be
approximately $372,000 per year assuming a 6.6% average
- 5 -
<PAGE> 93
interest rate. This rental will pay all debt service on the Series A Bonds. The
actual Basic Fixed Rental will be determined by the interest rate at the time
the bonds are sold.
Except for the ramps and taxiways located on the Leased Premises, Lessee
shall, at its own expense, maintain the leased premises during the term of this
Lease and any renewal or extension thereof in presentable condition and, in
doing so, shall keep the premises in a presentable, safe and neat condition.
Lessor shall not be required to make any repairs or improvements to said
leased premises (excluding ramps and taxiways) during the term of this Lease, or
any renewal or extension hereof. It is agreed that Lessee shall have the right
to make such improvements to the leased premises as may be agreed in writing
between the parties, and it is further agreed that any building or permanent
improvements erected or constructed on said premises shall, upon construction or
erection, become part of the realty and become the property of Lessor, subject
to the Lessee's right of use and occupancy during the term of this Lease or any
extensions thereof.
Lessor, in its reasonable discretion, shall be the sole judge of the
quality of maintenance of the leased premises by Lessee. Upon written notice by
Lessor, through its Airport Director, the Lessee shall be required to perform
whatever reasonable maintenance Lessor may deem
- 6 -
<PAGE> 94
necessary. If said maintenance is not undertaken by Lessee within ten (10) days
after receipt of written notice, Lessor shall have the right to enter the leased
premises and perform the necessary maintenance, Lessee being liable for the cost
thereof.
In addition to the base rental and the Additional Rent, Zantop shall, each
year, make a payment to the County of Bibb of ad valorem taxes as follows:
(a) Ad valorem taxes on all personalty, machinery and equipment;
(b) Public utility taxes on Zantop aircraft located upon Zantop
property;
(c) Since Parcel 1 and the facilities located thereon are, and will
continue to be, owned by the City through the Industrial Authority, there shall
be no ad valorem taxes made to Bibb County, upon Parcel 1 and all facilities
thereon which constitute real property.
The parties recognize that the ownership of the facility shall be in the
Industrial Authority during the release period or any extension thereof. The
lease will also provide that the Industrial Authority shall convey the facility
to the City of Macon at the time the lease is terminated and all debt service
has been retired.
6. Term of Lease of Adjoining Parcels. While the terms of existing
leases as set forth in the lease agreement between the parties dated December
19, 1986, shall remain the same except as specifically amended
- 7 -
<PAGE> 95
herein, the lease term on Parcels 2, A, B and C shall be extended to the same
date as the 25 year lease pertaining to Parcel 1.
7. Renewal Options. All leases pertaining to all Zantop facilities
(Parcels 1, 2, A, B and C) shall provide two ten year options to renew, such
renewals to require fair market value rentals.
8. Property Line Dividing Parcels 1 and 2. The parties recognize that
the present property line dividing Parcel 1 and Parcel 2 would, as presently
located, traverse Hangar I additions. The necessary arrangements for
establishing the new property line will be made for locating Hangar 3 in its
entirety upon Parcel 1.
9. Fuel Fee. The provisions of Paragraph 4 of the 1986 Lease shall be
included in the 1992 Lease, except that the one cent ($.01) per gallon charge
shall be changed to two cents ($.02) per gallon and shall be subject to
adjustment every four (4) years, beginning November 1, 1997, based upon the
increase in the Consumer Price Index as outlined in paragraph 5(A) of the 1986
Lease.
10. Other Lease Terms. The lease will be net-net-net. Zantop shall pay all
maintenance, insurance, utilities. The City shall be obligated to maintain ramp
space and taxiways on the leased property.
Additionally, Zantop agrees to cooperate with the City in the City's due
diligence analysis of Zantop's financial condition.
- 8 -
<PAGE> 96
NOTE: This Project Memorandum is based upon the availability of tax
exempt bonds. In the event we cannot have the project qualified as an exempt
governmental facility, the financing costs will be substantially higher than
indicated in Paragraph 5 above.
- 9 -
<PAGE> 97
[ZANTOP INTERNATIONAL AIRLINES, INC. LOGO]
HISTORICAL
& STATISTICAL HIGHLIGHTS
------------------------
Although Zantop International Airlines, Inc., was organized on May
30, 1972, its history goes back to 1946, shortly after World War II, when Duane
Zantop, sole stockholder of the present company, and his brothers organized
Jackson Flying Service. Shortly thereafter they formed an airline known as
Zantop Air Transport and moved their operation to Detroit's Metro Airport from
where they moved freight and passengers under a Supplemental Air Carrier
Certificate. In 1966, Zantop Air Transport, by then the world's largest
Supplemental Air Carrier, was sold to a New York based group of investors. This
company changed its name and operated out of Willow Run Airport and Oakland,
California, until its demise in April of 1972.
To fill the need of local industry, especially the automotive
companies, Zantop International Airlines was formed with an original capital
cash investment of $50,000, a lot of talent, and many cooperative suppliers. It
is the only scheduled airline with its corporate offices in Michigan and the
only one operating an air cargo hub in the state.
Zantop International Airlines provides all-cargo scheduled and
charter service within the USA and charter service internationally from its
base at Detroit's Willow Run Airport. In May 1978, the company received
authority to provide general cargo service and, by 1980, expanded into a
scheduled hub system at Willow Run Airport serving 19 of its own air freight
stations throughout the USA.
Zantop maintains FAA-approved repair stations at both Willow Run
Airport and at its maintenance facility at the Macon Municipal
EXHIBIT A
<PAGE> 98
Zantop International Airlines, Inc.
Historical & Statistical Highlights Page 2
- --------------------------------------------------------------------------------
Airport in Georgia. At Macon, the company provides its customers with aircraft
maintenance, heavy transport airframe modifications, non-destructive testing,
avionics repair and overhaul.
General Information
Fleet
21 Lockheed Electra; 13 Convair CV640; 2 Douglas DC-8
Executives
President/Chairman Duane A. Zantop
Executive V.P. James M. Zantop
Vice Presidents:
Materials Duane G. Zantop
Personnel Edwin W. Freitag
Maintenance Edward A. Bahn
Cargo Peter Howarth
Finance Robert C. Dillon
Flight Opns. Robert L. Weir
Employees - 1,000
Head Office
840 Willow Run Airport
Ypsilanti, Michigan 48198 U.S.A.
Telephone - 313/941-8900 Telex - 230-479 ZANTOP YPSI
or 485-8900 Fax - 313/485-4813
6/01/92
<PAGE> 99
[ZANTOP LETTERHEAD]
September 02, 1992
Mr. Tom Moody, Executive Director
Macon-Bibb Co. Industrial Authority
305 Colesium Drive
Macon, GA 31202
Dear Tom:
Zantop International Airlines moved into the Macon Airport facility during
the fall of 1980. Attracting us to the area was a hangar facility capable of
housing the L-188 electra aircraft which is the predominant type in Zantop's
fleet. Other factors included generally mild climate, a good recruit area for
aircraft mechanics, and a very congenial city and county government. Throughout
the years Zantop's needs have changed and we have progressed into a premier
third party maintenance provider. Major milestones for this facility include the
following:
1. 1982 Began providing contract third party maintenance service.
2. 1985 Received FAA Repair Station Certification.
3. 1985 Acquired supplemental type certificate (STC) allowing Zantop to
convert DC-8 passenger aircraft to all cargo configuration.
4. 1985 Completed first DC-8 modified cargo aircraft 25 aircraft
completed to date.
5. 1985 Entered into agreement to build new 40,000 square ft. hangar.
6. 1986 Developed all data and received STC for L-188 flight director
installation.
7. 1987 Established a formal training department.
8. 1988 Completed construction of new 40,000 square ft. hangar facility.
The facility has grown from approximately 65 employees in 1980 to 335 at
the present time. Temporary employees used during 1990 and 1991 boosted
employment to over 500. Annual payroll has increased to $7,800,000.00 and
local vendor (Middle Georgia) orders surpass $1,600,000.00 annually.
EXHIBIT B
<PAGE> 100
Zantop has steadily increased the Macon sales in spite of a turbulent and
difficult economic environment. These sales are almost entirely to non-Georgia
companies and include work on European aircraft. Zantop's total Macon sales in
1991 was $14.4 million and it should be noted that most economist have found a
spending multiplier of about six (6) for facilities such as Zantop so that each
dollar spent in the Macon area will have about a six dollar impact on merchants
in the area.
During the last two years the FAA has mandated and operators are now
requiring that an aircraft which is having large amounts of maintenance
performed on it be placed into a suitable hangar facility. Since we are
primarily involved in DC-8 type aircraft, a need for more space to hangar these
aircraft has arrived. In order for Zantop to expand our customer base and also
receive a larger portion of our existing customer's work we must expand the
present facility. When completed an additional 140 employees would be required
to man load one line of aircraft. The majority of these employees would be
aircraft sheetmetal and could be hired from the local technical schools.
I have been working with Chris Sheridan to develop some preliminary plans
as to what Zantop's needs are. We feel the plans are acceptable and now are at
the point in which you need to be involved since the city owns the hangar that
will be enlarged.
Would you please develop some ideas on various ways we could proceed with
this project. Jim Zantop will be in town on September 14 and we will meet in
your conference room on September 15, 1992.
We look forward to working with you on this project and hopefully we will
have another hangar by this time next year.
Best regards,
Timothy J. [ILLEGIBLE]
Manager of Maintenance
<PAGE> 101
[AIRPORT MAP]
[LEGEND FOR MAP]
EXHIBIT C
<PAGE> 102
<TABLE>
<S> <C> <C>
______SUME OF WATER AVAILABLE FOR FIRE PROTECTION NEEDS TO BE ESTIMATED
_____EASED IN ORDER TO MEET CODE REQUIREMENTS FOR THE NEW HANGAR. COSTS
IT IS PROPOSED TO MEET THIS REQUIREMENT BY PROVIDING A MEANS TO
REFILL THE RESERVOIR DURING A FIRE RATHER THAN INCREASING THE SIZE
OF THE RESERVOIR. ALSO, THE SIZE OF THE NEW HANGAR WILL REQUIRE
ADDITIONAL PUMPING CAPACITY IN THE AIRPORT'S EAST RAMP, FIRE
PROTECTION PUMPING STATION. ($ 30,000.00)
II. RAMP EXTENSION
THE DEPTH OF THE RAMP NEEDS EXTENDED TOWARD THE TAXIWAY TO PROVIDE
AN ADEQUATE MANEUVERING AREA IN FRONT OF THE HANGARS. FORTUNATELY
THE GRASSED AREA BETWEEN THE RAMP AND TAXIWAY "CHARLIE" IS ACTUALLY
PAVED -- THE PAVEMENT DATES BACK TO WORLD WAR II. RATHER THAN HAVING
TO CONSTRUCT AN EXPENSIVE, FULL DEPTH PAVEMENT, IT IS ANTICIPATED THAT
THE AREA WILL ONLY NEED AN ASPHALT WEARING SURFACE PAVED OVER THE
ORIGINAL WORLD WAR II PAVEMENT. ($ 46,000.00)
III. PARKING
ADDING TWO HANGAR BAYS WHICH WILL ACCOMMODATE DC-8'S WILL ADD
APPROXIMATELY 250 EMPLOYEES TO ZANTOP'S PAYROLL. ADDITIONAL PAVED
PARKING AND THE PAVING OF EXISTING, STONE SURFACED PARKING LOTS IS
NEEDED. ($ 37,000.00)
IV. RAMP AT FRONT OF NEW HANGAR.
THE GRADE OF THE EXISTING RAMP AT THE FRONT OF THE NEW HANGAR WILL
NEED TO BE INCREASED IN ORDER TO MEET CODE REQUIREMENTS FOR DRAINAGE
AWAY FROM THE HANGAR. THIS CAN BE ACCOMPLISHED BY PAVING A TAPERED
WEARING SURFACE ON TOP OF THE EXISTING RAMP. THE MAXIMUM DEPTH OF THE
NEW ASPHALT AT THE HANGAR WILL BE 3 INCHES AND IT WILL TAPER TO THE
EXISTING RAMP SURFACE FIFTY FEET OUT IN FRONT OF THE NEW HANGAR. ($ 11,000.00)
V. REPAIR OF SOFT AREAS IN PAVEMENT OF RAMP
THERE ARE SEVERAL DETERIORATED AREAS IN THE PAVEMENT OF THE EXISTING
RAMP WHICH NEED ATTENTION. THE OTHER PAVING REQUIRED FOR THE PROJECT
PRESENTS AN ECONOMICAL OPPORTUNITY TO MAKE THESE NEEDED REPAIRS. THE
DETERIORATED AREAS IN THE RAMP ARE PRESENTLY HAVING TO BE COVERED BY
STEEL PLATE IN ORDER TO PREVENT DAMAGE TO AIRCRAFT LANDING GEAR. ($ 15,000.00)
------------
ESTIMATED TOTAL ($139,000.00)
</TABLE>
<PAGE> 103
CENSORED BY: /s/ TOMMY C. OLMSTEAD
-------------------------
MAYOR TOMMY C. OLMSTEAD
=========================================================================
APPROPRIATIONS COMMITTEE
REPORT OF COMMITTEE
/s/ THERESA USSEY Ordinances & Resolutions
- ------------------------- ------------------------
/s/ THELMA DELLUEL
/s/ ILLEGIBLE
- -------------------------
/s/ AMBREY SUMMITT
- -------------------------
/s/ DELOIR BROOKS
- -------------------------
/s/ WILL DIRBY
- -------------------------
ACTION TAKEN & DATE: Approved 11-3-92
--------------------
PREPARED BY THE ASSISTANT CITY ATTORNEY: /s/ CALDER F. PINKSTON
---------------------------------
Calder F. Pinkston
APPROVED AS TO THE LEGAL FORM BY THE CITY ATTORNEY: /s/ JOAN W. HARRIS
----------------------
Joan W. Harris
=========================================================================
R-92-0091
===============================================================
A
RESOLUTION
---------------------------------------------------------------
OF
THE MAYOR AND COUNCIL OF THE CITY OF MACON, GEORGIA AUTHORIZING
THE MAJOR TO EXECUTE THE NECESSARY DOCUMENTS BETWEEN THE CITY
OF MACON AND THE MACON-BIBB COUNTY INDUSTRIAL AUTHORITY AND
BETWEEN THE CITY OF MACON AND ZANTOP INTERNATIONAL AIRLINES,
INC. WITH RESPECT TO CERTAIN PREMISES AND IMPROVEMENTS THEREON
AT THE MIDDLE GEORGIA REGIONAL AIRPORT; AND FOR OTHER PURPOSES.
Read first time October 6, 1992
CM
and referred to the Committee on
Appropriations
===============================================================
REPORT
Rendered November 3, 1992
CM
and Adopted
===============================================================
c - Mayor, Carter, _______ _______ _______
<PAGE> 104
LEASE AGREEMENT
STATE OF GEORGIA
COUNTY OF BIBB
THIS AGREEMENT made and entered into this 19th day of December, 1986,
by and between the CITY OF MACON, GEORGIA, (hereinafter called the "City") and
ZANTOP INTERNATIONAL AIRLINES, INC., a Michigan corporation, having its
principal place of business at Willow Run Airport in the city of Ypsilanti,
State of Michigan (hereinafter called "Zantop").
WITNESSETH THAT:
WHEREAS, the City owns and operates the Lewis B. Wilson Airport
("Airport") in Bibb County, Georgia; and
WHEREAS, on September 5, 1979, the City leased a portion of the
Airport property shown as Parcel "1" on the plat attached hereto as Exhibit "A"
to the Macon-Bibb County Industrial Authority, said Authority having thereafter
leased said property to Hawaiian Airlines, Inc. for use as an aircraft repair
and maintenance center; and
WHEREAS, Hawaiian Airlines, Inc. thereafter subleased said Parcel 1
to Zantop by a sublease agreement dated September 2, 1980; and
WHEREAS, the Authority and the City both agreed to and approved said
sublease; and
WHEREAS, the Authority and Zantop have executed two lease amendments
dated October 4, 1982 and September 12, 1983; and
WHEREAS, on September 13, 1985, the city leased an additional parcel
of land to Zantop, said additional parcel being adjacent to the aforesaid
Parcel "1" and shown as Parcel "2" (consisting of an apron area of 99,068
square feet and a ground lease area of 100,932 square feet), as well as Parcels
"A", "B", and "C" on Exhibit "A" attached hereto.
WHEREAS, Zantop now proposes to build a new hangar on the leased
premises which will be approximately 47,000 square feet, said hangar to be
located on Parcel "2" as indicated on Exhibit "B"; and
<PAGE> 105
WHEREAS, the parties wish to merge all previous leases adopted
between the City and Zantop into one comprehensive agreement; and
WHEREAS, Zantop anticipates the employment of approximately 200
additional persons in connection with the expanded facilities and expanded
maintenance activities.
NOW THEREFORE, be it agreed between the parties, in consideration of
the mutual obligations and covenants hereinafter contained, that:
1. Leased Premises. The City does hereby lease and rent unto Zantop
the realty shown as Parcel "1," Parcel "2," Parcel "A", Parcel "B", and Parcel
"C" shown on the plat attached hereto as Exhibit "B", together with all
improvements presently on the leased premises, as well as all improvements to
be erected thereon.
2. Term of Lease.
A. This Lease, as it pertains to Parcel "1", Exhibit "B", shall
begin on the 1st day of August , 1993, and shall end on October 31, 2007;
provided, however, that the existing lease terms relating to Parcel "1",
Exhibit "A", shall remain in force from the date of this Lease to August 1,
1993. See Exhibit "C" (Joinder Agreement).
B. This Lease, as it pertains to Parcels "2," "A," "B," and "C,"
Exhibit "B", shall begin on November 1, 1986 and shall end on October 31, 2007.
3. Rental.
A. Zantop shall pay the City, on the first day of each month in
advance during the term of this lease, the sum of $2,473.00 as rent for Parcel
"1." Said rental shall be adjusted each three years, commencing on August 1,
1996, as follows:
The rental of $2,473.00 per month shall be increased by the same
percentage by which the cost of living has increased, if any, from
the beginning of this Lease to the beginning of the three year
period for which each rent adjustment is computed, based upon
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<PAGE> 106
the increase, if any, in "all item," Consumer Price Index for
Urban Wage Earners and Clerical Workers, U.S. City Average: All
Items (1967 = 100), published by the United States Bureau of
Labor Statistics (Index). The adjusted monthly rental so computed
shall continue through each three year period for which each
computation of rent adjustment shall have been made. In no event
shall the monthly rental be less than $2,473.00.
B. Zantop shall pay to the City, on the first day of each month
in advance during the term of this lease, the sum of $1649.98 as rent
for Parcels "2," "A," "B," and "C." Said rental shall be adjusted each
three years, commencing on September 1, 1988, as follows:
The rental of $1649.98 per month shall be increased by the same
percentage by which the cost of living has increased, if any,
from the beginning of this Lease to the beginning of the three
year period for which each rent adjustment is computed, based
upon the increase, if any, in "all items," Consumer Price
Index for Urban Wage Earners and Clerical Workers, U.S. City
Average: All Items (1967 = 100), published by the United States
Bureau of Labor Statistics (Index). The adjusted monthly rental
so computed shall continue through each three year period for
which each computation of rent adjustment shall have been made.
In no event shall the monthly rental be less than $1649.98.
4. Additional Rent if Aircraft Fuel is Not Purchased From A City
Lessee. In the event that Zantop should not purchase all of its Macon
uplift aircraft fuel requirements from a vendor which, at the time of
purchase, is a direct or indirect lessee of the City, then, and in that
event, Zantop shall pay to the City
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<PAGE> 107
as additional rent One Cent ($.01) on each gallon of aircraft fuel purchased
from a vendor who is not then a direct or indirect lessee from the City. Lessees
from the City who sell aircraft fuel at the Airport are required to pay to the
City as rental One Cent ($.01) per gallon as part of the consideration for their
leases, and the purpose of this paragraph of the Agreement is to assure that the
City will not lose this revenue should Zantop purchase aircraft fuel from a
vendor which is not a direct or indirect lessee from the City. Nothing contained
in this Lease shall prevent Zantop from purchasing from a vendor of its choice.
The term "Macon uplift aircraft fuel" means the fuel that is loaded
into Zantop's aircraft tanks at the Airport.
5. Payment in lieu of taxes.
A. Zantop agrees to make a payment in lieu of taxes to the City for
the existing hangar facility located on Parcel "1", Exhibit "B", on November 1,
1994, and on that date each year thereafter for the balance of the Lease
Agreement and all option periods which are exercised by Zantop. Said payment in
lieu of taxes shall be in addition to the rental payments provided for in this
lease. Said payment in lieu of taxes shall be figured as follows:
Gross Value of Hangar on January 1, 1994 = $1,500,000
x 82% (Current estimated Value Ratio
for Industrial Facilities) = $1,230,000
x 40% Net Taxable Value = $ 492,000
x the mileage rate levied by the City of Macon
in the year 1994 and in each year thereafter.
The Gross Value will be fixed for a period of five years. Commencing
on November 1, 1999 and every five years thereafter the Gross Value shall be
increased by the same percentage by which the cost of living has increased, if
any, from January 1, 1994 to the beginning of the five year period for which
each payment in lieu of taxes adjustment is computed, based upon the increase,
if any, "all items," Consumer Price Index for Urban Wage Earners and Clerical
Workers, U.S. City average: all items (1967 = 100) published by the United
States Bureau of Labor
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<PAGE> 108
Statistics (Index). The adjusted payment in lieu of taxes so computed shall
continue through each five year period for which each computation of said
payment in lieu of taxes adjustment shall have been made. In no event shall the
Gross Value be less than $1,500,000.
B. Zantop agrees to make a payment in lieu of taxes to the City for
the new hangar facility located approximately as shown on the attached Exhibit
"B" on November 1, 1988, and on that date each year thereafter for the balance
of the Lease term and all option periods which are exercised by Zantop. Said
payment in lieu of taxes shall be in addition to the rental payments provided
for in this lease. Said payment in lieu of taxes shall be figured as follows:
Gross Value of Hangar on January 1, 1988 = $3,000,000
x 82% (Current estimated Value Ratio
for Industrial Facilities) = $2,460,000
x 40% Net Taxable Value = $ 984,000
x the mileage rate levied by the City of
Macon in 1988 and in each year thereafter.
The Gross Value will be fixed for a period of five years. Commencing on
January 1, 1993 and every five years thereafter, the Gross Value shall be
increased by the same percentage by which the cost of living has increased, if
any, from January 1, 1988 to the beginning of the five year period for which
each payment in lieu of taxes adjustment is computed, based upon the increase,
if any, in "all items" Consumer Price Index for Urban Wage Earners and Clerical
Workers, U.S. City Average: all items (1967 = 100), published by the United
States Bureau of Labor Statistics (Index). The adjusted payment in lieu of taxes
so computed shall continue through each five year period for which each
computation of the payment in lieu of taxes adjustment shall have been made. In
no event shall the Gross Value be less than $3,000,000.
C. Zantop agrees that in the event any improvements (other than
routine repairs and maintenance) are made to any of the hangar facilities
located on the leased premises, or if new
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<PAGE> 109
facilities are constructed, that it will report the costs of said improvements
or new facilities and the same formula outlined above would then be applied to
the improvements so as to increase the payments in lieu of taxes
proportionately.
6. Option. Zantop shall have the option of extending the term of the
lease of the same terms and conditions for two renewal terms of ten years each.
Said option shall be exercisable as follows:
Not more than one year nor less than six months prior to the expiration
of the original term, Zantop shall, if it desires to exercise these options,
notify the City in writing of its election to exercise a renewal option. Should
Zantop fail to do so within such time, its right to exercise shall nevertheless
be extended until thirty days after the City notifies Zantop in writing that it
has not received a notice of exercise from Zantop.
7. Construction of New Hangar Facility. Zantop agrees to construct a new
hangar and shop facility on the site shown as the "proposed hangar" on the
attached Exhibit "B" entirely at Zantop's expense. The City will not be called
upon to assume nor guarantee any debt in connection with the costs of this new
hangar which is estimated to be $3,000,000. Zantop further agrees that
construction must commence on said new facility on or before June 30, 1987.
Once construction has commenced, Zantop agrees to prosecute the same with due
diligence to completion of the facility. For the purposes hereof, construction
will be deemed to have commenced upon the accomplishment of the following, with
evidence thereof to the City: (a) Zantop and its general contractor shall have
entered into a contract for the construction of said facility, and (b) the
general contractor shall have begun the performance of such contract, including
at the minimum the commencement of rough grading activities and the excavation
of footings and foundations. The City at its sole option may extend the date by
which construction must commence, however, said date shall not be extended to a
date any later than September 30, 1987.
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<PAGE> 110
8. Use. The Leased Premises are primarily to be used for air cargo
operations, the maintenance, overhaul, modification and repair of aircraft, and
for office and administrative functions related thereto, and may be used for any
other lawful purpose or purposes which are not in conflict with the normal
operations of the Airport. Zantop is specifically granted the right to
construct, operate and maintain one or more aircraft hangars, shops, office
facilities and any and all other improvements necessary to carry out Zantop's
operations at the Airport, provided that the construction of such facilities
shall be in accordance with all reasonable policies and guidelines of the City
and the Federal Aviation Administration. Zantop shall, at its own expense,
repair all damages to the premises caused by its employees, patrons, or its
operation thereon, and shall maintain and repair all equipment thereon,
including any drainage installations, paving, curbs, islands, buildings, and
improvements.
The City shall not be required to make any repairs or improvements to
said leased premises during the term of this Lease, or any renewal or extension
hereof. It is agreed that Zantop shall have the right to make the improvements
referred to above and such other improvements to the Leased Premises as may be
agreed in writing between the parties. It is further agreed and provided that
no mobile or portable building or trailer, placed upon the Leased Premises,
shall at any time be used for living or sleeping quarters and shall be used only
in connection with the operation of the business of Zantop, hereinbefore
specified.
The City, in its reasonable discretion, shall be the sole judge of the
quality of maintenance of the Leased Premises by Zantop. Upon written notice by
the City, through its Airport Director, to Zantop, Zantop shall be required to
perform whatever reasonable maintenance City may deem necessary. If said
maintenance is not undertaken by Zantop within ten (10) days after receipt of
written notice, the City shall have the right to
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<PAGE> 111
enter upon the Leased Premises and perform the necessary maintenance, Zantop
being liable for the cost thereof.
Upon the termination of this Lease, Zantop shall return the premises
and any such improvements to City in good condition, reasonable wear and tear
and uninsured casualty damage excepted, and such improvements shall become the
property of City. Zantop shall maintain such facilities constructed by Zantop in
good condition and the City shall have no responsibility or liability for the
construction or maintenance of said facilities.
9. Responsibility of the City to Maintain Aircraft Aprons.
Notwithstanding the provisions of the preceding paragraph, the City agrees to
maintain the apron lease areas, consisting of a total of 294,500 square feet as
shown on Exhibit "B" in good and serviceable condition.
10. Liability of City. It is agreed that the City shall not be
responsible or liable for the loss of or damage or injury to persons occurring
on or about the Leased Premises. Zantop shall at all times keep the premises in
a safe condition for its invitees and licensees. Zantop agrees to indemnify,
hold City harmless and defend City in respect of damage or injury to City, the
Leased Premises and the property or persons of City's other tenants, or anyone
else, on or about the Leased Premises.
11. Subletting. Zantop may sublet all or any portion of the Leased
Premises, provided, however, that it shall first obtain the written consent of
the City, which consent shall not be unreasonably, arbitrarily or capriciously
withheld.
12. Other Agreements. Zantop shall not enter into any transaction
which would deprive City of any of the rights and powers necessary to perform
all covenants or other obligations under various type agreements with the United
States of America relating to the use of Airport property.
13. Removal of Equipment. Zantop may (if not in default hereunder) at
any time prior to the termination of this Lease, or any extension hereof, remove
all fixtures and equipment which it has placed on the Leased Premises or in any
improvements
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<PAGE> 112
erected thereon, provided that Zantop shall repair all damages to the premises
caused by such removal.
14. Assignment. The City recognizes that it shall be necessary for
Zantop to assign all its rights under this lease as security and collateral for
the project funds required for the improvements to be made upon the leased
premises and the City consents and agrees to such assignment or assignment for
such purposes; provided that any entity which obtains ownership of such rights
or obtains possession of the leased premises because of a default on the part of
Zantop in connection with the financing arrangements for said improvements shall
only have such rights as provided to Zantop by this lease and any such entity
shall be entitled to exercise such rights upon the continuing acceptance of the
obligations of Zantop imposed by this lease.
15. Default. It is mutually agreed that in the event Zantop should
default in the payment of rent, when due, or any other default occurs as to the
performance of other terms and provisions of this Lease, and Zantop fails to
cure any such default within ninety (90) days after the date of receipt of
written notice of default from the City, or if Zantop should be adjudicated a
bankrupt; then, in any event, the City may terminate this Lease: provided,
however, that upon such default occurring the City shall also notify IDBI
Managers, Inc., as managing general agent for Firemen's Insurance Company of
Newark, New Jersey (the "Agency"). Such notice to the Agency shall be
simultaneous with the notice given to Zantop, and after such notice of default
to Zantop and the Agency, the Agency may, pursuant to the financing agreements
between Zantop and the Agency, assume lease payments or other obligations
required by this Lease so as to cure such default. Upon such termination of
this Lease by the City, Zantop will at once surrender possession of the Leased
Premises to the City and will remove all of Zantop's property therefrom. The
City may forthwith re-enter the Leased Premises and take possession thereof, and
it may remove all persons and effects therefrom, using such force as may be
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<PAGE> 113
reasonably necessary without being guilty of trespass, forceful entry, detainer
or other tort.
16. Reasonable Access. The City shall at all times provide Zantop
with reasonable access to the Leased Premises by vehicles, aircraft, and
pedestrians. Zantop agrees that the City shall have reasonable access over and
upon the Leased Premises for inspection, security emergencies or other purposes
which do not unreasonably interfere with the use of the Leased Premises by
Zantop.
17. Signs. Zantop shall place no signs upon the outside walls or roof
of the Leased Premises, except with the written consent of the City, which
consent shall not be unreasonably, arbitrarily or capriciously withheld.
18. Attorney's Fees. If any rent owing under the terms of this Lease
is collected by or through an attorney at law, Zantop agrees to pay an
additional fifteen percent (15%) thereof as attorney's fees.
19. Strict Compliance. Time is of the essence of this contract. All
rights conferred upon the City to enforce this Lease are cumulative of those
conferred by law. The waiver of any provision hereunder by the City shall not
constitute a waiver of its rights to demand exact compliance with all terms
hereof.
20. Peaceable Enjoyment. The City agrees that upon payment of the
rent herein provided for, and upon observance and performance by Zantop of the
covenants herein contained and on the part of Zantop to be observed and
performed. Zantop shall peaceably hold and enjoy the Leased Premises for the
term of this Lease, without hindrance or interruption by the City or any person
or persons lawfully or equitably claiming by, through or under the City.
21. Building Restrictions. Zantop agrees to be bound by the aircraft
parking line and building restriction lines which are applicable to the Leased
Premises and agrees, further, to abide by all Federal Rules and Regulations
governing the use of the Airport.
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<PAGE> 114
22. Representations of Zantop. Zantop represents that the availability
of the Leased Premises are vital for its use and operations at the Airport and
that Zantop anticipates construction of additional facilities for expanded
operations. Zantop agrees to cooperate with the City in the use of all or part
of the Leased Premises by others in the event Zantop does not fully utilize
same.
23. Force Majeure. For the purpose of any of the provisions of this
Agreement, neither City nor Zantop, as the case may be, nor any successor in
interest, shall be considered in breach of, or default in, the obligations
thereof with respect to this Agreement in the event of enforced delay in the
performance of such obligations due to unforeseeable causes beyond the control
and without the fault or negligence thereof, including, but not restricted to,
acts of God, acts of the public enemy, acts of the Federal Government, acts of
the other party, fires, floods, epidemics, quarantine restrictions, strikes,
freight embargoes, unusually severe weather or delays of any contractor or
subcontractors due to such causes, it being the purpose and intent of this
Section 23 that in the event of the occurrence of any such enforced delay, the
time or times for performance of the obligations of City or Zantop, as the case
may be, with respect to this Agreement shall be extended for the period of the
enforced delay; provided that the party seeking the benefit of the provisions
of this Section 23 shall, within ten (10) calendar days after the beginning of
any such enforced delay, have first notified the other party thereof by Notice,
and of the cause or causes thereof, and requested an extension for the period
of the enforced delay. In any event, no period of enforced delay shall exceed
six months.
24. Property Insurance. Zantop shall, during the term of this Lease,
cause to be insured the improvements to be erected upon the Leased Premises, to
the full insurable value thereof, against loss or damage by fire, lightning,
windstorm, hail, explosion and such other hazards as the City may reasonably
require and provided that such other hazards are generally
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<PAGE> 115
insured against in Bibb County, Georgia, by then available licensed insurance
carriers at reasonable expense. All insurance shall be maintained in a company
or in companies satisfactory to the City with loss payable clauses in favor of
the City and Zantop and any lender holding this Lease as security, as the
interest of the loss payees may then appear. The cost of such insurance
coverage shall be paid by Zantop promptly upon receipt of an appropriate
statement from the Insurance Carrier. At least annually Zantop shall provide
the City certification that the coverages required herein have been procured and
are being properly maintained.
25. Public Utility Insurance. Zantop shall purchase and maintain
public liability insurance with responsible insurance companies authorized to do
business in the State of Georgia, having a duly designated agent or agents upon
whom process in any suit or action in the courts of the State of Georgia or of
the United States of America can be served, insuring Zantop against liability
for injuries to persons (including death) and property caused by Zantop's
negligent use and occupancy of the Demised Premises or otherwise caused by the
negligence of Zantop on the Demised Premises, the policy limits thereof to be in
an amount of not less than Five Hundred Thousand Dollars ($500,000.00) for any
one person and not less than Three Million Dollars ($3,000,000.00) for any one
occurrence involving injury (including death), to more than one person and an
amount of not less than One Hundred Thousand Dollars ($100,000.00) for property
damage resulting from any one occurrence. The City shall be a named insured in
all such policies. At least annually Zantop shall provide the City
certification that the coverages required herein have been procured and are
being properly maintained.
26. Protection of Adjacent Property. While any excavation, demolition
or construction is being performed on the Demised Premises or any portion
thereof, Zantop shall protect all adjacent property.
-12-
<PAGE> 116
27. Title. Any improvements constructed by Zantop shall become a part
of the Demised Premises, but the legal title to the same shall not vest in City
until the termination of this Agreement, whether by expiration of the Lease
Term or option periods described in Section 6 above, as the case may be, or
otherwise. Title to all improvements, facilities and betterments of any sort
whatsoever which are constructed hereafter or placed upon any portion of the
Demised Premises, and any and all depreciation and Investment Tax Credit
generated thereby or available in connection therewith shall belong to and
accrue to the benefit of Zantop (or assigns) during the Lease Term.
28. Utilities. Zantop is to be responsible for an shall pay all
water, sanitation, gas, heat, light, power, steam and telephone services and
any and all other services supplied to the Demised Premises.
29. Non-Discrimination. As a contractor with City, Zantop hereby
agrees with City that Zantop shall be bound by the valid laws of the United
States, the State of Georgia and all valid ordinances and laws of the City of
Macon, Georgia. Zantop assures that it will undertake an affirmative action
program as required by 14 CFR Part 152, Subpart E, to insure that no person
shall on the grounds of race, creed, color, national origin, or sex be excluded
from participating in any employment activities covered in 14 CFR Part 152,
Subpart E. The City assures that no person shall be excluded on these grounds
from participating in or receiving the services or benefits of any program or
activity covered by this subpart. Zantop assures that it will require that its
covered suborganization provide assurances to the City that they similarly
will undertake affirmative action programs and that they will require
assurances from their suborganizations, as required by 14 CFR Page 152, Subpart
E, to the same effect.
30. Notices. All notices required or permitted hereunder may be
delivered by mailing the same to the following addresses:
-13-
<PAGE> 117
' City of Macon
P. O. Box 247
Macon, GA 31298
For Zantop: Zantop International Airlines, Inc.
Lewis B. Wilson Airport
Macon, GA 31297
31. Captions. The captions used throughout this Lease are used for the
convenience of the parties and of such persons as may have occasion to examine
the provisions of this Lease, and such captions are not to be construed as
affecting the meaning of this Lease or of any paragraph hereof.
32. Multiple Originals. This Lease shall be executed in multiple
originals, and any executed copy shall be considered the same as the original.
33. Late Payment of Rent. In the event of the failure on the part of
Zantop to pay any payment due hereunder, the City shall have all the rights,
powers and remedies provided by law, equity or the provisions of this lease.
Zantop will pay to the City, on demand and as additional rent, interest on all
installments thereof in default at a percentage rate which is four percent (4%)
above the rate charged by the Trust Company Bank of Middle Georgia, N.A. to its
prime commercial borrowers, calculated on a daily basis. Such interest shall
accrue until said payment is paid in full.
34. Warranties of City. The City warrants that it may lawfully enter
into this Lease Agreement and warrants that it has and can convey to Zantop all
rights and privileges in and with respect to the Leased Premises as are herein
given and conveyed to Zantop.
35. Warranties of Zantop. Zantop warrants that it may lawfully enter
into this Lease Agreement and that this Lease has been approved and authorized
by the Board of Directors of Zantop by formal, official and legally binding
action of said board.
IN WITNESS WHEREOF, the parties have, through their proper officials
and officers, pursuant to duly adopted resolutions, placed their names and
seals hereon, the day and year first written above.
-14-
<PAGE> 118
CITY OF MACON, GEORGIA
BY: /s/ GEORGE M. ISRAEL III MAYOR
----------------------------------
MAYOR
ATTEST: /s/ JAMES E. HUNNICUTT
----------------------------------
Clerk
Signed, sealed and delivered
in the presence of:
/s/ YOLANDA CARTER
------------------------------------
/s/ JOYCE GRAY
------------------------------------
Notary Public
Seal
ZANTOP INTERNATIONAL AIRLINES, INC.
BY: /s/ LEONARD A. SHIPAN
-------------------------------------
Title: Leonard A. Shipan, Vice President
ATTEST: /s/ JAMES H. LORSE
-------------------------------------
Title: James H. Lorse, Secretary
Signed, sealed and delivered
in the presence of:
/s/ SHARON KAY ANDERSON
------------------------------------
Sharon Kay Anderson
------------------------------------
Notary Public Wayne County, MI
My commission expires: June 9, 1987
/s/ LOYCE T. POOLE
------------------------------------
Unofficial Witness
-15-
<PAGE> 119
EXHIBIT "C"
STATE OF GEORGIA
BIBB COUNTY
JOINDER IN LEASE AGREEMENT BY
MACON-BIBB COUNTY INDUSTRIAL AUTHORITY
The Macon-Bibb County Industrial Authority (hereinafter called
"Authority") joins in the execution of this Lease Agreement between the City of
Macon and Zantop, dated December 19, 1986, for the purpose of:
1. Indicating its approval of the terms hereof; and
2. Indicating specifically its approval for the line which divides
parcels 1 and 2 to be shifted in a northerly direction so as to
abut the existing hangar facility as shown on the attached Exhibit
"B," without any change in the rental payments due or payable to
the Authority.
This 19th day of December, 1986
MACON-BIBB COUNTY INDUSTRIAL AUTHORITY
BY: /s/ [ILLEGIBLE]
-----------------------------------
Vice Chairman
ATTEST: /s/ [ILLEGIBLE]
---------------------------------
Secretary
Signed, sealed and delivered
in the presence of:
/s/ [ILLEGIBLE]
- -----------------------------------
/s/ [ILLEGIBLE]
- -----------------------------------
Notary Public
My commission exp: 8/9/88.
-16-
<PAGE> 120
[LEWIS B. WILSON AIRPORT MAP]
[SEAL][SCALE]
[MAPLEGEND]
EXHIBIT A
<PAGE> 121
[LEWIS B. WILSON AIRPORT MAP]
[SCALE]
[MAPLEGEND]
EXHIBIT B
<PAGE> 122
REPORT OF COMMITTEE
PUBLIC PROPERTIES COMMITTEE ORDINANCES & RESOLUTIONS
/s/ [ILLEGIBLE]
- --------------------------------------- ------------------------
/s/ RODNEY L. SMITH
- ---------------------------------------
/s/ [ILLEGIBLE]
- ---------------------------------------
/s/ [ILLEGIBLE]
- ---------------------------------------
/s/ ELAINE LUCAS
- --------------------------------------- MAYOR
Approved 12/16/86
PREPARED BY STAFF ATTORNEY /s/ ROY W. GRIFFIS, JR.
---------------------------------------------
Roy W. Griffis, Jr.
APPROVED AS TO THE LEGAL FORM BY THE CITY ATTORNEY
------------------------
Joan W. Wooley
R-86-0103
A
RESOLUTION
OF
THE MAYOR AND COUNCIL OF THE CITY OF MACON AUTHORIZING THE MAYOR TO EXECUTE A
LEASE AGREEMENT BETWEEN THE CITY OF MACON AND ZANTOP INTERNATIONAL AIRLINES FOR
CERTAIN SPACE AT LEWIS B. WILSON AIRPORT; REPEALING A CONFLICTING RESOLUTION;
AND FOR OTHER PURPOSES.
Read first time
-------------------------------------------------------------
and referred to the Committee on
- ----------------------------------------------------------------------------
REPORT
Rendered December 16, 1986 OM
--------------------------------------------------------------------
and Adopted
-------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<PAGE> 123
[SELL & MELTON LETTERHEAD]
ASSIGNMENT AND CONVEYANCE OF LEASEHOLD INTERESTS
This Assignment and Conveyance made and entered into this 30th day of
December, 1986 by ZANTOP INTERNATIONAL AIRLINES, INC., a Michigan corporation,
having its principal place of business at Willow Run Airport in the City of
Ypsilanti, State of Michigan (hereinafter referred to as "Zantop") in favor of
MACON-BIBB COUNTY INDUSTRIAL AUTHORITY, a public authority of the State of
Georgia (hereinafter referred to as "Authority"),
W I T N E S S E T H T H A T:
WHEREAS, Zantop is the Lessee in various lease agreements whereby
certain properties at the Lewis B. Wilson Airport in Macon, Bibb County, Georgia
have been leased to Zantop by the City of Macon and the Authority, said lease
agreements including the following:
a) Lease Agreement by the Authority, as Lessor, to Hawaiian Airlines,
Inc., as Lessee, dated September 5, 1979, and a subsequent sublease by Hawaiian
Airlines, Inc. to Zantop, dated September 2, 1980;
b) Lease Agreement between the City of Macon, as Lessor, and Zantop, as
Lessee, dated September 17, 1985; and
<PAGE> 124
[SELL & MELTON LETTERHEAD]
c) Lease Agreement approved by the City Council of Macon, Georgia on
December 16, 1986, and approved by the Mayor of the City of Macon, Georgia on
December 17, 1986, Zantop being the Lessee,
WHEREIN, in said leases, Zantop, as Lessee, has certain rights to the
use and enjoyment of the properties described in Exhibit "A" attached hereto
and made a part hereof; and
WHEREAS, the Authority has formally declared its intention to assist
in the financing of new facilities for Zantop to be constructed upon the
property described in Exhibit "A" and in order to facilitate the issue of
revenue bonds by the Authority for the purpose of providing the proceeds for
the sale of said Bonds for the construction of improvements upon said property,
it will be necessary that Zantop convey its interest in said property to the
Authority so that Authority may thereupon lease said property to
Zantop pursuant to a new lease to be executed on or about December 30, 1986 so
as to permit the Authority to pledge said property as collateral for the Bond
Issue referred to hereinabove.
2
<PAGE> 125
[SELL & MELTON LETTERHEAD]
NOW THEREFORE, Zantop hereby conveys and assigns to the Authority all
its right, title and interest to the property described in Exhibit "A," which
is attached hereto and has been made a part hereof.
ZANTOP INTERNATIONAL AIRLINES, INC.
BY: /s/ LEONARD A. SHIPAN
--------------------------------
ATTEST: /s/ JAMES H. LORSE
--------------------------------
/s/ RUTH W. BROWN
- ---------------------------
Witness
/s/ MARY CHRISTINE HOLLIDAY
- ---------------------------
Notary Public
My Commission Expires: Notary Public, Fultch County, Georgia
My Commission Expires Aug. 14, 1990
N O T A R I A L S E A L
3
<PAGE> 126
[SELL & MELTON LETTERHEAD]
All that tract or parcel of land lying and being in Land Lot 231 of the Fourth
Land District of Bibb County, Georgia, and being Parcel 2, containing 6.77
acres, or 294,963 square feet, and Parcel "A," containing 0.58 acres, or 25,298
square feet, Parcel "B," containing 0.31 acres, or 13,680 square feet and
Parcel "C," containing 0.46 acres, or 19,991 square feet, according to a plat
prepared by the City Engineer's Office of the City of Macon, dated November 18,
1986, identified as C-4, D-3, #76, to which reference is hereby made for
incorporation herein.
<PAGE> 127
[ZANTOP INTERNATIONAL AIRLINES INC. LETTERHEAD]
FOR FACSIMILE TRANSMISSION
DATE: 2 MAY 89
------------------
TIME: 14:06
------------------
TO: L. Robert Lovett
-------------------------
COMPANY: Smith, Hawkins, Almand & 26 page(s) to follow
-------------------------
Hollingsworth DEX #:
------------------------- ----------------------
EXT. #:
ATTN: ---------------------
------------------------------
FROM: Robt. Shannon EXT. #: 313-485-8900, X-210
------------------------------ ---------------------
Zantop International Airlines
SUBJECT: L. Wilson Airport Lease
--------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<PAGE> 128
[CITY OF MACON CITY HALL LETTERHEAD]
LEASE AGREEMENT
DECEMBER 19, 1986
I, James E. Hunnicutt, City Clerk, do hereby certify that the attached
Resolution #R-86-0103 concerning a lease agreement with the Zantop Airlines, is
a true and correct copy of said resolution on file in the City Clerk's Office,
City Hall, Macon, Georgia 31298.
Sincerely,
/s/ JAMES E. HUNNICUTT
- -------------------------
James E. Hunnicutt
City Clerk
City Hall
P. O. Box 247
Macon, Georgia 31298
<PAGE> 129
A RESOLUTION OF THE MAYOR AND COUNCIL OF THE CITY OF MACON AUTHORIZING THE
MAYOR TO EXECUTE A LEASE AGREEMENT BETWEEN THE CITY OF MACON AND ZANTOP
INTERNATIONAL AIRLINES FOR CERTAIN SPACE AT LEWIS B. WILSON AIRPORT; REPEALING
A CONFLICTING RESOLUTION; AND FOR OTHER PURPOSES.
BE IT RESOLVED by the Mayor and Council of the City of Macon and it is
hereby so resolved by the authority of same that the Mayor of Macon is hereby
authorized to execute a lease agreement between the City of Macon and Zantop
International Airlines in substantially the form as the Lease Agreement which
is attached hereto and by this reference made a part of this Resolution.
BE IT FURTHER RESOLVED that the Mayor is also authorized to sign any
other legal documents necessary to carry out the terms of this transaction.
BE IT FURTHER RESOLVED that Resolution R-86-0097 is hereby repealed.
SO RESOLVED this 16th day of December, 1986.
/s/ [ILLEGIBLE]
-------------------------------------
President of City Council
APPROVED this 19th day of December, 1986.
/s/ [ILLEGIBLE]
-------------------------------------
Mayor
City of Macon, GA.
I do hereby certify that the above and foregoing SUBMITTED TO MAYOR'S OFFICE
Resolution was duly passed at the Regular Meet- December 17, 1986
ing of the Council of the City of Macon, held RETURNED FROM MAYOR'S OFFICE
12/16/86. Witness my hand and seal of the City December 19, 1986
of Macon this 12/17/86.
/s/ [ILLEGIBLE]
- -----------------------------------------------
Clerk of Council
<PAGE> 130
AGREEMENT
STATE OF GEORGIA,
COUNTY OF BIBB.
THIS AGREEMENT made and entered into the 25th day of November, 1996,
by and between the CITY OF MACON, GEORGIA, a municipal corporation duly created
and existing under the Constitution and laws of the State of Georgia (the
"City"), MACON-BIBB COUNTY INDUSTRIAL AUTHORITY, a public body corporate and
politic and an instrumentality of the City of Macon and the County of Bibb,
created under an amendment to the Constitution of the State of Georgia (Ga.
Laws 1962, p. 886), duly ratified and proclaimed, and an act of the General
Assembly of the State of Georgia (Ga. Laws 1962, p. 2323), as amended (the
"Authority"), and ZANTOP INTERNATIONAL AIRLINES, INC., a Michigan corporation
("Zantop"),
W I T N E S S E T H T H A T:
WHEREAS, the City owns and operates the Middle Georgia Regional
Airport ("Airport") in Bibb County, Georgia; and,
WHEREAS, on September 5, 1979, the City leased a portion of the
Middle Georgia Regional Airport (the "Airport") property shown as Parcel "1" on
the plat attached hereto as Exhibit "A" to the Macon-Bibb County Industrial
Authority, said Authority having thereafter leased said property to Hawaiian
Airlines, Inc. for use as an aircraft repair and maintenance center; and,
<PAGE> 131
WHEREAS, Hawaiian Airlines, Inc. thereafter subleased said Parcel 1
to Zantop by a sublease agreement dated September 2, 1980; and,
WHEREAS, the Authority and the City both agreed to and approved said
sublease; and,
WHEREAS, the Authority and Zantop have executed two lease amendments
relating to said Parcel 1, dated October 4, 1982, and September 12, 1983; and,
WHEREAS, on September 13, 1985, the City leased an additional parcel
of land to Zantop, said additional parcel being adjacent to the aforesaid
Parcel "1" and shown as Parcel "2" (consisting of an apron area of 99,068
square feet and a ground lease area of 100,932 square feet), as well as Parcels
"A," "B," and "C" on Exhibit "A" attached hereto; and,
WHEREAS, on December 19, 1986, the City and Zantop executed an
Agreement which merged all previous Lease Agreements into one comprehensive
Agreement; and,
WHEREAS, Zantop caused to be built a new hangar on Parcel "2"
consisting of approximately 47,000 square feet, said hangar located on Parcel
"2" as indicated on Exhibit "B;" and,
WHEREAS, Zantop has assigned to the Authority all of its right, title
and interest in and to Parcel 1 arising under any lease between Zantop and the
City, including the aforesaid leases and amendments thereto; and,
WHEREAS, City has, by exercise of the power of eminent domain,
condemned and seized Parcel 2A containing .675 acres and being further
described in Exhibit "C" attached hereto; and,
2
<PAGE> 132
WHEREAS, the City, by an agreement of October 1, 1993, leased said
Parcels 1 and 2A to the Authority; and,
WHEREAS, the Authority, by an agreement between the City and Zantop,
constructed a new hangar consisting of approximately 68,500 square feet on
Parcels 1 and 2A (said hangar being attached to existing buildings situated
thereon); and,
WHEREAS, the Authority thereupon subleased said Parcels 1 and 2A to
Zantop, together with all improvements thereon; and,
WHEREAS, Zantop has continued to increase its operations at the
Airport; and,
WHEREAS, Zantop has requested the assistance of the City and
Authority in the expansion of the airport facilities provided by the
arrangements described hereinabove by assistance in the construction of
additional facilities on the leased property to consist of approximately 6,900
square feet for use by Zantop as an aircraft seat shop and a metal bonding area
(the "Project") to be located as shown in shaded yellow on the plat attached
hereto as Exhibit "D;" and,
WHEREAS, Zantop represents that the cost of said Project shall be
approximately $250,000.00 to $300,000.00; and,
WHEREAS, Zantop further represents that the operations anticipated
in the additional space will cause Zantop to employ 25 additional new highly
trained technical personnel; and,
WHEREAS, subject to the conditions set forth hereinbelow, the
Authority is willing to provide a $110,000.00 contribution for Project costs,
and Zantop is willing to provide all other costs needed for the construction of
the Project.
3
<PAGE> 133
NOW, THEREFORE, in consideration of the respective representations
and agreements herein contained, and in furtherance of the mutual public
purposes hereby sought to be achieved, Zantop, the City and the Authority agree
as follows:
1. The Authority and the City agree to permit the construction of the
Project.
2. Zantop shall proceed promptly with the construction of the Project.
3. The structural integrity of the existing leased facilities shall
not be impaired by said construction.
4. Subject to the approval of a request for funding of the Project
made by the Authority to the Department of Community Affairs to the State of
Georgia, the Authority shall provide the sum of $110,000.00 for Project
construction costs upon the execution of a contract for the construction by
Zantop.
5. Zantop shall be responsible for all other construction costs,
shall assume that a competent contractor is engaged for the work to be done,
and shall require liability and casualty as required by the Authority.
6. The parties agree that all provisions, terms and conditions of all
existing agreements by the parties shall neither be altered nor impaired in any
manner, and all rental payments shall remain unchanged.
4
<PAGE> 134
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals the day and year first above written.
CITY OF MACON, GEORGIA
By: /s/ [ILLEGIBLE]
------------------------------------
Attest: /s/ [ILLEGIBLE]
--------------------------------
City Clerk
MACON-BIBB COUNTY INDUSTRIAL AUTHORITY
By: /s/ [ILLEGIBLE]
------------------------------------
Chairman
Attest: /s/ [ILLEGIBLE]
--------------------------------
Secretary
ZANTOP INTERNATIONAL AIRLINES, INC.
By: /s/ JAMES M. ZANTOP
------------------------------------
James M. Zantop, President
Attest: /s/ JAMES H. LOREE
--------------------------------
James H. Loree, Corporate
Secretary & Legal Counsel
5
<PAGE> 135
[AIRPORT MAP]
[SEAL][LEGEND FOR MAP]
EXHIBIT "A"
<PAGE> 136
[AIRPORT MAP]
[LEGEND FOR MAP]
EXHIBIT "B"
<PAGE> 137
All that tract or parcel of land lying and being in Land Lots 231 and
232 of the 4th Land District of Bibb County, Georgia, and shown upon a property
survey for the City of Macon of property leased to Zantop International
Airlines, Inc., dated July 30, 1990 and revised January 19, 1993, prepared by
the Office of the City Engineer of the City of Macon, a copy of which is
recorded in Plat Book 87, Page 501, Clerk's Office, Bibb Superior Court, Bibb
County, Georgia, the property herein conveyed being more particularly described
as Parcel 1, containing 294,090 square feet, or 6.75 acres, and Parcel 2A,
containing 28,469 square feet, or 0.675 acres, and more particularly described
according to said plat as follows:
To find the point of beginning, begin at a brass disc in concrete,
marked Bibb County number 620, located in an access road running along the
northeasterly line of the property herein conveyed, and running thence south 69
degrees, 33 minutes, 06 seconds west a distance of 38.79 feet to the southeast
corner of Parcel 1, which point marks the point of beginning; running thence
south 67 degrees, 03 minutes, 35 seconds west a distance of 91.41 feet to a
point; running thence south 67 degrees, 02 minutes, 39 seconds west a distance
of 32.84 to a point; running thence south 22 degrees, 36 minutes, 19 seconds
east a distance of 10.07 feet to a point; running thence south 67 degrees, 02
minutes, 39 seconds west, a distance of 122.83 feet to a point; running thence
south 22 degrees, 56 minutes, 57 seconds east a distance of 99.69 feet to a
point; running thence south 67 degrees, 03 minutes, 03 seconds west a distance
of 12.75 feet to a point; running thence north 22 degrees, 56 minutes, 57
seconds west a distance of 22.00 feet to a point; running thence south 57
degrees, 03 minutes, 35 seconds west a distance of 9.30 feet to a point; running
thence south 22 degrees, 56 minutes, 57 seconds east a distance of 30.55 feet to
a point; running thence south 67 degrees, 03 minutes 35 seconds west a distance
of 269.26 feet to a point; running thence north 23 degrees, 21 minutes, 11
seconds west a distance of 98.04 feet to a point; running thence north 23
degrees, 21 minutes, 11 seconds west a distance of 503.15 feet to a point;
running thence north 50 degrees, 28 minutes, 42 seconds east a distance of
455.03 feet to a point on the northeasterly edge of a 20 foot asphalt paving;
running thence south 22 degrees, 47 minutes, 29 seconds east a distance of
146.11 feet to a point; running thence north 66 degrees, 30 minutes east a
distance of 102.47 feet to a point; running thence south 23 degrees, 30 minutes
east a distance of 468.39 feet to the point of beginning.
The above mentioned plat is hereby referred to for the purpose of
incorporation herein.
EXHIBIT "C"
<PAGE> 138
[AIRPORT MAP]
<PAGE> 139
ZANTOP INTERNATIONAL AIRLINES, INC.
MACON RENTAL & BOND
SUMMARY
21.75 Years - Balance of Lease Term
Land - 589,000 sq. ft.
Buildings - 176,000 sq. ft.
I. BASE RENTALS Month Annual Total to Term
------------ ----- ------ -------------
8/1/96 - 11/1/13 $5,861 $70,332 $1,213,227
11/1/13 - 5/1/18 6,695 80,340 361,530
----------
$1,547,757
==========
Average Base Rentals
--------------------
Subject to CPI adjustment every
four years (average year = $72,408) $6,034/Month
II. 1986 BOND ISSUE Month Annual Total to Term
--------------- ----- ------ -------------
(8/1/96 - 12/1/98) $40,196 $482,352 $1,165,685
III. 1994 BOND ISSUE Month Annual Total to Term
--------------- ----- ------ -------------
(8/1/96 - 5/1/18) $31,049 $372,588 $8,107,789
- --------------------------------
<TABLE>
<CAPTION>
RECAP: Month Annual
<S> <C> <C>
I. Base Rent $6,034 $72,408
II. 1986 Bonds 40,196 482,352
III. 1994 Bonds 31,049 372,588
-------------------------
Totals (8/1/96 - 12/1/98) $77,279 $927,348
=========================
</TABLE>
I. Base Rent $6,034 $72,408
II. 1994 Bonds 31,049 372,588
------------------------
Totals (12/1/98 - 5/1/18) $37,083 $444,996
=========================
Continued.....
<PAGE> 140
Zantop International Airlines, Inc.
Macon Rental & Bond Summary
Page 2
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SQUARE FOOTAGE COST YEAR MONTH
<S> <C> <C>
.012cents
LAND RENTAL (Base) 589,000 sq. ft. .1229cents .102cents
BUILDINGS 176,000 sq. ft.
(to 12/1/98) Bonds 1 & 2 $4.858 .4048cents
(from 12/1/98 to 5/1/18) Bond 2 2.117 .1764cents
TOTAL ANNUAL COST
8/1/96 - 12/1/98 4.98 .5068cents
12/1/98 - 5/1/18 2.24 .1866cents
</TABLE>
NOTE: The above leases are net of: insurance (real property); utilities,
building maintenance, and cost of living adjustments (i.e., CPI
increases every four years applicable to base rentals and payment in
lieu of taxes).
<PAGE> 1
STOCK PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement"), dated the 13th day of February, 1997, by and
between CRYSTEK ACQUISITION CORPORATION, a Florida corporation ("Buyer"); and
WHITEHALL CORPORATION, a Delaware corporation ("Seller").
WITNESSETH:
WHEREAS, Seller is the holder of all the issued and outstanding shares
of capital stock of Crystek Crystals Corporation, a Florida corporation
("Crystek"), which is engaged in the business of manufacture, distribution and
sale of crystals and crystal oscillators;
WHEREAS, Buyer wishes to acquire from Seller and Seller wishes to convey to
Buyer, all of the shares of Crystek, all upon the terms and conditions as
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements herein contained, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
For the purpose of this Agreement, the following terms shall have the
following meanings unless the context clearly requires otherwise.
"Assets" shall mean the assets owned by Crystek.
"Business" shall mean the business of manufacture, distribution and sale of
crystals and crystal oscillators as it is conducted by Crystek on the date of
this Agreement.
<PAGE> 2
"Closing" shall mean the closing referred to in Section 2.03 of this
Agreement.
"Closing Date" shall mean the date on which the Closing occurs.
"Interest" shall mean interest on the principal stated at the rate of 10%
per annum, based upon a 360-day year, accruing from the Closing Date to the date
of payment.
"Real Property" shall mean the real property known as and by the street
address 2351 and 2371 Crystal Drive, Fort Myers, FL 33907 and the improvements,
structures and betterments thereon situate as more specifically described in
SCHEDULE 001 annexed hereto and made a part hereof.
"Shares" shall mean all of the issued and outstanding shares of capital
stock of Crystek as of the Closing Date, being 1,000 shares of common stock.
"Total Consideration" shall mean the aggregate of the cash and promissory
note hereinafter described constituting the purchase price paid by Buyer to
Seller in connection with the acquisition by Buyer of the Shares.
ARTICLE 2
PURCHASE AND SALE
2.01 Purchase and Sale. Subject to the terms and conditions of this
Agreement, at the Closing, Seller shall sell, transfer, convey and assign to
Buyer, and Buyer shall purchase and acquire, all of Seller's right, title and
interest in and to the Shares. The sale, assignment, conveyance and transfer of
the Shares to Buyer, as herein provided, shall be effected by Seller's execution
and delivery of all share certificates representing the Shares, duly endorsed to
Buyer
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or accompanied by appropriate instruments of transfer, which shall vest in Buyer
all right, title and interest in and to the Shares.
2.02 Consideration.
(a) Subject to the terms and conditions of this Agreement, in reliance
on the representations, warranties and agreements of Seller, contained herein,
the consideration to be delivered by Buyer for the sale, transfer, conveyance
and assignment referred to in Section 2.01 hereof shall be TWO MILLION SEVEN
HUNDRED FOURTEEN THOUSAND THREE HUNDRED TEN and 00/100 Dollars ($2,714,310)
payable as follows:
(i) TWO MILLION THREE HUNDRED THOUSAND and 00/100 Dollars
($2,300,000) to Seller at the time of Closing, in immediately available funds;
and
(ii) Four Hundred Fourteen Thousand Three Hundred Ten Dollars
($414,310.00) plus Interest to Seller by promissory note ("Note") in the form
and substance as set forth in Exhibit A hereto, which shall be executed by Buyer
and delivered to Seller at Closing.
(b) The parties recognize that the transaction described herein is a
purchase of stock of Crystek, with the result that Crystek shall continue to be
legally responsible for all of its liabilities. Seller agrees, however, to cause
Crystek to satisfy and discharge all of its liabilities prior to the Closing
Date, with the exception of those items listed on Schedule 2.02 and the normal
trade payables existing on the Closing Date which are payable within Crystek's
customary credit terms (all such liabilities and payables, collectively, the
"Normal Trade Payables"). Any liabilities of Crystek other than the Normal Trade
Payables existing or accrued as of the Closing Date, whether absolute or
contingent, shall be satisfied and paid by Seller, or
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if paid by Crystek, shall be promptly reimbursed by Seller to Crystek,
including, without limitation, the following:
(i) Crystek's legal, accounting or other fees or expenses arising
out of the transactions contemplated by this Agreement, including, without
limitation, the cost of preparation of tax returns of Crystek for the tax year
ending December 31, 1996;
(ii) all liabilities and other obligations accruing on or after
the Closing Date under any leases, contracts, agreements or other arrangements
of Crystek existing on the Closing Date which are of a nature required to be
listed on SCHEDULE 4.07 hereto but are not listed or which are not expressly
assigned to and assumed by Buyer;
(iii) with respect to any federal income or excess profits taxes
or state or local income, sales, use, excise or franchise taxes, together with
any interest and penalties thereon, arising out of or attributable to the
conduct of the Business of Crystek prior to January 1, 1997 (any such taxes
applicable to the period after January 1, 1997 shall be borne by Crystek
notwithstanding any provision of this Section 2.02 to the contrary);
(iv) with respect to any litigation or other legal proceeding
arising out of or attributable to the conduct of the Business of Crystek prior
to the Closing Date (whether or not referred to in Schedule 4.13);
(v) with respect to any federal income or capital gains taxes or
state or local income, franchise, transfer or sales taxes arising by virtue of
the transactions contemplated by this Agreement;
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(vi) any tort, crime or workmen's compensation claim or any other
claim based on any acts, omissions or facts occurring prior to the Closing Date
(however, nothing in this clause shall be deemed to create or imply the creation
of any tort, crime, or workmen's compensation liability or other liability to
any third party on the part of Crystek); and
(vii) with respect to any employment or consulting agreements and
arrangements made by Crystek prior to the Closing, except as described in
Section 7.01(f).
2.03 INTENTIONALLY OMITTED
2.04 Closing. Subject to the provisions of Article 7 hereof, the Closing of
the transactions contemplated hereby shall take place at such place and on such
date as the parties shall agree; provided, however, that either party shall have
the right to terminate this Agreement on notice to the other if the Closing does
not occur on or before February 28, 1997.
2.05 Deliveries at the Closing.
(a) At the Closing, Seller shall deliver to Buyer: (i) executed share
certificates and transfer powers provided for in Section 2.01 hereof, with
evidence of payment of any and all documentary stamps; (ii) the certificates,
and consents referred to in Section 7.01 hereof; (iii) physical access to and
control over the Real Property (including appropriate transfer documents, with
payment of all transfer taxes) and the Assets, (iv) the books, records and seals
of Crystek, and (v) all such other documents and instruments required by this
Agreement.
(b) At the Closing, Buyer will deliver to Seller: (i) the Total
Consideration; (ii) the certificates, certified resolutions and consents
referred to in Section 7.02 hereof; and (iii) all such other documents and
instruments required by this Agreement.
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2.06 Further Assurances. After the Closing, Seller and Buyer shall from
time to time, at the request of either party and without further cost or expense
to either party, execute and deliver such other instruments of transfer and take
such other actions as Buyer or Seller may reasonably request, in order to more
effectively consummate the transactions contemplated hereby and to vest in Buyer
good and marketable title to the Shares.
2.07 Apportionment of Certain Costs. There shall be appropriately
apportioned between Buyer and Seller, as of the close of business on the Closing
Date, the following items: in respect of the Real Property, all items
customarily apportioned when real property is transferred, including, but not
limited to, property taxes and utility charges; license payments and fees; fuel;
and personal property taxes and, in respect of employees of the Business, all
accruals for vacation and benefits. In addition, at the time of Closing, Seller
shall pay to Buyer one half (1/2) the cost of title insurance with respect to
the Real Property, at the values therefor set forth in Schedule 2.08.
2.08 Section 338 Election. The parties acknowledge that Buyer intends to
file an election pursuant to Section 338(h)(10) of the Internal Revenue Code of
1986 to recognize gain with respect to the transaction described herein, and
Seller agrees to join with Buyer in executing such forms as are required in
order to make such election. For these purposes, the parties further agree to
the allocation of the Total Consideration among the assets of Crystek as set
forth on Schedule 2.08 hereto.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
3.01 Organization. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Florida.
3.02 Authority; Consents and Approvals; No Violation. Buyer has full
corporate power and authority to execute and deliver this Agreement, to
consummate the transactions contemplated hereby, and after consummation to own
its properties and to conduct its business. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized and approved by the Board of Directors of Buyer and
no other corporate proceedings on the part of Buyer are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby and to
perform Buyer's obligations hereunder. This Agreement has been duly and validly
executed and delivered by Buyer and this Agreement constitutes a legal, valid
and binding agreement of Buyer, enforceable against Buyer in accordance with its
terms. No filing with any public body or authority is necessary for the
consummation by Buyer of the transactions contemplated by this Agreement.
Subject to compliance with any requirements so disclosed, the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby will not: (i) violate any provision of the Certificate of Incorporation
or By-laws of Buyer, or any statute, rule, regulation, order, judgment or decree
of any public body or authority by which Buyer or any of its properties is
bound; or (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default under, any license,
franchise, permit, indenture, agreement or other instrument to which Buyer is a
party or by which it or any of its properties is bound.
3.03 Purchase for Investment. Buyer is acquiring the Shares for its own
account and not with a view to, or for sale in connection with, the
"distribution" (as such term is used in Section 2(11) of the Securities Act of
1933, as amended (the "Securities Act")) of any of the Shares in violation of
the Securities Act.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer the following:
4.01 Organization. Crystek is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida and has the
requisite corporate power and authority to own or lease its properties and to
conduct its business as now being conducted. Seller knows of no claim by any
state or any other jurisdiction to the effect that Crystek is required to
qualify or otherwise to be authorized to do business as a foreign corporation
therein, in which Crystek has not qualified or obtained such authorization.
Seller has heretofore delivered to Buyer accurate and complete copies of the
Certificate of Incorporation and By-laws of Crystek as currently in effect.
4.02 Sole Shareholder of Crystek. Crystek has authorized capital stock
consisting of 10,000 shares of common stock, $.01 par value, of which 1,000
shares are issued and outstanding. All of the Shares are duly authorized,
validly issued, fully paid and nonassessable. Seller owns all right, title and
interest in and to all of the issued and outstanding shares of capital stock of
Crystek. There are no outstanding warrants, options, calls, subscriptions,
commitments, agreements or other rights to purchase or dispose of any of the
stock of Crystek, or other securities which are convertible into stock by
Crystek.
4.03 Subsidiaries, Etc. Crystek does not have any Subsidiary nor own any
shares or securities of, nor have any interest in, directly or indirectly, any
corporation, partnership, joint venture, trust, association or other enterprise.
4.04 INTENTIONALLY OMITTED
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4.05 Title to Assets, Condition, Etc.
(a) Except for the Real Property, title to which will be held by
Crystek at or before Closing, all material properties, assets and rights of the
Business conducted by Crystek are listed and identified in Schedule 4.05 hereto
(which Schedule may list inventory, intellectual property and contract and
leasehold rights of Seller generically). Except as set forth in Schedule 4.05,
Crystek is the sole and exclusive legal and equitable owner of all right, title
and interest in, and has title to, all such properties, assets and rights, free
and clear of any contract of lease, license or sale, any mortgage, security
interest, pledge, claim, lien, charge or encumbrance of any kind or nature,
direct or indirect, accrued, absolute, contingent or otherwise. Except as set
forth in Schedule 4.05, all such properties and assets are owned by Seller and
are located on the Real Property.
(b) The Real Property and the material properties and assets owned or
leased by Seller that are tangible: (i) are in operating condition and repair
(reasonable wear and tear excepted), (ii) are suitable for the purposes for
which they are presently being used; and (iii) constitute all of the tangible
properties and assets used in the conduct of the Business (other than the
tangible property and assets subject to leases referred to in Section 4.07
below).
(c) Seller is the owner of and has the unqualified right to sell,
assign, and deliver the Shares and, upon consummation of the sale of the Shares
as contemplated herein, Buyer will acquire good and valid title to the Shares,
free and clear of all liens, security interests, pledges, claims, options,
charges and encumbrances, other than the pledge of the Shares to Seller to
secure the Note.
4.06 Real Property. To Seller's knowledge, without investigation, the Real
Property and the structures thereon have been constructed in accord with local
regulations and have appropriate Certificates of Occupancy or Certificates of
Completion for same and their current
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use. Seller has no knowledge and has received no notices of any violations
affecting the Real Property, its operation or maintenance. The Real Property has
access to public highways and is serviced by public utilities, water and sewer
services. There are no tenants of the Real Property other than Crystek and
Seller knows of no claims against the Real Property for a possessory interest
either directly or by adverse possession or otherwise. All real estate and other
taxes in connection with the Real Property which are due and payable are current
and paid and shall be current and paid at the Closing Date. Neither the whole
nor any portion of the Real Property has been condemned, requisitioned or
otherwise taken by any public authority, and no such condemnation, requisition
or taking has been threatened in writing to Seller.
4.07 Contracts, Etc.
(a) Seller has at or prior to the date hereof furnished to Buyer true,
correct and complete copies of all contracts, agreements and other instruments
set forth in Schedule 4.07 hereto, which identifies all material contracts,
licenses (both domestic and foreign), agreements, leases, indentures,
instruments and commitments to which Crystek is a party, or by which it or its
properties are bound in connection with its Business and the sale of the Shares
as herein contemplated, other than purchase orders. Except as set forth in
Schedule 4.07, to Seller's knowledge all such contracts are valid, binding and
enforceable in accordance with their terms and are in full force and effect;
neither Crystek nor to Seller's knowledge any other party thereto is in default
thereunder; and to Seller's knowledge no event of default has occurred which
(whether with or without notice, lapse of time or both) would constitute a
default thereunder. Except to the extent indicated in such Schedule, no consent
or approval of any party to any such material contract is required in connection
with the consummation of the transactions contemplated by this Agreement.
(b) Except as separately identified in Schedule 4.07, Crystek is not
party to any contract, agreement, instrument or commitment: (i) with any dealer,
distributor,
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representative or agent; (ii) imposing any obligation or liability on it with
respect to the return of inventory or merchandise not in its possession; (iii)
involving any debt or obligation for borrowed money or arrangements for the
extension of any credit; (iv) involving an outstanding loan to any person; (v)
contractually restricting it from carrying on its Business in any part of the
world; or (vi) creating any obligations on its part as guarantor, surety or
indemnitor with respect to the obligations of others.
4.08 Intellectual Property. Crystek owns no patents, trademarks, trademark
rights, trade names, trade name rights, trade dress, service marks, brand names,
copyrights or applications for any of the foregoing, utilized in the Business of
Crystek.
4.09 Employee Agreements and Benefits. Schedule 4.09 contains a true and
correct statement of the names, current rates of base compensation and amounts
of (or, where no amount is specified, the formula for computing) supplemental or
bonus compensation of all employees of Crystek. Except as described in Schedule
4.09 hereto, Crystek has no obligation, and Buyer at Closing will have no
obligation, contingent or otherwise, under any employment contract, consulting
agreement, or any other similar agreements, employment policies (including
vacation and severance pay policies) or retirement or employee benefit plans,
arrangements or understandings, written or otherwise, with any officer,
director, employee or agent of Crystek. No labor unions are representing or, to
Seller's knowledge, attempting to represent employees of Crystek. There are no
presently outstanding loans and advances (other than routine travel advances to
be repaid or accounted for within 60 days) made by Crystek to any employee or
any other individual.
4.10 Taxes. Crystek has properly and accurately completed and filed all
Federal, state, local and foreign tax returns and reports of every nature
required to be filed by it and has paid or provided for all taxes (whether or
not requiring the filing of returns) to the extent that
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such amounts have become due pursuant to such returns and reports, pursuant to
any notice of deficiency or assessment received by Crystek or otherwise. To
Seller's knowledge, there are no pending audits relating to, or claims asserted
for, taxes, assessments, penalties or interest against Crystek or any audit of
any of its returns presently being conducted. Except as set forth in Schedule
4.10 hereto, no Federal and state tax returns of Crystek relating to the last
five tax years have been audited by the appropriate taxing authorities. No tax
returns of Crystek have been audited by any taxing authority outside of the
United States. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return for any period with
respect to Crystek. All taxes, imposts, duties and other assessments and levies
which Crystek is required by law to withhold or collect have been duly withheld
and collected, and have been paid over to the proper governmental authorities or
are being properly held by Crystek for such payment.
4.11 Liabilities. Except as set forth on Schedule 4.11 hereto, Crystek has
no outstanding claims against it, liabilities or indebtedness of whatsoever
nature, fixed, contingent or otherwise, other than liabilities incurred in the
ordinary course of business which are not material.
4.11.1 Accounts Receivable. Included in this transaction are all
accounts receivable of Crystek as of date of Closing. All of the receivables
will be good and collectible in full within one hundred twenty (120) days
following the Closing Date, and subject to Buyer's compliance with Section 6.07,
the amount of any receivables not so collected shall, at that time, be deducted
from and credited, dollar-for-dollar against, the principal installments due
under the Note, in the order of their maturity dates.
4.12 Authority; Consents and Approvals; No Violation. Seller has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions
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contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized and approved by the Executive Committee of the Board of Directors of
Seller and no other corporate proceedings including, but not limited to, filing
with any State or Federal Regulatory or Securities & Exchange Agency, or any
Stock Exchange, on the part of Seller are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by Seller and constitutes a legal, valid
and binding agreement of Seller, enforceable in accordance with its terms,
except as may be limited by bankruptcy, reorganization, fraudulent conveyance,
insolvency and similar laws of general application relating to or affecting the
enforcement of rights of creditors and subject to general principles of equity.
Except as set forth in Schedule 4.12 hereto, no filing with, and no permit,
authorization, consent or approval of, any public body or authority, the absence
of which would, either individually or in the aggregate, have a material adverse
effect on the business, operations or financial condition of the Assets, is
necessary for the consummation by Seller of the transactions contemplated by
this Agreement. Subject to compliance with any requirements so disclosed, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not: (i) violate any provision of the
corporate charter or by-laws of Seller or, to Seller's knowledge, any statute,
rule or regulation or (to the extent addressed to and binding on Seller) any
order, judgment or decree of any public body or authority by which Seller, or
any of its properties is bound; or (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default
under, or give any party with rights thereunder the right to terminate,
accelerate, modify or otherwise change the rights of or obligations of Seller
under, any license, franchise, permit, indenture, agreement or other instrument
to which Seller is a party, or by which it or any of its properties are bound.
4.13 Legal Proceedings. Except as set forth in Schedule 4.13 hereto, there
are no actions, suits, claims, governmental, arbitration or other proceedings or
investigations pending
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or, to Seller's knowledge, threatened against or with respect to Crystek, or any
of its properties or assets being sold hereunder. There are no judgments,
awards, orders or decrees addressed to Crystek outstanding against or relating
to the Real Property or the properties, assets or rights of the Business or any
segment thereof. Seller has not taken any action or knowingly permitted any
action to be taken by others which would prevent or restrict the sale of the
Shares hereunder to Buyer.
4.14 Compliance with Laws.
(a) Except as set forth in Schedule 4.14 hereto, the Business has been
and is now being operated in compliance with all material applicable
governmental laws, rules, regulations and ordinances (federal, state, local and
foreign). Schedule 4.14 sets forth all the licenses, permits and orders required
to conduct the Business, which if not obtained and maintained in full force and
effect could materially adversely affect the Business, and all such licenses,
permits and orders have been obtained by Crystek, are in full force and effect.
In addition, except as set forth in Schedule 4.14, Crystek has not received any
written notice, order or directive by any governmental authority or insurance
agency to the effect that Crystek failed to comply in any material respect with
any law, rule, regulation or ordinance relating to the Business of Crystek or
the Real Property, or that a license, permit or order is required to be obtained
in connection with the Business.
(b) Except as disclosed in Schedule 4.14 hereto, (i) the operations of
Crystek comply in all material respects with all applicable Federal, state
and/or local environmental, health and safety statutes and regulations; (ii)
none of the operations of Crystek is subject to any pending judicial or
administrative proceeding of which Seller has been given written notice alleging
the violation of any Federal, state or local environmental, health or safety
statute or regulation; (iii) Crystek has not received written notice that any of
the operations of Crystek is the subject of any Federal or state investigation
evaluating whether any remedial action is
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needed to respond to a release of any hazardous or toxic waste, substance or
constituent, or other substance, into the environment; (iv) Crystek has not
disposed of any hazardous waste or substance by placing it in or on the ground
of the Real Property, and, to Seller's knowledge, neither has any lessee, prior
owner or other person; (v) to Seller's knowledge, no underground storage tanks
or surface impoundments are on the Real Property; and (vi) no lien in favor of
any governmental authority for (A) any liability under Federal or state
environmental laws or regulations, or (B) damages arising from or costs incurred
by such governmental authority in response to a release of hazardous or toxic
waste, substance or constituent, or other substance, into environment has been
filed or attached to the Real Property.
4.15 Insurance. Schedule 4.15 hereto sets forth a true and correct list of
all policies of insurance, including the limits thereof, the premium, therefor
and the period each is in effect, owned by Crystek or with Crystek named as an
insured party, relating to or providing coverage for the assets of Crystek or
the Real Property or any segment thereof.
4.16 No Adverse Changes. Except as set forth on Schedule 4.16A hereto,
since December 31, 1996, Crystek and Seller have conducted the Business only in
the ordinary course in accordance with past practices; have preserved for the
benefit of Buyer Crystek's net assets as set forth on the Statement of Net
Assets attached hereto as Schedule 4.16B, except that Crystek will before
Closing distribute to Seller an amount equal to all of its cash on hand in
excess of $100,000, minus Crystek's net profits (after accruals for taxes) from
and after March 1, 1997, and except for sales of inventory in the ordinary
course of business and of equipment and other tangible personal property
replaced in the ordinary course of business; have retained for the benefit of
Buyer all net income earned by Crystek after December 31, 1996; and, without
limiting the generality of the foregoing, there has not occurred or been
incurred:
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(a) any material adverse change in the condition (financial or
otherwise), property, assets, liabilities, rights, operations, or business of
Crystek;
(b) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting Crystek's assets or the Business;
(c) any payment of bonuses or increase in the wages, salaries or other
remuneration of any of the officers or salaried employees of Crystek except in
the ordinary course of business;
(d) any change in the accounting methods or practices followed by
Crystek which is in any way material to Crystek's assets or the Business;
(e) any write-off or reduction in the book value of any of Crystek's
properties;
(f) any sale, lease, transfer or assignment of any material asset
(tangible or intangible) of Crystek except for a fair consideration and in the
ordinary course of business;
(g) any waiver of any material rights arising out of the conduct of,
or with respect to, the Business or any of Crystek's assets, or any
cancellation, settlement or compromise of any material claim or debt due to or
owing by Crystek;
(h) any declaration or distribution of, or commitments for, any cash,
stock or other dividend by Crystek or any other payment made to or for the
benefit of Seller or any of its affiliates, except as provided at the beginning
of this Section 4.16; or
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(i) any payment or commitments for any payment which in type or
amount was not consistent with past practices.
4.17 INTENTIONALLY OMITTED
4.18 INTENTIONALLY OMITTED
4.19 Absence of Certain Payments. Neither Crystek nor any director,
officer, authorized agent, or employee, has (i) used any corporate funds for
contributions, gifts, entertainment or other expenses relating to political
activity in violation of the laws of the United States or any jurisdiction
thereof or in violation of the laws of any other jurisdiction, (ii) made any
direct or indirect payments to government officials or others from corporate
funds, or established or maintained any unrecorded funds in violation of the
laws of the United States or any jurisdiction thereof or in violation of the
laws of any other jurisdiction, (iii) violated any provisions of the Foreign
Corrupt Practices Act of 1977 or any rules or regulations promulgated
thereunder, or (iv) violated any Federal antiboycott regulations.
4.20 ERISA. Crystek is not and has never been a party to any multi-employer
plan within the meaning of Section 3(37) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and has no employee benefit plan
(whether a pension plan or a welfare plan as defined in Sections 3(1) and 3(2)
of ERISA) which will be continuing in full force and effect after the Closing;
all such plans of Crystek have been or currently are being terminated. Schedule
4.20 hereto contains a true and correct listing of such plans which are or were
subject to the provisions of ERISA. Such plans and all funding mediums related
thereto have been administered in all material respects in accordance with their
provisions and with applicable law, including ERISA; and with respect to each
such plan, all premiums required to be paid to the Pension Benefit Guaranty
Corporation, all reports required to be filed with a government agency
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and all summaries and descriptions required to be given to plan participants
have been timely paid, filed or furnished. Neither Crystek nor any of its
directors, officers or employees have, with respect to such plans, engaged in
any "prohibited transaction" (within the meaning of Section 406 of ERISA) for
which an individual, class or statutory exemption does not apply or committed
any breach of fiduciary responsibility under Section 404 of ERISA. Moreover, no
such employee benefit plan has incurred an "accumulated funding deficiency"
(within the meaning of Section 302(a)(2) of ERISA); there are no unfunded
pension liabilities thereunder; and no "reportable event" within the meaning of
Section 4043 of ERISA (other than the proper termination of such plans referred
to above) has occurred with respect to any such plan.
4.21 INTENTIONALLY OMITTED
ARTICLE 5
CONDUCT OF BUSINESS PRIOR TO CLOSING
5.01 Conduct of Business. During the period from the date of this Agreement
to the Closing, Crystek shall conduct its Business in the ordinary course.
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement, prior to the Closing, Seller shall cause
Crystek to not, without the prior written consent of Buyer:
(a) amend its Certificate of Incorporation or By-laws or similar
governing documents;
(b) (i) create, incur or assume any long-term debt (including
obligations in respect of capital leases), or, except in the ordinary course of
business under existing lines of credit, create, incur, assume, maintain or
permit to exist any short-term debt for money borrowed; (ii) enter into any
agreements requiring the maintenance of a specified net worth; (iii)
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assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other
individual, firm or corporation; or (iv) make any loans, advances (other than in
the ordinary course of business) or capital contributions to, or investments in,
any other individual, firm or corporation;
(c) pay or agree to pay any bonuses or make or agree to make any
increase in the rate of wages, salaries, or other remuneration of any of its
officers or salaried employees;
(d) sell, transfer, mortgage, or otherwise dispose of, or encumber, or
agree to sell, transfer, mortgage or otherwise dispose of or encumber, any
properties, real, personal or mixed, except for sales of inventory in the
ordinary course of business and replaced equipment; or
(e) (i) enter into any other material obligation, agreement,
commitment or contract, or make any further additions to its property or further
purchases of machinery or equipment, except agreements, commitments or contracts
for the purchase, sale or lease of goods or services in the ordinary course of
business, consistent with past practice and not in excess of current
requirements, (ii) modify or change any contract, purchase order, license,
agreement, lease or undertaking referred to in Schedule 4.07, or (iii) otherwise
make any material change in the conduct of its business or operations,
including, without limitation, changing any credit or other policy or practice
with respect to sales of inventories or collection of receivables; or
(f) take or refrain from taking any other action that would make any
of the representations and warranties set forth in Article 4 untrue as of the
Closing Date.
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5.02 Current Information, During the period from the date of this Agreement
to the Closing, Seller will promptly notify Buyer of any governmental or
insurance complaints, investigations or hearings (or communications indicating
that the same may be contemplated), or the institution or threat (known to
Seller or Crystek) of significant litigation, involving Crystek, the Business,
or the Real Property, and will keep Buyer fully informed of such matters.
5.03 Risk of Loss. The risk of loss or damage by fire or other casualty,
condemnation or cause to the physical assets of Crystek until the Closing Date
shall be upon Crystek and (in the capacity as the shareholder of Crystek only)
Seller. In the event that such loss or damage shall not be restored, replaced,
or repaired by the Closing Date, Buyer may at its option either (i) defer the
Closing Date until such restoration, replacement or repairs are made, or (ii)
elect to consummate the Closing and accept the property in its then condition,
in which event Seller shall assign to Buyer, to the extent not already held by
Crystek, all insurance or condemnation proceeds which Seller has received or to
which Seller is entitled as a result of such loss or damage; or (iii) terminate
this Agreement. Upon such termination, this Agreement shall be null and void
with no further force or effect.
5.04 Pre-Closing Review. Seller will cooperate with Buyer in Buyer's
reasonable examination of the Assets within a reasonable time prior to Closing.
ARTICLE 6
COVENANTS OF THE PARTIES
6.01 Post-Closing Obligations. Buyer will pay all Normal Trade Payables on
a timely basis and in the ordinary course of business in accordance with the
past practices of the Business.
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6.02 Confidentiality. Each party will hold and will cause its consultants
and advisors to hold in strict confidence, unless compelled to disclose (in
which case such party will, if possible, notify the other party in advance of
such compelled disclosure) by judicial or administrative process or, in the
opinion of its counsel, by other requirements of law, all documents and
proprietary information concerning another party or the other party furnished to
it by such other party or its representatives in connection with the
transactions contemplated by this Agreement (except to the extent that such
information can be shown to have been (i) previously known by the party to which
it was furnished, (ii) in the public domain through no fault of such party, or
(iii) later lawfully acquired by the party to which it was furnished from other
sources) and will not release or disclose such information to any other person,
except to the respective auditors, attorneys, financial advisors and the parties
hereto.
6.03 Expenses. Except as otherwise specifically addressed herein, whether
or not the transactions contemplated hereunder are consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated (including fees of attorneys, accountants and other professional
advisors) hereby will be paid by the party incurring such costs and expenses.
6.04 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
In case at any time after the Closing any further action is necessary or
desirable to carry out the purposes of this Agreement, each party to this
Agreement shall take all such necessary action.
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6.05 Consents. Buyer and Seller each will use their best efforts to obtain
consents of all third parties and governmental authorities necessary for the
consummation of the transactions contemplated by this Agreement.
6.06 Public Announcements. The parties will consult with each other before
issuing any press releases or otherwise making any public statements with
respect to the transactions contemplated by this Agreement.
6.07 Collection of Receivables. Buyer shall exert its best efforts to
collect the accounts receivable of Crystek existing as of the Closing Date, and
shall notify Seller of any such receivables which are still uncollected ninety
(90) days after the Closing Date. The foregoing "best efforts" requirement shall
not be interpreted to require the institution of litigation against trade
debtors of Crystek.
6.08 INTENTIONALLY OMITTED
6.09 Brokerage, Finder's Fee: Each of the parties hereto represent, warrant
and acknowledge to the other that each of them have dealt solely with OEM
Capital, 406 Harbor Road, Southport, CT as the broker and finder in this
transaction and with Allegheny Financial Group, Ltd. ("Allegheny") as the broker
for the Buyer in this transaction. Seller agrees to pay such brokerage or
finder's fee to OEM Capital and Buyer agrees to pay any such fee to Allegheny,
pursuant to separate agreements. Each party shall indemnify and hold the other
harmless from the claim of any other party for a brokerage commission or a
finder's fee arising out of this transaction due to the acts of the indemnifying
party.
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6.10 Remediation of Real Property
(a) Buyer and Seller agree that a Phase I Environmental Site
Assessment of the Real Property has indicated the possible existence of
recognized environmental conditions at the Real Property. Promptly after the
Closing, Seller will conduct and complete, at its sole cost and expense, such
additional environmental investigations, studies, sampling and testing
(collectively, the "Investigation") as may be required in order to more
accurately determine the existence and extent of any recognized environmental
conditions identified in the Phase I Environmental Site Assessment. Upon
completion of the Investigation, and unless Seller has and exercises the option
to purchase the Real Property pursuant to Section 6.10(b), Seller shall, at its
sole cost and expense, and as expeditiously as possible, remedy all recognized
environmental conditions identified by the Investigation to the full extent
necessary to bring the Real Property into compliance with all applicable
federal, state and local environmental laws, regulations, ordinances and other
governmental requirements ("Environmental Laws") and in no case requiring a deed
restriction on the use of the Real Property (the "Remediation"). Buyer shall
have full access to all information pertaining to the Investigation and the
Remediation, all of which will be conducted so as to interfere as little as
possible with the ongoing operation of the Business.
(b) Seller shall have the right and option, in its sole discretion, to
purchase the Real Property, upon the terms and conditions hereinafter set forth,
in lieu of undertaking the remediation. Such option is exercisable by giving
notice to Buyer within thirty (30) days after Seller's determination of the
estimated cost. Further, in the event the Remediation is not completed to - the
extent necessary to bring the Real Property into compliance with Environmental
Laws by December 31, 1998, Buyer shall have the right and option, exercisable by
giving notice to Seller on or before April 30, 1999, to require Seller to
purchase the Real Property upon the terms and conditions hereinafter set forth.
The purchase price for the Real Property shall be $300,000. Buyer shall have the
right and option to lease the Real Property
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<PAGE> 24
back from Seller for such term, not exceeding fifteen (15) years, as Buyer may
elect. If the lease option is exercised, then at the time of transfer of the
Real Property, the parties shall enter into a lease agreement which will provide
for rent of $2,500 per month plus the lessee's assumption of all costs and
obligations customarily assumed by the lessee of a triple net lease, except that
Buyer shall not be obligated to make any structural repairs if the term of the
lease is less than five (5) years. The closing of the purchase shall take place
within thirty (30) days of the exercise of Buyer's or Seller's option. There
shall be appropriately apportioned between Buyer and Seller, as of the close of
business on the date of transfer, all items customarily apportioned when real
property is transferred, except that Seller shall pay all transfer and recording
taxes and fees.
6.11 Restrictive Covenant. Seller covenants, warrants and agrees that as
part of the consideration for the purchase of the Shares herein, Seller and all
of the current officers and directors of Crystek, except those that may be
employed or affiliated with Buyer, shall not directly or indirectly for a period
of five (5) years after the consummation of this transaction in any capacity
whatsoever (either as an employee, officer, director, stockholder, proprietor,
partner in a joint venture, consultant, or otherwise) engage in any business
competitive with the Business as conducted by Crystek at the time of this
Agreement, or solicit from any firm, person, or corporation which shall be
either a customer or supplier of Crystek any such business or purchase for
resale any such equipment, inventory, or supplies that would be competitive with
the Business conducted by Crystek as herein above set forth. Seller agrees that
Buyer's remedy for enforcing the provisions of this paragraph may be inadequate
as a matter of law and hereby consents to injunctive relief within the
jurisdictional parameters set forth in this Agreement.
6.12 Insurance. Seller agrees that it will continue to include Crystek
under Seller's existing insurance program to such extent and for such period,
not extending beyond April 15,
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<PAGE> 25
1997, as Buyer may elect by giving notice to Seller on or prior to the Closing
Date, in which case Buyer will reimburse Seller for the portion of Seller's
insurance premiums attributable to such continued coverage. As used herein,
"insurance program" means Seller's property, casualty, general liability,
workers' compensation, and health insurance policies.
ARTICLE 7
CLOSING CONDITIONS
7.01 Conditions to the Obligations of Buyer. The obligations of Buyer to
effect the consummation of the transactions contemplated by this Agreement shall
be subject to the fulfillment at or prior to the Closing of the following
conditions, any one or more of which may be waived by Buyer and all of which, if
not fulfilled before Closing, shall be deemed waived if Buyer closes:
(a) Seller shall have performed and complied with the agreements
contained in this Agreement required to be performed and complied with by it at
or prior to the Closing Date and its representations and warranties set forth in
this Agreement shall be true and correct in all respects as of the Closing Date
(except as otherwise contemplated by this Agreement), and Buyer shall have
received a certificate to that effect signed by the president of Seller.
(b) Buyer shall have received certified copies of the resolutions
evidencing the authorization of the Board of Directors of Seller referred to in
Section 4.12 hereof.
(c) Buyer shall have received certificates from appropriate
authorities as to the good standing of, and payment of taxes by, Crystek in the
States of Incorporation and any jurisdiction in which Crystek is authorized or
qualified to do business.
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(d) Neither Buyer nor Seller shall be subject to any order, decree or
injunction of a court or agency claiming competent jurisdiction which questions
the validity or legality of the transactions contemplated hereby or the right or
ability of any party hereto to consummate such transactions, which would have a
material adverse effect on the Business, or which would impose material
limitations on the ability of Buyer to exercise full rights of ownership of the
Shares and no action, suit, proceeding or investigation shall be pending or
threatened which, in the opinion of counsel to Buyer, is reasonably likely to
result in any such order, decree or injunction.
(e) From the execution date hereof to the Closing Date, Crystek shall
not have suffered any material adverse change (except any such change which has
been clearly disclosed in writing to Buyer and to which Buyer has not objected)
in its Assets and liabilities (absolute, accrued, contingent or otherwise).
(f) Consummation of this transaction is conditioned upon MARK S.
STEARNS, an employee of Crystek, entering into an Employment Agreement with
Crystek on terms reasonably satisfactory to Buyer. The Seller has been made
aware by Buyer that MARK S. STEARNS may also acquire a minority equity position
in Crystek.
7.02 Conditions to the Obligation of Sellers. The obligation of Seller to
effect the consummation of the transactions contemplated by this Agreement shall
be further subject to the fulfillment at or prior to the Closing Date of the
following conditions, any one or more of which may be waived by Seller and all
of which, if not fulfilled before Closing, shall be deemed waived if Seller
closes:
(a) Buyer shall have performed and complied with the agreements
contained in this Agreement required to be performed and complied with by it at
or prior to the Closing
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<PAGE> 27
Date and the representations and warranties of Buyer set forth in this Agreement
shall be true and correct in all respects as of the Closing Date (except as
otherwise contemplated by this Agreement), and Seller shall have received a
certificate to that effect signed by the president of Buyer.
(b) Seller shall have received certified copies of the resolutions
evidencing the authorization of the Board of Directors of Buyer referred to in
Section 3.02 hereof. Buyer will furnish Seller with such certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in this Section 7.02 as Seller may request reasonably in
advance of the Closing.
(c) Seller shall have received certificates from appropriate
authorities as to the good standing of, and payment of taxes by, Buyer in the
States of Incorporation and any jurisdiction in which Buyer is authorized or
qualified to do business.
(d) Neither Seller nor Buyer shall be subject to any order, decree or
injunction of a court or agency claiming competent jurisdiction which questions
the validity or legality of the transactions contemplated hereby or the right or
ability of any party hereto to consummate such transactions, and no action,
suit, proceeding or investigation shall be pending or threatened which, in the
opinion of counsel to Seller, is reasonably likely to result in any such order,
decree or injunction.
ARTICLE 8
SURVIVAL OF REPRESENTATIONS, INDEMNIFICATIONS AND SET-OFF
8.01 Survival of Representations. All representations, warranties,
agreements and covenants of Seller and Buyer, made herein shall be deemed to
have been material and relied
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<PAGE> 28
upon by the other party hereto. Such representations, warranties, (and to the
extent they clearly survive Closing by their terms) agreements and covenants of
both parties shall survive the Closing and shall terminate and be of no further
force and effect at 11:59 p.m., Eastern time, on the twenty-fourth month
anniversary of the Closing Date, except that the representations and warranties
relating to tax matters of Crystek included in Section 4.10 shall survive the
Closing and terminate and be of no further force and effect at 11:59 p.m.,
Eastern time, on the date on which the last statute of limitations under
Federal, state or local law expires with respect to the matters addressed
therein, and except that the provisions of Section 6.10 shall have no stated
termination date. The termination of either party's representations and
warranties shall not affect the other party's rights to prosecute to conclusion
any claim made on a timely basis prior to such termination.
8.02 Indemnification by Seller.
(a) Seller (in this Section "Indemnitor" or "Seller") agrees to
indemnify and hold Buyer and each of its respective officers, directors and
stockholders (in this Section, "Indemnitee" or "Buyer") harmless from and
against any and all liabilities, damages, losses, reasonable costs or expenses
(including, without limitation, reasonable attorneys' and accountants' fees and
disbursements) whatsoever arising out of or resulting from (i) any breach of
warranty or misrepresentation made in this Agreement by Seller, or in any
exhibit, schedule or certification furnished pursuant hereto, or the
nonperformance of any covenant, or obligation set forth in this Agreement to be
performed by Seller, (ii) all liabilities of Crystek other than the Normal Trade
Payables, of any nature, fixed or contingent, existing on the Closing Date,
whether or not in any Schedule hereto; and (iii) any actions, suits,
proceedings, demands, judgments, and reasonable costs and legal and other
expenses, incident to any of the foregoing.
(b) Buyer shall give Seller prompt notice of any action, proceeding,
lawsuit of third parties (a "Third Party Claim") as to which Buyer proposes to
demand indemnification
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hereunder. Seller shall forthwith assume the good faith defense of such Third
Party Claim at its own expense and may settle such Third Party Claim, but may
not, without the consent of Buyer, agree to (i) any injunctive relief affecting
Buyer, or (ii) any settlement which would, in the good faith opinion of Buyer,
adversely affect the business or operations of Buyer. For purposes hereof, "good
faith defense" means legal defense conducted by reputable counsel of good
standing selected by Seller with the consent of Buyer, which consent shall not
be unreasonably withheld or delayed. If commencement of a legal defense does not
occur within ten (10) days (or, if longer, the answer period permitted by
applicable law) following receipt of notice of the Third Party Claim from Buyer
(or such shorter period, if any, during which a defense must be commenced in
order for the defendant to preserve its rights), Buyer may, at its option,
settle or defend such claim and the expense of such settlement or defense shall
be chargeable to Seller; provided, however, that it may not enter into a
settlement providing anything other than the payment of money without the
indemnitor's consent, Subject to the other provisions of this Section 8.02, in
the event that (x) a judgment or order in favor of such third party is rendered
against Buyer, or (y) such Third Party Claim is settled in accordance with this
Section, resulting in liability on the part of Buyer, the amount of such
liability together with reasonable costs and expenses (including reasonable
attorneys' fees), incurred by Buyer shall be paid by Seller. Buyer may offset
any such obligation of Seller described in the foregoing sentence from Buyer's
Note obligation delivered as part of the consideration herein.
(c) This Indemnity and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the law of the
State of Texas. Any legal action or proceeding with respect to this Indemnity
may be brought in the courts of the State of Texas or of the United States of
America sitting in Dallas County, Texas and, by execution and delivery of this
Agreement, the Indemnitor hereby accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts and hereby waives any right it may have to object to the bringing of any
such action or proceeding in the
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aforesaid courts based on the grounds of forum non conveniens. The Indemnitor
further irrevocably consents to the service of process in any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to the Indemnitor at
the address contained herein, such service to become effective twenty (20) days
after such mailing. Nothing herein shall affect the right of the Indemnitee to
service process in any other manner permitted by law or to commence legal
actions or proceedings or otherwise proceed against the Indemnitor in any other
jurisdiction.
8.03 Indemnification by Buyer.
(a) Buyer (in this Section "Indemnitee" or "Buyer") agrees to
indemnify and hold Seller and each of its respective officers, directors and
shareholders (in this Section, "Indemnitee" or "Seller") harmless from and
against any and all liabilities, damages, losses, reasonable costs or expenses
(including, without limitation, reasonable attorneys' and accountants' fees and
disbursements) whatsoever arising out of or resulting from (i) any breach of
warranty or misrepresentation made in this Agreement by Buyer or in any exhibit,
schedule or certification furnished pursuant hereto, or the nonperformance of
any covenant or obligation to be performed by Buyer set forth in this Agreement,
(ii) failure of Buyer to timely pay or perform any of the liabilities assumed by
it pursuant to this Agreement; and (iii) acts or omissions of Buyer or Crystek
in connection with the ownership of the assets of Crystek or in the operation of
the Business after the Closing Date (except to the extent that such act or
omission of Buyer or Crystek results from a breach by Seller of any of its
representations or warranties made herein), (iv) documentary stamp taxes imposed
by the State of Florida on the Note, and (v) any actions, suits, proceeding,
demands, judgments, reasonable costs and legal and other expenses, incident to
any of the foregoing.
(b) Seller shall give Buyer reasonably prompt notice of any action,
proceeding, lawsuit of such Third Party Claim as to which Seller proposes to
demand
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indemnification hereunder. Buyer shall forthwith assume the good faith defense
of such Third Party Claim at its own expense and may settle such Third Party
Claim, but may not, without the consent of Seller, agree to (i) any injunctive
relief affecting Seller, or (ii) any settlement which would, in the good faith
opinion of Seller, adversely affect the business or operations of Seller. For
purposes hereof, "good faith defense" means legal defense conducted by reputable
counsel of good standing selected by Buyer with the consent of Seller, which
consent shall not be unreasonably withheld or delayed. If commencement of a
legal defense does not occur within ten (10) days (or, if longer, the answer
period permitted by applicable law) following receipt of notice of the Third
Party Claim from Seller (or such shorter period, if any, during which a defense
must be commenced in order for the defendant to preserve its rights), Seller
may, at its option, settle or defend such claim and the expense of such
settlement or defense shall be chargeable to Buyer; provided, however, that it
may not enter into a settlement providing anything other than the payment of
money without the indemnitor's consent.
(c) This Indemnity and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the law of the
State of Texas. Any legal action or proceeding with respect to this Indemnity
may be brought in the courts of the State of Texas or of the United States of
America sitting in Dallas County, Texas and, by execution and delivery of this
Agreement, the Indemnitor hereby accepts for itself and respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts and
hereby waives any right it may have to object to the bringing of any such action
or proceeding in the aforesaid courts based on the grounds of forum non
conveniens. The Indemnitor further irrevocably consents to the service of
process in any of the aforementioned courts in any such action or proceeding by
the mailing of copies thereof by registered or certified mail, postage prepaid,
to the Indemnitor at the address contained herein, such service to become
effective twenty (20) days after such mailing. Nothing herein shall affect the
right of the Indemnitee to serve process
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in any other manner permitted by law or to commence legal actions or proceedings
or otherwise proceed against the Indemnitor in any other jurisdiction.
8.04 Set-Off. Buyer shall have the right to set-off any and all amounts
which are then due and owing to Seller under this Agreement dollar for dollar
against any and all amounts then due and owing to Buyer by Seller under this
Agreement, if and only if, (i) after written notice of intent to set off by
Buyer to Seller, Seller agrees to such set off in a written notice delivered to
Buyer, or (ii) the amount for which Buyer claims the right to set off is the
subject of a final judgment in favor of Buyer and Seller.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.01 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified or supplemented only by written agreement of the
parties hereto.
9.02 Waiver of Compliance; Consents. Any failure of Buyer, on the one hand,
or Seller, on the other hand, to comply with any obligation, covenant, agreement
or condition herein may be waived in writing by the parties, respectively, but
such waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition must be in a signed writing to be enforceable
and shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure of the same or any other obligation, covenant,
agreement or condition. Whenever this Agreement requires or permits consent by
or on behalf of any party hereto, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 9.02.
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9.03 Notices. All notices under the provisions of this Agreement shall be
in writing and shall be given by personal delivery, or by Certified Mail, Return
Receipt Requested, or by nationally recognized overnight courier, directed to
the respective parties as follows, and shall be deemed given when delivered, if
personally delivered, or three (3) business days after postmarked, if mailed, or
one (1) business day after sending, if sent by courier:
(a) If to Buyer, to:
Crystek Acquisition Corporation
c/o Allegheny Financial Group, Ltd.
3000 McKnight East Drive
Pittsburgh, PA 15237
Attention: James J. Browne
Telephone No. (412) 367-3880
Telefax No. (412) 367-8353
with copies (which shall not constitute notice) to:
Thomas J. Miller, Esq.
Houston Harbaugh, P.C.
1200 Two Chatham Center
Pittsburgh, PA 15219
Telephone. No. (412) 288-1847
Telefax No. (412) 281-4499
Mr. Rodd Holsinger
R. C. Holsinger Associates
403 McKnight Park Drive
Pittsburgh, PA 15237
Telephone. No. (412) 364 3300
Telefax No. (412) 364 8933
(b) If to Seller, to:
Mr. John H. Wilson, President
Whitehall Corporation
1500 Three Lincoln Centre
Dallas, TX 75240
Telephone. No. (214) 788 1313
Telefax No. (214) 701 0530
Mr. E. Forrest Campbell, III
Whitehall Corporation
2659 Nova Drive
Dallas, TX 75229
Telephone. No. (214) 247 8747
Telefax No. (214) 247 2024
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<PAGE> 34
with copies (which shall not constitute notice) to:
James Adams, Esq.
Gardere & Wynne, L.L.P.
3000 Thanksgiving Tower
1601 Elm Street
Dallas, TX 75201
Telephone. No. (214) 999 4846
Telefax No. (214) 999 4667
Mr. Ronald J. Klammer
OEM Capital
406 Harbor Road
P.O. Box 629
Southport, CT 06490
Telephone. No. (203) 255 4230
Telefax No. (203) 259 4041
or at such other address as either party may designate to the other by notice
similarly given.
9.04 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either party
without the prior written consent of the other party, nor is this Agreement
intended to confer upon any other person except the parties any rights or
remedies hereunder.
9.05 INTENTIONALLY OMITTED.
9.06 Governing Law. The Agreement shall be governed by the laws of the
State of Texas as to all matters, including, but not limited to, matters of
validity, construction, effect, performance and remedies, without giving effect
to the principles of conflict of laws.
9.07 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the
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<PAGE> 35
same instrument. Any counterpart evidencing signature by one party that is
delivered by telecopy by such party to the other party hereto shall be binding
upon the sending party when such telecopy is sent. Such sending party shall
within three business days thereafter deliver to the other party a hard copy of
such executed counterpart containing the original signature of such party.
9.08 Headings. The article and section headings contained in this Agreement
are solely for the purpose of reference, are not part of the agreement of the
parties and shall not affect in any way the meaning or interpretation of this
Agreement.
9.09 Entire Agreement. This Agreement, including the exhibits and schedules
hereto and the agreements, documents and instruments referred to herein,
embodies the entire agreement and understanding of the parties hereto in respect
of the subject matter contained herein, and supersede all prior agreements and
understandings between the parties with respect to such subject matter.
9.10 INTENTIONALLY OMITTED
IN WITNESS WHEREOF, the parties hereto have signed or have caused this
Agreement
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<PAGE> 36
agreement and understanding of the parties hereto in respect of the subject
matter contained herein, and supersede all prior agreements and understandings
between the parties with respect to such subject matter.
9.10 INTENTIONALLY OMITTED
IN WITNESS WHEREOF, the parties hereto have signed or have caused this
Agreement to be signed by its duly authorized officers on the date first above
written.
CRYSTEK ACQUISITION
CORPORATION
By
-------------------------------
Title:
---------------------------
WHITEHALL CORPORATION
By [ILLEGIBLE]
-------------------------------
Title: President
---------------------------
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to be signed by its duly authorized officers on the date first above written.
CRYSTEK ACQUISITION
CORPORATION
By [ILLEGIBLE}
-------------------------------
Title: Chairman
---------------------------
WHITEHALL CORPORATION
By
-------------------------------
Title:
---------------------------
36
<PAGE> 38
SCHEDULES
[All schedules to be prepared as mutually agreed by the parties prior to
Closing.]
37
<PAGE> 1
FIRST AMENDMENT
TO
STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT ("First Amendment") is
made as of the 31st day of March, 1997, by and among CRYSTEK ACQUISITION
CORPORATION, a Florida corporation ("Buyer"), WHITEHALL CORPORATION, a Delaware
corporation ("Seller"), and CRYSTEK REAL ESTATE CORPORATION, a Pennsylvania
corporation (the "Land Company").
WITNESSETH:
WHEREAS, Seller and Buyer have previously entered into a Stock Purchase
Agreement dated February 13, 1997 (the "Purchase Agreement") pursuant to which
Seller has agreed to sell, and Buyer has agreed to purchase, all of the
outstanding shares of capital stock of Crystek Crystals Corporation, a Florida
corporation ("Crystek"); and
WHEREAS, Seller currently owns certain Real Property (as defined in the
Purchase Agreement) which Seller intended to convey to Crystek on or before the
Closing Date; and
WHEREAS, Seller and Buyer have made certain agreements under the Purchase
Agreement with respect to the Real Property, the remediation of certain
environmental conditions which may exist with respect to the Real Property, and
the possible reconveyance of the Real Property to the Seller, all as more
fully described in the Purchase Agreement; and
WHEREAS, in order to facilitate the Buyer's financing of the transactions
contemplated by the Purchase Agreement, the parties now wish to amend their
agreement to provide (i) that the Real Property shall be purchased by the Land
Company, rather than conveyed by Whitehall to Crystek, and (ii) that a portion
of the purchase price payable under the Purchase Agreement shall be added to
the Buyer's Promissory Note deliverable at Closing, and deducted from the cash
payable at Closing, all as more fully described herein.
<PAGE> 2
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions. Except as otherwise defined herein, all capitalized
terms used in this First Amendment shall have the meanings assigned to such
terms in the Purchase Agreement.
2. Purchase of Real Property.
(a) The parties agree that, on the Closing Date, the Real
Property shall be transferred and conveyed by Seller to the Land Company, by
special warranty deed, for a purchase price of $300,000. Accordingly, the
purchase price payable for the Shares under the Purchase Agreement shall be
reduced from $2,714,310 to $2,414,310. The allocation of the purchase price set
forth in Schedule 2.08 to the Purchase Agreement shall be restated as set forth
on Schedule 2.08 attached hereto.
(b) The cost of title insurance with respect to the conveyance of
the Real Property shall be equally divided between Seller and the Land Company,
based upon the purchase price therefor. From and after the Closing Date, all
of the rights, options and obligations of Buyer set forth in Section 6.10 of
the Purchase Agreement shall belong to and be exercised solely by the Land
Company, including, without limitation, the right of access to all information
pertaining to the Investigation and the Remediation, the right and option to
require Seller to purchase the Real Property on the terms and under the
conditions set forth in Section 6.10(b) of the Purchase Agreement, and the
right and option to lease the Real Property back from Seller in the event of a
reconveyance.
3. Payment of the Purchase Price. The Land Company shall pay the entire
purchase price for the Real Property to Seller pursuant to a Promissory Note in
the form of EXHIBIT A attached hereto, which will be executed by the Land
Company and delivered to Seller on the Closing Date. The Note shall bear
interest at the rate of 10% per annum, payable quarterly, and the principal
shall be due and payable in a single installment due on April 30,
2
<PAGE> 3
1999 or sooner as provided therein. The Note shall be secured by a pledge of all
of the Land Company's outstanding capital stock, in the form of EXHIBIT B
attached hereto. The Note shall be prepayable by the Land Company at any time,
in whole or in part, without penalty.
4. Modification of Payment Terms. Section 2.02(a)(i) and 2.02(a)(ii) of
the Purchase Agreement are hereby amended by reducing the cash payable at
Closing to $1,850,000 and increasing the principal amount of the Note to
$564,310, the Note to be in the form of Exhibit C attached hereto (in addition
to the Promissory Note referenced in Paragraph 3 above).
5. Modification of Section 4.16. Section 4.16 of the Purchase Agreement
is hereby amended by deleting from lines 5 and 6 thereof the words
"Twenty-Seven Thousand Dollars ($27,000.00)" and substituting therefor the words
"all cash on hand in excess of One Hundred Thousand Dollars ($100,000.00)".
6. Miscellaneous.
(a) In all other respects, the Purchase Agreement shall remain in full
force and effect, as amended by this First Amendment.
(b) This First Amendment shall be governed by and construed in
accordance with the laws of the State of Texas.
(c) This First Amendment shall be binding upon and inure to the
benefit of the parties hereto, as well as their respective successors and
assigns.
(d) This First Amendment may be executed in more than one counterpart,
each of which shall constitute an original, but all of which when taken
together shall constitute one and the same document.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of
3
<PAGE> 4
the date first above written.
CRYSTEK ACQUISITION
CORPORATION
By [/s/ ILLEGIBLE]
----------------------------
Title: Vice President
------------------------
WHITEHALL CORPORATION
By [/s/ ILLEGIBLE]
----------------------------
Title: President
------------------------
CRYSTEK REAL ESTATE
CORPORATION
By [/s/ ILLEGIBLE]
----------------------------
Title: President
------------------------
<PAGE> 1
EXHIBIT (21)
WHITEHALL CORPORATION
ANNUAL REPORT ON FORM 10K
ITEM 14(a)3
(22) Subsidiaries of the Registrant
The following table lists the subsidiaries of the Registrant and the
jurisdiction of incorporation of each subsidiary:
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation Principal Location
---- ----------------------------- ------------------
<S> <C> <C>
Aero Corporation Florida Lake City, Florida
Aero Corporation Delaware Dallas, Texas
Aero Hushkit Corporation Delaware Dallas, Texas
Aero Corp Macon, Inc. Delaware Macon, Georgia
Hydroscience, Inc. Texas Dallas, Texas
Aero Corporation San Antonio, Inc. Texas Dallas, Texas
</TABLE>
Each of the subsidiaries conducts business only under its corporate name.
-39-
<PAGE> 1
EXHIBIT (23)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated March 25, 1998, included in this Form 10K into the Company's
previously filed Registration Statement on Form S-8 File No.
33-48215.
ARTHUR ANDERSEN LLP
Dallas, Texas
April 7, 1998
-40-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,251,000
<SECURITIES> 0
<RECEIVABLES> 16,234,000
<ALLOWANCES> 0
<INVENTORY> 6,029,000
<CURRENT-ASSETS> 28,309,000
<PP&E> 29,767,000
<DEPRECIATION> 17,567,000
<TOTAL-ASSETS> 48,599,000
<CURRENT-LIABILITIES> 20,652,000
<BONDS> 0
0
0
<COMMON> 770,000
<OTHER-SE> 22,269,000
<TOTAL-LIABILITY-AND-EQUITY> 48,599,000
<SALES> 65,791,000
<TOTAL-REVENUES> 65,791,000
<CGS> 64,197,000
<TOTAL-COSTS> 64,197,000
<OTHER-EXPENSES> 17,141,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (15,547,000)
<INCOME-TAX> (3,610,000)
<INCOME-CONTINUING> (11,937,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,937,000)
<EPS-PRIMARY> (2.16)
<EPS-DILUTED> (2.16)
</TABLE>
