<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 16, 1997
BANNER AEROSPACE, INC.
-------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 95-2039311
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 WEST SERVICE ROAD, PO BOX 20260
WASHINGTON, DC 20041
-------------- -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (703) 478-5790
--------------
<PAGE> 2
ITEM 2. ACQUISITION OF ASSETS
On January 16, 1997, Banner Aerospace, Inc., a Delaware corporation
(the "Company"), through its subsidiary, Dallas Aerospace, Inc., consummated the
acquisition of PB Herndon Company, a Missouri corporation ("PB Herndon") by
acquiring 100% of the outstanding stock of PB Herndon from the shareholders of
PB Herndon ("Sellers").
At closing, the cash purchase price of $14.7 million was paid to the
Sellers. The purchase price was based upon PB Herndon's net assets as of
September 30, 1996 plus capital contributions made by the Sellers after August
31, 1996. In addition, the Company paid $1.3 million to the Sellers to repay
loans made from the Sellers to PB Herndon.
To finance the acquisition of PB Herndon, the Company borrowed $16.0
million under a subordinated loan agreement from RHI Holdings, Inc., which is a
wholly-owned subsidiary of The Fairchild Corporation.
PB Herndon, located in Earth City, Missouri, is a distributor of
specialty fastener lines and other aerospace related components. PB Herndon
sells its products to original equipment manufacturers ("OEMs"), commercial and
military customers in the aerospace industry and to the US Government.
The Company is a leading international supplier to the aerospace
industry as a distributor, providing a wide range of aircraft parts and related
support services. The Company, through its subsidiaries, sells its products in
the United States and abroad to most of the world's commercial airlines, as well
as to air cargo carriers, OEMs, other distributors, fixed-base operations,
corporate aircraft operators and other aerospace and non-aerospace companies.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements, pro forma financial information and
exhibits are filed as a part of this report.
<TABLE>
<CAPTION>
(a) Financial Statements of Business Acquired:
Audited Financial Statements of PB Herndon Company Pages
-------------------------------------------------- -----
<S> <C>
Report of Independent Public Accountants 4
Balance Sheet as of June 30, 1996 5
Statement of Income and Retained Earnings for the
fiscal year ended June 30, 1996 6
Statement of Cash Flows for the fiscal year ended June 30, 1996 7
Notes to the Financial Statements 8 - 11
Unaudited Interim Financial Statements of PB Herndon Company
------------------------------------------------------------
Balance Sheet as of September 30, 1996 12
Statement of Income for the three months ended September 30, 1996 13
Statement of Cash Flows for the three months ended September 30, 1996 14
</TABLE>
2
<PAGE> 3
(b) Unaudited Pro Forma Financial Information:
Banner Aerospace, Inc. and PB Herndon Company Unaudited Pro Forma
Condensed Consolidated Financial Information
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1996 16
Unaudited Pro Forma Condensed Consolidated Income Statements for the
fiscal year ended March 31, 1996 and six months ended September 30, 1996 17 - 18
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 19
</TABLE>
(c) Exhibits:
2.1 Stock purchase agreement between Dallas Aerospace, Inc., and
PB Herndon Company
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Banner Aerospace, Inc.
By /s/ WARREN D. PERSAVICH
----------------------------------
Warren D. Persavich
Senior Vice President &
Chief Financial Officer
By /s/ EUGENE W. JURIS
----------------------------------
Eugene W. Juris
Vice President
Finance & Secretary
Dated: January 24, 1997
3
<PAGE> 4
INDEPENDENT AUDITOR'S REPORT
Board of Directors
PB Herndon Company
Earth City, Missouri
We have audited the accompanying balance sheet of PB Herndon Company as of June
30, 1996, and the related statements of income, and retained earnings, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PB Herndon Company as of June
30, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Peter C. Sharamitaro, Jr., CPA, P.C.
August 1, 1996
4
<PAGE> 5
PB HERNDON COMPANY
BALANCE SHEET
June 30, 1996
ASSETS
<TABLE>
<CAPTION>
(In thousands) 1996
---------------------
<S> <C>
Current Assets:
Cash $ 61
Accounts receivable 1,436
Current portion of notes receivable, officers 5
Inventory 12,361
Prepaid expenses 17
Deferred tax asset (Note 7) 22
---------------------
Total current assets 13,902
Equipment, net (Note 2) 388
Other assets (Note 3) 429
---------------------
Total assets $ 14,719
=====================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current Liabilities:
Note payable -- line of credit (Note 4) $ 6,780
Current portion of capital lease obligations (Note 5) 67
Accounts payable 3,811
Accrued expenses 102
Income taxes payable (Note 7) 327
---------------------
Total current liabilities 11,087
---------------------
Long-Term Liabilities:
Obligations under capital leases (Note 5) 219
Deferred income taxes (Note 7) 8
---------------------
Total long-term liabilities 227
---------------------
Total liabilities 11,314
---------------------
Stockholders' Equity:
Common stock, Class A, voting, $1 par value, Authorized--5,000 shares
Issued and outstanding -- 1,000 shares 1
Common stock, Class B, non-voting, $1 par value
Authorized--25,000 shares, Issued and outstanding--9,000 shares 9
Retained earnings 3,395
---------------------
Total stockholders' equity 3,405
---------------------
Total liabilities and stockholders' equity $ 14,719
=====================
</TABLE>
The accompanying notes are an integral part
of the financial statements.
5
<PAGE> 6
PB HERNDON COMPANY
STATEMENT OF INCOME AND RETAINED EARNINGS
For the fiscal year ended June 30, 1996
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Sales $ 15,158
Cost of sales 10,775
-------------------
Gross profit 4,383
Selling, general and administrative expenses 3,107
-------------------
Income from operations 1,276
Interest expense, net 353
-------------------
Income before income taxes 923
Provisions for income taxes (Note 7) 356
-------------------
Net income 567
Retained earnings, beginning of year 2,828
-------------------
Retained earnings, end of year $ 3,395
===================
</TABLE>
The accompanying notes are an integral part
of the financial statements.
6
<PAGE> 7
PB HERNDON COMPANY
STATEMENT OF CASH FLOWS
For the fiscal year ended June 30, 1996
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Cash flows used for operating activities:
Net income $ 567
Adjustment to reconcile net income
to net cash used for operating activities:
Depreciation and amortization 118
Loss on sale of assets 7
Change in accounts receivable (430)
Change in inventories (6,780)
Change in payables and accrued liabilities 2,798
Change in other current assets (29)
Change in other noncurrent items (32)
-------------------
Net cash used for operating activities (3,781)
-------------------
Cash flows used for investing activities:
Acquisition of property, plant and equipment, net (118)
Proceeds from sale of fixed assets 3
Payments received on notes receivable 5
-------------------
Net cash used for investing activities (110)
-------------------
Cash flows provided by financing activities:
Net borrowings of debt 3,970
Principal payments on capital lease (39)
-------------------
Net cash provided by financing activities 3,931
-------------------
Net increase in cash 40
Cash, beginning of year 21
-------------------
Cash, end of year $ 61
===================
Supplemental cash flow information:
Interest paid $ 353
Income taxes paid 65
</TABLE>
The accompanying notes are an integral part
of the financial statements.
7
<PAGE> 8
PB HERNDON COMPANY
NOTES TO FINANCIAL STATEMENTS
(In thousands)
June 30, 1996
1. Summary of Significant Accounting Policies
This summary of accounting policies of PB Herndon Company (the Company)
is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of
the Company's management, who is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the
preparation of the financial statements.
Business Activity--The Company is a distributor and manufacturers'
representative of fastening products for the aerospace industry. The
Company grants credit to customers who are engaged in the commercial
aircraft, military aerospace and electronics industries.
Accounting Basis--The Company uses the accrual basis of accounting.
Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
Uncollectible Accounts--An allowance for uncollectible accounts has not
been provided as the Company historically has insignificant amounts of
bad debt and management believes no current allowance is needed.
Inventory--Inventory is stated at the lower of cost (using the moving
average method) or market.
Equipment--Equipment, stated at cost, is depreciated using
declining-balance methods over the estimated useful lives of the
related assets. Maintenance, repairs, and minor renewals are expensed
as incurred. Major renewals, replacements and improvements are
capitalized and depreciated over their estimated useful lives.
Income Taxes--Deferred tax assets and liabilities are determined based
on the difference between the financial statement and tax basis of
assets and liabilities, using enacted tax rates in effect for the year
in which the differences are expected to reverse. Current income taxes
are based on the income taxable for federal and state tax reporting
purposes including the utilization of the federal surtax exemption.
2. Equipment
Equipment, stated at cost, as of June 30, 1996, consists of the
following:
<TABLE>
<S> <C>
Furniture and fixtures $ 252
Warehouse equipment 269
Computer equipment 184
--------------------
705
Less accumulated depreciation 317
--------------------
$ 388
====================
</TABLE>
For the year ended June 30, 1996, depreciation expense was $118.
8
<PAGE> 9
3. Other Assets
Other assets at June 30, 1996 consists of the following:
<TABLE>
<S> <C>
Unsecured notes receivable from officers dated June 6,
1995, due in 240 monthly installments of $2 including
interest at 7.27% $ 231
Current portion (5)
-----------------
226
Amortizable fees and licenses, net of accumulated
amortization of $1 14
Collateral interest in life insurance 189
-----------------
$ 429
=================
</TABLE>
4. Line of Credit
A line of credit with a financial institution allows for an $8,000
limit with interest payable monthly at rates ranging from 6.25% to
11.0%, through November 30, 1997. The line is secured by accounts
receivable and inventories with personal guarantees from three
officers. Loan covenants include a maximum cash flow leverage of 5.0, a
minimum fixed charge ratio of 1.5 and a minimum net worth requirement.
The Company is in compliance with all restrictive covenants as of June
30, 1996.
5. Lease Commitments
Long-Term Capital Lease Obligations:
The Company has noncancellable capital lease obligations with assets
and liabilities recorded at the lower of the present value of the
minimum lease payments or the fair value of the assets. The assets are
included in equipment and depreciated over their estimated useful
lives.
<TABLE>
<CAPTION>
As of June 30, 1996, capital lease obligations relate to:
<S> <C>
Office furniture and equipment, expiring February, 2001 $ 128
Automated packaging and computer equipment, expiring
April, 2000 86
Imaging and scanning equipment, expiring March, 2000 64
Automated bagging equipment, expiring July, 1997 8
-----------------
286
Current portion of capital lease obligations (67)
-----------------
$ 219
=================
</TABLE>
Operating Leases:
The Company's operating facility is leased from a related party under a
three-year net lease commencing December 1, 1995, with monthly lease
payments of $21. Rental expense of $288 includes $147 related to the
current leased facilities. All other amounts related to previous leases
not renewed.
9
<PAGE> 10
Three vehicles are leased under noncancellable agreements with
expirations to April of 1998 and monthly lease payments of $3.
Automobile expense includes $30 in lease payments on these vehicles for
the year ended June 30, 1996.
Future minimum rental payments required under noncancellable lease
agreements are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
---------------- ------------------
<S> <C> <C>
Years ending June 30, 1997 $ 284 $ 85
1998 277 78
1999 105 77
2000 --- 66
2001 --- 18
---------------- ------------------
Total minimum lease payments $ 666 324
================
Less amounts representing interest 38
------------------
Net minimum lease payments $ 286
==================
</TABLE>
6. Profit Sharing Plan
The Company has a defined contribution profit sharing plan with a
401(k) elective deferral provision. This plan covers substantially all
regular full-time employees. The plan allows annual contributions up to
15% of eligible wages at the discretion of the Board of Directors.
Company contributions for the year ended June 30, 1996 were $30 are as
follows:
<TABLE>
<S> <C>
Profit sharing contributions $ 30
401(k) matching funds 21
------------------
$ 51
==================
</TABLE>
7. Income Taxes
Deferred tax assets and liabilities as of June 30, 1996, consist of the
following:
<TABLE>
<S> <C>
Current deferred asset:
Federal $ 19
State 3
------------------
$ 22
==================
Noncurrent deferred liability:
Federal $ 7
State 1
------------------
$ 8
==================
</TABLE>
Temporary differences consist of vacation accruals deductible for tax
purposes when paid, resulting in a deferred asset and depreciation
expensing provisions of the Internal Revenue Code resulting in a
deferred liability.
10
<PAGE> 11
The provisions for income taxes consists of the following for the year
ended June 30, 1996:
<TABLE>
<S> <C>
Taxes currently payable:
Federal $ 327
State 54
----------------
381
Deferred income tax benefit:
Federal (22)
State (3)
----------------
(25)
----------------
Total provision $ 356
================
</TABLE>
8. Related Party Transactions
The Company has made advances to its officers which have been converted
to notes receivable (see Note 3).
The operating facility of the Company is leased from a related party,
100% owned by the stockholders (see Note 5). In addition, the Company
is a guarantor on the mortgage of the related party.
9. Concentration of Risk
The Company has five major customers to whom sales for the year ended
June 30, 1996, totaled approximately $12,782 with related amounts
included in accounts receivable of approximately $921 at June 1996. The
Company has not experienced any losses from uncollectable accounts on
these customers.
11
<PAGE> 12
PB HERNDON COMPANY
BALANCE SHEET
(Unaudited)
As of September 30, 1996
ASSETS
<TABLE>
<S> <C>
(In thousands)
Current Assets:
Cash $ 112
Accounts receivable 1,777
Inventory 12,710
Other 28
----------------------
Total current assets 14,627
----------------------
Net fixed assets 381
Other assets 434
----------------------
Total assets $ 15,442
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable--line of credit $ 7,840
Accounts payable 3,243
Other accrued liabilities 410
----------------------
Total current liabilities 11,493
Non-Current Liabilities:
Notes payable 200
----------------------
Total noncurrent liabilities 200
----------------------
Total liabilities 11,693
----------------------
Stockholders' Equity:
Capital stock 10
Capital surplus 0
Retained earnings 3,739
----------------------
Total stockholders' equity 3,749
----------------------
Total liabilities and stockholders' equity $ 15,442
======================
</TABLE>
12
<PAGE> 13
PB HERNDON COMPANY
STATEMENT OF INCOME
(Unaudited)
For the three months ended September 30, 1996
<TABLE>
<S> <C>
(In thousands except per share data)
Net sales $ 3,897
Cost of goods sold 2,423
--------------------
Gross profit 1,474
Selling, general and administrative expenses 716
--------------------
Operating income 758
Interest expense, net 185
--------------------
Income from operations before taxes on income 573
Provision for taxes 229
--------------------
Net income $ 344
====================
</TABLE>
13
<PAGE> 14
PB HERNDON COMPANY
STATEMENT OF CASH FLOWS
(Unaudited)
For the three months ended September 30, 1996
<TABLE>
<S> <C>
(In thousands)
Cash flows used for operating activities
Net income $ 344
Adjustment to reconcile net income to net cash used for
operating activities:
Depreciation and amortization 24
Change in accounts receivable (341)
Change in inventories (349)
Change in payables and accrued liabilities (640)
Change in other current assets 16
Change in other noncurrent items (27)
--------------------
Net cash used for operating activities (973)
--------------------
Cash flows used for investing activities:
Acquisition of property, plant and equipment, net (17)
--------------------
Net cash used for investing activities (17)
--------------------
Cash flows provided by financing activities:
Net borrowings of debt 1,041
--------------------
Net cash provided by financing activities 1,041
--------------------
Net increase in cash 51
Cash, beginning of period 61
--------------------
Cash, end of period $ 112
====================
</TABLE>
14
<PAGE> 15
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Introduction
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of September 30, 1996 and Income Statements for the fiscal year ended March
31, 1996 and for the six months ended September 30, 1996 give effect to the
acquisition of PB Herndon by the Company, using the purchase method of
accounting. The Unaudited Pro Forma Condensed Consolidated Financial Information
is presented for informational purposes only and is not necessarily indicative
of what combined earnings and results of operations would have been had the
Company acquired PB Herndon at the beginning of the periods presented, nor is
such information intended necessarily to be indicative of the future results of
operations that may occur. The Unaudited Pro Forma Condensed Consolidated
Financial Information should be read in conjunction with the historical
consolidated financial statements and other financial data of the Company and
historical financial statements of PB Herndon.
15
<PAGE> 16
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1996
<TABLE>
<CAPTION>
ASSETS
(In thousands)
Banner Eliminations/
Aerospace PB Herndon Adjustments Pro Forma
--------------- --------------- --------------- ----------------
Current Assets:
<S> <C> <C> <C> <C>
Cash $ 0 $ 112 $ --- $ 112
Accounts receivable, net 56,958 1,777 --- 58,735
Inventory 227,185 12,710 --- 239,895
Other 13,763 28 --- 13,791
--------------- --------------- --------------- ----------------
Total current assets 297,906 14,627 --- 312,533
--------------- --------------- --------------- ----------------
Net fixed assets 13,540 381 --- 13,921
Investment in subsidiary --- --- 14,750 (2)
(14,750) (4) ---
Other Assets:
Cost in excess of net tangible
assets of purchased
businesses, net 28,004 --- 3,451 (4) 31,455
Other 4,996 434 --- 5,430
--------------- --------------- --------------- ----------------
Total other assets 33,000 434 3,451 36,885
--------------- --------------- --------------- ----------------
Total assets $ 344,446 $ 15,442 $ 3,451 $ 363,339
=============== =============== =============== ================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Banner Eliminations/
Aerospace PB Herndon Adjustments Pro Forma
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Total current liabilities $ 56,651 $ 11,493 $ (7,500) (3) $ 60,644
Non-Current Liabilities:
Long-term notes payable 141,711 200 14,700 (2) 156,611
Other 412 --- --- 412
--------------- ---------------- --------------- ----------------
Total non-current
liabilities 142,123 200 14,700 157,023
--------------- ---------------- --------------- ----------------
Total liabilities 198,774 11,693 7,200 217,667
--------------- ---------------- --------------- ----------------
Stockholders Equity:
Capital stock 23,410 10 (10) (4) 23,410
Capital surplus 113,194 --- 7,500 (3) 113,194
(7,500) (4)
Retained earnings 9,068 3,739 (3,739) (4) 9,068
--------------- ---------------- --------------- ----------------
Total stockholders' equity 145,672 3,749 (3,749) 145,672
--------------- ---------------- --------------- ----------------
Total liabilities &
stockholders' equity $ 344,446 $ 15,442 $ 3,451 $ 363,339
=============== ================ =============== ================
</TABLE>
The accompanying notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information are an integral part of these Unaudited Pro Forma
Condensed Consolidated Financial Statements.
16
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the fiscal year ended March 31, 1996
<TABLE>
<CAPTION>
(In thousands except per share data) Banner Eliminations/
Aerospace PB Herndon Adjustments Pro Forma
--------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 287,880 $ 15,158 $ --- $ 303,038
Cost of goods sold 209,609 10,775 --- 220,384
--------------- --------------- ----------------- ----------------
Gross profit 78,271 4,383 --- 82,654
Selling, general and administrative 64,704 3,107 --- 67,811
--------------- --------------- ----------------- ----------------
Operating income 13,567 1,276 --- 14,843
Interest expense, net 10,972 353 670 (5) 11,995
--------------- --------------- ----------------- ----------------
Income from operations before
taxes on income 2,595 923 (670) 2,848
Provision for taxes 1,040 356 (268)(5) 1,128
--------------- --------------- ----------------- ----------------
Net income $ 1,555 $ 567 $ (402) $ 1,720
=============== =============== ================= ================
Earnings per common share $ 0.09 $ 0.09
=============== ================
Weighted average number of shares 18,283 18,283
=============== ================
</TABLE>
The accompanying notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information are an integral part of these Unaudited Pro Forma
Condensed Consolidated Financial Statements.
17
<PAGE> 18
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the six months ended September 30, 1996
<TABLE>
<CAPTION>
Banner Eliminations/
(In thousands except per share data) Aerospace PB Herndon Adjustments Pro Froma
--------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 178,383 $ 7,474 $ --- $ 185,857
Cost of goods sold 127,588 5,044 --- 132,632
--------------- --------------- ----------------- ----------------
Gross profit 50,795 2,430 --- 53,225
Selling, general and administrative 39,955 1,712 --- 41,667
--------------- --------------- ----------------- ----------------
Operating income 10,840 718 --- 11,558
Interest expense, net 5,869 301 328 (5) 6,498
--------------- --------------- ----------------- ----------------
Income from operations before
taxes on income 4,971 417 (328) 5,060
Provision for taxes 1,990 187 (131)(5) 2,046
--------------- --------------- ----------------- ----------------
Net income $ 2,981 $ 230 $ (197) $ 3,014
=============== =============== ================= ================
Earnings per common share $ 0.13 $ 0.13
=============== ================
Weighted average number of shares 23,405 23,405
=============== ================
</TABLE>
The accompanying notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information are an integral part of these Unaudited Pro Forma
Condensed Consolidated Financial Statements.
18
<PAGE> 19
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(1) There were no material intercompany transactions between the Company and
PB Herndon.
(2) The adjustments of $14,750 to investment in subsidiary and $14,700 to
long-term notes payable are to record the purchase price and other costs
relating to the acquisition and to record the increase in the debt balance
due to the acquisition.
(3) The adjustments of $7,500 to total current liabilities and capital surplus
are to record the paydown of existing debt of PB Herndon as a result of
the capital contributions from shareholders.
(4) The adjustment of $3,451 to cost in excess of net tangible assets of
purchased businesses, net is to record the excess of the purchase price
over the net tangible assets acquired which is the result of the
investment of $14,700 less the capital contribution of $7,500 and the book
value of PB Herndon of $3,749. The goodwill will be amortized over 40
years.
(5) The adjustments of $670 and $328 to interest expense and $268 and $131 to
provision for taxes for the twelve months ended March 31, 1996 and six
months ended September 30, 1996, respectively, are to record the increases
in the interest expense and related provision for taxes due to the
increase in debt balance of $14,700 as a result of the acquisition net of
the capital contribution less current debt outstanding of $7,500 received
by PB Herndon prior to the acquisition.
19
<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
by and among
Dallas Aerospace, Inc.,
Buyer,
and
Craig A. Herndon, individually, and
Craig A. Herndon as Trustee of the Craig A. Herndon Living Trust, as amended;
Scott R. Herndon, and
Hope Herndon, individually, and
Scott R. Herndon and Hope Herndon as Trustees of the Scott R. Herndon Living
Trust as amended
LeVona M. Herndon, individually and
LeVona M. Herndon and Boatmen's Trust Company as Co-Trustees of the Price B.
Herndon Living Trust, as amended,
Sellers,
Dated January 15, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
RECITALS .........................................................................................................1
ARTICLE I PURCHASE AND SALE.......................................................................................1
1.1 The Shares...........................................................................................1
1.2 Consideration........................................................................................2
1.3 Payment of Debt......................................................................................2
1.4 Closing; Cooperation.................................................................................2
1.5 Deliveries of Sellers at Closing.....................................................................2
1.6 Deliveries of Buyer at Closing.......................................................................2
1.7 Post-Closing Adjustment..............................................................................3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLERS..............................................................3
2.1 Enforceable Agreement; Stock Ownership...............................................................4
2.2 Capitalization and Related Matters...................................................................4
2.3 Corporate Existence and Qualification................................................................4
2.4 Affiliates...........................................................................................4
2.5 Property and Permits.................................................................................4
2.6 Financial Statements.................................................................................5
2.7 Books and Records....................................................................................5
2.8 No Undisclosed Material Liabilities..................................................................5
2.9 Taxes................................................................................................5
2.10 Accounts Receivable.................................................................................7
2.11 Inventories.........................................................................................7
2.12 Absence of Certain Changes..........................................................................8
2.13 No Breach of Law or Governing Document..............................................................9
2.14 Litigation..........................................................................................9
2.15 Environmental Matters...............................................................................9
2.16 Contracts..........................................................................................10
2.17 Intellectual Property..............................................................................11
2.18 Insurance..........................................................................................11
2.19 Officers, Directors, Employees, and Consultants....................................................11
2.20 Bank Accounts of the Company.......................................................................12
2.21 Transactions with Related Persons..................................................................12
2.22 Labor Matters......................................................................................12
2.23 Employee Benefit Matters...........................................................................12
2.24 Discrimination and Occupational Safety and Health..................................................13
2.25 Product Warranties.................................................................................14
2.26 Product Liability Claims...........................................................................14
2.27 Governmental Approvals and Filings.................................................................14
2.28 Disclosure.........................................................................................14
2.29 Brokers, Finders...................................................................................15
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER..............................................................15
3.1 Authorization.......................................................................................15
3.2 Brokers, Finders....................................................................................15
3.3 Access to Company...................................................................................15
ARTICLE IV CONDITIONS TO BUYER'S OBLIGATIONS.....................................................................15
4.1 Representations and Warranties......................................................................15
4.2 Performance of Agreement............................................................................16
4.3 Closing Certificate.................................................................................16
4.4 Contributions Certificate...........................................................................16
4.5 Bank Certificate....................................................................................16
4.6 Approvals...........................................................................................16
4.7 No Adverse Proceeding...............................................................................16
4.8 Opinion of Counsel..................................................................................16
4.9 Employment Agreements...............................................................................17
4.10 Lease..............................................................................................17
4.11 Earn-out Agreement.................................................................................17
4.12 Non-Competition Agreements.........................................................................17
4.13 Extension..........................................................................................17
4.14 Stock Option Agreement.............................................................................17
4.15 Resignations.......................................................................................17
4.16 Escrow Agreement...................................................................................17
ARTICLE V CONDITIONS TO SELLERS' OBLIGATIONS.....................................................................18
5.1 Representations and Warranties......................................................................18
5.2 Performance of Agreement............................................................................18
5.3 Certificate.........................................................................................18
5.4 Employment Agreements...............................................................................18
5.5 Lease...............................................................................................18
5.6 Earn-out Agreement..................................................................................18
5.7 Stock Option Agreement..............................................................................18
5.8 No Adverse Proceeding...............................................................................19
5.9 Escrow Agreement....................................................................................19
ARTICLE VI ADDITIONAL COVENANTS OF THE PARTIES...................................................................19
6.1 Conduct of Business Before Closing..................................................................19
6.2 Access to Records...................................................................................19
6.3 Confidentiality.....................................................................................19
6.4 Shareholder Loan....................................................................................19
6.5 Further Assurances..................................................................................20
ARTICLE VII INDEMNIFICATION......................................................................................20
7.1 Indemnification of Buyer............................................................................20
7.2 Indemnification of Sellers..........................................................................20
7.3 Survival............................................................................................20
7.4 Limitations.........................................................................................21
7.5 Notice of Claim.....................................................................................21
7.6 Right to Contest Claims of Third Persons............................................................21
7.7 Limitation of BTC Liability.........................................................................22
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VIII MISCELLANEOUS PROVISIONS............................................................................22
8.1 Notice..............................................................................................23
8.2 Entire Agreement....................................................................................23
8.3 Assignment; Binding Agreement.......................................................................23
8.4 Counterparts........................................................................................24
8.5 Headings; Interpretation............................................................................24
8.6 Expenses............................................................................................24
8.7 Termination of the Agreement........................................................................24
8.8 Remedies Cumulative.................................................................................24
8.9 Governing Law.......................................................................................24
</TABLE>
iii
<PAGE> 5
TABLE OF DEFINITIONS
<TABLE>
<S> <C>
Accountant........................................................................................................3
Accounts Receivable...............................................................................................7
Action............................................................................................................9
Additional Consideration..........................................................................................1
Affiliate.........................................................................................................4
affiliated group..................................................................................................6
Agreement.........................................................................................................1
Balance Sheet.....................................................................................................5
Bank..............................................................................................................2
Buyer.............................................................................................................1
Buyer Indemnified Persons........................................................................................20
Capital Contributions.............................................................................................2
Closing...........................................................................................................2
Closing Balance Sheet.............................................................................................3
Closing Date......................................................................................................2
Closing Equity....................................................................................................3
Code..............................................................................................................6
Company...........................................................................................................1
Contract.........................................................................................................10
Environmental Law.................................................................................................9
Environmental Property............................................................................................9
ERISA............................................................................................................13
Escrow Agent......................................................................................................2
Escrow Agreement..................................................................................................2
Escrow Amount.....................................................................................................2
Financial Statements..............................................................................................5
GAAP..............................................................................................................5
Government........................................................................................................7
Hazardous Materials..............................................................................................10
Indemnified Losses...............................................................................................20
Indemnified Party................................................................................................21
Indemnifying Party...............................................................................................20
JIT Agreement....................................................................................................17
Law...............................................................................................................9
Losses...........................................................................................................20
Maximum Amount...................................................................................................21
Notice of Dispute.................................................................................................3
Order.............................................................................................................9
Parties...........................................................................................................1
Party.............................................................................................................1
Property..........................................................................................................8
Purchase Price....................................................................................................1
Sellers...........................................................................................................1
Sellers Indemnified Persons......................................................................................20
September Balance Sheet...........................................................................................2
Shares............................................................................................................1
Tax Returns.......................................................................................................6
Taxes.............................................................................................................7
Third Person.....................................................................................................21
Third-Person Claim...............................................................................................21
</TABLE>
i
<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered
into as of January 15, 1997, by and among, Dallas Aerospace, Inc. a Texas
corporation ("Buyer"), and Craig A. Herndon, as Trustee of the Craig A. Herndon
Living Trust, Scott R. Herndon and Hope Herndon, as Trustees of the Scott R.
Herndon Living Trust, and LeVona M. Herndon and Boatmen's Trust Company as
Co-Trustees of the Price B. Herndon Living Trust ("Shareholders") and Craig A.
Herndon, Scott R. Herndon, Hope Herndon and LeVona M. Herndon, each individually
as beneficiaries of the Shareholders ("Beneficiaries") (collectively, the
Shareholders and the Beneficiaries are the "Sellers") (Buyer and Sellers are
each a "Party" and together "Parties").
RECITALS
A. Buyer desires to purchase from Shareholders, on the
following terms and conditions, all of the issued and outstanding shares of all
of the capital stock (the "Shares") of P. B. Herndon Company, a Missouri
corporation ("Company"); and
B. Shareholders desire to sell to Buyer, on the
following terms and conditions, the Shares.
C. As all the significant beneficiaries of
Shareholders, the Beneficiaries consent to the obligations of the Shareholders
set forth herein and agree to the obligations of the Beneficiaries set forth
herein.
NOW, THEREFORE, in consideration of the recitals and the
mutual covenants, representations, warranties, conditions, and agreement
hereinafter expressed, the Parties agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 The Shares
Upon the terms and subject to the conditions set forth in
this Agreement, at Closing, Shareholders shall sell and deliver to Buyer and
Buyer shall purchase and accept from Shareholders the Shares, free and clear of
all security interests, claims, and restrictions other than the Mercantile
Pledge (as defined in Section 6.4).
1.2 Consideration
The consideration that Buyer shall pay Shareholders for the
Shares, the obligations of Sellers under Article IV, and the other rights of
Buyer hereunder shall be (i) Seven Million, Two Hundred Thousand Dollars
($7,200,000) ("Purchase Price"), as adjusted pursuant to Section 1.7, plus (ii)
an additional amount of $7,500,000 in accordance with Section 1.3 ("Additional
Consideration") plus (iii) the earn-out consideration, if any, provided for in
the Earn-out Agreement the form of which is attached hereto as Exhibit 1.2;
provided, however, that
<PAGE> 7
the foregoing is subject to the provisions of the escrow agreement, dated
the Closing Date and attached hereto as Exhibit 1.2 ("Escrow Agreement"), among
certain Shareholders, Buyer and Mercantile Bank National Association (the
"Escrow Agent") pursuant to which Buyer shall deposit $700,000 (the "Escrow
Amount") of the Purchase Price on the Closing Date. The foregoing consideration
shall be allocated among the Shareholders as set forth on Schedule 1.2.
1.3 Payment of Debt
(a) The Sellers acknowledge and agree that the Purchase
Price has been calculated, and is being paid, based on the net assets of the
Company as reflected in the Company's balance sheet dated September 30, 1996
and attached hereto as Schedule 1.3 ("September Balance Sheet") and based on
the agreement that the Company will before the Closing have reduced by
$7,500,000 the bank debt as reflected on the September Balance Sheet or
incurred thereafter.
(b) Prior to Closing, Sellers shall submit to Buyer a
statement certifying that (i) the contributions to the capital of the Company
in the amount of $7,500,000 have been made after August 31, 1996 by the
Shareholders ("Capital Contributions") and (ii) the Capital Contributions and
the proceeds from certain loans by the Sellers to the Company have been used to
extinguish all obligations under the Revolving Loan Agreement between
Mercantile Bank of St. Louis National Association ("Bank") and the Company,
dated December 15, 1994 as amended and that certain master lease agreement,
dated April 26, 1995 (collectively, the "Bank Debt").
1.4 Closing; Cooperation
The consummation of the transactions contemplated hereby
("Closing") shall take place at the offices of Bryan Cave, 211 N. Broadway, St.
Louis, Missouri, 36th Floor, at 10:00 a.m. local time on January 16, 1997
("Closing Date"), or, if the conditions to Closing are not by then satisfied,
on such Closing Date upon satisfaction of such conditions as Buyer shall
reasonably designate. Each Party shall reasonably cooperate, as to matters
under such Party's control, in the satisfaction of conditions to the
obligations of the Parties at Closing; provided, that the foregoing shall not
require either Party to waive any condition herein to its obligations at
Closing or to incur any substantial cost not otherwise required hereunder.
1.5 Deliveries of Sellers at Closing
Subject to the conditions to Sellers' obligations in Article
V, at Closing, Sellers shall deliver or cause to be delivered to Buyer (a) a
certificate or certificates evidencing the Shares, duly endorsed or accompanied
by a duly executed stock power and (b) execute and deliver or cause to be
delivered the documents identified in Article IV.
1.6 Deliveries of Buyer at Closing
Subject to the conditions to Buyer's obligations in Article
IV, at Closing, Buyer shall (a) wire transfer in immediately-available funds,
to accounts designated by Shareholders, the Purchase Price and the Additional
Consideration less the Escrow Amount, (b) wire transfer in
2
<PAGE> 8
immediately-available funds the Escrow Amount to the Escrow Agent and (c)
execute and deliver or cause to be executed and delivered the documents
identified in Article V.
1.7 Post-Closing Adjustment
(a) As soon as practicable after Closing,
Sellers shall prepare a balance sheet of the Company as of the Closing Date
("Closing Balance Sheet"). Buyer may have a representative review all final
work papers prepared in connection therewith. The Closing Balance Sheet shall
be prepared in accordance with GAAP, and except to the extent not in accordance
with GAAP, also shall be prepared consistently with the Balance Sheet. Sellers
shall deliver the Closing Balance Sheet to Buyer not later than 45 days after
the Closing Date.
(b) If Buyer disputes the Closing Balance Sheet
as delivered by Sellers, Buyer shall so notify Sellers in writing ("Notice of
Dispute") not more than 30 days after the date Buyer received the Closing
Balance Sheet, specifying in reasonable detail the points of disagreement.
Upon receipt of the Notice of Dispute, Sellers shall promptly consult with
Buyer with respect to such points of disagreement in an effort to resolve the
dispute. If any such dispute cannot be resolved by Buyer and Sellers within
ten calendar days after Buyer receives the Notice of Dispute, they shall refer
the dispute to a certified public accountant and partner at Delloite & Touche
LLP ("Accountant") as an arbitrator to finally determine, as soon as
practicable, and in any event within 90 days after such reference, all points
of disagreement with respect to the Closing Balance Sheet. The Accountant
shall apply the terms of this Agreement and GAAP, and shall otherwise conduct
the arbitration under such procedures as the Parties may agree or, failing such
agreement, under the Commercial Rules of the American Arbitration Association.
The fees and expenses of the Accountant incurred in connection with the
arbitration of the Closing Balance Sheet shall be allocated between the Parties
by the Accountant in proportion to the extent either Party did not prevail on
items in dispute in the Closing Balance Sheet. All determinations by the
Accountant shall be final, conclusive and binding with respect to the Closing
Balance Sheet and the allocation of fees and expenses.
(c) The Purchase Price shall be adjusted as follows,
based on the Closing Balance Sheet determined under Section 1.7(a) or, if
necessary, 1.7(b): Sellers shall pay to Buyer the amount by which the
stockholders' equity on the Closing Balance Sheet ("Closing Equity") is less
than $11,000,000. Any payment so required to be made by Sellers shall be by
wire transfer of immediately available funds not more than 5 business days
after final determination thereof and shall bear interest from the Closing Date
through the date of payment at 2.5 percent above LIBOR from time to time
prevailing as quoted by Citibank N.A.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers jointly and severally hereby make the following
representations and warranties to Buyer, each of which is true and correct on
the date hereof and the date of the Closing and each of which shall survive the
Closing:
2.1 Enforceable Agreement; Stock Ownership
3
<PAGE> 9
(a) Sellers have the power and capacity to
execute and deliver this Agreement, to perform the obligations of Sellers
hereunder, and to consummate the transactions contemplated hereby. This
Agreement constitutes a valid and binding obligation of Sellers, enforceable
against Sellers in accordance with its terms.
(b) Shareholders are and will at Closing be the
sole holders of record and beneficial owners of the Shares. The Shares consist
of 1,000 shares of Class A voting common stock and 9,000 shares of Class B
non-voting common stock of the Company and are owned by Shareholders free and
clear of all security interests, claims, and restrictions. Shareholders will
transfer good and marketable title thereto at Closing, free and clear of all
security interests, claims, and restrictions other than the Mercantile Pledge
which pledge shall be released in accordance with Section 6.4.
2.2 Capitalization and Related Matters
The authorized capital stock of the Company consists solely
of 5,000 shares of Class A voting common stock, par value $1.00, and 25,000
shares of Class B non-voting common stock, par value $1.00, of which the Shares
are the only shares issued or outstanding. All the Shares were duly authorized
and validly issued and are fully paid and non-assessable. Except for Buyer's
rights hereunder, (a) there are no outstanding (i) other securities of the
Company, or (ii) rights or options to acquire securities of the Company, and
(b) neither Sellers nor the Company is subject to any obligation to issue,
deliver, redeem, or otherwise acquire or retire the Shares or any other
securities of the Company.
2.3 Corporate Existence and Qualification
The Company is a corporation duly incorporated, validly
existing, and in good standing under the laws of the State of Missouri; and it
is duly qualified and in good standing in each foreign jurisdiction where such
qualification is required. The Company has the corporate power and authority
to own and use its properties and to transact the business in which it is
engaged.
2.4 Affiliates
Except for the Sellers and Herndon Properties, L.L.C., the
Company has no Affiliates. For purposes of this Agreement, an "Affiliate" of a
person means any person or entity which is controlling, controlled by, or under
common control with, directly or indirectly through any person or entity, the
person referred to, and, if the person referred to is a natural person, any
member of such person's family.
2.5 Property and Permits
Except as set forth on Schedule 2.5, the Company is the sole
owner of all right, title, and interest in and to all assets reflected on the
Balance Sheet and all property, real and personal, tangible and intangible,
used by it in, or necessary for it to transact, the business in which it is
engaged, free and clear of all mortgages, security interests, claims,
restrictions, and other encumbrances, and there exists no restriction on the
use or transfer of such assets or
4
<PAGE> 10
property. No such assets or property are in the possession of others and the
Company holds no property on consignment. All such tangible assets and property
are in good condition and repair, ordinary wear and tear excepted, and fit for
their intended purpose, and are not in violation of applicable zoning or other
Law. The Company holds all permits, licenses, and other approvals necessary to
conduct the business in which it is engaged.
2.6 Financial Statements
(a) Set forth on Schedule 2.6 are (i) the
balance sheet of the Company as of June 30, 1996, and the related statements of
earnings, stockholders' equity, and changes in financial position or cash flow
for the fiscal year then ended, and all notes and schedules thereto, and (ii)
the balance sheet of the Company as of September 30, 1996, ("Balance Sheet" and
the related statements of earnings and changes in financial position for the
period then ended, together with any notes or schedules thereto, ((i) and (ii)
together, the "Financial Statements"). The Financial Statements (other than
the Balance Sheet and the related statements thereto) have been audited by
Peter C. Sharamitaro, an independent public accountant, and his unqualified
opinion is set forth on Schedule 2.6.
(b) The Financial Statements, (i) present
fairly, in all material respects, the financial position, results of
operations, and cash flows of the Company at the dates and for the periods
indicated, and (ii) have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis.
2.7 Books and Records
The books of account, stock record books, minute books, bank
accounts, and other corporate records of the Company are true, correct, and
complete in all material respects, have been maintained in accordance with good
business practices, and the matters contained therein are accurately reflected
in the Financial Statements to the extent appropriate. Copies of the articles
of incorporation and bylaws and all amendments thereto of the Company are
attached as Schedule 2.7.
2.8 No Undisclosed Material Liabilities
The Company does not have any material liabilities or
obligations whatsoever, known or unknown, accrued, absolute, contingent, or
other, except (a) as set forth in the Financial Statements, (b) as set forth on
any Schedule to this Agreement, or (c) to the extent they arise in the ordinary
course of the business of the Company and are not required to be set forth in a
Schedule hereto, (i) Taxes incurred since the date of the Balance Sheet and
(ii) performance and payment obligations (but not liabilities for breach or
violation) lawfully incurred under arm's-length Contracts (defined below) for
goods or services in the ordinary course of business.
2.9 Taxes
(a) Except as set forth on Schedule 2.9, the
Company timely has filed or caused to be filed with the appropriate Government
entity all tax returns and reports required to be filed by or on behalf of the
Company for all tax periods in which a return is due on or
5
<PAGE> 11
before the Closing Date, including estimated tax and informational returns ("Tax
Returns") and, since January 1, 1990, no Tax Returns have been amended. All Tax
Returns, as amended, are true, correct, and complete.
(b) All Taxes (whether or not reflected in Tax
Returns as filed) payable by the Company with respect to all periods reflected
on Tax Returns have been fully paid, and there are no grounds for the assertion
or assessment of any additional Taxes against the Company or its assets with
respect to such periods. For all tax periods in which a Tax Return is not due
on or before the Closing Date (whether or not the period ends on such date) all
unpaid Taxes are properly accrued on the books of the Company and will be so
accrued on the Closing Balance Sheet in an amount sufficient to pay them in
full when due.
(c) For all taxable periods subsequent to 1990,
the Tax Returns of the Company have not been audited and there are no audits of
any Tax Returns in process or threatened. There is no waiver of any statute of
limitations in effect with respect to any Tax Returns.
(d) The Company is not and never has been a
member of an "affiliated group" within the meaning of Section 1504 of the
Internal Revenue Code of 1986, as amended (the "Code").
(e) Copies of all Tax Returns, tax examination
reports and statements of deficiencies assessed against, or agreed to with
respect to the Company with respect to the last five (5) years have been made
available to Buyer.
(f) The Company has complied with all Law
relating to the withholding of Taxes and the payment thereof (including,
without limitation, withholding of Taxes under Section 1441 and 1442 of the
Code, or similar provision under foreign laws), and has timely and properly
withheld from employee wages and paid over to the proper Government all amounts
required to withhold and be paid over under applicable Law.
(g) The Company is not a party to any safe
harbor lease within the meaning of section 168(f)(8) of the Code, as in effect
prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982.
None of the Property has been financed with or directly or indirectly secures
any industrial revenue bonds or debt the interest on which is tax-exempt under
Section 103(a) of the Code. The Company is not the borrower or guarantor of
any outstanding industrial revenue bonds, and is not a tenant, principal user
or related person to any principal user (within the meaning of section 144(a)
of the Code) of any property which has been financed or improved with the
proceeds of any industrial revenue bonds.
(h) Sellers are not foreign persons within the
meaning of section 1445(b)(2) of the Code and Treasury Regulations thereunder,
and shall so certify pursuant to such regulations upon Buyer's request.
(i) Neither the Company nor the Sellers has
made an election under section 338 of the Code nor taken any action that would
result in any income tax liability to the Company as a result of a deemed
election within the meaning of section 338 of the Code.
6
<PAGE> 12
(j) None of the property owned by the Company
is tax-exempt use property within the meaning of section 168(h) of the Code.
(k) The Company has not entered into any
compensatory agreements with respect to the performance of services which
payment thereunder would result in a nondeductible expense to the Company
pursuant to section 280G of the Code or an excise tax to the recipient of such
payment pursuant to section 4999 of the Code.
(l) As of the Closing Date, the Company is not
a partner in any joint venture, partnership, or arrangement or contract that
could be treated as a partnership for federal tax purposes.
(m) Other than the result of this transaction,
none of the Company's tax attributes are subject to the limitations of Code
sections 382, 383, or 384 or Treasury Regulation Section 1.1502-21(c).
(n) As used in this Agreement, "Taxes" means
all taxes, charges, fees, levies, or other like assessments, including without
limitation income, gross receipts, ad valorem, value added, premium, excise,
real property, personal property, windfall profit, sales, use, transfer,
license, withholding, employment, payroll, and franchise taxes imposed by: the
United States or any other nation, state, or bilateral or multilateral
governmental authority, any local governmental unit or subdivision thereof, or
any branch, agency, or judicial body thereof ("Government"); and shall include
any interest, fines, penalties, assessments, or additions to tax resulting
from, attributable to, or incurred in connection with any such Taxes or any
contest or dispute thereof.
2.10 Accounts Receivable
Set forth on Schedule 2.10 are a list of all the accounts
receivable of the Company, and an aging schedule relating thereto, each as of
September 30, 1996. Such accounts receivable are, and any accounts receivable
arising between such date and the Closing Date will be, valid and subsisting
and all such accounts receivable ("Accounts Receivable") arose or will have
arisen in the ordinary and usual course of the business of the Company. The
Accounts Receivable are not and will not be on the Closing Date subject to any
counterclaim, set-off, defense, security interest, claim, or other encumbrance.
Except to the extent of any reserve therefor on the Balance Sheet or paid in
full prior to Closing, the Accounts Receivable are and will be current and
collectible and will be paid in full, net of reserves, on or before 120 days
after the Closing Date, less any discounts described on Schedule 2.10.
2.11 Inventories
Except as set forth on Schedule 2.11, all inventories held by
the Company at any location are (a) valued on the Financial Statements at lower
of cost or market, (b) merchantable in the ordinary course of business, and (c)
except to the extent of any reserve therefor on the Balance Sheet, not
obsolete, slow-moving, or damaged. The Company has all required traceability
documentation to sell inventory at historical margins. Schedule 2.11 sets for
a list of all slow moving inventory of the Company.
7
<PAGE> 13
2.12 Absence of Certain Changes
Since September 30, 1996, except as set forth in the
Financial Statements or Schedule 2.12 hereto, there has not been:
(a) Any material adverse change in (i) the
business, financial condition or operations of the Company, or (ii) the
condition of the assets and property, real and personal, tangible and
intangible, of the Company (the "Property");
(b) Any declaration, setting aside, or payment
of any dividend or any distribution (in cash or in kind) to any shareholder of
the Company with respect to any securities of the Company, or any direct or
indirect redemption, purchase, or other acquisition by the Company of any of
its securities;
(c) Any increase in compensation or other
remuneration payable to or for the benefit of or committed to be paid to or for
the benefit of any shareholder, director, officer, agent, or employee of the
Company, or in any benefits granted under any Plan with or for the benefit of
any such shareholder, director, officer, agent, or employee;
(d) Any transaction entered into or carried out
by the Company other than in the ordinary course of business;
(e) Any borrowing or incurrence of any other
indebtedness, contingent or other, by or on behalf of the Company; or any
endorsement, assumption, or guarantee of payment or performance of any loan or
obligation of any other person or entity by the Company;
(f) Any change made by the Company in its
methods of doing business or of accounting;
(g) Any grant by the Company of any mortgage,
security interest, or other encumbrance with respect to the Property;
(h) Any sale, lease, or disposition of, or any
agreement to sell, lease, or dispose of, any of its Property other than
arm's-length sales, leases, or dispositions in the ordinary course of business
of the Company to persons other than Affiliates of Sellers or the Company;
(i) Any modification or termination of any
Contract set forth on Schedule 2.16 or any material term thereof;
(j) Any purchase by the Company of capital
assets in excess of $10,000;
(k) Any loan or advance made by the Company to
any person or entity except for advances not material in amount made in the
ordinary course of business to employees who are not Affiliates of the Company;
or
8
<PAGE> 14
(l) Any binding commitment or agreement by
Sellers or the Company to do any of the foregoing items (b) through (k).
2.13 No Breach of Law or Governing Document
The Company is not and, to the extent it would create a
current or future liability of the Company in excess of $50,000, has not been
in default under or in breach or violation of any applicable statute, law,
treaty, convention, ordinance, decree, order, injunction, rule, directive, or
regulation of any Government ("Law") (other than Environmental Law, which is
covered by Section 2.15) or the provisions of any Government permit, franchise,
or license, or any provision of its articles of incorporation or its bylaws.
The Company has not received any notice alleging such default, breach, or
violation. Neither the execution of this Agreement nor the Closing do or will
constitute or result in any such default, breach, or violation.
2.14 Litigation
(a) There is no suit, claim, litigation, proceeding
(administrative, judicial, or in arbitration, mediation or alternative dispute
resolution), Government or grand jury investigation, or other action (any of
the foregoing are referred to as an "Action") pending or, to the knowledge of
Sellers or the Company, threatened against the Company or involving its
business, any of its Property, or, in connection with its business, any of its
shareholders, directors, officers, agents, or other personnel, including
without limitation any Action challenging, enjoining, or preventing this
Agreement or the consummation of the transactions contemplated hereby; (b) the
Company is not and has not been subject to any order, writ, injunction, or
decree of any court or other Government entity ("Order") other than Orders of
general applicability; and (c) neither Sellers nor the Company has been or been
threatened to be a party or subject to any Action or Order relating to personal
injury, death, or property or economic damage arising from products of the
Company.
2.15 Environmental Matters
(a) Except as set forth on Schedule 2.15, all
assets and property currently or previously owned, leased, operated, or used by
the Company or, in connection with the business of the Company ("Environmental
Property"), all current and previous conditions on and uses of the
Environmental Property, and all current and previous ownership and operations
of the Environmental Property and the Company (including without limitation
transportation and disposal of Hazardous Materials by or for the Company)
comply in all material respects, and have at all times complied in all material
respects, and do not cause, and have not caused material liability to be
incurred by the Company under any Law relating to the protection of health or
the environment, including without limitation: the Clean Air Act, the Federal
Water Pollution Control Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the Toxic
Substance Control Act, any comparable state or foreign law, and the common law,
including the law of nuisance and strict liability ("Environmental Law").
Except as set forth on Schedule 2.15 attached hereto, the Company is not in
violation of and has not violated in any material respect any Environmental
Law.
9
<PAGE> 15
(b) Except as set forth on Schedule 2.15, the
Company has properly obtained and is in compliance with all necessary permits,
registrations, approvals, and licenses, and has properly made all filings with
and submissions to any Government or other authority required by any
Environmental Law. No deficiencies have been asserted by any such Government
or authority with respect to such items.
(c) Except as set forth on Schedule 2.15, there
has been no spill, discharge, leak, leaching, emission, migration, injection,
disposal, escape, dumping, or release of any kind on, beneath, above, or into
the Environmental Property or into the environment surrounding the
Environmental Property in violation of Environmental Law of any (i) pollutants
or contaminants, (ii) hazardous, toxic, infectious or radioactive substances,
chemicals, materials or wastes (including without limitation those defined as
hazardous under any Environmental Law), (iii) petroleum including crude oil or
any derivative or fraction thereof, (iv) asbestos fibers, or (v) solid wastes
((i)-(v) collectively, "Hazardous Materials").
(d) Except as set forth on Schedule 2.15, there
are and have been no (i) Hazardous Materials stored, disposed of, generated,
manufactured, refined, transported, produced, or treated at, upon, or from the
Environmental Property in violation of Environmental Law; (ii) asbestos fibers
or materials or polychlorinated biphenyls on or beneath the Environmental
Property, or (iii) underground storage tanks on or beneath the Environmental
Property. Schedule 2.15 sets forth the name and address of each person and
location involved in the transportation and disposal of Hazardous Materials on
behalf of the Company or from the Environmental Property.
2.16 Contracts
(a) Set forth on Schedule 2.16 is a list of
each written or oral contract, agreement, lease, indenture, and evidence of
indebtedness, to which the Company currently is a party or of which it is a
beneficiary which involves outstanding, contingent, or continuing liability or
obligation of or to the Company ("Contract") and which (i) is material to the
business, financial condition, or operations of the Company, (ii) involves (A)
a guaranty, indemnity, or power of attorney, (B) a sharing of payments or joint
venture, (C) a sales agency, representation, distributorship, or franchise
arrangement, (D) restrictions on competition, (E) collective bargaining, works
council, or union representation, or (F) an obligation in excess of $50,000,
(iii) is not terminable upon 30 days' notice without liability, (iv) has
resulted or will result in a loss to the Company, or (v) is not in the ordinary
course of business of the Company.
(b) Each of the Contracts is a valid, binding
and enforceable obligation of the Company and, to the knowledge of the Company,
the other parties thereto. Except as indicated on Schedule 2.16, (i) the
Company is not, (ii) to the extent it would create a current or future material
liability of the Company, the Company has not been, and (iii) to the knowledge
of the Company, no other party to a Contract is, in default under or in breach
or violation of any Contract, and no event has occurred that, through the
passage of time or the giving of notice, or both, would constitute, and neither
the execution of this Agreement nor the Closing hereunder do or will constitute
or result in, such a default, breach, or violation, cause the acceleration of
any obligation of any party thereto or the creation of a lien or encumbrance
upon any Property or the Shares, or require any consent thereunder.
10
<PAGE> 16
2.17 Intellectual Property
Except as set forth on Schedule 2.17:
(a) There is no (i) patent, trademark, trade
name, service mark, or copyrighted work, (ii) registrations thereof and
applications therefor, (iii) trade secret, software program, invention,
proprietary process, or item of proprietary know-how or other intellectual
property, or (iv) licenses, sublicenses, and agreements in respect thereof,
used or licensed by or to the Company, to which the Company is a party, or
which are otherwise included in the Property of the Company and are material to
the business of the Company;
(b) The Company is the exclusive owner of all
internally developed prospect lists, customer lists, projections, analyses, and
market studies free and clear of all restrictions whatsoever, and has the
unrestricted right to use any other such materials used by the Company but not
internally developed;
(c) The ownership, use, licensing, purchase, or
sale by or to the Company of any of the intellectual property used in the
Business or other technology used in the business of the Company does not
conflict with, contravene, infringe upon, interfere with, or violate any
patent, trademark, copyright, or other intellectual property right of any third
person or require the acquiescence, agreement, or consent of any third person;
and
(d) The intellectual property used in the
Business and other technology used in the business of the Company are not
subject to a valid challenge or claim of infringement, interference or unfair
competition or other claim and, to the knowledge of Sellers or the Company, the
intellectual property used in the Business is not being infringed upon or
violated by any third person.
2.18 Insurance
The Company has at all times maintained: (i) general
comprehensive liability insurance against such risks as are customarily insured
against by companies similar to the Company and in at least such amounts as are
usually carried by persons engaged in the same or a similar business, and (ii)
insurance as required by law or under any agreement to which the Company is or
has been a party, including without limitation, unemployment and workers'
compensation coverage. A list of each such insurance policy currently in
effect is set forth on Schedule 2.18.
2.19 Officers, Directors, Employees, and Consultants
Set forth on Schedule 2.19 is a list of: (a) all current
directors of the Company, (b) all current officers (with office held) of the
Company, (c) all employees (active or other) of the Company, (d) all current
paid consultants to the Company, and (e) all retirees and terminated employees
of the Company for which the Company has any benefits responsibility or other
continuing or contingent obligation, together, in each case other than current
employees earning less than $25,000 per year, with the current rate of
compensation (if any) payable to each.
11
<PAGE> 17
2.20 Bank Accounts of the Company
Set forth on Schedule 2.20 is a list of the locations and
numbers of all bank accounts and safe deposit boxes maintained by the Company,
together with the names of all persons who are authorized signatories or have
access thereto.
2.21 Transactions with Related Persons
Except as set forth on Schedule 2.21, the Company has no
obligations, contractual or otherwise, owed to or owing from, directly or
indirectly, Sellers or any Affiliate of Sellers. Except as set forth on
Schedule 2.21, no director, officer, Affiliate, or shareholder of the Company
has any financial interest, direct or indirect, in any supplier or customer of,
or other business which has any significant transactions or other business
relationship with, the Company.
2.22 Labor Matters
(a) There is no collective bargaining, works
council, union representation or similar agreement or arrangement to which the
Company is or has been a party or by which it is or has been bound.
(b) The Company is not and has not engaged in
any unfair labor practice;
(c) There is no labor strike, dispute,
slowdown, or stoppage pending or, to the knowledge of Sellers or the Company,
threatened against the Company;
(d) No right of representation exists
respecting the Company's employees;
(e) No collective bargaining agreement is
currently being negotiated and no organizing effort is currently being made
with respect to the Company's employees; and
(f) No current or former employee of the
Company has any claim against the Company on account of or for (i) overtime
pay, other than overtime pay for the current payroll period, (ii) wages or
salary (excluding current bonus, accruals and amounts accruing under pension
and profit-sharing plans) for any period other than the current payroll period,
(iii) vacation, time off or pay in lieu of vacation or time off, other than
that earned in respect of the current fiscal year, or (iv) any violation of any
Law relating to minimum wages or maximum hours of work.
2.23 Employee Benefit Matters
(a) Except as set forth on Schedule 2.23, the
Company does not have outstanding and is not a party to or subject to liability
under: (i) any agreement, arrangement, plan, or policy, whether or not
considered legally binding, that involves (A) any pension, retirement, profit
sharing, deferred compensation, bonus, stock option, stock purchase, health,
welfare, or incentive plan; or (B) welfare or "fringe" benefits, including
without limitation vacation, severance, disability, medical, hospitalization,
dental, life and other insurance, tuition,
12
<PAGE> 18
company car, club dues, sick leave, maternity, paternity or family leave, or
other benefits; or (ii) any employment, consulting, engagement, or retainer
agreement or arrangement ((i) and (ii) together the "Plans" and each item
thereunder a "Plan"). True, correct, and complete copies of all documents
creating or evidencing any Plan listed on Schedule 2.23 have been delivered to
Buyer. There are no negotiations, demands or proposals which are pending or
threatened or which have been made since January 1, 1996 which concern matters
now covered, or that would be covered, by the foregoing types of agreement,
arrangement, plan, or policy other than negotiations and proposals related to
changing health care coverage for employees which became effective November 1,
1996.
(b) Each Plan has been administered in
compliance in all material respects with its terms, and, except as set forth on
Schedule 2.23, in compliance in all material respects with, and neither Sellers
nor the Company has any direct or indirect material liability under, the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or other
Law applicable to any Plan. Each Plan that is intended to qualify under
Section 401(a) or Section 509(c)(9) of the Code has received a favorable
determination letter from the Internal Revenue Service (a copy of which has
been provided to Buyer) and related trusts have been determined to be exempt
from taxation. Nothing has occurred that would cause and no Action is pending
or, to the knowledge of Sellers or the Company, threatened which could result
in the loss of such exemption or qualification.
(c) (i) The Company has not made any
contributions to any multi-employer plan (as defined in ERISA) or to any
pension plan subject to the minimum funding standards of ERISA or Title IV of
ERISA, (ii) the Company has never been a member of a controlled group which
contributed to any such plans and (iii) the Company has never been under common
control with an employer which contributed to any such plans.
(d) The Company has not terminated or taken
action to terminate any employee benefit plans since January 1, 1994.
(e) All of the Plans, to the extent applicable,
are in compliance in all material respects with the continuation of health
benefit provisions contained in the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, and with Section 1862(b)(4)(A)(i) of the Social
Security Act, and the Company does not have any material liability for any
excise tax imposed by Code Section 5000.
2.24 Discrimination and Occupational Safety and Health
No person has any valid claim, or, to the knowledge of the
Sellers or the Company, basis for any Action against the Company arising out of
any Law relating to discrimination in employment or employment practices or
occupational safety and health standards. Since January 1, 1994, neither of
the Sellers nor the Company has received any notice from any person alleging a
violation of such law or occupational safety or health standards.
13
<PAGE> 19
2.25 Product Warranties
Set forth on Schedule 2.25 are the standard forms of product
warranties and guarantees used by the Company, and copies of all other material
outstanding product warranties and guarantees. Except as set forth on Schedule
2.25, since January 1, 1994 no product warranty or similar claims have been
made against the Company except routine claims as to which, in the aggregate,
losses and expenses in respect of repair or replacement of merchandise do not
and will not exceed $25,000. The aggregate loss and expense attributable to
product, warranty and similar claims now pending or hereafter asserted with
respect to products sold on or prior to the Closing Date will not exceed
$25,000.
2.26 Product Liability Claims
None of the Sellers or the Company has received notice or
information as to any claim or allegation of personal injury, death, or
property or economic damages, any claim for punitive or exemplary damages, any
claim for contribution or indemnification, or any claim for injunctive relief
in connection with any product manufactured, sold, distributed or otherwise put
in commerce by or in connection with any service provided by the Company
("Product Liability Claims") since January 1, 1994. With respect to products
manufactured, sold, distributed or put in commerce or services provided at any
date on or prior to the Closing Date, there will be no loss and expense
attributable to any Product Liability Claim which is asserted after the date of
this Agreement, exclusive of any recovery or coverage under any insurance
policy.
2.27 Governmental Approvals and Filings
Neither Sellers nor the Company is required to obtain any
approval, consent, or authorization of, or to make any declaration or filing
with, any Government for the valid execution and delivery of this Agreement or
any other agreement to be delivered hereunder, the purchase and sale of the
Shares, or the performance or consummation of the respective transactions
contemplated hereby or thereby.
2.28 Disclosure
Each Schedule and each document attached as or on a Schedule
is true, correct, and complete in all material respects. No representation or
warranty by Sellers in this Agreement or any Schedule referred to herein or in
any agreement to be delivered hereunder, and no written statement, certificate,
or other writing furnished to Buyer by or on behalf of Sellers pursuant hereto
or thereto contains or will contain as of the Closing Date any untrue statement
of a material fact or any omission of a material fact necessary to make the
respective statements contained herein or therein, in light of the
circumstances under which the statements were made, not misleading.
14
<PAGE> 20
2.29 Brokers, Finders
No finder, broker, agent, or other intermediary, acting on
behalf of Sellers or the Company, is entitled to a commission, fee, or other
compensation or obligation in connection with the negotiation or consummation
of this Agreement or any of the transactions contemplated hereby. Sellers will
be solely responsible for any and all items, including indemnification
obligations, related to any such arrangements.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby makes the following representations and
warranties to Sellers, each of which is true and correct on the date hereof and
each of which shall survive the Closing:
3.1 Authorization
Buyer is a corporation, duly organized, validly existing and
in good standing under the laws of Texas. Buyer has all requisite power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder, and to consummate the transactions contemplated hereby. This
Agreement constitutes a valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms.
3.2 Brokers, Finders
No finder, broker, agent, or other intermediary, acting on
behalf of Buyer, is entitled to a commission, fee, or other compensation or
obligation in connection with the negotiation or consummation of this Agreement
or any of the transactions contemplated hereby. Buyer will be solely
responsible for any and all items, including indemnification obligations,
related to such arrangements.
3.3 Access to Company
Representatives of Buyer have had reasonable access to the
personnel, premises, properties, books, records, and data of the Company;
provided, however, no such access or investigation, and no investigation or
discovery of facts by Buyer, shall affect Buyer's right to recover for any
breach of any representation or warranty of Sellers hereunder.
ARTICLE IV
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer at Closing shall be subject to the
satisfaction at Closing of each of the following conditions (unless waived in
writing by Buyer):
4.1 Representations and Warranties
Sellers' representations and warranties set forth in Article
II shall have been true and correct in all respects when made and shall be true
and correct in all respects on the Closing Date as though such representations
and warranties were made at and as of such date and time.
15
<PAGE> 21
4.2 Performance of Agreement
Sellers and the Company shall have fully performed and
complied with all covenants, conditions, and other obligations under this
Agreement to be performed or complied with by them at or prior to Closing.
4.3 Closing Certificate
Sellers shall have delivered to Buyer at Closing a
certificate of Sellers, dated the Closing Date, to the effect that the
conditions set forth in Sections 4.1 and 4.2 have been satisfied. Such
certificate shall be deemed an additional representation and warranty of
Sellers hereunder.
4.4 Contributions Certificate
Sellers shall have delivered to Buyer prior to Closing a
certificate of Sellers Capital Contributions. The contents of such certificate
shall be deemed an additional representation and warranty of Sellers hereunder.
4.5 Bank Certificate
Sellers shall have delivered to Buyer at Closing a
certificate of the Bank stating that all of the Bank Debt has been fully paid
and releasing the Company from its obligations under the related revolving loan
agreement and security agreement.
4.6 Approvals
All required consents and approvals from Governments and
under Contracts shall have been obtained and all waiting periods required by
Law shall have expired.
4.7 No Adverse Proceeding
No action shall have been instituted and remain pending
before a grand jury or court or other Government entity (a) for the purpose of
enjoining or preventing the consummation of this Agreement or any of the
transactions contemplated hereby or (b) which claims that this Agreement, such
transactions, or their consummation, is illegal.
4.8 Opinion of Counsel
Sellers shall have delivered to Buyer at Closing an opinion
of Sellers' counsel, in the form attached as Exhibit 4.8, dated as of the
Closing Date.
16
<PAGE> 22
4.9 Employment Agreements
At Closing, Craig A. Herndon shall have executed and
delivered an Employment Agreement in substantially the form attached hereto as
Exhibit 4.9(a) and Scott R. Herndon shall have executed and delivered an
Employment Agreement in substantially the form attached hereto as Exhibit
4.9(b) and LeVona M. Herndon shall have executed and delivered an Employment
Agreement in substantially the form attached hereto as Exhibit 4.9(c).
4.10 Lease
Herndon Properties, L.L.C. shall have executed and delivered
at Closing the Lease in substantially the form attached hereto as Exhibit 4.10.
4.11 Earn-out Agreement
Sellers shall have executed and delivered at Closing the
Earn-out Agreement in substantially the form attached hereto as Exhibit 1.2.
4.12 Non-Competition Agreements
Craig A. Herndon and Scott R. Herndon shall have each
separately executed and delivered at Closing a Non-Competition Agreement in
substantially the form attached hereto as Exhibit 4.12.
4.13 Extension
The Company shall have obtained and delivered to the Buyer
the fully executed extension of the Just In Time Agreement between the Company
and McDonnell Douglas dated on or prior to the Closing Date ("JIT Agreement"),
such extension to be on terms consistent with or more favorable to the Company
than the JIT Agreement.
4.14 Stock Option Agreement
Craig A. Herndon and Scott R. Herndon and the individuals set
forth on Schedule 4.14 shall each separately have executed and delivered a
Stock Option Agreement in substantially the form attached hereto as Exhibit
4.14.
4.15 Resignations
At the option of Buyer, all directors of the Company shall
have submitted to Buyer their resignations from all positions held with the
Company.
4.16 Escrow Agreement
Certain of the Shareholders and the Escrow Agent shall have
executed and delivered the Escrow Agreement, in the form attached as Exhibit
1.2, dated as of the Closing Date.
17
<PAGE> 23
ARTICLE V
CONDITIONS TO SELLERS' OBLIGATIONS
The obligations of Sellers at Closing shall be subject to the
satisfaction at the Closing of the following conditions (unless waived in
writing by Sellers):
5.1 Representations and Warranties
Buyer's representations and warranties set forth in Article
III shall have been true and correct in all material respects when made, and
shall be true and correct in all material respects on the Closing Date as
though such representations and warranties were made at and as of such date and
time.
5.2 Performance of Agreement
Buyer shall have fully performed and complied with all
covenants, conditions, and other obligations under this Agreement to be
performed or complied with by it at or prior to the Closing.
5.3 Certificate
Buyer shall have delivered to Sellers at the Closing a
certificate of Buyer executed by an executive officer of Buyer, dated the
Closing Date, to the effect that the conditions set forth in Sections 5.1 and
5.2 have been satisfied. Such certificate shall be deemed an additional
representation and warranty of Buyer hereunder.
5.4 Employment Agreements
The Company shall have executed and delivered Employment
Agreements in substantially the form attached hereto as Exhibits 4.9(a),
4.9(b), and 4.9(c) with respect to the employment of Craig A. Herndon, Scott R.
Herndon and LeVona M. Herndon.
5.5 Lease
The Company shall have executed and delivered the Lease in
substantially the form attached hereto as Exhibit 4.10.
5.6 Earn-out Agreement
Buyer shall have executed and delivered the Earn-out
Agreement in substantially the form attached hereto as Exhibit 1.2.
5.7 Stock Option Agreement
Buyer shall have caused the execution of the Stock Option
Agreements in substantially the form attached hereto as Exhibit 4.14, with
respect to Craig A. Herndon and Scott R. Herndon and the individuals set forth
on Schedule 4.14.
18
<PAGE> 24
5.8 No Adverse Proceeding
No action shall have been instituted and remain pending
before a grand jury or court or other Government entity (a) for the purpose of
enjoining or preventing the consummation of this Agreement or any of the
transactions contemplated hereby or (b) which claims that this Agreement, such
transactions, or their consummation, is illegal.
5.9 Escrow Agreement
Buyer and Escrow Agent shall have executed and delivered the
Escrow Agreement and Buyer shall have deposited the Escrow Amount with the
Escrow Agent.
ARTICLE VI
ADDITIONAL COVENANTS OF THE PARTIES
6.1 Conduct of Business Before Closing
Until the Closing, except as otherwise specifically provided
in this Agreement or disclosed on the Schedules hereto, Sellers shall (a) cause
the Company to operate in the ordinary course of business and (b) not take or
permit the Company to take any action which would require a change or addition
to or deletion from the disclosures of Sellers pursuant to subsections 2.12(b)
through 2.12(l), without the prior written consent of Buyer.
6.2 Access to Records
(a) Until the Closing, Sellers shall cause the
Company to afford to authorized representatives of Buyer reasonable access to
all personnel, premises, properties, books, records, and data of the Company
and, insofar as they relate to the operations of the Company, Sellers. No such
access or investigation, and no other investigation or discovery of facts by
Buyer, shall affect Buyer's right to recover for any breach of any
representation or warranty of Sellers hereunder.
(b) From and after the Closing, Buyer shall
cause the Company to afford to authorized representatives of Sellers reasonable
access during normal business hours to such records of the Company as the
Sellers may reasonably require to prosecute or defend any litigation or
investigation by Government (including without limitation tax audits); provided
that Sellers shall reimburse Buyer for all expenses and costs incurred in
connection therewith.
6.3 Confidentiality
Neither Party to this Agreement shall make any public
disclosure of the terms hereof or the transactions contemplated hereby without
the prior written consent of the other Party, except as required by law. If
the Closing does not occur, Buyer, and if the Closing does occur, Sellers shall
not disclose to any third person any confidential information relating to the
Company without the prior written consent of the other Party.
6.4 Shareholder Loan
19
<PAGE> 25
Prior to the Closing, the Shareholders anticipate entering
into a loan agreement with the Bank ("Shareholder Loan") pursuant to which the
Shares will be pledged as collateral (the "Mercantile Pledge"). The
Shareholders covenant and agree to extinguish the Shareholder Loan and obtain a
release of the Mercantile Pledge as soon as practicable after the Closing and
in no event later than two business days after Closing.
6.5 Further Assurances
From and after the Closing, the Parties shall do such acts
and execute such documents and instruments as may be reasonably required to
make effective the transactions contemplated hereby.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification of Buyer
Sellers shall hold Buyer, and, from and after the Closing,
the Company, and the shareholders, directors, officers, successors, assigns,
and agents of each of them (the "Buyer Indemnified Persons"), harmless and
indemnify each of them from and against, and waives any claim for contribution
or indemnity with respect to, any and all claims, losses, damages, liabilities,
expenses or costs ("Losses"), plus reasonable attorneys' fees and expenses
incurred in connection with Losses and/or enforcement of this Agreement, plus
interest from the date incurred through the date of payment at the prime
lending rate of Citibank, N.A. from time to time prevailing (in all,
"Indemnified Losses") incurred or to be incurred by any of them to the extent
resulting from or arising out of any breach or violation of Sellers'
representations, warranties, covenants, or agreements contained in this
Agreement, including provisions of this Article VII.
7.2 Indemnification of Sellers
Buyer shall hold Sellers, their permitted assigns, and agents
(the "Sellers Indemnified Persons") harmless and indemnify each of them from
and against any and all Indemnified Losses incurred or to be incurred by any of
them, to the extent resulting from or arising out of any breach or violation of
Buyer's representations, warranties, covenants and agreements contained in this
Agreement, including the provisions of this Article VII.
7.3 Survival
The respective representations and warranties made by the
Parties in Articles II and III and certificates under Sections 4.3 and 5.3
shall survive the Closing Date but shall expire on December 31, 1998 unless a
claim with respect thereto shall have been made pursuant to Section 7.1 prior
to such date against the Party responsible for indemnification hereunder (the
"Indemnifying Party"); provided, that the foregoing shall not apply to
representations and warranties under Sections 2.1, 2.2, and 2.9, or a
certificate relating thereto, which shall survive without limitation hereunder.
20
<PAGE> 26
7.4 Limitations
The Buyer Indemnified Persons shall not be entitled to
recover Indemnified Losses for breaches or violations of representations or
warranties under Article II or the certificate with respect thereto under
Section 4.3, or indemnified with respect thereto under Section 7.1,
(A) unless such Indemnified Losses exceed $50,000 in the
aggregate, and only to the extent such Indemnified Losses
exceed such amount; or
(B) to the extent such Indemnified Losses exceed
$7,200,000 (the "Maximum Amount"), once Sellers have made
payments to or on behalf of Buyer Indemnified Persons with
respect to such Indemnified Losses in such amount.
The foregoing limitations shall not apply to the extent Indemnified Losses
result from or arise out of any intentional breach or violation of any
provision of this Agreement.
7.5 Notice of Claim
In the event that Buyer seeks indemnification on behalf of a
Buyer Indemnified Person, or Sellers seeks indemnification on behalf of a
Sellers Indemnified Person, such Party seeking indemnification (the
"Indemnified Party") shall give written notice to the Indemnifying Party
specifying the facts constituting the basis for such claim and the amount, to
the extent known, of the claim asserted. The Indemnifying Party shall pay the
amount of any valid claim not more than 30 days after the Indemnified Party
provides notice to the Indemnifying Party of such amount.
7.6 Right to Contest Claims of Third Persons
If an Indemnified Party is entitled to indemnification
hereunder because of a claim asserted by any claimant (other than an
indemnified person hereunder) ("Third Person"), the Indemnified Party shall
give the Indemnifying Party reasonably prompt notice thereof after such
assertion is actually known to the Indemnified Party; provided, however, that
the right of a person to be indemnified hereunder in respect of claims made by
a Third Person shall not be adversely affected by a failure to give such notice
unless, and then only to the extent that, an Indemnifying Party is prejudiced
thereby. The Indemnifying Party shall have the right, upon written notice to
the Indemnified Party, and using counsel reasonably satisfactory to the
Indemnified Party, to investigate, secure, contest, or settle the claim alleged
by such Third Person (a "Third-Person Claim"), provided that the Indemnifying
Party has unconditionally acknowledged to the Indemnified Party in writing his
or its obligation to indemnify the persons to be indemnified hereunder with
respect to such Third-Person Claim; the Indemnified Party may thereafter
participate in (but not control) the defense of any such Third-Person Claim
with its own counsel at its own expense, unless separate representation is
necessary to avoid a conflict of interest, in which case such representation
shall be at the expense of the Indemnifying Party. Unless and until the
Indemnifying Party so acknowledges his or its obligation to indemnify, the
Indemnified Party shall have the right, at its option, to assume and control
defense of the matter and to look to the Indemnifying Party for the full amount
of the costs of defense. The failure of
21
<PAGE> 27
the Indemnifying Party to respond in writing to the aforesaid notice of the
Indemnified Party with respect to such Third-Person Claim within twenty (20)
days after receipt thereof shall be deemed an election not to defend the same.
If the Indemnifying Party does not so acknowledge his or its obligation to
indemnity and assume the defense of any such Third-Person Claim, (a) the
Indemnified Party may defend against such claim, in such manner as it may deem
appropriate, including, but not limited to, settling such claim, after giving
notice of the same to the Indemnifying Party, on such terms as the Indemnified
Party may deem appropriate, and (b) the Indemnifying Party may participate in
(but not control) the defense of such action, with its own counsel at its own
expense. If the Indemnifying Party thereafter seeks to question the manner in
which the Indemnified Party defended such Third-Person Claim or the amount or
nature of any such settlement, the Indemnifying Party shall have the burden to
prove by clear and convincing evidence that conduct of the Indemnified Party in
the defense and/or settlement of such Third-Person Claim constituted gross
negligence or willful misconduct. The Parties shall make available to each
other all relevant information in their possession relating to any such
Third-Person Claim and shall cooperate in the defense thereof.
7.7 Limitation of BTC Liability
Although Boatmen's Trust Company ("BTC") serves as a
co-trustee of the Price B. Herndon Living Trust (the "P.B. Herndon Trust"), BTC
shall have no liability or obligation to Buyer under this Agreement (other than
its obligations under Section 1.5 to deliver endorsed certificates evidencing
the Shares held by the P.B. Herndon Trust); provided, however this Section 7.7
shall in no way limit the liability or obligations of the P. B. Herndon Trust
or its beneficiaries under this Agreement.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Notice
All notices, requests, demands, and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given and made upon being delivered either by courier
or fax delivery to the Party for whom it is intended, provided that a copy
thereof is deposited, postage prepaid, certified or registered mail, return
receipt requested, in the United States mail, bearing the address shown in this
Section 8.1 for, or such other address as may be designated in writing
hereafter by, such Party:
If to Buyer:
c/o Banner Aerospace, Inc.
300 West Service Road
P.O. Box 20260
Dulles International Airport
Washington, D.C. 20041
Attention: Warren Persavich, Senior Vice President
and Chief Financial Officer
22
<PAGE> 28
With a copy to:
Bryan Cave LLP
211 N. Broadway, Suite 3600
St. Louis, Missouri 63102
Attention: Peter D. Van Cleve
If to Sellers:
Scott R. Herndon and Hope Herndon
717 High Hill Court
Lake St. Louis, MO 63367
LeVona M. Herndon
31 Hallowway Drive
Lake St. Louis, MO 63367
Craig A. Herndon
33 Eagles Landing
Lake St. Louis, MO 63317
With a copy to:
Suelthaus & Walsh P.C.
7733 Forsyth Boulevard
12th Floor
St. Louis, Missouri 63105
Attention: Stuart H. Zimbalist
8.2 Entire Agreement
This Agreement and the Schedules and Exhibits hereto embody
the agreement and understanding of the parties hereto with respect to the
subject matter hereof, and supersede all prior agreements and understandings
relative to such subject matter.
8.3 Assignment; Binding Agreement
This Agreement and various rights and obligations arising
hereunder shall inure to the benefit of and be binding upon Buyer, its
successors, and permitted assigns and Sellers, their successors, and permitted
assigns. Neither this Agreement nor any of the rights, interests, or
obligations hereunder shall be transferred, delegated, or assigned (by
operation of law or otherwise) by either of the Parties hereto without the
prior written consent of the other Party (which consent shall not be
unreasonably withheld), except that Buyer shall have the right to transfer and
assign its rights hereunder to purchase the Shares and any other rights or
benefits afforded to it by this Agreement to any entity which at the time of
such transfer and assignment is controlled by Buyer.
23
<PAGE> 29
8.4 Counterparts
This Agreement may be executed simultaneously in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
8.5 Headings; Interpretation
The article and section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning
or interpretation of the Agreement. Each reference in this Agreement to an
Article, Section, Schedule or Exhibit, unless otherwise indicated, shall mean
an Article or a Section of this Agreement or a Schedule or Exhibit attached to
this Agreement, respectively. References herein to "days", unless otherwise
indicated, are to consecutive calendar days. All Parties have participated
substantially in the negotiation and drafting of this Agreement and agree that
no ambiguity herein should be construed against the draftsman.
8.6 Expenses
Except as provided in the following sentence, Sellers (and
not the Company) shall pay all costs and expenses incurred on behalf of itself
or the Company in connection with the negotiation, preparation, and execution
of this Agreement and the consummation of the transactions contemplated hereby,
including, without limitation, fees and expenses of attorneys and accountants
("Transaction Expenses"). Within two business days after the Closing, Sellers
shall reimburse the Company for all Transaction Expenses paid by the Company at
any time prior to the Closing provided that attorneys' fees paid by the Company
prior to October 31, 1996 may be incurred by the Company without reimbursement
by Sellers. Buyer (and not the Company) shall pay all Transaction Expenses
incurred on behalf of itself.
8.7 Termination of the Agreement
This Agreement may be terminated by a Party hereto without
further liability or obligation if (a) such Party is not in breach or violation
hereof and (b) the conditions to such Party's obligations at Closing have not
been satisfied by April 15, 1997.
8.8 Remedies Cumulative
All rights and remedies of the Parties under this Agreement
are cumulative and without prejudice to any other rights or remedies under Law.
8.9 Governing Law
This Agreement shall in all respects be construed in
accordance with and governed by the substantive laws of the State of Missouri
without reference to its choice of law rules.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.
24
<PAGE> 30
IN WITNESS WHEREOF, each of the Parties hereto has caused
this Agreement to be executed as of the date first above written.
BUYER:
DALLAS AEROSPACE INC.
By:
--------------------------------------
Warren Persavich, Vice President
SELLERS
-----------------------------------------
Craig A. Herndon
-----------------------------------------
Craig A. Herndon as Trustee of the Craig A.
Herndon Living Trust, as amended
-----------------------------------------
Scott R. Herndon
-----------------------------------------
Hope Herndon
-----------------------------------------
Scott R. Herndon as Trustee of the Scott R.
Herndon Living Trust, as amended
-----------------------------------------
Hope Herndon as Trustee of the Scott R. Herndon
Living Trust, as amended
-----------------------------------------
LeVona M. Herndon
25
<PAGE> 31
-----------------------------------------
LeVona M. Herndon as Co-Trustee of the Price B.
Herndon Living Trust, as amended
-----------------------------------------
Boatmen's Trust Company as Co-Trustee of the
Price B. Herndon Living Trust, as amended
26
