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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
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Commission File No. 1-8461
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GULFSTREAM AEROSPACE CORPORATION
P. O. Box 2206
500 Gulfstream Road
Savannah, Georgia 31402-2206
Telephone: (912) 965-3000
State of incorporation: Delaware
IRS identification number: 13-3554834
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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 __
As of July 15, 1998, there were 73,852,224 shares of Gulfstream
Aerospace Corporation Common Stock outstanding.
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GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page No.
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Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
June 30, 1998 and December 31,
1997....................................................3
Consolidated Statements of Income
Three and six months ended June 30,
1998 and 1997...........................................4
Consolidated Statement of Stockholders'
Equity Six months ended June 30, 1998...................5
Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997.................6
Notes to Consolidated Financial Statements..............7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations..........................................10-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................14
Item 2. Changes in Securities....................................14
Item 3. Defaults upon Senior Securities..........................14
Item 4. Submission of Matters to a Vote of Security Holders......14
Item 5. Other Information........................................15
Item 6. Exhibits and Reports on Form 8-K.........................15
Signature................................................16
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 255,515 $ 306,451
Accounts receivable (less allowance for doubtful accounts:
$1,191 and $1,144) 165,064 177,228
Inventories 747,128 629,876
Deferred income taxes 47,306 33,795
Prepaids and other assets 7,552 11,318
------------ ------------
Total current assets 1,222,565 1,158,668
Property and equipment, net 135,764 134,611
Tooling, net of accumulated amortization: $11,320 and $7,680 40,177 43,471
Goodwill, net of accumulated amortization: $9,037 and $8,433 38,353 38,957
Other intangible assets, net 47,949 50,485
Deferred income taxes 30,400 32,950
Other assets and deferred charges 13,705 14,525
------------ ------------
Total Assets 1,528,913 1,473,667
============ ============
Liabilities and Stockholders' Equity
Current portion of long-term debt 75,000 75,000
Accounts payable 195,454 147,618
Accrued liabilities 120,913 93,798
Customer deposits -- current portion 535,303 546,441
------------ ------------
Total current liabilities 926,670 862,857
Long-term debt 267,500 305,000
Accrued postretirement benefit cost 118,513 115,405
Customer deposits -- long-term 97,745 88,075
Other long-term liabilities 8,680 9,573
Commitments and contingencies
Stockholders' equity
Common stock; $.01 par value; 300,000,000
shares authorized; 89,789,671 shares issued in 1998
and 86,522,089 shares issued in 1997 898 865
Additional paid-in capital 437,153 370,258
Accumulated deficit (129,902) (225,960)
Minimum pension liability (762) (762)
Unamortized stock plan expense (332) (1,155)
Less: Treasury stock: 15,944,831 shares in 1998 and
11,978,439 shares in 1997 (197,250) (50,489)
------------ ------------
Total stockholders' equity 109,805 92,757
------------ ------------
Total Liabilities and Stockholders' Equity 1,528,913 1,473,667
============ ============
See notes to consolidated financial statements
</TABLE>
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 557,042 $ 522,906 $ 1,060,449 $ 898,532
Cost and expenses
Cost of sales 431,225 446,896 835,294 752,048
Selling and administrative 29,575 22,982 55,517 45,597
Stock option compensation expense 494 463 823 985
Research and development 2,259 5,294 4,204 3,774
Amortization of intangibles and deferred charges 1,882 1,826 3,758 3,646
------------ ------------ ------------ ------------
Total costs and expenses $ 465,435 $ 477,461 $ 899,596 $ 806,050
------------ ------------ ------------ ------------
Income from operations 91,607 45,445 160,853 92,482
Interest income 2,532 2,239 5,054 5,362
Interest expense (6,435) (7,680) (13,434) (15,810)
------------ ------------ ------------ ------------
Income before income taxes 87,704 40,004 152,473 82,034
Income tax expense 32,127 500 56,415 2,500
------------ ------------ ------------ ------------
Net income $ 55,577 $ 39,504 $ 96,058 $ 79,534
============ ============ ============ ============
Earnings per share:
Net income per share - basic $ .75 $ .53 $ 1.31 $ 1.07
============ ============ ============ ============
Net income per share - diluted $ .73 $ .50 $ 1.27 $ 1.01
============ ============ ============ ============
See notes to consolidated financial statements
</TABLE>
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statement of Stockholders' Equity
(In thousands)
(Unaudited)
Additional Minimum Unamortized Total
Common Paid-In Accumulated Pension Stock Plan Treasury Stockholders'
Stock Capital Deficit Liability Expense Stock Equity
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1997 $865 $370,258 $(225,960) $(762) $(1,155) $(50,489) $92,757
Net income 96,058 96,058
Amortization of stock plan expense 823 823
Exercise of common stock options with
the Offering, net of expenses 26 24,751 2,044 26,821
Tax benefit of exercised common stock
options 40,033 40,033
Exercise of common stock options 7 2,111 2,118
Purchase of treasury stock (148,805) (148,805)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE AS OF JUNE 30, 1998 $898 $437,153 $(129,902) $(762) $(332) $(197,250) $ 109,805
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six months ended
June 30,
---------------------------
1998 1997
----------- -----------
Cash Flows from Operating Activities
Net income $ 96,058 $ 79,534
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 16,354 15,901
Postretirement benefit cost 3,108 3,408
Non-cash stock option compensation expense 823 985
Deferred income tax benefit 29,072
Other, net 46 21
Change in assets and liabilities:
Accounts receivable 11,993 31,842
Inventories (117,887) 45,402
Prepaids, other assets, and deferred charges 3,968 (3,904)
Accounts payable and accrued liabilities 74,951 2,039
Customer deposits (1,468) (146,357)
Other long-term liabilities (893) (603)
----------- -----------
Net Cash Provided by Operating Activities 116,125 28,268
Cash Flows from Investing Activities
Expenditures for property and equipment (10,184) (4,734)
Expenditures for tooling (346) (1,378)
Proceeds from sales of assets 835
----------- -----------
Net Cash Used in Investing Activities (9,695) (6,112)
Cash Flows from Financing Activities
Proceeds from exercise of common stock options 28,939 649
Principal payment of long-term debt (37,500) (6,667)
Purchase of treasury stock (148,805)
----------- -----------
Net Cash Used in Financing Activities (157,366) (6,018)
----------- -----------
Decrease in cash and cash equivalents (50,936) 16,138
Cash and cash equivalents, beginning of period 306,451 233,172
=========== ===========
Cash and cash equivalents, end of period $ 255,515 $ 249,310
=========== ===========
See notes to consolidated financial statements
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules of the Securities and
Exchange Commission ("SEC") and, in the opinion of the Company, include all
adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of financial position, results of operations and cash
flows. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to SEC rules.
The operating results for the three and six months ended June 30, 1998 are
not necessarily indicative of the results to be expected for the entire
year ended December 31, 1998. These financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
for the year ended December 31, 1997 included in the Company's 1997 Annual
Report to Stockholders.
NOTE 2. Earnings per Share
Basic earnings per share were computed by dividing net income by the
weighted average common shares outstanding during the periods presented.
Diluted earnings per share were computed by dividing net income by the
weighted average common shares and potential common shares outstanding. The
Company adopted Financial Accounting Standards Board SFAS No. 128, Earnings
per Share, effective December 15, 1997. As a result, all earnings per share
information for prior periods have been restated to conform to the
requirements of SFAS No. 128.
The following table sets forth the reconciliation of per share data as
of:
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Net Income $ 55,577 $ 39,504 $ 96,058 $ 79,534
========= ========= ========= =========
Basic EPS
Weighted average common
shares outstanding 73,821 74,068 73,177 73,994
--------- --------- --------- ---------
Diluted EPS
Incremental shares from stock
options 2,106 4,651 2,462 4,644
--------- --------- --------- ---------
Weighted average common and
common equivalent shares
outstanding 75,927 78,719 75,639 78,638
========= ========= ========= =========
Earnings Per Share:
Net income per share -
basic $ .75 $ .53 $ 1.31 $ 1.07
========= ========= ========= =========
Net income per share -
diluted $ .73 $ .50 $ 1.27 $ 1.01
========= ========= ========= =========
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On a pro forma basis, assuming an effective tax rate of 37.5% for the
1997 periods, the Company's basic and diluted earnings per share is as
follows:
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Pro forma Earnings Per Share:
Net income per share -
basic $ .75 $ .34 $ 1.31 $ .69
========= ========= ========= =========
Net income per share -
diluted $ .73 $ .32 $ 1.27 $ .65
========= ========= ========= =========
NOTE 3. Inventories
Inventories consisted of the following at:
June 30, December 31,
1998 1997
--------------- ---------------
(In thousands)
Work in process $ 376,712 $ 330,155
Raw materials 154,140 134,973
Vendor progress payments 74,949 60,606
Pre-owned aircraft 141,327 104,142
--------------- ---------------
$ 747,128 $ 629,876
=============== ===============
NOTE 4. Income Taxes
In the quarter and six month period ended June 30, 1998, the Company
recorded income tax provisions of $32.1 million and $56.4 million,
respectively, based on an estimated annual effective tax rate of 37.0% and,
in the quarter and six month period ended June 30, 1997, recorded a
provision for alternative minimum taxes of approximately $0.5 million and
$2.5 million, respectively. Prior to September 30, 1997, the Company
recorded no provision for income taxes, other than alternative minimum
taxes, principally as a result of utilization of net operating loss
carryforwards.
NOTE 5. Commitments and Contingencies
In the normal course of business, lawsuits, claims and proceedings
have been or may be instituted or asserted against the Company relating to
various matters, including products liability. Although the outcome of
litigation cannot be predicted with certainty and some lawsuits, claims or
proceedings may be disposed of unfavorably to the Company, management has
made provision for all known probable losses related to lawsuits and claims
and believes that the disposition of all matters which are pending or
asserted will not have a material adverse effect on the financial
statements of the Company.
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is involved in tax audits by the Internal Revenue Service
covering the years 1990 through 1994. The revenue agent's reports include
several proposed adjustments involving the deductibility of certain
compensation expense, items relating to the initial capitalization of the
Company, the allocation of the original purchase price for the acquisition
by the Company of the Gulfstream business, including the treatment of
advance payments with respect to and the cost of aircraft that were in
backlog at the time of the acquisition, and the amortization of amounts
allocated to intangible assets. The Company believes that the ultimate
resolution of these issues will not have a material adverse effect on its
financial statements because the financial statements already reflect what
the Company currently believes is the expected loss of benefit arising from
the resolution of these issues.
The Company is currently engaged in the monitoring and cleanup of
certain ground water at its Savannah facility under the oversight of the
Georgia Department of Natural Resources. Expenses incurred for cleanup have
not been significant. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be
reasonably estimated. The Company believes the remainder of the Savannah
facility, as well as other Gulfstream properties, are being carefully
monitored and are in substantial compliance with current federal, state and
local environmental regulations. The Company believes the liabilities, if
any, that will result from the above environmental matters will not have a
material adverse effect on its financial statements.
NOTE 6. Common Stock Repurchases
During January 1998, the Company announced a program to repurchase up
to $200 million of its common stock. The repurchase has, and will continue
to be funded from the Company's available cash. As of June 30, 1998, the
Company had repurchased approximately 4.2 million shares, at an average
price of $35.41 per share, for an aggregate amount of approximately $150
million.
NOTE 7. Change in Accounting Principles
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income. This
Statement requires disclosure of total nonowner changes in stockholders'
equity, which is defined as net income plus certain direct adjustments to
stockholders' equity such as pension liability adjustments. For the three
and six month periods of 1998 and 1997, the Company had no such
adjustments.
NOTE 8. New Accounting Standard
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information,
which is effective no later than for the Company's 1998 fiscal year-end.
Management believes that the adoption of this statement will not have a
material effect on the Company's consolidated financial statements.
NOTE 9. Subsequent Event
On July 23, 1998, the Company entered into a definitive agreement to
acquire K-C Aviation, Inc., a leading provider of business aviation
services, from Kimberly-Clark Corporation for a purchase price of $250
million in cash. The acquisition is subject to regulatory approvals and is
expected to be completed in the third quarter of 1998. The Company plans to
finance the transaction with available cash on hand. The bank group for the
Company's credit facility has approved an amendment that permits the
Company to consummate the acquisition.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Notes
to Consolidated Financial Statements beginning on page 7 and with
Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) and the audited consolidated financial statements and
notes to consolidated financial statements appearing in the Company's 1997
Annual Report to Stockholders.
Comparison of Results of Operations for the Quarter and Six Months Ended
June 30, 1998 and 1997
Net Revenues. Total net revenues increased by $34.1 million, or 6.5%,
to $557.0 million in the second quarter of 1998 from $522.9 million in the
second quarter of 1997. The increase resulted primarily from an increase in
revenues from green aircraft of $79.3 million as the Company delivered 15
aircraft, seven Gulfstream Vs and eight Gulfstream IV-SPs, as compared with
12 aircraft, seven Gulfstream Vs and five Gulfstream IV-SPs, in the second
quarter of 1997. In addition, completion revenues increased by $21.1
million reflecting nine completions delivered during the second quarter
compared with only five delivered in the comparable 1997 period. Partially
offsetting this increase was a decrease in revenues associated with the
sale of pre-owned aircraft of $69.9 million as five fewer units were
delivered in the second quarter of 1998 as compared to the same period in
1997. During the six months ended June 30, 1998, total net revenues
increased by $161.9 million, or 18.0%, to $1,060.4 million from $898.5
million for the six months ended June 30, 1997. For the six months ended
June 30, 1998, Gulfstream delivered 28 new aircraft, 14 Gulfstream Vs and
14 Gulfstream IV-SPs, up from 23 new aircraft, 13 Gulfstream Vs and ten
Gulfstream IV-SPs in the same period of 1997. Also contributing to the
increase in revenues was an increase in completion revenues of $35.0
million, resulting from six additional completion deliveries in 1998.
Cost of Sales. Total cost of sales decreased to $431.2 million in the
second quarter of 1998 from $446.9 million in the second quarter of 1997,
and increased $83.2 million to $835.3 million for the six months ended June
30, 1998 from $752.0 million for the six months ended June 30, 1997.
Excluding pre-owned aircraft, which generally are sold at break-even
levels, the gross profit percentage for the second quarter of 1998 was
24.0% compared to 18.2% for the second quarter of 1997, and for the six
months ended June 30, 1998, the gross profit percentage was 23.1% compared
to 19.0% for the comparable period in 1997. This increase in gross profit
percentages is primarily attributable to reductions in Gulfstream V
aircraft production costs.
Selling and Administrative Expense. Selling and administrative expense
increased by $6.6 million, or 28.7% to $29.6 million in the second quarter
of 1998 from $23.0 million in the second quarter of 1997, and as a
percentage of net revenues, increased to 5.3% in the second quarter of 1998
from 4.4% in the second quarter of 1997. For the six months ended June 30,
1998, selling and administrative expense was $55.5 million as compared to
$45.6 million for the six months ended June 30, 1997. The principal drivers
for the increase for both the quarter and the six months is additional
sales and marketing expenses associated with the increased sales activity
and the business systems which are being implemented in 1998 and 1999 to
support the production increases described elsewhere herein.
Research and Development Expense. Research and development expense was
$2.3 million in the second quarter of 1998, as compared to $5.3 million in
the second quarter of 1997. For the six month period ended June 30, 1998,
research and development expense was $4.2 million compared to $3.8 million
for the corresponding period in 1997. Research and development expense for
the six months ended June 30, 1997 is net of a $10.0 million credit for
launch assistance funds received from vendors participating in the
development of the Gulfstream V. Research and development expenditures in
1998 and the near-term future are expected to stem principally from product
improvements and enhancements, rather than new aircraft development.
Interest Income and Expense. Interest income increased by $0.3 million
to $2.5 million in the second quarter of 1998 from $2.2 million in the
second quarter of 1997 as a result of higher average cash balances the
Company had invested during 1998 compared to the same period of 1997.
Interest expense decreased by $1.2 million to $6.4 million for the second
quarter of 1998 and by $2.4 million to $13.4 million for the six months
ended June 30, 1998, respectively, over the comparable periods in 1997.
This decrease is attributable to both a decrease in average borrowings and
lower weighted average interest rates.
Income Taxes. The Company recorded an income tax provision of $32.1
million in the second quarter of 1998 based on an estimated annual
effective tax rate of 37.0% compared with a provision of income taxes of
$0.5 million, representing alternative minimum taxes, in the second quarter
1997. Prior to September 30, 1997, the Company recorded no provision for
income taxes, other than alternative minimum taxes, principally as a result
of utilization of net operating loss carryforwards. The Company's net
operating loss carryforward for regular federal income tax purposes was
fully utilized during the second quarter 1998.
Earnings Per Share. The Company reported diluted earnings per share of
$0.73 for the second quarter of 1998, up from $0.50 for the second quarter
of 1997. On a pro forma fully - taxed basis, and assuming an effective tax
rate of 37.5% for the 1997 periods, comparable diluted earnings per share
would have been $0.32 for the second quarter of 1997.
Liquidity and Capital Resources
The Company's liquidity needs arise from working capital requirements,
capital expenditures, principal and interest payments on long-term debt and
the Company's share repurchase program described herein. During the six
months ended June 30, 1998, the Company relied on its available cash
balances to fund these needs.
The Company had cash and cash equivalents totaling $255.5 million at
June 30, 1998 down from $306.5 million at December 31, 1997. In January
1998, the Company established a program to repurchase up to $200 million of
its common stock. The purchases will be made from time to time in the open
market or through negotiated transactions as market conditions warrant. The
Company has, and expects to continue to fund the stock purchases from cash
on hand. As of June 30, 1998, approximately 4.2 million shares, at an
average price of $35.41 per share, had been repurchased under this plan for
an aggregate amount of approximately $150 million.
During the six months ended June 30, 1998, net cash provided by
operating activities was $116.1 million compared with the six months ended
June 30, 1997 when the Company generated $28.3 million in cash from
operations. This increase is attributable to the higher inflows of deposits
and progress payments associated with aircraft in the backlog during the
1998 period, offset somewhat by increased inventory levels associated with
the Company's ongoing plans to increase its new aircraft production and
completion levels.
During the six months ended 1998, additions to property and equipment
amounted to $10.5 million. At June 30, 1998, the Company was not committed
to the purchase of any significant amount of property and equipment. As a
result of the Company's strategic initiative to increase its annual
production rate to approximately 64 aircraft by 1999, in 1997, the
Company's planned capital expenditures increased $15 million, and in 1998,
are expected to increase by approximately another $20 million above
previously planned annual levels of approximately $15 million. The Company
continually monitors its capital spending in relation to current and
anticipated business needs. As circumstances dictate, facilities are added,
consolidated or modernized.
In May 1998, the Company completed the sale of 18,000,000 shares of
common stock in a secondary offering (the "Offering"). The Company did not
receive any of the proceeds from the sale of shares in the Offering. In
connection with the Offering, certain current and former directors and
employees of, and advisors to, the Company exercised stock options to
purchase, in the aggregate, approximately 2.9 million shares of common
stock from the Company for an aggregate exercise price of approximately
$26.8 million, after deducting issuance costs. The Company used the
proceeds from these exercises for working capital purposes.
At June 30, 1998, borrowings under the Company's credit facilities
were $342.5 million, with available borrowings of $173.3 million under a
revolving credit facility. Scheduled repayments remaining under the term
facility are $37.5 million in 1998 and $75.0 million in each of the years
1999 through 2001, and $80.0 million in 2002. The Credit Agreement contains
customary affirmative and negative covenants including restrictions on the
ability of the Company and its subsidiaries to pay cash dividends, as well
as financial covenants under which the Company must operate. As of June 30,
1998, the Company was in compliance with the covenants of its existing
credit agreement.
The Company's principal source of liquidity both on a short-term and
long-term basis is cash flow provided by operations, including customer
progress payments and deposits on new aircraft orders. Occasionally,
however, the Company may borrow against the credit agreement to supplement
cash flow from operations. The Company believes that based upon its
analysis of its consolidated financial position, its cash flow during the
past 12 months and the expected results of operations in the future,
operating cash flow and available borrowings under the credit agreement
will be adequate to fund operations, capital expenditures, debt service and
the transaction described below under Recent Developments for at least the
next 12 months. The Company intends to repay its remaining indebtedness
primarily with cash flow from operations. There can be no assurance,
however, that future industry specific developments or general economic
trends will not adversely affect the Company's operations or its ability to
meet its cash requirements.
As of June 30, 1998, in connection with orders for 23 Gulfstream V
aircraft in the backlog, the Company has offered customers trade-in options
(which may or may not be exercised by the customer) under which the Company
will accept trade-in aircraft (primarily Gulfstream IVs and IV-SPs) at a
guaranteed minimum trade-in price. Additionally, in connection with
recorded sales of new aircraft, the Company has agreed to accept pre-owned
aircraft with trade-in values totaling $202.0 million as of June 30, 1998.
Of this amount, $8.6 million is under contract for resale to pre-owned
aircraft customers. Management believes that the fair market value of all
such aircraft exceeds the specified trade-in value.
On December 24, 1997, the Company executed final documents with the
Pension Benefit Guaranty Corporation (the "PBGC") concerning funding of the
Company's defined benefit pension plans. The terms were essentially the
same as those set out in the agreement in principle reached between the
PBGC and the Company during October 1996. Pursuant to this agreement, the
Company contributed $12.5 million for the six months ended June 30, 1998,
and has agreed to contribute a total of $25.0 million annually (to be paid
quarterly in equal installments) from 1999 through 2000 to its pension
plans which payments are expected to result in such plans being fully
funded. The payments to be made under this agreement were already part of
the Company's overall financial planning, and therefore, are not expected
to have a material adverse effect on the Company's financial statements.
The funding required under this agreement will not result in any increase
in the Company's annual pension expense.
Contractual Backlog
At June 30, 1998, Gulfstream had a firm contract backlog of
approximately $2.9 billion of revenues, representing a total of 90
aircraft. The Company includes an order in backlog only if the Company has
entered into a purchase contract (with no contingencies) with the customer
and has received a significant (generally non-refundable) deposit from the
customer.
During the quarter ended March 31, 1998, the Company also signed a
contract for 12 Gulfstream IV-SPs to expand its highly successful
Gulfstream Shares fractional ownership program to the Middle East region.
This contract is valued at approximately $335 million and is not included
in the Company's backlog. In 1993, the Company established very stringent
deposit requirements for recording aircraft into its backlog. The contract
for the Middle East Shares expansion includes modestly different deposit
requirements early in the program. The Company has decided for the initial
phase of the program to record these orders when the aircraft are
delivered. Including the Middle East contract, the Company has a total of
102 aircraft, valued at approximately $3.2 billion of potential future
revenues, under contract at June 30, 1998.
The Company continually monitors the condition of its backlog and
believes, based on the nature of its customers and its historical
experience, that there will not be a significant number of cancellations.
However, to the extent that there is a lengthy period of time between a
customer's aircraft order and its delivery date, there may be increased
uncertainty as to changes in business and economic conditions which may
affect customer cancellations.
Outlook
The Company plans to deliver 58 green aircraft in fiscal 1998 and 64
in fiscal 1999, and completions are expected to nearly double in 1998
compared to 1997. The gross margins are expected to improve from 20% in
1997 to the mid-20s by the end of 1998. Based on projections of increasing
aircraft production and improving margins, Gulfstream expects 1998 diluted
earnings per share of approximately $2.85. The Company also expects diluted
earnings per share to increase 15% per year in 1999 and 2000.
Recent Development
On July 23, 1998, the Company entered into a definitive agreement to
acquire K-C Aviation, Inc., a leading provider of business aviation
services, from Kimberly-Clark Corporation for a purchase price of $250
million in cash. The acquisition is subject to regulatory approvals and is
expected to be completed in the third quarter of 1998. The Company plans to
finance the transaction with available cash on hand. The bank group for the
Company's credit facility has approved an amendment that permits the
Company to consummate the acquisition.
Forward-Looking Information Is Subject to Risk and Uncertainty
Certain statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations", including the
statements under the heading "Outlook", as well as other statements
elsewhere in this Form 10-Q, contain forward-looking information. These
forward-looking statements are subject to risks and uncertainties. Actual
results might differ materially from those projected in the forward-looking
statements. Additional information concerning factors that could cause
actual results to materially differ from those in the forward-looking
statements is contained in Exhibit 99.1 to this Form 10-Q.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on May 14,
1998. The following matters were voted upon:
Proposal 1: Election of Directors. The following nominees were
elected to serve as Class II Directors of the Company, to serve
until the annual meeting of stockholders in 2001 and until their
successors are elected and qualified, by the following vote:
Nominee Votes For Votes Withheld
------- --------- --------------
W. W. Boisture, Jr. 65,420,007 1,359,432
Sandra J. Horbach 66,295,630 483,809
Henry A. Kissinger 66,070,566 708,873
Michael S. Ovitz 66,391,854 387,585
Allen E. Paulson 66,281,912 497,527
Colin L. Powell 66,293,800 485,639
George P. Shultz 58,646,876 8,132,563
The following directors have terms that extend beyond the 1998
Annual Meeting of Stockholders:
Terms Expiring 1999: Terms Expiring 2000:
-------------------- --------------------
Robert Anderson Charlotte L. Beers
Lynn Forester Thomas D. Bell, Jr.
Theodore J. Forstmann Chris A. Davis
James T. Johnson Nicholas C. Forstmann
Drew Lewis Bryan T. Moss
Mark H. McCarmack Roger S. Penske
Gerard R. Roche Donald H. Rumsfeld
Robert S. Strauss
Proposal 2: Ratification of Appointment of Auditors. The
appointment of Deloitte & Touche LLP to serve as auditors of the
Company for 1998 was ratified by the following vote:
Votes For Votes Against Abstentions
--------- ------------- -----------
66,760,683 6,757 11,999
Item 5. Other Information
Certain statements contained in or incorporated by reference in
this Form 10-Q contain forward-looking information. These
forward-looking statements are subject to risks and
uncertainties. Actual results might differ materially from those
projected in the forward-looking statements. Additional
information concerning factors that could cause actual results to
materially differ from those contained in the forward-looking
statements is contained in Exhibit 99.1, Cautionary Statement for
Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 2.1 Agreement of Purchase and Sale, dated as of
July 23, 1998 by and between Kimberly-Clark
Corporation and Gulfstream Aerospace
Corporation.
Exhibit 10.32 Amendment dated July 15, 1998 to Credit
Agreement among Gulfstream Delaware
Corporation, The Chase Manhattan Bank, and the
banks and other financial institutions parties
thereto.
Exhibit 27.1 Financial Data Schedule.
Exhibit 99.1 Cautionary Statement for Purposes of
the "Safe Harbor" Provisions of The
Private Securities Litigation Reform
Act of 1995.
Exhibit 99.2 Press Release dated July 24, 1998.
(b) Report on Form 8-K
On April 16, 1998 the Company filed a report on Form 8-K,
reporting under Items 5 and 7, disclosing the Company's
Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995, and the
Press Release issued April 16, 1998 pertaining to the Company's
first quarter 1998 financial results.
SIGNATURE
Pursuant to the requirements 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.
Dated: July 24, 1998
GULFSTREAM AEROSPACE CORPORATION
/s/ Chris A. Davis
-----------------------------
Chris A. Davis
Executive Vice President,
Chief Financial Officer and
Secretary
(Principal Financial and
Accounting Officer)
EXHIBIT INDEX
Exhibits
Exhibit 2.1 Agreement of Purchase and Sale, dated as
of July 23, 1998 by and between
Kimberly-Clark Corporation and Gulfstream
Aerospace Corporation.
Exhibit 10.32 Amendment dated July 15, 1998 to Credit
Agreement among Gulfstream Delaware
Corporation, The Chase Manhattan Bank, and
the banks and other financial institutions
parties thereto.
Exhibit 27.1 Financial Data Schedule.
Exhibit 99.1 Cautionary Statement for Purposes of
the "Safe Harbor" Provisions of The
Private Securities Litigation Reform
Act of 1995.
Exhibit 99.2 Press Release dated July 24, 1998.
EXHIBIT 2.1
AGREEMENT OF PURCHASE AND SALE
Dated as of July 23, 1998
by and between
KIMBERLY-CLARK CORPORATION
and
GULFSTREAM AEROSPACE CORPORATION
<PAGE>
TABLE OF CONTENTS
ARTICLE I TERMS OF PURCHASE AND SALE..................................1
1.01. Sale of the Stock..........................................1
1.02. The Closing................................................1
1.03. Purchase Price and Payment.................................2
1.04. Closing Balance Sheet; Purchase Price Adjustment...........2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER...................6
2.01. Capitalization.............................................6
2.02. Organization; Subsidiaries.................................6
2.03. Corporate Power and Authority; Effect of Agreement.........7
2.04. Financial Statements.......................................7
2.05. Absence of Certain Changes or Events.......................8
2.06. Assets and Properties......................................8
2.07. Intellectual Property.....................................10
2.08. Commitments...............................................11
2.09. Litigation................................................14
2.10. Compliance with Laws......................................14
2.11. Employee Benefit Plans....................................14
2.12. Environmental Matters.....................................19
2.13. Consents..................................................22
2.14. Taxes.....................................................22
2.15. Fees......................................................24
2.16. Major Customers and Suppliers.............................24
2.17. Products..................................................24
2.18. Intercompany Transactions.................................25
2.19. Insurance.................................................25
2.20. Year 2000.................................................25
2.21. Inventory.................................................26
2.22. Accounts Receivable.......................................26
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER..................26
3.01. Organization..............................................26
3.02. Corporate Power and Authority; Effect of Agreement........26
3.03. Consents..................................................27
3.04. Availability of Funds.....................................27
3.05. Litigation................................................27
3.06. Purchase for Investment...................................27
3.07. Fees......................................................27
ARTICLE IV COVENANTS.................................................28
4.01. Compliance with Antitrust Laws; Regulatory and Other
Consents; Best Efforts....................................28
4.02. Conduct of Business.......................................28
4.03. Access....................................................29
4.04. No Shop...................................................30
4.05. Further Assurances........................................30
4.06. Confidentiality Agreements................................31
4.07. Notice....................................................31
4.08. Confidentiality...........................................31
4.09. Responsibility for Taxes; Returns; Audits.................31
4.10. Corporate Name............................................37
4.11. Cash Management...........................................38
4.12. Non-Competition Agreement.................................39
4.13. Transition Services.......................................40
4.14. K-C Nevada, Inc...........................................40
4.15. Kimberly-Clark Corporate Aircraft Services Agreement......40
4.16. Burn Testing Matter.......................................41
4.17. Deferred Revenue..........................................41
4.18. Delivery of Cash Flow Statements..........................43
4.19. Seller's Insurance........................................43
4.20. AIM System Software Licenses..............................44
ARTICLE V CONDITIONS TO BUYER'S OBLIGATIONS..........................44
5.01. Representations, Warranties and Covenants of Seller.......44
5.02. No Prohibition............................................45
5.03. Consents..................................................45
5.04. No Material Adverse Change................................45
ARTICLE VI CONDITIONS TO SELLER'S OBLIGATIONS........................45
6.01. Representations, Warranties and Covenants of Buyer........45
6.02. No Prohibition............................................46
6.03. HSR Act...................................................46
ARTICLE VII EMPLOYMENT AND EMPLOYEE BENEFITS
ARRANGEMENTS...........................................46
7.01. Employment................................................46
7.02. Stay Bonuses..............................................46
7.03. Benefit Plans.............................................46
7.04. Benefit Liabilities.......................................47
7.05. Seller's Retirement Plans.................................48
7.06. Equity-Based Plans........................................48
7.07. Long-Term Disability......................................49
7.08. Indemnity for Non-Assumed Employee Related Liabilities....49
ARTICLE VIII TERMINATION PRIOR TO CLOSING............................50
8.01. Termination...............................................50
8.02. Effect on Obligations.....................................50
ARTICLE IX MISCELLANEOUS.............................................50
9.01. Survival..................................................50
9.02. Agreement to Indemnify....................................51
9.03. Indemnification Procedure.................................52
9.04. Other Indemnification Matters.............................55
9.05. Interpretive Provisions...................................56
9.06. Entire Agreement..........................................57
9.07. Successors and Assigns....................................57
9.08. Headings..................................................57
9.09. Modification and Waiver...................................57
9.10. Counterparts..............................................57
9.11. Expenses..................................................57
9.12. Notices...................................................58
9.13. Governing Law.............................................59
9.14. Public Announcements......................................59
9.15. Severability..............................................59
<PAGE>
K-C AVIATION INC.
SCHEDULE INDEX
--------------
2.04(a) Financial Statements
2.04(b) Undisclosed Liabilities
2.05 Material Loss
2.06(a) Personal Assets and Property
2.06(b) Buildings, Plants and Other Structures
2.06(c) Owned Real Property
2.06(d) Leased Real Property
2.06(e) Condemnation/Eminent Domain Proceedings
2.07 Intellectual Property
2.08(a) Commitments
2.08(b) Commitment Exceptions
2.09 Litigation
2.10 Compliance with Laws
2.11(a) Company Benefit Plans and Employee Agreements
2.12(a)(i) Environmental Matters
2.12(a)(ii) Environmental Permits
2.12(a)(iii) Hazardous Substances
2.12(a)(iv) Environmental Claims
2.12(a)(v) Environmental Liabilities
2.12(a)(vi) Storage Tanks
2.12(a)(vii) Waste Disposal Sites
2.12(a)(viii) Environmental Liens
2.13 Consents
2.14(a) Tax Returns
2.14(b) Tax Matters
2.14(c) Tax Sharing
2.16 Customers and Suppliers
2.17 Products
2.18 Intercompany Transactions
2.19 Insurance Coverage
4.13 Services Provided by Seller
5.03 Consents
7.01 Employees
7.03 Certain Employees
7.07 Long-Term Disability
7.09 Option Plan Participants
9.05 Officers of Seller
<PAGE>
INDEX OF DEFINED TERMS
----------------------
TERM DEFINED
- ---- -------
Accumulated Costs Section 4.17
Active Eligible Section 7.03
Agreed Assumptions Section 1.04(g)
Active Employees Section 7.01
Actual Overdraft Section 4.11
Adjusted Deferred Revenue Section 4.17
Allocation Section 4.09(d)(3)
Ancillary Document Section 9.01
Annual Financial Statements Section 2.04(a)
Antitrust Division Section 4.01(a)
APBO Section 1.04(g)
Arbiter Section 1.04(c)
Benefit Plan Section 2.11(l)
Bulletin Section 4.16
Burn Testing Matter Section 4.16
Business Recitals
Buyer Preamble
Buyer's Indemnified Group Section 9.02(b)
Buyer's Option Plan Section 7.09
Cap Section 9.04(a)
Cash Flow Certificate Section 4.18
Closing Section 1.02
Closing Adjusted Deferred Revenue Section 4.17
Closing Balance Sheet Section 1.04(a)
Closing Book Value Section 1.04(d)
Closing Date Section 1.02
Code Section 2.11(l)
Commitments Section 2.08(a)
Company Recitals
Company Benefit Plan Section 2.11(l)
Competitive Activity Section 4.12
Competitor Section 4.12
Completion Percentage Section 4.17
Confidential Information Section 4.08
Contract Price Section 4.17
Contract Profit Section 4.17
Copyrights Section 2.07
Corporate Name Section 4.10(a)
Customer Contracts Section 4.17
Deductible Section 9.04(a)
Department Section 2.11(l)
Disabled Employee Section 7.07
Disbursement Accounts Section 4.11
Earned Profit Section 4.17
Employee Section 2.11(l)
Employee Agreement Section 2.11(l)
Employment Period Section 7.03
Encumbrances Section 2.01
Environmental Laws Section 2.12(b)
Environmental Matter Section 2.12(b)
Environmental Permits Section 2.12(a)(ii)
Equity Participation Plan Section 7.06
ERISA Section 2.11(l)
ERISA Affiliate Section 2.11(l)
Estimated Overdraft Section 4.11
Existing Contamination Section 9.02(b)
FAS 106 Section 1.04(g)
FAS 106 Closing
Balance Sheet Liability Section 1.04(b)(x)
FAS 106 Liability Section 1.04(g)
Final Closing Balance Sheet Section 1.04(d)
Financial Statements Section 2.04(a)
FTC Section 4.01(a)
GAAP Section 1.04(b)
Hazardous Substances Section 2.12(b)
HMO Section 2.11(k)
HSR Act Section 2.13
Income Tax Section 2.14(f)(ii)
Income Tax Return Section 2.14(f)(iv)
Indemnified Party Section 9.03(a)
Indemnifying Party Section 9.03(a)
Intellectual Property Section 2.07
Inventory Section 2.21
IRS Section 2.11(l)
Leased Real Property Section 2.06(d)
License Section 4.10(a)
Litigation Section 2.09
Lockbox Accounts Section 4.11
Losses Section 9.02(b)
Major Customers Section 2.16
Major Suppliers Section 2.16
May 31 Balance Sheet Section 2.04(a)
Miscellaneous Taxes Section 4.09(a)(1)
Multi-Employer Plan Section 2.11(l)
Notices Section 9.03(a)
Outstanding Checks Section 4.11
Over the Counter Licenses Section 2.08(xiii)
Owned Real Property Section 2.06(c)
PBGC Section 2.11(l)
PCBs Section 2.12(b)
Patents Section 2.07
Pension Plan Section 2.11(l)
Pre-Closing Insured Matters Section 4.19
Products Section 2.17
Purchase Price Section 1.03
Purchase Price Adjustment Section 1.04(d)
Real Property Section 2.12(a)(iii)
Receivables Section 2.22
Required Consent Section 4.01(b)
Reserve Amount Section 4.09(a)
Section 338 Elections Section 4.09(d)(1)
Section 338(h)(10) Elections Section 4.09(d)(1)
Section 338(h)(10) Forms Section 4.09(d)(3)
Seller Preamble
Seller Group Section 2.14(f)(vii)
Seller's Indemnified Group Section 9.02(a)
Seller's Losses Section 9.02(a)
Seller's Retirement Plans Section 7.05
Settlement Account Section 4.11
Stock Recitals
Subsidiary Section 2.02(b)
Target Book Value Section 1.04(d)
Tax Section 2.14(f)(i)
Tax Return Section 2.14(f)(iii)
Tax Sharing Agreement Section 4.09(c)(1)
Taxable Section 2.14(f)(i)
Taxes Section 2.14(f)(i)
Total Cost Section 4.17
Trademarks Section 2.07
Treasury Regulations Section 2.14(f)(vi)
Welfare Plan Section 2.11(l)
Westfield Facility Section 9.02(b)
Year 2000 Problem Section 2.20
<PAGE>
AGREEMENT OF PURCHASE AND SALE
------------------------------
This Agreement, made and entered into this 23rd day of July,
1998, by and between Kimberly-Clark Corporation, a Delaware corporation
("Seller"), and Gulfstream Aerospace Corporation, a Delaware corporation
("Buyer").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller is the owner of all 35 shares of the issued and
outstanding common stock, no par value, of K-C Aviation Inc., a Delaware
corporation (the "Company");
WHEREAS, the Company is engaged in the business of providing a
range of services for corporate jet aircraft including, without limitation,
completion and refurbishment services, avionics retrofits, engine services,
maintenance and spares support (the "Business"); and
WHEREAS, upon the terms and subject to the conditions set forth
in this Agreement, Seller desires to sell to Buyer, and Buyer desires to
buy from Seller, all of the outstanding shares of common stock of the
Company (the "Stock").
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements, and upon the terms and subject to the
conditions, hereinafter set forth, the parties do hereby agree as follows:
ARTICLE I
TERMS OF PURCHASE AND SALE
--------------------------
1.01. Sale of the Stock. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing (as defined in
Section 1.02), (a) Seller shall sell to Buyer, and Buyer shall purchase
from Seller, the Stock, and (b) Seller shall deliver to Buyer certificates
representing the Stock, duly endorsed in blank for transfer or accompanied
by duly executed stock powers assigning the Stock in blank.
1.02. The Closing. The closing of the transactions contemplated
hereby (the "Closing") shall take place at the New York offices of Fried,
Frank, Harris, Shriver & Jacobson or the Dallas, Texas offices of Liddell,
Sapp, Zivley, Hill & LaBoon, L.L.P. as soon as practicable, but no later
than the fifth business day, following the satisfaction (or waiver) of the
conditions set forth in Articles V and VI hereof (other than those
conditions to be performed on the Closing Date), commencing at 9:00 a.m. on
such date, or at such other time and/or place and/or on such other date as
the parties may mutually agree (the "Closing Date").
1.03. Purchase Price and Payment. Subject to adjustment as set
forth herein, the aggregate purchase price to be paid by Buyer for the
Stock shall be $250,000,000 in cash (the "Purchase Price"). Payment of the
Purchase Price shall be in U.S. dollars, and shall be made on the Closing
Date by wire transfer of immediately available funds to an account
designated by Seller not less than 24 hours prior to the Closing Date.
1.04. Closing Balance Sheet; Purchase Price Adjustment. (a) As
promptly as practicable but in any event within 90 days following the
Closing Date, Buyer shall prepare, or cause to be prepared, and deliver to
Seller an unaudited pro forma balance sheet of the Company as of the close
of business on the day immediately preceding the Closing Date (the "Closing
Balance Sheet"). There shall be attached to the Closing Balance Sheet an
annex setting forth in reasonable detail the computation of the Purchase
Price Adjustment (as defined in Section 1.04(d)).
(b) The Closing Balance Sheet shall be prepared in
accordance with U.S. generally accepted accounting principles ("GAAP"),
determined as of the close of business on the day immediately preceding the
Closing Date as if such date was the Company's normal year-end and applied
on a consistent basis with the Annual Financial Statements (as defined in
Section 2.04(a)), except that (i) no reserves, liabilities, asset valuation
allowances or similar items reflected on the May 31 Balance Sheet (as
defined in Section 2.04(a)) or created thereafter shall be reversed or
shall be reallocated to cover any other reserve, liability, asset valuation
allowance or similar item required to be provided for on the Closing
Balance Sheet; (ii) any asset which is otherwise required to be reflected
in the Closing Balance Sheet which is not reflected in the May 31 Balance
Sheet, unless acquired thereafter, shall be excluded from the Closing
Balance Sheet; (iii) no deferred income tax asset or income tax liability
shall be included on the Closing Balance Sheet; (iv) no Income Tax asset or
Income Tax liability shall be included on the Closing Balance Sheet; (v)
the following items shall be included in the Closing Balance Sheet: (A)
receivables captioned "Receivables Trade-From Consolidated Subs", (B)
Miscellaneous Taxes (as defined in Section 4.09(a)(1)) and (C) any
liability (but this clause (C) shall not be deemed to cover the FAS 106
Liability, which is covered under clause (x) of this Section 1.04(b)) which
is accounted for through the intercompany account or otherwise is reflected
on Seller's financial statements but related to the Company (but with
respect to clause (C), only to the extent that such liability is being
assumed by Buyer), notwithstanding that any liability described in this
clause (v) may not have been taken into account in the preparation of the
May 31 Balance Sheet or in determining the Target Book Value; provided,
that no intercompany accounts not expressly described in this clause (v)
shall be included in the Closing Balance Sheet; (vi) no reserve in respect
of the Burn Testing Matter shall be included on the Closing Balance Sheet;
(vii) no "LIFO Reserve" shall be included on the Closing Balance Sheet;
(viii) no asset or liability arising out of the Subsidiary (including the
investment shown as "Investment in & Noncurrent A/R from Consolidated
Subs"), or the distribution of the capital stock of the Subsidiary, or any
discontinued operation of or business sold by the Company or the
Subsidiary, shall be included on the Closing Balance Sheet; (ix) "Total
Accounts Payable" shall be reduced by the aggregate amount of the
Outstanding Checks (shown as "Negative Cash") as of the close of business
on the day immediately preceding the Closing Date; (x) the lesser of (i)
50% of the FAS 106 Liability (as defined in clause (g) of this Section
1.04) and (ii) $2,000,000 shall be included as a liability on the Closing
Balance Sheet (such amount included in the Closing Balance Sheet, the "FAS
106 Closing Balance Sheet Liability"); and (xi) no cash (including
equivalents), including amounts described as "Receivables
Other-Lockbox-KCC," shall be included on the Closing Balance Sheet. All
quoted terms in this clause shall refer to the captions in the Company's
balance sheet.
(c) The Closing Balance Sheet delivered by Buyer to Seller
and the computation of the Purchase Price Adjustment annexed thereto shall
be conclusive and binding upon the parties unless Seller, within 30 days
after the delivery to Seller of the Closing Balance Sheet, notifies Buyer
in writing that Seller disputes any of the amounts set forth therein,
specifying the nature of the dispute and the basis therefor. The parties
shall in good faith attempt to resolve any dispute, in which event the
Closing Balance Sheet and the computation of the Purchase Price Adjustment,
as amended to the extent necessary to reflect the resolution of the
dispute, shall be conclusive and binding upon the parties. If the parties
do not reach agreement resolving all of the matters in dispute within 10
days after notice is given by Seller to Buyer pursuant to the second
preceding sentence, the parties shall submit the remaining matters in
dispute to the department specializing in dispute resolution of the Chicago
office of Arthur Andersen & Co. for resolution; provided, that if Arthur
Andersen & Co. has had a material relationship with either Buyer or Seller
or any of their respective affiliates within the two years preceding the
appointment or Arthur Andersen & Co. refuses to accept such appointment,
the parties shall submit the remaining matters in dispute to such other
nationally recognized independent accounting firm that is mutually
agreeable to the parties, which firm shall not have had a material
relationship with either Buyer or Seller or their respective affiliates
within the two years preceding the appointment (such accounting firm, the
"Arbiter"), for resolution. If the parties cannot agree on the selection of
such an independent accounting firm to act as Arbiter, the parties shall
request the American Arbitration Association to appoint such a firm, and
such appointment shall be conclusive and binding upon the parties.
Promptly, but no later than 20 days after its acceptance of its appointment
as Arbiter, the Arbiter shall determine, based solely on presentations by
Buyer and Seller, and not by independent review, only those issues in
dispute and shall render a written report as to the dispute and the
resulting computation of the Closing Balance Sheet and the Purchase Price
Adjustment, if any, which shall be conclusive and binding upon the parties.
In resolving any disputed item, the Arbiter (x) shall make its
determination in accordance with the provisions of this Section 1.04 and
the other provisions of this Agreement to the extent expressly relating to
this Section 1.04 and the matters in dispute (provided that whether or not
Buyer has an indemnification right hereunder with respect to any matter
shall not be taken into account for purposes of the preparation of the
Closing Balance Sheet or any dispute in connection therewith), (y) shall be
bound by the provisions of paragraph (b) of this Section 1.04, and (z) may
not assign a value to any item greater than the greatest value for such
item claimed by either party or less than the smallest value for such item
claimed by either party. The fees, costs and expenses of the Arbiter (i)
shall be borne by Seller in the proportion that the aggregate dollar amount
of such disputed items so submitted that are unsuccessfully disputed by
Seller (as finally determined by the Arbiter) bears to the aggregate dollar
amount of such items so submitted and (ii) shall be borne by Buyer in the
proportion that the aggregate dollar amount of such disputed items so
submitted that are successfully disputed by Seller (as finally determined
by the Arbiter) bears to the aggregate dollar amount of such items so
submitted. Buyer and Seller each shall make available to the other (upon
the request of the other) their respective work papers generated in
connection with the preparation or review of the Closing Balance Sheet.
(d) As used herein, (i) the term "Final Closing Balance
Sheet" shall mean the Closing Balance Sheet which has become conclusive and
binding upon the parties pursuant to paragraph (c) of this Section 1.04,
(ii) the term "Closing Book Value" shall mean the amount obtained by
subtracting the total liabilities (including Deferred Revenue) of the
Company, as set forth in the Final Closing Balance Sheet, from the total
assets of the Company, as set forth in the Final Closing Balance Sheet, and
(iii) the term "Target Book Value" shall mean $72,000,000 if the Closing
occurs during the months of July or August of 1998, and, if the Closing
does not occur during either of such months, such $72,000,000 amount shall
be increased by $1,000,000 on the first day of each calendar month
following August of 1998. If the Target Book Value exceeds the Closing Book
Value, the amount of such excess shall be the "Purchase Price Adjustment."
If the Closing Book Value equals or exceeds the Target Book Value, the
Purchase Price Adjustment shall be zero. If the Purchase Price Adjustment
is greater than zero, the amount thereof shall be paid by Seller to Buyer
in accordance with the provisions of paragraph (e) of this Section 1.04.
(e) The amount of any Purchase Price Adjustment shall bear
interest at an annual rate equal to the reference rate from time to time of
The Chase Manhattan Bank N.A. from and including the Closing Date to, but
not including, the date of payment. Any amount payable as Purchase Price
Adjustment (plus interest determined pursuant to the immediately preceding
sentence) shall be paid by wire transfer of immediately available funds to
an account designated in writing by Buyer. Such payment shall be made on
the third business day following (i) the last day on which Seller may,
pursuant to the first sentence of paragraph (c) of this Section 1.04,
notify Buyer that it disputes any of the amounts set forth in the Closing
Balance Sheet, if Seller shall not notify Buyer of any dispute, or such
earlier date as Seller shall advise Buyer of the absence of any dispute, or
(ii) the date mutual agreement is reached as to the amount of the Purchase
Price Adjustment, if any, in the event of a dispute that is settled by the
parties without resort to the Arbiter, or (iii) the receipt of the report
of the Arbiter in the event of a dispute which is settled by the Arbiter,
as applicable.
(f) Buyer shall provide Seller and its accountants
reasonable access to the books and records of the Company, to any other
information, including work papers of its accountants, and to any employees
of the Company to the extent reasonably necessary for the Seller to review
the Closing Balance Sheet. Seller shall provide Buyer and its accountants
reasonable access to the books and records of Seller, any other
information, including work papers of its accountants, and to any employees
of Seller to the extent reasonably necessary for Buyer in connection with
the preparation of the Closing Balance Sheet and in connection with any
objections to the Closing Balance Sheet raised by Seller.
(g) The "FAS 106 Liability" shall mean the Accumulated Post
Retirement Benefit Obligation ("APBO") for Postretirement Benefits Other
Than Pensions, determined in accordance with Statement of Financial
Accounting Standards No. 106 ("FAS 106"), of Seller in respect of the
coverage of the Company's Active Employees (other than the Active
Eligibles) by Seller's post retirement health and life insurance benefit
plans as of the close of business on the day immediately preceding the
Closing Date, based on the actuarial assumptions set forth in Seller's Post
Retirement Life and Medical Plans Actuarial Valuation, dated January 1,
1998, except that (i) the withdrawal assumption that is to be used will be
mutually agreed to by Buyer and Seller prior to the Closing Date based on
the methodology employed by Seller in developing the withdrawal assumption
used in such Valuation but reflecting the actual turnover experience of the
Company over the previous five calendar years, and (ii) the APBO liability
shall be determined with respect to the number of the employees of the
Company covered by the applicable plans and the locations of those
employees (the "Agreed Assumptions"). Seller shall promptly provide to
Buyer after the date hereof all census data and other information necessary
to calculate the FAS 106 Liability.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
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Seller represents and warrants to Buyer as follows:
2.01. Capitalization. The authorized capital stock of the Company
consists of 1,000 shares of common stock, no par value, of which 35 shares
are issued and outstanding. All of such 35 shares are validly issued, fully
paid and non-assessable and are owned beneficially and of record by Seller
free and clear of all liens, security interests, restrictions, options,
proxies, voting trusts or other encumbrances ("Encumbrances"). There are no
outstanding securities convertible into, exchangeable for, or carrying the
right to acquire, equity securities of the Company, or subscriptions,
warrants, options, rights or other arrangements or commitments obligating
the Company to issue or dispose of any of its equity securities or any
ownership interest therein. The sale and delivery of the Stock to Buyer
pursuant to Article I hereof will vest in Buyer legal and valid title to
the Stock, free and clear of all Encumbrances (other than Encumbrances
created or suffered by Buyer).
2.02. Organization; Subsidiaries. (a) The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as it is now being conducted. The
Company is duly qualified to do business and is in good standing as a
foreign corporation in all jurisdictions where the nature of the property
owned or leased by it, or the nature of the business conducted by it, makes
such qualification necessary and the absence of such qualification would,
individually or in the aggregate, have a material adverse effect on the
business or financial condition of the Company. True and complete copies of
the certificate of incorporation, by-laws and minute book of the Company
have previously been delivered or made available to Buyer.
(b) As of the date hereof, there is no direct or indirect
subsidiary of the Company other than K-C Nevada, Inc., a Nevada corporation
(the "Subsidiary"), and the Company has no direct or indirect ownership
interest in any other entity. The Subsidiary does not own or have any
rights with respect to any asset or property used in or relating to the
conduct of the Business.
2.03. Corporate Power and Authority; Effect of Agreement. Seller
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate
power and authority to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery
and performance by Seller of this Agreement and the consummation by Seller
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Seller. This Agreement has been
duly and validly executed and delivered by Seller and constitutes the valid
and binding obligation of Seller, enforceable against Seller in accordance
with its terms, except to the extent that such enforceability (i) may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally, and (ii) is subject
to general principles of equity. Except as set forth in Schedule 2.08(b),
the execution, delivery and performance by Seller of this Agreement and the
consummation by Seller of the transactions contemplated hereby will not,
with or without the giving of notice or the lapse of time, or both, (x)
violate any law, rule or regulation to which Seller or the Company is
subject, (y) violate any order, judgment or decree applicable to Seller or
the Company, or (z) violate any provision of the certificate of
incorporation or the by-laws of Seller or the Company; except, in each
case, for violations which in the aggregate would not materially hinder or
impair the consummation of the transactions contemplated hereby.
2.04. Financial Statements. (a) Seller has delivered to Buyer (i)
the unaudited pro forma balance sheet of the Company as of May 31, 1998
(the "May 31 Balance Sheet") and unaudited pro forma statements of
operations of the Company for the five-month period then ended, and (ii)
unaudited pro forma balance sheets of the Company as of December 31 of each
of 1995, 1996 and 1997, and unaudited pro forma statements of operations of
the Company for each of the twelve-month periods then ended (the "Annual
Financial Statements") (the financial statements listed in (i) and (ii),
collectively, the "Financial Statements"), copies of which are included in
Schedule 2.04(a). Except as set forth in Schedule 2.04(a), the Financial
Statements fairly present in all material respects the financial position
and the results of operations of the Company, as of the respective dates
and for the respective periods indicated therein and have been prepared in
conformity with GAAP consistently applied. All adjustments to Seller's
financial statements which relate to the Company have been reflected in the
Financial Statements. All of the assets, liabilities, income, costs and
expenses reflected in the Financial Statements are related to the Business
and arose out of and were incurred in the ordinary course of the Business.
All related party transactions have been accounted for by use of consistent
accounting policies and methodologies which would not affect the
comparability of such financial information in any material way.
(b) Except as specifically reflected in the Financial
Statements or Schedule 2.04(b) or elsewhere in the Schedules or as
contemplated by this Agreement, the Company has no liabilities, commitments
or obligations of any kind whatsoever (whether secured or unsecured and
whether accrued, absolute, contingent, direct, indirect or otherwise),
other than any liabilities, commitments or obligations (i) incurred after
May 31, 1998 in the ordinary course of business, or (ii) that, individually
and in the aggregate, are not material.
2.05. Absence of Certain Changes or Events. Except as set forth
in Schedule 2.05 or reflected in the May 31 Balance Sheet or permitted or
contemplated by this Agreement, since May 31, 1998, the Company has not (a)
suffered any material damage, destruction or casualty loss to its physical
properties; (b) incurred or discharged any material obligation or liability
or entered into any other material transaction except in the ordinary
course of business; (c) suffered any material adverse change in the
business, financial condition, assets, liabilities, operations or results
of operations of the Company; (d) increased the rate or terms of
compensation payable or to become payable by the Company to its directors,
officers or key employees or increased the rate or terms of any bonus,
pension or other employee benefit plan covering any of its directors,
officers or key employees, except in each case increases occurring in the
ordinary course of business in accordance with its customary practices
(including normal periodic performance reviews and related compensation and
benefit increases) or as required by any pre-existing Commitment identified
in Schedule 2.08(a); (e) consummated, or agreed to consummate, any sale,
lease or other transfer or disposition of any properties or assets except
for the sale of inventory items in the ordinary course of business and
except for the sale or other disposition of any tangible personal property
that, in the reasonable judgment of management of the Company, has become
uneconomic, obsolete or worn out; (f) incurred, assumed or guaranteed any
indebtedness for borrowed money; (g) granted any Encumbrance on any of its
material properties or assets; (h) entered into, amended or terminated any
material Commitment, or waived any material rights thereunder except in the
ordinary course of business; or (i) made any grant of credit to any
customer or distributor on terms or in amounts materially more favorable
than those that have been extended to such customer or distributor in the
past. Since May 31, 1998, the Company has been operated in all material
respects in the ordinary course in a manner consistent with past practice.
2.06. Assets and Properties. (a) The Company has good title to
all of the material tangible personal assets and properties which it
purports to own (including those reflected on the May 31 Balance Sheet,
except for assets and properties sold, consumed or otherwise disposed of in
the ordinary course of business since May 31, 1998), free and clear of all
Encumbrances, except (a) as set forth in Schedule 2.06(a), and (b) liens
for taxes not yet due and payable or due but not delinquent or being
contested in good faith by appropriate proceedings. Except as set forth in
Schedule 2.06(a), the assets owned or leased by the Company constitute all
the assets used in and necessary to conduct the Business as currently
conducted.
(b) All material tangible properties and assets owned or
utilized by the Company are in good operating condition and repair (except
for ordinary wear and tear), free from any defects (except such minor
defects as do not interfere with the use thereof in the conduct of the
normal operations), have been maintained consistent with the standards
generally followed in the industry and are sufficient to carry on the
Business as presently conducted. Except as set forth in Schedule 2.06(b),
all buildings, plants and other structures owned or otherwise utilized by
the Company are in good condition and repair (except for ordinary wear and
tear) in all material respects.
(c) Schedule 2.06(c) sets forth a list of all real property
owned by the Company (the "Owned Real Property"). With respect to the Owned
Real Property, (i) the Company has good and marketable title in fee simple
to the Owned Real Property, free and clear of all Encumbrances except as
disclosed in Schedule 2.06(c), (ii) there are no outstanding options or
rights of first refusal in favor of any other party to purchase the Owned
Real Property or any portion thereof or interest therein, (iii) there are
no leases, subleases, licenses, options, rights, concessions or other
agreements, to which any portion of the Owned Real Property is subject, and
(iv) all existing water, sewer, gas, electricity, telephone and other
utilities required for the use, occupancy, operation and maintenance of the
Owned Real Property are adequate in all material respects for the use,
occupancy, operation and maintenance thereof, as currently conducted or
currently exists.
(d) Schedule 2.06(d) sets forth a list of all real property
leased or subleased by the Company (the "Leased Real Property"). Seller has
made available to Buyer true and complete copies of all leases and
subleases relating to the Leased Real Property. With respect to the Leased
Real Property, (i) the Company has good and valid leasehold estates in the
Leased Real Property, free and clear of all Encumbrances, and (ii) all
existing water, sewer, gas, electricity, telephone and other utilities
required for the use, occupancy, operation and maintenance of the Leased
Real Property are adequate in all material respects for the use, occupancy,
operation and maintenance thereof, as currently conducted or currently
exists. Except as set forth on Schedule 2.06(d), each such lease or
sublease is legal, valid, binding and enforceable against the Company and,
to Seller's knowledge, the other party or parties thereto and is in full
force and effect.
(e) Except as set forth on Schedule 2.06(e), (i) neither the
Seller nor the Company has received notice of any pending or, to the
knowledge of the Seller, threatened condemnation or eminent domain
proceedings or their local equivalent with respect to the Owned Real
Property or the Leased Real Property, (ii) the Owned Real Property, the
Leased Real Property, the use and occupancy thereof by the Company, and the
conduct of the Business thereon and therein do not violate any deed
restrictions, (iii) neither Seller nor the Company has received written
notice of a material violation of any such restrictions or any applicable
building codes, zoning, subdivision or other land use or similar laws, and
(iv) to Seller's knowledge, none of the structures or improvements on any
of the Owned Real Property or the Leased Real Property encroaches upon real
property of another person or entity, and no structure or improvement of
another person or entity encroaches upon any of the Owned Real Property or
the Leased Real Property, in either case which would materially interfere
with the use thereof in the ordinary course of business.
2.07. Intellectual Property. Schedule 2.07 sets forth a correct
and complete list of all Patents, Trademarks and Copyrights which are
owned, licensed or possessed by the Company or used in the conduct of the
Business (other than the Over the Counter Licenses, as defined in Section
2.08(a)(xiii)). Except as set forth on Schedule 2.07, the Company owns or
possesses adequate rights to (without the making of any payment to others
or the obligation to grant rights to others in exchange) all Intellectual
Property necessary to the conduct of the Business as presently conducted.
Each item of Intellectual Property owned or used by the Company immediately
prior to the Closing will be owned or available for use by the Company on
identical terms and conditions immediately subsequent to the Closing,
except as set forth in Sections 4.10 and 4.13. The Company has taken all
necessary action to maintain and protect each item of Intellectual Property
that it owns or uses and which is material to the Business. The validity,
ownership, enforceability, use or legality of such Intellectual Property is
not being questioned or opposed in any claim, demand or Litigation (as
defined in Section 2.09) to which the Company, or, to Seller's knowledge,
any other person or entity who has granted a license of Intellectual
Property to the Company, is a party or subject, nor, to the knowledge of
Seller, is any such claim, demand or Litigation threatened. The conduct of
the Business as currently conducted does not, to Seller's knowledge,
infringe, conflict with, interfere with or misappropriate any Intellectual
Property rights of third parties, and the Company has not since January 1,
1996 received any charge, complaint, claim, demand or notice alleging any
such infringement, conflict, interference or misappropriation (including
any claim that the Company must license or refrain from using any
Intellectual Property rights of any third party). All licenses of
Intellectual Property granted by the Company to others and currently in
effect are legal, valid, binding and enforceable against the Company and,
to Seller's knowledge, the other parties thereto, and are in full force and
effect, and neither the Company nor, to Seller's knowledge, any other party
to any such license is in breach or default, and, to Seller's knowledge, no
event has occurred which with notice or lapse of time would constitute a
breach or default or permit termination, modification or acceleration
thereunder, nor, to Seller's knowledge, has any party repudiated any
provision thereof. With respect to each item of material Intellectual
Property owned by the Company, the Company possesses all right, title and
interest in and to the item, free and clear of any Encumbrance or other
restriction. The computer software owned or used by, or licensed to, the
Company is adequate for its current use in all material respects.
"Intellectual Property" shall mean (a) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), and all
improvements thereto, (b) all patents, patent applications and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof
("Patents"), (c) all trademarks, service marks, trade dress, logos, trade
names and corporate names, together with all translations, adaptations,
derivations and combinations thereof and including all goodwill associated
therewith, and all applications, registrations and renewals in connection
therewith ("Trademarks"), (d) all copyrightable works, all copyrights and
all applications, registrations and renewals in connection therewith
("Copyrights"), (e) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques,
technical data, computer software, designs, drawings and specifications).
Following the Closing, the Company shall own, free of any Encumbrance, the
AIM system and all assets and rights of Seller and its affiliates relating
thereto, including, without limitation, all "source and object" code, as
modified, all systems documentation and all hardware terminals, personal
computers and printers used by the Company to support and operate the AIM
system, but specifically excluding the AS/400 midrange computer and
peripheral equipment owned by Seller and all telecommunications equipment
owned by Seller (other than equipment currently located at any facility of
the Company) and used in the communication of data and processes within the
AIM system.
2.08. Commitments. (a) Schedule 2.08(a) sets forth each contract
or agreement, whether written or oral (including any and all amendments
thereto), to which the Company is a party or by which the Company is bound
that are either executory in nature or that have been consummated but
contain representations, warranties, covenants, guaranties, indemnities or
other obligations that remain in effect (collectively, the "Commitments")
of the following types:
(i) Commitments for the sale of any real properties, or
for the grant of any option or preferential rights to purchase any
such real properties, and Commitments for the sale of any personal
(tangible or intangible) properties other than in the ordinary course
of business, or for the grant of any option or preferential rights to
purchase any such personal properties other than in the ordinary
course of business;
(ii) Commitments for the construction, modification or
repair of any building, structure or facility or for the incurrence of
any capital expenditures or for the acquisition of fixed assets, in
each case providing for aggregate payments in excess of $375,000;
(iii) Commitments relating to the acquisition by the
Company of any operating business or the capital stock of any other
person or entity;
(iv) Commitments pursuant to which the Company is
required to purchase or sell a stated portion of its requirements or
output to another party or utilize a stated portion of its service
capacity for, on behalf of, or upon the referral of another party
other than on a one-time basis;
(v) Commitments relating to any Litigation (other than
those which involve claims solely for money damages, and the money
damages for such Commitments individually or in the aggregate involve
less than $25,000);
(vi) Commitments relating to the lending or borrowing
of money, including loan agreements, guarantees of any liabilities,
performance bonds, letters of credit, bankers acceptances and similar
instruments or arrangements;
(vii) Commitments under which the Company agrees to
indemnify any person or entity other than in the ordinary course of
business;
(viii) Commitments containing covenants of the Company
not to compete, do business in any line of business or in any
geographical area or with any person or entity, or to disclose certain
information (but with respect to disclosure of certain information,
other than in the ordinary course of business);
(ix) Commitments pursuant to which the Company (A)
leases, subleases, licenses or otherwise has the right to use any
material personal property of another party or (B) is the lessor of
any material personal property;
(x) Commitments in respect of any joint venture,
partnership or other similar arrangement (including, without
limitation, any joint development agreement);
(xi) Commitments relating to any governmental or
regulatory authority, including without limitation, the Federal
Aviation Administration;
(xii) Commitments for the lease or sublease of any real
property;
(xiii) Commitments for the licensing of any
Intellectual Property, other than with respect to non-Business
specific computer software purchasable on an over-the-counter basis,
including Microsoft Windows and similar computer software ("Over the
Counter Licenses");
(xiv) material Commitments with agents, sales
representatives and consultants of the Business;
(xv) Commitments relating to outstanding letters of
credit or performance bonds or creating any obligation or liability as
guarantor, surety, co-signer, endorser, co-maker, indemnitor or
otherwise in respect of the obligation of any person or entity, except
as endorser or maker of checks or letters of credit endorsed or made
in the ordinary course of business; and
(xvi) Commitments (other than those specified in any of
clauses (i) through (xv) of this paragraph (a)) which relate to or
affect the Business or any of the assets or properties of the Company
in any way that is material to the Business.
(b) Except as set forth in Schedule 2.08(b), all of the
Commitments referred to in the preceding paragraph (a) are valid, binding,
in full force and effect and enforceable in accordance with their terms
against the Company, and to the knowledge of Seller, against the respective
counterparties to such Commitments. Complete copies (or, if oral, full
written descriptions) of all Commitments required to be so listed,
including all amendments thereto, and complete copies of all standard form
Commitments used in the conduct of the Business, have been delivered or
made available to Buyer. Except as set forth in Schedule 2.08(b), (i) there
is no breach, violation or default on the part of the Company or, to
Seller's knowledge, on the part of the other parties thereto, and no event
which, with notice or lapse of time or both, would constitute a breach,
violation or default on the part of the Company or, to Seller's knowledge,
on the part of the other parties thereto, or, to Seller's knowledge, give
rise to any Encumbrance or right of termination, modification,
cancellation, prepayment, suspension, limitation, revocation or
acceleration under, any Commitment listed in Schedule 2.08(a), except for
breaches, violations and defaults, or Encumbrances or rights of
termination, modification, cancellation, prepayment, suspension,
limitation, revocation or acceleration which, individually or in the
aggregate, are not material, and (ii) neither the Company nor, to the
knowledge of Seller, any other party to any of the Commitments listed in
Schedule 2.08(a), is in material arrears in respect of the performance or
satisfaction of the terms and conditions on its part to be performed or
satisfied under any of such Commitments (other than as reflected in the
accounting reserve established for doubtful accounts and the allowance for
credit sales and other than in the ordinary course of business), and no
material waiver or material indulgence has been granted by any of the
parties thereto.
2.09. Litigation. Except as set forth in Schedule 2.09, as of the
date hereof, there is no claim, suit, action or proceeding in any court or
before any governmental or regulatory authority ("Litigation") pending or,
to Seller's knowledge, threatened, involving the Company, the Business or
any assets or liabilities of any of the foregoing. Except as set forth in
Schedule 2.09, the Company is not subject to any outstanding orders,
rulings, judgments, injunctions, writs, decrees or actions, including,
without limitation, any actions brought by any regulatory authority.
2.10. Compliance with Laws. Except as set forth in Schedule 2.10,
the Company has been and is in material compliance with all material
applicable laws, rules, regulations and orders relating to the operation,
conduct or ownership of the Business (including, without limitation, all
applicable rules and regulations of the Federal Aviation Administration)
other than with respect to Environmental Laws, which are covered by Section
2.12. The Company has all permits, licenses, certificates and
authorizations of governmental and regulatory authorities (other than with
respect to Environmental Permits, which are covered by Section 2.12)
necessary for the conduct of the Business as presently conducted.
2.11. Employee Benefit Plans. (a) Schedule. Schedule 2.11(a)
contains a true and complete list of each Company Benefit Plan and each
Employee Agreement.
(b) Documents. Seller has provided or made available to
Buyer, or has caused to be provided, to Buyer (i) current, accurate and
complete copies of all documents embodying or relating to each Company
Benefit Plan and each Employee Agreement, including all amendments thereto,
and trust or funding agreements with respect thereto (excluding any grantor
trusts established to hold assets subject to the claims of Seller's
creditors); (ii) the two (2) most recent annual reports (Series 5500 and
all schedules thereto), if any, required under ERISA in connection with
each Company Benefit Plan or related trust; (iii) the most recent
determination letter received from the IRS, if any, for each Company
Benefit Plan and related trust which is intended to satisfy the
requirements of Section 401(a) of the Code; (iv) the most recent summary
plan description with respect to each Company Benefit Plan; and (v) all
summary plan descriptions and communications of any material modifications
to any Employee or Employees relating to each Company Benefit Plan.
(c) Compliance. With respect to each Company Benefit Plan,
in all material respects, (i) the Company, Seller and each ERISA Affiliate
have performed, or will perform, all obligations required to be performed
by them under each Company Benefit Plan and Employee Agreement and neither
the Company, Seller nor any ERISA Affiliate is in default under or in
violation of any Company Benefit Plan, (ii) each Company Benefit Plan has
been established and maintained in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, including
without limiting the foregoing, the timely filing of all required reports,
documents and notices, where applicable, with the IRS and the Department;
(iii) except for the Kimberly-Clark Corporation Retirement Contribution
Plan, which Seller has no reason to believe is not qualified under Section
401 of the Code, each Company Benefit Plan intended to qualify under
Section 401 of the Code has received a determination letter issued by the
IRS to the effect that each such Company Benefit Plan is so qualified and
that each trust forming a part of any such Company Benefit Plan is exempt
from tax pursuant to Section 501(a) of the Code and no circumstances exist
which would adversely affect this qualification or exemption; (iv) no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Section 406 of ERISA, has occurred with respect to any Company Benefit
Plan; (v) no action or failure to act and no transaction or holding of any
asset by, or with respect to, any Company Benefit Plan has or may subject
the Company, Seller or any ERISA Affiliate or any fiduciary to any tax,
penalty or other liability, whether by way of indemnity or otherwise; (vi)
there are no actions, proceedings, arbitrations, suits or claims pending,
or to the knowledge of Seller, threatened or anticipated (other than
routine claims for benefits) against the Company, Seller or any ERISA
Affiliate or any administrator, trustee or other fiduciary of any Company
Benefit Plan with respect to any Company Benefit Plan or Employee
Agreement, or against any Company Benefit Plan or against the assets of any
Company Benefit Plan; (vii) no event or transaction has occurred with
respect to any Company Benefit Plan that would result in the imposition of
any tax under Chapter 43 of Subtitle D of the Code; (viii) each Company
Benefit Plan can be amended, terminated or otherwise discontinued without
liability to the Company, Seller or any ERISA Affiliate; (ix) the Company,
Seller and each ERISA Affiliate have made or will make all payments on a
timely basis with respect to all periods through the date hereof, and will
make any pro-rata payment on a timely basis for the period ending as of the
Closing Date, in each case which are required by each Company Benefit Plan,
each related trust or by law to be made to, or with respect to each Company
Benefit Plan (including all insurance premiums or intercompany charges with
respect to each Company Benefit Plan); (x) no Company Benefit Plan is under
audit or investigation by the IRS, the Department or the PBGC, and to the
knowledge of Seller, no such audit or investigation is pending or
threatened; and (xi) no liability with respect to the Employees under any
Company Benefit Plan has been funded nor has any such obligation been
satisfied with the purchase of a contract from an insurance company as to
which the Company has received notice that such insurance company is
insolvent or is in rehabilitation or any similar proceeding.
(d) Pension Plans. Except as disclosed on Schedule 2.11(a),
as of the date hereof, neither the Company, Seller nor any ERISA Affiliate
presently sponsors, maintains or contributes to, nor has the Company,
Seller or any ERISA Affiliate ever sponsored, maintained, contributed to,
or been required to contribute to, a Pension Plan which is subject to Title
IV of ERISA.
(e) Multi-Employer Plans. The Company, Seller or any ERISA
Affiliate have never contributed to or been required to contribute to, or
incurred any withdrawal liability (within the meaning of Section 4201 of
ERISA) to any Multi-Employer Plan.
(f) No Post Employment Obligations. Except for those Company
Benefit Plans and Employee Agreements disclosed on Schedule 2.11(a),
neither the Company, Seller nor any ERISA Affiliate (i) maintains or
contributes to any Company Benefit Plan which provides, or has any
liability to provide, life insurance, medical, severance or other employee
welfare benefits to any Employee upon his retirement or termination of
employment, except as may be required by Section 4980B of the Code; or (ii)
has ever represented, promised or contracted (whether in oral or written
form) to any Employee (either individually or to Employees as a group) that
such Employee(s) would be provided with life insurance, medical, severance
or other employee welfare benefits upon their retirement or termination of
employment, except to the extent required by Section 4980B of the Code.
(g) Effect of Transaction. The execution of, and performance
of the transactions contemplated in, this Agreement will not constitute the
sale of more than one-third (1/3) of the fair market value of the assets of
the Seller Group.
(h) Employment Matters. The Company (i) is in compliance, in
all material respects, with all applicable federal, state and local laws,
rules and regulations (domestic and foreign) respecting employment,
employment practices, labor, terms and conditions of employment and wages
and hours, in each case, with respect to Employees; (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to Employees; (iii) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any
of the foregoing; and (iv) is not liable for any past due payment to any
trust or other fund or to any governmental or administrative authority,
with respect to unemployment compensation benefits, social security or
other benefits for Employees.
(i) Labor. No Employees are currently represented by any
labor union for purposes of collective bargaining and no activities the
purpose of which is to achieve such representation of all or some of such
Employees are threatened or ongoing. No work stoppage or labor strike
against the Company or Seller by Employees is pending or, to Seller's
knowledge, threatened. Except as set forth on Schedule 2.09, neither the
Company nor Seller (i) is involved in or, to Seller's knowledge, threatened
with any labor dispute, grievance, or litigation relating to labor matters
involving any Employees, including, without limitation, violation of any
federal, state or local labor, safety or employment laws (domestic or
foreign), charges of unfair labor practices or discrimination complaints;
(ii) has engaged in any unfair labor practices within the meaning of the
National Labor Relations Act or the Railway Labor Act; or (iii) is
presently, nor has been in the past a party to, or bound by, any collective
bargaining agreement or union contract with respect to Employees and no
such agreement or contract is currently being negotiated by Seller or any
of its affiliates.
(j) 501(c)(9) Trust. Except as disclosed in Schedule
2.11(a), no Company Benefit Plan or Employee Agreement is funded by a trust
described in Section 501(c)(9) of the Code.
(k) Welfare Plan Funding. Except as disclosed in Schedule
2.11(a), with respect to each Welfare Plan, all claims incurred (including
claims incurred but not reported) by Employees thereunder for which the
Company is, or will become, liable are (i) insured pursuant to a contract
of insurance whereby the insurance company bears any risk of loss with
respect to such claims; or (ii) covered under a contract with a health
maintenance organization (an "HMO") pursuant to which the HMO bears the
liability for such claims.
(l) Controlled Group Liability. The Company has no
liability, contingent or otherwise, to, or with respect to any Benefit Plan
(other than the Company Benefit Plans and Employee Agreements which are
listed on Schedule 2.11(a)), which is now or previously has been sponsored,
maintained, contributed to, or required to be contributed to, by Seller or
any ERISA Affiliate.
For the purposes of this Agreement, the following terms shall
have the meanings indicated:
"Benefit Plan" means each plan, program, policy, contract or
agreement or other arrangement providing for compensation, vacation pay,
severance, termination pay, performance awards, stock or stock-related
awards, fringe benefits or other employee benefits of any kind, including,
without limitation, each "employee benefit plan," within the meaning of
Section 3(3) of ERISA and each "multi-employer plan" within the meaning of
Sections 3(37) or 4001(a)(3) of ERISA.
"Code" means the Internal Revenue Code of 1986, as amended
and any regulations promulgated or proposed thereunder.
"Company Benefit Plan" means each Benefit Plan (other than
an Employee Agreement) which is now or previously has been sponsored,
maintained, contributed to, or required to be contributed to, or with
respect to which any withdrawal liability (within the meaning of Section
4201 of ERISA) has been incurred, by the Company, Seller or any ERISA
Affiliate for the benefit of any Employee for his service as an Employee of
the Company, and pursuant to which the Company, Seller or any ERISA
Affiliate has or may have any liability, contingent or otherwise.
"Department" means the U.S. Department of Labor.
"Employee" means each current, former, or retired employee,
officer, consultant, independent contractor, agent or director of the
Company.
"Employee Agreement" means each management, employment,
severance, consulting, non-compete, confidentiality, or similar agreement
or contract between the Company or Seller and any Employee pursuant to
which the Company, Seller has or may have any liability contingent or
otherwise.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended and any regulations promulgated or proposed thereunder.
"ERISA Affiliate" means each business or entity which is a
member of a "controlled group of corporations," under "common control" or
an "affiliated service group" with the Company within the meaning of
Sections 414(b), (c) or (m) of the Code, or required to be aggregated with
the Company under Section 414(o) of the Code, or is under "common control"
with the Company, within the meaning of Section 4001(a)(14) of ERISA.
"IRS" means the Internal Revenue Service.
"Multi-Employer Plan" means each Company Benefit Plan which
is a "multi-employer plan" within the meaning of Sections 3(37) or
4001(a)(3) of ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" means each Company Benefit Plan (other than a
Multi-Employer Plan) which is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA.
"Welfare Plan" means each Company Benefit Plan which is an
"employee welfare benefit plan" within the meaning of Section 3(1) of
ERISA.
2.12. Environmental Matters. (a)(i) Except as set forth in
Schedule 2.12(a)(i), (1) since January 1, 1993, the Company has at all
times been operated, and is, in compliance, in all material respects, with
all applicable Environmental Laws and (2) prior to January 1, 1993, to the
knowledge of Seller, the Company was operated in compliance, in all
material respects, with Environmental Laws.
(ii) Except as set forth in Schedule 2.12(a)(ii), the
Company (1) has obtained, and is in compliance, in all material
respects, with all permits, licenses, authorizations, registrations
and other governmental consents required by applicable Environmental
Laws ("Environmental Permits"), and (2) has made all appropriate
filings for the issuance or renewal of such Environmental Permits
(other than in connection with the transactions contemplated hereby).
(iii) Except as set forth on Schedule 2.12(a)(iii), all
of the Owned Real Property, Leased Real Property or any other real
property operated or controlled by the Company (collectively, "Real
Property") are free of any material contamination arising out of,
relating to, or resulting from the release or other dissemination by
the Company of any Hazardous Substances, and there has been no release
or other dissemination at any time since January 1, 1993 (or, to the
knowledge of Seller, prior to January 1, 1993) of any Hazardous
Substances at, on, about, under or within any Real Property or, to
Seller's knowledge, any real property formerly owned, leased, operated
or controlled by the Company or any predecessor thereof (other than
pursuant to and in accordance with Environmental Permits).
(iv) Except as set forth in Schedule 2.12(a)(iv), there
are no claims, notices (including, without limitation, notices that
the Company or a Subsidiary is or may be a potentially responsible
person or otherwise liable in connection with any waste disposal or
other site containing Hazardous Substances), civil, criminal or
administrative actions, suits, hearings, investigations, inquiries or
proceedings pending or, to Seller's knowledge, threatened that are
based on or related to any Environmental Matters (including, without
limitation, the failure to comply with any Environmental Law or the
failure to have, or to comply with, any Environmental Permits).
(v) Except as set forth in Schedule 2.12(a)(v), there
are no present or past conditions, events, circumstances, facts,
activities, practices, incidents, actions, omissions or plans: (1)
that are reasonably likely to interfere with or prevent, in any
material respect, continued compliance by the Company with
Environmental Laws or the requirements of Environmental Permits, or
(2) that are reasonably likely to give rise to any material liability
under any Environmental Laws, or (3) that are reasonably likely to
form the basis of any material claim, action, suit, proceeding,
hearing, investigation or inquiry against or involving the Company
based on or related to any Environmental Matter.
(vi) Except as set forth in Schedule 2.12(a)(vi), there
are no underground or aboveground storage tanks, incinerators or
surface impoundments at, on, or about, under or within any of the Real
Property. Schedule 2.12(a)(vi) also lists all underground or
aboveground storage tanks, incinerators or surface impoundments that
were removed by the Company from any such Real Property since January
1, 1988, or to Seller's knowledge, prior thereto.
(vii) Except as set forth on Schedule 2.12(a)(vii),
since January 1, 1993, or, to Seller's knowledge, prior thereto, the
Company has not used any waste disposal site, or otherwise disposed
of, transported, or arranged for the transportation of, any Hazardous
Substances to any place or location.
(viii) Except as set forth in Schedule 2.12(a)(viii),
no lien exists, and no condition exists which could reasonably be
expected to result in the filing of a lien, against any Real Property
under any Environmental Law or relating to any Environmental Matter.
(b) Seller has delivered or made available to Buyer true and
complete copies and results of any material reports, studies, analyses,
tests, or monitoring in the possession of the Company or Seller, in each
case relating to any Environmental Matters with respect to the Company
(including without limitation any Hazardous Substances at, on, about, under
or within any Real Property or any real property formerly owned, leased,
operated or controlled by the Company or any predecessor thereof).
For the purposes of this Section 2.12, the following terms shall
have the meanings indicated:
"Environmental Laws" means, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. ss.ss. 9601 et seq., the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C. ss.ss. 11001 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. ss.ss. 6901 et seq., the Toxic
Substances Control Act, 15 U.S.C. ss.ss. 2601 et seq., the Federal
Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. ss.ss. 136 et seq.,
the Clean Air Act, 42 U.S.C. ss.ss. 7401 et. seq., the Clean Water Act
(Federal Water Pollution Control Act), 33 U.S.C. ss.ss. 1251 et seq., the
Safe Drinking Water Act, 42 U.S.C. ss.ss. 300f et seq., the Occupational
Safety and Health Act, 29 U.S.C. ss.ss. 641, et seq., the Hazardous
Materials Transportation Act, 49 U.S.C. ss.ss. 1801, et seq., as any of the
above statutes shall be in effect as of the Closing Date, all rules and
regulations promulgated pursuant to any of the above statutes, and any
other foreign, federal, state or local law, statute, ordinance, rule or
regulation governing Environmental Matters, as the same shall be in effect
as of the Closing Date, including any common law cause of action providing
any right or remedy relating to Environmental Matters, and all applicable
judicial and administrative decisions, orders, and decrees relating to
Environmental Matters.
"Environmental Matter" means any matter arising out of,
relating to, or resulting from pollution, contamination, protection of the
environment, human health or safety, health or safety of employees,
sanitation, and any matters relating to emissions, discharges,
disseminations, releases or threatened releases of Hazardous Substances
into the air (indoor and outdoor), surface water, groundwater, soil, land
surface or subsurface, buildings, facilities, real or personal property or
fixtures or otherwise arising out of, relating to, or resulting from the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, handling, release or threatened release of Hazardous Substances.
"Hazardous Substances" means any pollutants, contaminants,
toxic or hazardous or extremely hazardous substances, materials, wastes,
constituents, compounds, chemicals, natural or man-made elements or forces
(including, without limitation, petroleum or any by-products or fractions
thereof, any form of natural gas, Bevill Amendment materials, lead,
asbestos and asbestos-containing materials, building construction materials
and debris, polychlorinated biphenyls ("PCBs") and PCB-containing
equipment, radon and other radioactive elements, ionizing radiation,
electromagnetic field radiation and other non-ionizing radiation, sonic
forces and other natural forces, infectious, carcinogenic, mutagenic, or
etiologic agents, pesticides, defoliants, explosives, flammables,
corrosives and urea formaldehyde foam insulation) that are regulated by, or
form the basis of liability under, any Environmental Laws.
2.13. Consents. Except (i) as set forth in Schedule 2.13, (ii)
with respect to Environmental Permits, which are covered by Section 2.12,
and (iii) under the Hart-Scott Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations thereunder (the "HSR Act"), no
consent, approval or authorization of, or exemption by, or filing with, any
governmental authority or third party is required to be obtained or made by
Seller or the Company in connection with the execution, delivery and
performance by Seller of this Agreement or the taking by Seller of any
other action contemplated hereby.
2.14. Taxes. (a) Except as set forth in Schedule 2.14(a), all Tax
Returns required to be filed by or with respect to the Company have been
properly and timely filed and all such Tax Returns are complete and
accurate in all material respects. Except to the extent reserved or
reflected against on the May 31 Balance Sheet, all Taxes due with respect
to such Tax Returns or which are otherwise due and payable by the Company
have been paid in full. All Taxes required to be withheld and paid over by
the Company to any relevant taxing authority in connection with payments to
employees, independent contractors, creditors, stockholders or to third
parties have been so withheld and paid over.
(b) Except as set forth in Schedule 2.14(b): (i) no Tax
authority in a jurisdiction where the Company does not file Tax Returns has
made a claim, assertion or, to Seller's knowledge, threat that the Company
is or may be subject to Tax in such jurisdiction; (ii) no deficiencies for
any Tax have been threatened, proposed, asserted or assessed against the
Company which have not been satisfied; (iii) no audits or examinations with
respect to the Company are ongoing or have been threatened or proposed by
the IRS or the appropriate state, local or foreign Tax authority; (iv) no
waivers or extensions of statutes of limitation with respect to Taxes have
been given by or requested with respect to the Company; (v) there are no
Tax rulings, requests for rulings, or closing agreements relating to the
Company which could affect the liability for Taxes of the Company for any
period (or portion of a period) after the Closing; (vi) no power of
attorney has been granted by the Company with respect to any matter
relating to Taxes of the Company which is currently in force.
(c) The Company is not a party to or liable under any Tax
Sharing Agreement with respect to Taxes of any consolidated, combined or
unitary group other than the consolidated, combined or unitary group of
which Seller is the common parent. Except as set forth in Schedule 2.14(c),
the Company has not, with respect to any Taxable period for which the
applicable statute of limitations has not run, filed a combined,
consolidated or unitary Tax Return with respect to any affiliated group of
which Seller is not the common parent. Schedule 2.14(c) sets forth a
complete list of all states, territories and jurisdictions (foreign and
domestic) in which the Company has filed Income Tax Returns for Taxable
periods ending on or after December 31, 1991. Neither the Company nor any
member of the Seller Group will, in the absence of a closing agreement
provided for in the Treasury Regulations under Section 1503 of the Code,
trigger the recapture of any dual consolidated losses (as defined in
Section 1503 of the Code) by virtue of the transactions contemplated by
this Agreement.
(d) The Company is a member of the "selling consolidated
group" within the meaning of the first sentence of Section 338(h)(10)(B) of
the Code, of which Seller is the common parent.
(e) There are no Tax liens on any assets of the Company,
except liens for Taxes not yet due and payable;
(f) As used in this Agreement:
(i) The term "Tax" (including, with correlative
meaning, the terms "Taxes" and "Taxable") includes all federal, state,
local and foreign income, profits, franchise, gross receipts,
environmental, customs duty, capital stock, communications services,
severance, stamp, payroll, sales, employment, unemployment,
disability, use, property, withholding, excise, production, value
added, occupancy and other taxes, duties or assessments of any nature
whatsoever, together with all interest, penalties and additions
imposed with respect to such amounts and any interest in respect to
such penalties and additions, and includes any liability for Taxes of
another person by contract, as a transferee or successor, under
Treasury Regulation ss. 1.1502-6 or analogous state, local, or foreign
law provision, or otherwise.
(ii) The term "Income Tax" means any federal, state,
local or foreign Tax or Taxes (i) based upon, measured by, or
calculated with respect to, net income or net receipts, proceeds or
profits, or (ii) based upon, measured by, or calculated with respect
to multiple bases (including, but not limited to, corporate franchise
or occupation Taxes) if such Tax may be based upon, measured by, or
calculated with respect to one or more bases described in (i) above.
(iii) The term "Tax Return" includes all returns and
reports (including elections, declarations, disclosures, schedules,
estimates and information returns) required to be supplied to a Tax
authority relating to Taxes.
(iv) The term "Income Tax Return" includes all Tax
Returns relating to Income Taxes.
(v) The term "Code" means the United States Internal
Revenue Code of 1986, as amended.
(vi) The term "Treasury Regulations" means the
regulations prescribed under the Code.
(vii) The term "Seller Group" means any "affiliated
group" (as defined in Section 1504(a) of the Code without regard to
the limitations contained in Section 1504(b) of the Code) that
includes Seller or any predecessor of or successor to Seller (or
another such predecessor or successor).
2.15. Fees. Neither Seller, the Company nor any of the
Subsidiaries has paid or become obligated to pay any fee or commission to
any broker, finder or intermediary in connection with the transactions
contemplated hereby.
2.16. Major Customers and Suppliers. Schedule 2.16 sets forth a
list of (i) the top 10 suppliers (in terms of dollar purchases) of
materials or services to the Business during the period from July 8, 1997
to July 8, 1998 ("Major Suppliers") and (ii) the top 10 customers other
than with respect to completions (in terms of dollar sales) of products or
services of the Business during (x) 1997 and (y) the period from January 1,
1998 to July 16, 1998 ((x) and (y) collectively, the "Major Customers").
Except as set forth on Schedule 2.16, no Major Supplier has during the last
twelve months decreased by 10% or more from the preceding twelve-month
period or, to the knowledge of Seller, threatened to decrease by 10% or
more from the preceding twelve-month period or limit by 10% or more from
the preceding twelve-month period its provision of materials or services to
the Business. Seller has no knowledge of any pending or threatened
termination, cancellation or limitation of, or any material modification or
change in, the business relationships of the Business, with any Major
Supplier or Major Customer.
2.17. Products. Except as set forth on Schedule 2.17, there are
no statements, citations or decisions by any governmental or regulatory
authority stating that any product manufactured, sold, designed,
distributed or marketed at any time by the Company ("Products") is
defective or unsafe or fails to meet any standards promulgated by any
governmental authority. Except as set forth on Schedule 2.17, to Seller's
knowledge, there is no (i) fact relating to any Product that is reasonably
likely to impose upon the Company a duty to recall any Product or a duty to
warn customers of a defect in any Product, (ii) material latent or overt
design, manufacturing or other defect in any Product, or (iii) material
liability for warranty claims or returns with respect to any Product.
2.18. Intercompany Transactions. Schedule 2.18 sets forth (a) a
summary list of all transactions (other than intercompany lockbox
transactions) between the Company, on the one hand, and Seller or any of
its affiliates, on the other hand, since July 1, 1997; (b) a list of all
material assets, properties and services of the Company used by Seller or
any of its affiliates, or vice versa, at any time since January 1, 1998 and
(c) a list of all Commitments between the Company, on the one hand, and
Seller or any of its affiliates, on the other hand. All such Commitments
and all intercompany transactions or obligations, including all Income Tax
assets and liabilities, involving the Company, on the one hand, and Seller
or any of its affiliates, on the other hand, shall be cancelled or settled
(which may involve the dividend or other distribution of intercompany
receivables to Seller) as of the Closing Date; provided, however, that the
receivable captioned "Receivables Trade-From Consolidated Subs" on the
Company's balance sheet shall not be cancelled or settled until satisfied,
in the normal course, after the Closing Date by Seller.
2.19. Insurance. All of the material assets of the Company and
all aspects of the Business that are of insurable character are covered by
insurance with insurers against risks of liability, casualty and fire and
other losses and liabilities customarily obtained to cover comparable
businesses and assets in amounts, scope and coverage which are consistent
with prudent industry practice. The Company is not in default with respect
to its obligations under any material insurance policy maintained by it.
Schedule 2.19 sets forth a list of all insurance coverage carried by the
Company (or Seller on behalf of the Company), the carrier and the terms and
amount of coverage. All such policies and other instruments are in full
force and effect and no premiums with respect thereto are past due and
owed. Except as set forth in Schedule 2.19, the Company has not failed to
give any notice or present any material claim under any such insurance
policy in due and timely fashion or as required by any of such insurance
policies, and the Company has not otherwise, through any act, omission or
non-disclosure, jeopardized or impaired full recovery of any claim under
such policies, and there are no claims by the Company under any of such
policies to which any insurance company is denying liability or defending
under a reservation of rights or similar clause. The Company has not
received notice of any pending or threatened termination of any of such
policies or any premium increases for the current policy period with
respect to any of such policies and the consummation of the transactions
contemplated by this Agreement will not result in any such termination or
premium increase. Notwithstanding the foregoing, nothing in this Section
2.19 shall be deemed to apply to any contract of insurance relating to any
Company Benefit Plan.
2.20. Year 2000. Seller reasonably believes that the Business
will on a timely basis successfully resolve the risk that computer
applications used in the conduct of the Business may be unable to recognize
and perform properly date-sensitive functions involving certain dates,
commonly referred to as the "Year 2000 Problem" if the Company implements
the plans for such resolution currently in place. Seller reasonably
believes that the cost to the Business of correcting the Business's Year
2000 Problem will not be material.
2.21. Inventory. All of the Company's "Parts," "Rotables," "Work
in Process" and "Other" inventory (the "Inventory") reflected on the May 31
Balance Sheet is (or was prior to the sale thereof) substantially suitable,
usable, or (in the case of work in process and finished goods) salable at
market prices in the ordinary course of business and have been valued at
the lower of cost (on a FIFO basis) or market, in accordance with GAAP. The
quantity of the Company's Inventory on hand at the Closing Date will be at
levels substantially consistent with the requirements of then outstanding
sales Commitments or current sales projections of the Company.
2.22. Accounts Receivable. All of the Company's "Trade - From
Consolidated Subs," "Trade - from Other," and "Other - From Other"
receivables (the "Receivables") reflected on the May 31 Balance Sheet, and
those Receivables of the Company acquired or created after the date of the
May 31 Balance Sheet through the Closing Date, (a) were, are and shall be
bona fide accounts receivable created in the ordinary and usual course of
business in connection with bona fide transactions and consistent with past
practice and (b) have been collected in full or will be collectible at
their face amounts, except to the extent of the allowance for doubtful
accounts and the allowance for credit sales reflected on the May 31 Balance
Sheet.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby 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
Delaware, and has all requisite corporate power and authority to carry on
its business as it is now being conducted, and to execute, deliver and
perform this Agreement and to consummate the transactions contemplated
hereby.
3.02. Corporate Power and Authority; Effect of Agreement. The
execution, delivery and performance by Buyer of this Agreement and the
consummation by Buyer of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Buyer.
This Agreement has been duly and validly executed and delivered by Buyer
and constitutes the valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms, except to the extent that such
enforceability (i) may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors'
rights generally, and (ii) is subject to general principles of equity. The
execution, delivery and performance by Buyer of this Agreement and the
consummation by Buyer of the transactions contemplated hereby will not,
with or without the giving of notice or the lapse of time, or both, (i)
violate, or require any consent under, any material contract or other
commitment of Buyer, (ii) violate any law, rule or regulation to which
Buyer is subject, (iii) violate any order, judgment or decree applicable to
Buyer or (iv) violate any provision of the certificate of incorporation or
the by-laws of Buyer; except, in each case, for violations which in the
aggregate would not materially hinder or impair the consummation of the
transactions contemplated hereby.
3.03. Consents. Except under the HSR Act, no consent, approval or
authorization of, or exemption by, or filing with, any governmental
authority or third party is required to be obtained or made by Buyer in
connection with the execution, delivery and performance by Buyer of this
Agreement, or the taking by Buyer of any other action contemplated hereby.
3.04. Availability of Funds. Buyer will have available on the
Closing Date sufficient funds to enable it to consummate the transactions
contemplated by this Agreement.
3.05. Litigation. As of the date hereof, there is no Litigation
pending or, to Buyer's knowledge, threatened (i) against Buyer or any of
its affiliates with respect to which there is a reasonable likelihood of a
determination which would have a material adverse effect on the ability of
Buyer to perform its obligations under this Agreement, or (ii) which seeks
to enjoin or obtain damages in respect of the consummation of the
transactions contemplated hereby. Neither Buyer nor any of its affiliates
is subject to any outstanding orders, rulings, judgments or decrees which
would have a material adverse effect on the ability of Buyer to perform its
obligations under this Agreement.
3.06. Purchase for Investment. Buyer is purchasing the Stock for
investment and not with a view to any public resale or other distribution
thereof.
3.07. Fees. Neither Buyer nor any of Buyer's affiliates has paid
or become obligated to pay any fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated hereby.
ARTICLE IV
COVENANTS
---------
4.01. Compliance with Antitrust Laws; Regulatory and Other
Consents; Best Efforts. (a) Each of Buyer and Seller shall cooperate with
the other in making filings under the HSR Act and shall use its reasonable
best efforts to take, or cause to be taken, all actions necessary, proper
or advisable to consummate and make effective as promptly as practicable
the transactions contemplated by this Agreement, including using its
reasonable best efforts to resolve such objections, if any, as the
Antitrust Division of the Department of Justice (the "Antitrust Division")
or the Federal Trade Commission (the "FTC") or state antitrust enforcement
or other governmental authority may assert under the antitrust laws with
respect to the transactions contemplated hereby. In the event an action is
instituted by any person or entity challenging the transactions
contemplated hereby as violative of the antitrust laws, each of Buyer and
Seller shall use its reasonable best efforts to resist or resolve such
action. Buyer shall be responsible for the payment of the filing fee
required under the HSR Act.
(b) The parties agree to cooperate in obtaining any consents
of any third parties (in addition to the Antitrust Division, the FTC or
other parties or agencies, whose consents or approvals are covered
elsewhere herein) required in connection with the transactions contemplated
hereunder (each, a "Required Consent"). The parties agree that in the event
such a Required Consent is not obtained prior to the Closing and the
Closing occurs, the Seller will, subsequent to the Closing, cooperate in
all reasonable respects with Buyer and the Company in attempting to obtain
the Required Consent.
(c) Subject to the terms and conditions in this Agreement,
each of the parties hereto shall use its reasonable best efforts to take
promptly, or cause to be taken, all actions and to do promptly, or cause to
be done, all things necessary, proper or advisable under applicable law to
consummate and make effective the transactions contemplated hereby.
4.02. Conduct of Business. Except as may be otherwise
contemplated by this Agreement or required by any of the documents listed
in the Schedules to this Agreement or except as Buyer may otherwise consent
to in writing, from the date hereof and prior to the Closing, Seller shall
cause the Company to (i) in all material respects, operate the Business
only in the ordinary course; (ii) use its reasonable efforts to preserve
intact its business organization and not make or institute any material
changes in its methods of purchase, sale, management, accounting or
operation; (iii) maintain its properties, machinery and equipment in
sufficient operating condition and repair to enable it to operate the
Business in all material respects in the manner in which the Business is
currently operated, except for substantial maintenance required by reason
of fire, flood, earthquake or other acts of God or other similar
circumstances beyond the control of Seller or the Company; (iv) use its
reasonable efforts to continue all material existing insurance policies (or
comparable insurance) of or relating to the Company in full force and
effect; (v) use its reasonable efforts to keep available until the Closing
the services of its present officers and employees; (vi) use its reasonable
efforts to preserve its relationships with its material lenders, suppliers,
customers, licensors and licensees and others having material business
dealings with the Company such that the Business will not be materially
impaired; (vii) not acquire assets or capital stock or other equity
interests in any other entity, or issue any capital stock or other equity
interest of the Company; (viii) not enter into, modify or amend any
employment, severance, stay-pay, termination or similar agreements or
arrangements with, or grant any bonus, salary increase, severance or
termination pay to, any employee, officer, director or consultant other
than in the ordinary course of business consistent with past practice; (ix)
not enter into, adopt or amend any employee benefit or similar plan; (x)
not enter into, modify or waive any confidentiality, standstill or
non-compete agreement or arrangement; (xi) not create any Encumbrance on
any property or asset (whether tangible or intangible) of the Company
outside the ordinary course of business; (xii) not sell, assign, transfer,
lease or otherwise dispose of any material asset of the Company other than
in the ordinary course of business; (xiii) continue capital expenditures
substantially in accordance with the Company's 1998 budget, which Seller
has previously made available to Buyer, (xiv) not accelerate or delay the
purchase of raw materials, the manufacture, shipment or sale of inventory,
the collection of accounts or notes receivable or Deferred Revenue, or the
payment of accounts or notes payable, or accrued liabilities or expenses or
otherwise operate the Business, in each case, in a manner that would be
inconsistent with past practices; (xv) not incur any indebtedness for
borrowed money; (xvi) not take any action that would likely result in any
of the representations and warranties set forth in Article II becoming
false or inaccurate in any material respect; (xvii) not enter into or
consummate any transactions with an affiliate of the Company which
transaction is outside the ordinary course of business; (xviii) not change
any method of accounting, including, without limitation, changing any
account descriptions or balance sheet captions and (xix) not agree in
writing or otherwise to do any of the things prohibited by this Section
4.02. Seller shall make timely payments of all of its obligations accounted
for through its intercompany account with the Company, consistent with past
practice.
4.03. Access. From the date hereof and prior to the Closing,
Seller shall provide or cause the Company to provide Buyer and its counsel,
accountants and other representatives (a) with such information as Buyer
may from time to time reasonably request with respect to the Company, the
Business and the transactions contemplated by this Agreement; (b)
reasonable access upon reasonable notice to the properties, books,
contracts, documents and records of the Company and the Business as Buyer
may from time to time reasonably request; (c) access to officers,
directors, employees, counsel, accountants and other professional advisors
of the Company for the purposes of such meetings and communications as
Buyer may reasonably request; and (d) with the prior written consent of
Seller in each instance (which consent shall not be unreasonably withheld),
access to vendors, customers, manufacturers of its machinery and equipment,
and others having business dealings with the Company for the purposes of
such meetings and communications as Buyer may reasonably request. Such
access shall include without limitation access to the books, records,
schedules, work papers and audit programs of the Company and the Company's
accountants and access to representatives of such accountants. Any
disclosure whatsoever during such investigation by Buyer shall not
constitute an enlargement of or additional representations or warranties of
Seller beyond those specifically set forth in this Agreement except as
otherwise expressly provided herein. All such information and access shall
be subject to the terms and conditions of the letter agreement dated June
22, 1998, which shall remain in full force and effect.
4.04. No Shop. From the date of this Agreement until the Closing,
other than in connection with the transactions contemplated hereby, Seller
shall not, and shall cause the Company not to, solicit, propose or
facilitate (including by way of providing information regarding the
Business or the Company to any third party), directly or indirectly, any
inquiries, discussions or proposals for, continue or enter into
negotiations looking toward, or enter into or consummate any agreement or
understanding in connection with any proposal regarding any purchase or
other acquisition of all or any portion of the Business (other than the
sale of services or inventory or replacement of assets or other routine
activities in the ordinary course of business) or the Company or any of the
equity securities (whether newly issued or currently outstanding) of the
Company, or any merger, business combination or recapitalization involving
the Company, and the Seller will cause its and the Company's officers,
directors, employees, representatives, agents and affiliates to refrain
from any of the above.
4.05. Further Assurances. (a) At any time or from time to time
after the Closing, each party shall, at the request of the other party,
execute and deliver any further instruments or documents and take all such
further action as such other party may reasonably request in order to
evidence the consummation of the transactions contemplated hereby.
(b) At all times following the Closing Date, the Company
shall make available to Seller, without cost, applicable Company employees
as witnesses, and deliver to Seller copies of all applicable corporate
books and records, to the extent that any of the foregoing may be
reasonably requested by Seller in connection with the matter relating to or
arising out of item 3 of Schedule 2.09. Seller shall use reasonable efforts
to be accommodating to the schedules of the Company's employees.
4.06. Confidentiality Agreements. At the Closing, Seller shall
provide to Buyer a list of all parties who received confidential
information with respect to the Company in connection with the potential
acquisition of the Company and copies of any confidentiality agreements
entered into with respect thereto, and shall assign all of Seller's and its
affiliates rights under such confidentiality agreements to Buyer. Seller
agrees, at the request of Buyer or the Company, to use commercially
reasonable efforts at the request and expense of Buyer to enforce rights
under such confidentiality agreements on behalf of Buyer or the Company to
the extent any such contracts are not assignable by Seller to Buyer.
4.07. Notice. Seller shall have a continuing obligation to
promptly notify Buyer in writing as to any matter hereafter arising or
discovered which becomes known to Seller prior to the Closing (except for
matters brought to Seller's attention by Buyer in writing) which, if
existing or known at the date of this Agreement, would have been required
to be set forth or described in any Schedule to this Agreement or otherwise
would have resulted in any representation or warranty of Seller contained
herein being false or inaccurate in any material respect. No disclosure
made by Seller following the date hereof shall be deemed to amend or modify
any representation or warranty contained in this Agreement or the Schedules
hereto.
4.08. Confidentiality. Seller agrees that neither Seller nor any
of its affiliates will disclose any Confidential Information (as defined
below) after the date hereof to any third party, except as required by law.
"Confidential Information" shall mean any information concerning the
Company or the Business which is in the possession of Seller and its
affiliates (other than the Company) on the date hereof or on the Closing
Date relating to the Business, other than information which is or becomes
available to the public (other than as a result of the disclosure by Seller
or any of its affiliates (other than the Company) of such information in
contravention of the covenants set forth in this Section 4.08). The
covenants and agreements contained in this Section 4.08 shall expire on the
fifth anniversary of the Closing Date.
4.09. Responsibility for Taxes; Returns; Audits.
-----------------------------------------
(a) Indemnification.
---------------
(1) Seller shall be responsible for and indemnify and
hold harmless Buyer and its affiliates, including the Company, from and
against any Losses arising with respect to: (i) all Taxes of the Company
for any Taxable year or period ending on or before the Closing Date,
including without limitation all Taxes arising from the Section 338
Elections, (ii) for any Taxable year or period beginning before and ending
after the Closing Date, all Taxes of the Company for the portion of such
Taxable period ending on and including the Closing Date, (iii) all Taxes of
Seller or any affiliate thereof (other than the Company) arising under
Treasury Regulations ss. 1.1502-6 or any analogous state, local or foreign
Tax provision. For purposes of this Section 4.09(a), Seller's obligation to
indemnify Buyer and its affiliates with respect to Taxes other than Income
Taxes shall apply only to the extent that the Losses incurred with respect
to any such Tax exceeds (x) in the case of any such Tax, other than a
Miscellaneous Tax (as defined below), the reserves for such Tax on the May
31 Balance Sheet, as such Balance Sheet may be adjusted to reflect solely
(i) any payments out of such reserves and (ii) the operations of the
Company in the ordinary course of business, subsequent to the date of such
Balance Sheet prior to the Closing Date (any reserve as so adjusted, the
"Reserve Amount"); and (y) in the case of any such Tax which is a
Miscellaneous Tax (as defined below), 50% of the Reserve Amount with
respect to such Miscellaneous Tax. For purposes of this Agreement,
Miscellaneous Tax means any employment, withholding or payroll Taxes.
(2) For purposes of this Section 4.09(a), whenever it
is necessary to determine the liability for Taxes of the Company for a
portion of a Taxable year or period that begins before and ends after the
Closing Date, the determination of such Taxes for the portion of the year
or period ending on, and the portion of the year or period beginning after,
the Closing Date shall be determined (i) in the case of Income Taxes, based
upon an interim closing of the books of the Company as of the close of
business on the Closing Date and (ii) in the case of Taxes other than
Income Taxes, (a) with respect to sales, transfer, excise, gains, and other
Taxes based upon transfers or transactions, based upon whether the relevant
transaction occurred on or prior to, or subsequent to, the Closing Date,
and (b) in the case of all other Taxes (including real and personal
property Taxes) based upon the relative number of days in the portion of
the Taxable period up to and including the Closing Date and the relative
number of days in the portion of the Taxable period subsequent to the
Closing Date.
(b) Tax Returns; Filing and Payments.
--------------------------------
(1) Seller and Buyer shall cause the Company to the
extent permitted by law, to join, for any Taxable year or period (or
portions thereof) ending on or prior to the Closing Date, in (i) the
consolidated federal Income Tax Returns of the Seller Group and (ii) any
combined, consolidated or unitary state or local Income Tax Returns of any
member of the Seller Group (other than the Company) with respect to which
the Company is required to be included or has been included in accordance
with most recent past practice. All Taxes with respect to such Tax Returns
shall be paid by Seller.
(2) Buyer shall timely prepare (or cause to be
prepared), and shall timely file (or cause to be timely filed) all Income
Tax Returns of the Company (other than those addressed in clause 4.09(b)(1)
above) for any Taxable year or period ending on or before the Closing Date
which are not required to be filed on or before the Closing Date. Seller
shall, consistent with the manner that payments must be made with respect
to each of such Income Tax Returns, upon written notice by Buyer, provide
Buyer with funds to timely pay the Tax liability shown on such Income Tax
Return.
(3) Buyer shall prepare (or cause to be prepared) and
file (or cause to be filed) all Income Tax Returns of the Company for any
Taxable year or period commencing prior to the Closing Date and ending
subsequent to the Closing Date. Seller shall, consistent with the manner
that payments must be made with respect to each such Income Tax Return,
upon written notice by Buyer, provide Buyer with funds to timely pay the
portion of the Tax liability shown on such Income Tax Return which is
described as being the responsibility of Seller under Section 4.09(a), and
Buyer shall pay or cause to be paid such amounts to the appropriate Tax
authority.
(4) The Tax Returns referred to in this Section
4.09(b)(1), (2) and (3), shall, to the extent not otherwise required by
law, be prepared in a manner consistent with the Company's past practice
(including any Tax elections and methods of accounting). With respect to
any Tax Return referred to in clauses 4.09(b)(2) and (3) above, Buyer shall
provide Seller a draft of such Tax Return and Tax information (including,
without limitation, work papers and schedules) for review of such Tax
Return in a timely manner no later than 30 days prior to the due date
(taking into account valid extensions) for the filing of such Tax Return.
The parties shall consult in good faith with regard to the form and content
of such Returns, provided that, in the event of any disagreement, the
Returns shall be filed in the form set forth by the party with
responsibility for the preparation of the Return.
(c) Termination of Tax Sharing Agreements; Powers of
Attorney.
------------------------------------------------
(1) Any Tax Sharing Agreement to which the Company is a
party shall be terminated as of the Closing Date, and the Company shall
have no further obligations thereunder. For purposes of this Agreement, the
term "Tax Sharing Agreement" includes any agreement or arrangement, whether
or not written, providing for the sharing or allocation of liability for
Taxes of the parties thereto.
(2) All powers of attorney granted by the Company with
respect to Taxes shall be revoked as of the Closing Date.
(3) Seller agrees that between the date of the
Agreement and the Closing Date, it will not cause or permit the Company to
(or agree to) (i) make any change in the Company's Tax accounting methods,
any new election with respect to Taxes or any modification or revocation of
any existing election with respect to Taxes or (ii) settle or otherwise
dispose of any Tax audit, dispute, or other Tax proceeding, in the case of
each of clauses (i) and (ii) above, without Buyer's express written consent
thereto, except that any such audits with respect to Income Taxes, the
settlement or disposition of which would not have any adverse effect on
Buyer or the Company for any Taxable period ending subsequent to the
Closing Date, may be settled or disposed of prior to the Closing without
Buyer's consent.
(d) Section 338 Elections.
---------------------
(1) Seller and Buyer shall jointly make timely and
irrevocable elections under Section 338(h)(10) of the Code with respect to
the Company, and, if permissible, shall make all similar elections under
any applicable state or local Tax laws with respect to the Company
(collectively, the "Section 338(h)(10) Elections"). Buyer shall have the
right to make, in its sole discretion, any elections under Section 338(g)
of the Code or any analogous provision of any applicable state or local Tax
laws with respect to the Company which are not Section 338(h)(10) Elections
(together with the Section 338(h)(10) Elections, the "Section 338
Elections"). Seller and Buyer shall report the transactions consistent with
the making of the Section 338 Elections and shall take no position contrary
thereto without the written consent of the other party.
(2) Seller shall be responsible for and indemnify and
hold harmless Buyer and its affiliates (including the Company) from and
against any and all Losses arising from any Section 338 Elections being
invalid or improperly or untimely filed to the extent attributable to (i)
Seller's failure to timely or validly execute any Section 338(h)(10) Forms
(as defined below) or file any Section 338(h)(10) Forms with any applicable
Income Tax Return, except, in each case, to the extent caused by Buyer,
(ii) any information provided by Seller in connection with the Section
338(h)(10) Forms being inaccurate, untimely, or incomplete, except, in each
case, to the extent caused by Buyer or (iii) the inaccuracy of the
representation set forth in Section 2.14(d) of this Agreement.
(3) Buyer shall be responsible for preparing drafts of
all forms, attachments and schedules necessary to effectuate the Section
338(h)(10) Elections including, without limitation, IRS Form 8023 or
applicable successor form, and any similar forms on applicable successor
forms under applicable state or local income tax laws (the "Section
338(h)(10) Forms"). Seller shall cooperate in good faith with Buyer and
shall promptly file with Buyer all information reasonably requested by
Buyer and relevant to the preparation of the Section 338(h)(10) Forms.
Seller and Buyer shall attempt in good faith to execute at or prior to the
Closing any and all such Section 338(h)(10) Forms. In the event, however,
any Section 338(h)(10) Forms are not executed at the Closing, at least 45
days prior to the latest date for the filing of such Section 338(h)(10)
Forms, Buyer shall furnish Seller with a copy of each such form for its
review and comment, together with Buyer's proposed determination of the
MADSP (as defined in applicable Treasury Regulations under Section 338) and
allocation of the MADSP to the assets of the Company and other relevant
items (the "Allocation").
(4) Buyer and Seller agree to consult in good faith
with regard to the proposed determination of the MADSP and the Allocation,
provided that Seller shall accept Buyer's final determination of the MADSP
and the Allocation (which Buyer shall provide to Seller at least fifteen
days prior to the due date for filing of the Section 338(h)(10) Forms), to
the extent that they are reasonable and consistent with applicable Tax law.
Seller and Buyer will reflect such Allocation in all applicable Tax Returns
filed by any of them, including but not limited to the Section 338(h)(10)
Forms. Seller, Buyer, and the Company shall not take a position before any
Tax authority or otherwise (including in any Tax Return) inconsistent with
the Buyer's determination of the MADSP and the Allocation unless and to the
extent required to do so pursuant to a determination (as defined in Section
1313(a) of the Code or any similar state or local law).
(e) Assistance and Cooperation.
--------------------------
(1) From and after the Closing Date, to the extent
reasonably requested by the other party, Seller and Buyer shall assist and
cooperate with the other party in the preparation of any Tax Return which
the other party is responsible to file pursuant to Section 4.09(b) herein
and shall assist and cooperate with the other party in preparing for any
audits or disputes relating to Taxes for which the other party is
responsible pursuant to this Agreement. From and after the Closing Date,
Seller and Buyer shall, pursuant to the other party's reasonable request,
make available to the other party all information, records and documents
reasonably available to that party which are necessary for the preparation
of any Tax Return or resolution of any audit or dispute. In all such cases,
the party seeking assistance or cooperation shall bear the expenses of the
other party incurred in connection with respect thereto.
(2) From and after the Closing Date, Seller and Buyer
shall provide timely notice to the other in writing of any pending or
threatened tax audits or assessments of the Company for Taxable periods for
which the other is liable under this Agreement, and shall furnish the other
with copies of all correspondence received from any taxing authority in
connection with any tax audit or information request with respect to any
such Taxable period.
(f) Certain Taxes. Seller shall bear, and shall indemnify
and hold harmless Buyer and its affiliates (including the Company) from and
against, all sales, transfer, stamp, documentary, real estate transfer,
real estate gains, and other similar Taxes incurred in connection with the
transactions contemplated by this Agreement. Seller shall timely file any
Returns required to be filed in connection with such Taxes, and Buyer shall
cooperate with Seller in such preparation.
(g) Contests.
--------
(1) Subject to the provisions of this Section 4.09(g)
Seller shall have the right, at its own expense, to control, manage and be
responsible for any audit, contest, or similar proceeding with respect to
Income Taxes for any Taxable year or period ending on or before the Closing
Date and shall have the right to settle or contest in its discretion any
such audit, contest or proceeding; provided, however, that (i) Seller shall
not have the right to control any such proceeding unless it first
acknowledges in writing its obligation to fully indemnify Buyer for the
Taxes at issue in the proceeding; (ii) no settlement or disposition of any
such proceeding shall be made without Buyer's consent (which consent shall
not be unreasonably withheld) if the same reasonably could be expected to
affect Buyer's liability for Tax in any Taxable period or portion of a
Taxable period ending after the Closing Date; (iii) Buyer and Seller shall
jointly control any Income Tax proceeding relating to a Taxable period that
begins before, and ends after, the Closing Date; and (iv) Buyer shall have
the right to attend and participate in (but not control) at its own
expense, any proceeding to the extent that it relates to Income Taxes,
other than Income Taxes for which the Company filed a Tax Return as part of
the consolidated, combined, or unitary group of which Seller is the common
parent. Notwithstanding the foregoing, the written acknowledgment referred
to in clause (g)(1)(i) above shall not be required with respect to routine
Income Tax audits of the combined, consolidated or unitary group of which
Seller is the common parent and in which the relevant taxing authority has
not proceeded against or otherwise separately involved Buyer or the
Company.
(2) Except for proceedings the control of which is
determined pursuant to Section 4.09(g)(1) above, Buyer shall, at its own
expense, control, manage and solely be responsible for any audit, contest,
claim, proceeding or inquiry with respect to Income Taxes for any Taxable
year or period ending after the Closing Date, and shall have the exclusive
right to settle or contest any such audit, contest, claim, proceeding or
inquiry without the consent of any other party.
(h) Tax Refunds.
-----------
(i) Buyer shall consider in good faith any requests by
Seller for Buyer to pursue a refund claim for a Taxable period ending on or
prior to the Closing Date. If Buyer consents (which consent shall not be
unreasonably withheld), Buyer and Seller shall cooperate, at Seller's
expense, to obtain any Tax refunds to which Seller is entitled under clause
(h)(ii) below, provided that Buyer determines, in its reasonable judgment,
that such refund claim would not adversely affect Buyer or the Company for
any Taxable period ending subsequent to the Closing Date. Buyer shall remit
to Seller the amount of any such refund (reduced by any costs and expenses
described in clause (h)(ii)) promptly upon receipt of such refund. If any
refund received and remitted to Seller subsequently must be returned to the
relevant taxing authority or is otherwise determined to be improper or
invalid, Seller shall promptly return such amount to Buyer, and shall
indemnify Buyer and the Company against any interest, penalties, or other
Losses incurred with respect thereto.
(ii) All Income Tax and Miscellaneous Tax refunds,
reduced by (x) any Tax cost to Buyer or the Company arising, directly or
indirectly, from obtaining such refunds, (y) any other expenses of Buyer or
the Company incurred with respect to obtaining such refunds and (z) in the
case of any Miscellaneous Tax, 50% of the Reserve Amount (as defined in
Section 4.09(a)(1)) with respect to any such refunded Tax attributable to
the Reserve Amount, which refunds are received by the Company with respect
to Taxable periods (or portions of Taxable periods) ending on or prior to
the Closing Date, shall be for the account of Seller. All Tax refunds
(other than Income Tax and Miscellaneous Tax refunds) received for Taxable
periods (or portions thereof) ending on or prior to the Closing Date, shall
be allocated as follows: any refunds of items reserved against, or
reflected as an asset, on the Closing Balance Sheet shall be retained by
Buyer, and any other Tax refunds, reduced by the costs and expenses
described in clauses (x) and (y) above, shall be for the account of Seller.
4.10. Corporate Name.
--------------
(a) License. Seller hereby grants to Buyer and the Company a
royalty-free, non-exclusive license to use the name and logo "K-C Aviation"
(the "Corporate Name") in the conduct of the Business for a period of two
years after the Closing Date (the "License"). Buyer and the Company shall
cease all use of the Corporate Name on or prior to the expiration of the
License, including but not limited to the use of the Corporate Name on
signs, vehicles, letterhead and all other stationery, promotional and
advertising materials, invoices, uniforms and in telephone and business
directories. Buyer and the Company shall have no ownership or equitable
rights in the Corporate Name.
(b) Quality Control. Buyer and the Company shall comply in
all material respects with the quality control standards and specifications
of the Company (in respect of the Business) that are in place on the date
hereof for use of the Corporate Name and shall comply in all material
respects with all applicable governmental statutes, regulations and
ordinances governing the goods and services offered by the Business to the
extent involving the Corporate Name.
(c) No Affiliation with Seller. At no time at and after the
Closing Date shall any of Buyer, the Company or their respective
affiliates, directly or indirectly, represent itself to any other person or
entity as being owned or controlled by or affiliated or associated with
Seller or its affiliates.
4.11. Cash Management. (a) As part of the cash management program
of the Company, the Company maintains disbursement checking accounts (the
"Disbursement Accounts") from which checks and drafts in respect of the
Business are drawn and are funded by the Company. No later than one
business day prior to the Closing Date, Seller shall deliver to Buyer a
written estimate (the "Estimated Overdraft") of the checks and drafts in
respect of the Business that will have been written on the Disbursement
Accounts but not presented for payment as of the close of business on the
day immediately preceding the Closing Date (the "Outstanding Checks"). At
the Closing, Seller shall transfer to a separate interest bearing account
(the "Settlement Account"), opened by Buyer, an amount equal to the
Estimated Overdraft. Within ten business days after the Closing, Buyer
shall advise Seller in writing as to the actual amount of the Outstanding
Checks that have been duly honored for payment (the "Actual Overdraft"). If
the Actual Overdraft exceeds the Estimated Overdraft, Seller shall pay to
Buyer, within two business days of receipt of such advice, the amount of
such excess. Within two business days of the determination of the Actual
Overdraft, Buyer shall close the Settlement Account and pay to Seller the
balance, if any, of such account, as reflected on the closing statement
delivered by Buyer's bank. Seller will be responsible for any Outstanding
Checks subsequently presented for payment. In the event that Outstanding
Checks are presented for payment following the determination of the Actual
Overdraft, Buyer shall send a notice to Seller of the amount of such
Outstanding Checks funded by Buyer or the Company and duly honored for
payment (together with reasonably sufficient evidence thereof), and Seller
shall pay to Buyer or the Company two business days after receipt of such
notice the amount set forth in such notice.
(b) Also as part of the cash management program of the
Company, the Company maintains wire collection and lockbox accounts with
one or more banks (the "Lockbox Accounts") into which wire transfers,
checks and drafts in respect of the Business are deposited. The cash
balances and payment rights contained in the Lockbox Accounts are swept on
a daily basis for the benefit of Seller as the sole stockholder of the
Company. Prior to the Closing Date, Seller will instruct the Company's
banks that have established Lockbox Accounts either (i) to cease sweeping
such accounts for the benefit of Seller (in the case of wire collection
accounts), or (ii) to redirect the checks and drafts received in respect of
the Business on and after the Closing Date to one or more bank accounts
designated by Buyer (in the case of checks and drafts accounts), in the
case of each of clauses (i) and (ii) effective as of the close of business
on the day immediately preceding the Closing Date, with the result that all
wire transfers, checks and drafts in respect of the Business that are
deposited in the Lockbox Accounts after the close of business on the day
immediately preceding the Closing Date will be for the benefit of Buyer.
4.12. Non-Competition Agreement. Seller agrees that for a period
of five years immediately following the Closing, Seller shall not, without
the prior written consent of the Company, (a) engage in any Competitive
Activity anywhere in the world (including, without limitation, anywhere in
the United States of America) or (b) except as set forth on Schedule 4.12,
directly or indirectly solicit for employment, any employee at the level of
supervisor or higher of the Company, except with respect to published
advertisements or other general solicitations not targeted toward a
specific individual. The parties hereto acknowledge and agree that (x)
Seller will receive substantial and valuable benefits under this Agreement
in consideration of the covenants and agreements of Seller set forth in
this Section 4.12, (y) Buyer would not have executed and delivered this
Agreement, or agreed to consummate the transactions contemplated hereby
upon the terms and conditions set forth in this Agreement, if Seller had
not entered into the covenants and agreements set forth in this Section
4.12 and (z) the parties intend that such agreements and covenants be
enforceable and that it would be grossly inequitable if a court or judicial
tribunal were to not enforce such covenants and agreements to the fullest
extent provided herein. "Competitive Activity" shall mean engaging in any
of the following activities: (i) directly or indirectly (x) controlling the
business operations of any Competitor or (y) owning any equity interests in
any Competitor (other than equity interests which are publicly traded and
do not exceed 5% of the particular class of interests then outstanding);
(ii) providing consulting services to any Competitor in connection with any
activity of the Competitor that competes with the Business; or (iii)
knowingly interfering with the business relationship between the Company
and any of its customers and suppliers. "Competitor" shall mean any entity
that is engaged in, or is engaged in owning or operating or acquiring
directly or indirectly one or more entities engaged in, the corporate jet
aircraft completion or services business. Notwithstanding the foregoing,
nothing contained in this Section 4.12, shall be deemed to prevent the
acquisition by Seller or any of its affiliates, by merger, stock or asset
purchase, or otherwise, of a controlling equity interest in, or all or
substantially all the assets of, any entity which owns, controls or
otherwise has an equity interest in a Competitor, provided that (A) the
Competitor's business operations do not represent more than ten percent
(10%) of such entity's consolidated sales during the immediately preceding
fiscal year or (B) Seller or the Competitor divests the portion of the
business that competes with the Company within six months following such
acquisition by Seller.
4.13. Transition Services. (a) In order to facilitate the
transition of the Business to Buyer, from the Closing Date to and including
the twelve month anniversary of the Closing Date (except with respect to
payroll services, which shall terminate in accordance with clause (b) of
this Section 4.13), Seller shall provide to the Business the services set
forth in Schedule 4.13 (which are terminable on 30 days' prior written
notice to Seller by Buyer on a service-by-service basis), in consideration
for which Buyer shall cause the Company to pay Seller a fee equal to
Seller's actual costs and expenses (which shall include an allocation for
overhead in a manner consistent with past practice) of providing such
services (which may be mutually agreed by Seller and Buyer prior to the
time any such support services are so provided).
(b) Commencing on the date hereof, Buyer shall use its
commercially reasonable best efforts to transition the Company's payroll
services from Seller to Buyer on the Closing Date. In the event that Buyer
is unable to transition the Company's payroll services on the Closing Date,
Buyer shall use its commercially reasonable best efforts to do so as soon
as practicable following the Closing Date, but in no event later than the
two-month anniversary of the Closing Date. Commencing on the date hereof,
Seller shall use its commercially reasonable best efforts to cooperate with
Buyer to transition the Company's payroll services to Buyer, including,
without limitation, by providing all information to Buyer that is necessary
in order to effect the transition of the Company's payroll services from
Seller to Buyer.
4.14. K-C Nevada, Inc. Prior to or contemporaneously with the
sale of the Stock to the Buyer, Seller shall cause all outstanding shares
of the Subsidiary held by the Company to be distributed to Seller as part
of a plan of complete liquidation pursuant to Section 332 of the Code.
Because this is a deemed liquidation for tax purposes, no documents will be
filed prior to the Closing with the Secretary of State of Delaware to
effectuate a dissolution or liquidation of the Company.
4.15. Kimberly-Clark Corporate Aircraft Services Agreement. On or
prior to the Closing Date, Seller and the Company shall enter into an
Amended and Restated Corporate Aircraft Services Agreement substantially in
the form attached hereto as Exhibit A.
4.16. Burn Testing Matter. Seller covenants and agrees with Buyer
to make payments to the Company following the Closing promptly upon being
invoiced for all work performed and services provided by the Company
following the Closing Date relating to, arising out of and in connection
with the Company's testing and remediation of aircraft and all related
matters arising out of Federal Aviation Administration regulations
regarding burn testing of materials that have been installed in aircraft
interiors and reflected in K-C Aviation Service Bulletin KCA-001 (the
"Bulletin"), and any other work and services which would have been required
on any aircraft if such aircraft were subject to such regulations and the
Bulletin (but this provision shall only apply to aircraft completed or
refurbished by the Company in a way that would give rise to a requirement
for remediation if such aircraft were subject to such FAA regulations and
the Bulletin) (the "Burn Testing Matter"). The payments shall be in amounts
sufficient to compensate the Company for its reasonable costs and expenses
relating to all such work and services (including an allocation for
overhead). Seller further covenants and agrees with Buyer that it will
indemnify Buyer and the Company and hold them harmless from and against all
Losses suffered by either of them or any of their affiliates relating to,
arising out of or in connection with the Burn Testing Matter not covered by
the first sentence of this Section 4.16, other than with respect to actions
of Buyer or the Company following the Closing which constitute gross
negligence or willful misconduct (other than such actions constituting
gross negligence or willful misconduct that are attributable to any action
taken by Seller (or the Company prior to the Closing). Between the date
hereof and the Closing Date, Seller shall cause the Company to not deviate
from its remediation schedule relating to the Burn Testing Matter. Buyer
covenants that the Company shall perform work and services after the
Closing pursuant to this Section 4.16 in a workmanlike manner.
4.17. Deferred Revenue. Notwithstanding anything in this
Agreement to the contrary, at the Closing, Seller shall cause the Company
to have cash on hand free of any Encumbrance in an amount equal to the
amount of the Adjusted Deferred Revenue of the Company as of the close of
business on the date immediately preceding the Closing Date (the "Closing
Adjusted Deferred Revenue"). None of such cash may be transferred or
otherwise disposed of in any manner prior to or at the consummation of the
transactions contemplated hereby. At the Closing, Seller shall deliver to
Buyer a certificate in form and substance reasonably acceptable to Buyer
stating Seller's reasonable best estimate of the Closing Adjusted Deferred
Revenue and including calculations setting forth the basis for such
estimate and the basis for any estimates made by Seller in connection with
determining the Completion Percentage, the Contract Price and the Contract
Profit. Buyer shall review such certificate within 30 days following the
Closing Date. If Buyer determines that Seller did not cause the Company to
have cash on hand in an amount equal to the Closing Adjusted Deferred
Revenue at the Closing, Buyer shall notify Seller to that effect within
such 30-day period. If Seller disputes Buyer's notice, an arbiter shall be
selected in accordance with the third and fourth sentences of Section
1.04(c), and such arbiter shall make a determination as to whether Seller
shall be required to pay Buyer cash in an amount sufficient to make up any
deficiency in the cash required to be on hand at the Closing. All
calculations and estimates made under this Section 4.17 shall be made in
accordance with GAAP. The fees, costs and expenses of the arbiter (i) shall
be borne by Buyer in the proportion that the aggregate dollar amount of
such disputed items so submitted that are unsuccessfully disputed by Buyer
(as finally determined by the arbiter) bears to the aggregate dollar amount
of such items so submitted and (ii) shall be borne by Seller in the
proportion that the aggregate dollar amount of such disputed items so
submitted that are successfully disputed by Buyer (as finally determined by
the arbiter) bears to the aggregate dollar amount of such items so
submitted. The Closing Adjusted Deferred Revenue shall in no event be less
than zero.
"Adjusted Deferred Revenue" shall mean the sum, for all ongoing
agreements or arrangements with customers for which customer payments which
would be accounted for by the Company as Deferred Revenue have been or will
be received as of the close of business on the day immediately preceding
the Closing Date ("Customer Contracts"), of (A) payments received with
respect to each Customer Contract, which will be classified and reported as
"Deferred Revenue" on the Closing Balance Sheet, less (B) the sum of (i)
the "Direct Cost of Sales" plus (ii) allocated "Manufacturing Overhead"
(each as determined pursuant to a methodology consistent with the
information contained in the K-C Aviation Inc. - Total May 1998 Forecast
Income Statement (including the historical information contained therein)
previously provided to Buyer and the Financial Statements) accumulated with
respect to such Customer Contract as of the close of business on the day
immediately preceding the Closing Date (the sum of clauses (i) and (ii),
the "Accumulated Costs"), plus (iii) the Earned Profit for such Customer
Contract as of the close of business on the day immediately preceding the
Closing Date.
"Completion Percentage" shall mean, with respect to any Customer
Contract, (A) the Accumulated Costs, divided by (B) the reasonable best
estimate of the sum of (i) "Direct Cost of Sales" plus (ii) allocated
"Manufacturing Overhead" for the Customer Contract, in each case as of the
date of completion of all work and services required to be performed under
the Customer Contract (such sum, the "Total Cost").
"Contract Price" shall mean, with respect to any Customer
Contract, the total net sales price payable in respect of such Customer
Contract, as adjusted to reflect changes through and including the close of
business on the day immediately preceding the Closing Date.
"Contract Profit" shall mean, with respect to any Customer
Contract, (A) the Contract Price less (B) the Total Cost for such Customer
Contract.
"Earned Profit" shall mean, with respect to any Customer
Contract, the Contract Profit multiplied by the Completion Percentage.
4.18. Delivery of Cash Flow Statements. Within 30 days following
the date hereof, but in any event prior to the Closing, Seller shall
deliver to Buyer a certificate attaching unaudited pro forma statements of
cash flows of the Company for the twelve month period ended December 31,
1997 and the five month period ended May 31, 1998 (the "Cash Flow
Certificate"). The Cash Flow Certificate shall certify that (i) the
attached statements of cash flows fairly present in all material respects
the cash flows of the Company for the respective periods indicated therein
and have been prepared in conformity with GAAP consistently applied and on
a basis consistent with the Financial Statements, (ii) all adjustments to
Seller's financial statements which affect the Company's cash flows have
been reflected in the attached statements of cash flows, (iii) all of the
items of cash flow or items which affect cash flow reflected in the
attached statements of cash flows are related to the Business and arose out
of and were incurred in the ordinary course of Business and (iv) all
related party transactions have been accounted for by use of consistent
accounting policies and methodologies which would not affect the
comparability of such financial information in any material way. For all
purposes of this Agreement and the Cash Flow Certificate, the
certifications contained in the Cash Flow Certificate shall be treated as
representations and warranties of Seller, including, without limitation,
for purposes of the closing condition set forth in Section 5.01 hereof and
the indemnification provisions contained in Article IX hereof.
4.19. Seller's Insurance. The parties acknowledge that Buyer, the
Company or their affiliates may suffer or incur Losses that are covered by
insurance policies of Seller for matters arising out of occurrences taking
place prior to the Closing ("Pre-Closing Insured Matters"), whether or not
such Pre-Closing Insured Matters are reported prior to the Closing. Seller
agrees that, at the request of Buyer or the Company, it will assign its
right to pursue any claim with respect to any Pre-Closing Insured Matter to
Buyer or the Company if such assignment is permitted by the applicable
policy and otherwise will use its commercially reasonable best efforts to
pursue any claim against Seller's insurers on behalf of Buyer or the
Company. Seller shall promptly upon receipt pay over to Buyer or the
Company the amount received under any insurance policy of Seller relating
to a Pre-Closing Insured Matter. Seller shall not amend or modify its
insurance policies covering Pre-Closing Insured Matters in any way that
would adversely affect the coverage of Pre-Closing Insurance Matters.
Notwithstanding anything contained in this Agreement to the contrary,
Seller shall indemnify and hold harmless Buyer, the Company and their
affiliates from and against any and all Losses any of them may suffer or
incur arising out of or by reason of any Pre-Closing Insured Matter with
respect to which Seller is in whole or in part as of the date hereof or as
of the Closing Date self insured, including without limitation, Damage and
Business Interruption Insurance, Workers Compensation Insurance and
Automobile Liability Insurance. Buyer and Seller shall cooperate with each
other in respect of Pre-Closing Insurance Matters and any claim made to
Seller's insurer in connection therewith, and each shall use its
commercially reasonable best efforts to comply with any reasonable request
of the other intended to accomplish the purposes of this Section 4.19.
4.20. AIM System Software Licenses. In the event that the consent
of any owner or licensor of any software licensed by Seller for the
purposes of supporting the AIM system requires any additional fee or
payment in order to obtain such consent or extend such license to the
Company, Seller hereby agrees to pay such fee or make such payment, except
for any maintenance fee obligations which, in the aggregate, do not exceed
$30,000 per year, which maintenance fees (up to such $30,000 amount per
year) shall be the responsibility of Buyer.
ARTICLE V
CONDITIONS TO BUYER'S OBLIGATIONS
---------------------------------
The obligation of Buyer to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction (or
waiver) on or prior to the Closing Date of all of the following conditions:
5.01. Representations, Warranties and Covenants of Seller. Seller
shall have complied in all material respects with its agreements and
covenants contained herein to be performed on or prior to the Closing Date,
and the representations and warranties of Seller contained herein in the
aggregate shall be true in all material respects on and as of the Closing
Date with the same effect as though made on and as of the Closing Date,
except (a) as otherwise contemplated hereby, and (b) to the extent that any
such representations and warranties were made as of a specified date and as
to such representations and warranties the same shall continue on the
Closing Date to have been true in all material respects as of the specified
date. Solely for purposes of the preceding sentence, specific material
adverse effect and materiality qualifiers contained in individual
representations and warranties shall be disregarded. Buyer shall have
received a certificate of Seller, dated as of the Closing Date and signed
by an officer of Seller, certifying as to the fulfillment of the condition
set forth in this Section 5.01.
5.02. No Prohibition. No statute, rule or regulation or order of
any court or administrative agency shall be in effect which prohibits Buyer
from consummating the transactions contemplated hereby.
5.03. Consents. The applicable waiting period under the HSR Act
shall have expired or been terminated and all other consents, approvals,
authorizations, exemptions and waivers from governmental agencies that
shall be required for the consummation of the transactions contemplated
hereby, and the consents, approvals, authorizations, exemptions and waivers
of third parties listed in Schedule 5.03, shall have been obtained in form
and substance reasonably satisfactory to the Buyer.
5.04. No Material Adverse Change. Since May 31, 1998, neither the
Company nor any of the Subsidiaries shall have suffered any material
adverse change in the business, assets, liabilities or results of
operations of the Company.
ARTICLE VI
CONDITIONS TO SELLER'S OBLIGATIONS
----------------------------------
The obligation of Seller to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction (or
waiver) on or prior to the Closing Date of all of the following conditions:
6.01. Representations, Warranties and Covenants of Buyer. Buyer
shall have complied in all material respects with its agreements and
covenants contained herein to be performed on or prior to the Closing Date,
and the representations and warranties of Buyer contained herein in the
aggregate shall be true in all material respects on and as of the Closing
Date with the same effect as though made on and as of the Closing Date,
except (a) as otherwise contemplated hereby, and (b) to the extent that any
such representations and warranties were made as of a specified date and as
to such representations and warranties the same shall continue on the
Closing Date to have been true in all material respects as of the specified
date. Solely for purposes of the preceding sentence, specific material
adverse effect and materiality qualifiers contained in individual
representations and warranties shall be disregarded. Seller shall have
received a certificate of Buyer, dated as of the Closing Date and signed by
an officer of Buyer, certifying as to the fulfillment of the condition set
forth in this Section 6.01.
6.02. No Prohibition. No statute, rule or regulation or order of
any court or administrative agency shall be in effect which prohibits
Seller from consummating the transactions contemplated hereby.
6.03. HSR Act. The applicable waiting period under the HSR Act
shall have expired or been terminated.
ARTICLE VII
EMPLOYMENT AND EMPLOYEE BENEFITS ARRANGEMENTS
---------------------------------------------
7.01. Employment. On and after the Closing Date, Buyer shall
cause the Company to continue to employ all employees of the Company and to
offer to employ any employees of Seller listed on Schedule 7.01 hereto
(including any such employee who is then an inactive employee on approved
medical, non-medical or short-term disability or weekly disability income
leave of absence or absent from active employment due to occupational
illness or injury covered by workers compensation but excluding employees
not actively at work on account of a long-term disability leave of absence)
(the "Active Employees") and to provide all Active Employees salaries at
substantially the same levels as those in effect immediately prior to the
Closing Date; provided, however, that the foregoing shall not prohibit or
otherwise limit the Company's right after the Closing to terminate the
employment of any Active Employee or to change the level of salary provided
to any Active Employee. The persons listed on Schedule 7.01 shall be deemed
to be employees of the Company for all purposes of this Agreement.
7.02. Stay Bonuses. Seller shall retain all liabilities and
obligations for payment of bonuses or similar payments to Active Employees
pursuant to retention or similar agreements, whether or not written,
between Seller or the Company and Active Employees.
7.03. Benefit Plans. For a period of at least one (1) year
following the Closing Date, Buyer shall, or shall cause the Company to,
provide employee benefits to the Active Employees which are comparable in
the aggregate, for the Active Employees as a group, to the employee
benefits currently provided to such Active Employees as a group by Seller
under the Company Benefit Plans (excluding the Equity Participation Plan,
the Global Stock Option Plan or any other Company Benefit Plans which
provide for the grant of stock options); provided, however, that for this
purpose (i) service with the Company prior to the Closing Date will not be
taken into account and (ii) the Active Employees who are participants in
the Kimberly-Clark Retirement Contribution Plan shall be deemed to be
participants instead in the Kimberly-Clark Salaried Employees' Retirement
Plan. Buyer shall, or shall cause the Company to, (a) for a period of at
least one (1) year following the Closing Date, establish and maintain for
the benefit of Active Employees, a severance pay plan providing benefits
which are no less than the benefits provided to such employees under the
Kimberly-Clark Corporation Severance Pay Plan as in effect on the date
hereof, a copy of which has been provided to Buyer, and (b) establish a
plan providing post retirement benefits for the Active Employees (other
than the Eligible Actives) that is designed such that the APBO for those
Active Employees (determined in accordance with FAS 106 and based on the
Agreed Assumptions) as of the Closing Date will at least equal the FAS 106
Closing Balance Sheet Liability.
In addition, Buyer shall, or shall cause the Company to, provide
that in the event any Active Employee listed on Schedule 7.03 is
involuntarily terminated other than for cause (which shall include, without
limitation, such employee not devoting substantially all of his business
time and attention to the performance of his duties to the Company) during
the six (6) month period following the Closing Date (the "Employment
Period"), the Company shall continue to pay such former employee's base
salary for the remainder of the Employment Period (such payments to be in
addition to any payment such former employee may be entitled to under any
severance pay plan of the Company). With respect to any employee benefit
plan of Buyer, Buyer shall, and shall cause the Company to (x) grant all
Active Employees after the Closing Date credit for all service with Seller
and its affiliates (including the Company) prior to the Closing Date for
purposes of eligibility and vesting and (y) waive any pre-existing
condition exclusions with respect to Active Employees. Notwithstanding the
foregoing provisions of this Section 7.03, Buyer shall have no obligation
to provide post retirement health and life insurance benefits to any Active
Employee who would be eligible to receive post retirement health and life
insurance benefits under a Company Benefit Plan if he or she retired as of
the Closing Date (an "Active Eligible" and collectively, the "Active
Eligibles").
7.04. Benefit Liabilities. Seller shall retain all assets (other
than assets which are reflected on the May 31 Balance Sheet), liabilities
and obligations under the Company Benefit Plans and Employee Agreements
with respect to Employees and their dependents and beneficiaries,
including, but not limited to, (i) assets, liabilities and obligations for
benefits, compensation, contributions, insurance and health maintenance
organization premiums and administrative expenses, whether incurred or
accrued before, on or after the Closing Date, and whether or not reported
as of the Closing Date, except that the Company shall assume the liability
for vacation pay that is accrued during calendar year 1998 and subsequent
years and that is eligible to be taken or paid during calendar year 1999
and subsequent years, (ii) liabilities and obligations arising under the
continuation coverage requirements of Section 4980B of the Code and Section
601 of ERISA with respect to all Employees (or any beneficiary or dependent
of any Employee) who, as of the Closing Date, have exercised or are
eligible to exercise their right to such continuation coverage and (iii)
liabilities and obligations to provide post retirement health and life
insurance benefits to Employees who are retired as of the Closing Date and
Active Eligibles who, in accordance with the applicable Seller Retirement
Plan, elect to retire as of the Closing Date (it being understood, subject
to the last sentence of this Section 7.04 and in accordance with the
provisions of the applicable Company Benefit Plan, that such an Active
Eligible will, upon making an appropriate election, be eligible for post
retirement health and life insurance benefits subject to and in accordance
with the provisions of the applicable Company Benefit Plan even though he
or she does not commence such benefits at the time he or she retires under
the applicable Seller Retirement Plan and continues in employment with the
Company after the Closing Date). Seller shall not amend or terminate its
post retirement health and life insurance benefit plans with respect to the
Active Eligibles unless such amendment or termination applies generally to
similarly situated salaried retirees of the Seller's then current business
units.
7.05. Seller's Retirement Plans. As of the Closing Date, Seller
shall cause each Active Employee to become fully vested in his or her
accrued benefit or account balance, as applicable under each of the
Kimberly-Clark Corporation Salaried Employees' Retirement Plan,
Kimberly-Clark Corporation Retirement Contribution Plan, the Kimberly-Clark
Corporation Retirement Contribution Excess Benefit Program, the
Kimberly-Clark Corporation Salaried Employees Incentive Investment Plan,
the Kimberly-Clark Corporation Supplemental Benefit Plan and the
Kimberly-Clark Corporation Second Supplemental Benefit Plan (collectively,
"Seller's Retirement Plans").
7.06. Equity-Based Plans. As of the Closing Date, Seller shall
cause each Active Employee's participation under the Kimberly-Clark
Corporation 1992 Equity Participation Plan (the "Equity Participation
Plan") and the Kimberly-Clark Corporation Global Stock Option Plan to
terminate, and to the extent outstanding awards are or become vested in
connection with the transaction contemplated in this Agreement, such awards
shall be exercisable (or payable in the case of Participation Share awards
under the Equity Participation Plan) subject to and in accordance with the
applicable terms of each such plan and the administrative rules thereunder
as in effect on the date hereof, copies of which have been provided to
Buyer. The transaction contemplated by this Agreement shall constitute a
"layoff" under the Kimberly-Clark Corporation Global Stock Option Plan
Committee Rules, as in effect on the date hereof, a copy of which has been
provided to Buyer.
7.07. Long-Term Disability. If an employee who would have been an
Active Employee had he or she not been on a long-term disability leave of
absence on the Closing Date ("Disabled Employee") (each of whom is set
forth in Schedule 7.07) is released to work within one year after the
Closing Date, Buyer shall, or shall cause the Company to, (i) use
commercially reasonable efforts to offer such Disabled Employee a job
suitable to his or her abilities and limitations or (ii) if no such job is
offered, and subject to the Disabled Employee executing a customary release
of claims in favor of Seller, the Company and their respective affiliates,
pay severance benefits, if any, which may be owed under any applicable
severance plans of Buyer or the Company at such time. Each Disabled
Employee who returns to work with Buyer or the Company pursuant to this
section will be entitled to the status of an Active Employee under this
Agreement for purposes of crediting past service (but not crediting past
service for the period between the Closing Date and the date of return to
employment) and eligibility for benefits then available to similarly
situated Active Employees.
7.08. Indemnity for Non-Assumed Employee Related Liabilities.
Except for liabilities and obligations expressly assumed by Buyer pursuant
to this Article VII, Seller shall indemnify and hold harmless Buyer against
any and all Losses which may be incurred by Buyer arising out of or
relating to the funding, operation, administration, amendment, termination
of, withdrawal or partial withdrawal from, any Company Benefit Plan or any
other "employee benefit plan" (within the meaning of Section 3(3) of ERISA)
established, maintained or contributed to by Seller or any ERISA Affiliate,
whether arising out of or relating to any event or state of facts occurring
or existing before, on or after the Closing Date, and including, but not
limited to, Losses arising under Title IV of ERISA, Section 302 of ERISA
and Sections 412 and 4971 of the Code.
7.09. Buyer's Option Plan. Buyer agrees that, subject to the
approval of the committee responsible for administering the Buyer's stock
option plan (the "Buyer's Option Plan"), the Active Employees listed on
Schedule 7.09 shall be afforded the opportunity to participate in Buyer's
Option Plan at a level commensurate with such Active Employee's position
with Buyer.
7.10. Absence of Restrictions. Except as expressly set forth in
this Article VII, nothing in this Agreement shall be construed to prohibit
or limit the ability of either party to amend or terminate any employee
benefit plans, programs or policies maintained or established by them or
their respective affiliates at any time.
ARTICLE VIII
TERMINATION PRIOR TO CLOSING
----------------------------
8.01. Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) By the mutual written consent of Buyer and Seller; or
(b) By either Seller or Buyer in writing, if the Closing
shall not have occurred on or before December 31, 1998; or
(c) By either Seller or Buyer in writing, if there shall
have been a material breach by the other party of any of its covenants or
agreements contained herein (which breach has not been cured within 15 days
of receipt of written notice thereof from the party seeking to terminate
the Agreement) and any such breach results in a failure to satisfy a
condition to the terminating party's obligation to consummate the
transactions provided herein.
8.02. Effect on Obligations. Termination of this Agreement
pursuant to this Article VIII shall terminate all obligations of the
parties hereunder, except for the obligations under Sections 9.11, 9.12 and
9.13, the last sentence of Section 4.03 and this Section 8.02; provided,
however, that nothing shall relieve the defaulting or breaching party
(whether or not it is the terminating party) from any liability to the
other party hereto.
ARTICLE IX
MISCELLANEOUS
-------------
9.01. Survival. The representations and warranties of the parties
hereto contained herein or in any agreement, certificate or other document
executed by either party at or prior to the Closing in connection herewith
(an "Ancillary Document") shall expire on the eighteen month anniversary of
the Closing Date, except that the representations and warranties set forth
in Sections 2.01 and 2.14 of this Agreement shall survive the Closing Date
until the expiration of the applicable statute of limitations (including
any extensions thereof), and the representations and warranties set forth
in Section 2.12 shall expire on the fifth anniversary of the Closing Date.
The agreement to indemnify set forth in Section 9.02(b)(v) shall expire on
the fifth anniversary of the Closing Date. After the expiration of such
periods, any claim by a party hereto based upon any such representation or
warranty or the agreement to indemnify set forth in Section 9.02(b)(v)
shall be of no further force and effect, except to the extent a party has
asserted a claim in accordance with this Article IX for breach of any such
representation or warranty or agreement to indemnify prior to the
expiration of such period, in which event any representation or warranty or
agreement to indemnify to which such claim relates shall survive with
respect to such claim until such claim is resolved as provided in this
Article IX. All covenants and agreements of the parties hereto shall
survive the Closing until performed in accordance with their terms.
9.02. Agreement to Indemnify. (a) From and after the Closing
Date, subject to Section 9.01, Buyer shall indemnify, defend and hold
harmless Seller and any affiliate of Seller and each of Seller's respective
directors, officers, employees, agents and representatives, and each of the
heirs, executors, successors and assigns of any of the foregoing
(collectively, "Seller's Indemnified Group") from and against any
liability, loss, damage, penalty, fine, claim (including third-party
claims, whether or not meritorious), cost or expense (including, without
limitation, reasonable attorneys' and experts' fees and disbursements)
(collectively, "Seller's Losses") incurred or suffered by Seller's
Indemnified Group to the extent Seller's Losses arise out of, or result
from (i) the failure of any representation or warranty made by Buyer herein
or in any Ancillary Document to have been true when made and as of the
Closing Date, (ii) the breach of any covenant or agreement of Buyer
contained herein or in any Ancillary Document or (iii) Buyer's or the
Company's use of the Corporate Name following the Closing (but with respect
to this clause (iii) only for out-of-pocket costs and expenses).
(b) From and after the Closing Date, subject to Section
9.01, Seller shall indemnify, defend and hold harmless Buyer and any
affiliate of Buyer and each of Buyer's respective directors, officers,
employees, agents and representatives, and each of the heirs, executors,
successors and assigns of any of the foregoing (collectively, "Buyer's
Indemnified Group") from and against any liability, loss, damage
(including, without limitation, natural resource damages), penalty, fine,
claim (including third-party claims, whether or not meritorious), cost
(including, without limitation, investigation, cleanup, removal or other
response costs relating to Environmental Matters) or expense (including,
without limitation, reasonable attorneys', consultants' and experts' fees
and disbursements) (collectively, "Losses") incurred or suffered by Buyer's
Indemnified Group to the extent the Losses arise out of, or result from (i)
the failure of any representation or warranty made by Seller herein or in
any Ancillary Document to have been true when made and as of the Closing
Date, (ii) the breach of any covenant or agreement of Seller contained
herein or in any Ancillary Document, (iii) any asset, property, right,
obligation or liability of the Company arising out of the Subsidiary (or
the distribution of the capital stock of the Subsidiary) or any
discontinued operation of or business sold by the Company or the
Subsidiary, (iv) the transportation, disposal, or arranging for the
disposal at any offsite location of any Hazardous Substances used,
generated or stored by the Company or any predecessor thereof prior to the
Closing Date, (v) subject to Section 9.04(c), the implementation of any
actions (including, without limitation, in response to any audit by the
Massachusetts Department of Environmental Protection) in accordance with
the Massachusetts Contingency Plan, 310 C.M.R. 40.0000 ("MCP"), necessary
to achieve a Response Action Outcome (as defined in the MCP) constituting a
Permanent Solution (as defined in the MCP) with respect to any
contamination in the soil or groundwater at, on, about, under or within, or
which has migrated to or from, the Company's Westfield, Massachusetts
Facility (including Real Property thereof) (the "Westfield Facility") as of
the Closing Date ("Existing Contamination"), including any Existing
Contamination which migrates from the Westfield Facility after the Closing
Date, or claims brought by third parties relating to any such
contamination, to the extent Losses exceed the reserve for such actions
reflected on the May 31 Balance Sheet , (vi) any matter relating to or
arising out of item 3 in Schedule 2.09, (vii) any severance obligations of
Buyer or the Company arising at any time under Section 7.07 or otherwise
with respect to the first individual listed in Schedule 7.07, or (viii) the
FAS 106 Liability, but only to the extent such liability exceeds
$4,000,000, in which case Seller shall be liable only for the portion of
the liability exceeding $4,000,000.
9.03. Indemnification Procedure. (a) The party seeking
indemnification under this Agreement (the "Indemnified Party") shall
promptly notify the party from which indemnification is being sought (the
"Indemnifying Party") of the facts and circumstances upon which the
Indemnified Party intends to base a claim for indemnification hereunder
("Notices"). Notice shall in all events be considered prompt if given (1)
no later than 15 days after the Indemnified Party learns of the facts upon
which it will claim such indemnification or (2) if earlier, in sufficient
time to allow the Indemnifying Party to exercise its rights pursuant to
this Section 9.03; provided, however, that the failure to provide such
Notice of claims promptly (so long as a notice of claims is given before
the date on which the applicable representation or warranty ceases to
survive) shall not affect the obligations of the Indemnifying Party
hereunder except to the extent the Indemnifying Party is prejudiced
thereby. The Indemnifying Party shall have the right, at its own cost, to
participate jointly in the defense of any third-party claim, demand,
lawsuit or other proceeding in connection with which the Indemnified Party
has claimed indemnification hereunder, and may elect to take over the
defense of such claim within 10 business days following Notice thereof upon
its written unconditional acknowledgment of its obligation to indemnify the
Indemnified Party with respect to such claim; provided, however, that Buyer
shall be permitted, at its option, to require that Seller shall not take
over the defense of any claim brought by any customer or supplier of the
Business against any member of Buyer's Indemnified Group for which
indemnification is available pursuant to this Article IX, and upon exercise
of such option such member of Buyer's Indemnified Group shall defend such
claim, subject to the following conditions: (i) Seller shall be entitled,
in its sole discretion and at its expense, to engage counsel and to
participate in any discussions, meetings, negotiations and other
communications which may be held or conducted between such member of
Buyer's Indemnified Group and such customer or supplier, or their
respective counsels, with respect to such claim; (ii) such member of
Buyer's Indemnified Group shall consult with Seller before making or
communicating to such customer or supplier, or its counsel, any decisions
concerning such member's strategy or position with respect to the defense
of such claim; (iii) such member of Buyer's Indemnified Group shall not
settle or otherwise dispose of such claim without the consent of Seller,
which consent shall not be unreasonably withheld or delayed; and (iv) any
indemnification that is ultimately determined to be owing by Seller to such
member of Buyer's Indemnified Group as a result of the settlement or other
disposition of such claim (but only if the option to require that Seller
not take over the defense of such claim is exercised) shall be limited to
80% of the otherwise indemnifiable Loss with respect to such claim. If the
Indemnifying Party makes such an election, (x) it shall keep the
Indemnified Party informed as to the status of such matter and shall send
promptly copies of all pleadings to the Indemnified Party, (y) with respect
to any issue involved in such claim, it shall have the sole right, with
respect to claims or portions of claims seeking monetary damages only, to
settle or otherwise dispose of such claim on such terms as it, in its sole
discretion, shall deem appropriate; provided, however, that the consent of
the Indemnified Party to the settlement or disposition shall be required if
such settlement or disposition shall result in or would reasonably be
expected to result in any liability to, equitable relief against or adverse
business effect on the Indemnified Party, which consent shall not be
unreasonably withheld or delayed, and (z) the Indemnified Party shall have
the right to participate jointly in the defense of such claim, but shall do
so at its own cost not subject to reimbursement under Section 9.02. If the
Indemnifying Party does not elect to take over the defense of a third-party
claim, the Indemnified Party shall have the right to contest, compromise or
settle such claim in the exercise of its reasonable judgment; provided,
however, that the consent of the Indemnifying Party to any compromise or
settlement of such claim shall be required if such compromise or settlement
shall result in or would reasonably be expected to result in any liability
to the Indemnifying Party, which consent shall not be unreasonably withheld
or delayed.
(b) (i) With respect to Seller's indemnification obligations
pursuant to Section 9.02(b)(i) (but only with respect to breaches of
representations and warranties set forth in Section 2.12(a)(vii)) or
pursuant to Section 9.02(b)(iv), and subject to subsection (iii) below,
Seller shall manage and control all response actions and/or claims,
including, without limitation, the right to retain consultants and counsel,
to control all investigations, cleanup, response, remediation and
associated activities, and to negotiate, litigate, otherwise contest or
settle any claim relating thereto. Seller may settle any claim with respect
to any matters contemplated by this subsection (i), provided that such
settlement does not result in any impairment to the Business, or liability
or cost to, restrictions on or admission by Buyer.
(ii) With respect to Seller's indemnification obligations
pursuant to Section 9.02(b)(i) with respect to breaches of
representations and warranties set forth in Section 2.12 (other
than Section 2.12(a)(vii)) or pursuant to Section 9.02(b)(v), and
subject to subsection (iii) below, Buyer shall manage and control
all response actions and/or claims, including, without
limitation, the right to retain consultants and counsel, to
control all investigations, cleanup, response, remediation and
associated activities, and to negotiate, litigate, otherwise
contest or settle any claim relating thereto; provided, in the
case of any claims brought by private parties alleging common law
damage claims, Buyer agrees to consult with Seller in connection
with the formulation and implementation of any litigation
strategy. Buyer may settle any claim with respect to any matters
contemplated by this subsection (ii), provided Seller consents in
writing thereto, which consent shall not be unreasonably withheld
or delayed.
(iii) With respect to all matters contemplated by
subsections (i) and (ii) above, Buyer or Seller, as the case may
be, with respect to any matter managed and controlled by the
other, shall have the right to (i) participate, at its own
expense, in any meetings or material negotiations with
governmental agencies, private claimants or consultants and shall
be provided with reasonable advance written notice of the same;
and (ii) review in advance and provide comments on any documents
proposed to be submitted to governmental agencies or other
claimants.
(iv) Buyer and Seller each agree to cooperate with the other
to ensure that the obligations of Seller created by Section
9.02(b)(i) with respect to breaches of representations and
warranties set forth in Sections 2.12, 9.02(b)(iv) and 9.02(b)(v)
are carried out in a reasonably timely matter. Buyer and Seller
each agree to provide the other with such information as may be
reasonably requested in writing regarding such obligations,
including, without limitation, providing reasonable access to and
the right to copy all relevant data, records, studies, reports or
other documents. Buyer and Seller each agree to provide the other
with reasonable access to each other's employees on a mutually
convenient basis in connection with such efforts.
(c) Notwithstanding the provisions of Section 9.03(a), with
respect to any third-party claim or demand that the Indemnifying Party is
defending, the Indemnified Party shall have the right to retain separate
counsel to represent it and the Indemnifying Party shall pay the fees and
expenses of such separate counsel if the Indemnified Party receives and
certifies to Seller that it has received an opinion of counsel to the
effect that there exist sufficient conflicts that make it reasonably
necessary for separate counsel to represent the Indemnified Party and the
Indemnifying Party. The certificate shall attach a copy of such opinion.
9.04. Other Indemnification Matters. (a) With respect to Seller's
liability for claims made under clause (b)(i) of Section 9.02, Seller shall
have no liability for such claims until the aggregate amount of the Losses
incurred by Buyer's Indemnified Group shall exceed $2,500,000, in which
case Seller shall be liable only for the portion of the Losses exceeding
$2,500,000 (the "Deductible"), and in no event shall Seller's liability for
such claims exceed $75,000,000 in the aggregate (the "Cap"); provided,
however, that claims for breaches of any representations or warranties
contained in Section 2.01 shall not be subject to the Deductible or the
Cap, but will be limited in the aggregate to an amount equal to the
Purchase Price.
(b) Solely for purposes of the indemnification provisions
contained in this Article IX, the word "material" (or correlative meanings
thereof) contained in any individual representation or warranty contained
in this Agreement, or any covenant or agreement contained in Section 4.02
of this Agreement, shall be deemed to mean individually or in the aggregate
in excess of $500,000, and the words "material adverse effect" contained in
any individual representation or warranty contained in this Agreement, or
any covenant or agreement contained in Section 4.02 of this Agreement,
shall be deemed to mean individually or in the aggregate an effect that
exceeds $500,000. With respect to any breach or breaches of any such
individual representation or warranty contained in this Agreement, or any
such covenant or agreement contained in Section 4.02 of this Agreement,
which would not have been breached but for the provisions contained in the
immediately preceding sentence, such representation, warranty, covenant or
agreement shall be deemed not to have been breached to the extent such
breach is evident in, results from or is directly attributable to
information that was not disclosed in the Schedules hereto but was
disclosed in writing prior to the date hereof in the data room set up by
Seller at the offices of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. in
Dallas, Texas for purposes of Buyer's due diligence investigation of the
Company. The provisions contained in the immediately preceding sentence
relate only to information actually contained in such data room, with no
duty of due diligence or due inquiry on the part of Buyer with respect to
such information. An index of all of the documents contained in such data
room is attached as Exhibit B hereto. The provisions of this Section
9.04(b) shall have no effect with respect to the covenants and agreements
contained in Section 4.02 of this Agreement following the 18-month
anniversary of the Closing Date.
(c) The liability for claims made under clause (b)(v) of
Section 9.02 shall in no event exceed $2,000,000.
9.05. Interpretive Provisions. (a) Whenever used in this
Agreement, "to Seller's knowledge" or "to the knowledge of Seller" shall
mean the actual knowledge of the persons who are listed in Schedule 9.05.
(b) The words "hereof," "herein," "hereby" and "hereunder"
and words of similar import refer to this Agreement as a whole and not to
any particular Article, Section or other subdivision thereof.
(c) For purposes of this Agreement, the Company shall be
deemed to be an affiliate of Seller prior to the Closing and an affiliate
of Buyer after the Closing.
(d) Disclosure of a matter on any Schedule hereto shall be
deemed to be a disclosure for purposes of any other Schedule hereto (with
no obligation to cross-reference schedules or items contained on schedules)
if it is, or should be, reasonably evident that the disclosure should be
contained on such other Schedule.
(e) Notwithstanding any provision in this Agreement to the
contrary, an actual, pending or threatened loss of business or other
adverse effect on the Company or the Business, which, in either case, is
primarily attributable to the reactions of one or more suppliers to or
customers of the Business that are competitors of Buyer to the transactions
contemplated hereby because of the identity of Buyer, (i) shall not be
deemed to constitute a "material adverse effect," "material adverse
change," "material decrease or limitation" or comparable concept for
purposes of this Agreement, including but not limited to Sections 2.05,
2.16, 4.02, 5.01 and 5.04 hereof, and (ii) shall not be deemed to
constitute breaches of the representations or warranties contained in
Sections 2.21 or 2.22 hereof. For purposes of this clause (e), the term
"competitors" shall mean persons or entities that manufacture long-range
large-cabin business jet aircraft.
9.06. Entire Agreement. This Agreement (including the Schedules)
constitutes the sole understanding of the parties with respect to the
subject matter hereof.
9.07. Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto; provided, however, that this
Agreement may not be assigned by Buyer without the prior written consent of
Seller, except that Buyer may, at its election, assign this Agreement to
any direct or indirect wholly owned subsidiary so long as (a) the
representations and warranties of Buyer made herein are equally true of
such assignee and (b) such assignee shall execute a counterpart of this
Agreement agreeing to be bound by the provisions hereof as "Buyer," and
agreeing to be jointly and severally liable with the assignor and any other
assignee for all of the obligations of the assignor hereunder, but no such
assignment of this Agreement or any of the rights or obligations hereunder
shall relieve Buyer of its obligations under this Agreement.
Notwithstanding anything contained in this Agreement to the contrary,
nothing in this Agreement, express or implied, is intended to confer on any
person other than the parties hereto or their respective heirs, successors,
executors, administrators and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
9.08. Headings. The headings of the Articles, Sections and
paragraphs of this Agreement are inserted for convenience only and shall
not be deemed to constitute part of this Agreement or to affect the
construction hereof.
9.09. Modification and Waiver. No amendment, modification or
alteration of the terms or provisions of this Agreement shall be binding
unless the same shall be in writing and duly executed by the parties
hereto, except that any of the terms or provisions of this Agreement may be
waived in writing at any time by the party which is entitled to the
benefits of such waived terms or provisions. No waiver of any of the
provisions of this Agreement shall be deemed to or shall constitute a
waiver of any other provision hereof (whether or not similar). No delay on
the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof.
9.10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an
original and all of which shall constitute the same instrument.
9.11. Expenses. Except as otherwise provided herein, Seller and
Buyer shall each pay all costs and expenses incurred by it or on its behalf
in connection with this Agreement and the transactions contemplated hereby,
including, without limiting the generality of the foregoing, fees and
expenses of its own financial consultants, accountants and counsel.
9.12. Notices. Any notice, request, instruction or other document
to be given hereunder by any party hereto to any other party shall be in
writing and shall be given (and will be deemed to have been duly given upon
receipt) by delivery in person, by electronic facsimile transmission,
cable, telegram, telex or other standard forms of written
telecommunications, by overnight courier or by registered or certified
mail, postage prepaid,
if to Seller to:
Kimberly-Clark Corporation
1400 Holcomb Bridge Road
Roswell, Georgia 30076-2199
Telephone: (770) 587-8059
Facsimile: (770) 587-7749
Attention: Mr. Robert E. Abernathy
with a copy to:
Kimberly-Clark Corporation
351 Phelps Drive
Irving, Texas 75038
Telephone: (972) 281-1385
Facsimile: (972) 281-1578
Attention: David M. Dolan, Esq.
if to Buyer to:
Gulfstream Aerospace Corporation
500 Gulfstream Road
Savannah, Georgia 31402
Telephone: (912) 965-3601
Facsimile: (912) 965-3752
Attention: Ms. Chris A. Davis
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telephone: (212) 859-8000
Facsimile: (212) 859-4000
Attention: Stephen Fraidin, P.C.
or at such other address for a party as shall be specified by like notice.
9.13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia without
giving effect to the principles of conflicts of law. Each of the parties
hereto hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the courts of the State of Georgia and of the
United States of America located in the State of Georgia, for any
Litigation arising out of or relating to this Agreement and the
transactions contemplated hereby (and agrees not to commence any Litigation
relating thereto except in such courts). Each of the parties hereto hereby
irrevocably and unconditionally waives any objection to the laying of venue
of any Litigation arising out of this Agreement or the transactions
contemplated hereby in the courts of the State of Georgia or the United
States of America, located in the State of Georgia, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in
any such court that any such Litigation brought in any such court has been
brought in an inconvenient forum.
9.14. Public Announcements. Seller and Buyer shall each issue a
public announcement upon the execution and delivery of this Agreement.
Neither Seller nor Buyer shall make any other public statements, including,
without limitation, any press releases, with respect to this Agreement and
the transactions contemplated hereby without the prior written consent of
the other party, except as may be required by law. With respect to any
public statement, the parties shall consult with each other in advance as
to the contents and timing thereof.
9.15. Severability. Any provision of this Agreement which is
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability, without affecting in any way the remaining provisions
hereof in such jurisdiction or rendering that or any other provision of
this Agreement invalid, illegal or unenforceable in any other jurisdiction.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
KIMBERLY-CLARK CORPORATION
By: /s/ Robert E. Abernathy
--------------------------------
Name: Robert E. Abernathy
Title: Group President
GULFSTREAM AEROSPACE CORPORATION
By: /s/ Chris A. Davis
--------------------------------
Name: Chris A. Davis
Title: Executive Vice President
and Chief Financial
Officer
EXHIBIT 10.32
THIRD AMENDMENT
THIRD AMENDMENT, dated as of July 15, 1998 (this "Amendment"), to
the Credit Agreement, dated as of October 16, 1996 (as the same may be
further amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among GULFSTREAM DELAWARE CORPORATION, a Delaware
corporation (the "Company"), the several lenders from time to time parties
thereto (the "Lenders") and THE CHASE MANHATTAN BANK, a New York banking
corporation, as administrative agent for the Lenders (in such capacity, the
"Administrative Agent").
W I T N E S E T H:
WHEREAS, the Company, the Lenders and the Administrative Agent
are parties to the Credit Agreement;
WHEREAS, the Company has requested that the Administrative Agent,
with the consent of the Required Lenders, amend certain provisions of the
Credit Agreement; and
WHEREAS, the Administrative Agent, with the consent of the
Required Lenders, is agreeable to the requested amendments, but only on the
terms and subject to the conditions set forth herein;
NOW THEREFORE, in consideration of the premises herein contained
and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein which are defined in the Credit Agreement are used herein
as therein defined.
2. Amendments to Subsection 1.1. Subsection 1.1 to Credit
Agreement is hereby amended by adding the following new definitions in the
appropriate alphabetical order:
"'Permitted Acquisition': as defined in subsection 8.6(j)."
"'Permitted Acquisition Indebtedness': as defined in
subsection 8.6(j)."
3. Amendment to Subsection 7.8. Subsection 7.8 of the Credit
Agreement is hereby amended by adding the following new paragraph (e) to
the end of such subsection.
"(e) Notwithstanding the foregoing provisions of this
subsection 7.8, a non-wholly owned Subsidiary acquired in a
Permitted Acquisition or owned directly or indirectly by any
Person acquired in a Permitted Acquisition shall not be required
to deliver a Guarantee pursuant to this Section 7.8 and to the
extent that the pledge of any of the issued and outstanding stock
of any non-wholly owned Subsidiary acquired in the Permitted
Acquisition or owned directly or indirectly by any Person
acquired in a Permitted Acquisition would cause a breach or
default of or under any Contractual Obligation binding on the
Company or any Subsidiary, such pledge shall not be required by
this subsection 7.8."
4. Amendments to Subsection 8.1. (a) Subsection 8.1(g) of the
Credit Agreement is hereby amended by deleting the word "and" at the end of
such subsection.
(b) Subsection 8.1(h) of the Credit Agreement is hereby
amended by deleting the period at the end of such subsection and
substituting in lieu thereof "; and".
(c) Subsection 8.1 of the Credit Agreement is hereby amended
by adding the following new paragraph (i) to the end of such subsection:
"(i) Permitted Acquisition Indebtedness."
5. Amendments to Subsection 8.2. (a) Subsection 8.2(n) of the
Credit Agreement is hereby amended by deleting the period at the end of
such subsection and substituting in lieu thereof "; and".
(b) Subsection 8.2 of the Credit Agreement is hereby amended
by adding the following new paragraph (o) to the end of such subsection:
"(o) Liens securing Permitted Acquisition Indebtedness
or Contingent Obligations permitted by subsection 8.3(g)."
6. Amendments to Subsection 8.3. (a) Subsection 8.3(e) of the
Credit Agreement is hereby amended by deleting the word "and" at the end of
such subsection.
(b) Subsection 8.3(f) of the Credit Agreement is hereby
amended by deleting the period at the end of such subsection and
substituting in lieu thereof "; and".
(c) Subsection 8.3 of the Credit Agreement is hereby amended
by adding the following new paragraph (g) to the end of such subsection:
"(g) Contingent Obligations arising from, assumed in
connection with or continuing on the part of any Subsidiary
acquired directly or indirectly in the Permitted
Acquisition, provided that the aggregate amount of such
Contingent Obligations do not exceed 10% of the purchase
price paid for the Permitted Acquisition."
7. Amendments to Subsection 8.6. (a) Subsection 8.6(h) of the
Credit Agreement is hereby amended by deleting the word "and" at the end of
such subsection.
(b) Subsection 8.6(i) of the Credit Agreement is hereby
amended by deleting the period at the end of such subsection and
substituting in lieu thereof "; and".
(c) Subsection 8.6 of the Credit Agreement is hereby amended
by adding the following new paragraph (j) to the end of such subsection:
"(j) the Company or any of its Subsidiaries may
acquire, in one acquisition only, the capital stock or all
or substantially all of the assets of another Person or any
business unit or line of business of another Person,
provided that (i) such Person, business unit or line of
business is engaged in a business of the same general type
as the Company and its Subsidiaries are engaged in, or a
business related thereto, (ii) after giving effect to such
acquisition the Company is in compliance on a pro forma
basis as at the end of the most recent fiscal quarter for
which financial statements have been furnished to the
Lenders with the requirements of subsections 8.8, 8.9 and
8.10 and no Default or Event of Default has occurred and is
continuing and (iii) the purchase price of such acquisition
(including any assumed or continuing indebtedness of such
Person, business unit or line of business ('Permitted
Acquisition Indebtedness'), but excluding any portion of
such purchase price paid in common stock of Holdings), is
not greater than $300,000,000 (the acquisition under this
paragraph (j), the 'Permitted Acquisition')."
8. Amendment to Subsection 8.7. Subsection 8.7 of the Credit
Agreement is hereby amended by deleting the reference to "$40,000,000" in
such subsection and substituting in lieu thereof a reference to
"$50,000,000".
9. Effectiveness. This Amendment shall become effective as of the
date the Administrative Agent shall have received counterparts hereof duly
executed by the Company, the Administrative Agent and the Required Lenders.
10. Representations and Warranties. The Company hereby represents
and warrants that each of the representations and warranties in or pursuant
to Section 5 of the Credit Agreement or which are contained in any other
Credit Document or in any certificate, document or financial or other
statement furnished by or on behalf of Holdings, the Company or any
Subsidiary thereof shall be, after giving effect to this Amendment, true
and correct in all material respects as if made on and as of the date
hereof (unless such representations and warranties are stated to relate to
a specific earlier date, in which case such representations and warranties
shall be true and correct in all material respects as of such earlier
date).
11. Continuing Effect of Credit Agreement. This Amendment shall
not be construed as a waiver or consent to any further or future action on
the part of the Company that would require a waiver or consent of the
Administrative Agent and/or the Lenders. Except as amended hereby, the
provisions of the Credit Agreement are and shall remain in full force and
effect.
12. Counterparts. This Amendment may be executed in counterparts
and all of the said counterparts taken together shall be deemed to
constitute one and the same instrument.
13. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
14. Expenses. The Company agrees to pay or reimburse the
Administrative Agent for all of its out-of-pocket costs and expenses
incurred in connection with the preparation, negotiation and execution of
this Amendment, including, without limitation, the fees and disbursements
of counsel to the Administrative Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be executed and delivered by their duly authorized officers as
of the date first written above.
GULFSTREAM DELAWARE CORPORATION
By: /s/ Robert L. Williams
----------------------------------
Title: Vice President and Treasurer
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By: /s/ William J. Caggiano
----------------------------------
Title: Managing Director
ARAB BANKING CORP.
By: /s/ Louise Bilbro
----------------------------------
Title: Vice President
BANK OF AMERICA
By: /s/ Debra A. Seiter
----------------------------------
Title: Vice President
BANK OF NEW YORK
By: /s/ David C. Siegal
----------------------------------
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST
By: /s/ Joseph P. Devoe
----------------------------------
Title: Vice President
CAPTIVA FINANCE LTD.
By:
----------------------------------
Title:
CERES FINANCE, LTD.
By:
----------------------------------
Title:
MEDICAL LIABILITY MUTUAL
INSURANCE CO.
By: Chancellor LGT Senior Secured
Management, Inc., as Investment
Manager
By:
----------------------------------
Title:
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Ridgely Cromwell
----------------------------------
Title: Associate
By: /s/ Clifford L. Wells
----------------------------------
Title: Vice President
CITIBANK, N.A.
By: /s/ Charles Foster
----------------------------------
Title: Attorney-In-Fact
CREDIT LYONNAIS
By: /s/ Pascal Poupelle
----------------------------------
Title: Executive Vice President
THE DAI-ICHI KANGYO BANK, LTD.
By: /s/ Ronald Wolinsky
----------------------------------
Title: Vice President and
Group Leader
BANKBOSTON, N.A.
By: /s/ Gregory R.D. Clark
----------------------------------
Title: Managing Director
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ David T. McNeela
----------------------------------
Title: Vice President
INDUSTRIAL BANK OF JAPAN, LTD.
By: /s/ Takuya Honjo
----------------------------------
Title: Senior Vice President
KREDIETBANK
By:
----------------------------------
Title:
LTCB TRUST COMPANY
By:
----------------------------------
Title:
LEHMAN COMMERCIAL PAPER INC.
By: /s/ Michele Swanson
----------------------------------
Title: Authorized Signatory
MARINE MIDLAND BANK, N.A.
By: /s/ Christopher French
----------------------------------
Title: Authorized Signatory
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management,
L.P., as Investment Advisor
By: /s/ Gilles Marchand, CFA
----------------------------------
Title: Authorized Signatory
MERRILL LYNCH SENIOR FLOATING RATE FUND,
INC.
By: /s/ Gilles Marchand, CFA
----------------------------------
Title: Authorized Signatory
MITSUBISHI TRUST & BANKING CORPORATION
By:
----------------------------------
Title:
NATIONSBANK N.A.
By:
----------------------------------
Title:
PNC BANK, N.A.
By: /s/ Robert Mitchell
----------------------------------
Title: Vice President
SOCIETE GENERALE
By: /s/ Ralph Saheb
----------------------------------
Title: Vice President, Manager
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Mark R. Olmon
----------------------------------
Title: Vice President
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST
By: /s/ Jeffrey W. Maillet
----------------------------------
Title: Senior Vice President
and Director
KZH HOLDING CORPORATION III
By: /s/ Andrew Taylor
----------------------------------
Title: Authorized Agent
KBC BANK N.V.
By:
----------------------------------
Title:
The undersigned guarantors hereby
consent to the foregoing Amendment:
GULFSTREAM AEROSPACE CORPORATION,
a Delaware Corporation
By: /s/ Robert L. Williams
--------------------------------
Title: Vice President and
Treasurer
GULFSTREAM AEROSPACE CORPORATION,
a Georgia Corporation
GULFSTREAM AEROSPACE CORPORATION,
D/B/A GULFSTREAM AEROSPACE
TECHNOLOGIES,
an Oklahoma Corporation
GULFSTREAM AEROSPACE CORPORATION,
a California Corporation
By: /s/ Robert L. Williams
---------------------------------
Title: Vice President and
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Jun-30-1998
<CASH> 256
<SECURITIES> 0
<RECEIVABLES> 165<F1>
<ALLOWANCES> 1<F1>
<INVENTORY> 747
<CURRENT-ASSETS> 1,223
<PP&E> 136<F2>
<DEPRECIATION> 120<F2>
<TOTAL-ASSETS> 1,529
<CURRENT-LIABILITIES> 927
<BONDS> 268
0
0
<COMMON> 1
<OTHER-SE> 109
<TOTAL-LIABILITY-AND-EQUITY> 1,529
<SALES> 1,060
<TOTAL-REVENUES> 1,072
<CGS> 835
<TOTAL-COSTS> 900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 152
<INCOME-TAX> 56
<INCOME-CONTINUING> 96
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 1.27
<FN>
Amounts inapplicable or not disclosed as a separate line on the Statement
of Financial Position or Results of Operations are reported as 0 herein.
<F1> Notes and accounts receivable - trade are reported net of allowances for
doubtful accounts in the Consolidated Balance Sheet.
<F2> Property, plant and equipment are reported net of accumulated
depreciation in the Consolidated Balance Sheet.
</FN>
</TABLE>
EXHIBIT 99.1
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES REFORM ACT OF 1995
-------------------------------------------------------
Gulfstream Aerospace Corporation (the "Company" or "Gulfstream")
cautions readers that the important factors set forth below, as well as
factors discussed in other documents filed by the Company with the
Securities and Exchange Commission (the "SEC"), among others, could cause
the Company's actual results to differ materially from statements contained
in this report, future filings by the Company with the SEC, the Company's
press releases and oral statements made by or on behalf of the Company.
The words "estimate", "project", "anticipate", "expect", "intend",
"believe", "target" and similar expressions are intended to identify
forward looking statements. In addition, these factors relate specifically
to the Company's statements regarding earnings per share for 1998 and
subsequent years and the assumptions underlying those statements, including
assumptions regarding green aircraft deliveries, completions, margin
improvements, new aircraft sales and backlog stability.
Aircraft Production and Completion
The Company records revenue from the sale of a new "green" aircraft
(i.e., before exterior painting and installation of customer selected
interiors and optional avionics) when the green aircraft is delivered to
the customer. The Company records revenues from completion services when
the outfitted aircraft is delivered to the customer. The Company is
currently targeting 58 green aircraft deliveries in 1998 and 64 green
aircraft deliveries in 1999. Completions are projected to nearly double in
1998. Risks associated with green deliveries and completions include the
following:
Purchased Materials and Equipment. Approximately 70% of the
production costs of both the Gulfstream IV-SP and the Gulfstream V
consist of materials and equipment purchased from other manufacturers.
While the Company's production activities have never been materially
affected by its inability to obtain components, and while the Company
maintains business interruption insurance in the event that a
disruption should occur, the failure of the Company's suppliers to
meet the Company's performance specifications, quality standards or
delivery schedules could have a material adverse impact on the
Company's delivery schedule.
Workforce. The Company's ability to meet its production and
completion schedules depends on the Company meeting its needs for
skilled labor. Although the Company's ability to hire required skilled
labor has not to date adversely affected its ability to meet its
production and completion schedules, there can be no assurance that
this favorable condition will continue. In 1996, the Company entered
into a 5-year contract with a union representing certain of its
employees at its Oklahoma Facility. Although employee relations are
generally good, a work stoppage or other labor action could materially
and adversely affect the Company's production schedule.
Facilities. Green aircraft are assembled at one facility.
Detailed parts and subassemblies are manufactured at two additional
facilities. Completions are performed at three facilities. Although
the Company maintains property and business interruption insurance,
any severe property damage or other casualty loss at one of these
facilities could materially and adversely affect the Company's
delivery schedule.
Gulfstream V Efficiency. The Company expects to become more
efficient at producing and completing Gulfstream V aircraft as it
gains more experience in this aircraft program. If the Company is
unable to achieve anticipated efficiencies, its delivery schedule
could be adversely impacted.
Period-to-Period Fluctuations. Since the Company relies on the
sales of a relatively small number of high unit selling price new
aircraft to provide the substantial portion of its revenues, even a
small decrease in the number of deliveries in any period could have a
material adverse effect on the results of operation for that period.
As a result, a delay or an acceleration in the delivery of new
aircraft may affect the Company's revenues for a particular quarter or
year and may make quarter-to-quarter or year-to-year comparisons
difficult.
Margin Improvements
The Company expects gross margins (excluding pre-owned aircraft, which
are typically sold at break-even levels) to improve from 20% in 1997 to the
mid-20s by the end of 1998. Risks associated with projected margin
improvement include the following:
Gulfstream V Learning Curve. The Company expects production and
completion costs to fall as the Company gains more experience in
producing and completing Gulfstream V aircraft. Delays in anticipated
cost reductions would adversely affect projected margin improvements.
If subsequent improvement is not achieved as quickly or to the extent
anticipated, the Company may be unable to achieve its margin targets.
Cost of Materials. Approximately 70% of the production costs of
both the Gulfstream IV-SP and the Gulfstream V consist of materials
and equipment purchased from other manufacturers. Although the Company
has in place revenue share and long-term supply arrangements that help
protect it against materials price increases, if the Company
experiences price pressure on materials, margins could be adversely
affected.
Stability of Backlog
At June 30, 1998, the Company had a backlog of $2.9 billion. The
Company is currently selling outfitted Gulfstream IV-SPs for delivery in
the first half of 2000 and outfitted Gulfstream Vs for delivery in the
second half of 2000. Although the Company's revenues are, therefore,
essentially under contract for the foreseeable future, the following
factors could adversely affect the stability of the backlog:
New Orders. The Company's principal business is the design,
development, manufacture and marketing of large and ultra-long range
business jet aircraft. Because of the high unit selling price of its
aircraft products and the availability of commercial airlines and
charters as alternative means of business travel, a downturn in
general economic conditions could result in a reduction in the orders
received by the Company for its new and pre-owned aircraft. The
Company would not be able to rely on sales of other products to offset
a reduction in sales of its aircraft. If a potential purchaser is
experiencing a business downturn or is otherwise seeking to limit its
capital expenditures, the high unit selling price of a new Gulfstream
aircraft could result in the potential purchaser deferring its
purchase or changing its operating requirements and electing to
purchase a competitor's lower priced aircraft. In addition, if a
significant number of customers resell their purchase contracts, the
Company's new order intake could be adversely affected. If the
Company's new order intake rate varies, the Company could be required
to adjust its production rate.
Production Delays. While the Company generally receives
non-refundable deposits in connection with each order, an order may be
canceled (and the deposit returned) under certain conditions if the
delivery of a Gulfstream V aircraft is delayed more than six months
after a customer's scheduled delivery date. An extended delay in the
production or completion process could cause an increase in the number
of cancellations of orders, which could have an adverse effect on the
Company's results of operations.
Business and Economic Conditions. Although 80% of the Company's
backlog consists of North American customers and 65% of North American
customers are Fortune 500 companies, adverse business and economic
conditions could cause customers to be unable or unwilling to
consummate the purchase of an aircraft and could, therefore, increase
the number of cancellations experienced by the Company.
Year 2000 Compliance
As part of the Company's initiatives, begun in 1996, to increase
production rates and co-produce the Gulfstream IV and Gulfstream V, the
Company has, and continues to, upgrade and replace business systems and
facility infrastructure. These initiatives help to reduce the potential
impact of the Year 2000 date issue on the Company's operations. In
addition, the Company has implemented a Year 2000 Compliance Plan designed
to ensure that all other hardware, software, systems, and products with
microprocessors relevant to the Company's business are not adversely
affected by the Year 2000 date issue. The Company is also reviewing
compliance by suppliers and vendors and the impact of the Year 2000 issue
on in-service customer aircraft. The Company does not believe that the
implementation of this Year 2000 Compliance Plan will have a material
effect on the Company's business operations, financial condition, liquidity
or capital resources. However, there can be no assurance, with regard to
compliance by customers and suppliers, that all aspects of their Year 2000
compliance plans will be successfully completed in a timely manner.
Safety Record
The Company believes that its reputation and the exemplary safety
record of its aircraft are important selling points for new and pre-owned
Gulfstream aircraft. However, if one or a number of catastrophic events
were to occur with the Gulfstream fleet, Gulfstream's reputation and sales
of Gulfstream aircraft could be adversely affected.
Pre-Owned Aircraft Market
In many cases, the Company has agreed to accept, at the customer's
option, the customer's pre-owned aircraft as a trade-in in connection with
the purchase of a Gulfstream IV-SP or Gulfstream V. Based on the current
market for pre-owned aircraft, the Company expects to continue to be able
to resell pre-owned aircraft taken in trade, and does not expect to suffer
a loss with respect to these trade-ins and resales. However, an increased
level of pre-owned aircraft or changes in the market for pre-owned aircraft
may increase the Company's inventory costs and may result in the Company
receiving lower prices for its pre-owned aircraft.
Competition
The market for large cabin business jet aircraft is highly
competitive. The Gulfstream IV-SP competes in the large cabin business jet
aircraft market segment, principally with Dassault Aviation S.A. and
Bombardier Inc. ("Bombardier"). The Gulfstream V competes in the ultra-long
range business jet aircraft market segment, primarily with the Global
Express, which is being marketed by Canadair, a subsidiary of Bombardier,
and which will not be certified until more than 18 months after the initial
delivery of the Gulfstream V. The Boeing Company, in partnership with
General Electric Co., is marketing a version of the Boeing 737 into the
ultra-long range business jet aircraft market segment. Boeing has indicated
that it expects this aircraft to be available for delivery in the fourth
quarter of 1998. In June 1997, Airbus Industrie announced it would market a
version of the Airbus A319 into this market segment as well. Airbus has
indicated that it expects the aircraft to be available in early 1999. The
Company's competitors may have access to greater resources (including, in
certain cases, governmental subsidies) than are available to the Company.
The Company's ability to compete successfully in the large business
jet and ultra-long range business jet aircraft markets over the long term
requires continued technological and performance enhancements to Gulfstream
aircraft. No assurance can be given that the Company's competitors will not
be able to produce aircraft capable of performance comparable or superior
to Gulfstream aircraft in the future.
Increased price-based competition by the Company's competitors could
pressure the Company to also reduce its prices. Price reductions could have
a significant impact on the Company's margins. In addition, if a
significant number of customers were to cancel orders for the Company's
aircraft in order to purchase a competitive product, there could be a
material adverse effect on the Company's backlog.
Pending Tax Audit
The Company is involved in tax audits by the Internal Revenue Service
covering the years 1990 through 1994. The revenue agent's reports include
several proposed adjustments involving the deductibility of certain
compensation expense, items relating to the initial capitalization of the
Company, the allocation of the original purchase price for the acquisition
by the Company of the Gulfstream business, including the treatment of
advance payments with respect to and the cost of aircraft that were in
backlog at the time of the acquisition, and the amortization of amounts
allocated to intangible assets. The Company believes that the ultimate
resolution of these issues will not have a material adverse effect on its
financial statements because the financial statements already reflect what
the Company currently believes is the expected loss of benefit arising from
the resolution of these issues. However, because the revenue agent's
reports are proposing adjustments in amounts materially in excess of what
the Company has reflected in its financial statements and because it may
take several years to resolve the disputed matters, the ultimate extent of
the Company's expected loss of benefit and liability with respect to these
matters cannot be predicted with certainty and no assurance can be given
that the Company's financial position or results of operations will not be
adversely affected.
Leverage and Debt Service
The degree to which the Company is leveraged at a particular time
could have important consequences to the Company, including the following:
(i) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, product development, acquisitions,
general corporate purposes or other purposes may be impaired; (ii) a
portion of the Company's and its subsidiaries' cash flow from operations
must be dedicated to the payment of the principal of and interest on its
indebtedness; (iii) the Company's credit agreement contains certain
restrictive financial and operating covenants, including, among others,
requirements that the Company satisfy certain financial ratios; (iv) a
significant portion of Gulfstream's borrowings will be at floating rates of
interest, causing Gulfstream to be vulnerable to increases in interest
rates; (v) the Company's degree of leverage may make it more vulnerable in
a downturn in general economic conditions; and (vi) the Company's financial
position may limit its flexibility in responding to changing business and
economic conditions.
EXHIBIT 99.2
FOR IMMEDIATE RELEASE
Gulfstream Contact: Kimberly-Clark Contact:
Tricia Bergeron Wendi Strong
(912) 965-3700 (972) 281-1481
GULFSTREAM AEROSPACE TO ACQUIRE K-C AVIATION FROM
KIMBERLY-CLARK FOR $250 MILLION IN CASH
Will Significantly Increase Gulfstream's Capacity In Completions And Service;
Acquisition Also Expected To Be Accretive To Gulfstream's EPS In First Year
---------------------------------------------------------------------------
SAVANNAH, GA, and DALLAS, TX, July 24, 1998 - - Gulfstream Aerospace
Corporation (NYSE: GAC) and Kimberly-Clark Corporation (NYSE: KMB) today
announced they have signed a definitive agreement for Gulfstream to acquire
K-C Aviation, a leading provider of business aviation services, from
Kimberly-Clark for $250 million in cash.
K-C Aviation is the largest independent completion center for
corporate aircraft in North America, with annual revenues of approximately
$200 million. Specializing in custom work, it also has extensive
refurbishment and maintenance operations focused on the high-end of the
corporate aviation market. K-C Aviation has a superb reputation for quality
and craftsmanship, and has been named "Best Completion Center" for the last
five years by Professional Pilot magazine.
Gulfstream said the acquisition will substantially increase its
aircraft completion capacity, support its rapidly growing service business,
and give it strong refurbishment capabilities. K-C Aviation's facilities in
Texas, Wisconsin, and Massachusetts will also complement Gulfstream's
current facilities in Georgia and California to give the Company a
nationwide network, increasing convenience and response capability for
customers.
The transaction is subject to regulatory approvals and is expected to
be completed in the third quarter. Gulfstream expects the acquisition to be
accretive to earnings per share beginning in the first full year of
operations. It will be funded from Gulfstream's cash on hand.
"Like Gulfstream, K-C Aviation is simply the best in its business, and
it shares our dedication to unmatched quality and service," said Gulfstream
Chairman Theodore J. Forstmann. "We have ramped up production to 64 planes
for 1999 to meet growing customer demand for both Gulfstream IVs and
Gulfstream Vs, and now we are making a major investment in increased
completion and service capacity. Gulfstream will now have 18 additional
completion slots in 1999 which will help us work through existing backlog
faster -- and we will also be able to deliver aircraft sooner to people
placing new orders today."
"K-C Aviation is a great company, and the decision to sell it was a
difficult one," said Wayne Sanders, chairman and chief executive officer of
Kimberly-Clark. "With an objective of focusing on our core consumer
products business, we determined that the best course of action for the
future of K-C Aviation and its employees was to align the company with a
corporation whose core business is aviation. It was very important to
Kimberly-Clark to find a company that will continue K-C Aviation's
philosophy of perfection, value and quality, the concepts upon which the
company was built. We believe Gulfstream has the same philosophy and is the
ideal buyer for this business. This is a big growth opportunity for the
company and for K-C Aviation's employees who have worked hard to make it
the number one independent aviation services provider in the world."
Jim Johnson, president and chief operating officer of Gulfstream,
said, "We welcome the talented team at K-C Aviation to Gulfstream. We
expect no significant changes in K-C Aviation's management or work force,
and will begin business operations and integration under the Gulfstream
name immediately upon closing. In addition to enhanced completion
capabilities, this acquisition will give us more capacity to keep
increasing our share of the service business for the worldwide fleet of
corporate aircraft. We will be able to reduce maintenance downtime for
Gulfstream customers and increase flexibility in scheduling. We are also
committed to maintaining K-C Aviation's specialized maintenance teams that
now service other types of aircraft and provide maintenance for a wide
variety of engines and auxiliary power units." John Rahilly, president of
K-C Aviation, will report to Johnson.
Founded in 1958, Gulfstream Aerospace Corporation is the leading
designer, developer, manufacturer and marketer of the world's most
technologically advanced intercontinental business jet aircraft. Gulfstream
has produced more than 1,000 aircraft for customers around the world. The
Company offers a range of aircraft products and services to meet the needs
of its customers, including the Gulfstream IV-SP(R), the ultra-long range
Gulfstream V(R), Gulfstream Shares(R) (fractional ownership interests),
Gulfstream Financial Services, Gulfstream Pre-Owned Aircraft Sales,
Gulfstream Charter ServicesSM and Gulfstream Management ServicesSM.
K-C Aviation has been in business for 30 years and has facilities in
Dallas, Texas; Appleton, Wis.; and Westfield, Mass. Its services include
completions and refurbishments, as well as airframe, avionics, and engine
maintenance.
Kimberly-Clark Corporation is a leading global manufacturer of
personal care, consumer tissue and away-from-home products. The company
also is a major producer of professional healthcare products and premium
business, correspondence and technical papers. The company has
manufacturing operations in 38 countries and sells its products in 150
countries.
# # #
This press release includes forward-looking statements, including statements
regarding future earnings and production of Gulfstream and the impact of the
acquisition of K-C Aviation, Inc. These forward-looking statements are subject
to risks and uncertainties. Actual results might differ materially from those
projected in the forward-looking statements. Additional information concerning
factors that could cause actual results to materially differ from those in the
forward-looking statements is contained in the Company's Securities and
Exchange Commission filings.
